Role of Business

What is a business?
● A business refers to the organised effort of individuals to produce and sell, for profit, the
products that satisfy individuals’ needs and wants.
○ SMEs make up around 98% of all businesses in Australia
○ One common feature between a large and small business is that they both
produce products (goods or services) which is sold in a market where buyers and
sellers meet

Producing Goods and Services:

● Production refers to the activity undertaken by the business that combines the
resources to create products that satisfy consumers’ needs and wants.
● Points of Difference between Goods and Services
○ Nature of product
○ Transferability of ownership
○ Capacity for evaluation of product
○ Ability to return product
○ Ability to separate product from customer
○ Production and consumption time period
○ Capacity for storage
○ Variability of product
● Types of products
Core product- The original purpose of the product
Actual product- It includes the basic characteristics of a product. (e.g. colour, design,
quality)
Augmented- Everything a product offers that is not related to the original product (e.g.
experiences associated with the product, delivery, side products)

E.g
Core- to travel
Actual- land rover
Augmented- warranty

Functions of a business:
● Profit- The reward or return a business receives for producing and selling products.
● Employment- Businesses provide employment to people in the community.
● Incomes- Businesses provide income to owners/ shareholders and employees.
● Choice- Consumers have multiple alternatives when purchasing products and are able
to purchase at competitive prices.
● Innovation- Through research and development (R&D), existing products are improved
and new products are created.
● Entrepreneurship and risk- Businesses provide individuals with the opportunity to turn
their ideas and passions into a livelihood
● Wealth- Business activity results in higher levels of economic growth and wealth
● Quality of life- Businesses offer products that improve our standard of living
 Types of Business
Australian Bureau of Statistics has developed a number of criterion by which the size of a business can be
classified:
CHARACTERISTICS
Business type
Number of employees
Type of ownership
Most common legal
structure
Decision making
Sources of finance
Market share
SMALL
Corner store
Local mechanic
Hairdressing salon
Fewer than 20 employees
Independently owned and
operated - usually by one or
two people
Sole trader
Partnership
Owner/s responsible for
majority of decisions; simple
and quick implementation
of decisions
Equity finance (owner own
savings/funds raised by own
owner)
Debt finance (obtained
from financial institutions;
loan) – difficulty in accessing
loans due to high-risk
Small - usually local area,
not dominant in the industry
MEDIUM
Services club
Motel/hotel
Engineering factory
20-199 employees
Owned and operated by a
few people and/or private
shareholders
Partnership
Private company
Owner/s responsible for
majority of decisions
Owners/partners own
savings or a loan and/or
private shareholders
Equity and debt finance
Medium - dominance
within a geographic region,
some market dominance
LARGE
Woolworths
Qantas
National Australia Bank
200 or more employees
Owned usually by
thousands of shareholders
Public company
Complex decision making,
due to division of
responsibilities and layers
of management
Many sources including
cash reserves, retained
profit, sale of shares, and
loans from domestic and
overseas institutions
Large - especially for
multinational corporations
that dominate the markets
of many countries
 Geographical Spread:

Category Description Example

Tends to be small or medium in size, and serves a - Hairdresser

Local local area. - Bakery/butcher

A business that operates within the boundaries of - Commonwealth

National one country only. - National Australia Bank

A business that has productive assets in more than - McDonalds'

Global/transnational one country, and is therefore operating on a - Zara/ Starbucks
corporation) worldwide scale.

Industry: When businesses are involved in similar types of production, they are grouped together in what is
referred to as an industry.

Category Description Example

Primary Primary industry includes all Mining, agriculture, forestry

those businesses in which
production is directly associated
with natural resources.

Secondary Secondary industry includes all Food processing, oil refining, energy production
those businesses that take the
output of firms in the primary
sector (raw materials) and
process it into a finished or
semi-finished product.

Tertiary Tertiary industry involves people performing a vast range of services for other people.
- The splitting of the tertiary industry occurred because of the rapid growth that
occurred over the last 3 decades
Quaternary All services that involve the transfer and processing of
information and knowledge.
E.g: journalism, teaching, banking

All services that have traditionally been performed in the home.

Quinary E.g: cleaners, restaurants, childcare
 Legal Structure:

The legal structure selected by the business owner will affect:

● set up/startup costs

● liability – the financial responsibility of owners for any debt created by their business
○ Unincorporated: An unincorporated business is a sole trader or partnership where the
business entity and the owner are one and the same.
○ Incorporated: The term incorporated refers to the process companies go through to
become a separate legal entity from the owner/s. This means the business exists in its own
right, its own legal entity.

Types of liability:

Business Unincorporated Incorporated

Structure Sole trader / partnership Private / public

Liability Unlimited Limited

The owner’s assets are linked to the business assets Business assets and owner’s personal assets are
(one entity) separate (separate entities)

Personal assets must be used in order to pay Personal assets do not have to be sold in order to
business debt pay business debt

Tax Income tax Company tax

Varies depending on how much is being made 25%

Profit Owners take drawings from account Form of dividend to shareholders

 Unincorporated businesses
❖ Sole trader: A sole trader is a business that is owned and operated by one person.

Advantages Disadvantages

• Low cost of entry • Personal unlimited liability for business debts

• Simplest form • End of business When owner dies
• Complete control • Difficult to operate if sick
• Less costly to operate • Need to carry all losses
• No partner disputes • Burden of management
• Owner's right to keep all profits • Need to perform wide variety of tasks
• Less government regulation • Difficulty in raising finance for expansion
• No tax on profits, only on personal income

❖ Partnership: A partnership is a legal business structure that is owned and operated by between two
and 20 people. Limited partnerships were introduced to allow one or more partners to contribute
financially to the business but take no part in the running of the partnership.

Advantages Disadvantages

• Low start-up costs • Personal unlimited liability

• Less costly to operate than a company
• Shared responsibility and workload
• Pooled funds and talent
• Minimal government regulation
• No taxes on business profits, only on personal income
• On death of one partner, business can keep on going
• Liability for all debts, including partner’s debts, even
before the partnership has begun
• Possibility of disputes
• Difficulty in finding a suitable partner
• Divided loyalty and authority

Incorporated businesses:
❖ Private Company: A proprietary (private) company is the most common type of company structure
in Australia, and usually has between two and 50 private shareholders. Private companies have the
abbreviated “Pty Ltd” after it’s name
❖ Public companies: The shares for public companies are listed on the Australian Securities Exchange,
and the general public may buy and sell shares in those companies.
A public company has:
➢ at least one shareholder, with no maximum number
➢ no restrictions on the transfer of shares or raising money from the public by offering shares
➢ to issue a prospectus when selling its shares for the first time
➢ a minimum requirement of three directors (two must live in Australia)
➢ the word ‘Limited’ or ‘Ltd’ in its name
➢ to publish its audited financial accounts each year, its annual report.

Advantages Disadvantages

• Easier to attract public finance • Cost of formation

• Limited liability- separate legal entity
• Can transfer ownership easily
• Enjoys a long-life perpetual succession
• Experienced management- board of directors
• Greater spread of risk
• Company tax rate lower than personal income tax rate
• Growth potential
• Recent legislation allows a company to have only one
• Double taxation- company and personal
• Personal liability for business debts if directors knew at
the time that the business was unable to pay loans
• Must publish a yearly annual report of audited accounts
• Public disclosure- reporting of certain information
• Becomes too large resulting in inefficiencies
shareholder and one director

❖ Government Entreprises: Government enterprises are government-owned and operated. Due to

the process of privatisation, these organisations changed their legal structure from GBE to public
company because economic efficiency is increased by transferring enterprises away from the public
sector to the private sector.

Factors influencing legal structure:

1. Size 2. Ownership 3. Finance

Small business
Usually has less complex legal
structure
(sole trader/partnership)
- Smaller market share means
less employees due to less
products being produced
and less owners due to
smaller business
responsibility and financing
Larger business
Usually has more complex legal
structure (private/public company)
- Larger market share means
more employees needed to
produce more and more
owners due to larger
business responsibility and
greater finance required
- If business expands, legal
structure must change to
cater for more employees
and owners
Legal structure depends on amount of
control business owners want
Sole trader – Only option with
complete control
Partnership, private – Less control as
owners must share of control is diluted
when more people join
Public – Once a company floats and
sells shares to the public, ownership is
divided amongst thousands of small
shareholders which means that
owners have very limited control over
business operations
If original owner/s wish to retain
ownership and control of the business,
they must to hold more than 50% of all
shares sold
- As business expands, owners
have less control
Source of finance may be limited
depending on legal structure.
Sole trader/partnership
- Limited availability of debt
finance due to high risk
- Mainly equity finance (own
capital) however is hard to raise
and obtain due to less owners
Overall it’s harder to obtain capital
Private/Public company
- Easy to obtain debt finance (large
loans) due to less risk
- Greater amount of shareholders
allows for more external equity
finance
- Capital can be raised by selling
shares in a public company
Overall is easier to obtain capital
- As business expands more capital
is required
Influences in the business environment

External influences
An external influence for a business is any factor/s which causes change an d the impacted
business has little to no contro of the outcome/s.

There are 10 key external influences which can impact a business regardless of how significant
or irrelevant they may be to the business. The key external factors are economic, financial,
geographic, social, legal, political, institutional, technological, competitive situation, markets.

ECONOMIC
This mostly concerns the economic cycle*, and the relationship the business has with economy.
The economy itself is also influenced by specific factors such as law & policy, wages, tax rates,
government activties, etc. Furthermore, this directly dictates the proftiablity, employment,
production of goods and services and the overall performance of the business during a specific
period.
 Key features of the economic indicate specific or likely scenarios which are to occur duringa
specific time, these times are call downswings, busts, upswings and up swings. The table below
provides these 4 key features and they can indicate within the economy which further impacts
businesses.

Upswing Boom Downswing Bust

↑ spending High level of spending Reduced spending Low level of spending

↓ unemployment High employment ↑ unemployment High unemployment

Low level of business

↑ level of business investment High level of business investment ↓ level of business investment
investment

↑ consumer demand High levels of imports ↓ In sales High level of unsold stock

High level of asset sales: inflationary Slowing down of assets sales and GDP at lowest levels: negative
↑ value of assets: rising prices
pressure price increases real growth

Often growth in housing and Drop in sales, especially in housing

↑ interest rates Decreasing interest rates
construction and luxuries

High business expectations and Profits at lowest levels/low

↑ business profit Increasing loss of confidence
profit levels expectations
 Large numbers of new firms
↑ business failures
entering the market

The Australian Government uses three policies to influence the level of economic activity in
Australia:

1. Fiscal policy – taxation and expenditure.

2. Monetary policy – the Reserve Bank of Australia influences the cash rate and
subsequently interest rates.
3. Microeconomic reform – policies developed to promote greater competition within a
particular industry.

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Economic influences in the business environment refers to processes such as the

business cycle, or the cyclical contraction and expansion of the economy. Mainly, the
recession and boom cycles impact business operations.

In a recession cycle, economic growth typically falls due to decreased international

trade and/or external factors. This results in lower amounts of expenditure and
investment as consumer confidence decreases, translating to decreased profitability for
businesses. As a result, businesses may be forced to cut costs and lay-off workers,
further adding to the economic tensions. Key Question: Why does a contraction lead to
decreased consumer confidence? A contraction leads to decreased levels of consumer
confidence and expenditure as consumers believe that wages and incomes will
continue to drop, and any investment will return a negative result as a result of
economic tensions.

