HSC Business Studies Notes

Topic 1: Operations
Role of operations management
● Strategic role of operations management - cost leadership, good/service differentiation
- Operations: the business process that involves transformation (production) - the process is called value
adding
- Cost leadership - producing at a lower cost compared to competitors but must ensure they do not
compromise quality; must still be acceptable to customers (main aim = competitive advantage)
➔ Commonly used when businesses have a standardised product
➔ Can be achieved through:
➢ Economies of scale
➢ Use of technology/inventing and innovative method of production
➢ Outsourcing - cheaper sources of labour
➢ Source suppliers globally for cheaper raw materials
- Good/service differentiation - involves making products different from business competitors to attract
customers (achieve competitive advantage); stand out from other similar products
➔ Businesses differentiate through:
Goods differentiation Service differentiation

- Quality - Incorporation of new technology

- More features and applications - Amount of time spent on a service
- Augmented features (add-ons) - Level of expertise/qualifications
- Custom-designed products
- Faster delivery

➢ Price can also be a differentiator between a firm’s goods/services

➔ Allows businesses to improve sales and/or charge higher prices
● Goods and/or services in different industries
- Goods in different industries: operations decisions will vary depending on whether they are
standardised (mass produced and uniform in quality) or customised goods (varied according to the needs
of customers)
➔ Standardised goods = mass produced w/o variation and economies of scale can be achieved
➔ Perishable goods need cleaner operations processes w shorter lead times, appropriate and robust
packaging and cold storage processes
➢ Non-perishable goods need operations processes that manage all aspects of quality in the
process and effective inventory management strategies (highly flexible)
➔ Tangible products - known as goods (STMs and ETMs)
➢ Simply transformed manufactures (STMs): manufactured goods that are intermediate by
nature - can be further processed
❖ E.g steel bars can be further processed into cars
➢ Elaborately transformed manufactures (ETMs): products that are highly processed and
valued e.g. STM of steel bars can create ETM of wheelchairs
➔ Intangible products - services in tertiary sector e.g. banking industry sells financial services
- Services in different industries: businesses can standardise how their service is performed e.g. fast
food → can bring cost leadership
 ➔ Customisation = self service; however, can lead to drip pricing: a business advertises one price
but in the process of a customer purchasing the service, additional costs are added
● Interdependence with other key business functions: each function relies on the other to achieve business goals;
operations management must discuss
- Human resources management - staffing, training and development; HR must acquire employees with
the necessary skills and qualities for the OP
- Finance department manager - financing requirements; if costs of production can be minimised, profit
margins can increase + a focus on quality in OPs can lead to higher prices, thus revenues
- Marketing management - product design needed for operations function to source products for resale/
inputs for production
- Overall: operations management has a coordinating role in business to ensure prime function of business
is carried out efficiently and effectively so consumer demand is met - increased profitability
Influences
● Globalisation, technology, quality expectations, cost-based competition, government policies, legal regulation,
environmental sustainability (if extended response: only 4)
- Globalisation*: removal of trade barriers between nations
➔ Provides opportunities to outsource non-core business
functions and reap economies of scale
➔ Penetrate markets beyond domestics boundaries
➔ Significant impact on supply chain management
(SCM) (range of suppliers a business has and its
relationship w/ them) management
➢ Business needs a very predictable and reliable
supply chain that is highly responsive to
changes in demand.
➢ Global sourcing - allowing businesses to find
cheaper suppliers for raw materials
➢ Global web refers to network of suppliers a
business has chosen on the basis of lowest overall cost, lowest risk and maximum
certainty in quality and timing of supplies
➔ Both help achieve cost leadership
➔ However has resulted in fluctuation in prices of goods and services = increase in competition and
outsourcing for cheaper foreign labor = increase in unemployment
➔ E.g. Apple has outsourced manufacturing of their products in China for a global market -
QANTAS outsources some functions like maintenance to lower operational costs
- Technology: having access to tech makes production process more efficient (Substitution of repetitive
mundane business tasks) and provide competitive advantage; reduce operational costs
➔ Challenge: can be expensive to implement
➔ Help at administrative level: organisation, planning and decision making; at a processing level:
manufacturing, logistics and distribution
➔ Gives access to new production processes and new product lines
➔ E.g. McDonald’s purchased Dynamic Yield which offers artificial intelligence technology that
can create menus tailored to prevailing weather and restaurant traffic conditions
- Quality expectations: if product or service is not considered good enough, especially compared to the
way it is marketed -> can lead to disappointment and consumers taking business elsewhere
➔ Businesses also expect certain quality standards from suppliers; if inputs aren’t satisfactory then
overall quality of product/service may be affected
➔ To achieve → quality assurance, quality management, total quality control (TQM)
 ➔ E.g. Qantas in terms of service quality - operations manager ensures customer expectations are
fully met/exceeded by:
➢ Arrival/depart on time
➢ Online check-in
➢ Self check in kiosks w/ helper if needed
- Cost-based competition: when a cost leader (cost leadership strategy) - will attract competition offering
similar products at similar low prices through sourcing cheaper inputs, technology/outsourcing
➔ Means: constantly looking for ways to decrease production → cheaper suppliers; reducing
variety of outputs (product range) to achieve greater standardization → lower costs
➔ E.g. Virgin, Jetstar and Tiger Airlines
➔ Kmart, Big W and Target - draw inventory from low cost nations overseas (e.g. China) enabling
large turnover (economies of scale in supply chain)
- Government policies: rules and regulations govern over business practices - must comply or face fines
(also includes subsidies and grants + taxes and tariffs)
➔ E.g. Qantas faced millions in debt as a result of previous governments new environmental policy
➢ Emissions trading scheme - Qantas was charged $20 per tonne of carbon dioxide
produced
➔ How does it affect a business? (same for legal regulation)
➢ Gov. may increase taxes = more expensive production of g+s
➢ Gov. may ban some inputs/processes leading to costly research as business tries to find
an alternative
- Legal regulation: compliance cost - all aspects of business must abide by the laws
➔ Ensures business operations are safe, negative impact on environment is minimised, products
meet standards and employees are treated w/ dignity + respect
➔ E.g. Workplace Health and Safety (WHS) Act 2010 (Cwlth)
➔ The Public Health (COVID-19 Restrictions on Gathering and Movement) Order (No.4)
Amendment Order 2020 - requires businesses to comply w/ COVID safe business practices such
as social distancing requirements
➢ Gary Owen Hotel in Rozelle was fined $10 000 after being declared the worst pub in
NSW for COVID-19 safety by the industry regulator
- Environmental sustainability: development and use of methods of production that allow resources to be
used by producers today w/o limiting ability of future generations to satisfy their needs and wants
➔ Businesses must comply to legislations through operations process as it is important to maintain a
good corporate image through positive CSR
➔ Inputs, transformation process and output must not have a negative effect on the environment
➔ Ignoring this responsibility will have possible repercussions of fines, legal action, loss of
investors, negative media coverage and loss of customers
➔ E.g. Nestle received negative publicity from Greenpeace for the palm oil they were growing that
destroyed rainforests and the habitats of orangutans
➔ QANTAS Future Planet: offset 3 mil tonnes of carbon emissions through the use of biofuels,
lightweight equip., reducing use of electricity, water/waste
● Corporate social responsibility*: ensuring production processes do not affect society in a negative way -> could
mean a loss of customers
- Includes charitable donations/expenditure of time and effort to the community, ethical behavior and good
conduct w/ regard to shareholders
➔ Means they are likely to be profitable as well
 - Creates positive work environment → increases productivity + morale of employees → encouraging
greater opportunities for creativity, participation and innovation within the business
- E.g. Ronald McDonald House Charities - supportive home away from home for families of children who
need to travel to the Children’s Hospital at Westmead for treatment
- QANTAS Reconciliation Action Plan - program which focuses on employing Indigenous Australians
- The difference between legal compliance and ethical responsibility
➔ Legal compliance refers to complying w laws/legislations
➔ Ethical responsibility refers to businesses going beyond the law and taking into account broader
social, community and environmental concerns
➢ Relates to doing what is best for all stakeholders e.g. society, employees, shareholders etc
- Environmental sustainability and social responsibility
➔ Environmental sustainability requires businesses to evaluate the full environmental effects of
their operations
➔ Social responsibility is good business - customers eventually find out which businesses are acting
responsibly and which aren’t
➢ Going above and beyond making a profit
Operations processes
● Inputs: those features that go into the creation of goods and services
Transformed resources (materials, information, Transforming resources (human resources,
customers: an input that has been altered in some way facilities) those factors of production that carry out the
actual transformation

- Materials - raw materials include items such as
timber, metals, animal products and water
- Information - the operations manager will work
with other departments to gather info on trends in
consumer demand, new tech., inventory levels,
relevant legislation, competitor activity and
product quality issues
➔ Used to construct production process that
will be most efficient and cost effective ->
thus most profitable
➢ Customers - consumer input =
ensures products meet consumer
demand
★ Consumer preferences can
be found through market
research
- Human resources - enables value-adding to
occur during transformation process
➔ Job design and job specifications for
the operations function must be done
properly to ensure employees
understand requirements of job ->
ensure high product quality and
employee satisfaction
- Facilities - (location) should be close in proximity to
suppliers, enable the finished product to be distributed
easily and be accessible -> customers and employees

- Cut costs by:

➔ eliminating delays + improve delivery times
➔ produce in a dependable and flexible manner
➔ control input costs within estimated budgets

EXAMPLE - QUANTAS
Transformed resources Transforming resources
 - Raw materials - fossil fuel, food ingredients for - Human resources - cleaners, baggage handlers,
catering services pilots, sales managers, ground crew etc.
- Information - market and industry reports, media - Facilities (any physical asset) - terminal buildings,
reports, individual booking info maintenance, facilities, spare parts holdings,
- Customers aircraft

● Transformation processes: refers to conversion of inputs to outputs; influenced by volume, variety, variation in
demand and visibility - (4 V’s)
- The influence of volume, variety, variation in demand and visibility (customer contact):
Volume - how much of a product needs to be produced
➔ The more a bus. can produce -> through standardisation of
products = greater cost savings
➔ Demand must exist for the large amt of products -> otherwise
waste of money and resources
➔ Volume flexibility: how quickly transformation processes can
adjust to increase/decreases in demand; used to manage lead time
★ Lead time: time it takes for an order to be fulfilled from
the moment it is made

Variety (aka mix - providing a range of products to suit individual customer needs
flexibility) (customisation) - aka mix flexibility
- Product diversification
➔ Tapping into new markets 🡪 greater market share
➔ Reduces risk (if one doesn’t work, there are other products)
➔ Establishes a strategic competitive advantage over its competitors

Variation in - amt. of a product desired by customers; volume flexibility means amt

demand produced can be adjust to meet these variations
➔ Inflexibility = wasted resources and/or delays in meeting
customer orders (must adapt to fluctuations in patterns of
demands for g+s)

Visibility - (or feedback) can affect transformation process as their preferences can
(customer contact) shape what businesses make
➔ Direct customer contact: through surveys, interviews, warranty
claims and letters
➔ Indirect feedback: review of sales data, observation of peoples’
decision-making processes and through consumer needs

EXAMPLE - QANTAS
Volume Variety Variation in demand Visibility

- High volume - The more the - Qantas - increase - Qantas: high

business - variations, in demand: school visibility bc
standardised the more holidays and customer
products and complex the special events - contact
repetitive transformatio World Cup, throughout the
labour skills n process Olympics whole process
 - Low volume - - Decrease in
produce more demand - natural
customised disasters e.g.
products - Christchurch
specialised earthquakes,
labour skills September 11,
2001, COVID-19

- Sequencing and scheduling - sequencing: order in which tasks must be performed; scheduling: the time
durations each task must take for completion
Gantt charts Critical path analysis

- bar chart -> illustrates start and finish
dates of a project; breaks tasks up and the
time frame for their completion
➔ can monitor actual progress
against planned activities
- scheduling method that provides the
shortest length of time it takes to complete
all tasks
➔ Allows managers to see what
needs to be done, timing of tasks
and which can be done at the same
time
➔ Scheduling gives direction and
organisation to operations
processes, provides overall
coordination and enables a means

of control
➔ Shortest path doesn’t always
mean the smallest number → it
means the shortest path to
complete all the tasks (typically
the longest path)

EXAMPLE - QANTAS
Sequencing Scheduling

- Clean plan -> checked by qualified - Uses Sabre Air Flight suite system -
engineers -> take-off complex scheduling software which
automates its flight scheduling to achieve
 the fastest turn around times

- Technology: (business tech.) machinery + systems that enable business to undertake operations process
more effectively and efficiently - increases productivity of employees
➢ Manufacturing sector: tech can shorten process for fuller utilisation of raw materials
➢ Services sector: office and communications tech. = global trading
➔ Robotics: highly specialised forms of tech => efficient, minimise waste
➔ Computer-aided manufacturing (CAM): software that controls manufacturing process; easy
customisation and create product w shortest amt of lead time
➔ Computer-aided design: computerised design tool; allows instantaneous manufacturing of
designs
➔ QANTAS: technology @ Qantas has facilitated increased productivity very often by replacing
human capital e.g. electronic bag-tags and online check-in
- Task design: planning the flow of activities that has to be done to complete a task
➔ organised in logical sequence = employees can successfully perform and complete their allocated
task (includes role descriptions 4 staff)
➔ Define task, analyse specific duties, allocate degree of difficulty and time, match task to existing
state/federal awards, articulate w/ job descriptions and pay scale
- Process layout/ plant layout (factory): involves planning the arrangement (layout) of workspace to
streamline the transformation process
➔ Impacted by technology and task design -> must also emphasise smooth flow of product and
WHS
Form of layout Description

Product layout: the order which the product is to be made
will dictate the layout of office/factory
- Machines and equipment relate to the sequence of
tasks performed in manufacturing the product
- High volume of constant quality goods
- Assembly line production method is the best
example

Process layout - Machines + equipment grouped together by

function they perform
- Deals w/ high variety, low volume production
- Creation of work cells or work teams e.g. banks,
insurance companies
- Sometimes called functional layout

Fixed position - Employees and equipment come to the product

- Involves large scale bulky activities e.g. bridge
construction -> all materials, labour and energy
and supplies must come to the site

➔ QANTAS uses process layout -> machines and equipment are grouped together by function;
enables Qantas to utilise space and labour efficiently and eliminate bottlenecks
- Monitoring, control and improvement: important to ensure bus. is meeting its goals; monitoring +
controlling lets the bus. undertake continuous improvement
➔ Monitoring: process of measuring actual performance against planned performance
➢ Bus. use Key Performance Indicators (KPIs) to see if targets are being met e.g. lead time,
inventory turnover rates, defect rates, warranty claims + IT maintenance
 ➔ Control: process of comparing the predetermined target against the actual result and assessing
what action is needed to correct a shortfall
➔ Improvement: refers to systematic reduction of inefficiencies and wastage, poor work processes
and elimination of bottlenecks
➔ Monitoring + controlling =
➢ Reduce time taken to provide customer with good/service
➢ Reduce costs involved in providing the product
➢ Reduce dangerous work lace practices
➢ Provide a better quality product
● Outputs : Products: g+s
- Customer service: how well a bus. meets/exceeds the expectations of consumers (after sales services
provided)
➔ exceeding customer expectations = develop long-term customer relationships
- Warranties: an agreement to fix defects in products; assessment of warranty claims can help a business
adjust transformations processes so the become more effective
➔ Law that enforces warranty; provides you the right to return and refund -> Competition and
Consumer Act 2010 (Clth)
- E.g. QANTAS output - service delivered to the customer; adopted programs such as the Net Promoter
Score, Qantas Closed Feedback program (continuous improvement)
➔ Apple is another business that provides after-sales customer service (24hr call centre)

Operations strategies
● Performance objectives: goals related to particular aspects of transformation process (KPI’s) - acronym: Queen
Sarah doesn’t flex Coco Chanel
- Quality: (being right- right quality) monitored at diff stages of production process from quality of inputs
+ processes to the quality of outputs
➔ Includes: quality design, quality conformance w/ specifications, quality of service
- Speed: (being fast) refers to the time taken for production and operations processes to respond to changes
in market demand -> shortens lead time
- Dependability: (being on time) operations processes must be dependable and reliable if a business
wishes to retain customers and maintain customer loyalty
➔ E.g. after sales support services, trusting the quality etc
- Flexibility: (being able to change) business must be flexible and adjust to changes in external business
environment
➔ Can be achieved through improved level of tech, regular maintenance, training and development
- Customisation: (being able to provide more options) implementing technology/processes so customer
choice is included in how the final product looks -> differentiation
- Cost: (being productive and reducing op. cost) minimisation of expenses so that operational costs are
reduced -> aid in helping business become a cost leader
➔ E.g. new tech, reduce supplier costs, better distribution methods, managing inventory
- EXAMPLE - QANTAS:
➔ Quality - consistently producing services to customer expectations - quality = aircraft is clean,
staff are courteous, helpful and friendly etc.
➔ Speed - to increase speed of their service = booking flights online, online check in, Q Bag Tags
etc
➔ Dependability - measured by on-time departures and arrivals
 ➔ Flexibility - must become flexible when there are seasonal demands (like holidays/special
events) to meet major increases in passenger demand
➔ Customisation - Oneworld Alliance, Jetstar - no frills alternative, different classes of seats -
economy, premium economy, business and first class flights
➔ Cost - investing in aircrafts to increase carrying capacity
● New product or services design and development - helps sustain a competitive advantage
- Businesses should be looking to expand their product range
- Reduce risk of business failure by increasing options for customers to make purchases
- Involves great deal of research and analysis
- Operations managers must consult w/ marketing departments to determine what customers want; must
ensure production processes can meet these demands
➔ Consumer approach to product development
- EXAMPLE - QANTAS: launched new airlines -> Jetstar Asia, Jetstar Pacific, Jetstar Japan (growth in
the Asian aviation market)
● Supply chain management (SCM) - logistics, e-commerce, global sourcing
- Chain of suppliers/network of suppliers -> important to control quality, reduce cost and increase speed
- SCM involves managing the flow of supplies throughout the inputs, transformations process (throughput
and value adding) and outputs to meet consumer needs
- Logistics: involves having all physical inputs inputs in the quantities needed in the right place at the right
time -> transportation and distribution of inventories
➔ Warehousing - use of warehouses for the storage, protection and, later, distribution of stock
➔ Distribution centre - not intended for long term storage; strategically located to minimise the time
it takes to supply stock to retail outlets
➢ 69 Sargents Road, Minchinbury NSW 2770 -> Woolworths Sydney Regional
Distribution Centre
- E-commerce: involves the buying and selling of g+s via the internet
➔ E-procurement: allows suppliers direct access to the business’ level of supplies
➔ Business to business arrangement (B2B) - direct access from one business (supplier) to the other
(the buyer)
➢ Allowing the supplier to assess the needs of the buyer and meet them in a timely manner
➔ Provides payment through electronic funds of transfer and access to suppliers both locally and
internationally
- Global sourcing:
Benefits Challenges

