BUSINESS STUDIES Year 12
SHADDY HANNA EPPING BOYS HS
†
Business Studies Shaddy Hanna
DISCLAIMER The following set of notes has been compiled by Shaddy Hanna in the years 2012-2013. These notes were intentionally written out for personal use and NOT as a teaching resource. For this reason, bear in mind, that the quality of these notes were, and never have been, intended for publishing purposes. Thus, due to the purpose of these notes, they are definitely not a full proof reference to the content covered in the Board of Studies Higher School Certificate Syllabus for this subject, and should not be used as a point-ofcall reference. They were written as a personal reference and at times, ‘cheat sheet,’ to help with personal memory. On this note, use them at your own discretion. Along the same notion, these were never intended to be sold. If you have been sold these set of notes, please contact the seller and ask for a refund. Finally, all ideas and diagrams expressed in this sheet are not my own and have been adapted from the references listed at the end of this document. For more thorough explanations on any of the topics covered in this document, refer to these textbooks.
A PERSONAL WORD FROM ME (: If you’re reading this, you’re probably a year 12 student about to sit their HSC this year. You may skip through all this, and that doesn’t bother me, but if you haven’t, I hope this advice can be helpful. The tip to succeeding in the HSC isn’t a high ATAR . The reality is, that ‘succeeding in the HSC’ comes down to
what you make out of this last year of high school, and every next one that follows. And that goes beyond the ATAR you get. So what does make a successful year? Build your character. The rant will probably start about now, just because I can since I’m writing this, and you’re choosing to read this, lol. By the way, please don’t get offended by my use of Bible quotes to back up what I believe. I’m a proud Christian and profess that the wisdom I’ve learnt in the last few years of my life are straight from the Bible. I don’t share them to arrogantly ‘bible-bash’ you. Again, remember, whether you choose to skip this or not, is up to you. So here goes : Don’t be remembered as the kid who was competitive all year round, who screwed others to get themselves ahead, or maybe, you didn’t actively screw others but you chose not to help them. I’m not trying to judge you, believe me, I’m the last person to do this. I just want to give you advice I wis h more people heard when I
was in high school. This quote from the bible well captures what I mean by the power of indifference: So whoever knows the right thing to do and fails to do it, for him it is sin Don’t be remembered as the kid who cared more about his ATAR then the people around them. Let me
frame it this way, if you were to die tomorrow, what would people remember you for? What legacy do you want to leave behind? That you got a 99 ATAR? That you got a band 7 in Ext 2 Maths? Here’s another quote
from the bible which has often spoken truth into me: Do not store up for yourselves treasures on earth, where moths and vermin destroy, and where thieves break in and steal … For where your treasure is, there your heart will be also. Don’t be remembered as t he kid who never took anything serious. There’s a lot to reap from hard work