In a boom cycle, through the implementation of fiscal or monetary policies, the

economy begins to recover and is typically characterised by falling unemployment and
rising economic growth. As a result, consumer confidence is restored and expenditure
begins to return to normal levels, increasing the profitability of businesses.

Therefore, as a result of the economy’s overall tendency to cycle between recessions

and booms, a business’ profitability is significantly and consequently impacted.
Changes in the economy are reflected in changes in consumer behaviour, which
consequently impacts expenditure and therefore profitability.

Fiscal Policy - controls taxation and government expenditure. Expansionary fiscal

policy is put in place to stimulate economic growth, while Contractionary fiscal policy is
put in place to slow economic growth in order to curb inflation rates.

Monetary Policy - Reserve Bank of Australia influences cash rate and therefore
interest rate in order to increase consumer expenditure or discourage/encourage
savings.

FINANCIAL
Deregulation in the financial market results in a flexible approach to financing.
Deregulating a domestic market can mean that a business has access to global
financing institutions, opening up new opportunities for expansion and growth.
However, it is important to note that a business must be wary of international
competitors once deregulation has taken place, as these businesses now have the
ability to penetrate domestic markets.

Changes in interest rates can further have an impact on a business’ debt. If interest
rates increase, a business will be less likely to finance using debt financing, forcing
them to utilise equity financing instead. However, if interest rates decrease, a business
will be more likely to finance using debt financing.

GEOGRAPHIC
Geographic influences on a business environment include changes in demographics
such as age, sex, income, cultural background, maritial status, etc. Changes in these
factors in relation to a specific location of a business will mean that a business will
need to adapt to these changes as soon as possible.

Geographical factors have begun to change dramatically in the past few decades as a
result of globalisation.

SOCIAL
Businesses need to respond to society’s concerns and demands in order to ensure
long-term profitability and brand loyalty. Changing business practices in order to
appeal to society’s values and beliefs, as well as observing and implementing changes
in these values and beliefs will allow a business to do so. Having ethically responsible
business practices and executing a plan in order to respond to society’s concerns is
part of a business’ corporate social responsibility.
LEGAL
Society expects businesses to abide by laws. The government imposes laws and
regulations in order to promote a safe and responsible business environment which
maintains a certain level of competition. Businesses must abide by these laws in order
to avoid being penalised via fines.

Examples of such laws and regulations include:

● Competition and Consumer Act 2010(Cwlth)

● Fair Work Act 2009 (Cwlth)
● Protection of the Environment Operations Act 1997 (NSW)
● Anti-Discrimination Act 1977 (NSW)
● Work Health and Safety Act 2011 (NSW)

POLITICAL
Political influences impact a business by changing the fundamental practices involved
in operating a business. The government controls these influences, which can range
from environmental policies, workplace policies, and taxation. These policies can
change the nature of the business environment by promoting healthy competition and
international trade by reducing tariffs. As a result, businesses must respond to these
changes by continually searching for alternative suppliers and implementing
government regulations.

INSTITUTIONAL
Institutions include government bodies, regulatory bodies, and trade associations.
Government bodies enforce laws and policies as covered in political and legal
influences on a business.

There are four main regulatory bodies:

1. Environmental Protection Authority (EPA)

This institution is concerned with the business’ environmental practices and regulates
environmental misconduct.

2. NSW Office of Fair Trading

This institution is concerned with resolving disputes between consumers and
businesses in terms of faulty, misleading, or dangerous products.
3. Australian Securities and Investments Commission
Regulates market integrity and ensures that business practices within the market are
ethical.

4. Australian Competition and Consumer Commission

Regulates anti-competitive behaviour and ensures that there is an adequate level of
competition within the market.

Other institutions include:

Trade Unions

Trade Unions can impact businesses by protesting against unethical workplace

environments and wages. This can be in the form of coordinated protest and
significantly harm the reputation of the business.

TECHNOLOGICAL
Advancements in technology mean that businesses must be able to adopt new
technology in order to maintain a competitive advantage. This may be against the
interests of the stakeholders of the business, however ultimately must be implemented
in order for the business to survive. Examples of advancements in technology can be
seen in Tesla’s production facilities, in which the production process is almost
completely automated. Since this is a more efficient and cost-effective method of
producing vehicles, other manufacturers may need to switch to this method of
production, which will be significantly detrimental to employees involved in the current
production process.

COMPETITIVE SITUATION

A business’ competitive situation is perpetually changing and is influenced by a wide

variety of factors. These include:

● Number of competitors
● Marketing strategies employed by competitors
● Ease of entry into the business’ market
● Local and foreign competition
The number of competitors in a business environment is known as the market
concentration. There are several ways to describe the concentration of the market:

Monopoly Complete control over the market

The firm is the price maker

The consumer has no control over the

price

Oligopoly Consists of a few large firms that

collectively dominate the market

Are able to stay in the market as a result

of advertising and brand loyalty,
restricting new competition

Monopolistic Competition Large number of buyers and sellers

Product differentiation is created through

packaging, advertising, brand image.

Perfect Competition Large number of small businesses that

sell products that are the same or similar

Product differentiation is created solely

through price.

Ease of entry into a market is determined by market concentration.

While local competitors must compete with the same variables, such as labour costs,
transportation costs, the economy, and cost of stock, foreign competitors may be able
to obtain an advantage as they are based overseas, where there may be lower
operational costs. As a result, foreign competitors can penetrate local markets.

MARKETS
Financial Markets
Changes in the financial market have allowed businesses to access finances from
global sources. This has opened up a new window of opportunity for businesses to
expand into new markets, however, the same opportunities have been presented to
local and foreign competitors. This process of globalisation has lead to some
multinational corporations penetrating into hundreds of countries and markets,
increasing competition.

Labour markets
Changes in the labour market gives businesses the access to a pooled talent of several
different skills, allowing for greater productivity and efficiency of operations.
Businesses however must be wary of practices within the workplace, which includes
anti-discrimination acts.

Consumer markets
Changes in the consumer market present businesses with the opportunity to penetrate
into new markets and obtain a large market share before their competitors in order to
achieve a sustainable competitive advantage. Changes in consumer behaviour and
demographics further acts as a geographical influence on a business, and the business
must respond to this by altering the product that is sold.

Internal Influences
An internal influence is any factor/s that can be controlled within the business, impacting the
business environment.

There are 5 key internal influences that can affect a business from within the ‘inside’, they are
products, location, resources, management and business culture.

PRODUCTS
The product/s in which a business offers to its customers can heavily influence many of the
intern structures and processes of the business and how it functions. Key influences of products
are:
● The product itself - Depending on the type of good and/or service and impact on the
manufacturing process or even the need for the manufacturing process.
● The Range of goods and services - impacts the amount that needs to be produced.
 ● Business Type - is it a manufacturer, retailer or service provider?
● Business Size - based of what type of business is it, the technology used to provide their
product/service and the volume of goods and services.

LOCATION

Visibility
Typically a business would want higher visibility for specific locations, as it furthers its outreach
to its target market as well as other future customers who may become interested in what the
business has to offer. An example of this would be a business like Uni Qlo renting out a big
portion of Westfiled Paramatta as the business is aware of the high influx of shoppers that come
to the location.

Specific businesses such as manufacturers are not concerned with this issue as it is not of high
priority and instead specifically advertise to their customers in the location.

Cost
The cost of renting and/or buying a property at a specific location can heavily influence where a
business is located. For example, renting a store located in the City CBD would be significantly
more expensive as opposed to running the business in the Penrith CBD or even in your own
home. Furthermore, technology has made this issue less burdening as many businesses now
have adapted to using social media as a way to easily reach out to their customers conveniently.

Proximity to Suppliers
If a business requires many more raw materials, such as wood and steel, then locating closer to
its manufacturer would be very beneficial as there would be substantial transportation costs to
deliver to specific businesses that require these materials. However, if a business focuses on
retail for example clothing, the transportation fee would not be as significant, therefore creating
proximity to suppliers not as high of a priority of the factors of location.

Proximity to Customers
Proximity to customers truly depends on the type of business. A retailer would want to be close
to its customer base so that its customers can easily purchase and have access to its
services/products whilst a manufacturer may consider that mailing/transporting goods would
be more effective rather than being closer to its customers. Other considerations include, even
the need for a physical store to be located in a prime location, incentives given by the local
council and even rates and utilities.

Proximity to Support Services

The support services are quintessential to keep the business running. This can include lawyers,
accountants, banks and government institutions such as Austrade.

Small businesses tend to outsource this and medium to large businesses tend to provide these
services internally. Technology has also come into play as it can help smaller businesses to gain
and learn the skills needed to complete specific tasks and even completing these tasks much
easier than it previously was.

RESOURCES
The four main resources available to a business are:

1. Human resources - These are the employees of the business and are generally its most
important asset.
2. Information resources - These resources include the knowledge and data required by
the business such as market research, sales reports, economic forecasts, technical
material and legal advice.
3. Physical resources - include equipment, machinery, buildings and raw materials.
4. Financial resources - are the funds the business uses to meet its obligations to various
creditors.

MANAGEMENT
Due to rapid technological change within society, business have had to adapt their ways and
structure of management within the business. Most notably this can be seen through the
strctures of the management. Over time these structures have become flatter. Below is a table
with the key features of the 2 main structures a business may use today as a form of
management.

BUSINESS CULTURE
All businesses have a culture within them These are the key values, beliefs , ideas and
expectations every single employee has at the business. The business culture is reflected
through:
● Business goals
● Business Slogans
● Boday language
● Un/written rules that are often abided by within the business environment
● Treatment of staff
● The uniform/presentation of staff

A manager should then understand the business and its culture to harness the full potential of
the business in order to achieve specific or general goals that he business might have, this can
be getting things done more faster through changes of procedure to increasing the sales
revenue for the quarter.

A business culture normally consists of four essential elements:

● Values - These are the business's basic beliefs, shared among its employees. Business
 values can include honesty, hard work, teamwork, quality customer service, employee
participation and innovation.
● Symbols - These consist of events or objects that are used to represent something the
business believes to be important. It is a case of ‘actions speaking louder than words’.
For some businesses, competitive sports are a key feature of the business's culture.
Other businesses have encouraged employee development and loyalty through the use
of training and development programs.
● Rituals, rites and celebrations - These are the routine behaviour patterns in a business's
everyday life. Regular social gatherings can be held to help develop a sense of belonging
among employees who normally work in small teams during the week.
● Heroes - are the business's successful employees who reflect its values and, therefore,
act as an example for others.

Stakeholders
Stakeholders - people and/or groups who interact with a business in a particular format and
have a vested interest in business activities.

Stakeholder Interest

They are partial owners. They have voting rights and therefore have a direct influence.
Shareholders Major shareholders can influence major decisions. Shareholders want the organisation to
be profitable as they can receive dividends.

Management has the responsibility of running a successful business. They introduce

Managers policies and procedures in order to manage complex legal and social issues.

They influence the quality level of the product as it depends on their level of skill and
Employees commitment to the process. If organisations provide to their needs, employees will be
more inclined to put effort into tasks.

Consumers are better educated and informed and are a powerful stakeholder. They are
Customers prepared to seek compensation if necessary. Consumer groups also mount campaigns to
raise awareness about unethical businesses.

