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Topic 1: OPERATIONS

Operations can be defined as the process of converting a good or


service into a finished product.

Roles of operations management


Operations management refers to the management of that
process e.g. the allocation and maintenance of machinery and
resources.

Strategic role of operations


The strategic role of operations management involves long term
management issues (3-5 years).

Cost leadership
Involves producing goods or services at the lowest possible cost. If
a business can keep its costs low then it will maximise its profits
giving the business a competitive advantage over its competitors.

Good/service differentiation
By differentiating its good/services a business will make its output
stand out from its competitors and therefore capture greater
market share.

Goods and/or services in different industries


Goods and services in different industries will always be
differentiated from one another. They will always try to
differentiate themselves from their competitors in order to attract
customers.

Influences on operations
There are seven major influences on operations:
Globalisation - Globalisation is known as the increasing
economic and financial integration of economies globally.
The term broadly refers to the global alterations that are
taking place to eliminate national boundaries from the key
business functions.
Technology Technology has also had a great influence
on production. Businesses must access the latest technology
in order to compete effectively. Newer technology makes the
production process cheaper and more efficient. Recent
technologies include robotics, computer assembly lines,
computer aided design (CAD), computer aided
manufacturing (CAM), scanning systems and barcoding,
wireless computer systems and superfast broadband and
smart phones and satellite navigation.

Quality expectation This is sometimes known as


quality assurance. These are procedures within a business
designed to improve or maintain all aspects of quality in the
production process to make it more efficient.
Cost-based competition This influence is based on
the concept of a business competing with other businesses
by reducing prices. Competition based pricing is a price set
by a company for a product to compete with another
companies pricing.
Government policies Firstly, government needs to
ensure safety and quality standards. The safety standards
relate to consumer safety. Quality is important for the
consumer. Goods produced by an Australian manufacturer or
goods imported from overseas must reach certain standards
of quality. Secondly, It is important that our export industries
produce the highest quality goods and/or services to
maintain Australias reputation in the global market.
Legal regulations Regulations affect business and the
welfare of their workers through WH&S regulations. It can
also relate naming rights e.g. Champaign must come from
the Champaign region of France.
Environmental sustainability In the past 10 years
the concept of environmentally responsible products has
become an important issue in production. There has been
much concern whether the environment was being damaged
by the industrial activities of modern business. Things such
as developing environmentally friendly packaging have been
introduced. Environment Protection Authority was introduced
to police the way businesses dispose of its waste.

Corporate social responsibility

The responsibility that a business has to other businesses and the


community.

The difference between legal compliance and ethical


responsibility

This really comes down to basic morals. Some businesses comply


with their legal responsibilities simply because they have to and
others do it because it is the ethical thing to do. Some businesses
would adhere to certain standards of corporate social responsibility
simply because it is the right thing to do regardless of their legal
requirements.

Environmental sustainability and social responsibility

Much of the social responsibility is driven by society itself. As time


goes by the attitudes of society change. Pressure groups such as
Greenpeace have put pressure on governments to change laws in
favour of the environment, working conditions.
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Operations process
Inputs
Transformed resources
Materials These are the raw materials used in the

production process
Information This is used by a business in order to help
transform the raw materials into finished products. Market
research information may help the business to target their
customers more precisely. This information is then used
(transformed) to help the business with its production
decisions.
Customers These people purchase the finished product
after all of the other inputs have been put together. Ideally
they will have some influence over what is produced.

Transforming resources
Human resources This could also be referred to as

the labour that produces the finished good. In this case we


dont simply mean factory workers. It could be the entire
work-force involved in producing the product. It is anyone
who plays a role in the output of the end product.
Facilities This is the place where the product is
produced. This could be the factory, bakery, shop or office.

Transformation processes
This is the actual process of converting inputs into outputs. Take
the ingredients for making bred and putting them all together to
produce a loaf of bread. To carry out this transformation there is a
physical change a loaf of bread looks and tastes different to the
parts that made it up.

Sequencing and scheduling


Sequencing involves placing tasks into an order so that the whole
operation runs smoothly.
Scheduling involves tracking the time taken to complete a job.
Gaant charts A gaant chart is a sequencing tool presented as a
bar graph with time and activities shown on two axes. The
manager knows how long a particular task should take and
whether they are on schedule or not. It also shows what tasks can
be done simultaneously or at least overlapping.
Critical path analysis Critical path analysis are tools that help
a business to schedule and manage complex projects. As with
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Gaant charts, Critical path analysis is the shortest time a job can
be completed but the longest path.

Technology, task design and process layout

Technology If a business employs the latest technology, it


will operate more efficiently. Computerisation has been
instrumental in improving the operations process.
Task design Task design involves the actual design of the
task so that it is simple and easy to complete.
Process layout This involves the physical layout of the
factory or office. If the assembly line or office is poorly
designed then the transformation process will be inefficient.

Monitoring, control and improvement


The final stage of the transformation process is that of monitoring,
controlling and improving the process. If the process in not
monitored and controlled than the quality of the output will suffer
resulting in the loss of reputation, customers and profit. The
following processes need to be monitored and controlled:
Inventory (stock)
The production process
Records

Outputs
The final stage of the operations process is outputs. This could be
regarded as the most important stage of the process because
without customer service and warranties, all of our hard work
producing a good product will mean very little if the customer who
buys the final product is not satisfied.

Maximising customer service


This

happens in three ways:


Satisfaction with the quality of the product
Satisfaction with staff interaction with the customer
Satisfaction with after sales service

Warranties

All products have a warranty. A warranty is an agreement and a


period of time when a manufacturer must repair or replace a
product that has broken down after purchase. Even a small
inexpensive item has an implied warranty that it will do the job it is
supposed to do. As opposed to a condition, a breach of warranty
doesnt entitle the customer to cancel the contract, but they are
entitled to sue for damages for non-compliance with warranty
conditions.

Operations strategies
Performance objectives
Performance objectives can sometimes be called quality control
and these are the management procedures that are put in place to
check the suitability of raw materials going into to production
process. It also helps avoid producing seconds, wastage, increased
costs, warranty claims and service problems. The performance
objectives are:

Quality this can be described as the level of excellence of


a good or service. Most business try to produce a quality
output whether it be a good or service.
Speed It is important for a business to produce its output
quickly. When an order is received it must be produced and
shipped in the time stated to the customer. If this is not done
the reputation of the business is at stake.
Dependability Customers want dependability when
dealing with a business. Dependability might refer to a
representative or trades person turning up on time to give a
quote. That quote might need to be emailed, faxed or posted
to the customer.
Flexibility Just as it is important to be dependable, it is
also important to be flexible e.g. being able to change
direction or have a policy of flexibility.
Customisation To customise is to modify something
according to a customers individual requirements. It is
important for a business to provide a product that suits
individual customers. Cars are a good example.
Cost Cost has to be a significant performance objective.
After all a business is their to make a profit and one of the
strategies for making a profit is cost minimisation. However,
cost minimisation should not be done at the expense of
quality. A business that cuts corners and cuts costs will find
that quality will suffer.

New product or service design and development


It is important for a business to be constantly developing new
products or services in order to stay ahead of the competition.
Some of the things they need to look at include:
Implementing technology
Improving productivity

Supply chain management


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Supply chain management is the movement of raw materials,


goods or services from one stage to the next.

Logistics

This is concerned with ensuring that each stage of the supply


chain comes together in the most efficient way possible.

E-commerce

This stands for electron commerce. The customer doesnt directly


see the product or seller. The transaction is carried out
electronically. E-commerce has made logistics and supply chain
management more efficient due to the fact that buyers and sellers
and their communication channels have improved greatly.

Global sourcing

This refers to the action of a business sourcing its raw materials


from anywhere in the world. It is done for several reasons. Firstly,
to obtain the cheapest materials often in the Asian region - and
secondly, for convenience and security of delivery.

Outsourcing
Recently there has been a trend for businesses of all sizes to
outsource much of their work in order to access the best talent
available and also as a matter of economics. For example, There
are many companies contracting out their manufacturing
processes to contractors all around the world who assemble the
components and then sell them under a brand name. Apple
doesnt assemble its own computers but instead contracts out its
computer assembly functions.

Technology
Leading edge
Businesses need to use state of the art technology as part of their
operations strategies. Computerisation has lead to the
technological revolution in business through such things as
computer aided design (CAD) and the robotisation of production.
New information and communications technologies are major
influences on business both domestically and globally. The
internet, mobile phones and electronic funds transfer are opening
up the global market.