- Cost and expertise advantages - Increasing complexity of overall

- Access to new technologies and resources operations when sourcing from diverse
locations
- Possible relocation of aspects of
operations
- Increased cost of logistics, storage and
distribution centres

- EXAMPLE - QANTAS -> uses 11 000 suppliers

➔ Raw material such as fuel must be sourced and purchased, they must be stored and be available,
they must be moved and they must be transformed
➔ Global sourcing - Qantas has employed some pilots in New Zealand and some cabin staff in
Asia at lower wages then paid in Australia
 ➔ Logistics - ensuring pilots, cabin crew, baggage handling, maintenance and catering - allows for
smooth operation process - flights - undisrupted/efficiency
● Outsourcing - advantages and disadvantages
- Sourcing - involves the purchasing of inputs for transformations processes (suppliers)
- Outsourcing - involves the use of external providers (domestically or globally) to perform business
activities
- EXAMPLE - QANTAS: currently outsource nearly all of its IT operations and some call centre
operations, flight attendants and maintenance functions
Advantages Disadvantages
∙ Reduces costs (KPI) ∙ Breakdowns in business outsourced
- Outsourced internationally due to low will affect entire operations
wage rates 🡪 maximize profit E.g. ∙ Loss of control over quality,
Qantas outsources its call centre reliability and even costs = quality
operations in India saving $100 compromise
million - Regular audits needed
∙ Allows business to focus on its ∙ Slower lead times and response to
core function changes in market
- Thus able to improve quality of ∙ Loss of control may be exaggerated
goods/services + meet consumer with business located in different
demand by directing focus to other country (cultural compatibility)
aspects such as market research - Differences in work culture
∙ Better access to IT, technology
and most suitable equipment
- Access international talent + skills =
competitive advantage due to distinct
level of quality

● Technology - leading edge, established (help create competitive advantage)

- Leading edge technology:most advanced or innovative at any point in time; first to develop and
implement new technology = competitive advantage
➔ greater degree of risk in terms of unreliability e.g. nanotechnology,
- Established technology: has been developed and widely used and is simply accepted without question
e.g. electronic funds transfer, barcoding, IT
● Inventory management - advantages and disadvantages of holding stock, LIFO (last-in-first-out), FIFO (first-in-
first-out), JIT (just-in-time)
- inventory/ stock - amt of raw materials, work in progress and finished goods that a business has on hand
at any particular point in time
Advantages of holding stock Disadvantages of holding stock

1. Consumer demand can be met where there 1. Costs associated w/ holding including
is stock available storage

2. If a particular product line runs out an 2. Charges, spoilage, insurance, theft and
alternative can be offered - generating handling expenses
income for the business instead of a loss

3. It reduced lead times between order and 3. The invested capital, labour and energy
delivery cannot be used elsewhere as it has been
used to create the stock
 4. Stock can give the opportunity for the 4. Cost of obsolescence, occur is stock is
business to generate immediate revenue unsold

Inventory valuation methods: at the end of the accounting period - the value of unsold stock is determined so that profit
can be correctly determined (refer to the example in booklet)
Inventory Valuation methods:

Assume that a business buys and re-sells mobile phones. It purchases 1000 mobile phones in a batch for $100 each. Call this
Batch A. Assume that half of batch A sold for $150 each. There are 500 mobile phones left in stock. A second batch, Batch B, of
1000 mobile phones is then purchased at a cost of $110 each. This takes the stock up to 1500 mobile phones/ Anther 900 mobile
phones are sold, but this time at a price of $160. This leaves 600 phones in stock. A third batch, Batch C, of 500 phones is
purchased at $120 each. The business sells 800 phones for $180 each, leaving stock of 300 phones at the end of the period.

Question:

Total sales = (500 x 150) + (900 x 160) + (800 x 180)

= $363 000
LIFO (last-in-last-out)
🡪 Last cost recorded
∙ More recent + more
closely reflects economic
value
∙ Overstate costs and
understates gross profit
Last record was $120:
2200 x 120 = $264 000
363 000 – 264 000 = $99 000
FIFO (first-in-first-out) Weighted Average Cost (WAC)
🡪 First cost recorded 🡪 average cost
∙ Stock costs may be
understated and profits 100 + 120 = 220
overstated 220/ 2 = 110
- More on taxation Therefore WAC is $110
2200 x 110 = $242 000
First record was $100 363 000 – 242 000 = $121 000
2200 x 100 = $220 000
363 000 – 220 000 = $143 000

- LIFO (last-in-first-out): method of pricing inventory assumes that the last goods purchased are also the
first goods sold
The advantage of using LIFO Disadvantages

The price used to calculate the cost of sales, and It may overstate cost and understate gross profit
therefore the gross profit, are more recent and
therefore more closely reflect their economic
value

- FIFO (first-in-first-out): method of pricing inventory assumes that the firsts goods purchased are also
the first goods sold; therefore the cost of each unit sold is the first cost recorded
➔ Stock costs may be understated and profits overstated -> stocks at the end of the period may be
overvalued and maximise taxes
➔ Benefit is that you are making more profit → looks desirable for investors
- JIT (just-in-time): aims to overcome the problem of end-of-period stock valuation: a lean production
method
➔ Allows retailers to display wider range of product as they need to store less + order in response to
consumer demand
➔ approach has the business only make enough products to meet the demand; e.g. of lean
approaches: tech, global sourcing, JIT, outsourcing
 Advantages of JIT Disadvantages of JIT

- Allows retailers to display a wider range - A JIT approach requires a very flexible
of products as they need to store less and operations function w/ flexible processing
can order in response to consumer - Also requires a very high ability to respond
demand quickly to changes in market demand as well
- Saves money as there are no expensive as reliable supplier deliveries
holding and insurance costs
- Lean businesses (that emphasise low
cost) apply a just-in-time (JIT) approach
to inventory management which means
to make to order

● Quality management: involves the processes applied to maintain consistency, reliability and sustainability of the
output
➔ Good quality products will:
➢ Maintain a business’ reputation
➢ Not need to be returned for repair
Quality Control Quality Assurance Quality Improvement

- Inspection, measurement and - Application of international 1. Continuous

intervention at diff quality standards ‘fit for improvement: ongoing
points/stages of purpose’ commitment to
manufacturing - ∙ ISO (International improving business’
➔ Checks for problems Organisation for goods/services
and defects Standardisation) ➔ Staff encouraged
- Staff are appropriately trained ➔ Voluntary standards to demonstrate
to apply quality standards but used by many initiative and
businesses to suggest ideas
enhance domestic
and international 2. Total Quality
competitiveness Management (TQM)
through quality ➔ ‘Holistic’
approach;
encourages
employment
involvement in
the prevention of
quality problems
➔ To achieve TQM
objectives 🡪
focus on:
- Employee
empowerment
- Benchmarking
- Focus on
customer and
continuous
improvement
● Overcoming resistance to change - financial costs, purchasing new equipment, redundancy payments, retraining,
reorganising plant layout, inertia
- When changes arise from external/internal sources, a business must learn to adapt; however there can be
resistance to change due to financial/psychological reasons
- Financial costs
➔ Purchasing new equipment
➔ Redundancy payments
➔ Retraining
➔ Reorganising plant layout
- Psychological/emotional resistance to change (Inertia)
➔ Inertia: a feeling of uncertainty or fear of the unknown, when change is imminent or pressing
and can lead people to resist
➔ Due to feeling of uncertainty, unknown where change is
➔ Therefore you don’t want employees to leave because:
➢ redundancy
➢ strikes + protests 🡪 negative image 🡪 media coverage = negative CSR
- Different change management strategies (helpful for business reports)
➔ Lower resistance to change by communication w/ employees about the need for it
➔ Use change agents (internal staff/external professionals) -> include staff in creating a culture of
change
➔ Kurt Lewin’s unfreeze - change - refreeze model
1. Unfreezing - break down forces supporting the existing system and prepares the business
for change
2. Change - new procedures and behaviours must be communicated and implemented
3. Refreezing - this requires that the manager offers positive reinforcement to make sure the
change lasts
➔ John Kotter’s eight-step-model
➢ Establish a sense of necessity
➢ Create a vision and communicate it
➢ Empower the people to fulfil the vision
➢ Recognise and reward achievements
● Global factors - global sourcing, economies of scale, scanning and learning, research and development
- Global sourcing: enables businesses to find suppliers who have lower prices, higher quality products and
more advanced technology = reduced production costs
➔ Relocating can also make transport easier
➔ Creating a global web based on suppliers which provide maximum quality products with lowest
costs, risk and lead times
➢ Access to skills, talent and resources that are unavailable domestically
➔ There are also challenges: legal obstacles, fluctuations in currencies, economic/social instability
➔ E.g. Apple source the assembly of products to Chinese manufacturer Foxconn
- Economies of scale: refers to cost advantages that can be gained by producing on a larger scale; business
can lower their per unit input costs
➔ Become a global factor when businesses sell to global markets
➔ Lose advantages through overly complex operations and loss of direction and control
➔ E.g. arnotts business export to more than 40 countries -> produced in Huntingwood NSW
- Scanning and learning: businesses can benefit from scanning and learning from the best practice of
businesses, continuous improvement (kaizen) around the world
 ➔ Can learn from competitors mistakes and is achieved through observing international business
trends and fluctuations in consumer demand to find new inspirations
➔ E.g. Tesla → has a first mover advantage (first opp. to catch the market)
➢ Second mover advantage: can capitalise on weaknesses of first movers e.g. Apple
capitalised on Nokia’s inability to change
- Research and development (R&D): helps businesses create leading edge technologies and create
innovative products and solutions
➔ Can improve the level of innovation, quality and competitive advantage of a business
➔ However, consumes valuable financial resources whereby the risk of product failure is high

Topic 2: Marketing
Role of marketing
● Marketing: the process of developing a product and implementing a series of strategies aimed at correctly
promoting, pricing and distributing the product to a core group of customers → target market
● Strategic role of marketing goods and services: involves developing and implementing an effective marketing
plan that increases sales, market share and profit
● Interdependence with other key business functions: refers to the mutual dependence that the key business
functions have on one another
- Operations: work closely w marketing department to incorporate product features that consumers will
respond to positively (e.g. market research informs op. of g+s)
- Human resources: must be motivated and skilled to develop products → may recruit staff/providing
extra training to meet skills required to market the product effectively
- Finance: provide financial info in terms of cost of producing the product → finance materials for
marketing; marketing generates sales = revenue 4 finance
● Production, selling, marketing approaches → approaches to marketing
- Production approach: (1820-1920) focused on the production of g+s → production design was based
more on the demands of mass production techniques than customer needs + wants
- Selling approach: (1920s-1960s) emphasis on selling because of increased competition whereby sales
reps were hired and trained to create demand
➔ However, customer needs and wants still weren’t considered and sales reps would just produce
what the company could make
- Marketing approach: (1960s - 1980s) focused more on what customers want - found through market
research - and then satisfying that need
➔ Second stage of marketing approach (1980s - present): marketing process was modified
according to changing economic and social conditions
➢ Focus on social responsibility, customer orientation and relationship marketing
○ Social responsibility: in regards to ecological sustainability
○ Customer orientation: collecting info from customers and basing marketing on
customers wants and interests
○ Relationship marketing: the development of long-term and cost effective
relationships with individual customers
● Types of markets - resource, industrial, intermediate, consumer, mass, niche
- Resource markets: where the production and sale of raw materials occurs e.g. BHP Billiton
 - Industrial markets: where goods used as supplies in the production process are traded e.g. construction,
agriculture
- Intermediate markets: (middleman) commonly referred to as wholesalers - sell products to retail
businesses that have been produced by other organisations e.g. Armstrong Electrical Wholesalers
➔ Resellers are an intermediate market (any1 who buys finished products, sells them)
- Consumer markets: consist of the following markets
➔ Mass markets: apply to g+s that appeal to all types of consumers e.g. electricity, water and
postal services
➔ Market segments: where a business chooses to focus on only one area of a particular market
➔ Niche markets: a smaller section of a market segmentation e.g. luxury cars

Influences on marketing → long response can come from here

● Factors influencing consumer choice - psychological, sociocultural, economic, government
- How does consumer choice affect marketing? Businesses must use marketing strategies that are suited
to consumer needs/ wants → must be in line w customer preference
- Psychological influences:
➔ Perception: opinion that a customer has about a particular product → may be
based/influenced on price or brand name
➔ Attitudes: attitudes towards social issues e.g. environment, animal cruelty (e.g. free-range eggs)
➔ Lifestyle: this is where your lifestyle influences purchasing behaviour
➔ Personality and self-concept: things you like + way u see yourself
- Sociocultural influences: how your society and culture influences your buying behaviour
- Economic influences: fluctuations in economic activity (trends) will impact consumer spending
➔ If there is a boom → ppl will spend more; if there is a recession → ppl will spend less
➔ Income levels can also influence consumer choice → higher = more expensive brands; lower =
less expensive brands
- Government influences: government legislation and regulation directly/indirectly influences
consumer markets → e.g. policies, age restrictions
● Consumer laws - requires businesses comply w Competition and Consumer Act and other laws
- Deceptive and misleading advertising: Competition and Consumer Act 2010 (Cwlth) ensures businesses
do not give misleading information about
➔ A product’s features, content or place of manufacture
➔ The benefits of the product (should not be overstated)
➔ Price (should not bait and switch)
- Price discrimination: process of a business giving preference to some retail stores by providing them w
stock at lower prices than is offered to the competitors of those retailers
➔ Discriminates competitors → discouraged by Competition and Consumer Act
- Implied conditions: unspoken/unwritten terms in a contract e.g.:
➔ Merchantable quality - product is @ standard a reasonable person would expect for price
➔ Fitness of purpose - suitable
➔ The good must match the description given
- Warranties: a promise by the business to repair or replace faulty products
➔ Regardless of whether a product carries warranty, business must legally either refund the clients
money or offer an exchange if the good was faulty at time of purchase
➔ ∴ all products are said to have implied warranty
 ● Ethical - truth, accuracy and good taste in advertising, products that may damage health, engaging in fair
competition, sugging
- Businesses must not engage in unethical practices → consider stakeholders in business
- Not enforceable through law → broad principles for people working in marketing
- Truth, accuracy and good taste in advertising: Competition and Consumer Act prohibits business from
supply consumer goods that don’t comply w prescribed product safety standards/ misleading
➔ Use of sexist images - women in submissive, mundane roles - is an example of poor taste in
advertising
- Products that may damage health: fed + state gov → restrict provision of g/s that may harm health →
without applying a ban
➔ E.g. the sale of cigarettes + alcohol, restrictions on tobacco sponsorship
- Engaging in fair competition: ACCC regulates business behaviour → unfair competitive behaviour
includes:
➔ price -fixing between two or more major competitors
➔ Long term loss leader - pricing strategy by undercutting smaller competitors
➔ Misleading advertising regarding products of a competitor
- Sugging: a business trying to sell under the guise of conducting market research → not illegal but
does raise ethical issues e.g. invasion of privacy and deception

Marketing process (acronym: SMEIDI) →

● Gives purpose and direction to all business’ activities; should be realistic in light of situational analysis and
achievable within the business’ resources and budget
● Situational analysis - the two components: SWOT, product life cycle
- SWOT analysis involves the identification of the internal strengths and weaknesses of the business, and
the opportunities in, and threats from, the external environment
➔ Strengths - what is the business good at?
➔ Weaknesses - are we
experiencing any
complications?
➔ Opportunities - are we able to
grow? And how?
➔ Threats - will something have a
negative effect on us?
- Product life cycle consists of the stages a
product passes through; each stage = diff
marketing strategy necessary (the 4P’s)
➔ In growth stage → deeper
focus on increasing
popularity; in decline stage → must focus on renewing market share

The 4 P’s or PPPD Introduction stage Growth stage Maturity Stage Decline stage

Product Brand reliability is Quality is Features + packaging Maintained w some

established maintained and try to differentiate the improvement or
product from those of rejuvenation. Cut
 improved → competitors losses by selling to
support services another business
may be added

Price Often noticeably Per unit of May need to be Is reduced to sell the
lower than production is adjusted downwards remaining stock
competitors prices maintained as the to hold off
in order to gain a firm enjoys competitors and
market foothold increased maintain market share
consumer demand + gain new customers
and a growing - May have
market share achieved
economies of
scale

Promotion Directed at early Now seeks a wider Continues to suggest Is discontinued

buyers and users audience the product is tried
occurs and and true - it's still the
communications best
seek to educate
potential customers
about the merits of
the new product

Distribution/Place Is selective, which Channels are Incentives may need Channels reduced and
- Where it enables customers increased as the to be offered to products offered to a
will be to gradually form product becomes encourage preference loyal segment of the
distributed an acceptance of the more popular over rival products market only
product
- Want to test
it out

● Market research: collecting, recording and analysing info concerning a marketing problem
- Main purpose: allows a more accurate and responsive marketing plan to be designed → minimises
risk of releasing a new product onto the market
- To obtain reliable and accurate info:
➔ Step 1: Determining info needs → problem clearly stated
➔ Step 2: collecting data from primary and secondary sources
➢ Primary data: info from original sources e.g. interviews, surveys
➢ Secondary data: info collected by other organisations
➔ Step 3: Data analysis and interpretation → determine if responses show patterns/trends
● Establishing market objectives: realistic + measurable goals to be achieved through the marketing plan
- Three main marketing objectives include:
➔ Increase market share - refers to business’ total share of the total industry sales for a particular
market
➔ Expand the product range - product mix = total range of products offered by a business
➔ Maximising customer service - responding to the needs and problems of the customer
● Identifying target markets: group of present and potential customers the business intends to sell to
- Primary target market - main segment at which most of the marketing resources are directed
- Secondary target market - smaller and less important market segment
 ➔ E.g. Sportsgirl revealed a primary target market of 18-25 y/o females
➔ Secondary target market of 26-40 y/o females
- Three approaches to identifying a customer target market
Mass Marketing approach Market segmentation Niche market approach

The seller mass produces, mass The total market is subdivided A narrowly selected target
distributes and mass-promotes into groups of people who share market
one product to all buyers e.g. tip one or more common - reduces risk
top characteristics e.g. multigrain,
hotdog buns, white E.g. low gi

● Developing marketing strategies: actions undertaken to achieve the business’ marketing objectives through the
marketing mix
- Marketing mix: combination of the four Ps - product, price, promotion and place/distribution
Products (g/s) Price Promotion Place/distribution

-Determining what to -Amt of money a -used to inform, -deals w channels of

make, features such as customer is prepared to persuade and remind distribution → ways of
quality, offer for a product customers abt products getting product to
packaging/labelling, -must consider which e.g. advertising,
design, brand name and pricing strategy to use, personal selling, public customer
guarantee taking into account the relations, internet -usually involves
costs of production and intermediaries e.g.
lvl of consumer demand wholesaler/retailer