Some issues that affect society include waste disposal, carbon emissions, employment.
Society Businesses will participate in a number of community projects.

There is growing pressure for businesses to act in an environmentally friendly way. In

Environment recent years, businesses are incorporating more environmental practices in order to
respond to changing social expectations.
MANAGEMENT APPROACHES

The various approaches to management determine the way the manager interacts with employees,
influencing their decision-making process. They are the techniques used to direct and control the
organisation. Some businesses utilise one over the other while others use a flexible method of
management adapting it to the changing circumstances of the business.

Classical:
The classical approach to management is also known as management as planning, organising and
controlling.

1. Planning. This involves the manager formulating objectives for the business that directs future
action and leads to the achievement of business goals being achieved.
Levels of Planning
- Strategic (long-term) planning is planning for the following three to five years.
This is performed by the executives of the company.
- Tactical (medium-term) planning is flexible, adaptable planning, usually over one
to two years. This is performed by the middle-management.
- Operational (short-term) planning provides specific details about the way in
which the business will operate in the short term. This is performed by
supervisors and project managers.

2. Organising. This involves the actual processes the manager runs, taking resources and allocating
them effectively to achieve these objectives.
3. Controlling. This involves the manager evaluating the effectiveness of the achieved work and
identifying problems to be rectified in the future.

The classical approach to management, often split into bureaucratic or scientific, is a management
approach with clear lines of authority, following the autocratic leadership style.

It has the main goal of increasing productivity and efficiency, by using a task/activity centred approach to
management.

Features of the classical approach to management include:

➔ Clear lines of communication
➔ Clear direction of communication (from top to bottom of hierarchical structure)
➔ Work split into simple repetitive tasks, delegated to employees, so that they are specialists at their
work
➔ Autocratic management style
➔ Quick decision making for managers, with employee input not allowed
➔ Monetary rewards as the most common incentive

Autocratic Leadership:
Autocratic leadership involves the manager having complete control over the employees and not taking
any input from them. They are rather, in complete control over what the employees do.

Advantages of the autocratic style include:

➔ Clear easy to understand directions
➔ Lower change of uncertainty or miscommunication due to the clearer one-way line of
communication
➔ Easier monitoring of performance
➔ A stable hierarchical structure provides a stable providing employees with a consistent
environment
 ➔ Efficient use of time as problems are dealt with quickly with no discussion

Disadvantages of the autocratic style include:

➔ Lack of employee input
➔ Preventing employee creativity and innovation
➔ Lesser chance of positive employer to employee relationships
➔ Lower job satisfaction as employees are dissatisfied by the lack of shared control
➔ Can lead to high employee turnover

Behavioural:
The behavioural approach to management is also known as management as leading, motivating and
communicating.

1. Leading. This involves the manager that does not only build systems and processes but also
relationships.
Manager Vs Leader
- While a manager sticks with what works, leaders challenge it. They are change
agents constantly looking for ways to improve the business.
- Managers create goals while leaders create a vision to be shared with the staff.
- Managers make all the decisions while leaders encourage employees to
participate in the decision making process.
- Leaders focus on people more than the processes the people have to undertake.

2. Motivating. This involves the techniques the managers utilise in order to encourage the
employees to work productively and efficiently in order to benefit the business. This can involve
both monetary and non-monetary rewards.

3. Communicating . This involves the manager consistently connecting with the employees, taking
their feedback and continuously trying to improve the process to cater to everyone’s needs.

The behavioural approach to management is the ‘people-based’ approach utilised by businesses

following the ideal that people are the businesses most important resource and the happier they are the
more the business will benefit. It promotes participative decision making and team development by
focusing on aligning individual and group objectives and enabling employees to provide their input in all
stages of the decision-making process.

Features of the behavioural style of management include:

➔ Two-way communication
➔ Team-based work plans
➔ Positive employee to employer relationships
➔ Organisation with shorter chain of command
➔ Development of multi-skilled and mutli-tasking employees
➔ Organisation with wider span of control
➔ Participative/ Democratic management style
➔ Mixture of monetary and non-monetary rewards offered as incentive

Participative leadership style:

This style of leadership encourages employees input and integrates it as part of the decision-making. It
involves shared power and strengthens connections within the business. It involves an inclusive mindset
and good interpersonal skills

Advantages of the participative leadership style:

➔ Higher levels of job satisfaction
 ➔ Lower levels of employee turnover with greater retention
➔ Employees more obligated to work well for the business, improving productivity levels
➔ Employees allowed to unleash their creativity and innovation which could benefit the business
➔ Employees able to learn new skills
➔ Employees encouraged to maintain positive connections with managers and colleagues, through
the use of work teams

Disadvantages of the participative leadership style:

➔ More confusing with multiple lines of communication can lead to miscommunication and
interpretations of information → influencing errors to be made
➔ More time required for decisions to be made, as more sources of input influencing every decision
➔ Inefficient
➔ Can lead to an informal system, and cause the management system to collapse entirely

Teams-
This approach focuses on the use of work-teams which enables:
➔ The reduction of stress for individuals
➔ Motivation of each other
➔ Learn from each other and develop one’s own skills
➔ Develop interpersonal and communication skills
➔ Create positive connections that can help generate more productive work overall

Contingency:
The contingency management approach involves a flexible approach adapting to the business’ changing
circumstances and switching between the behavioural or classical approach to management.

Example:
❖ When the business gains new inexperienced employees, it may switch to the classical approach in
order to maintain the efficient completion of work, offering these employees with clear directions
and easy repetitive tasks
❖ When the business has experienced employees, it may switch to the behavioural approach in
order to cater to the growing needs of these workers and to retain them, by encouraging them to
stay. By giving these experienced employees more freedom and sharing the manager’s power
with them, they are more likely to feel obligated to help the business achieve its vision and most
likely have creative solutions or improvements to be made that ultimately affect the business.
Management Approaches
In particular, management approaches influence:
• the organisation and allocation of tasks to staff
• the organisational structure
• levels of management
• management styles.

classical approach ( finding ‘one best way’ to perform and manage tasks.)
classical/scientific management ( an approach that studies a job in great detail to discover the
best
way to perform it )

1. Scientifically examine each part of a task to determine the most efficient method for
performing the task.
2. Select suitable workers and train them to use the scientifically developed work methods.
3. Cooperate with workers to guarantee they use the scientific methods.
4. Divide work and responsibility so that management is responsible for planning, organising
and controlling the scientific work methods, and workers are responsible for carrying out the
work as planned.

Classical approach is generally the division of labour into function-related units; tasks were
divided into small, specialised activities. employees follow their own self-interest and display a
natural desire to avoid work. Therefore argued, required tight control by supervisors and
managers. There is a need for management to control workers and ensure they follow
instructions by rigid rules and regulations based on a hierarchy of authority.
E.g McDonalds makes a big mac their process uses a very specific amount of time etc.

Classical bureaucratic management

a strict hierarchical organisational structure
• clear lines of communication and responsibility
• jobs broken down into simple tasks; specialisation
• clearly defined job roles
• rules and procedures
it contributed to a rational and more efficient organisation, because everyone knew their
status and position in the organisation.
 – management as planning, organising and controlling

Strategic (long-term) planning is planning for the following three to five years.
Tactical (medium-term) planning is flexible, adaptable planning, usually over one to two years,
Operational (short-term) planning provides specific details about the way in which the
business will operate in the short term.

– hierarchical organisational structure

Characteristics of the pyramid-shaped organisational structure include:
• rigid lines of communication
• numerous levels of management, from managing director to supervisors
• clearly distinguishable organisational positions, roles and responsibilities
• hierarchical, linear flows of information and direction, with a large amount of
information directed downwards
• specialisation of labour resulting in tasks being divided into separate jobs
• a chain of command that shows who is responsible to whom
• centralised control with all strategic decisions made by senior management.

– autocratic leadership style

A manager using an autocratic leadership style tends to make all the decisions
and frequently checks employee performance. The autocratic manager generally provides
clear directives by telling employees what to do, without listening to or permitting any
employee input. This style of manager controls the people in the business closely and
motivates through threats and disciplinary action.

Advantages
• Directions and procedures are clearly defined and there is less chance of
uncertainty.
• Employees’ roles and expectations are set out plainly, so management can
monitor their performance.
• A hierarchical structure provides a stable and consistent environment in which
the outcomes almost always match management objectives.
• Control is centralised at top-level management, so time is used efficiently and
problems are dealt with quickly because there is no discussion or consultation.

Disadvantages
• No employee input allowed, so ideas are not encouraged or shared. This means
employees do not get the chance to develop their skills or to feel valued in the
organisation.
• It ignores the importance of employee morale and motivation. When no
responsibility is given to lower level staff, job satisfaction decreases, which
ultimately affects issues such as absenteeism and staff turnover.

behavioural approach
stresses that people (employees) should be the main focus of the way in which the
business is organised.
• The main features of behavioural management approach include:
– humanistic approach: employees are the most important resource
– economic and social needs of employees should be satisfied
– employee participation in decision making
– team-based structure
– managers need good interpersonal skills
– democratic leadership style emerging.

According to the behavioural management approach, the main management functions are:

– leading: having a vision of where the business should be in the long and short
term
– motivating: energising and encouraging employees to achieve the business’s
goals
– communicating: exchanging information between people; the sending and
receiving of messages.

– management as leading, motivating, communicating

– teams
– participative/democratic leadership style
Advantages:
• Communication is a two-way process.
• Employer/employee relations are positive and there is reduced likelihood of
industrial disputes because employees are more likely to accept management
decisions.
• Motivation and job satisfaction are optimal as employees feel they have played
an active role in allocating tasks and implementing actions to meet objectives.

Disadvantages:
• Reaching decisions and introducing tasks can be time consuming with differing
views having to be considered. The quality of decisions may also suffer because
compromises are made rather than decisive, clear directions given.
• The role of management, and the control of the manager, may be weakened and
undermined, with employees given too much power in some cases.
contingency approach
– adapting to changing circumstances
The contingency management approach stresses the need for flexibility and
adaptation of management practices and ideas to suit a particular situation.
• Due to the unstable business environment, managers need to be flexible and
borrow and blend from a wide range of management approaches.

------------------------------------------------------------------------------------------------------------------------------

Marketing Management
- Definition:
‘Marketing is the process of planning and executing the conception, pricing, promotion and
distribution of ideas, goods and services to create exchanges that satisfy individual and
organisational objectives’.

The marketing mix, also known as the 4 P’s of marketing, include: Price, Place, Product, Promotion

MARKETING MIX
Price - Three methods of choosing to price for a product: Cost based, market based,
competition based

- Cost based Considers the cost of the product to the

business itself, and an additional amount is then
added in order to make a profit

- Market based Price of the product is dependent on the market

itself, or rather supply and demand. (eg -
greater demand - higher prices)

- Competition Price dependent on the varying competition a

based business has for a certain product

- There are also pricing strategies for a business to use, including price skimming,
price penetration, loss leader and price points

- price skimming When a business charges its

consumers the highest possible price
for a certain product at the beginning
of its product life cycle, in order to
create a sense of prestige or due to
special features
 - price penetration When a business sets a price of a
product at its lowest possible, and
thus gaining a customer base due to
its low price, thus ‘penetrating’ the
market as prices are lower than
competitors

- loss leader When a business provides a limited

number of goods at a price that
generates minimal profit/loss to
encourage consumers to purchase
other goods from the same business

- price points When a business sets different prices

for similar products, differentiated
mainly through features. Eg. When
apple charges different prices for
different iPhone models, such as the
budget range, mid-range, and
flagship phones.