Established
As we move through the 21st century we also need to consider
some of the established technology that we take for granted and
which has been around for a while now and yet on the other hand
was not always common 20 years ago. These include:
Fax machines
ATMs
Photo copiers/scanners
Barcoding of stock

Inventory management
In todays world, businesses must decide how much stock they
hold at any one time. On one hand if too much stock is held then
money is tied up reducing liquidity. On the other hand if too little
stock is held the business runs the risk of running out of stock if
the supplier has a problem at their end. There is no clear answer
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to this dilemma and the business must decide on the best plan for
their particular business. It comes down to experience and also gut
feeling.

LIFO and FIFO

LIFO (last-in-first-out) is an inventory costing method which


assumes the last items placed in inventory are the first sold during
an accounting year. LIFO is one method used to determine Cost of
Goods Sold for a business.
FIFO (first-in-first-out) is a way of organising and manipulating data
relative to time and prioritisation

JIT

JIT is the holding of a minimum amount of stock necessary to run


the business. It is the most efficient method of inventory
management.

Quality management
Quality management refers to the degree of entrepreneurial flair,
innovative skills, experience, people management skills, decision
making skills and communication skills that a manager has.

Control
Control helps to check errors and to take corrective action to
maintain standards. Things that need to be controlled include
inventory especially the amount of inventory the business has on
hand.

Assurance
When we say assurance we mean quality assurance. It is the
overseeing of the whole process.

Improvement
By this we mean continuous improvement because without
continuous improvement a business will not maintain its edge over
its competitors and will fall behind.

Overcoming resistance to change


Resistance to change is quite a common feature in business. Many
business managers feel that if a certain operations procedure is
working well enough, then why change. However, well enough is
not always good enough and better, more efficient procedures can
be found. There are several reasons for resistance to change:

Global factors
The global business of today is living in a completely different
world to that of global business 20 years ago and the main
element in this change is technology. Global factors are:
Global sourcing The term used to describe the practice of
sourcing raw materials and services from the global market
across geopolitical boundaries.
Economies of scale This is the lowering of the unit cost of
production by spreading costs over a larger output. As
companies become larger and begin to trade overseas,
many will set up offices, research and production facilities
overseas, taking advantage of the fact that they can access
information and technology not always available in Australia.
Scanning and learning This is a process of gathering,
analyzing and dispensing business information for tactical
(short term) and strategic (long term) purposes. A business
has to monitor (scan) key factors such as demographiceconomic, technological, political-legal and social-cultural
factors that may affect their business.
Research and development Refers to creative work
undertaken on a systematic basis in order to increase the
stock of knowledge, including knowledge of man, culture &
society and the use of this knowledge to devise new
applications. Businesses must undertake in research and
development to stay at the forefront of world production
development.

Topic 2: MARKETING
The role of marketing
The strategic role of marketing
Strategic plans have a 3-5 year perspective. The marketing
strategy must fit in with the other elements of the business plan
and be interdependent with other key business functions. The role
of marketing is:
Maximise sales and therefore consumption and profits
Increase market penetration and market share
Maximise consumer choice
Maximise consumer satisfaction

Production, selling and marketing


approaches
Businesses will often use a variety of approaches in order to
increase product awareness, satisfy the needs of customers and
increase profits.
There are three main marketing approaches and they are as
follows:
Product approach This concept revolves around the
idea that if producers produce products and services, then
consumers would want them. There was little or no
consideration of the consumer and what they really wanted.
Selling approach This concentrates on selling
technique to attract customers especially if the more difficult
products are to be sold. Products that are not foremost in the
mind of consumers, such as insurance and funeral plans
have to be sold aggressively.
Marketing approach The customer orientation has a
focus on the customer and their satisfaction by finding out
what the customer wants and supplying them with the
product. Marketers must have a good relationship with their
customers and this is where the term relationship marketing
comes in. A real estate agency is a great example of a
business that relies on the marketing approach through the
use of relationship marketing.

Types of markets

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Resource markets Are those markets for


commodities such as minerals, agricultural products, people
looking for work (human resources) and financial resources.
Industrial markets Are markets for goods and
services which are used in the production of other goods and
services and which are often sold to others for production.
Intermediate markets Are often known as reseller
markets. These markets consist of businesses that acquire
goods for the purpose of reselling them to others in order to
make a profit. Wholesalers, retailers and importers.
Consumer markets Consist of all the individuals and
households who buy goods and services for personal
consumption. Australian consumers spend over $250 billion
each year in private consumption expenditure. Because of
the lucrative size of the market it has been divided into
segments and they are, Over 50s, Under 25s, Working
woman, Young married couples with children, Young married
couples without children and etc.
Mass markets are the markets that are aimed at
consumers in a very broad sense because the products have
universal appeal e.g. nearly everyone purchases these
products. Products that fall into this category include, Gas,
Eggs, Fruit and Veg and Electricity.
Niche market Are small, specialized markets catering
for a small clientele e.g. the Tall Mans Shop.

Influences on marketing
Factors influencing customer choice

Psychological:
Attitudes
Perceived status of the product to the consumer
Personality
Socio-cultural:
Family
Peer group
Social class
Economic:
Economic conditions (boom or recession)
Level of income and savings
Ability to borrow

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Government:

Customer choice and marketing decisions can be greatly affected


by legislation that has been enacted to define and prevent unfair
competition. The second purpose of the government regulation is
to protect consumers from unfair business practices such as
misleading advertising, deceptive packaging and poor quality
goods.

Consumer laws

Deceptive and misleading advertising Deceptive and


misleading advertisement occurs when, in the promotion of a
product or service, a representation is made to the public that is
false or misleading. That representation may be through the
promotion of the product that may relate to product, price or
place. Laws have been enacted by governments to prohibit
misleading advertising, false claims about products and bait and
switch advertising.

Price discrimination This occurs when a seller charges


different prices to different consumers for the same product. Doing
this in itself is not a problem but when it is designed to freeze out
the competition then it is outlawed.

Implied conditions Relates to the conditions of purchase


whereby it is implied that the conditions of sale are realistic and
reasonable. If a manufacturer or retailer sells a good or service to
a customer then it is implied that the good or service is of such
quality or will do things required for the price being paid. For
example five star hotels providing the service to a quality standard
to justify the price being paid.

Warranties These are defined as both specific and implied


conditions when products are sold which certify that the goods are
fit for their purpose, are capable of doing the job, are of
merchantable quality and meet the description. This also includes
a set period where the goods are guaranteed to perform to
contract and where the supplier will remedy any affect.

Ethical aspects
Truth Truth in advertising has become an important aspect of

ethical marketing in recent years. It relates back to the areas of


consumer laws above. Not telling the truth when advertising a
product can lead to legal action if the purchaser of the product
suffers financial loss, physical harm or emotional stress as a result
of purchasing a product that doesnt do what it is supposed to do,
or is dangerous when used by certain people.
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Accuracy and good taste in advertising Advertising

must be accurate in its description of a product. Good taste in


advertising is an important part of ethical advertising. There is
what is known as the advertising code of practice and much of this
is monitored by the Advertising Standards Bureau.

Products that may damage health In todays world of


ethics, it is important to consider the marketing of products that
may damage the health of the purchaser. In this case we are
talking mainly of the legal products of tobacco and alcohol.

Sugging Is the selling under the guise of research. It is an off-

shoot of telemarketing. Legitimate telemarketing is a tool used by


a growing number of organisations to sell their goods and services
to existing and potential customers by telephone. On the other
hand sugging occurs when a marketer calls on the pretence that
they are doing market research, once they have found out the
information about the customer, they try to sell them a product
based on that information.

Marketing process
Situational analysis

SWOT analysis example


Strengths

Industry knowledge

Strong brand recognition

Good resources as a result of a sound


Financial base to put together a strong
marketing campaign

Staff have relevant skills

Local understanding / international brand


management

New software

Weaknesses

Small marketing budget

New software ( needs tim


potential)

Market research - not up

Poor sales / distribution o

Low brand awareness

Limited resources

Opportunities

Strategic alliance with 3rd party

Creation of a new market

Greater market share due to ________

Increase in sales for _______

Growing industry

Growing economy

New social trends

New advertising concept

Development of infrastructure

Threats

Competition from local a


agencies

Consumers being more k


conscience

Expectation of price prom

Risk of competition enter


product differentiation

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Product life cycle

The product life cycle varies for different products in general


terms, follows the pattern of introduction (or establishment),
growth, maturity and post maturity.
Introduction stage Follows extensive market research, which
establishes the need for the product. This stage involves heavy
product development and promotional costs.
Growth stage The product begins to take off as sales begin to
grow, brand loyalty is established, as is a market niche. With
increasing sales, the product begins to repay some of its
establishment costs.
Maturity stage The product has reached its peak on sales, is fully
established in its market and is contributing to profitability. Further
growth may only be achieved through costly promotion.
Post maturity This is reached at a time where the product or
service will remain at steady state, go through renewal or go into
decline and disappear.