which extends beyond an ATAR. Hard work and diligence is what build character. In Christ,
Shaddy Hanna
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TABLE OF CONTENTS TABLE OF CONTENTS
1
OPERATIONS
5
ROLE OF OPERATIONSMANAGEMENT
5
STRATEGIC ROLE OF OPERATIONS MANAGEMENT
5
GOODS AND/OR SERVICES IN DIFFERENT INDUSTRIES
5
INFLUENCES ON OPERATIONS
6
GLOBALISATION
6
TECHNOLOGY
7
QUALITY EXPECTATIONS
8
COST-BASED COMPETITION
8
GOVERNMENT POLILICES
8
LEGAL REGULATIONS
8
ENVIRONMENTAL SUSTAINABILITY
8
CORPORATE SOCIAL RESPONSIBILITY OPERATIONS PROCESS
9 10
INPUTS
10
TRANSFORMATION PROCESSES
11 13
OUTPUTS
OPERATION STRATEGIES
14
DESIGN AND DEVELOPMENT
14 14
SUPPLY CHAIN MANAGEMENT
15
OUTSOURCING
16
TECHNOLOGY
16
QUALITY MANAGEMENT
16
INVENTORY MANAGEMENT
17
OVERCOMING RESISTANCE TO CHANGE
18
GLOBAL FACTORS
19
PERFORMANCE OBJECTIVES
MARKETING
20
ROLE OF MARKETING
20
STRATEGIC ROLE OF MARKETING GOODS AND SERVICES
20
PRODUCTION, SELLING, MARKETING APPROACHES
20
TYPES OF MARKETS INFLUENCES ON MARKETING
22 23
FACTORS INFLUENCING CUSTOMER CHOICE
23
CONSUMER LAWS
23
ETHICAL ASPECTS OF MARKETING MARKETING PROCESS – DEVELOPING A MARKETING PLAN
24 25
SITUATIONAL ANALYSISX
25
MARKET RESEARCH
26
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ESTABLISHING MARKET OBJECTIVES
26
IDENTIFYING TARGET MARKETS
27
DEVELOPING MARKETING STRATEGIES
27
IMPLEMENTATION, MONITORING AND CONTROLLING
MARKETING STRATEGIES
27 28
MARKETING SEGMENTATION
28
GOODS/SERVICE DIFFERENTIATION AND POSITION
28
PRODUCTS
28
PRICE
29
PROMOTION
30
PLACE/DISTRIBUTION
31
PEOPLE, PROCESSING AND PHYSICAL EVIDENCE(ADDITIONAL P’S TO MARKETING MIX)
32
E-MARKETING
32
GLOBAL MARKETING
33
FINANCE
34
ROLE OF FINANCIAL MANAGEMENT
34
STRATEGIC ROLE OFFINANCIAL MANAGEMENT
34
OBJECTIVES OF FINANCIAL MANAGEMENT INFLUENCES ON FINANCIAL MANAGEMENT
34 36
INTERNAL SOURCES OF FINANCE
36
EXTERNAL SOURCES OF FINANCE
36
FINANCIAL INSTITUITIONS
39
INFLUENCE ON GOVERNMENT
40
GLOBAL MARKET INFLUENCES PROCESSES OF FINANCIAL MANAGEMENT
40 41
PLANNING AND IMPLEMENTING MONITORING ANDCONTROLLING
41 43
FINANCIAL RATIOS
44
LIMITATIONS OF FINANCIAL REPORTS
46
ETHICAL ISSUES RELATED TO FINANCIAL REPORTS FINANCIAL MANAGEMENT STRATEGIES
46 47
CASH FLOW MANAGEMENT
47
WORKING CAPITAL(LIQUIDITY) MANAGEMENT
48
PROFITABILITY MANAGEMENT
50
GLOBAL FINANCIAL MANAGEMENT
51
HUMAN RESOURCES
53
ROLE OF HUMAN RESOURCEMANAGEMENT
53
STRATEGIC ROLE OFHRM
53
OUTSOURCING KEY INFLUENCES
53 54
STAKEHOLDERS
54
LEGAL – THE CURRENT LEGAL FRAMEWORK
55
SOCIAL
58
ECONOMIC
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TECHNOLOGICAL
58
ETHICS AND CORPORATE SOCIAL RESPONSIBILITY HUMAN RESOURCES PROCESSES
59 60
ACQUISITION
60
DEVELOPMENT
61
MAINTENANCE
61
SEPERATION HUMAN RESOURCE STRATEGIES
62 63
LEADERSHIP STYLE
63
JOB DESIGN
63
RECRUITMENT
64
TRAINING AND DEVELOPMENT
64
PERFORMANCE MANAGEMENT
65
REWARDS
66
GLOBAL
66
WORKPLACE DISPUTES
67
EFFECTIVENESS OF HUMAN RESOURCE MANAGEMENT
68
INTERDEPENDENCE
69
INTERDEPENDENCE WITH OTHER KEY BUSINESS FUNCTIONS
69
OPERATIONSAND HUMAN RESOURCES
69
OPERATIONSAND MARKETING
69
OPERATIONSAND FINANCE
69
HUMAN RESOURCESAND MARKETING
70
HUMAN RESOURCESAND FINANCE
70
FINANCE AND MARKETING
70
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OPERATIONS ROLE OF OPERATIONS MANAGEMENT
Operations: the creation of goods and the provision of services by a business
The transformation of inputs into outputs.