Place - Place in marketing refers to the various processes and activities which enable
products to be available to customers, including where and when they can
purchase the product
- A distribution channel is a ‘pathway’ of making a product available from the
manufacturer to consumer. There is Producer to the customer, Producer to
retailer to customer and producer to wholesaler to retailer to customer.
- Retailers and wholesalers are intermediaries, who act as a link in the distribution
chain. Eg, with producer to consumer, there are no intermediaries.
 Product - A good (tangible) or service (intangible)
- Marketers must do extensive research on the life cycle of a product
- Factors such as branding, packaging, quality, design, labelling, features,
warranty/guarantee, name etc must be considered

TOTAL PRODUCT CONCEPT

Promotion - Public aspect of marketing

- Three different types of promotion, including personal selling, relationship
marketing and sales promotion.

Personal Selling Taking a product directly to

consumers, such as door-to-door
selling, sales representatives etc

Relationship marketing Process of building relationships with

customers, and maintaining them
long term, eg. special deals for long
time customers or providing good
customer service

Sales promotion Special offers, discounts, campaigns,

promotions, social media
competitions, samples etc. They
generate interest for a product

Advertising

IDENTIFICATION OF THE TARGET MARKET:

Definition: A target market is a group of individuals or customers in which a business focuses their
marketing efforts on. Target markets are composed of individuals who exhibit similar characteristics. A
business can have different target markets for different products, or can solely focus on one in total.
Different marketing approaches include mass marketing, market segmentation, and niche marketing.

Diagram of different marketing approaches:

MASS MARKETING:
- Mass marketing refers to when one single product is marketed to as many people, or the greatest
number of people as possible. For example, Coca Cola, petrol, electricity, gas, towels, hand
sanitiser, rice etc. Essentially, mass marketing targets the largest range of customers possible.

MARKET SEGMENTATION:
- Market segmentation refers to a marketing approach that involves dividing and organising
customers into groups or segments with common or shared characteristics and needs, and
focusing on these segments.

Psychographic -
Demographic – Behavioural –
Geographic - lifestyle (people’s
population loyalty to a
where people live attitudes and
characteristics product
values)
• Age • Urban • Personality • Purchase
• Gender • Suburban • Aspirations occasion
• Education • Rural • Motives • Benefits sought
• Occupation • Regional • Socioeconomic • Loyalty
• Family Size • Climate group • Use rate
• Landforms • Consumer • Price sensitive
opinions and
interest

NICHE MARKETING:
- Niche marketing is very similar to market segmentation in the way that involves dividing and
organising customers into groups or segments with common or shared characteristics; however, it
is much more narrowed down into a much smaller and more specific demographic. Examples of
niche marketing include magazines which cater to many different demographics.

-------------------------------------------------------------------------------------------------------------------------------
Management and change
responding to internal and external influences
● Changes can be major/transformational - a complete restructure, involving many or most
employees/stakeholders OR minor/incremental changes - only a few employees involved, small
changes which eventually create a new work culture
● Structural responses are sometimes needed to respond effectively to change;
○ Outsourcing
○ Flatter organisational structure
○ Work teams
○ New management
○ Strategic alliances/networks
● Proactive - creating opportunities by anticipating and forecasting future, dealing with potential
problems using strategies for growth; always good to be both proactive and reactive

managing change effectively

change can be:
● Consumer taste - trends, values, celebs, social attitudes, environmental conditions (culture,
technology, accessibility)
● Production methods - outsourcing, suppliers, using labour v capital, automation or manual,
environmentally or socially responsible behaviours
● Markets - current happenings, strikes, awareness, trends, news such as cash rate, inflation,
economy, supply and demand of that industry market, overseas employees sourcing (borders,
allowances, inflow)
● Products - high interest rates, inflation, supply and demand
● Employee tasks - efficiently, effectiveness, innovation, advanced economy
● Values/Ethics

identifying the need for change

● Changing environment = threats or opportunities to progress
○ Businesses can not avoid or ignore changes + impact therefore making good management
decisions
● Effective managers - always assess own and business performance

business information systems

● BIS: examines + analyses info, identify trends + patterns
○ Allows managers to make decisions + justify change
○ In a business, can see how well business is going/why not on course
● MIS: Management Information Systems, development + use of info systems that help business
achieve goals + objectives - is a type of BIS

setting achievable goals

● Creating a culture of change where it is encouraging for employees and motivates them to do well
● Doing SWOT analysis
Strengths- internal,
Weaknesses- internal,
Opportunities- external,
Threats- external,
● Realistic vision + goals
○ Short term objectives to understand easier and achieve better

resistance to change
● Reasons:
○ Time to adapt
○ Comfort levels/zones
○ Fear of unknown
 ○ Emotionally stressful
○ Effort
○ Unfamiliar
○ Fear of job loss
○ Nostalgia
○ Emotional connection
○ Cots
○ Routine
● Strategies to combat resistance:
○ Implement change in several stages
○ Communicate with employees
○ Effectively engage employees
management consultants
● Change agents - people who act as catalysts (managers, employees, consultants)
○ They can improve staff morale, lower absenteeism and inspire genuine staff interest in
improving productivity
● External experts who examine the effectiveness and efficiency + work w management to
implement change
Business Growth and Decline
The business life cycle is a model that refers to the different theoretical stages a business can
experience. Appropriate strategies which need to be implemented will vary with the challenges
at each stage, and failure to select the best ones may result in business decline. Not all business
owners may want to expand, as they might be content with a stabilised revenue stream.
Establishment
Key Features
- Relatively few sales
- Break-even analysis
- Reactive management
- Few employees
- High risk
- Minimal cash flow
Growth
Key Features
- Sales, revenue, profits ↑
- Growing customer base
- Business activity, output ↑
- Formalisation of
management
- Production costs ↓
→ economies of scale
Maturity
Key Features
- Plateauing sales
- Stabilised profits,
revenue
- Redefining objectives &
vision
- Tendency to reduce risk
→ market share ↓
Challenges
- Management decisions
- Allocation of resources
- Lack of access to sufficient funds
(under-capitalisation)
- High start-up costs
- Finding a location, gathering
resources, staff
Challenges
- Continuous monitoring of cost &
availability of inputs
- Growing needs and customer
demand
→ may need to relocate
- Maintaining cash flow, revenue
- More capital equipment needed
Challenges
- Competition ↑
- Maintaining customer relations,
brand loyalty
- Possible management complacency
→ market share ↓
- Still looking for and acting to
changes in consumer demand
Opportunities + Strategies
- Building towards a customer base
→ regular revenue stream
- Advertising campaigns, marketing,
etc.
- Positive customer relations
- Growth if challenges successfully
countered
Opportunities + Strategies
- Product differentiation
- Horizontal, vertical integration
- Mergers & acquisitions
- Extra finance (debt/equity)
- Sustained growth
- Redefined role of management,
→ responsibility ↑
Opportunities + Strategies
- Greater focus on marketing
strategies
- Reducing responsibilities of
management
→ avoid burnout
→ teams, efficiency ↑
- Proactive management
→ monitoring change
 - Uncontrolled costs lead - Identifying further opportunities to - Cost-cutting through innovation
to expand
→ cash flow ↓ - Mergers, takeovers, diversification
→ risk ↑ - Maintaining staff motivation → competitive advantage ↑

- Market saturation

Post-maturity
Key Features Challenges Opportunities + Strategies

Renewal - Essentially repeats - Capitalising on new growth - Moving to new domestic

growth stage opportunities and/or overseas markets

- Sales, profits ↑ - Funding R&D - Introducing change in

business environment
- Understanding new
changes in the market - Meeting consumer demand

Steady - Similar to maturity, - Approach is not - Change can lead to a better

state operating at same level sustainable environment and increase in
productivity
- Consumer demand is - Forced adaptation to
being satisfied change - Proactive management

- Reduced risk - Revenue stream is - Expenditure on R&D

constant, not increasing

Decline - Products stop being - Products don’t meet - Very difficult to reverse if
purchased consumer demands business reaches this stage

- Profits decline - Negative cash flow - Best hope is to inject more

money and innovate, or
- High risk of failure - Difficult to access maintain product in the hope
additional funds that competitors will stop
- Low employee selling theirs before
retention - Unsold stock → potential demand ↑

Factors that Contribute to Business Decline

External Factors Internal Factors

Government policies Lack of management knowledge

Unexpected competition Insufficient planning

Natural disasters Inadequate cash flow and finance

Poor location, failure to meet consumer

demands
Two main reasons for decline are lack of management expertise and undercapitalisation.

Lack of management expertise- Management staff who are incompetent and do not have the
necessary skills to run a business will lead to business decline. This includes when a business
does not create a plan or update it when changes arise.

Undercapitalisation- Insufficient funds and capital, paired with a negative cash flow, will not
enable businesses to purchase new stock and equipment. This results in fewer sales and
potentially a loss.

Cessation
Voluntary cessation occurs when the owner decides to stop operations. Assets owned by the
business are sold. Increasing debts and negative cash flow are two common reasons for
voluntary cessation.

Involuntary cessation occurs when the owner is forced to stop running the business; creditors-
people and businesses to which the business owes money to- become concerned when
business continues to decline, and force it to stop trading.

Voluntary reasons Involuntary reasons

Owners wish to retire, reinvest capital

elsewhere, or decide to go into another Death of owner
business venture

Unable to trade/operate profitably Bankruptcy (only applies to individuals)

The business was intended to operate only for

Insolvency (failure to pay debts)
a short period of time

Cessation of a business depends on its legal structure.

- Sole traders and partnerships (unincorporated):

Can be declared bankrupt (not a separate legal entity from owners). This is a declaration
that a business or person cannot pay their debts. Can be voluntary or involuntary.

- Companies (incorporated businesses):

- Voluntary administration- an independent administrator is hired to operate the
business, in the hope that they resolve the financial problems.

- Liquidation- can be voluntary or involuntary and is when the business stops

trading. A liquidator is hired to take control of the business, with the intention
being to sell all assets so that creditors can be paid. Any left over cash is paid to
the owners.
Liquidation

A business in liquidation can also be in receivership-when a business’ creditors or court appoint a

receiver to take control of business’ affairs. Unlike liquidation, a business doesn’t necessarily stop
trading.

Main features of liquidation:

- Equivalent of bankruptcy for an incorporated business
- Results in company ceasing operations
- Usually occurs when business is unable to pay debts; business has become insolvent
Insolvent liquidation:
1. Creditors’ (voluntary) liquidation- most common process, occurs in two ways. First method
involves voting of creditors after voluntary administration. Second method involves the
company's shareholders agreeing to hire a liquidator to liquidate the business.