Market research
Market research is defined as the systematic collection and
analysis of information and findings relating to a marketing
situation faced by a company. There are two types of research and
they are:
Primary research Involves collecting raw data from
scratch. They gather this data through surveys, discussion
groups, observations and experiments.
Secondary research Data that is already in existence and
usually collected by someone else for some other purpose.

Establishing marketing objectives


The objectives of a business provide the framework for the business to
develop a series of activities and operations that aim to achieve these
objectives. In essence, the objectives or goals, guide the activities of the
business. It is important that the goals be flexible so they can be
adapted to the changing nature of business environments.
Businesses generally adopt a SMART approach to setting objectives; that
is, an objective needs to be:
S = specific - the objective needs to be clear and precise and

relate to the specific elements of the business.


M = measurable - the business needs to develop controls that are

effective in measuring the extent to which the goal has been


achieved.
A = Achievable - the business needs to have the financial and

human resources required to achieve the goal.

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R = realistic - the objective should not be based on unreasonable


expectations.
T = time - the time frame within which the business hopes to
achieve the goal must be determined.

Identifying target markets


A target market of consumers for whom a particular product has
been developed. To identify the appropriate target market for its
product, a business needs to understand the nature of consumer
markets. Consumer markets are the most recognised market in a
business environment. It is where businesses sell their product
directly to the consumers.

Developing marketing strategies


The broad aim of developing marketing strategies is to satisfy the
needs of the target market and meet the objectives of the
marketing plan. In developing marketing strategies we must think
of the 4Ps:
Product All the different goods and services that are
offered to customers and the way they are presented.
Price The cost of the product in the market place together
with the methods of pricing used, discounts or credit items.
Promotion The ways in which the product is promoted
advertising of different types, publicity or sales promotion.
Place The methods of distribution, storage and delivery
that are used for the products

Marketing strategies
Market segmentation
Types of market segmentation:

Geographic

Demographic

Behavioural

Psychographic

Market segmentation is the process of breaking down a


total market into smaller markets based on the similar
characteristics of a customer group.
Geographic segmentation is the process of developing
marketing strategies based on the different geographic
locations of customers. For example Mcdonalds in India not
serving beef
Demographic segmentation refers to the selection of
target groups based on characteristics such as age, gender,

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income, family size and level of education. For example Big W


and K mart v Myer and David Jones
Psychographic segmentation allows a business to
segment markets based on peoples lifestyle, personality,
values and interests. For example BCF
Behavioural segmentation examines how often and when
a consumer will make use of a product, the benefits sought
when purchasing the product and user loyalty. For example
Valentines day targets men (florist), Broadband internet
companies have adopted strategies targeting different
individuals using different usage plans.

Product/service differentiation and


positioning
Product differentiation Is defined as the variation

between a number of models of the same basic product.


Product positioning Is the image a product has in the mind
of a consumer.

Product The product is the good or service that is


offered for sale. The product is designed to give satisfaction
to the customer. Ideally a product will have the following
characteristics: quality, features, style, brand name,
attractive packaging, a range of sizes, backup service,
warranties, return if faulty policy.
Price There are several methods of pricing used by
marketers
- Cost pricing this method of pricing is traditional and
also the most common. The selling price is obtained by
adding an explicit profit margin to the total cost of an
item.
- Market pricing This occurs where a business prices
their product according to what the business feels the
market can pay.
- Competitive pricing - This occurs when prices are set
in relation to competitors prices. If one competitor has
a large share of the market, they will become the
price leader and other businesses will have to follow
them.
- Price skimming This can be applied to a new product
that is attractive and which little or no competition.
- Penetration pricing This involves charging very low
prices initially to generate high volumes of sales and
gain market share. It is used to establish customers
that will be loyal to the product.

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- Loss leaders A loss leader is a product sold at a low

price to stimulate other profitable sales. One use of a


loss leader is to draw customers into a store where
they are likely to buy other goods.
- Price points These are points where the price of a
product is at its optimum.
- Promotional pricing This involves a temporary
reduction in price on a number of products on offer in
order to increase sales in the short term.
Promotion This is the technique of presenting a
product or service to a customer in such a way that the
customer will want to purchase that product or service.
There are several ways of promoting products to the
consumer:
- Advertising Most people think of advertising when
one talks about marketing. It is understood that
advertising is only part of marketing and the marketing
mix, albeit a very important one. Advertising takes
many forms: flyers, local newspapers, radio and
television. The types of advertising will be determined
by the size of the business.
- Personal selling and relationship marketing This
occurs when a sales person tries to make a sale by
demonstrating a product to the customer personally.
Relationship marketing is the developing of a personal
relationship with customers as a way of marketing a
product. Real estate agency is a great example.
- Sales promotion This is a form of personal selling
where a business takes the product to the customer
and demonstrates it.
- Publicity and public relations This is any form of
letting the customer know that a product exists and
can involve any of the above promotional methods. In
addition publicity may involve testimonial letters, word
of mouth information and sponsorships of special
events and sporting teams.
The communication process often involves word of mouth
and opinion leaders. Opinion leaders are used to promote
a product by promoting it in written form or verbally.
Opinion leaders include such people as well known
identities.
Place/distribution This is the last of the four Ps of
the marketing mix and relates broadly to the ways in which
the product is to be distributed and from where it will be
distributed.

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- Distributional channels This covers the way in


-

which a product is distributed from the factory to the


consumer.
Channel choice Distribution can also refer to
intermediates or outlets used. There are three broad
types of distributions used. They are: Intensive
distribution Involves a high number of outlets
selling a product. Convenience goods are intensively
distributed in order to get maximum exposure.
Selective distribution Involves only a small
number of outlets carrying a product. This is often
designed to give exclusively to the product particularly
when a high degree of knowledge of the product is
required by the consumer and when the good is likely
to be a luxury one. Exclusive distribution Occurs
when a consumer expects the intermediary to
concentrate on their product or a few products only.
This form of distribution is common in the real estate
industry.
Transport/warehousing/inventory Obviously,
different goods and services have channels of
distribution that use different forms of warehousing
and transport. The types of warehousing will depend
on the goods being sold. Several different warehouses
located across a city will mean ease and speed of
distribution, but may mean an increase in rental costs.
The way in which inventory (stock) is handled in the
warehouse is important to the profitability of the
business. This handling must be efficient and cost
effective e.g. reordering of stock must be simple and
there shouldnt be too much stock lying around unsold.
This is why many firms have introduced to JIT method
of ordering stock.

People, processes and physical


evidence
People

The people involved in the marketing process are involved in


market planning. These people look at barriers facing
effective implementation of marketing plans and look at
ways to plan the marketing campaigns. Such people are
often referred to as marketing consultants

Processes

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There are a number of perceptions of the concept of


processes. Within business and marketing. Some see
processes as a means to achieve an outcome.

Physical evidence

Physical evidence is the material part of a service. Strictly


speaking there are no physical attributes to a service, so a
consumer tends to rely on material cues. There are many
examples of physical evidence of a service, including some
of the following:
Packaging
Internet/web pages
Brochures
Furnishings
Signage
Uniforms
Business cards
The building itself
Mailboxes and many others

E-marketing
Ver

Very simply put, e-marketing or electronic marketing refers to the


application of marketing principles and techniques via electronic
media and more specifically the Internet. The terms e-marketing,
internet marketing and online marketing, are frequently
interchanged, and can often be considered synonymous. It is the
process of marketing a brand using the internet.

Global marketing
Global branding
Standardisation
Customisation
Global pricing
Competitive positioning
Many businesses operate beyond domestic operations providing
the business with an opportunity to increase sales, further their
brand awareness and establish markets in new countries. Many
Transnational corporations (TNC) adopt a global marketing
approach that involves developing marketing strategies as if the
entire globe were one large target market - a standardised
approach.

Global branding - A recognisable name and logo are


essential when expanding into overseas markets. It is more
effective and efficient to promote a brand rather than
individual products. Brands become universally recognised
e.g. Nike, Nokia, Sony

Standardisation - a standardisation approach is a global


marketing strategy that assumes the way that the product is
used and the needs it satisfies are the same the world over.

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"one marketing plan fits all" e.g. Electrical products, mobile


phones, soft drinks. Advantages of this include cost saving,
production runs can be longer (economies of scale), research
and development are reduced, promotion strategies can be
standardised.

Customisation - A customised or local approach is a global


marketing strategy that assumes the way the product is used
and the needs it satisfies are different between countries.