● Implementation, monitoring and controlling - developing a financial forecast; comparing actual and planned
results, revising the marketing strategy
- Implementation → putting marketing strategies into operation
- Monitoring - checking and observing actual progress of marketing plan
- Controlling - involves comparison of planned performance against actual performance → then taking
corrective action to attain objectives
- Developing a financial forecast - details costs and revenues for each strategy
➔ Step 1: estimate cost of marketing plan
➔ Step 2: estimate the revenue (sales) the marketing plan expected generate
- Comparing actual and planned results - three KPIs used to measure the success of the marketing plan
Sales analysis Market share analysis Marketing profitability
analysis

Uses sales data to evaluate a
business’ current performance
and the effectiveness of a
marketing strategy
Enables a business to evaluate
its marketing strategies as
compared w those of its
competitors
Breaks down the total marketing
costs into specific marketing
activities e.g. advertising,
transport, administration
-comparing costs of specific
marketing activities w the results
achieved = marketing manager
can assess the effectiveness of
each activity
 - Revising the marketing strategy: based on above info, the marketing plan can be revised by:
➔ Changes in the marketing mix - modify product, price, promotion and place
➔ New product development - to achieve long term growth → must continually introduce new
products
➔ Product deletion - when a product is in the decline stage, a decision will have to be made to either
delete or redevelop the product

Marketing strategies → essay q will come from here

● Market segmentation, product/service differentiation and positioning
- Market segmentation: divide total market into segments → business selects one to become target
market (allows bus to better understand and respond to desires of diff target customers)
➔ not a strategy just used to identify what to do
➔ Increases sales, market share and profits as a result
➔ Can be broken up into demographic, geographic + psychographic factors
- Product/service differentiation and positioning: differentiation - process of developing and promoting
differences between the business’ products or services and those of its competitors
➔ Can be done through quality^
➔ Positioning - technique where marketers try to create a brand image or identity for a product or
service e.g. Rolex, No frills - evoke image of products quality
➢ Gives product position w/i the market
● Products - goods and/or services: two product strategies:
- Branding: name, term, symbol, design etc that identifies a specific product and distinguishes it from its
competition e.g. Macca’s golden arch (strong brand = increased value)
➔ Marketers establish brand characteristics for their products → enable them to set own prices
and become a market leader in their particular industry
➔ Benefits of branding:
Consumer Business

- Identify the specific products that they
like
- Evaluate quality of products
- Brand becomes trustworthy
- Consumer loyalty → recognise the
business’ products
- Introduce new products onto market
as consumers are familiar w existing
brand

- Packaging: the development of a container and the graphic design for a product
➔ well -designed packaging will give positive impression → helps promote
➔ Uses of packaging → practical (quality design), promotional (info about business/product) or
to extend life cycle (redesign)
➔ Distinctive colours, symbols, logos → enhance appeal of product
● Price including pricing methods - cost, market, competition-based
- Cost-based pricing: (mark-up) pricing method derives the cost of producing or purchasing a product and
then adds a mark-up
➔ If mark-up too high, product = overpriced and may not sell; if mark-up is too low = business loses
profit they could have made
 - Market based pricing: setting prices according to the interaction between the levels of supply and
demand; increase in demand = increase in price → when shortage of supply = price increases
➔ Very suitable for goods such as fruit; unsuitable for goods such as mobile phones
- Competition-based pricing: where price covers costs (of raw materials, operations); can select a price
compared to competitors that is:
➔ Below - often used to break into the market
➔ Equal - business can save money by avoiding market research regarding price and can also avoid
a price war
➔ Above - can help create a perception of quality
- Pricing strategies - skimming, penetration, loss leaders, price points
Pricing strategy Advantages Disadvantages

Price skimming: business Higher revenue in early stages Potential backlash from early
charges highest possible price for adopters
product during introduction stage
of life cycle

Price penetration: when business Discourages competitors from Difficult to raise prices → bus
charges lowest price possible for a entering market and takes may be locked into a low
g/s to achieve larger market share market share from competitors sales revenue

Loss Leader: product sold at or Increase amt of customers in If it is done incorrectly the
below cost price → hope that store and build a reputation for business can actually lose
extra customers will buy other having low prices money
products too

Price points: selling products at - Easier for customers to find n/a

certain predetermined prices
type of product needed
- easier for business to
encourage customer to trade
up to a more expensive
product

- Price and quality interaction: Premium pricing: where a high price is charged to give the product an aura
of quality and status
● Promotion: methods used by a business to inform, persuade and remind a target market about its products
- Elements of the promotion mix - advertising, personal selling and relationship marketing, sales
promotions, publicity and public relations
➔ Advertising: paid, non-personal message communicated through a mass medium e.g. mass
marketing, e-marketing, social media advertising, telemarketing
➔ Personal selling: activities of a sales representative directed to a customer in an attempt to
make a sale → (usually face to face)
➢ Advantage: can be modified to suit individual
➢ Disadvantage: can be time consuming and expensive
➔ Relationship marketing: development of long term and cost-effective relationships w individual
customers
➢ Advantage: create customer loyalty
➢ Disadvantage: costly and time consuming
 ➔ Sales promotions: use of activities or materials as direct inducements to customers e.g. coupons,
premiums, refunds or cash back
➔ Publicity: any free news story about a business’ products (not paid ads); main aims:
➢ Enhance/ raise the image of the product
➢ Highlight favourable features
➢ Help reduce any negative image that may have been created
➔ Public relations: are those activities aimed at creating and maintaining favourable relations btwn a
business and its customers (build upon brand image)
- The communication process - opinion leaders, word of mouth: customers more willing to purchase a
product if message comes from a respected channel:
➔ Opinion leaders: may be celebrities or experts in a particular field
➔ Word of mouth: more important due to use of social media
● Place/distribution
- Distribution channels:routes taken to get the product from the business to the customer
➔ Common methods:
➢ Producer to consumer e.g. ebay, amazon
➢ Producer to retailer e.g. type/cotton on
➢ Producer to wholesaler to retailer to customer e.g. tiptop → woolies → cafe → customer
- Channel choice - intensive, selective, exclusive:
➔ Intensive distribution - widely available (saturate market) e.g. Arnotts biscuits, Cadbury
Advantages Disadvantages

- Wide exposure (higher possible sales) - The producer loses control over sales
process

➔ Selective distribution: moderate proportion of all outlets e.g. Nike (any in Westfields)
Advantages Disadvantages

- Producer = more control over sales - Limits exposure

process + intermediaries - Inconvenient for customers
- product/brand more prestigious

➔ Exclusive distribution: use of only one retail outlet for a product in a large geographic area e.g.
Prada, Gucci, Guess
Advantages Disadvantages

- Complete control over sales process - Very limited exposure

- Very prestigious

- Physical distribution issues - transport, warehousing, inventory

➔ Transport: required to deliver products → method (air, road etc, water, rail) will depend on
type of product
➔ Warehousing: set of activities involved in receiving, storing and dispatching goods
➢ More warehouses = closer to customers but more expensive
➢ Less warehouses = cheaper but less convenient (slower delivery)
➔ Inventory: amt of stock kept → must find correct balance of the two below:
 ➢ High stock levels = can meet consumer demand but will experience high storage costs
(warehouse rent, insurance etc.) and obsolete stock
➢ Low stock level = lower costs but may result in lost sales or ‘stock-out costs’
● People, processes and physical evidence: → 3 P’s for services
- People: (employees) → quality of interaction between customer and those delivering the service
➔ How is this marketing? Business will depend on the quality of the service + e.g. can boast good
customer service as a selling point
➔ Must hire right people and train them to leave a good impression
- Processes: flow of activities that a business will follow in its delivery of a service
➔ Must be highly efficient to achieve customer service e.g. Domino’s boast the process → fast
delivery (20 mins)
- Physical evidence: environment in which the service will be delivered → also includes materials
needed to perform service e.g. location, equipment, signage, brochures, business logo + website
➢ Creates image of value and excellence e.g. hotel → scenery, decor = luxury experience
● E-marketing: (electronic marketing) practice of using the internet to perform marketing activities
- E.g. web pages, podcasts, blogs and social media sites
Advantages Disadvantages

- Reach new market - A poor website can ruin a decent business

- Segment the market further - Internet ads are usually ignored as spam
- Get competitive advantage (through
having the best online service)

● Global marketing strategies include:

- Global branding: worldwide use of a name, term, symbol or logo to identify the seller’s products
Advantages Disadvantages

- Saves on cost - culture/language differences might distort

- Sends message of power and prestige your msg
- Ensures the product life cycle is extended
- Reducing production costs thru economies
of scale
- Creates a brand affinity → builds
customer loyalty (trustworthy)

- Standardisation: assumes the way the product is used and the needs it satisfies are the same all over the
world → uses common marketing mix in a number of markets (doesn’t alter)
➔ Can be inflexible and doesn't take into consideration needs of consumers
Advantages - Savings due to economies of scale → large volumes of g/s
produced
- Centralised approach to production (greater focus on quality)
- Universal approach to marketing strategies (advertising, a common
brand, distribution etc)

- Customisation: assumes the way the product is used and the needs it satisfies are diff between countries
 ➔ firm will adjust marketing approach to reflect differences in needs of customers in diff countries
➔ NOTE: a business can instead adopt a combination of customisation and standardisation
- Global pricing: how businesses coordinate their pricing policy across diff countries; includes:
➔ Customised pricing - when consumers in diff countries are charged diff prices for the same
product
➔ Market-customised pricing - sets prices according to local market conditions → more flexible
than customised pricing
➔ Standardised pricing - charging customers same price for product anywhere in the world →
only succeed if foreign marketing costs remain low enough to not affect overall costs
- Competitive positioning: how a business will differentiate their products → how they will carve a place
in the competitive marketing environment (marketing strategies are used to achieve this)
➔ When consumers can differentiate one business’ products from another → avoid having to
compete on price alone (which can be more difficult to sustain in the longer term)
➔ The business might need to change:
➢ The price, the product, the promotional strategies or the packaging

Marketing strategies
● Products - goods and/or services
- Branding: Qantas one of Australia’s leading brand names → kangaroo and symbol = “Spirit of
Australia” clearly identify Qantas and distinguish it from competitors
➔ Recent industrial action has damaged the brand
➔ Gov recently invested in Qantas as it is one of Australia’s leading brands
- Packaging:
Apple - Packaging suggestive of quality

IKEA - Flat packed RTA (ready to assemble) furniture

➔ Lower op. cost → can pass onto consumers in form of cheaper price → gain more market
share while still maintaining profit margin
Advantages of flat packaging

- Reduces product weight

- Improves filling rates in shipping containers and warehouses
- Allows high automation in factories - achieve economies of scale
- Lower operational cost
- In 2010, the Ektorp sofa had its packaging size reduced by 50% which reduced the no. of trucks
required for logistics by 7 477 a yr
➔ The cost savings enabled IKEA to reduce the price of the sofa by 14%

● Price including pricing methods - cost, market, competition-based

Qantas - Cost-plus margin: determine cost of production and then add margin for profit
- Market: most fares @ Qantas are determined by the market supply and demand higher
prices during the holiday season
- Competition-based: monitoring what other airlines are charging

IKEA - Cost leaders w/i their markets → aim to undercut competitors (competition based)
 - While most retailers aim to be 5-10% below competitors → IKEA’s product range is
priced 20% cheaper @ a min.

- Pricing strategies - skimming, penetration, loss leaders, price points

Qantas - Price penetration: lowest possible prices → uses this for JetStar and JetStar
international
- Loss leader: when JetStar was launched in 2004 - low fares to gain initial market
share (one-off promotions)

IKEA - Price penetration: 2014 - IKEA entered the South Korean market and w/i 1 yr
of operations → ranked 3rd in South Korean home furnishings market
- Loss leader: IKEA’s sale items, one-off promotions, free coffee for IKEA family
members → all loss leading strategies to encourage impulse purchases
- Price points: w/i IKEA store, often cheaper items are placed next to more
expensive ones → so customers compare the two and may upgrade to the more
expensive one

Apple - Price skimming: used when a new iPhone is released, positioning it as a leading
edge, quality product

Gillette - Loss leader: offer handles to customers in the hope that they will buy the profitable
razor blades on an ongoing basis

● Promotion:
- Elements of the promotion mix - advertising, personal selling and relationship marketing, sales
promotions, publicity and public relations
➔ Advertising: Apple
➢ Mass marketing - use of media to help create a highly publicised event of new product
launches
➢ Social media advertising - extensive use of social media
➢ E-marketing - use of websites for launches and product info
➢ Direct marketing - catalogues → business magazines and journals to target executives
- Personal selling: Qantas → personal selling based on sales reps who sell directly to travel agents,
businesses and gov departments
- Relationship marketing: IKEA → the IKEA catalogue consumes about 70% of IKEA’s marketing
budget and is a major relationship marketing tool
➔ IKEA family program - loyalty program where members enjoy exclusive product discounts,
special offers and event invites, freebies
- Sales promotion: Qantas → JetStar uses 2 for 1 sales to promote its brand and stimulate sales → when
JetStar opened - released 100 000 tickets at $49
- Publicity and public relations:
Apple - Publicity and a secrecy approach to keep the media guessing about upcoming
models
- Product placement in TV shows and movies e.g. House of Cards, The
Simpsons
Qantas - Sponsor sports → rugby union, NRL, netball, swimming
- Supports and sponsors environmental causes such as clean up Australia
- News releases, feature articles, press release and interviews

- The communication process - opinion leaders, word of mouth:

➔ Opinion leaders:
Apple - Celebrity endorsements in
advertisements e.g. Samuel. L
Jackson

Qantas - John Travolta

➔ Word of mouth: IKEA → pinterest + facebook allows users to “pin” or share their favourite
products via social media
● Place/distribution
IKEA - Intensively distributes their mass produced products (widely available) through its stores
and online shopping

Apple - 30% of Apple sales are made through direct distribution channels (online and Apple Store)
and 70% were through indirect channels such as network carriers and other retailers e.g.
Big W, Vodafone, Optus

● People, processes and physical evidence:

Apple - People: strong focus on sales and customer service in stores
➔ Job titles such as ‘genius’ and ‘specialist’ to raise employee status
➔ in-store , online and phone support for after sales, repairs, complaints and
warranties
- Processes: online ordering system
➔ Free upgrades of ios for existing customers
➔ Pre-ordering available to prior to new product launches only in Apple stores
➔ Roaming payments system in Apple stores so customers don’t need to wait at a
check-out
- Physical environment: apple stores designed to reflect the importance of innovation and
quality
➔ Encourage ‘hands on approach” allowing customers to test drive Apple products
➔ Elaborate building entrances for most stores, positioned in prime city locations

Qantas - People: Qantas spends more than $275 million a yr on staff training to ensure a very
positive interaction between its customers
- Processes: Qantas implements effective processes such as Q Bag Tag, booking flights
online, online check in, mobile check in etc to ensure its services are provided in a timely
fashion
- Physical environment: Qantas terminal and lounges

● E-marketing
IKEA - Heavily utilise Facebook, Instagram, Pinterest, Twitter, Google+ and YT

Apple - New product launches and related activities are published on their website and digitally
 issued to media organisations (publicity)
- Online ads on social media, online business journals

● Global Branding Apple → competitive advantage due to global brand recognition

- Standardisation: Apple - uses standardisation approach in marketing strategies for iPhones → cheaper
option
➔ While pricing may differ btwn markets, the same iPhone is found in every country it sells
- Customisation
McDonald’s Japan: Teriyaki McBurger
Israel: McShawarma/McKebab

Apple In 2015 - first customised advertisement for iPhones in India - focusing on culture
and religion (promotion)
➔ Altered approach to marketing

- Competitive positioning:
Apple - Has positioned its products in high end of market in terms of quality and
Differentiate through design and priced its products accordingly
quality - As high end market 4 smartphones in developed countries has become
saturated, Apple have turned to emerging economies such as China and India
- New marketing strategies are required due to the local competition, income
lvls and other demographic factors in these new markets

IKEA - Products are exclusive and privately labelled, sold only @ IKEA
Differentiate through - Quality is good when compared to the price consumers pay for them
price - Product price is a major differentiator for IKEA
- Its marketing is innovative and unique - an entire “experience” - play area,
restaurant
- Customers can take their products home on the day

Topic 3: Finance
Role of financial management
● Financial management: the planning and monitoring of a business’ financial resources to enable the business to
achieve its financial objectives
● Strategic role of financial management: achieving business financial objectives + goals
- Involves:
➔ Setting financial objectives and ensuring the business is able to achieve these goals
➔ Sourcing finance
➔ Preparing budgets and forecasting future finances
➔ Preparing financial statements - profit + loss/revenue, cash flow, balance sheet
➔ Maintaining sufficient cash flow
➔ Distributing funds to other parts of the business
● Objectives of financial management are to maximise the business’:
- Profitability, growth, efficiency, liquidity, solvency
➔ Profitability - the ability of a business to maximise its profits
 ➔ Growth - the ability of the business to increase its size in the longer term
➔ Efficiency - the ability of a business to minimise its costs and manage its assets so that maximum
profit is achieved w/ the lowest possible level of assets
➔ Liquidity - the extent to which a business can meet its financial commitments in the short-
term (less than 12 months) → day-to-day expenses
➔ Solvency - the extent to which the business can meet its financial commitments in the longer term
(more than 12 months)
- Short-term and long-term:
➔ Short-term - financial objectives are the tactical (1-2 yrs) and operational (day-to-day) plans of a
business
➔ Long-term - financial objectives are the strategic plans of a business → determined for a set
period of time (generally 5+ years)
➢ To achieve its longer term goals, it must have a number of short-term, specific objectives
➔ Potential conflicts btwn ST and LT financial objectives can occur e.g. investing in R&D →
expensive in SR; in LR can make company lots of money (results are achieved)
● Interdependence with other key business functions: all functions rely on financial managers to allocate them
adequate funds
- E.g. operations need funds to purchase inputs and carry out transformation process, marketing needs
funds for various types of promotion and HR need funds to pay staff
- Finance department also relies on the other three business functions
➔ Want operations to reduce costs when producing products, marketing to promote products +
generate sales and HR to manage staff + reduce costs
➔ Helps generate sales and thus income for finance department

Influences on financial management

● Financial managers must ensure funds are available when needed; are obtained at the lowest possible cost, are
used as efficiently as possible; and most importantly are available for debt repayments; can come from:
● Internal sources of finance - funds provided by the owners of the business (finance) or from the outcomes of
business activities; includes:
- Owners’ equity: the funds contributed by owners or partners to establish and build the business → also
includes selling off any unproductive assets

Advantages of equity finance Disadvantages of equity finance

- Less risk of business failure due to
equity finance being a cheaper
source w no interest repayments
- Owners which contributed the equity
retain control over how the funds are
used
- Lower profits for the owner as profits
are distributed amongst shareholders and
investors through dividend payments
- Ownership is diluted and the owner
loses some control over business
decisions
- Potential conflict may arise in the
decision-making process amongst
investors