2. Court (involuntary) liquidation- a court appoints a liquidator to terminate the business,

usually after an application from a creditor, shareholder, a company director, or in some
cases, ASIC

A liquidator’s main responsibility is to the company’s creditors. Their main functions:

● Take possession and convert assets to cash
● Investigate and report about business’ financial and related affairs
● Determine debts owed and pay creditors
● Scrutinise reasons for company’s failure
● Report possible offences by people involved to ASIC
● Deregister or dissolve the company

A liquidator is not required to do work unless there are enough assets to pay their costs.
Nature of Management
Management Introduction
● Tradition Definition- Management is the process of coordinating a business's resources (human
resources, physical resources, financial resources) to achieve its business goals.
● Contemporary definition- process of working with and through other people to achieve business
goals in a changing environment.
Crucial - effective and efficient use of limited resources
Manager - a person that co-ordinated a business's limited resources in order to achieve specific business
goals.

Key Aspects of the Management Process

● Balancing efficiency and effectiveness
● Achieving the goals of the business
● Working with and through others
● Getting the most out of limited resources - efficiency
● Coping with a rapidly changing environment

Features of Effective Management

Effective Managers must be good at POLC

➔ Planning - preparation of a predetermined course of action for a business. The process of setting
objectives and deciding the methods to achieve them
➔ Organising - the structuring of the organisation to translate plans and goals into action. Achieving
action and movement in the direction of business goals
➔ Leading - influencing or motivating people to work towards the achievement of the organisations
objectives.
➔ Controlling - compares what was intended to happen vs what has actually happened, expected
outcomes vs reality
Effective manager must coordinate all individual concepts to ensure a joint effort will achieve business
goals.

Skills of Management
Managers require a wide range of technical, conceptual, and interpersonal skills.

Interpersonal Skills
Skills essential to work and communicate with other people and to understand their needs - coherency

● Communication
Involves the exchanging of information or news. Includes both verbal and non verbal aspects.
Effective managers listen to their employees and learn from the people that work for them.

● Supportiveness
An effective manager creates an atmosphere in which their employees know they are supported.
To build such an environment, managers must send messages that acknowledge the efforts of
their employees and their needs. Supportive managers radiate likeable qualities such as empathy,
ability to be non-judgemental and collaborative teamwork skills.

● Motivation
Effective managers customise their interactions to attend to different employees needs - and
wants - in order to be more likely to influence their behaviour.

● Conflict Resolution
Effective leaders help parties engaged in disagreement find a resolution. Several skills are needed
to resolve conflicts in the workplace effectively; an ability to view problems and issues from
multiple perspectives, strong problem solving skills, active listening, an ability to think critically
and objectively, and an ability to empathise and compromise.

● Self management
Total responsibility for POLC. Delegates responsibilities for these functions to staff; each
employee is responsible for planning their own work, coordinating their actions with their
colleagues, acquiring resources and taking corrective action when necessary.

Management Skills

Strategic Thinking
Allows a manager to view the business in its entirety - establishing the necessity of each functional
counterpart present within it. Enables them to
➔ Visualise the interrelation between teams and individuals
➔ Understand the effect of any action on the business
➔ Gain insights into an uncertain future
➔ View the business in quantitative data samples, context of events and trends => identifying
 opportunities/threats
Involves reflecting on the businesses future direction and the future goals.

Vision
“The clear, shared sense of a direction that allows people to attain a common goal.”
Without this factor, it may be difficult to achieve a sense of cooperation and commitment, which makes
achieving goals impossible. The most effective way for managers to share their vision for the business is
through the organisation's goals.

“A manager without clear vision for the business is like a person who attempts to lead a bushwalk without
any idea where the group wants to go,without a compass or a map. The walk will become aimless.”

Managers will have to display leadership (the ability to influence people to set and achieve specific goals)
qualities. Will utilise such abilities to act as a bridge on which to support team members as they cross
from existing ideas into unfamiliar territory.

Problem Solving Skills

Broad set of activities involved in searching for, identifying, and then implementing a course of action to
correct an unworkable situation. A good problem solver can think laterally, creativity and decisively.

Decision-Making
Process of identifying options available, then choosing specific course(s) of action to solve the specific
problem.
● Effective decision-making involves being able to make decisions within a particular time frame,
=> also requires a manager to adequately assess the risk involved if the decision is implemented.

Flexibility and Adaptability to Change Skills

Successful managers are those who anticipate and adjust to changing circumstances. They must be
flexible (refers to being responsible for change and able to adjust to changing circumstances), adaptable,
and proactive (management style that incorporates dynamic action and forward planning to achieve
particular objectives) rather than being reactive.

Reconciling the Conflicting Interests of Shareholders

Stakeholders are groups and individuals who interact with the business and thus have vested interest in its
activities.
➔ Society expects businesses to be able to provide for all their stakeholders
➔ Most businesses are now extremely sensitive to public opinion
➔ All stakeholders interacting with a business require something different.

Achieving Business Goals

Profits
Only profitable businesses survive in the marketplace, thus the goal is for profit maximisation

Ways to maximise profit through increasing sales:

- Lowering prices of products so consumers can purchase higher volume of products
- Well-targeted marketing campaigns
- Improving product quality to increase consumer loyalty

Businesses entering new markets usually perform besr by setting low initial prices
↳ Lower profits/ short term losses → long term benefits

Market Share
Market Share refers to the businesses’ share of the total industry sales for a product.

Increasing a businesses’ market share enables greater potential for sales, and thus capital to support future
business ventures. (can lead to business expansion, product innovation, product line expansion etc.
activities which all benefit business and ↑ profit)

To gain larger market share, business can:

- Develop extensive product range using brand names (for Large businesses)
- Implement product differentiation
- Expand geographically
- Promotion/ increase marketing

Market share of SMEs is restricted to size of business, so if market share is of interest, recommend
business expansion.

Growth
Businesses can achieve growth internally or externally.

INTERNAL EXTERNAL
 - Employing more people - Merging with businesses
- Increasing sales - Acquiring another business
- Introducing innovative products
- Buying new equipment
- Establishing more outlets

All businesses can achieve business growth, not just large.

↳ SMEs have expanded to become large businesses

HOWEVER, some small businesses stay small to:

- Avoid added pressures of expansion in desire for quiet life
- Keep control over business operations
- Maintain personal contact w/ customers

Share Price
Successful businesses must maximise returns of shareholders. This is achieved by keeping share price
rising; constantly improving share price; paying back healthy dividends.

Unethical activities may temporarily improve share price, but end up being detrimental.

Ways a business can increase share price:

- Mergers and Acquisition
- Raising debt
- Organisational restructuring
- Diversification
- Stock repurchase

(This probably wont be assessed since we didn’t look into it in detail)

Social
Businesses have social responsibilities as they operate within a community

Main social goals

1. Community service - eg. sponsorship of community events, financial support for educational,
cultural or sporting activities
2. Provision of employment
3. Social justice

Environmental
Economic growth must be achieved sustainably for long term consideration of resources on Earth.

Businesses should aim to have practises that are not at the expense of polluting & degrading air, water and
forests- all of which support life on earth.

This fundamental principle can be seen executed in sustainable business goals.

Sustainable development is the balance between economic and environmental concerns.

______

Achieving a mix of the above goals is crucial for a business to set clear targets and effectively maxmise
the fruitfulness of their business.
_____
Staff Involvement
Staff involvement refers to the participation of employees which helps achieve business goals and
objectives.

How does it help achieve goals?

- Innovation is enabled through motivated employees who strive to demonstrate intrapreneurial
traits, thus benefitting the business through obtaining a competitive advantage
- Motivation provides incentive for staff to put more effort into achieving goals
- Mentoring allows staff to understand and work towards goals
- Training staff effectively ensures that business values are instilled into employees
Management Processes
Operations
Operations refers to the business processes that involve transformation or ‘production’, it applies to both
the manufacturing and service sector. Essentially, operations is the work of managing the inner workings
of a business so it runs as efficiently as possible.

Operations Management
Operations management consists of all the activities in which the business engages in to produce a good
or service. It is concerned with creating, operating and controlling a transformational process that takes
inputs from a variety of resources, and produces outputs of goods and services.

Goods and Services

A manufacturer will transform inputs into outputs, either a good or a service.
● Goods are tangible items that can be used and stored.
● Services are intangible processes that cannot be stored.

The Production Process

Inputs
Inputs are the resources utilised in the transformation (production) process

Transformed resources are those inputs that are changed or converted in the operations process, they are
transformed by the operations process. Transformed resources include:
● Materials: the basic elements used in the production process
● Information: the knowledge gained from research, investigation and instruction, which results in
an increased understanding.
● Customers: customers become transformed resources when their choices shape inputs
Transforming resources are those inputs that carry out the transformation process. They enable the
change and value adding to occur. The two main transforming resources are:
● Human resources: the people employed by the business
● Facilities: the plant and machinery used in the operations process

Transformation Processes
The main concept of operations management is transformation, the conversion of inputs (resources) into
outputs (goods or services).
NOTE: Transformation implies physical changes, but it also includes the conversion of resources into
services. For example, school takes its main inputs of teachers, students and the syllabus and converts it
into the service of education.

Each business has a differing transformation process depending on the role and prime function of the
business.
Sample transformation process in the manufacturing businesses

Sample transformation process in service businesses

Outputs
Outputs refer to the end result of a business’s efforts/procedure - the good or service that is delivered or
provided to the consumer.

Quality Management
Quality management is the strategy which a business uses to make sure that its product meets customer
expectations. The three quality approaches are quality control, quality assurance and total quality
management.
Quality refers to the degree of excellence of goods and services and their capability for a stated purpose.

Quality control involves the use of inspections at various points in the production process to check for
and prevent problems and defects. Businesses have been able to minimise errors and waste through the
performance being compared to established criteria.
Examples of undertaking quality control includes inspections, peer reviews, and software testing
processes.

Quality assurance involves the use of a system so that a business achieves set standards in production.
Organisations have created a quality management system in place to ensure that set standards are
achieved. The ISO(International Organisation for Standardisation) 9000 series of quality certifications is a
widely used international standard. Though voluntary to meet these standards, many businesses do to
remain competitive locally and internationally. The ISO provides guidelines on how businesses should
establish quality assurance systems by adopting specific procedures, controls and recording and
documentation measures.

Quality improvement focuses on two aspects; total quality management and continuous improvement.
Total quality management(TQM) is an ongoing, business-wide commitment to excellence that is
applied to every aspect of the business’s operation.
The aim of TQM is to create a defect-free production process, and maintain a customer focus in
operations. Through adopting TQM, the price competitiveness of a business and the product quality can
be improved, allowing a competitive advantage.
To achieve TQM objectives a number of approaches may be used:

Continuous improvement is a process that involves a constant evaluation of, and improvement in the
way things are done. Higher and higher standards are set in the continual pursuit of improvement.

Benefits of quality management practices

● Reduced waste and defects
● Reduced variance in final output
● Strengthened competitive position
● Improved reputation and customer satisfaction
● Reduced costs
● Increased productivity and profits
 Human Resources
○ Human resource management:
Defined as the effective management of the formal relationship between the employer
and the employees.
OR
○ Human resource management:
Refers to systems that have been developed to manage people within an organisation or
business.