Middle path - mcdonalds has a standardised name, logo,


production methods and much of its menu but there are local
variation. E.g. France and Germany serve beer, Japan serve
sake, phillipines serve noodles and India do not serve beef.

Global pricing - Global pricing is how businesses coordinate


their pricing policy across different countries.
1 Customised pricing - This occurs whenever consumers in
different countries are charged different prices for the same
product. Cost-plus method cover the added costs of
exportation e.g. Transportation, taxes, warehousing.
2 Market-customised pricing - Sets prices according to local
market conditions. Offers more flexibility to allow marketers to
vary the prices depending on demand and competition within
overseas markets.
3 Standard worldwide price - Is the practice of charging
customers the same price for a product anywhere in the
world. There are 2 major risks with this method: A domestic
business may undercut that standardised price, Changes in
the exchange rate.

Competitive positioning - Relates to how a business will


differentiate its product e.g. Volkswagon Group gaining a
world market share of about 12%

20

Topic 3: FINANCE
The role of financial management
The strategic role of financial management
When we think of strategic we think of long term (3-5 years). So in
this sense we are thinking of long term financial management or
where the business will be in 3 5 years in terms of its finances.
Finance manager:
Cash management
Accounting
Complying with legal regulations
Budgeting for future needs
Raising finance

Objectives of financial management

Liquidity Is the ability of a business to pay its short term


obligations as they fall due

21

Profitability (return on capital) Refers to the yield


or profit a business receives in return for its productive effort
and investment.
Efficiency Describes how well a business is being run
e.g. how efficiently the business is using its resources such
as labour, finance or equipment. If a business is able to get
more out of its labour resources for the same cost, then the
business has increased its efficiency.
Solvency Is the ability of a business to pay its long term
obligations as they fall due.

Influences on financial
management
Internal sources of finance
Internal funds are those funds provided to the business by its
owners and are in the form of retained profits.

Retained profits
Profits retained by the business and which have not been
distributed to the owners/shareholders in the form of dividends.
Shareholders receive dividends from the net profit after tax has
been deducted.
About half of the profits of a business are usually retained in order
to continue the operations of a business or purchase new capital
equipment, although this will vary according to the circumstances
and size of the business.

External sources of finance


Debt
External (debt)
Short term

OverdraftAllows a business to overdraw its account to an agreed


level. This helps with short-term liquidity (usually smaller than
$100,000).
Commercial billsShort term loan from a NBFI (Non Bank
Financial Institution) usually a larger amount greater than
$100,000 to be paid back within 7-180 days
Factoring A business can sell their 'accounts receivable' to a
business (called a debt factor) for a percentage of their total value.

Long term

22

MortgagesA large loan from a bank secured against the


business's lands and or buildings.
Debentures Large loans secured against a business's assets
from investors (instead of the bank). But, the right to collect the
money can also be sold (you won't necessarily be paying back the
same people).
Unsecured notes Large loans from investors not secured
against the business's assets.
Leasing Lease assets e.g. building, equipment instead of buying
them.

External (equity)
Ordinary shares
New issuesIPO (Initial Public Offering)
1 Issue a Prospectus (everything you need to know about a
business)
2 Sell shares on the ASX
Rights issuesAfter the IPO
- Existing shareholders get to buy more shares
- More shares at a special price
PlacementsPrivately selling shares (not through an IPO)
Share purchase plansShareholders can choose to get shares
instead of dividends.

Private equity
There are 'private equity' firms (businesses) that buy other
businesses (e.g. JP Morgan Chase)
Advantages:

Access to enormous amounts of money

Easier than an IPO

Sometimes investors have good ideas for the business.


Disadvantages:

Original owners lose a lot of control

Sometimes firms are not interested in growing the business


(can cut costs of shut down)
23

Financial institutions
Banks
Banks are the major operations in financial markets and are the
most important source of funds for businesses. Banks receive
savings as deposits from individuals, businesses and governments,
and, in turn, make investments and loans to borrowers. The four
major banks of Australia are the Commonwealth bank, Westpac,
ANZ and NAB.

Investment banks
Investment banks provide services in both borrowing and lending
(debt and equity), primarily to the business sector (short and long
term). Eg. Macquarie bank
Investment banks:

Trade in money, securities and financial futures

Arrange long-term finance for company expansion

Provide working capital

Advise on mergers and takeovers

Advise clients on foreign exchange cover

Operate unit trusts

Underwrite corporate and semi-government issues of


securities
Advantages:

Lots of different types of loans (very flexible - no set loan)


Disadvantages:
Can have conditions that are not best for the business

Finance companies
Provide loans to businesses and individuals through consumer
hire-purchase loans, personal loans and secured loans to
businesses.

Short to medium term loans eg. EG money, Esanda


Advantages:

Fast access to money


Disadvantages:
Interest rate is higher

Superannuation funds - Life insurance companies unit trust


All three pool together money and use it to invest in businesses.
Superannuation funds
Grown rapidly in the last 20 years due to tax incentives and
compulsory superannuation introduced by the government. These
24

organisations provide funds to the corporate sector through


investment of funds received from superannuation contributions.
Life insurance companies
Provides loans to the corporate sector through receipts of
insurance premiums which provide funds for investment.
Unit trusts (mutual funds)
Takes funds from a large number of small investors and invest
them in specific types of financial assets.

ASX

Where 'securities' (shares) and bought and sold. The ASX offers
products and services that include:

Shares

Futures

Exchange traded options

Warrants

Contracts for difference

Exchange traded funds

Real estate investment trusts

Listed investment companies

Internet rate securities


Primary markets: deal with the new issue of debt instruments by
the borrower of funds
Secondary markets: deal with the purchase and sale of existing
securities
Advantages:

Access to enormous amounts of money doesn't add to the


businesses debt funds
Disadvantages:
It costs money to get listed.

Influence of government

What the government does will influence the financial decisions that a
business makes.

Company taxation (ATO - Australian Taxation


Office)
The way that the ATO taxes businesses will have an effect on the
decisions businesses make.
Some decisions might be better for tax purposes e.g. leasing
assets instead of buying

ASIC (The Australian Securities and Investments


Commission)
I, regulates companies under the Corporation Act 2001
II, monitors companies under the Corporation Act 2001
Possible punishments:
Fines
Fees

25

Prison

Global market influences


Because Australian businesses import and export and get money
from overseas by borrowing or through equity what happens in the
rest of the world influences financial management here. The 3
main international factors that influences financial management
here in Australian too.
1 Economic outlook
what economists think about the future of the global economy
2 Availability of funds
Whether you can get money from overseas
1 Interest rates

Processes of financial management


Planning and implementing
Once it is decided by the business person what their sources of
finances will be, they now have to plan and implement their
financial management.

Planning financial needs What finances does the business


need in the short, medium and long term. To do this the business
must determine it cash flows so that the business knows that it is
able to pay any debts as they fall due. This assessment would also
take into account the business situation with regard to its current
liquidity, profitability, efficiency, rate of growth and return on
capital.

Developing budgets Budgets are used to plan the business


activities up to five years into the future. This is a most important
step in the financial planning cycle. The business must know how,
when and why its future expenditure will be incurred. It must also
know how, when and from what direction its receipts will come. If it
doesnt have these items under control, then the business will lack
financial direction and risks failing because of a lack of control over
its financial resources.

Maintaining record systems Record systems keep a


record of all transactions. These keep the manager in touch with
what is happening in the business to ensure that the business plan
is on track. If the expected financial situation is not being achieved
then corrective action must be taken. This could relate to a
liquidity, solvency or efficiency problem. On the other hand, the
business may be moving well financially, providing the manager
with a source of information simply to monitor the progress of the
business.

26

Minimising financial risk Financial risk can occur in any

business dealing. There are several possible areas of financial risk


in a business:
Collection of debts Bad debts can be a great concern for a
business reducing profitability. Procedures need to be put in
place to ensure that debts are collected on time and that
bad debts are minimised.
Monitoring solvency So that a business doesnt become to
highly geared and therefore place the business at risk.
Advice should be obtained from the business accountant or
bank. Although this may not be reliable.
Monitoring cash flows Many businesses have failed
because of insufficient cash flow. An example might be a
business that is operating profitability in terms of profit
margins and its turnover, but if it does not have regular
money flowing in then it will have cash flow difficulties. This
means it is not liquid.
Businesses that trade globally have other financial risks and
they are to do with exchange rate risks. They are:
Nominal exchange rate The risk of losing money on
international transactions as a result of changes in the
exchange rate.
Real exchange rate risk Risk involved when overseas
parties prices go up during the course of a transaction.
Political and default risk Occurs when we deal with
countries that have unstable governments.

Financial controls Controlling is the setting of standards,

measuring performance and taking corrective action if necessary.