- Retained profits: profits that are not distributed, but are kept in the business as a cheap and accessible
source of finance for future activities → most common source of internal finance
➔ Made @ EOFY e.g. investments
● External sources of finance: funds provided by sources outside the business, including banks and other financial
institutions - categorised as debt or equity - influence financial management decisions
- Debt: Short-term borrowing → used to finance temporary shortages in cash flow or finance for
working capital → refers to those funds that will be repaid within 12 months
➔ Overdraft: where a bank allows a business to overdraw its account to an agreed limit
➢ Assists businesses w/ short-term liquidity problems e.g. seasonal decrease in sales
➔ Commercial bills: primarily short-term loans issued by financial institutions, for larger amounts
(usually over $100 000) for a period of generally between 30-180 days
➢ The full amt doesn’t need to be repaid until the end of the term; usually secured against
the business’ assets
➔ Accounts receivable: all people who owe money to the business → customers → using credit
(debtors)
➔ Accounts payable: people whom the business owes money to → e.g. suppliers, banks,
shareholders, financial institutions → creditors
➔ Factoring: selling of accounts receivable for a discounted price to a finance or factoring company
➢ Accounts receivable: is the proceeds or payment which the company will receive from its
customers who have purchased its goods & services on credit
➢ Provides immediate access to funds → improving the business’ cash flow and gearing
➢ Relatively expensive source of finance because the business is usually responsible for
debts that remain unpaid, and commission is paid on the debt
- Debt: Long-term borrowing → funds borrowed for periods longer than 12 months → can be secured
and unsecured and IR are usually variable → used to finance real estate, plant + equipment
➔ Mortgage: a loan secured by the property of the borrower (business) → cannot be sold or used
for further borrowing until the mortgage is repaid
➔ Debentures: issued by a company for a fixed rate of interest and for a fixed period of time →
raise funds from investors rather than companies → company must repay loan
➔ Unsecured notes: loan from investors for a set period of time → not secured against the
business’ assets and therefore present most risk to the lender
➢ Attracts higher rate of interest than a secured note
➔ Leasing: payment of money for the use of equipment that is owned by another party
➢ Operating leases - can be cancelled, often without penalty
➢ Financial leases - the lessor purchases the asset on behalf of the lessee; usually for the
life of the asset e.g. plant, vehicles, equipment
➢ Lease repayments are fixed for the economic life of the asset, usually 3-5 yrs
Advantages of leasing - The costs of establishing leases may be lower than
other methods of financing
- If some assets are leased a business may be in a better
position to borrow funds
- Provides long term financing w/o reduced control of
ownership
- Repayments of the lease are FIXED for a period so
cash flow can be monitored easily
➔ Means the business doesn’t have to repay
constantly → fixed better than normal
repayments
Advantages of debt finance Disadvantages of debt finance

- Funds are usually readily available and can be
acquired at short notice - increased access to funds
should lead to higher earnings and profitability
(achieving strategic objectives)
- Debt finance does not dilute the current ownership
in the business, enabling the owner to retain
complete control
- Interest repayments are tax deductible which
reduces business owners’ net obligations
- Provision of collateral and high interest
repayments may damage the long-term financial
viability of the business and lead to a ‘debt trap
scenario’ whereby businesses continue to borrow
from financial institutions in order to pay off
existing debt
- Potential business failure

- Equity: refers to the cash raised by a company either issuing ordinary shares to the public for purchase
through ASX or by selling private shares (equity) in companies not listed on the ASX
➔ Ordinary shares: purchase by individuals means they become part-owners of a publicly listed
company → receive dividends; the types of ordinary shares:
➢ New issues: a security that has been issued or sold for the first time in a public market
e.g. ASX → usually businesses require a prospectus
○ Aka as an initial public offering (IPO)
➢ Right issues: the privilege granted to shareholders to buy new shares in the same
company→ occurs after the IPO
➢ Placements: additional shares offered at a discount to their current trading price to
special institutions or investors → intended to persuade specific investors to invest
➢ Share purchase plans: an offer to existing shareholders in a listed company to purchase
more shares in that company without brokerage fees
➔ Private equity: money invested in a (private) company not listed on the ASX → allows
company to raise capital to finance future expansion/investment of the business
● Financial institutions - banks, investment banks, finance companies, superannuation funds, life insurance
companies, unit trusts and the Australian Securities Exchange
- Financial institutions collect funds and invest them in financial assets - provide financial services and
deal w financial transactions e.g. Investments, loans + deposits
- Banks: major operators in financial markets → most important source of funds → more suited to LT
finance (supervised by the RBA)
➔ Receive savings as deposits from individuals, businesses and governments → in turn making
investments and loans to borrowers
- Investment banks: provide services in both borrowing and lending, primarily to the business sector - e.g.
Macquarie Bank - can customise to suit business needs
➔ Sometimes impose conditions when providing loans e.g. may require some equity in the business
➔ They: trade in money and financial futures, arrange LT finance for company expansion, provide
working capital etc.
- Finance companies: non-bank financial intermediaries that specialise in smaller commercial finance →
provide mainly ST and MT loans to businesses e.g. AMP, citi and cua
➔ E.g. of loans = consumer hire-purchase loans, personal loans and secured loans
 ➔ Also major providers of lease finance to businesses → some specialise in factoring or cash flow
financing → raise money through share issues (debentures)
➔ Can provide businesses w quick access to funds, although IR usually higher
- Superannuation funds: provide funds to the corporate sector through investment of funds received from
superannuation contributions
➔ Employers are required to make superannuation contributions for all employees
➔ Super funds are able to invest in LT securities as company shares, gov and company debt bc of
the LT nature of their funds
- Life insurance companies: provide a cover or lump sum payment in the event of death →
policyholders pay regular premiums
➔ provide both equity and loans to corporate sector through receipts of insurance premiums, which
provide funds for investment
➔ The funds received in premiums, called reserves are invested in financial assets
- Unit trusts: (also known as mutual funds) - take funds from a large number of small investors and invest
them in specific types of financial assets e.g. short term money market, shares, property
- Australian Securities Exchange: (ASX) acts as a primary market → enabling companies to raise new
capital through the issue of shares and receipts of proceeds from the sale of securities
➔ Offers shares, futures, warrants, real estate investment trusts etc.
➔ Also operates as a secondary market - pre owned or second hand securities e.g. shares are traded
between investors who may be individuals, businesses, gov or financial institutions
● Influence of government - Australian Securities and Investments Commission, company taxation
- Businesses are influenced by gov. use of economic policies: monetary and fiscal policy, legislations
and gov institutions or bodies → must comply
- Legislation influences the choice of legal structure as diff obligations are placed on diff businesses
- Australian Securities and Investment Commission: a government department and legislation that
influences financial management
➔ Enforces and administers the Corporations Act 2001 and protects consumers in the areas of
investments, life and general insurance, superannuation and banking in Australia
➔ Aims to reduce fraud and unfair practices in financial markets and products → ensures
companies adhere to the law, collects info about companies and makes it available to the
public
➔ If a business breaches the law, ASIC will investigate the matter and determine an appropriate
remedy → which will influence business’ finances
➔ Businesses who don’t comply with Corporations Act will face negative publicity
- Company taxation: all incorporated businesses - priv and public - are required to pay company tax on
their profits
➔ Tax is levied at a flat rate of 30% of net profit
➔ regulations require sound financial management so the business will have adequate financial
resources available for when their taxations obligations are due
● Global market influences - economic outlook, availability of funds, interest rates
- Financial risk on global markets is greater than those accounted domestically
- Globalisation is an influence = interdependence between economies and their business sectors → rely
on trade for expansion and increased profits; three main global influences:
 ➔ Economic outlook: (eco performance) the projected changes to the level of economic growth
throughout the world → direct impact on demand of Aus exports
➢ Positive outlook→ incr demand for g+s = bus. increase production to meet demand
and require funds to purchase equipment, employ staff or expand
○ Also decrease the IR on funds borrowed internationally from the financial money
market
➢ Poor outlook = impact financial decisions oppositely → may have to retrench
workers, cut costs etc.
➢ E.g. tourism related activities such as travel and hospitality are suffering
➔ Availability of funds: the ease with which a business can access funds for borrowing on the
international financial markets
➢ Various conditions and rates apply and will be based primarily on:
○ Risk
○ Demand and supply
○ Domestic economic conditions
➢ E.g. GFC in 2008-9 = major impact on availability of funds for companies and
institutions
○ Also caused sharp incr. in IR → reflective of high level of risk in lending
➔ Interest rate: the cost of borrowing money → overseas IR will also affect Aus businesses who
borrow overseas
➢ The higher the level of risk involved in lending money to a business, the higher the IR
➢ If IR and/or exchange rates (ER) change, this could lead to an increase in repayments and
therefore a reduction in profits

Processes of financial management

● Planning and implementing - financial needs, budgets, record systems, financial risks, financial controls
- Financial planning determines how a businesses goals will be achieved, the steps are:
➔ Determining Financial needs: determine where a business is headed; financial information needs
to be collected before future plans can be made
➢ Collected by analysing balance sheets, income statements, cash flow statements, sales
and price forecasts, budgets, bank statements, break-even analysis etc.
➢ Financial needs of a business will be determined by:
○ Size of a business
○ Current phase of the business cycle
○ Future plans for growth and development
○ Capacity to source finance - debt and equity
➢ A business plan may be used when seeking finance or support for a project from a bank,
financial institution or other potential investors
➢ Sets out the finance required, proposed sources of finance and a range of financial
statements
➢ Financial info is needed to show that a business can generate an acceptable return for the
investment being sought and should include analysis of financial statements
➔ Developing Budgets: provide information in quantitative terms about requirements to achieve
a particular purpose → important financial management tool
 ➢ Enable managers to plan for the future, monitor past and present performance and
coordinate the plans made by diff sections of the business
➢ Can show cash required for planned outlays for a particular period, cost of capital
expenditure against earning capacity, estimated cost of raw materials/inventory
➢ Provide financial info for a business’ specific goals and are used in strategic, tactical and
operational planning
➢ Budgets can be used as both a:
○ Control measure - planned performance can be measured against actual
performance and corrective action taken as needed
○ Planning measure: can predict a range of activities relating to short-term and
longer term plans and activities
➢ Budgets can be classified as:
Operating budgets Relate to the main activities of a business and may include
budgets relating to sales, production, raw materials, direct
labour, expenses and costs of goods sold

Project budgets Relate to capital expenditure and R&D

Financial budgets Relate to financial data of a business and include the

budgeted income statement, balance sheet and cash flows

➔ Maintaining Record systems: mechanisms employed by businesses to ensure data is recorded and
info provided by record systems is accurate, reliable, efficient and accessible
➢ Minimising errors in recording process and producing accurate and reliable financial
statements is essential when maintaining record systems
➢ The double-entry system of accounting is a control aspect - by recording all items twice,
the entries can be seen to balance and checks to find errors can be carried out quickly
➢ Helps owners manage their business and make sound business decisions → also a legal
requirement by the ATO to keep certain records for a min of 5 yrs
➢ Businesses can choose to operate a manual or electronic system:
○ Manual record keeping - paper based journals; less expensive to set up and data
loss is less of a risk
○ Electronic spreadsheet or a software accounting package: more efficient →
allow financial managers to generate orders, reports, invoices
○ Electronic systems also require less storage space → businesses should ensure
their records are secure and create a backup system to not lose them
➔ Identifying Financial risks: the risk to a business of being unable to cover its financial
obligations (e.g. debts), both short term and longer term → must be minimised
➢ If unable to meet financial obligations = bankruptcy
➢ To minimise financial risk, must generate sufficient profit to cover cost of debt as well as
increasing profits to justify the risk taken by owners and shareholders
➢ Consideration must also be given to the liquidity of a business’ assets → must have
liquid assets so debts including interest payments can be covered
➔ Establishing Financial controls: ensure the plans that have been determined will lead to the
achievement of the business’ goals in the most efficient way
 ➢ Financial problems and losses can occur due to theft, fraud, damage or loss of assets
errors in record systems
➢ Common policies and procedures that promote control w/i a business:
○ Clear authorisation and responsibility for tasks in the business
○ Separation of duties e.g. one person responsible for ordering and another for
receiving inventories
○ Control of duties - e.g. staff are skilled in number of areas and can rotate
○ Control of cash e.g. use of cash registers, cash banked daily etc
○ Protection of assets - e.g. buildings are kept locked
○ Control of credit procedures e.g. following up overdue accounts
➢ Budgets and variance reporting are financial controls used in businesses
- Debt and equity financing - advantages and disadvantages of each → businesses must determine the
appropriate combination of debt and equity for their activities
➔ The larger the equity capital on a business, the more secure the financial structure and the more
likely they will be to have opportunities to borrow
➔ Debt finance: relates to the short-term and long-term borrowing from external sources by a
business
➢ Can be attractive as funds are usually readily available and interest repayments are tax
deductible → hence, reducing the cost of debt financing
➢ Risk and return must be carefully considered as there is a greater lvl of risk associated w
borrowing
➔ Greater consideration has to be given to the impact of borrowing on the future
profitability and financial stability of the business
➔ If business uses a high level of debt finance it takes a greater risk than if it uses
equity finance
➔ The higher the risk of an investment, the higher the return
Advantages of debt Disadvantages of debt

- Funds are usually readily available and
can be acquired at short notice
- Increased funds should lead to increased
earnings and profits
- Interest payments are tax deductible
- There is an increased risk if debt comes
from financial institutions bc interest, bank
charges and gov. charges may increase
- Lenders have first claim on any money if
the business ends in bankruptcy
- Regular repayments have to be made

➔ Equity finance: relates to the internal sources of finance in the business

➢ Most important source of funds for companies as it remains in bus. for an indefinite time,
bc funds do not have to be repaid at set date as with debt finance
➢ Equity is generally safer than debt → but requires sufficient profits to be made so that
the business can continue to operate

Advantages of equity Disadvantages of equity

- Does not have to be repaid unless the owner
leaves the business
- Cheaper than other sources of finance as
there are no interest payments
- The owners who have contributed the equity
- Lower profits and lower returns for the
owner
- Long, expensive process to obtain funds this
way
- Ownership is diluted i.e. the current owners
 retain control over how that finance is used will have less control

- Comparison of debt and equity finance

Debt Equity

Lenders have prior claim in the event of Shareholders have a residual claim on assets
liquidation

Debt must be repaid by periodic repayments Equity has no maturity date

Interest payments are tax deductible Dividends are not tax deductible

- Matching the terms and source of finance to business purpose: must be appropriate for purpose
➔ E.g. the use of ST finance to fund LT assets causes financial problems bc the amt borrowed must
be repaid b4 LT assets have had time to generate increased cash flow
➔ Use of LT finance to fund short-term situations or assets means the business is still paying the
mortgage long after the situation is resolved or stock has been sold → profits reduced
➔ Hence, finance managers should match the length or term of the loan w the economic lifetime of
the asset the finance is being used to purchase
➢ Means ST finance should be used to purchase ST assets and LT finance should be used
for LT assets
● Monitoring and controlling - cash flow statement, income statement, balance sheet → financial controls
- Essential as inconsistent methods will have immediate impact on the viability of the business and require
management to monitor the internal and external factors that will impact finances of bus.
- Cash flow statement: a financial statement that indicates the movement of cash receipts and cash
payments resulting from transactions over a period of time → (only cash transactions)
➔ Money only comes into a business through sales
➔ All businesses must have sufficient funds to carry out their daily functions → inability to
manage cash flow is one of the most common causes of business failure
➔ Gives important info regarding a firm’s ability to pay its debts on time
➔ Stakeholders who are likely to view a cash flow statement includes creditors and lenders of
finance, owners and shareholders
➢ From there they can assess the ability of the business to manage its cash and potential
shareholders to check that a business has had positive cash flow
➔ Cash flows can be a better predictor of a business’ status than profitability → can show
whether a firm can:
➢ Generate a favourable cash flow (inflows exceed outflows)
➢ Pay its financial commitments as they fall due e.g. interest on borrowing
➢ Have sufficient funds for future expansion or change
➢ Obtain finance from external sources when needed
➢ Pay drawings (form of interest) to owners or dividends to shareholders
➔ Three main categories:
Category Description Inflows Outflows

Operating activities Are the cash inflows - Income from Payments to:
 and outflows relating sales (cash - Suppliers
to the main activity and credit) - Employees
of the business - that - Dividends - Other
is, the provision of and interest operating
goods and services received expenses
- To do w (insurance,
operations rent,
activities e.g. advertising)
receipts from
customers

Financing activities Are the cash inflows Relate to equity Outflows →

and outflows relating (issue of shares or repayments of debt
to the borrowing capital contribution and cash drawings of
activities of the from owner) or debt
business (loans from financial the owner or
institutions) payments of
dividends to
shareholders

Investing activities Are the cash inflows Selling of an old Purchasing new plant
and outflows relating motor vehicle and equipment or
to the purchase and purchasing property
sale of non-current
assets and
investments. These
assets and
investments are used
to generate income
for the business.
- Income statement: a summary of the income earned and the expenses incurred over a period of trading
➔ Helps users of info see how much money has come into the business as revenue, how much has
gone out as expenditure and how much has been derived as profit
➔ The income statement shows:
➢ Operating income - earned from main function of the business e.g. sales of inventories,
services and non-operating revenue from other operations e.g. rent
➢ Operating expenses - purchase of inventories, payment for services and other expenses
incurred in the main operation of the business e.g. advertising, rent
➢ Expenses are categorised as either selling, administrative or financial expenses
Selling expenses: these relate to the - Commission
process of selling the good or service and - Salaries
can be directly traced to the need for sales - Wages
- Advertising
- Delivery expenses
- Electricity

Administrative expenses: costs directly - Stationary

related to the general running of the - Office salaries
business - Rent
- Rates
- Telephone
- Depreciation of buildings

Financial expenses: costs associated with - Interest payments

the borrowing of money from outside - Lease payments
people or organisations and to minimising - Dividends
business risk - Insurance payments
 ➔ Cost of goods sold: the value of stock that a business has sold to its customers

➔ ➔ Gross profit: that part of a business’ profits that represents operating income minus cost
of goods sold
➔ Net profit: the difference between the gross profit and expenses
➔ Importance of income statement: managers can use it to make comparisons and analyse trends
before making important financial decisions
➢ Can see whether expenses are increasing, decreasing or the same → also why profits
have increased/decreased

- Balance statement: represents a business’ assets and liabilities at a particular point in time, expressed in
money terms and represents the net worth (equity) of the business
➔ Shows the level of current and non-current assets, and current and non-current liabilities,
including investments and owners’ equity
Assets Items of value owned by the business
- Current assets → can be turned into cash within 12
mths
- Non-current assets are not to be expected to be turned
into cash w/i 12 months
 Liabilities Claims by people other than owners against assets and
represent what is owed by the business
- Current liabilities - must be repaid w/i 12 months
- Non-current liabilities - must be met some time after
the next 12 months

Owners’ equity The funds contributed by the owner(s) and represents the net
worth of the business