○ The human resource cycle:

There are four main elements of the human resource cycle are:
1. Acquisition: Hiring new employees
a. Planning:
identifying staffing needs; job analysis (determining the exact nature of the
position to be filled)
b. Recruitment:
attracting people to apply for the position in the business; internal and external
recruitment
c. Selection:
choosing and hiring the most qualified; testing and interviewing

2. Development: Improving employees’ skills and abilities

a. Induction and training:
teaching employees new skills and helping them learn tasks associated with their
jobs
b. Development:
the process of improving the skills, abilities and knowledge of staff

3. Maintenance: Motivating employees to remain with the business

a. Monetary benefits:
rewarding employees’ efforts through financial compensation; pay rates
b. Non-monetary benefits:
rewards such as conditions; fringe benefits

4. Separation: Employees leaving the business

a. Voluntary:
employees leaving on own accord; retirement, resignation
b. Involuntary:
employees being asked to leave; retrenchment, dismissal

Human resource management (HRM) refers to the management of the

total relationship between an employer and employee in order to
achieve the strategic goals of the business.
Key terms:
○ An employer:
for legal purposes, exercises control over employees, has responsibility for payment of
wages, holds the power to dismiss employees.

○ An employee:
is a worker under an employer’s control. Control may involve: the location of the
workplace, the way in which the work is performed, and the degree of supervision
involved.

○ Human resources:
is a term which refers to the physical and intellectual resources of people who make up a
business’s staff. It includes skills, attributes and knowledge of the staff.

The main functions of staffing are to attract and acquire, train and develop, reward, maintain, and
separate the people (the human resource/employment cycle) needed to achieve the business's
goals.

The Human Resource Cycle:

The human resource cycle

involves a business
determining its employment
needs in line with its
business strategy.
The four main elements of
the human resource
cycle/staffing process are
acquisition, development,
maintenance and
separation.

Stage ONE: Acquisition:

Key ideas:
○ Acquisition:
 is the process of attracting and recruiting the right staff for roles in a business.

○ Acquisition involves three key activities:

⇸ Human resource planning (identifying staffing needs):
is the development of strategies to meet the business’s future staffing needs. i.e.
identifying staffing needs, forecasting the future demand for employees and estimating
the supply available to meet that demand.
⇸ Recruitment:
is the process of finding and attracting the right quantity and quality of staff to apply
for employment vacancies or anticipated vacancies.
⇸ Employee selection:
involves gathering information about each applicant for a position, and then using that
information to choose the most appropriate applicant.

Step 1: Identifying staffing needs (human resource planning):

Identifying staffing needs:

includes the development of strategies to meet the business’s future staffing needs, forecasting
the future demand for employees and estimating the supply available to meet that demand.

Job analysis: specifying staffing needs

is a systematic study of each employee’s duties, tasks and work environment. The business must
determine the exact nature of a job before it can recruit the right person to do it.

Job analysis comes in two parts:

1. Job description – a written
statement describing the
employee’s duties, tasks and
responsibilities associated with
the job
2. Job specification – list of key
qualifications needed to
perform a particular job in
terms of education, skills and
experience

Step 2: Recruitment:

Recruitment:
involves finding and attracting the right people to apply for a job vacancy. When an organisation
decides to recruit staff, it may choose internal or external recruitment methods.

○ Internal recruitment:
occurs when a business decides to appoint someone already within the business to a
vacancy. (e.g. promotions, transfers, etc.)

○ External recruitment:
used to find suitable applicants from outside the business, because staff planning has
identified the need for a new position.

NOTE: The recruitment method chosen will depend on the size of the business, the type of
position available and the nature of the labour force in the business’s particular area.

Outsourcing: - trend for external recruitment

is the business practice of hiring a party outside a company to perform services and create goods
that traditionally were performed in-house by the company’s own employees and staff.

Step 3: Selection:

Employee selection:
is the means by which the employer chooses the most suitable applicant for a vacancy.

Stage TWO: Training and Development:

○ Training:
is teaching staff to perform their job more efficiently and effectively by boosting their
knowledge and skills. (i.e. training staff so that they can ‘do their job’)
○ Development:
is the process of preparing employees to take on more responsibilities in the future through
acquiring better knowledge and skills, and gaining more experience in a particular area.
⇸ Developing staff often involves training. (i.e. training staff so that they can
‘upskill for higher positions/jobs’)
⇸ Development aims to seek-long term change in employee’s skills, knowledge,
attitudes and behaviours in order to improve work performance

Training and development are aimed at improving employees' skills and abilities - they are
necessary for both personal and business growth.
The aim of training and development is to seek long-term change in employees' skills,
knowledge, attitudes and behaviour in order to improve work performance in the business.

Types of training and development:

 Explanation Example

(Formal) ● When employees are trained away from the workplace University, TAFE,
Off-the-job ● Involves sending individuals or groups of employees to a particular specialist,
training specialised training institution or specialist provider to gain a classroom
recognised qualification or to gain knowledge relevant to an activities, seminars,
industry, type of equipment or product. and simulations.

(Informal) ● When employees need to learn a specific set of skills to perform Coaching, job
On-the-job particular tasks in the workplace. rotation
training ● This usually occurs within the working environment, and uses the
resources present in that workplace. It may occur while the
employee is performing their regular duties at their regular
workstation, or it may occur in a special setting, such as a training
room or conference room.
● Training may be provided by an experienced co-worker, by a
leader or manager with particular or specific expertise, or by an
external provider.

Action learning ● Learning by experience solving real workplace problems NAB and IBM

Competency- ● Identifies skill strengths and areas where further training is Medical education
based training required uses this method

Corporate ● Businesses can also form partnerships with academic institutions to Coles and Qantas
university develop training

Training ● Computer-based training (the computer becomes a vehicle for

technologies learning), multimedia training, web-based training (training via the
internet).

Induction:
the educational process of making a transition to a new workplace and even a new role
(familiarise the new employee with the workplace so that performance will be more effective)
Performance appraisal:
a process of evaluating the performance of employees

Stage THREE: Maintenance:

○ Maintenance:
focuses on the processes needed to retain staff and manage their wellbeing at work. It
involves looking after staff wellbeing, safety and health, managing communications
effectively, and complying with industrial agreements and legal responsibilities.
○ One way to motivate and retain staff is through offering ‘benefits’, this can be done in the
form of:
⇸ Monetary benefits:
rewarding employees’ efforts through financial compensation (i.e. benefits that can
be converted into cash or can be measured through its monetary value)
⇸ Non-monetary benefits:
are benefits that are not or cannot be, directly measured in terms of monetary units.
(e.g. flex-time, time off, free parking, concerts, team building, etc.)

○ Employment contracts:
is a legally binding, formal agreement between an employer and an employee.
○ Points that need to be considered in employment contracts include:
⇸ Common law: refers to law developed by courts and tribunals.
⇸ Minimum standards: these are minimum employment conditions that are
legislated by the federal government (includes minimum hours of work, parental
leave, a notice of termination and redundancy, long service leave, etc.)
⇸ Awards: is a legally binding agreement that sets out the minimum wages and
conditions for a group of employees.
⇸ Enterprise agreements: are collective agreements made at a workplace level
between an employer and a union, acting on behalf of its employees, or between the
employer and a group of employees, about terms and conditions of employment.

Modern Award:
legally binding agreement that sets out the minimum wages and conditions for a group of
employees. Includes pay rates, holidays, sick, long-service and maternity leave, overtime rates,
allowances for tools or uniforms, and hours of work.

Enterprise Agreement:
collective agreements made at a workplace level between an employer and a union, acting on
behalf of its employees about terms and conditions of employment. It is an opportunity for
employers and employees within a particular business or enterprise to negotiate a set of
conditions that improve on the standards in an award.

Stage Four: Separation:

○ Separation:
is the ending of the employment relationship. There are many reasons why employees
separate from a business.
○ Separation can be classified into two broad categories: Voluntary and Involuntary.
⇸ Voluntary:
occurs when an employee chooses to leave the business of their own free will. There
are three forms of voluntary separation: retirement, resignation and redundancy.
▪ Retirement: Employee chooses to leave the business of their own will.
↳ No longer want to be part of the labour force
↳ No ‘official’ retirement age
↳ Many organisations that provide advice and assistance for those
retiring
▪ Resignation:
↳ Separate due to reasons such as promotion, boredom, change of
lifestyle
⇸ Involuntary:
▪ Retrenchment: Employee is asked to leave business against their will
↳ Employee termination due to lack of sufficient work to keep
employees fully occupied.
↳ Retrenchment is usually motivated by the business’ cost savings
▪ Dismissal: behaviour of an employee is unacceptable → result in termination
of employee’s employment contract
↳ Serious form → summary dismissal e.g. drinking at work
↳ Dismissal of notice → inefficient performance
▪ Unfair dismissal: dismissed for discriminatory reasons. Employee may lodge
an unfair dismissal claim with industry tribunal

⇸ Voluntary/involuntary:
▪ Redundancy: particular job a person is doing is no longer required to be
performed due to:
↳ Technological changes
↳ Merger
↳ Acquisition
▪ Redundancy could be voluntary, as businesses want to decrease the size and
nature of operations, employees will be given the opportunity to receive a
redundancy package.
▪ Redundancy could be involuntary, if no employee accepts the offer of the
redundancy package and the business will nominate an employee to be made
redundant.
Influences on Establishing a SME
● personal qualities – qualifications, skills, motivation, entrepreneurship, cultural background,
gender

Personal Qualities

Qualifications: Official certifications in order to run a business are never necessary but contribute to
success. A degree in business management will help lower the failure rate of a small business.

Skills: Skills can be acquired through expertise, education and training/development. Skills can be gained
through further education such as TAFE, universities and business college courses.
Eg.
• accounting
• computer skills
• staff management
• business administration, including inventory control and rosters
• marketing.

Motivation: Drive, determination and desire to succeed (Main factors include: overcoming
unemployment, profits, capital gains, increasing personal wealth.)

Entrepreneurship: Taking calculated risks to turn an idea into business. Must be confident
decision-makers who are willing to accept responsibility for all the risks they take. There is a growing
number of people setting up a business and working at home.

Cultural Background: Being of a certain cultural background does not guarantee any success but can be
used as an advantage when promoting a business. Being of a certain cultural background can make
relationships with suppliers easier meaning there is more communication and flexibility.

“A person from a Thai cultural background, for example, may be able to succeed in a restaurant business
that aims to provide quality, specialist Thai food.”

Gender:
SMEs contribute more employment and GDP towards Australia compared to large businesses which is
why governments create policies to assist the creation of more SMEs.

- In the Australian economy women are setting up their own businesses at three times the rate of
men.
- In 2006, 31% of all business owner managers in Australia were female and 33% in 2016.
- The major industries in which women own businesses are service oriented.
- Women own almost half of all home-based businesses.
- Women setting up businesses from home is the fastest growing sector of the Australian
economy.
- Women-owned businesses have less external debt, are more profitable and are profitable
much earlier than those owned by men.
 ● sources of information

Sources of Information: Where do SMEs owners seek information and help regarding their
business?

Professional advisers: Provide an objective and independent analysis on a business. Are aware of the
legal, economical and financial environment and its effects on a business.

➢ Accountants- Financial management and Tax obligations

➢ Solicitors- Legal advice on registration, contracts, leases, partnership agreements, patents and
legislation
➢ Bank managers- Advice on financial services, source of finance
➢ Management Consultants- Resolve business management problems

Government Agencies (Federal Government)

The government operates www.business.gov.au for businesses of all sizes answering all concerns from
fair trading to taxation.

Department of Innovation, Industry, Science and Research provide advice on:

❖ grants and venture capital assistance.