In terms of financial management, these controls include budgets,
the various financial statements and the use of financial ratios.
These three controls will lead the manager towards the correct
decisions regarding the liquidity, profitability, efficiency and future
growth of the business.

Comparison of debt and equity financing

Each of these types of finance have advantages and


disadvantages. There is no right or wrong with these costs and
benefits.
The benefits of debt include:
Flexible repayment periods available
No initial expensive outlay
Interest on repayment is tax deductable
Ownership and control of the business remains with the
owners
The costs of debt include:
27

Over the life of the loan, interest rates may rise, causing
repayments to increase, leading to increased gearing and
financial risk

The benefits of equity include:


No funds to repay
No interest charged
The costs of equity include:
The business has to make higher profits to attract investors
into the business
Dividends paid to shareholders are not tax deductable
Owners lose some control of the business to partners/share
holders.

Matching the terms and source of finance to


business needs

Most business will use a combination of internal and external


sources of finances. Within this they are likely to use a mix of debt
and equity finance. It is important to note that there is no correct
source of finance that a business must use.
A small business is likely to use:
Internal sources such as retained profits or personal savings
External sources such as bank overdrafts or mortgages
A large business is likely to use:
Internal sources such as retained profits
External sources such as bank bills or debentures
Other sources such as leasing, factoring, venture capital or
grants.

Monitoring and controlling

Cash flow statements


This report shows the movement of cash receipts (inflows, such as
money from sales) and cash payments

Income statements
This report is used to help the business to calculate how much
profit it has made over a period of time by showing profits or
losses, expenses and income.

Balance sheets
This shows the value of assets, value of liabilities and owners
equity balances at a certain point in time. It is called s balance
sheet because at that point of time assets are equal to liabilities
and owners equity.

Financial ratios
Liquidity

Current ratio (working capital ratio)


28

Current ratio = current assets divided by current liabilities

Gearing
Debt to equity ratio= total liabilities divided by total equity

Profitability
Gross profit ratio = gross profit divided by sales (revenue)
Net profit ratio = net profit divided by sales (revenue)
Return on equity ratio = Net profit divided by total equity

Efficiency
Expense ratio = expenses divided by sales
Accounts receivable turnover ratio = credit sales divided by
Accounts receivable divided by 365

Comparative ratio analysis


Ratios are used mainly for comparison purposes to give meaning
to raw figures. There are 3 broad ways in which businesses use
their ratios for comparison purposes:

Consider trends overtime

Make a comparison with similar businesses

Measure against industry averages

Limitations of financial reports

29

Notes to the financial statements may be confusing


Annual reports can be out of date (timing issues)
Spreading costs out over a long period of time to
avoid negative affects on revenue (capitalising
expenses)
One off large payments are removed (normalised
earnings)
How do you value intangibles such as goodwill,
trademarks and brand names

Ethical issues related to financial reports


Ethics are very important in business, because without ethics there
can be no trust. There are several ethical issues and these include:
Audited accounts (misuse of funds) It is a
universal and legal practice for the accounts of public
companies to be audited by a team of independent
accountants (auditors) to test for authenticity, truth and
fairness, in particular the misuse of funds.
Inappropriate cut off periods Cut off periods for
reports must be appropriate. Here we mean that the report
should represent information in the current period not just
before a loss is expected.
Corporate raiding Involves a business buying a large
number of shares in another company with the aim of
gaining control of that company.
Asset stripping This is the process of buying an
undervalued company with the intent to sell off its assets for
a profit. The individual assets of the company, such as the
equipment and property, may be more valuable than the
company as a whole due to such factors as poor
management or poor economic conditions.

Financial management strategies


Cash flow management
A cash flow statement provides managers with useful information
for making up a budget for the next year. It shows the manager at

30

a glance, the receipts and payments the business has made for
any given month

Distribution of payments

In order to manage cash flow a business can do three things:


Distribute payments across the year
Give a discount for early payment Encourages customers
to pay early. Often known as early bird discounts.
Factor debts

Working capital management


Short term liquidity is important for a business. It means a
business can take advantage of profit opportunities when they
arise, as well as meet short-term financial obligations, pay
creditors on time to claim discounts, pay tax, and meet payments
on loans and overdrafts. A business must have sufficient liquidity
so that cash is available or current asset can be converted to cash
to pay debts. Working capital is the term businesses use to
describe the funds available for the short-term financial
commitments of a business. Through the operating cycle of a
business, current assets are constantly changing as inventories are
sold, cash is paid out and payments are received. Working capital
is often the major asset of a business and current assets make up
approximately 40% of a businesses assets.

Control of current assets


Management of current assets is important for monitoring working
capital. Excess inventories and lack of control over accounts
receivable lead to an increased level of unused assets, leading in
turn to increased costs and liquidity problems. Control of current
assets requires management to select the optimal amount of each
current asset held, as well as raising the finance required to fund
those assets. The costs and benefits of holding assets must be
assessed.

Cash

Receivables

Inventories

Control of current liabilities


As previously explained, current liabilities are financial
commitments that must be paid by a business in the short term.
Minimising the costs related to a firm's current liabilities is an
important part of the management of working capital. This
involves being able to convert current assets into cash to ensure

31

that the business's creditors (accounts payable, bank loans or


overdrafts) are paid.

Accounts payable

Loans

Overdrafts

Strategies for managing working capital

Businesses use a number of strategies to manage working capital,


which is required to fund the day-to-day operations of a business.
Strategies for working capital management include:

Leasing

Sale and lease back

Profitability management
Profitability management involves the control of both the
business's costs and its revenue. Accurate and up to date financial
data and reports are essential tools for effective profitability
management.

COST CONTROLS
Fixed and variable costs
Before a business can control its costs, management must have a
clear understanding of what those costs are. Businesses generally
have fixed costs and variable costs.
Fixed costs are not dependent on the level of operating activity in
a business. Fixed costs do not change when the level of activity
changes - they must be paid regardless of what happens in the
business.
Variable costs are those that change proportionately with the level
of operating activity in a business.
Monitoring the levels of both fixed and variable costs is important
in a business. Changes in the volume of activity need to be
managed in terms of the associated changes in cost. Comparisons
of costs with budgets, standards and previous periods ensure that
costs are minimised and profits maximised.

Cost centres
32

A businesses costs and expenses must be accounted for, and


management needs to be able to identify their source and
amounts. A number of costs can be directly attributable to a
particular department or section of a business, and these are
termed cost centres. A cost centre in a retail store or service
business would be called a service cost centre. A cost centre in
manufacturing would be called a production cost centre.

Expense minimisation
Profits can be weakened if the expenses of a business are high, as
they consume valuable resources within a business. Guidelines
and policies should be established to encourage staff to minimise
expenses where possible. Savings can be substantial if people take
a critical look at costs and eliminate waste and unnecessary
spending.

REVENUE CONTROLS
Revenue is the income earned from the main activity of a
business. For most businesses, revenue comes from sales or, in
the case of a service business, from fees for professional services
or commission.

Marketing objectives
Sales objectives must be pitched at a level of sales that will cover
costs, both fixed and variable, and result in a profit. A cost-volume
profit analysis can determine the level of revenue sufficient for a
business to cover its fixed and variable costs to breakeven, and
predict the effect on profit of changes in the level of activity.

Global financial management


Exchange rates
When businesses only do business within Australia the concept of
exchange rates is of no consequence. This is because the business
33

is dealing in the one currency and a dollar is worth the same


amount from Cairns to Perth and Darwin to Adelaide. When
companies become involved in international business,
management needs to have a good knowledge of the international
world of finance. This results from the fact that each country has
its own particular currency which is acceptable for domestic
transactions, but which is unacceptable on international
transactions.

Interest rates
Whether borrowing money domestically or internationally, the cost
of borrowing is interest. High interest rates will attract foreign
funds into Australia for investment purposes, increase the demand
for Australian dollars and therefore push up its value. It will also
have the effect of reducing demand for Australian exports because
of the increased value of the dollar. Likewise, low interest rates will
divert foreign funds from Australia, reduce the demand for the
Australian dollar and depreciate its value.

Methods of payment
There are four main methods of international payment, which are
all accompanied by different levels of risk for both importers and
exporters.

Payment in advance is one method and source of finance

used by businesses helping to expand globally. Although this


method is the safest option for the exporters, it is of high risk to
the importer as payment is made before the goods have been
exported, creating unfavourable cash flow. Foreign businesses
seeking to buy are also concerned that the goods may not be sent
if payment is made in advance. Thus, exporters who insist on this
payment method as their sole manner of doing business may lose
to competitors who offer more attractive payment terms.
Telegraphic transfer or international cheque (bank draft) are the
main ways of payment in advance internationally.