STRATEGIC ROLE OF OPERATIONS MANAGEMENT
Strategic decisions: those that affect the business in the long term o
Gaining a long term competitive advantage over competitors by improving productivity, efficiency and quality of outputs
COST LEADERSHIP
Business aims to be have the lowest manufacturing costs in the business o
Economies of scale
o
Using cheaper inputs
o
Maximising efficiency, by minimising waste
o
Implementing better technology = increased productivity
o
Outsourcing product components
Increase size of operations = reduce in average cost of making each item
DIFFERENTIATION
Business aims to create unique outputs in industry o
Better quality products
o
Custom designed outputs (more variety to suit different specific needs)
o
More features, application and versatility
o
Clever design
Incurs higher cost in production
Products can demand a higher price in the market if successful o
Yet consumers may switch when competitors imitate leader’s innovation
GOODS AND/OR SERVICES IN DIFFERENT INDUSTRIES Goods Physical, tangible
Services Intangible Labour intensive
Capital intensive Measurable Difficult to modify
People-focused Hard to measure Easy to modify
Sectors of the economy: Provision of raw materials e.g. mining, fishing
o
Primary (extracting):
o
Secondary:
o
Tertiary:
Provision of a service e.g. transportation, logistics
o
Quaternary:
Provision of intellectual activities e.g. teachers, government
Use inputs to change the shape of product e.g. dishwashers
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INFLUENCES ON OPERATIONS
GLOBALISATION
The integration and interdependence of different countries and their economies o Gives consumers the opportunities to purchase products from a wider market o
Leads to the development of a worldwide economy
GLOBAL BUSINESS
A business that has integrated with economies of a number of different countries
May offer the business tax incentives
TNC’s gain benefits from global web of operations:
o
o
Leads to: Increasing flow of goods, services, people, finance, information around the world.
Exploits the competitive advantage that each country has to offer:
Manufacturing: where inputs and labour are cheap (e.g. developing countries)
Raw Materials: from where they are abundant
Finance: controlled from headquarters in one of the World Finance centres - Wall St
Distribution: To consumers in developed nations
DIFFERENT CURRENCIES
A depreciation of the AUD against the currency of the country inputs are being sourced from will lead to rising costs
Hedging: is used to avoid the risk of fluctuations in the value of currency. o Businesses sign derivatives (a purchase contract) at the current rate of currency. o
Businesses avoid transaction exposure by transacting between subsidiaries in the same currency
Transaction Exposure is the risk that comes with fluctuations in currency
Subsidiary is a business that is owned by the global corporation that supplies inputs
Derivatives are special contracts used between global businesses.
TRADE AGREEMENTS
Treaties made to reduce globalisation barriers between economies and promote economic integration
o
Bilateral Agreement: between two (2) countries
o
Multilateral Agreement: between more than two (2) countries
When a business is a part of a Trading Bloc, corporations gain reductions in trading restriction o
The North American Free Trade
o
South East Trade
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TECHNOLOGY
The development of new methods of production/equipment
Businesses may gain access to tech through joint venture strategic alliances o
Different Cultures
Use of local experts (resolve culture and communication clashes)
Advantages o
More efficient reducing waste
o
Save time
o
o
Increase productivity Lower cost
o
Increase quality
Factors that could affect decision to use tech o
High initial cost
o
Speed of change Redundancy in staffing
o
Need to acquire new staff with appropriate IT skills
o
ROBOTICS
The development of programmable/automatable machines w/ sensors to detect changes in environment
o
Complicated or Repetitive Tasks
o
Dangerous or Hazardous Work
Benefits o
Increased efficiency
o
No boredom of repetitive work – no HR
o
No wages to be paid
Limits o
Power source
o
Mechanical failure/repair
Have become desirable due to their cost-effective working conditions
CAD
Computer aided design allows architects/engineers to design more efficiently on computers o
More effective visual representation, alterations can be made easily. Steps involved: 1.
Receive info from clients
2.
Make comments
3.
Make alterations
CAM
Computer aided manufacture uses electronic data to manufacture/produce products o
Ensures less error involved
o
Fewer mistake
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QUALITY EXPECTATIONS
Customers relate price to quality, and often have certain expectations of: o
Durability
o
Reliability
o
Fit for purpose
Marketing relies on operations to fulfil consumer expectations promoted o
Brand name affecting consumer choice
COST-BASED COMPETITION
Business are influenced by competitors to decreases prices o
o
Here, the operations unit is influenced to decrease costs so they can lower prices and maintain the profit margin Achieved through a cost-leadership strategy
GOVERNMENT POLILICES
AUSTRADE: supports Aus. businesses that are innovative in operations and able to develop products
to be exported.