❖ exporting overseas
❖ research and development of new products

Government Agencies (State Government)

NSW Department of Planning, Industry and Environment — Small Business
➢ How to start, buy and manage a business and export
➢ Current issues relevant to all businesses (technology and ecommerce)
➢ Workplace issues such as enterprise agreements and industrial relations.

Business Enterprise Centres (BEC) Australia

➢ Non-profit network of Business Enterprise centres providing all ranges of advice for businesses.

Government Agencies (Local Government)

Local government provides advice on land zoning, assists with subsidised land and development
applications.

Chamber of Commerce (Board of Trade)

A form of business network that provides services such as:
➢ legal and financial help
➢ economic and taxation advice
➢ explanation of legislation
➢ and industrial relations information.
➢ Training seminars
➢ Industry conferences
The Business Idea
● the business idea – competition

Entrepreneurs must carefully research a market to identify business opportunities that are overlooked or
yet to be created. Circumstances include:
- New technology
- Political changes – deregulation of an industry
- Departure of a business from a market – ABC learning
- Change in consumer tastes and social attitudes

Competition
A business opportunity depends on the level of competition that exists in the market and potential
competitors.

How to differentiate your business from competition

-Product Differentiation
-Innovation
-Unique promotion

-In order to increase market share.

Establishment options
● establishment options – new, existing, franchise

New Business
Features Advantages Disadvantages

● Suitable for ● Owner makes all ● Hard to obtain debt

entrepreneur with
business idea.
● Highest risk
● Many considerations
pre-opening
decisions
● Less expensive to
establish
● Can choose aspects such
as name and location
● Not paying for goodwill
● No established
preconceptions
finance from banks
● Slow growth- takes long
to break even, get
profits, build customer
base.
● Must train staff (time,
money)
● No past goodwill

Existing business

Features Advantages Disadvantages

● Entrepreneurs must ● All systems, procedures, ● Higher cost as you are

research and conduct
investigation into
business.
policies and operations
are in place
● Loyal customers already
exist- Income stream
● Advice from trained
staff and previous
buying goodwill too.
● Inefficient business
operation can be hard to
change (resistance to
change)
● Business may be in
 owner. decline stage
● Business has passed ● Existing problems may
establishment where exist
most business fail- ● May be buying BAD
easier obtain finance goodwill.
Franchise

Features Advantages Disadvantages

● Franchisee doesn’t have ● Reduced risk of failure ● Costs more than

as much control
● An already established
and known brand.
(only 12% of franchises
fail)
● Expert advice from
franchise
● Suppliers and materials
(inputs) already
established
● Well established
procedures.
● Sellings a proven, well
established, profitable
product
establishing a new
business.
● Percentage of sales
always goes to franchise
● Less independence
● Too many franchises
may exist, creating
competition between
franchises

Market Considerations
● market – goods and/or services, price, locatio

Goods and/or Services

When considering a good or service, businesses must perform market analysis and market research in
order to understand whether or not their product will be successful or not, as well as the main competitors
in the market. This will allow a business to make necessary changes to the product.

Price

Businesses need to consider their pricing method and specific pricing strategy. This includes:

- Cost-based pricing - marking up the price based on production cost

- Market-based pricing - the highest price that the consumer is willing to pay becomes the price of
the product.
- Competition-based pricing - the business considers the pricing of competitors and determines the
price based on this.

Pricing strategies:

- Loss leader - the price is lowered so that the business makes minimal or negative profit in order to
attract more consumers in an existing market
 - Penetration - the price is lowered in order to gain access to a new market
- Product deletion - the price on products that have lost their popularity is lowered in order to clear
stock, making way for new stock that is in demand.
- Market skimming - the price is placed as high as possible in order to maximise profits.

Location

By considering the nature of the consumer market and understanding where consumers like to purchase
certain goods and services from, a business can decide on an appropriate location. Options include:

- Shopping complexes
- Retail shopping strips
- Online presence
- Home-based businesses

Legal Considerations and Influences

● legal – business name, zoning, health and other regulations

Business Name
Business name is an integral part of the positioning of a business. Businesses need to register their
business name with the Australian Securities and Investment Commision (ASIC). Businesses need to
consider the fact that the business name they register may already be taken, and therefore must be
prepared with a backup or several backup options. If the business name is integral to the operations of a
business, it can be trademarked and declared Intellectual Property. Business Name Act 1962

Zoning

Businesses must consider zoning when choosing a location. Government authorities have allocated areas
for specific uses of land in order to reduce noise and industrial pollution in residential areas. As a result,
businesses must choose a location that is specifically zoned for commercial or industrial purposes.

Health Regulations
Work Health and Safety Act 2010
Businesses, especially those businesses that serve any food items, need to consider health and safety
regulations before and during operations. Some requirements include:
- The temperature of food storage
- Kitchen layout
- Employee clothing requirements
- Time for which food can be stored
- Correct food handling

Inspectors often arrive without warning to see whether or not businesses are complying with these
regulations. If not, businesses are given a period of time to fix this before they are shut down.
Trade practices
Competition and Consumer Act 2010
Regulates deceptive practices, product standards and trading practices.

Finance
● finance – source, cost

Source:
A business can either have debt or equity finance.
Debt Finance: Funding acquired by borrowing from outside the business (External Borrowing)
Equity Finance: Using owners funds within the business (internal) or selling equity to new
owners from outside the business (external).

Businesses operate through a combination of both.

Types of financing depends on the purpose of the funds and legal structure:
Short-term assets should be funded by short-term finance.
Long-term assets should be funded by long-term finance.

Cost of Finance
In order for a business to debt finance the bank will charge an SVR rate (Standard Variable
Mortgage Rate). SVR is the rate a bank will charge a person borrowing money (basically
interest!). Since the majority of SMEs are unincorporated financial institutions will ask the
owner to offer their house (personal asset) as security.
HR
● human resources
- skills
- costs – wage and non-wage
Skills
● Employees who are an asset to the business
● Appropriate experience to complete a task
● Through training and mentoring skills will improve and they will become more productive

Cost
● Businesses cannot overspend on recruitment budgets (Is it necessary to hire a recruitment agency
to hire casual workers?)
● Must have specific job descriptions with skills, qualifications and education needed for that
position
● Recruitment process must be conducted quickly (employees who are doing this process are
wasting time at work = money and productivity)

Cost: Wage costs

Staff are paid through wages (weekly) or salaries (annually).
- Wages are set through Awards that set minimum wages and conditions for an occupation
- OR through Contractual agreements between the employer and employee. Or they can be set
through Enterprise agreement that must be verified by the fair work commision.

Cost: Non wage costs.

Employees have non-wage related entitlements such as
- Holiday leave (usually 4 weeks for 12 months of work)
- Holiday leave loading (Additional payments made on top of wages)
- Maternity leave (depends on award)
- Sick leave (10 day entitlement per year)
- Superannuation (9.5% of income)
- Workers compensation (medical benefits)
- Payroll Tax

Taxation
● taxation – federal and state taxes, local rates and charges

Federal Taxes
All businesses have to pay tax on their profit either company tax or income tax
27.5% - Base rate entities
30% - Otherwise

Religious charities, Schools, Not for Profit Hospitals don't pay

To comply with complex taxation law the business must complete a business activity statement (BAS).
It includes:
the amounts of GST payable and receivable by you for a certain period.
pay as you go (PAYG) withholding tax.
Australian Business Number (ABN) withholding tax.
State Tax:
Payroll Tax: It is effectively a tax for employing workers and the employer needs to pay 5.45% when total
wages exceed $1,200,000.
Some businesses do not have to pay payroll tax, these include:
- Religious institutions
- Charities
- Schools
- Non for profit hospitals

Local fees and charges:

Business fees are charged so local residents do not need to pay
These include:
- Development applications
- Building certificates
- Inspectors fees
- Parking permits
- Waste removal

Affects business location- depending on where they choose local rates may differ
The business planning process:
A business plan is the itinerary for future growth and development within a business. It sets out the
desired goals and direction of the business.
Benefits:
- Helps test the viability of the business
- Assists the business to be proactive rather than reactive
- Identies the business’s strengths and weaknesses
- Forces the small business owner to justify his or her plans and actions
- Indicates the owner’s ability and level of commitment
- Assists in maintaining the business operation, especially focusing attention on the goals and
objectives

Planning: the preparation of a predetermined course of action for a business. It refers to the process of
setting objectives and deciding on the methods to achieve them.

Sources of Planning Ideas:

➔ Situational Analysis:
A situational analysis refers to a collection of methods that managers can use to analyse a business’s
internal and external environment and how it affects the firm directly.
An existing business must identify and assess the present situation before it can plan any changes:
● identify factors that limit present operations
● identify the competitive advantage of the business’s products over the competitors, that is, the
firm’s special qualities
● assess market share, such as whether the business is the market leader
● identity competitors
● identify trends in the market
● assess the effectiveness of strategies, such as the current advertising campaign.

➔ SWOT analysis:
Vision, Goals and/or Objectives:

➔ Vision:
A vision is what the owners see for the future of their business, it is an inspirational image of what the
owners want to achieve. It is often expressed in the form of a written vision statement. The main purpose
of the vision statement is to guide and direct the business owners, managers and employees. It creates the
culture within the business and acts as a benchmark against which to measure all the business’s decisions
and operations.

A mission statement is more precise and accurate than the vision. It answers three questions:
1. WHAT it does
2. WHO it does it for
3. HOW it does what it does

➔ Business goals

1. Profit
2. Market share
3. Growth
4. Share price
5. Social
6. Environmental

Once the owner has formulated the vision statement for the business, he or she can determine specific
goals. A goal states what a business expects to achieve over a set time, which will assist in realising the
business’s vision. These goals will need to be consistent with the vision and mission statement of the
business. Goals also need to be SMART.

Once the goals have been established, an SME owner usually then decides how to achieve them which
involves developing an effective and worthwhile action plan. The action plan breaks down the goals into
objectives. An objective is a specific statement detailing what a business needs to achieve in order to
accomplish its vision.
 ➔ Long-term growth

Long-term growth is the ability of a business to continually expand.

Long-term growth depends on a business’s ability to develop and use its asset structure to increase
sales, profits and market share. It is an important goal of management as it ensures that the business is
sustainable into the future.

Long-term growth requires comprehensive, strategic planning. Consequently, for a business to not only
survive the competition but also prosper and grow, it must have a sustainable competitive advantage. This
can be achieved by having a unique good or service, a consistent marketing plan and adopting a
relationship marketing philosophy to encourage customer loyalty.

Organising Resources:

An organisational structure is the framework in which the business defines how tasks are divided,
resources are used and departments are coordinated.

Benefits of a properly implemented organising process:

● establishes a chain of command- orderly communication
● coordinated work environment- outlines roles and responsibilities
● sense of common purpose- all employees are working towards a common goal/objective
● organises resources in the most efficient manner so that all employees can perform their tasks.

Resource allocation refers to the efficient distribution of resources so as to successfully meet the goals
that have been established.
 ➔ Operations (organising resources)

The operations function of a business involves transforming different types of inputs (raw
materials, labour, equipment and other resources) into finished or semi-finished goods or services.
To produce either a good or service, a business needs to have essential equipment and knowledge.The
following questions will need to be asked:

● What type of equipment and raw materials are needed?