34

Letters of credit are another method used by businesses


globally as a payment method. Letters of credit are one of the
most secure instruments available to international traders. A letter
of credit is made a guarantee of a bank in the interests of the
buyer that full payment will be made to the exporter, provided that
the terms and conditions stated in the letter of credit have been
reached, as verified through the arrangement of all required
documents. The buyer establishes credit and pays his or her bank
to provide this service. A letter of credit is most useful when
reliable credit information about a foreign buyer is difficult to
obtain, but the exporter is satisfied with the creditworthiness of
the buyers foreign bank. A letter of credit also safeguards the
buyer since no payment commitment arises until the goods have
been shipped as promised. The main advantage of a letter of
credit is that it abolishes the need for up-front cash payments.
However, sellers may confront interruptions with letters of credit,
such as unsustainable delivery schedules or unacceptable costs.
Attempts to amend the terms and conditions of a letter of credit
may also cause problems in the transaction. Discrepancies in the
documents submitted by the seller may also cause the issuing
bank to void the letter of credit. For exporters this is a low to
medium level of risk, as the issuing bank will pay for the goods
shipped as long as the fulfilment of all terms and conditions of the
letter of credit are reached. For importers it is relatively a safe
option of payment as there is a level of assurance that the
exporter has shipped the goods before payment is required.

Clean payments, also known as clean remittance. This is the

most efficient method of international payment. This method


revolves around the trust of all parties apart of the transaction.
This method occurs when the payment is made and sent to, but
not received by, the exporter before the goods produced in the
foreign country are transferred. The payment is dealt with through
an account system where the exporter is paid after obtainment of
the goods through invoice. The risk of the exporter is low, but
unfortunately it is not a method of payment favoured by importers.
Key benefits of this payment method are that payments are
facilitated between local and overseas parties and that payments
can be made in any major currency as long as the amount agreed
upon is reached.

Bills of exchange are a non-interest-bearing written order


used primarily in international trade that involve the exporters
bank handling the documentation that has been drawn up,
demanding payment from the importing party in a certain time
period that is to be set. This method is the most thoroughly used

35

within the global market in relation to methods of international


payment. It gives the exporter control over the goods until full
payment has been received or guaranteed. A bill of exchange is
not a contract itself, but is often used to fulfil a contract. A bill of
exchange is transferable and can secure one party to pay a
separate or third party that was not involved in its establishment.
If these bills are issued by a bank, they can be referred to as bank
drafts. If they are issued by individuals, they can be referred to as
trade drafts.
There are two types of bills of exchange:

Document against payment


This method will allow the importer to only receive or collect
the goods after payment is made and secured. The exporter will
go to its bank and create a document (bill of exchange), then
proceeding to send it to the importers bank. Following these
interactions the importers bank will transfer the money to the
bank of the exporter.
Document against acceptance
This method will allow the importer the opportunity to collect or
retrieve the goods before payment. The importer must sign only
acceptance of the goods and the conditions and terms of the
bill of exchange to in turn receive documents allowing them to
pay for the goods at a later date.
The use of bills of exchange is high but the method of
international payment comes with great risk. Using the
documents against payment method there is possibilities of the
importer not paying for the goods. The great risk with the
Documents against acceptance method is the risk that the
importer may delay payments or not pay at all.

Hedging
If an Australian business orders goods from an American company,
deliverable in 12 months time and the value of the Australian
dollar fall against the currency of the country from where the
goods are being made, then the Australian business will have to
pay more for those goods when they are delivered.
Now, it could very well be that the Australian dollar rises against
the U.S dollar during the year, in which case the Australian
borrower pays less than they expected.

Derivatives
Derivatives are international financial instruments for spreading
risk or hedging. They include futures, options, swaps and forward
contracts. For example, an Australian investor purchasing shares

36

of an American company (Using U.S dollars to do so) would be


exposed to exchange rate risk while holding that stock. To hedge
the risk, the investor could purchase currency futures to lock in a
specified exchange rate.

Topic 4: HUMAN RESOURCES


The role of human resource
management
37

The strategic role of human resources


The strategic role of human resources involves the long term
planning of staffing it also involves ensuring that staff are
productive, well trained and satisfied in their job. The human
resources manager is the line manager who directs all aspects of
management relating to personnel within the firm. Their function is
to ensure that their role as human resource manager is in harmony
with the goals of the firm that they work for. Specifically the role of
the human resource manager is to identify broad needs within the
firm relation to issues of:
Employment
Induction and training
Job satisfaction
Job performance and rewards (motivation)
Employee benefits, health and safety issues
Industrial issues (maintenance)
Retrenchment, retirement and dismissal (attrition)

Outsourcing
Human resource functions
Outsourcing is a situation whereby a business contracts certain
work out to professionals such as lawyers and accountants.
Businesses of all sizes and functions outsource. Many people think
that only small businesses outsource because they are not big
enough to have a human resources department, an IT department,
a publications department and an operations department etc. This
is clearly not the case large businesses outsource as well.

Using contractors Domestic and global


A contract worker is someone who works for an employer on a
periodic basis as required. Rather than employ full time staff,
many businesses in Australia use contract workers. Globally, many
businesses use contract workers particularly businesses which
produce goods in an overseas country. It is usually cheaper to
employ contract workers than have them on the full
time/permanent pay roll. As in the domestic situation, the workers
can be used as needed and the business doesnt necessarily have
to set up large production facilities.

38

Key influences
Stakeholders
Employers and employees
Employers or management is the group of people who own and
manage a business. Employers goals are to produce goods and
services, make a profit, expand and increase market share.
Employers pay their employees in return for their work they do in
the business.

Employer associations and unions


Employer associations advise employers of their rights and
obligations with regard to their employees and provide
representation at industrial relations commission hearings where
necessary. Any employer, small, medium or large may have
membership of their relevant employer association.
Unions represent employees in the workplace. The union
movement began as craft or trade based organisations, but the
modern union is based less in this way. Unions are now more
broadly based rather than strictly craft or trade based. Unions
represent groups of employees on issues such as pay conditions,
health and safety and job security. They also represent employees
when making collective agreements, industrial conflicts and in
wage negotiations. Unions will assist employees with individual
disputes in the workplace.
The national union group in Australia is the Australian Council of
Trade Unions. (ACTU)

Government organisations (state and federal)


Government plays a major role in the resolution of industrial issues
in as much as it creates Industrial Relations Commissions (state
and federal). It is in the best interests of government to ensure
that there is a stable employment relations situation in their State
or Commonwealth jurisdiction. An unstable employment relations
situation can lead to defeat at the ballot box.
Governments set awards. Awards specifies minimum working
conditions, WHS, rostering etc. and pay (Sick pay,, annual leave,
overtime etc.)
A certified agreement or enterprise agreement is a work
agreement between an employer and employee.
Some government organisations are:
Industrial Relations Commission
Anti-discrimination board
Human Rights and Equal Opportunities Commission
Equal opportunity tribunal
Fair Work Australia
39

Society

Society is a major stakeholder in the human


resources/employment relations situation. The nature of human
resource management is often dictated by the attitudes of society
and the changing nature of society. In recent years things such as
attitudes towards people with disabilities, racial issues, attitudes
towards gay marriage and changing work patterns and population
shifts have become important issues in the workplace. Society as a
whole has an interest in the outcomes of HR and are interested in
whether the business complies with the legal frame work, applies
ethical practices and provides a duty of care.

Legal the current legal framework


Statue law covering HR is the Fair Work Act (Cth) 2009
established Fair Work Australia as an independent umpire.
HR managers must comply with the legal framework otherwise
they can expose the business to:
Criminal punishments
Lawsuits by employees
Public outrage

The employment contract

Contract of Service
It is a legally binding, formal agreement between employer
and employee.
A written contract gives more protection to both parties than
a verbal contract, as disputes often occur over contracts if
working arrangements are not clean and it is one persons
word against another.
A written contract also encourages the parties to clarify the
key duties and responsibilities of a job.

Common law
Employers and employees have certain rights and obligations to
each other under common law. These rights and obligations have
been identified by the court system as legal standards of
behaviour.
EMPLOYERS:
Pay correct wages
Forward PAYG tax to the ATO
Must make superannuation contributions

40

Act in a way that will not affect n employees reputation,


cause mental distress etc.
EMPLOYEES
Follow lawful and reasonable instructions
Use due care in performance of all duties.
Are accountable for all money and property (e.g. laptops and
phones) received while in employment
Faithful to an employers interest
---------------------------------------Fair Work Act
2009---------------------------------------

Statute
These take priority over common law. The Fair Work Act is the
current statute law.
Minimum employment standards employers and
employees agree to a rate of pay that is less than the
applicable minimal wage. This is reviewed each financial
year.