AUSFTA: trade policy to promote trade relationships
LEGAL REGULATIONS
Legal obligation of operation managers to be aware of laws and ensure business complies with them
Legal regulations are put in place to promote safe and fair conduct of businesses o
Trade practices
o
WHS
ENVIRONMENTAL SUSTAINABILITY
Limit the negative impact business operations has on the environment
Stakeholders pressure businesses to incorporate sustainable resource use: o
Protect resources from depletion
o
Ensure that operation processes are sustainable
o
Store/remove waste appropriately
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CORPORATE SOCIAL RESPONSIBILITY
CSR is the duty of care a business has towards its stakeholders o
Extension of the triple bottom line concept – financial, social and environmental evaluation
o
Such steps can often have a great influence on operations not only socially and environmentally, but also economically in the sense that by promoting itself as a socially responsible corporation, the business can indirectly increase brand awareness and sales.
ETHICAL RESPONSIBILITY: AN EXTENSION TO LEGAL COMPLAIANCE
Legal compliance refers to developing operations processes and strategies to obey the law
CSR can be measured by a business’ degree of ethical responsibility o
Making decisions that are not only legally correct, but also morally right
o
Businesses should aim to make decisions which extend beyond the law, and reflect the intention and “spirit” of the law portray the business as a good corporate citizen
Following international labour standards that come from the International Labour Organization (ILO) o Devoted to promoting rights at work and encouraging equal employment opportunities Code of conduct: voluntary set of guidelines of the behaviour of a business to benefit stakeholders o
Producing value-for-money quality products
o
Improve customer service
ENVIRONMENTAL SUSTAINABILITY AND SOCIAL RESPONSIBILITY
CSR can be easily assessed by how environmentally sustainable a business is o
Business should not endanger the environment for means of economic growth
o
Requires business to evaluate the full environmental effects of their operations
CSR is also measured by how socially responsible a business can conduct itself o
Trying to improve the quality of life of all stakeholders
o
By demonstrating social responsibility, a business demonstrates that it values its social and environmental responsibilities even greater than their financial objectives
Furthermore, this can in turn increase sales and brand awareness for a business
Environmental sustainability and social responsibility can be achieved by: o
Minimize negative impact on environmental – adopting greenhouse measures
o
Adopting policies of conservation of waste, recycling and restoration
o
Comparing and tracking social responsibility through Aus. SAM Sustainability Index
o
Comparing and tracking environmental sustainability through Reputex
Determines ecological sustainability and social responsibility of Aus. Businesses Measures how a business incorporates clean technology/manages Carbon emissions
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OPERATIONS PROCESS
Operations processes: the activities involved in the transformation of inputs into outputs
Value adding analysis: allows managers to closely examine transformation stages and determine how
much value each stage adds.
‘Top down’ approach: operations sector interprets and aims to play its role in businesses objectives
Systems management approach: focuses on integrating operations with other business sectors
INPUTS
TRANSFORMED RESOURCES
Inputs that are changed and converted into something else as: o
an input for other businesses (component)
o
finished good or service
RAW MATERIALS
Supplies used up in operations are transformed throughout the TP to form a product o
They are usually current assets (not kept for > 12 months)
INFORMATION
Information can be a transformed resource since operations may transform the information
o E.g. Market research takes data from a client and transforms it for them to understand Information is also processed as an input when it is stored o
E.g. Archives and libraries which are paid to store data.