➔ Shows
the

financial stability of a business → can indicate whether a business

➢ Has enough assets to cover its debts (security)
➢ The interest and money borrowed can be repaid
➢ The assets of the business are being used to maximise profits
➢ The owners of the business are making a good return on their investment
➔ Comparative balance sheet can show the trends and changes in the business that need to be
investigated (refer to diagram from textbook)
➔ The accounting equation: which forms the basis of the accounting process shows the
relationship between assets, liabilities and owner's equity
Assets = Liabilities + Owners’ equity
Owners’ equity = Assets - Liabilities
Liabilities = Assets - Owners’ equity
➢ The business and owner are separate; therefore, owners’ equity is what is to be repaid
(hopefully w increased profits) by the business to the owner
● Financial ratios
- Financial
statements
summarise
the activities of
a business
over a period of
time → must be
analysed to
increase

understanding of the implications of those activities

- Must compare with past performance and industry averages (for all ratios)
- Analysis involves comparing similar figures contained in the financial statements and balance sheets;
main types are:
➔ Vertical analysis - compares figues w/i one financial yr e.g. expressing gross profit as a
percentage of sales and comparing debt to equity
➔ Horizontal analysis - compares figures from different financial years e.g. comparing 2014 + 2015
➔ Trend analysis - compares figures for periods of 3-5 years
- Ratios are a tool of analysis - assist in answering more clearly the questions relating to profits,
solvency, efficiency, growth and liquidity → interpretation must be gathered from analysis
- Liquidity - current ratio (current assets ÷ current liabilities): (short-term financial stability) - the extent to
which the business can meet its financial commitments in the short-term - a period less than 12 months
➔ To assess a business’ liquidity = managers must assess whether business can pay its debts on time
➔ Current assets and current liabilities determine liquidity of business
➔ Current Ratio (working capital) - ratio to show liquidity

➢ Current ratio measures a business’ ability to pay back their current liabilities with their
current assets
➢ The higher the current ratio, the more capable the business is of meeting their short term
obligations
➢ A ratio of 2:1 indicates a sound financial position (i.e. a firm should have double the
amt of assets to cover its liabilities) → ratio of less than 1:1 indicates insufficient funds
 ○ NOTE: that too high a ratio (e.g. 3:1) can mean that current assets are not being
used fully
➢ However, the current ratio gives only a limited indication of the ability of a business to
meet its short term liabilities (nature + composition of assets may vary considerably)

➔ Strategies a
business could use to
improve liquidity =
factoring, selling non-
essential non-current assets
and using those funds to
reduce current liabilities or
injecting more equity into
business
- Gearing - debt to equity ratio (total
liabilities ÷ total equity): aka solvency
➔ Gearing measures the relationship between debt and equity - proportion of debt (external finance)
and the proportion of equity (internal finance) that is used to finance the activities of a business
➢ Ability to meet financial obligations in the longer term (5 years+)
➔ Debt to equity ratio:

➢ Shows the extent to which the firm relies on debt/outside sources to finance the business
➢ The higher the ratio/gearing, the less solvent the firm → e.g. the higher the ratio of
debt to equity, the higher the business risk (solvent = safe + sound financial position)
➢ A ratio of greater than 1 means the business has less equity than debt; a ratio of btwn 0
and 1 means that the business has more equity than debt
➢ Disadvantage of having a low gearing ratio - missing our on using more debt than equity
which can lead to greater potential for profit
➔ To improve a business’ gearing, they will need to look at ways of either reducing debt or
increasing their equity
➢ To decrease debt - could sell non-essential assets to pay off debt, re-negotiate loans to
spread payments over a longer period, lease assets rather than purchase them
➢ To increase equity - retaining more profits, injecting more equity funding by selling more
shares (if a public company) or inviting new owners
➔ Debt is attractive as the interest on it is a tax deduction; however, interest and principal must be
repaid at a later date, no matter the financial position of the business
➔ Equity is safer w fewer risks but returns on equity will be less as amts have to be ‘retained’ from
current earnings
- Profitability - gross profit ratio (gross profit ÷ sales); net profit ratio (net profit ÷ sales); return on equity
ratio (net profit ÷ total equity): the earning performance of the business - indicates capacity to use its
resources to maximise profits → recorded on income statement
➔ Parties interested in business’ profitability: owners and shareholders (acceptable return), creditors
want to know whether they will be paid, lenders want to know whether the principal and interest
on loans will be repaid, management uses it to adjust policies
➔ Gross profit ratio - represents the amt of sales available to meet expenses resulting in net profit
➢ Gross profit = sales - COGS; only calculated for business that sell stock, not service
businesses

➢ Sales aka revenue

➢ The higher the ratio, the better → if ratio is low, alternative suppliers may need to be
sourced and competitors investigated

➔
➔ Net profit ratio: represents the profit or return to the owners which is revenue/gross profit less
expenses
 ➢ A firm will be aiming for a high net profit ratio - a low net profit ratio indicates strategies
to reduce expenses and increase revenue need to be investigated

➔ Return on equity ratio: shows how effective the funds contributed by the owners have been in
generating profit (net income = net profit)

➢ Shows the return on investments (ROI)

➢ The higher the ratio or percentage, the better the return for the owner, although
comparisons must be made w alternative investments
➢ If return on equity rises due to increased leverage (debt) the improved result should be
seen as carrying increased
➢ If returns compare favourably, owners might consider expansion or diversification of the
business
○ If the return is unfavourable, the owners would consider alternative options,
include selling of the business
- Efficiency - expense ratio (total expenses ÷ sales), accounts receivable turnover ratio (sales ÷ accounts
receivable): the ability of the firm to use its resources effectively in ensuring financial stability and
profitability of the business
➔ The more efficient the firm, the greater its profits and financial stability
➔ Efficiency relates to the effectiveness of management in directing and maintaining the goals and
objectives of the firm
➔ Expense ratio = Total expenses/ Sales
➢ Compares total expenses w sales; indicates the amt of sales that are allocated to
individual expenses, such as selling, cost of goods sold and financial expenses
➢ Indicate day-to-day efficiency of the business → expenses ratios need to be kept at a
reasonable level and management must monitor each type of expenses in relation to
sales
○ If ratio is too high → must re-evaluate; the lower the percentage, the better
➔ Accounts receivable turnover ratio = sales/ accounts (divide answer by 365)
➢ Measures the effectiveness of a firm’s credit policy and how efficiently it collects its
debts
➢ Measures how many times the accounts receivable balance is converted into cash or how
quickly debtors pay their accounts
➢ By dividing by 365, businesses can determine the average length of time it takes to
convert the balance into cash
➢ High turnover ratios indicate the business has efficient debt collection → if not:
business must examine cash flow, credit policies, credit collection procedures and
costs
➢ Strategies to improve efficiency in collecting accounts receivable
○ Charging interest on overdue payments
○ Offering discounts for early payment - e.g. interest free
○ Being more selective when granting credit
○ Debt collection agencies or factoring → disadvantage is that these two
methods are expensive
○ Offer shorter interest-free period
- Comparative ratio analysis - over different time periods, against standards with similar businesses
 ➔ Ratios must be used alongside other info
➔ For analysis to be meaningful, business need to make comparisons with their past performance,
similar businesses and against common industry standards (known as comparative ratio analysis)
➔ Time periods = business can assess trends in financial info over several yrs
➔ Comparing results against standards that have been developed for a particular industry are
common
➢ However, care must be taken to ensure the same things are being compared
➔ Inter-business comparisons are useful - firms may access relevant business statistics from a
number of sources including the ABS -must be up-to-date and reflect industry norms
● Limitations of financial reports - normalised earnings, capitalising expenses, valuing assets, timing issues, debt
repayments, notes to the financial statements
- Financial reports may not give completely accurate assessment of business’ financial position as business’
often work harder to make their financial reports look good
- Can be misinterpreted and can be misleading → impacts decision making of management and
potentially put the business at risk
- Normalised earnings: adjusted to remove the effects/ take into account changes in economic cycle,
seasonality, revenue and expenses that are unusual or one time influences
➔ Help business owner, financial analysts and other stakeholders understand a company’s true
earrings from its normal operations
➔ E.g. of normalisation would be to remove a land sale from a retail firm’s financial statements in
which a large capital gain was realised
- Capitalising expenses: an accounting method where a business records an expense as an asset on the
balance sheet rather than as an expense on the income statement
➔ Doesn’t accurately represent true financial condition of the business - understates the expenses
and overstates and profits as well as the assets of the business
➔ E.g. of capitalising expenses include research and development and development expenditure
- Valuing assets: estimating value of assets when recording them on a balance sheet - can be difficult and
misleading
➔ Historical cost - accounting method where assets are listed on a balance sheet w the value they
were purchased
➢ This value may distort the business’ balance sheet as the original cost of an asset may be
different from its current market value
➢ Main advantage: cost can be verified; disadvantage: value may distort the business’
balance sheet
➔ Depreciation value is used for non-current assets, such as vehicles/machinery, which may use
value over time → only an estimate though
➢ Limitation of financial reports as an estimate may give false impression about how much
the business is actually worth
➢ While there are rules governing how depreciation is calculated, financial managers can
choose several methods, which may mislead some investors
➔ another limitation - intangible assets are difficult to value as items of value to a business, but do
not physically exist e.g. goodwill, trademarks, patents and brand names
➢ There may be a temptation for financial managers to overvalue them to make the business
appear more stable than it really is
- Timing issues: under the matching principle expenses incurred by a business must be recorded on the
income statement for the accounting period in which the revenue, to which those expense relate, is earned
 ➔ When an accountant records revenue, they should also record at the same time any expenses
directly related to that revenue
➔ Allows revenue earned to match the costs that were incurred to earn that revenue → results in
more accurate rep of bus financial position
➔ E.g. a real estate agent may have sold a property in June → they received a 2% commission
for sales, but employer didn’t pay them until July → this expense should be recorded in June
- Debt repayments: financial reports can’t disclose specific info abt debt repayments such as:
➔ How long the business has had or has been recovering the debt
➔ Have debt repayments been held over another accounting period, therefore giving a false
impression of the situation?
➔ Higher levels of debt to fund growth can lead to increased profits in the future
➔ When the debts are done
- Recording of debt repayments can be used to distort business’ status and provide more favourable
overview of the business
- Notes to the financial statements: (footnotes) report the details and information left out of the main
reporting documents such as the balance sheet, income statement and cash flow statement
➔ Contain info useful to stakeholders to help them make sense of these financial statements e.g.
accounting methodologies used for recording + reporting transactions
➢ Can affect bottom-line return expected from an investment in a company
➔ Contain how figures in financial statements were calculated and procedures used to develop them
● Ethical issues related to financial reports: financial managers and accountants who prepare financial reports have
an ethical and legal obligation to ensure financial records are accurate
- Ethical issue 1: business’ may overestimate revenue and understate their expenditure to give a false
impression of their profitability
- The impact of debt funds on risks to shareholders is an ethical issue that must be considered
- Ethical issue 2 - Tax evasion: business’ may receive cash/notes and not record the transaction →
unrecorded cash will not show up as bus revenue, reduce bus profits for the year and = lower tax
burden
- Ethical issue 3 - Valuing of assets, including inventories and accounts receivable: if accounts receivable
and inventories are overvalued - working capital will be high true and thus, distorted
- Ethical financial reporting practices
➔ Audits: an independent check of the accuracy of financial records and accounting procedures
→ shareholders, financial institutions, owners etc. rely on this
➢ Internal + external audits assist in guarding against unnecessary waste, inefficient use of
resources, misuse of funds, fraud and theft
Type of Audit Description

Internal audits These are conducted internally by employees to check

accounting procedures and the accuracy of financial records

Management audits These are conducted to review a firm’s strategic plan and to
determine if changes should be made

External audits These are a requirement of the Corporations Act 2001 (Cwlth).
The firm’s financial reports are investigated by independent and
specialised audit accountants to guarantee their authenticity.
- Used to provide an annual audit of accounting
 procedures and practices
- Conducted by an independent accounting business →
employ certified public accountants (CPA)
- Auditor certified the financial data present in bus
financial reports is in accordance with generally
accepted accounting standards and practices

➢ Audits check the control procedures of a business by physically checking assets e.g. cash
is counted, condition and amount of inventory is checked
➔ Record keeping: all data must be recorded accurately and honestly in financial reports
➢ Often businesses are tempted to somehow reduce the business profit in order to avoid tax
- the ATO regularly monitors business operators
➢ Evading taxation responsibilities can result in large fines
➢ Prosecutions for tax evasion can harm the reputation of the business and alienate
customers who wish to deal with honest and ethical businesses
➔ Reporting practices: accurate financial reports are necessary for taxation purposes as well as for
other stakeholders
➢ Proper financial records must be kept for a min. of five years
➢ Shareholders in a private company are legally entitled to receive financial reports
annually

Financial management strategies

● Cash flow management: cash flow is the movement of cash in and out of a business over a period of time
- Efficient management of cash flow is crucial to a business’ success; budgets are an important tool for
managing cash flows
Inflows Outflows

- Sales - Payments to suppliers

- Cash payments for accounts receivable - Interest on loans
- Commissions received - Operating expenses
- Sales of assets - Drawings
- Dividends received - Purchase of assets

- Cash flow statements: indicates the movement of cash receipts and cash payments resulting from
transactions over a period of time
➔ Vital for the business to assess whether the money inflows can match money outflows
➔ Liquidity describes whether a business has a good/adequate cash flow
➔ Assist in identifying periods of potential shortfalls and surpluses
- Distribution of payments, discounts for early payment, factoring (aka cash flow management strategies)
➔ A business may have temporary shortfalls of cash → over long periods this becomes a concern
as insolvency/bankruptcy may result
➔ Management therefore must implement strategies to ensure that cash is available to make
payments when they are due
Management strategies Description

Discounts for early payments This involves offering creditors a discount for early payments →
 effective when targeted at those creditors who owe the largest
amounts over the financial year period

Distribution of payments
This involves distributing payments throughout the month, year or other
period so that large expenses do not occur at the same time cash
shortfalls do not occur.
- Means there is more equal cash outflow each month rather than
large outflows in particular months

Factoring The selling of accounts receivable for a discounted price to a finance or

specialist factoring company.
- The business saves on costs involved in following up on unpaid
accounts and debt collection
- Seen as an effective strategy to improve working capital

● Working capital management: involves determining the best mix of current assets and current liabilities
needed to achieve the objective of the business → fund day to day operations
- A business must have sufficient liquidity so that cash is available or current assets can be converted to
pay debts - lack of short term liquidity = sale of non-current assets e.g. property = reduced profitability in
LT
- Working capital is the funds available for the short term financial commitments of a business
➔ If a business has insufficient working capital = cash shortages or liquidity problems
➢ Forces businesses to increase their debt, find new sources of finance or sell off non-
current assets
➔ If a business has an excess of working capital it means that assets are earning less than the cost to
finance them
- Net working capital is the diff between current assets and current liabilities → reps those funds needed
for the day-to-day operations of a business to produce profits and provide cash for ST liquidity
- Management must achieve a balance between using funds to create profits and holding sufficient funds to
cover payments so they can achieve effectiveness and profitability
How to monitor working capital:
- Control of current assets: current assets are assets a business can expect to turn into cash w/i 12 months -
usually include cash and accounts receivable
➔ Control of CA requires management to select optimal amount of each CA held, as well as raising
the finance required to fund those assets
➔ Working capital must be sufficient to maintain liquidity and access to credit (overdraft) to meet
unexpected and unforeseen circumstances
➔ Cash: ensures the business can pay its debts, repay loans and pay accounts in the ST and that the
business survives in the LT
➢ Cash supplies can also enable management to take advantage of investment opportunities
➢ Excess cash is a cost if left idle and unused
➢ Planning for the timing of cash receipts, cash payments and asset purchases avoids the
situation of cash shortages or excess cash
➢ Cash shortages can, however, occur due to unforeseen expenses and they are a cost to the
business
➢ Reserves of cash and marketable securities guard against sudden shortages or disruptions
to cash flow
 ➔ Receivables (accounts receivable) businesses must monitor accounts receivable and ensure timing
allows the business to maintain adequate cash resources
➢ The quicker the debtors pay, the better the firm’s cash position
➢ However, the disadvantage of operating a tight credit policy = customers may buy from
other firms instead
➢ Procedures for managing accounts receivables:
○ Checking the credit rating of prospective customers
○ Following up on accounts that are not paid by the due date
➢ aged debtor report - lists any customers that owe the business money, how much they
owe the bus and how long the payment is overdue
○ Makes it easy for a business to identify slow payers so they do not issue them w
additional credit until they’ve paid their outstanding debts
➔ Inventories: levels must be carefully monitored so excess or insufficient lvls of stock don’t occur
➢ Is a cost to a bus if remains unsold - holding of too much stock = unnecessary expenses
○ E.g. a fruit and veg merchant has a high turnover and pays for inventory close to
the time of sale, whereas a motor vehicle dealer has a much slower stock
turnover and usually pays for inventory well before the sale is made
➢ Too much inventory = cash shortages; insufficient inventory of quick selling items = loss
of customers and thus, sales
➢ Just-in-time is one method used by some businesses to ensure that inventory is not
lying idle → arrangement ensures supplies are supplied immediately
- Control of current liabilities: current liabilities liabilities that a business must repay w/i the shorter term -
usually include overdraft and accounts payable
➔ Payables: (accounts payable) are short-term (usually 30 days) obligations (debts) that result
from the bus buying g/s on credit → managers need to ensure they have adequate cash
resources to pay
➢ Control of accounts payable involves periodic reviews of suppliers and the credit
facilities they provide e.g.
○ Discounts + interest free credit
○ Extended terms for payments
○ Floor plan - means that suppliers agree to provide a g/s for a period of time
before payment is due
○ Consignment finance - goods supplied for a particular period of time and
payment is not required until goods are sold
➔ Loans: businesses may need to borrow funds in the ST for a no. of purposes
➢ Management of loans is important as costs for establishment, IR and ongoing charges
must be investigated and monitored to minimise costs
➢ ST loans are generally an expensive form of borrowing for a business and their use
should be minimised
➢ Control of loans involves investigating alternative sources of funds from diff banks and
financial institutions
➢ Positive, ongoing relos w financial institutions ensure most appropriate short-term loan is
used to meet the short-term financial commitments of the business
➔ Overdrafts: an arrangement with the bank that the business’ account can be overdrawn to a
certain amount
➢ Enable a business to overcome temporary cash shortages
 ➢ Banks require regular payments be made on overdrafts and may charge account-keeping
fees, establishment fees and interest
➢ Businesses need a policy for using and managing overdrafts and monitor budgets on a
daily/weekly basis so cash supplies can be controlled
- Strategies - leasing, sale and lease back
Strategy Definition Advantage

Leasing Hiring of an asset from another
person or company who has
purchased the asset and retains
ownership of it
- Frees up cash that can be used
elsewhere in a business
- Leasing allows 100% financing - is
an expense and is tax deductible
- Accounts payable: regular and fixed
payments made for the lease can be
planned to match the business’ cash
flow
- Firms can increase no. of assets
through leasing and this means that
revenue + therefore profits can be
increased