Awards awards are legally binding orders, usually made by


a court or industrial tribunal, which define working conditions
and set wage rates and other entitlements. Awards cover a
whole industry or occupation.

Economic
The state of the economy, particularly as it impacts on the viability
of business and business expectations and investment. Unions are
not as active during times of recession as they are during times of
economic growth. Key economic variables having an impact on
human resources and employment relations are:
The level of wage increases meaning fewer people are hired
Attitudes to downsizing and job cutting
The capacity of the employer to pay
International competition which may not give the employer
confidence to hire employees
Government funding which may or may not support
employers taking on new workers such as apprentices and/or
old workers
The productivity of labour, when technology is increasing
and likely to replace labour with machines or computers

Technological
The influences of technology has been one of the most discussed
areas when it comes to human resources because the assumption

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is that technology will take away jobs and to an extent it has in


some areas. However, for every job lost to technology, many more
are created by the technology itself through opportunities provided
by that technology. The reasons why some jobs are lost is that
technology, specifically IT systems can record, process,
communicate and react to vast amounts of information entered by
users. Information technology applications in office and service
sector environments include common desktop applications such as
word processors, spread sheets, databases, e-mail and internet
browsers.

Social influences changing work patterns


and living standards
The approaches to human resources have changed greatly over
recent years due to the changing nature of the workforce and
changing living standards.
The main social influences are:
Much of the workforce is casual, working at all hours
The population has become increasingly mobile
There is a drift from country areas to the cities
Rather than stay in the same job for life, many people will
change careers several times in their working life. The
workforce is prepared to move from city to city and State to
State in order to improve their living standards and to obtain
the job they want. There has also been a trend for the
workforce to move from the country to the city in search of
work as the rural sector continues its labour force decline. This
is largely due to the decline in importance of the Australian
rural sector.

Ethics and corporate social responsibility


Ethics and corporate social responsibility is an important aspect
of human resource issues from an ethical point of view. Some of
the ethical issues include:
Working conditions such as workers compensation,
superannuation, paid maternity/paternity leave, staff
amenities and counselling
WH&S
Complying with Employment Relations Laws

Processes of human resource


management
Acquisition

Acquisition refers to the ways in which employees are recruited for


the firm. Acquiring the correct staff is a very important issue in a

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business because
staffs are the most valuable resource a
business has. If the correct staff are not acquired then a good deal
of time and money will be wasted in terms of inefficient production
and the time and the cost of acquiring new staff to replace the
ones that have been let go. For acquisition the business needs to
be able to identify staff needs, recruit suitable applicants with the
expertise and appropriate skills to complete the job and then
select the best possible candidate. A selection panel is
established: culling of the applicants, notifying the selected
applicants of an interview, selecting successful applicant
selection process. Some recruitment processes may involve
written tests and medical examinations.

Development
- Development has four strands:
Induction: familiarising the employees with the workplace
(corporate, culture, customer service, WHS, Equal
Employment Opportunity, record keeping etc.)
Performance appraisal: evaluating the performance
of employees and is usually conducted by employees
supervisor. Outcomes include promotion, an increase in pay,
improvement programs or termination.
Training: involves educating an employee in the skills and
processes of the job. It could be in-house, online or off site.
Development: involves selecting workers for educational
programs to focus on roles they aspire to in the future.

Maintenance
The concept of maintenance can cover several areas including:
A safe working environment
Job satisfaction
Job security
Good working conditions and pay
Career path
Social justice in the work place
Monetary benefits include: wages (based on hourly rates) and
salaries (annual rate of pay). May be paid according to sales
(commission), based on output, as bonuses, fringe benefits
(company car, phone, discounted purchases) etc.
Non-monetary benefits include: greater job variety, flexible
working hours, allowed to manage yourself and intrinsic rewards
(job satisfaction, good inner feeling about work) etc.

Separation
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Separation of human resources is the business term that describes


the reduction of staff members for a variety of reasons, Including:
Retirement
Resignation
Redundancy and retrenchment
Relocation
Dismissal
Separation can be voluntary and involuntary.

Strategies in human resource


management
Leadership style

There are 4 broad leadership styles that we must consider:


Autocratic This style is used when leaders tell their
employees what they want done and how they want it
accomplished, without getting the advice of their followers.
Some of the appropriate conditions to use it is when the
manager has all the information to solve a problem, they are
short on time, and their employees are hopefully well
motivated
Democratic This style involves the leader including one
or more employees in the decision making process
(determining what to do and how to do it). However, the
leader maintains the financial decision making authority.
Using this style is not a sign of weakness, rather it is a sign
of strength that employees will respect. It is normally when
managers have part of the information and their employees
have other parts. It allows employees to become part of the
team and allows managers to make better decisions.
Laissez-Faire Here employees make their own
judgements, determine what has to be done and how to do
it.
Adaptive This occurs when skilled managers use all
three styles depending on the circumstances of the job or
types of employee they are dealing with.

Job design
Job design is a work arrangement aimed at reducing or overcoming
job dissatisfaction arising from repetitive and mechanical tasks.
Through job design, organisations try to raise productivity levels
by offering non-monetary rewards such as greater satisfaction
from a sense of personal achievement in meeting the increased
challenge and responsibility of ones work. Job enlargement, job
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enrichment, job rotation and job simplification are the various


techniques used in a job design exercise.
Key benefits include:
Increased productivity and efficiency
Less need for close staff supervision, checking and control
when staff know their jobs
A skilled, flexible, responsive workforce trained in the right
areas
Targeted training to suit job design
Improved talent management and succession planning
Improved employee attraction, engagement and retention

Recruitment
It is in the area of recruitment that the human resources manager
is seen to have the highest profile. This is because it is the human
resource manager is doing the actual recruiting even though it
may be senior management that sets the parameters of what is
required. However the human resource manager will have acted in
an advisory capacity with regard to the requirements of the
position and type of person who would be best suited for the
position.
In all cases, the factors influencing the recruiting effort involve:
Identifying the need to fill a position
Preparing a job description and requirements of the job
qualifications, experience, skills, personality
Internal sources of recruitment are through promotion or transfer.
External sources of recruitment are from referrals, walk-ins,
agencies, schools and trade unions. External recruitment is carried
out through the mediums of television, radio, newspapers, trade
journals, computer services and through companies merging or
being taken over.
In terms of general and specific skills, the cost of recruitment and
selection will vary according to the level of position that is to be
filled.

Training and development current or


future skills
Once the new employee has been selected it is important that the
employer carries out effective training and development programs.
These programs are crucial if a firm is to maximise its productivity.
It is important to determine the training needs and priorities in the
firm. When determining training needs and priorities, decisions
need to be made by the human resource manager regarding:
Who will be trained
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The aims and objectives of training


The subject matter
What training methods will be used
What outcomes are expected
How the training is evaluated
It is important for the firm to identify the people who are capable
and who will benefit themselves and the firm from the training.
The aim of the training is to increase the skills, productivity and
efficiency of its workforce to improve current and future skills.
Current skills can be maintained and improved as can future skills
be developed for the future needs of the business.
Training methods can include:
Classroom training
Simulation
On-the job training
Off-the job training
Technology

Performance management
Performance management or appraisal is the process of assessing
the performance of employees against actual results and
expectations of the manager. Performance management can focus
on the performance of an organisation, a department or employee.
If people are motivated then they are more likely to be more
satisfied in their jobs and perform at a much higher level. Job
satisfaction occurs when people feel relaxed and happy in the job
they are in. A major function of this job satisfaction is the
employees working environment. Some of the conditions leading
to job satisfaction are:
Mentally challenging work
Personal interest in the work
Reward and performance
Work which is not too physically tiring
Pleasant working conditions
Training and development and opportunities for promotion
Part of making a job more satisfying is the concept of job
retrenchment, which is in any way of making a job more
meaningful and personally rewarding.
In order to work efficiently and to assist in motivation, the
employee needs to have regular feedback on the job that they are
doing.

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Rewards monetary and non-monetary,


individual or group and performance pay
Financial and non-financial rewards

An effective and efficient employment relations structure is one


that incorporates the means to motivate all employees. When we
think of rewards we tend to think of financial rewards, but in the
world of employment relations there are other rewards in addition
to the financial ones.
Non-monetary rewards include:
Training
Career paths
Equity
Job security
Time off with pay
Monetary rewards include:
Wages & salaries
Performance based pay
Regular increases

Global costs, skills, supply


We live in a global environment and the globalisation of human
resources has become a major factor influencing the recruitment
of labour.
About 2.5% of the worlds population lives outside their country. As
communications improve, in particular the World Wide Web it
allows people to access and apply for jobs all over the world. Large
corporations actively aim to attract scarce labour in this way. The
communications revolution allows for the movement of
intelligence e.g. workers who have particular skills or qualifications
are attracted to move from one country to another in order to
improve their salaries. Scarcity of labour leads to increased costs
of hiring that labour. In many cases businesses must look overseas
to recruit labour. In many cases when the supply of skilled workers
doesnt exist in Australia then businesses must look overseas for
that labour.