CUSTOMERS
Customers are a transformed resource when the operations process may be changing their location, physiological or psychological state. o
E.g. hospitals and surgeons transform a customer’s physiological state
o
E.g. airlines and bus companies transform a customer’s location
o
E.g. theme parks and cinemas transform a customer’s psychological state
TRANSFORMING RESOURCES
Resources that remain in the business and are applied to the inputs to change them/add value
HUMAN RESOURCES
Mental and physical labour who apply knowledge, skills and effort into inputs
FACILITIES
Buildings, land, equipment and tech etc. o
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TRANSFORMATION PROCESSES
Activities which determine value addition
Production method o
o
Job
Batch
Flow
Job
Produced individually
Unique customisation
Batch
Produced in bundles
o
Flow:
Flexible production
Continuous production
Low variation of product
INFLUENCE OF THE 4 V
’S
VARIETY
The variety of different models offered in the product o
High variety usually results in batch or job production
VOLUME
The number of products/services produced by the operation o
High volume (mass production) usually results in a more standardised product
VARIATION IN DEMAND
Variation in demand can change according to time e.g. seasonal products o
Operations needs to be flexible to increase/decrease output
VISIBLILTY
The degree to which customers can see the operations in action o
High level = service based e.g. restaurant
o
Low level = manufacturing e.g. beef producer
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SEQUENCING AND SCHEDULING
Tools used to identify all steps in the operations process and organise them into the most efficient order to complete
GANTT CHARTS (SCHEDULING)
Scheduling: is a term used to indicate a detailed timetable of what work needs to be done
Records the number of tasks in the project
Records the time needed for each project
Allows the business to compare planned progress with actual progress
Does not show interdependence of tasks
CRITICAL PATH ANALYSIS (SEQUENCING)
Sequencing: the planning of activity that decided on the order in which the work is to be performed
Shows the interrelationship of tasks
Critical path time: shortest time for project to complete o
Longest path taken reflects the longest process which must complete to finish project
TECHNOLOGY, TASK DESIGN AND PROCESS LAYOUT
TECHNOLOGY
Can lead to sustainable competitive advantage
Process technologies are the improvements in the tech components used in operations
Product technology is the innovation in the product themselves
Flexible manufacturing systems (FMS): use tech to perform multiple tasks at once
TASK DESIGN
Task analysis is the breakdown of all the tasks in the entire transformation process
Task design then determines how the task will be performed o
Allows ongoing analysis of each step, ensuring improvement in productivity
PROCESS LAYOUT
Process layout: where all operations activities are arranged by what they do. o Generally used in service and human intensive industries
Product layout: where machinery is arranged in sequential order of production – assembly line
Facilities layout planning: the physical layout of the business’ factory/office
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MONITORING, CONTROL AND IMPROVEMENT
Monitoring: involves collecting information about the performance of the operations process
Control: involves adjusting operations process to keep observed performances as close to intended
Improving: analysing and determining what can be changed to improve the operations process
o
Aims to ensure operations process are running efficiently and effectively
OUTPUTS
The purpose of the operations process is to produce an output that has a value to the customer, greater than the cost of the inputs
CUSTOMER SERVICE
Intangible output that requires human contact
Can increase consumer satisfaction
Maintains 80/20 relationship
o
o
Contributes to the competitive advantage 80% of revenue comes from 20% of the customer base
WARRANTIES
An assurance that a business stands by the quality claims of their product
Retailers must comply with warranty by repairing or replacing the product
Under the Fair Trading Act 1987 and Competition and Consumer Act 2010 products must: o
Have a level of quality comparable to price and product description
o
Suitable for the purpose they are used for
o
Match the product description
o
Free from defects or faults
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OPERATION STRATEGIES
The activities and specific decisions about how the business produces goods/supplies services.
PERFORMANCE OBJECTIVES
Key area of focus for operations
How to remember? FCC-QSD
o
Product differentiation strategy through performance objectives
F LEXIBILITY
Ability to deal with market changes and variation in demand
C USTOMISATION
Reproducing products to match customers desire
C OST
Keeping costs as low as possible o
Fixed: do not change as output changes
o
Semi-fixed: parts are fixed and parts are variable
o
Variable: change as output changes
o
Direct: directly related to production
o
Indirect (overheads): indirectly related to outputs e.g. salaries of admin staff
Break-even point: determines the amount of sales necessary to begin making a profit o
By reducing costs, breakeven point is reduced and more profit is made at lower output levels
Operating expense ratio: the cost incurred per $1 of sale =
Average costs: the cost incurred per unit produced
=
× 100
Q UALITY
Quality must be high
Durability, reliability, aesthetics, features, fit for purpose
S PEED
Speed is related to productivity (
)
o
Increased by tech (CAD, CAM or robotics)
o
Production line will move as fast as its slowest machine
Risk of increasing speed o
Quality may suffer
D EPENDABILITY
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DESIGN AND DEVELOPMENT
New products = competitive advantage o
Lengthy/expensive process
o
Risky since not all products end up being produced
Design includes: activities such as identifying an opportunity, screening the ideas and basic costing.
Development includes: building a prototype, testing a sample market, making technical changes, trial
runs, business feasibility study.