Sale and lease back The selling of an owned asset to
a lessor and leasing the assets
back through fixed payments for
a specified number of years
Sale and lease back increases a business’
liquidity bc the cash obtained from the sale
can then be used as working capital
- Plus other benefits associated w
leasing

● Profitability management: involves the control of both the business’ costs (cost controls) and revenue (revenue
controls)
- Cost controls - fixed and variable, cost centres, expense minimisation
Monitoring fixed and variable costs - Fixed costs do not change when the level of activity
changes - they must be paid regardless of what
happens in the business e.g. salaries, insurance

- Variable costs are those that change proportionately w

the level of operating activity in a bus e.g. materials
 - Changes in the volume of activity need to be managed
in terms of the associated changes in costs
- Comparisons of costs w budgets, standards and
previous periods ensure that costs are minimised and
profits maximised

Cost centres - Costs can be controlled by accounting for and

identifying the source and amt of costs through the use
of cost centres
- These are particular areas, departments or sections of a
business that generate the most cost e.g. marketing
- They have direct and indirect costs:
➔ Direct costs: those that can be allocated to a
particular product, activity, department or
region e.g. depreciation of equipment used
solely in the production of one good
➔ Indirect costs: those that are shared by more
than one product, activity, department or
region e.g. the depreciation of equipment used
to make several products would have indirect
costs

Expense minimisation - Profits can be weakened if the expenses of a business

are high
- Guidelines and policies should be established to
encourage staff to minimise expenses where possible
- Businesses need to take a critical look at costs and
eliminate waste and unnecessary spending

- Revenue controls - marketing objectives: in determining an acceptable level of revenue with a view to
maximising profits, a business must have clear ideas and policies, particularly abt its marketing objectives
Marketing objectives - Marketing strategies + objectives should lead to an increase in sales
and hence, an increase in revenue
- Sales objectives must be pitched at a level of sales that will cover
costs both fixed and variable and result in a profit
- Changes to the sales mix can affect revenue
➔ bus should control this by maintaining a clear focus on the
important customer base on which most of the revenue
depends before diversifying/extending product range
- Pricing policy (e.g. cost-based, comp-based) affects revenue +
working capital → must be closely monitored and controlled
➔ Overpricing could fail to attract buyers; while underpricing
 may bring higher sales but may still result in cash shortfalls
and low profits
- Can only achieve profitability through these steps in this exact order:
➔ If you get your 4P’s right → increase in sales → increase in
revenue → increase in profitability

● Global financial management

- Financial risks associated w global expansion are greater than those encountered domestically
- However, while a business can’t control many of these risks (bc external) - can put in place financial
management strategies to minimise their negative effects
- Exchange rates: rate of one currency to another on the forex - currency fluctuations significantly
impact on the profitability of global business → create further risk

Currency appreciation
Reduces international
competitiveness of Aus
exporting bus
- Raises the value of the AUD in terms of foreign currencies; each
unit of foreign currency buys fewer AUD
- However, AUD buys more foreign currency
- Makes of exports more expensive on international markets
- Prices for imports will fall

Currency depreciation - Each unit of foreign currency buys more AUD

Improves the international - Our exports become cheaper; price of imports will rise
competitiveness of Aus
exporting bus
➔ When revenues and expenses are transferred between nations - exchange rate can either increase
or decrease their value
➔ Currency fluctuations will also affect the business’ ability to meet their financial objectives
- Interest rates: a global business can borrow money from financial institutions in Aus or overseas
➔ Aus IR are typically higher than other countries → can tempt businesses to borrow finance
from an overseas source to take advantage of the lower IR
➔ However, exchange rate movements can mean ‘cheaper’ IR end up costing more in the long run
➢ E.g. US IR may be lower but currency is stronger = higher expenses
➔ Changes in IR will therefore have a major impact on a business’ profitability if they have
borrowed money from finance markets overseas
- Methods of international payment - payment in advance, letter of credit, clean payment, bill of exchange
➔ One major worry for exporters is that if products are shipped before payment - no guarantee that
the importer will pay
➔ Importers may worry that if payment is sent before products are received, there is similarly no
guarantee that the exporter will send the products
➔ To solve this problem - a method of payment using a third party e.g. a bank - is required
➔ Methods of payment in increasing order of risk to the exporter:
Payment in advance - Allows exporter to receive payment and then arrange for the goods to
be sent
- Exposes exporter to virtually no risk
- However, few importers will agree to these terms → risky; may not
receive what they ordered

Letter of credit - Document that a buyer can request from their bank that guarantees the
 payment of goods will be transferred to the seller
- Issued by the importer’s bank to the exporter promising to pay them a
specified amount once certain conditions have been met

Bill of exchange - Document drawn up by the exporter demanding payment from the
importer at a specified time
- Allows exporter to maintain control over the goods until payment is
either made/guaranteed
- Types of bill of exchange
➔ Document (bill) against payment - the importer can collect the
goods only after paying for them
➢ Exporter draws up a bill of exchange w their Aus
bank and sends it to the importer’s bank along w a set
of documents that will allow the importer to collect
the goods
➢ The importer’s bank hands over the doc’s only after
payment is made; then transfers the funds to the
exporter’s bank
➔ Document (bill) against acceptance - importer may collect the
goods before paying for them
➢ The importer must sign only acceptance of the goods
and the terms of the bill of exchange to receive the
documents that allow them to pay for the goods at a
later date
➢ Expose the exporter to greater risk than against
payment → importer may not collect the
documents nor pay for the goods

Clean payment - When exporter ships the goods directly to the importer before
payment is received
- The goods are usually shipped with an invoice requesting payment at
a certain time after delivery

- Hedging: process of minimising the risk of currency fluctuations

➔ The spot exchange rate is the value of one currency in another currency on a particular day - not
always the most favourable rate as exchange rates fluctuate constantly
➔ Hence, hedging is necessary - reduces the level of uncertainty involved w international financial
transactions
➔ Natural Hedging: strategies to eliminate the risk of foreign exchange exposure e.g.
➢ Establishing offshore subsidiaries
➢ Implementing marketing strategies
➢ Insisting on both import and export contracts
➔ Financial instrument hedging - derivatives: can be used to minimise or spread the risk of
exchange rate fluctuations
- Derivatives: simple financial instruments that may be used to lessen the exporting risks associated w
currency fluctuations
Forward exchange contracts - Contract to exchange one currency for another currency at an
agreed exchange rate on a future date, usually after a period of
30, 90 or 180 days
- Bank guarantees the exporter, w/i the set time, a fixed rate of
 exchange for the money generated from the sale of the
exported goods

Option contracts - Gives the buyer (option holder) the right, but not the
obligation, to buy or sell foreign currency at some time in the
future
- Option holders are protected from unfavourable exchange rate
fluctuations yet maintain the opportunity for gain should
exchange rate movements be favourable

Swap controls - An agreement to exchange currency in the spot market

(the value of one currency in another currency on a
particular day) w an agreement to reverse the transaction
in the future → involves series of payments in the future
- E.g. swapping $50 million AUD for USD now and an
agreement to reverse the swap within three months
- Main advantage: allows the bus to alter its exposure to
exchange fluctuations w/o discarding the original transaction

Topic 4: Human Resources

Role of human resource management
● Strategic role of human resource management: Human resource management refers to the management of the
total relationship between an employer and employee in order to achieve the strategic goals of the business
- Aka industrial relations, employment relations and workplace relations
- Strategic approach includes functions such as recruitment, equal opportunity, training, development,
separation and how they can be aligned to achieve business goals
- Encourage open communication and goal orientation → aims to reduce conflict through effective
procedures and relationships
- Strategic role of HR management:
➔ Assist businesses to better meet the needs of their employees
➔ Ensure it adds value by developing and maintaining an efficient, productive workforce
➔ The ability of senior managers to develop proactive strategies in the management of its people
- This will allow the development of a highly qualified workforce that fosters skill development and
employee recognition w a competitive advantage
● Interdependence with other key business functions:
- Finance: an effective HR policy w/i an organisation is linked to profitability gains, share price increases
and higher incidence of long-term survival
➔ Finance also provides funding for HR (employees) e.g. wages, training, incentives etc
- Marketing: HR creates stronger relationships between the business and its customers
➔ Marketing promotes and sells the products → w/o that, HR wouldn’t exist
- Operations: businesses that invest strongly in the relationship between them and their employees are
more likely to see better employee performance → recruit and train workers for ops
➔ The level of service experienced by the customer is more likely to be a positive one, generating
greater customer loyalty and a stronger competitive advantage
➔ Operations also produce products efficiently - building relationships w customers
● Outsourcing:
- Human resource functions: to reduce costs, obtain specialist support and improve productivity
➔ Many firms outsource/contract out business specialist HR functions such as recruitment and
payroll → allows them to focus on core business and plan growth, development and
management
➔ E.g. many businesses are turning to contractors such as SEEK limited for important HR
management
➔ Two forms of outsourcing:
Process outsourcing - Dominant form of outsourcing repetitive, easily measured and
documented work
- E.g. food prep for an airline or garment manufacture for an
Aus fashion company

Project outsourcing - Most commonly found in areas such as HR, marketing,

design, IT and research

➔ Advantages and disadvantages of outsourcing

Advantages Disadvantages

- Helps in managing complex issues - Quality may fall

- Saves costs - Consultants may not understand your
- Conserves capital culture
- Improves quality → access experts - Morale and motivation may be
- Allows bus to focus on main activities damaged

- Using contractors - domestic, global: Contractors - are independent external providers (individual or
business) of services to a business and are not subject to their regulations and directives
➔ Gain cost savings + access great expertise = improve competitiveness
➔ Generally recommended for non-core functions 🡪 allows staff to focus on broader aspects of
managing a firm
➔ Risks:
➢ Cost increase
➢ Quality compromise
➢ Difficulty coordinating activities
➢ Difficulty monitoring performance
➔ Business should set clear and legally binding terms, timeframes and conditions 🡪 avoid issues
➢ Includes confirming responsibility for superannuation, insurance and workers’
compensation
Domestic Global
🡪 Provide expertise knowledge on how ∙ Many firms are placed under
Australian businesses operate continuous pressure from global
- Less communication barriers due to same competition, hence global
time zone contractors provide a readymade
- Very common amongst small to medium workforce
businesses - Offshore contractors in India and
∙ Manage detail support or Philippines
compliance related activities such ∙ Is also a step forward towards new markets
as payroll management or order overseas 🡪 more acquainted with market needs
fulfillment ∙ Reduce costs by taking advantage
 ∙ Seek fresh ideas/perspectives e.g. of legislative advantages. However,
leadership development loopholes in legal framework
∙ Ability to improve quality and compromises CSR and ethical
productivity obligations
- Business is able to focus on main ∙ Associated risk:
activities - Difficulty controlling quality
- Reliability of service
- Cultural and work culture differences 🡪
damage customer service
- Operational efficiency

Key influences
● Stakeholders - employers, employees, employee associations, unions, government organisations, society
- Stakeholders: are any individual or group that has a common interest in or is affected by the actions of
any organisation
- Employers: major stakeholders as for legal purposes they are the ones who exercise control over
employees, have responsibility for the payment of wages and/or salaries and can dismiss employees
➔ Dealing with employment relations issues such as negotiating, resolving industrial disputes,
resolving workplace disputes, developing programs to improve employee performance
➔ Work w other departments to recruit appropriate staff and implement a range of training +
development programs to cater for the changing staffing needs
- Employees: another major stakeholders as they make up the human resource of an employer
➔ Modern employees demand a challenging work environment, involvement in decision making
and workplace flexibility - affecting the management of HR
➔ Now often more considered in decision-making process → require increased flexibility
➔ The practice of ‘churning’ is another trend for employees to move frequently from one job to
another → businesses must develop plans to motivate and retain skilled staff
- Employer associations: stakeholders as they act on behalf of employers in collective bargaining sessions
and before industrial tribunals, courts, commissions and committees
➔ Lobby governments to develop policies that enhance the interest of employers and consult w
governments on changes to key policy issues
➔ E.g. Australian Industry Group (Ai Group) representing the Australian Chamber of
Manufactures and the Metal Trades Industry Association → Maccas is a member of the AIG
➢ AIG used its influence to try to prevent fast-food employers having to pay employees
penalty (higher) rates on weekends
➔ The Australian Council of Trade (ACTU): lobbies the government and federal government
provide improved working conditions and wage increases for Australian employees
➔ Provide advice on matters: awards, unfair dismissal and discrimination issues
➔ Also lobby governments and other organisations with the views and interests of employers,
industries and trade
- Unions: (trade unions) are stakeholders as these are organisations formed by employees in an industry,
trade or occupation to represent them in efforts to improve wages and the working conditions of members
➔ The peak trade union body is the Australian Council of Trade Unions (ACTU) - lobby the gov for
improved working conditions and wage increases + works w other unions
➔ Union membership has declined since 1980s due to:
 ➢ Move toward private sector organisations providing services on behalf of the gov rather
than public sector
➢ Move from manufacturing based economy - service based has lack of unions (structural
change)
➢ Growing number of casual and part time workers
- Government organisations: both state and federal government are major stakeholders → establish legal
framework which employers, employees and unions coexist
➔ They are legislators: pass statutes (laws) in parliaments (state + federal), which provides the legal
framework for industrial relations
➢ E.g. the Racial Discrimination Act 1975 - prohibiting discrimination in employment on
the basis of race, colour, national or ethnic origin
➔ They are employers: federal and state governments employ almost ⅓ of Australian workers e.g.
teachers, nurses, clerks, police officers
➢ Pacesetters in terms of responsible industrial relations policies - introduced practices such
as maternity leave, flexitime etc. that were eventually adopted in the private sector
➔ They are economic managers: both levels of government ensure stability and economic growth
and hence the ability of businesses to sustain employment
➔ Administrators of government policies on industrial relations: through departments and agencies
established that implement the legislation they enact
➢ E.g. the federal government established the National Occupational Health and Safety
Commission - now Safe Work Australia (government body)
○ Primary responsibility is to improve occupational health and safety and workers
compensation arrangements across Aus
➢ Other important agencies include: Anti-Discrimination Board, Australian Human Rights
Commission
➔ Representative of Australia in the international arena, in foreign affairs, trade and international
labour matters:
➢ Australia is a foundation member of the international labour organisation
➢ The government generally implements legislation based on the treaties and conventions it
signs with international organisations
- Industrial tribunals and courts: these are stakeholders as they exist to enforce laws established by
governments
➔ E.g. the Fair Work Commission is Australia’s national workplace relations tribunal → assists
employees and employers to maintain fair and productive workplaces
➢ The Commission is an independent body that operates under the Fair Work Act 2009
➔ The Federal Court also has a division that enforces industrial relations legislation by
administering court actions that arise under Australian industrial laws
○ Handles cases relating to industrial action and breaches of industrial laws,
interprets industrial legislation
○ Is able to impose penalties for the breach of an award or order, and
discrimination or victimisation under industrial and human rights legislation
- Society: a stakeholder as it has a number of expectations regarding employment conditions such as:
➔ Increasing community demands for safety and wellbeing at work
➔ To eliminate discrimination against female, Indigenous and disabled members of the working
community
➔ For businesses, it means an ongoing battle between the need to find ways to reduce its biggest
cost - labour - as pressure increases from global competition, and the needs of employees
Syllabus Point QANTAS Other
Stakeholders QANTAS IKEA
∙ Employees: over 28 000 full time -Gov organisations: Council of EU can pass laws,
employees produce legal framework, settle disputes that influence
∙ Trade Unions: highly unionized IKEA
workforce. Represented by 18 different -Employers + Employer associations: IKEA is
unions. represented by employer associations such as the
- Reacted angrily to Qantas’ drive to cut labour European Retailers Round Table (ERRT)
costs -Employees + Unions: 155 000 coworkers across the
- Have waged political, community and industrial world → represented by Unions such as Building and
campaign against Qantas Wood Workers’ International (BWI)
∙ Employer associations: Member of -Society: IKEA monitors customer satisfaction through
Australian International Airlines the annual ‘Customer Satisfaction Index Survey’.
Operation Group NGO’s such as Greenpeace are directly tied to IKEA
- Make sure Qantas concerns are represented to
government at federal level
∙ Government organisations: FairWork Act,
Corporations Law, Work Health and Safety
Act, Workers Compensation

● Legal - the current legal framework: the legal system is involved in HR as the relationship between employers and
employees is established by a contract
- The employment contract - common law (rights and obligations of employers and employees), minimum
employment standards, minimum wage rates, awards, enterprise agreements, other employment contracts
➔ Employment contract: a legally binding formal agreement between employer and employee →
creates obligations for both parties
➢ Key features of employment contracts: salary/wages, superannuation, duties, location,
hours, promotion policy, overtime etc.
○ Also outlines ramifications for failing to comply w the terms and conditions of
employment contract
➢ Two forms of employment contract
Type of employment contract Definition

Contracts of an indefinite duration Allows employee to remain employed by the business

until either the employee or the employer gives notice that
they wish to terminate the employment e.g. permanent
teachers

Contracts of a fixed term Expressly define a date or upon completion of a specific

task e.g. the employee is engaged for a period of 12 mths
(temp. teacher)

➢ Essential elements of a contract (if one is missing - contract is invalid)

Intention To create a legal relationship

Offer Of the position

Acceptance By the employee

Consideration The mutual benefits of a contract e.g. work is completed and wages received
No duress The contract is not entered into under duress (force)

Legal capacity There is legal capacity to contract - old enough to make the contract

➔ All businesses operate w/i a legal framework of common law and statute law → laws made by
state/federal parliament
➔ Common law: developed by courts and tribunals → judges make decisions based on the facts
of a case, guided by precedent
➢ Federal Court of Australia has jurisdiction over all civil and criminal matters arising in
the Fair Work jurisdiction
➢ An application for unfair dismissal, termination of employment or contravention of a
general protection is first conciliated at the Fair Work Commission
○ If it's not settled there, the applicant can then apply to start proceedings in the
Federal Court (however, its expensive)
Rights and responsibilities of employers Rights and Responsibilities of employees

- Required to pay the income (e.g. wages, - Carry out duties

commission, fees) stipulated in the award,
enterprise agreement or contract
- Meeting requirements of industrial relations
legislation
➔ E.g. providing a workplace and work
practices, such as equity policies
➔ Equity policies and promotion required by
the sex/anti-discrimination and equal
opportunity legislation
- Duty of care - legally bound under the federal and
state Occupational/Workplace Health and
Safety Act to provide reasonable care
- Maintaining confidentiality
- Give appropriate notice of termination
- Receiving minimum pay set out in the award or
enterprise agreement
- Receiving extra pay
- Having access to paid and unpaid leave
entitlements (e.g. certain days of paid sick leave
→ limited; if you run out → unpaid leave)