Workplace disputes
When a disagreement occurs and talks between management and
unions/employees break down, then a conflict or dispute exists.
The Australian Bureau of Statistics categorises the causes of
industrial disputes into eight broad groups:
Wage demands
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Management policy
Working conditions
Political goals
Social issues

Dispute resolution process

Grievance procedures step 1, the grievance is taken to a


supervisor who is obliged to reply as soon as possible. Step
2, supervision where the parties again attempt to reach
agreement. Step 3, senior management, the industrial
relations manager or human resources manager. Full time
union officials are also involved at this stage. If an
agreement fails to be reached at this stage the matter will
be referred to the appropriate industrial tribunal.
Conciliation and arbitration once the above steps have
been taken either party can inform the industrial registrar
and request a formal conference. In this case a
commissioner will order a compulsory conference of the two
parties to mediate the dispute. Arbitration is the next step
where a commissioner listens to the arguments of both
parties and makes a decision an award or order, which is
legally binding on both parties. An appeal can be heard by
the full bench of the IRC.

Negotiation- is the settling of the limits of a dispute and discussing


where each party stands.
Mediation when a third party who is mutually acceptable and
neutral sits down with both parties.
Common law action is based on the decision of a judge to solve a
dispute
Business division/closure conflict may resolve in closure of all or
part of the business.

Effectiveness of human resource


management
Indicators
By indicators we mean what makes for effective human resource
management. There are a number of things that make this
happen:

Corporate culture a good corporate culture is


important to the development of effective human resource

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management. A good corporate culture should include things


such as: Communication systems, grievance procedures,
worker participation and team briefings, rewards and
training and development. Corporate culture refers to the
culture within an organisation.

Benchmarking An important element of the work done

Changes in staff turnover When staff stay with an

Absenteeism The things that cause absenteeism

Accidents This is a good indicator of human resource

Levels of disputation A key factor in deterlmining

by the human resource manager and indeed any business


person is to measure the effectiveness of what they are
doing. Benchmarking refers to the establishment points of
reference from which quality or excellence is measured.
Quality can come in two forms, the quality of the workforce
and the quality of the work they produce.

employer, then the employee is likely to be doing a good job


and vice versa. The cost of finding new employees can be
substantial, particularly with executive positions and senior
executives feel more relaxed about the workplace when
turnover is low. Stable employment usually means
satisfaction with the organisation or the supervisors within it.
It is this that the human resource manager will attempt to
achieve. They will work to find ways to reduce staff turnover
which may include things such as increased responsibility,
greater autonomy, better working conditions and
environment and increased pay if necessary.

include dissatisfactions with supervisors or the job or the


lack of opportunity. No job will suit every employee, but the
human resources manager must try to make the job as
satisfying as possible not only to reduce absenteeism but
also to increase productivity in the workplace. The other
aspect of absenteeism is the huge cost to the business.
Other workers have to cover for the absent employee or
casual staff have to be employed to take their place for the
period. Either way it is a big cost for the business to bare.

management effectiveness. The efficient human resource


manager will ensure that all WH&S provisions are being
adhered to. If this is the case the accident rate will be down,
which in turn will lead to a happier, more productive
workplace.

the effectiveness of human resource management is the


level of disputation. Obviously the lower the level of

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industrial disputation, the greater the likelihood that


effective human resource management practices are being
implemented in the work place. Employees who are happy in
their workplace are less likely to fall into dispute with
management.

Worker satisfaction Worker satisfaction covers all of


the areas discussed above. From benchmarking, staff
turnover, absenteeism, all these factors are indicators of
satisfaction in the workplace.

INTERDEPENDANCE WITH OTHER


BUSINESS FUNCTIONS
As with all topics of business studies, each business function is
dependant on another. Each business function relies on the other.
Like a football team, there are specialist players in different
positions who rely on the productive efforts of their team mates. If
one player doesnt do what he or she is supposed to do then the
whole team will fall down. For example, the marketing department
requires information from the accounting and finance department
to see if there are sufficient funds available to undertake a
particular marketing campaign and for them to actually fund the
campaign. The human resource department must supply the right
personnel to staff the marketing project and the operations
department must provide the correct resources to produce the
product.

Finance case study


FINANCE
Access to finance is a critical issue facing any company,
regardless of whether they are just starting, looking to expand
locally or into global markets, or are just keeping the business
operating until the company is stable enough to operate
independently.

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AussieBum has remained a private company and is operated by


co-directors Sean Ashby and Guyon Holland. As a private
company, they are not obliged to report financial details or profit
outcomes. However, the following information regarding the
financial performance of AussieBum is available:
commenced operations with a start-up capital of $20 000, which
was solely contributed by Sean Ashby
turnover achieved in the first year was $30 000
grew by 1520 per cent per quarter for the first 5 years
in April 2008, five different sizes over a range of 300 styles led to
7000 orders per week
turnover achieved in 2007 was in excess of $10 million. It was
expected to hit $22 million in 200809.
sales occurred in 75 countries in 2007, expanding to 120
countries in 2009
90 per cent of sales were achieved internationally. Major financial
influences on sales, revenues and profits for AussieBum include
the following:
the global financial crisis saw demand for products decrease
worldwide
the strong current value of the Australian dollar increases the
price of AussieBum products for international clients
maintaining manufacturing in Australia places continued
pressure on costs so the business can remain competitive
sourcing fabrics that maintain quality but dont substantially add
to costs
fluctuations in the exchange rate. An appreciation of the
Australian dollar reduces tourism from overseas.
increased competition from overseas manufacturers. The high
Australian dollar combined with lower costs places increasing
pressure on AussieBums ability to maintain prices at their current
level. Financial management strategies Financial management
strategies focus on recognising the sensitivity of customers to
changes in prices, exclusivity of brands given to retailers, the split
between fixed and variable costs, and the costs passed on by local
suppliers and producers. Price sensitivity of customers (cash flow
management) AussieBum considers the price sensitivity of its
customers but recognises that there are three key issues to
consider when pricing products:
costs as determined by suppliers and internal factors
the degree of differentiation offered by AussieBum through highlevel design, research and development.
the value customers feel they are receiving from the product
not only in terms of value for money but in terms of the lifestyle
and community they are buying into.
Brand exclusivity (working capital management)

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AussieBum licenses some international retailers to sell its products


through their stores. By allowing only certain retailers to sell the
products (exclusivity), AussieBum is able to demand payment prior
to delivery and can control the price.
Fixed and variable costs
AussieBum is not typical in its cost structure. Fixed and variable
costs are determined by a product line, rather than considering the
range of products as a whole. AussieBum will first look at an idea,
develop the idea and then produce a sample. It is at this point that
costs are considered from a finished product point of view.
Local supply costs
AussieBum aims to have a collaborative relationship with its
suppliers. This allows the company to be able to step in and
inform local producers when production has deviated from design
or plans. This assists in keeping costs down through minimising
waste and faulty products. This approach also benefits the
supplier. Meeting deadlines, quality standards and cost budgets
means the products are able to be marketed quickly, sales occur
and the supplier is offered further contracts their business
grows as well.
Performance review
A final strategy adopted by Ashby and Holland is to constantly
review their performance. Each quarter they reassess the business
plan, financial strategies, product lines and marketing. This allows
them to keep on top of their business and avoid errors or decisions
that may adversely affect the company.
Credit risk
Credit risk represents the risk to AussieBum of a customer
initiating a transaction and then failing to complete that
transaction through insufficient credit or fraud. AussieBum is
exposed to credit risk through the use of online shopping the
majority of its sales are made online using credit card facilities.
The risk of credit fraud is minimised by AussieBum through the use
of PayPal. PayPal is a system that makes it safer to make and
accept payments online. The system remembers and safeguards a
customers BSB and account numbers, as well as credit and debit
card numbers, so that the customer does not have to type these
details each time they buy online. PayPal also offers an additional
layer of security for AussieBum through easy processes for dealing
with fraudulent activities. Finally, a philosophy held by Ashby and
Holland is to grow with your assets. They avoid borrowing money
and are currently operating debt-free. This allows them to grow
slowly, consider all options and possibilities, and not get ahead of
themselves.

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