● Which suppliers will be used to purchase the equipment and raw materials?
● How much money needs to be allocated for the purchase of the raw materials and resources?
● What storage, warehouse and delivery systems are required?
● What level of technical expertise will employees need to achieve maximum production from the
raw materials and equipment?

Step 1: develop plans and establish a goal. I.e. vision/mission statement and business goals
Step 2: determine activities. I.e training, recruiting, sales, pricing etc.
Step 3: group activities into operations, marketing, finance and HR
Step 4: assign and delegate roles to employees
Step 5: design a hierarchy of relationships. For example:

➔ Marketing (organising resources)

Marketing helps a business inform, remind and convince customers to purchase a good or service.
Marketing helps the business achieve its business goals, and achieving business goals involves planning.
Marketing as an input is important to the success of the product.

The business must consider the four P’s:

● Product
● Price – will it be competitive? Will it cover costs? Will the market bare a certain price?
● Promotion – depending on the size it may be local promotion (flyers or posters) or at a national
level (radio or television).
● Place – where the business is located or how the product will be delivered to the customer.

A marketing plan will succeed only if all sections of the business are involved in satisfying a customer’s
needs and wants, while achieving the business’s goals. This means that the marketing plan needs to
become integrated into all aspects of the business.

Where existing employees do not have the expertise or levels of skills required, additional training may be
needed to bring them up to the levels needed. Additional funds may be needed to accomplish all the
marketing objectives given to a specific department or team. The efforts of all employees in the marketing
department must be coordinated and this is best achieved by adequate resourcing.

➔ Finance (organising resources)

Careful financial management is one of the most important at the beginning. Businesses want to make a
profit and without efficient management of the funds, all other planning will be useless. The business
must plan strategically and in order to do this, it must develop budgets.

The two main financial budgets are:

● Cash flow – they guide the business in regards to the amount of money coming in and out of the
 business.
● Capital expenditure – guide the business with regard to the amount of money it is spending on
new capital equipment within the business.

The business must also consider the financial needs of the business in terms of:
● Tax obligations – PAYG, GST
● Managing risk through insurance – workers compensation, property insurance
● Developing and maintaining financial records – cash flow statements, balance sheet and income
statements
● Keeping control of credit – paying their accounts
● Raising finance for expansion – sourcing of finance (debt or equity)

When organising the financial resources, the SME owner must explore the wide range of federal and state
government grants and other funding programs.

Grants: A grant is any monetary or financial assistance that does not generally have to be repaid.

Generally, there are no grants for starting a business. Grants are usually provided for:
• expanding a business
• research and development
• innovation
• exporting.

➔ Human resources (organising resources)

Deciding upon the staff required and the ways in which they are acquired. Businesses regularly need to
review their human resources to ensure the greatest efficiency of usage of these resources.

SME owners need to use good recruitment and selection processes to find employees who will be
invaluable assets as the business grows and expands. SME owners need to consider providing adequate
training and development for staff, seek ways to motivate and retain employees, and ensure they comply
with existing legislation relating to employees.

Forecasting:

➔ total revenue, total cost

Revenue is income that a business receives from its business activities like the sale of goods and services.
Profits/net income → total revenue - total expenses in a given period of time.
The revenue figure is vital to maintaining business operations as there needs to be revenue to make profit.
- If business’ revenue < expenses → no profit
- If business’ revenue > expenses → profit
- The more revenue the more profit generally.

➔ break-even analysis
Break-even analysis is a financial planning tool to…
- forecast how much product needs to be produced and sold to cover the costs so that profit can be
made.
- Help determine the profit that can be made at different levels of sales.
- Show the relationship between the revenue from sales and all the costs of producing the goods.
Note: it is based on assumptions that the price of products will stay the same. It is also difficult to predict
suppliers’ prices and the demand of the product.
Fixed costs: Costs that do not fluctuate with changes in production level or sales volume.
Examples: Rent, insurance, wages.

Variable costs: Costs that respond directly and proportionately to changes in activity level or volume.
Examples: Advertising costs, cost of stock

➔ cash flow projections

Speed and movement within a business reflects the efficiency of a business to make sales, collect
receivables and move inventory.

Business needs to make a cash flow projection - a forecast of the difference between cash coming in and
cash coming out of the business.

Benefits of doing cash flow projections:

Business can…
- Know there is sufficient cash to purchase inventory
- Take advantage of discounts and special purchases
- Plan for capital expenditures for the expansion of a business
- Shows lenders the ability to plan and repay financing
- Prepare for adequate future financing

Monitoring and Evaluations:

The process:

➔ Sales
Business needs to have an idea of what the volume of sales will be.
- If there is a considerable difference between predicted and actual sales, the business needs to
evaluate the situation → they need to look into sales technique, promotion, customer service and
product and market segmentation.

➔ Budgets
Controlling the budget is very important. Controlling budgets means setting standards, measuring
performances and taking corrective measures if necessary.

There are 3 types of control:

- Budgets
- Financial Statements
- Financial Ratios

These 3 guide management towards correct decision making in terms of liquidity, profitability, efficiency
and future growth of the business.

➔ Profit
Poor profitability can have a detrimental effect on the share price of the business and its ability to pay
dividends to shareholders.
Break-even analysis is beneficial to find the level of profitability that the business is and could be making
as it provides information on the quantity of goods that need to be sold to achieve a certain level of profit.

Taking Corrective action:

The corrective action that needs to be taken depends on the seriousness of the problem or factor that needs
changing.
- Small variations only take minor changes to fix
- Big variations may need major structural changes

Critical Issues In Business Success And Failure

Any aspects of a business that are identified as vital for successful targets to be reached and maintained,
issues that were critical in business decline/ failure include:
● A lack of adequate planning in the business
● The business is unable to keep up with customers needs
● The business is undercapitalised
● The business has problems meeting or satisfying customer demand
● The business finds that there is no longer a need for its goods or services
● There may be a decrease in productivity, efficiency and morale leading to an overall decline in the
business
➔ Importance of a business plan
is a detailed handbook for running a business. A business plan ensures that a business has
made a realistic assessment of its current position in the market.
Because the business environment is constantly changing a business owner must constantly
evaluate the business plan and make alterations to keep it relevant to the current conditions
of the market.
Structure:
1.0 executive summary
2.0 goals
3.0 strategies
4.0 business description and outlook
5.0 operational plans
6.0 marketing plans
7.0 financial plans
8.0 human resource plans
9.0 evaluations
➔ Management- staffing and teams
 Management should be competent in their expertise and knowledge of the business they are
running but also with regard to management skills. Managers need to be trained to be able to
supervise staff, be accountable and make strategic (long-term) decisions.
It is essential to have satisfied and motivated staff as they will be more productive. The
management of staffing functions, recruiting, selecting, maintaining, training and separating
employees must be undertaken with care.
Many SME owners outsource human resource functions due to the high costs (time and money)
associated with recruitment. As skill shortage worsens and owners see the advantages of using an
expert, outsourcing staff recruitment is becoming popular with small businesses.
Ways to reward employees:
● Subsidised tuition for further/ outside study
● Employee discounts
● Flexible working hours
● Casual clothing days
● Gymnasium subsidies
● Paid contribution to medical insurance
Benefits for individuals from working in a team:
● Encourages individual workers to take part
● Allows them to be more open and say what they think
● Develops increased trust in their fellow workers
● Allows the employee to become an important part of the business process
● Allows employees in the team to be innovative and creative
➔ Trend analysis
When a business conducts a situational analysis it aims to establish its current position in the
marketplace, it will also look at internal factors which includes research into the last few years of
financial data. This is to establish a trend to assess the level of growth and will compare the level
of cash and credit sales.
Industry trends can include:
● Economic factors- upswing or downswing
● Government policies, regulations etc. - rezoning, recycling, parking limits
● New development applications in the area
● Changes to Australian standards
● Changes in competitors' activities- products, pricing
➔ Identifying and sustaining competitive advantage
Needs to analyse the internal and external environment, has to conduct a SWOT analysis. A
business needs to ensure it is allocating enough resources to maintain their competitive
advantage.
Examples of competitive advantages:
Achieved through cost leadership (change pricing strategy) and product differentiation
(innovation and R’D)
● A product with features that competitors’ products do not have
● Lower prices
● More effective advertising
● More efficient distribution
● Prompt, courteous service
● Quality products
● Value for money
● After-sales service
 ● Location – high visibility and a lot of passing trade
● Cost advantage over competitors
● Access to less expensive raw materials
● Lower rents
● New production technology
● Low defect rate and fewer warranty claims
● Loyal, productive staff
● Low levels of debt

➔ Avoiding over-extension of finance and other resources

It is safer to have at least six months of available cash, as the business may take that long to start
making money. Another reason for bankruptcy is that a business is borrowing too much and is
carrying a high level of debt in the form of loans, bank overdrafts and business credit cards.
To avoid this a business should consider:
● Leasing rather than buying equipment, thereby reducing the need to borrow
● Using budgets to avoid overspending
● Expanding gradually rather than growing too fast using debt financing and losing
financial control
➔ Assets
Undercapitalisation is the most common cause of failure. If a business does not have enough
funds to pay staff, buy inventory or pay expenses it will fail. Capital that is in the form of assets
will leave less finance for day to day operations. A business can over-extend its investment on
both current and noncurrent assets.
Labour resources
Employing too many staff can drain finances. A business can reduce this expense by retrenching
staff. A business may also flatten its organisational structure to reduce costs and improve
efficiency.
➔ Using technology
Technology available to a business:
● Customer transaction- atm
● Communication equipment- phones, pagers
● Machinery and equipment- computers, robotic machines
● Internet and intranet
● Transportation of products and raw materials
Tech makes it easier for a business to operate. Quick access to info allows an owner or manager
to determine whether the business is heading towards financial difficulties, allowing strategies to
be implemented to correct the situation. A business can be more efficient and carry lower levels
of inventory if it is able to identify exactly how many sales occur and when restocking is
required. Tracking of sales will allow a business to send stock from the warehouse to the retailer
when required to be delivered just in time (JIT).
➔ Economic conditions
When there is an economic boom consumers are most likely to increase their spending, they are
certain that their jobs are secure and incomes are expected to increase. In periods of strong
economic activity:
● High levels of consumer spending
● Falling unemployment
● Increased production
When an economy is in a downturn, it will most likely mean that consumers are not spending as
much. This is because consumer confidence is low. Consumers fear they may lose their job or
their wages may not increase. Overall, reduced consumer spending translates to reduced profits
for businesses. This will eventually lead to businesses reducing their production levels. In periods
of weak economic activity, the economy will experience:
● lower levels of consumer spending
● rising unemployment
● decreased production
 Financial Management:

Financial management is indicated by the following:

● Liquidity
● Solvency
● Profitability
● Efficiency

Liquidity- Receipts VS Payable

Cash Flow statement

Solvency- Debts VS Equity

Balance Sheet.
-Gearing is also an indicator of equity vs debt financing

Profitability- Revenue and Costs

Income statement

Efficiency- Stock and COGS management helps increase efficiency

Applicable to income statement.

KEY ISSUES IN INDUSTRY SECTORS:

Primary- Workplace and Health Regulations, Safety

Secondary- Supplier chain management- coordinating suppliers to produce a semi or finished

good.

Tertiary- Providing customer services, responding to changing consumer interests

Quaternary- coordinating information resources- communication

Quinary-