➔ Statute law: laws made by parliament → The Fair Work Act 2009 implemented the national
framework for industrial relations
➢ Gave employers and employees the same workplace rights and obligations, regardless of
the state they work in
➢ This legislation also set the Ten National Employment Standards (NES) - ten
minimum employment entitlements that have to be provided to all employees
National Employment Standards
1. Maximum weekly hours of work - 38 hrs per week
2. Requests for flexible working arrangements - parents or carers of children u18 can
request a change in working arrangements to care for child
3. Parental leave and related entitlements - up to 12 mths unpaid leave; plus a right to
request an additional 12 mths unpaid leave
4. Annual leave - four weeks paid leave per year
5. Personal/carer’s leave and compassionate leave - 10 days paid personal/carer’s leave,
two days unpaid carer’s leave as required
6. Community service leave - unpaid leave for voluntary emergency activities and leave for
jury service
7. Long service leave - (7 yrs working for same employer) timeframe differs between awards
 8. Public holidays - a paid day off on a public holiday, except where reasonably requested to
work (double pay if you work on a public holiday)
9. Notice of termination and redundancy pay - up to 4 wks notice of termination
10. Provision of a Fair Work Information Statement - employers must provide this statement
to all new employees about major employment matters and bodies

➢ Minimum wage rates - the current minimum wage is $20.33 or $772.60 a week → this
is the absolute lowest that an employee can be paid set by the Fair Work Commission
○ Failure for employers to comply → taken to court → neg. publicity
○ NES and minimum wage rates = min entitlements for employees in Aus
○ Under gov’s Fair Work Act 2009: NES → Modern Award (anything
extra/add entitlements from industry) ← National minimum wage
➢ Awards: (modern awards) are legal documents that sets out the terms and conditions of
employment for a specific industry or jobs on top of the NES
○ Define things like min wages, overtime, penalty rates and allowances
○ E.g. Fast Food Industry Award 2010 and Hair and Beauty Industry Award 2010
➢ Enterprise agreements: collective agreements made at a workplace (enterprise) level
between an employer and a group of employees about T’s and C’s of employment
○ Offer broader t’s and c’s than a modern award → can negotiate for more
○ Matters covered by enterprise agreements - rates of pay, employment conditions,
hours of work etc.
➢ Other employment contracts:
○ Individual common law employment contracts: exist when an employer and an
individual employee negotiate a contract covering pay and conditions
○ Independent contractors: often known as consultants or freelancers, undertake
work of others; however, they do not have the same legal status as an employee
- Have a set term or specific project for their contract, control their own
work and may delegate some of their work to others
○ Contracts for casual work: casual employees are in employment - that is ST,
irregular and uncertain; they are not entitled to paid holiday/sick leave
- Often receive a 20-25% loading to compensate for lack of entitlements
and job security
- Most employers prefer casual staff as it reduces costs for recruitment
dismissals and other on-costs
○ Part-time contracts: trend towards part-time work is increasing in Aus → w
the rise of two-income households and the desire for a greater work-life
balance
- part -time employees have a continuing employment contract and work
less that 38 hours per week
- unlike casual employees, they do not have access to the employment
entitlements offered to full time employees but on a pro-rata basis (in
proportion to the amt of time they work)
- Work health and safety and workers compensation: OHS practices are essential requirements for all
workplaces in Australia
Federal law Federal agency/department
 The National Occupational Health and Safety Safework Australia: role is to conduct research and
Commission Act (1985) develop a national standards, codes of practice and
common approaches to WHS legislation which are
endorsed by state governments

State law State agency/department

Work Health and Safety (WHS) Act 2011 (NSW) Work Cover NSW: is the statutory body responsible
for achieving safe workplaces, effective return to
work and security for injured workers

➔ Legal requirements: employers must ensure the health, safety and welfare at work of all
employees by providing a safe system of work
➢ Employers must ensure people on site who are not employees are not exposed to risks
arising from work being undertaken
➢ Health and safety committees must be established at workplaces w 20+ employees
➢ Workcover inspectors may inspect the workplace
➢ WorkCover NSW must be notified of any deaths or serious injuries in the workplace, and
any plans to carry out dangerous work
➔ Workers’ compensation: all employers must take out compensation insurance under WHS
➢ WHS laws and workers compensation matters are administered by WorkCover NSW
➢ Provides benefits to workers/beneficiary if they suffer illness, injury or death related to
the workplace
➢ Employee may seek common law redress against an employer who breaches their
duty of care towards their employee through negligence → heard in district/supreme
courts
- Antidiscrimination and equal employment opportunity: employers + managers in HR must be familiar w/:
Anti-discrimination laws at workplace Agencies to support these legislations

Human Rights and Equal Opportunity Australian Human Rights Commission

Commission Act 1986 (Cwlth)

Affirmative Action (Equal Employment The Workplace Gender Equality Agency

Opportunity for Women) Act 1986 (Cwlth)

Sex Discrimination Act 1984 (Cwlth) and the The Anti-Discrimination Board (NSW)
Anti-Discrimination Act 1977 (NSW)

➔ These legislations protect employees from direct and indirect discrimination in recruitment,
selection, training, promotion, remuneration, termination and other employment benefits
➔ Under discrimination laws it is illegal to take adverse actgion in employment on the grounds of a
person’s: race, sex, sexual preference, colour, age, religious faith, physical/mental disability
➔ Strategies to eliminate discrimination:
➢ Writing + communicating policies e.g. code of conduct to prevent discrimination
➢ Making sure all policies and procedures are clearly documented and accessible
➢ Training managers and staff in cultural diversity issues and ways to prevent/deal w
discrimination and harassment
 ➢ Appointing a grievance officer
➔ Strategies to resolve a complaint of discrimination
➢ Conciliation: 3rd party plays a more active role in solving dispute (tells the parties what
they should be doing)
➢ Mediation: 3rd party comes to help resolve a dispute (mediator) → listen to both
parties
➢ Official warning ➢ An apology
➢ Counselling ➢ Disciplinary action
➔ Equal employment opportunity (EEO): processes used to ensure fair + equal treatment for
employees
Law Government agency

Workplace Gender Equality Act 2012 The Workplace Gender Equality Agency (WGEA)
- Aim to promote and improve gender equality and
outcomes for both women and men in the
workplace

➢ EEO policies are designed to decrease and ultimately eliminate discrimination and
harassment in the workplace → must be evidenced at all stages of HR cycle
➢ Employers with more than 100 employees are obliged to develop an affirmative action
program in consultation w employees + provide a progress report to the WGEA
➢ Affirmative action: refers to measures taken to eliminate direct and indirect
discrimination and for implementing positive steps to overcome the current and historical
causes of lack of equal employment opportunity for women
➢ Strategies an employer could use to improve EEO in the workplace
○ Developing and incorporating EEO code of practice
○ Making equal opportunity awareness a criterion in promotion and performance
appraisal
○ Benchmark the organisation against the standards of the industry, other
businesses or internationally

Legal Qantas WH+S program has increased safety awareness
and led to an 80% reduction in employee injury since it
commenced in 2001
- Equal employment opportunity - 2016: employed
41.7% women + 34% of women in senior
positions
Employment contract: Introduced in 2000, IKEA’s
IWAY is a supplier code of conduct → these are
based off the UN and ILO conventions
- Outlines sustainable procedures e.g. disposing
of waste
- Promotes reasonable working hours

● Economic: influences relate to the economic cycle

- The demand for labour is a derived demand → driven by demand of products (g+s)
- When the economy is in a boom there is lower unemployment and a strong demand for labour →
people incr. spending /consumption = injection
➔ When there are shortages of workers and strong
eco growth, there can be upward pressure on
wages
- During a downturn in the economic cycle, the demand for
g+s falls = leakage
 ➔ Businesses are forced to reduce the size of their workforce and limit their capacity to provide sig
wage increases
- Demand and cost of labour hence affect performance of country
- Globalisation is another eco influence on HR → has driven business competition, productivity
pushes, international outsourcing and introduction of multicultural workplaces
➔ Has increased level of international competition → increasing the ned to attract and retain
motivated and effective core staff
➔ Also increased need to make continuous improvements in productivity, costs, innovation, quality
and customer service
➔ Has also led to outsourcing and casualisation of the workforce by shifting production/ operations
offshore to reduce costs and increase profits (remain competitive)

Economic QANTAS = 2009 Global Financial Crisis 🡪 fall in
demand for Qantas’ services
- Reduced staff + froze executive pay
- Annual profit dropped $1 billion to $100 million
- Cut 1750 jobs
IKEA → during GFC: staff turnover was 16.4% in 09
compared to 24% in 08
- Made 5 000 redundancies primarily for their
manufacturing and logistics operations, as their
sales were 7% below target

● Technological: influences allow many employees to work from home or offshore and assists businesses in
providing 24h support
- E.g. business are using electronic communications options to operate anywhere, anytime (call centres)
- However, it increases the need for ongoing training programs and new protocols to ensure that
work life balance is maintained → not on tech all the time
- Can also reduce demand for labour → tech is more efficient in terms of cost + productivity
Technology Use new planes like the Dreamliner and A380, new TESLA 🡪 uses highly automated assembly line with
inflight entertainment systems, new online check in, new over 160 specialist robots & radio-frequency
self-service kiosks etc. identification to manufacture motor vehicles
- Causes cost reduction in the long-term
- Removes repetition of mundane tasks
- Reduces risk of injury by 75%

● Social - changing work patterns, living standards:

- Changing work patterns: in recent years there has been a casualisation of the workforce (move towards
part-time employment rather than FT)
➔ Due to growth in finance, retail, hospital and community service industries; career flexibility, incr
LFPR for women and ageing workforce
➔ Businesses and gov need to change work arrangements in response to this
➔ E.g. providing flexible work arrangements such as job share, part-time and contracting
➔ In response to ageing population businesses need to respond by implementing appropriate HR
strategies to transfer skills to those remaining in the workforce
- Living standards: high living standards in Aus due to OHS, regular wage increases, performance bonuses,
fringe benefits, leave and superannuation benefits
➔ Businesses who seek to undercut conditions through outsourcing and casualisation of the WF or
by shifting production offshore will be challenged by unions keen to maintain living standards
 Social QANTAS = about 24% of staff are part-time or casual
∙ Have adopted more family friendly
practices such as building new child care
facilities and keep in tough program for
staff on maternity leave
IKEA
Changing work patterns
- 2014 - IKEA’s part-time co-worker turnover
was 29.9% an increase from 15.4% during ‘13
- 2015 - 56% of IKEA’s coworkers were female
(increased 2% from last year)

● Ethics and corporate social responsibility: HR must handle issues in the workplace in an ethical, legal or socially
responsible manner
- Working conditions - global comp has forced businesses to improve efficiency and reduce labour costs
through e.g. offshore subcontracting
➔ Has raised ethical concerns abt the nature + extent of child labour globally
➔ To ethically reduce labour costs: audit subcontractors → see they are meeting business
standards
➢ Work w agencies to support ethical practices in their local + offshore operations
➔ If unethical - will face consumer backlash and media scrutiny (bad for bus)
➔ In the clothing industry, traditionally renowned for ‘sweatshops’, businesses seek accreditation
from agencies such as Ethical Clothing Australia and Fair Wear Foundation
Ethics and CSR QANTAS = 50% reduction in net Ethical concerns surrounding production of smartphones including child labour,
emissions in 2050 low wages, unsafe working conditions
∙ 2013, Apple’s manufacturing partner Foxconn 🡪 scrutinized for continuous
breaches of Chinese environmental and employment protection laws
- Practices of dumping heavy metals in rivers that are beyond maximum
volume stipulated by Chinese environmental laws
∙ 2012: internal audit conducted by Apple (supplier
responsibility progress report) has discovered 106 cases
of underage labour within their supply chains
- Breach of legal and social responsibilities
∙ Has established supplier diversity program in 1993 +
active participation nin various programs including
National minority supplier development council
(increases visibility of small business suppliers and
improve
potentials for success)

Processes of human resources

● Human Resource Cycle: process of acquiring people w skills for the job and continued development of
employees’ knowledge and capabilities → provides incentive for effective and reliable employees to be
retained
● Can do a HR cycle diagram
● Acquisition: process of attracting and recruiting the right staff for the roles in a business
- Identifying staffing needs - analysing the internal and external business environment
➔ Must identify internal environment - bus goals + culture; and external environment - eco
conditions, comp, technology, legal and political and social factors
- Recruitment - locating and attracting the right quantity and quality of staff to apply for employment
vacancies or anticipated vacancies at the right cost → can be done internally/externally
➔ Can incentivise existing employees through a promotion - improve their performance
 ➔ Or can advertise externally through methods such as outsourcing to private employment agencies,
interviews on uni campuses or trainee positions/cadetship courses for HSC students
- Selection - employee selection through finding info abt each applicant and using that info to choose the
most appropriate
 ➔ Individuals are assessed on their ability to interact w/ each other and selection process may
involve interviews, applications, written tests
Acquisition Qantas has a school based traineeship and internship 2012: internal audit conducted by Apple (supplier
program for year 11 and 12 students responsibility progress report) has discovered 106 cases
- Also offer a graduate program for university of underage labour within their supply chains
students → work in a range of business areas: - Breach of legal and social responsibilities
HR, operations, sales, regional airlines etc.

● Development: involves enhancing the skills of the employee through training, mentoring, coaching and
performance management so they develop a career with the business
- Changes in the business environment e.g. new tech and global competition, are increasing the need for
new training
- Once employees are acquired - go through induction process → introduced to the business; allows
them to become familiar and learn to understand business culture + goals
- Training: encompasses all activities aimed at improving an employee’s present + further performance in
the workforce; includes:
➔ On-the-job training (traineeships and apprenticeships)
➔ Off-the-job training (TAFE and university courses)
- Development and performance management
➔ Performance appraisal: formal, assessment of how well a person is working, including strengths
and weaknesses
➢ used to evaluate employee performance and identify areas for mentoring, coaching,
leadership development or performance management/ pay rises, promotions etc.
➔ It is a systematic approach of analysing and evaluating employee performance for strengths,
weaknesses and opportunities for development
➢ Also assesses an employee’s suitability for promotion and their potential value to the
business’ success
Development QANTAS = $275 million annual investment Samsung = Provides training (induction) 🡪 customer
∙ On the job 🡪 apprenticeships, coaching, job rotation service + production
∙ Off the job 🡪 Qantas College online, simulation - Ensure high quality services = Think Customer
Organisational Change Program in 2018
- Highlights importance of high quality services
in striving within the smartphone industry

● Maintenance: can be expensive to hire new employees (recruitment and training costs) → once hired it is
important to retain them
- Must provide working conditions and environments that incr. motivation, increase productivity, increase
communication, decrease absenteeism and increase staff turnover
➔ E.g. involvement in teams, collective bargaining, workplace surveys and activities
- Communication + building trust = essential e.g. social functions, staff seminars, team meetings etc
- If staff remain loyal and stay - business will have increased productivity, improved morale and decreased
absenteeism (effective indicators)
- Monetary and non-monetary benefits:
Monetary benefits Non-monetary benefits

- According to sales e.g. commission for - Greater job variety

real estate - Flexible working hours
- Based on individual output e.g. payment - Increased status in job/community
 of piece rates for fruit picking
- Bonuses - paid at EOY
- Share ownership schemes
- Fringe benefits e.g. company car

- Legal responsibilities: maintenance of staff involves complying with industrial agreements and legal
responsibilities
➔ Also involves looking after staff wellbeing, safety and health; managing communications
effectively
Maintenance Qantas has aimed recently at keeping pay increases to Virgin = attempts to motivate staff and reduce staff
about 3% per year turnover through offering rewards such as competitive
salaries (linked to continuous reviews of market labour
rates)
- Establishment of Employee Assistance
Program – offers 24/7 support to families and
employees.

● Separation: process of employees leaving voluntarily or through dismissal or retrenchment processes - end of
employment relationship
- Voluntary: involves
Retirement When an employee has decided to give up
full/part time work → e.g. due to illness, lack of
motivation, desire to pursue leisure activities

Resignation when an employee leaves their job for reasons

such as need for change, moving location etc.

Voluntary separation Where the existing job is no longer required by the

firm and employee may be offered a redundancy
package

- Involuntary - where management decides which employees will no longer be required

Term Definition

Redundancy Position no longer exists - new tech, mergers and

takeovers often result in redundancies

Retrenchment Reduction in staff due to business downturn e.g.

COVID-19

Summary (instant) dismissal Causes: serious misconduct such as theft,

drunkenness, gross negligence, absenteeism

Dismissal after warnings Causes: consistent lateness, inability to perform

duties → dismissal must be fair i.e. not harsh,
unjust and unreasonable

Unfair dismissal The employment contract outlines that if an

employee is unfairly dismissed they can appeal the
employer's decision to an industrial relations
 tribunal e.g, Fair Work Commission

Separation QANTAS = IKEA - in GFC (2009), made 5 000 redundancies

∙ Had to downsize due to GFC, primarily for manufacturing and logistics operations, as
international competition, changes in their sales were 7% below target
technology, falls in profit
∙ 2015 – 2018 🡪 downsized by 5000 staff

Strategies in human resource management

● Use to align the management of staff with the goals of the firm
● Leadership style: refers to the way managers communicate with their employees to inspire and motivate them to
work together to achieve an organisation's goals
- Autocratic leadership style: managers who make decisions quickly and in many cases without input from
staff
Advantages Disadvantages

- Works well w unskilled/inexperienced - Inflexibility can lead to higher levels of

workers absenteeism and staff turnover
- Sometimes aligns w transactional - Often linked to lower levels of job
management style → where workers satisfaction
compliance is recognised through
financial reward that often is linked to
meeting organisational goals

- Democratic leadership style:

Advantages Disadvantages

- Encourages employees to be engaged in - May lead to longer decision making

decision making process process
- Linked to transformational leadership: - Inexperienced workers may have a lack of
where managers have higher expectations engagement or may be of little assistance
of workers and this leads to higher levels to the decision making process
of engagement
- Results in higher levels of job satisfaction
and productivity
- Works well when the emphasis is on
higher quality output rather than
efficiency

- Laissez faire leadership style: workers have a lot of control over ideas and decisions
Advantages Disadvantages

- Highly skilled workers may be motivated - Employees may take advantage of this
and foster creativity style and lack of direction may lead to low
productivity and high error rate

Leadership Under gov ownership - Qantas management adopted a Google = democratic 🡪 focus on employee
style more autocratic leadership style empowerment + greater flexibility to exercise their

In 1995, Qantas was privatised and had to change their
leadership style to a more democratic style → employees
now have much more input into decision making
creativity
- Leading to higher rate of innovation and
business growth
Mcdonalds = autocratic 🡪 greater accountability &
responsibility on employees to complete work tasks
- Recent minimum wage + working conditions +
entitlement decreases in 2019 = increase in
staff turnover + high level of job dissatisfaction

● Job design - general or specific tasks

- Job design is a function of HR where managers develop and specify the work activities of individuals
or groups within the business environment → aims to reduce job dissatisfaction arising from
repetitive tasks
- Should seek to meet needs of employer + employee → tasks must allow employees to work to
achieving objectives
- General tasks: recently job design has expanded to incorporate more general approach with greater
variety of tasks → wider amt of tasks improve worker enlargement, satisfaction + productivity
➔ Job rotation - employees switch for a period of time, from one job to another → provides
variety and gives employees a more comprehensive view of the organisation/production
process

Advantages Disadvantages

- Multiskilling of staff - Loss of employment

- Flexibility
- Variety and challenge
- Better understanding of business
- Improved resolution of problems
(reduces work stresses))
- Employee resistance to change as the
workforce becomes reluctant to the
use of new technologies
- Reduced employee morale as
workforce feels less valued

➔ Job enlargement - employees are given more things to do w/i the same job → provides job
variety and a greater challenge for employees (more duties/challenges to avoid boredom)

Advantages Disadvantages

- Increased employee motivation - Work overload

- Increased participation in decision - Problems if employees aren’t trained
making
- Pathway to promotion

➔ Job enrichment - employees are given more control + independence over how they do their work
Advantages Disadvantages

- Employee satisfaction - May over extend employee

- Pathway to promotion - Lead to burnout from too much work
- Higher retention rates
- Opportunity for greater rewards
 - Specific tasks: identifying the best way of doing a job and that a workers’ skills should be matched to
job requirements → controls quality
➔ Based on specialisation, efficiency (low skills, cheap labour)
➔ Specialisation: involves jobs being broken down into specific skills
➔ Increased knowledge increased output decreased labour costs and errors
Job Design QANTAS = wide variety of tasks from baggage handling Samsung = Provides training (induction) 🡪 customer
to flying the A380 service + production
∙ USES strategies such as job rotation, job - Ensure high quality services = Think Customer
enlargement and job sharing Organisational Change Program in 2018
- Highlights importance of high quality services
in striving within the smartphone industry
Definition Advantages Disadvantages

Internal recruitment: occurs
when the position is filled by
existing employees within the
business
Cheaper and can be used as an Limited options available and
incentive for employees to work other employees applying for the
harder and business has a role may become
detailed knowledge of the disgruntled/unmotivated
employee and their capabilities - No new
skills/experience are
brought into the
company

External recruitment: occurs May be able to find a better More expensive and time
when the position is filled by an candidate who brings valuable consuming + may leave existing
individual who has not yet experience to the business and employees disgruntled
worked for the business less chance of internal conflict - Risky as employee may
have lied/exaggerated
about their
skills/experience
Recruitment – Qantas uses a mix of internal and external recruitment Virgin = attempts to motivate staff and reduce staff
internal or ∙ Alan Joyce (CEO) was an internal turnover through offering rewards such as competitive
external, appointment, formally in charge of salaries (linked to continuous reviews of market labour
general or JetStar rates)
specific - Establishment of Employee Assistance
Program – offers 24/7 support to families and
employees.
Training and -Qantas invested more than $275 million a year in training Apple = implemented in-house training and
Development and development over the past 5 years development opportunities in production process at
– current and -Qantas pilots do more than 48000 hours of annual Foxconn to meet established standards hip approach
future skills training in state of the art aircraft simulators
-Over 16000 employees have undertaken ‘exceptional
service training’ in the purpose built Centre of Service
Excellence
-Also uses online learning (Qantas College Online) to train
its staff - offers course catalogue, info abt qualifications,
online library and reference database
Developmental benefits of performance Administrative benefits of performance
management management

- Assists with HR planning - Better financial performance

- Can plan to overcome gaps or weaknesses - Comparison of contribution to
found in performance organisation and performance against
- Communicates expectations and helps agreed standards
 build trust, promotes long term - Helps assess rewards and benefits linked
organisational development to performance
- Helps identify, motivate and retain - Creates opportunity for employee to
talented staff for leadership succession provide feedback

- Establishing a link between performance evaluation and employee development will ensure that staff
remain motivated and that they and the organisation both benefit
➔ Helps identify strengths and weaknesses to improve or reward workers (increasing motivation)
Performance Qantas uses appraisal - performance is assessed in a IKEA = Equip managers with performance
management – formal and systematic way management coaching skills to complement the existing
development management style and expand leadership skills
or - Accredited ‘train-the-trainer’ (TTT)
administrative performance management coaching program
was delivered to 80 managers in the UK 🡪
successful
- Now deliver 2 day performance management
coaching in all branches in the UK.
- Managers who attended 🡪 5% KPI increase
and went from 60% scores in management
ability to 90% across the board

● Rewards - monetary and non-monetary, individual or group, performance pay:

- Well planned reward system is a key strategy in attracting, motivating and retaining employees
- Remuneration: both the financial (e.g. pay) and non-financial (e.g. career security) benefits that
employees receive in return for their work effort
- Monetary rewards are those reflected in pay/have financial value
Examples of direct monetary benefits Examples of indirect monetary benefits

- Base pay - Insurance

- Bonuses - Superannuation
- Commissions - Childcare
- Allowances → overtime, shift work - Flexible work schedules

- Non-monetary rewards: are those that do not have a financial value, such as social activities or retirement
planning
Examples of non-monetary benefits (job) Examples of non-monetary benefits
(environment)

- Interesting work - Competent supervision

- Challenge - Congenial colleagues
- Responsibility - Safe and healthy work environment
- Recognition - Fair treatment

- individual/group: if rewards are only individual - can cause conflict

➔ Group rewards have increased need for cooperation and difficult to distinguish performance of
individuals within teams
➔ Issues: not all employees apply same effort, employees may have different personal goals,
conflict may occur within group
 - Performance pay: process of linking part of employee’s income to their performance at work →
recognises that employee motivation comes from financial benefits
➔ May be performance, job or individually related
➔ Advantage: performance improves as employees work more efficiently, encourages unmotivated
individuals
➔ Disadvantage: performance of employees may be difficult to measure for some jobs, some
employees may seek non-financial rewards
Rewards – Monetary rewards Samsung = Primary monetary motivator 🡪 opportunity
monetary and - Uses performance based pay for some employees for wealth creation as a result of stock ownership
non- (particularly senior managers) - Ensures that employees achieved individual
monetary, - Receive a one off bonus of 5% of their base pay accomplishments as well as contributing to the
individual or in 2015 and a further bonus of $3000 for full time overall success of the business
group and and $2500 for part time staff in 2016 as a result - Product success and individual rewards
performance of Qantas improved profitability
pay IKEA - have a co-worker loyalty program called
“Tack!” which gives eligible co-workers an extra
contribution to their pension funds
- Also have the One IKEA bonus program based
on performance on their values of simplicity
and togetherness
 - Ability of labour to learn new skills affected by country’s education system → some gov are investing
a significant amt of money into education to create a highly skilled but cheaper workforce
➔ Will help attract foreign direct investment
- E.g. India - university graduates provide cheaper employees for the IT and electronics industry →
Microsoft uses Indian outsourcer Infosys Technologies Ltd

Using global labour Advantages Disadvantages

Costs Global labour is cheaper Work may be of lower quality and

may damage public image

Skills More workers available and greater Qualifications may not be

range of skills appropriate

Supply Greater supply Even though there may be more

supply, if workers are not highly
skilled - may create false economy
bc more employees will need to be
hire
- False economy: an
apparent financial saving
that in fact leads to greater
expenditure

Global QANTAS = workforce made up of 99 nationalities,
speaking 51 different languages
∙ Outsourced IT, maintenance and call
centre operations to reduce labour costs
IKEA - international conglomerate → IKEA group
have operations within nearly a quarter of all
countries on Earth
- In 2015 - 25% of IKEA goods were sourced
from China
- Implementation of IWAY standards = ensure
developing economies promote a work life
balance, not utilising child labour and
disposing of hazardous waste correctly

● Workplace disputes:conflict between stakeholders is inevitable (conflicting interests) → can lead to problems
e.g. higher levels of absenteeism, low productivity, legal claims and high staff turnover
- Key stakeholders involved in resolving disputes
➔ Employees ➔ Employer associations
➔ Employers ➔ Courts
➔ Governments ➔ Industrial tribunals
➔ Trade unions
- Major causes of disputes
➔ Remuneration - matters such as wages, allowances, entitlements and superannuation
➔ Employment conditions - matters such as working hours, benefits and other general employment
conditions
➔ Job security issues - retrenchment of employees, downsizing, restructuring, use of contractors,
outsourcing
➔ Matters outside agreement - health and safety, managerial policy, union issues
- Industrial dispute: a disagreement over an issue or group of issues between an employer and its
employees, which results in employees ceasing work; examples include:
 ➔ Strike - refer to situations in which workers withdraw their labour - can attract publicity and
support for the employees’ case
➢ Types of strikes:
○ Sympathy strikes - called in support of a group of workers already on a strike
○ Political strikes - employees take strike action over political issues, against gov
policy or actions
○ General strikes - involve a large number of workers in diff industries going on
strike simultaneously
○ Stop-work meetings - employees stop work to hold a meeting on an industrial
issue during work time
➔ Lockouts - occur when employers close the entrance to a workplace and refuse admission to the
workers
➔ Pickets - are protests that take place outside the workplace, generally associated with a strike
→ unionists stop the delivery of goods and try to stop the entry of non-union labour into the
workplace
- Resolution - negotiation, mediation, grievance procedures, involvement of courts and tribunals
➔ Negotiation: is a method of resolving disputes when discussions between the parties result in a
compromise and a formal or informal agreement
➢ Can benefit both parties by increasing their knowledge of company policy, business’
objectives, workers’ concerns and issues involved in implementing change
➔ Mediation: the confidential discussion of issues in a non-threatening environment, in the presence
of a neutral, objective third party
➢ Independent party (mediator) may be requested to assist the conflicting stakeholders
to reach a settlement → can suggest ideas/present issues in an alternative way
➢ Often required as the first step in the resolution of a dispute
➔ Grievance procedures: are formal procedures, generally written into an award or agreement,
that state agreed processes to resolve disputes in the workplace → resolve issues b4 they
escalate
➢ The process may deal with individual/collective issues and matters such as changes being
implemented in the workplace that will affect or cause conflict between staff
➢ Effective grievance procedures require a full description of the complaint to be made by
the employee(s)
○ The person the grievance is made against should be given details of the allegation
and an opportunity to provide their views
➔ Involvement of courts and tribunals: tribunals and courts may be required where a dispute can not
be resolved through other means
➢ The Fair Work Commission is an important tribunal used to resolve disputes (via
conciliation and arbitration)
➢ Conciliation - an informal, private and generally confidential process where a
Commission Conciliator (from FWC) helps employers and employees resolve disputes
➢ Arbitration - final stage of dispute resolution process → during the process, lawyers
representing the disputing parties will present their case to Fair Work Australia
➢ Common law courts: common law action is open to any party involved in or affected by
industrial action
 ○ Parties may make direct claims for damages caused by the parties taking the
action, or for breach of contract resulting from such action
○ Common law action in civil courts is also available to those on individual
common law contracts of employment disputing matters not covered in
legislation/relevant awards
The Fair Work Act 2009 provides protection of rights including:
- Workplace rights
- The right to engage in industrial activities
- The right to be free from unlawful discrimination
- The right to be free from undue influence or pressure in negotiating individual
arrangements

Workplace Baggage Handlers Dispute
disputes 2015 - Qanras and its 350 Jetstar baggage handlers
represented by the TWU commenced negotiations for a
new EBA
- The TWU claimed that the deal underpaid Jetstar
workers compared to equivalent staff at Qantas
- After 18 months of negotiations - Jetstars
baggage handlers finally agreed to a new 3yr
EBA in 2016
IKEA - Richmond, British Columbia Retail Dispute
2013 - 300 IKEA retail workers at the Richmond store
in British Columbia were locked out from the store
- The lock-out arose from plans for a new
agreement - workers claimed unfair labour
practices such as discriminatory wage
structuring
- Both parties - employers +employers went into
binding arbitration which ended the dispute w a
new 10 yr bargaining agreement including
benefits such as a health care spending account
and employment security

Effectiveness of human resource management

● Indicators - can be used by businesses to manage the effectiveness of the business, team or individual
- Corporate culture: refers to the values, ideas, expectations and beliefs shared by members of the business
➔ Constructive corporate culture is the best way to maximise employee productivity and
motivation
➢ Where employees are trusted
➢ Collaborative and have strong personal relationships
➢ Are highly trained and mentored
➔ Indicators that reveal a workplace has poor corporate culture:
➢ High staff turnover ➢ Accidents
➢ Poor customer service ➢ Disputes + internal
➢ High levels of conflict
absenteeism
➔ Strategies to build a great workplace culture
➢ Pay more than basic rates and some share options
➢ High levels of training and mentoring
➢ Collaboration across all levels of involvement in decision making
➢ Fun atmosphere
- Benchmarking key variables: process in which indicators are used to compare business performance
between internal sections of a business or between businesses → aims to implement changes to
improve

Approach Description
 Informal benchmarking Includes any strategies such as networking through informal
discussions with colleagues in other businesses, undertaking
visits to other businesses, researching best practice online and
attending conferences

Performance benchmarking Involves comparing the performance levels of a

process/activity with other businesses

Best practice benchmarking Involves comparing performance levels with those of another
best practice business in specific areas using a structured
process to gain skills and knowledge, and to modify
organisational processes

Balanced scorecard benchmarking Used for measuring whether the activities of a business are
meeting its objectives established in the strategic plan →
benchmarks key performance variables w targets aligned w
the strategic plan

➔ Quantitative measures:
➢ Variances in labour budgets: sig increases in size of labour budgets = major increase in
the costs of business
○ Most likely due to poor planning of staffing needs, higher unscheduled
absenteeism, overtime or increase in wage rates
➢ Time lost/costs of injuries and sickness: rising costs indicate health and safety
requirements are being breached - may be due to poor training/lack thereof
➢ Performance appraisals completed compared w targets
➢ Percentage of goals achieved: may be determined based on dollar sales per employee/
rising sales per employee → indicator of improved customer service + productivity
➢ Levels of labour turnover: higher levels can indicate workplace problems ranging from a
poor workplace culture and poor working relationships
○ Can also be due to lack of clear job descriptions and opportunity for promotion or
personal growth
➔ Qualitative evaluation: involves detailed feedback and research on key issues allowing
judgements to be made about change in behaviour or quality of service provided
➢ Sources of such info: feedback from middle management, surveys and focus groups
about workplace culture, and quality of customer service and leadership
➢ Benchmarking major variables is essential in planning for continuous improvement
○ High or increasing absenteeism and labour turnover rates = boredom/poor
relationships
○ Analysis of industrial disputes and the issues raised may provide feedback on
health and safety, rewards and relationships in the workplace
○ Feedback from performance appraisals - info useful in evaluating and planning
training, recruitment, selection, development and separation processes
- Changes in staff turnover: refers to the separation of employee from an employer, both involuntary and
voluntary, through dismissal or retrenchment
➔ Some level of turnover is considered healthy in business as new ideas/ skills are brought in and
often stimulate innovation in work practices
➔ However a major change or significant increase in turnover is a major warning sign
 ➔ To assess the sig. of turnover - important for the business to benchmark their turnover against that
of other businesses in the industry and to determine the type of staff leaving and their reasons
- Absenteeism: refers to a worker who neglects to turn up for work when they were scheduled to do
so → it could be seen as unofficial expressions of conflict
➔ Poorly designed jobs and lack of strong employer relationship contributes to workers being
absent
➔ Costs associated with absenteeism
➢ Firms need to have much higher staffing levels to cope w high absentee levels
➢ Revenue is lost as work is disrupted
➢ Lower productivity and higher labour costs
- Accidents: (indicator if it occurs often) total cost of work-related injuries and deaths in Aus is more than
$60 billion per year in direct and indirect costs
➔ Direct costs - medical bills, compensation and insurance
➔ Indirect costs - wages and time lost, contamination, wastage, production delays, repairs, fines,
lower morale
➔ Occupational health and safety indicators
➢ Lost Time Injury Frequency Rates (LTIFRs) - a lost time injury is an even that results in a
fatality, permanent disability or time of one day/shift or more lost from work
 ○ LTIFRs is the number of lost-time injuries per million hours worked, calculated
as:
Number of lost time injuries x 1000000/ Total hours worked in accounting period

➢ Safework Australia rates based on accepted workers compensation claims

○ This involved the loss of one or more working weeks (termed serious claims) -
claims for shorter periods are not counted in this rate
➔ Best practice business:
➢ Have regular safety audits and comprehensive safety programs and use data to improve
➢ Communicate effectively about health and safety usines visible policy statements, safety
signs and reminders
➢ Provide careful induction and regular ongoing training for staff to ensure they are aware
of safety rules and prepared for emergencies
➢ Consult employees and health and safety personnel on the implications of changes in the
workplace
- Levels of disputation: indicators of industrial disputation
➔ Overt and covert manifestations of industrial disputes → must be monitored and evaluated

➢ Work bans - a refusal to work overtime, handle a product, piece of equipment, process or
even a refusal to work with particular individuals
➢ Work to rule - when employees refuse to perform any duties additional to the work they
are normally required to perform
➔ Employers should be concerned if a number of formal grievances are reported as they are an
indicator of poor quality relationships in the workplace
➢ Can be damaging if they attract media attention or move through the legal system
➢ Should investigate whether these issues relate to policies and processes operating within
the business or to specific individuals who may need further training and development
➔ Ongoing grievances = higher levels of staff turnover
➔ Disputes arising from managerial policy may include decisions and polices of line managers,
organisational restructuring, discrimination, changing work practices etc.
 - Worker satisfaction: a key factor in employee commitment, job performance and staff turnover/retention
➔ Employee satisfaction surveys - help employers measure and understand how their staff feel
about their work, their management and the culture of an organisation
➢ Can be done by paper, online polls, focus groups or external consultants
➔ These surveys can be used to improve management style, processes, rewards systems, the
working environment and employee relationships (/other employee needs)
➔ If there are significant pay differentials in the workplace → may become unsatisfied
➔ Need to ensure employees have good relationship with coworkers, enjoy their work
activities, receive relevant training and gain opportunities to grow → to maximise worker
satisfaction
➔ Effective leadership (e.g. democratic) where employees feel recognised and encouraged +
communication is respectful + management is transparent → increased worker satisfaction
➔ Employees who are emotionally exhausted w the job → often less satisfied
➢ Hence, require a family friendly culture, adequate breaks, rewards and workplace
wellbeing strategies e.g. gym
➔ Support for emerging leaders → increases satisfaction; ongoing mentoring, training or
coaching

Indicators Staff turnover - 2016: 4.4% IKEA

Absenteeism - 2013: 9.1 days
Accidents - 2016 - Lost Work Case Frequency Rate: 8.6%
Corporate culture - IKEA is paternalistic and anti-
bureaucratic whilst promoting an inclusive, empathising,
open and honest culture
- ‘Growing IKEA - together’ promotes internal
dialogue which supports social
Worker Satisfaction - IKEA measures this through a
VOICE survey - index over 700 is considered
‘excellent’ → 2015 - 725