SUPPLY CHAIN MANAGEMENT
The stream of processes from receiving an initial order and distributing the product to a customer o
Includes all businesses that are linked to the supply of the product to the consumer
o
Outsourcing of the management of supply chain has become more popular
Lead time: the time it takes for a supplier to provide the consumer with the product ordered o
Shorter lead times lead to more flexible purchasing
LOGISTICS
The transport of physical inputs, outputs and resources through the supply chain
Goal is to achieve an efficient steady flow of materials
o
Correct and timely info is crucial
o
Strategies to save time/control the flow of materials
o
Increased complexity of supplying business with materials due to globalisation
Transport logistics: the organisation of the physical movements of products from their point of srcin
to their destination.
E-COMMERCE
The use of internet to both buy and sell products o
Has increased B2B and B2C interaction
o
Part of E-business: the use of internet to carry out business functions
E-tailing: businesses that only use virtual stores to sell products through a website
Electronic data interchange (EDI): use of tech (barcodes, scanners etc.) to monitor stock
GLOBAL SOURCING
Where a business seeks to find the most cost-efficient location for manufacturing o
Includes tax incentives to encourage globalisation
o
Exploit cost advantages offered by cheaper inputs
Businesses may decide to vertically integrate: take over a business that can supply inputs o
Ensures a secure supply of resources and inputs
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OUTSOURCING Outsourcing involves the transfer of part of (or all) a business function to an external 3 rd-party business
Advantages
Access to specialist knowledge and expertise and better equipment/technology Increased speed and quality of outputs Free up resources to be used in the core function of the business
Disadvantages
Breakdowns in external client will affect operations Loss of control over quality and reliability Slower lead time/response to market changes
TECHNOLOGY
The equipment and knowledge that are available to help business perform functions or produce o
Bleeding edge: so advanced there is a high risk/uncertainty of customer use
o
Leading edge: (cutting edge) will give the company a competitive advantage
o
Established: tried and proven = reliable
QUALITY MANAGEMENT
Ensuring that the outputs of a business are consistent, durable and reliable
Government Legislation:
o
Allows business can gain competitive advantage
o
Competition and Consumer Act 2010
o
Fair Trading Act 1987
QUALITY CONTROL
Involves checking transformed and transforming resources in all stages of operations: o
Feed forward: the use of careful planning before product, to prevent any problems occurring
o
Concurrent: used during manufacturing process – real time control
o
Feedback: after production or delivery of the service
Establishing evaluation procedures and setting standards
QUALITY ASSURANCE
Establishing and using a set of procedures (standards) to prevent product defects from occurring
Quality Circles: a group of employees from diff sectors to discuss issues arising in the workplace
Code of Practice: the min. level of service registered members of a profession are expected to provide
o
o
ISO (service-based industry) are examples of certificates
Set up by professional associations e.g. the Institute of Chartered Accountants.
QUALITY IMPROVEMENT
TQM approach relies on continuous improvement in all areas, not just operations
Zero defects = brand loyalty = market reputation = competitive advantage gained
Quality circles to present findings and pressure management
Benchmarking (average industry performance): business can compare themselves with industry
World’s Best Practice: firms can compare performance to high productivity standards world wide
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INVENTORY MANAGEMENT Inventory management: the management of inventory in the business to maximise effeciency
o
To have enough stock available as it is needed, but not too much
o
To identify stock that is not selling well
Monitoring:
o
To identify and sell off slow—moving or close-to-obsolescent stock
o
To avoid accumulating dead stock (used by dates, damaged stock etc.)
Inventory: the raw materials and inputs that are used in the production process
Stock: the businesses transformed resources
HOLDING STOCK The stock a business holds as a reserve to cover in case of interruptions or unexpected demand
Advantages
Disadvantages
Stock is ready to use
Capital intensive (dead cash)
No delays, quick lead time
Cost of holding stock – warehousing etc.
Planned purchases
Accumulating obsolescent (dead) stock
No need to rely on suppliers
LIFO (LAST-IN-FIRST-OUT)
The stock purchased most recently is sold first (Last stock delivered is the first used and sent out)
o Used for goods that have no use-by-date Income Statement: COGS is higher = lower profit = less tax
Balance Statement: stock= older value, therefore is lower than actual cost
FIFO (FIRST-IN-FIRST-OUT)
The stock ordered first, will be sold first
Income Statement: COGS is lower = higher profit = higher tax
Balance Statement: Closing stock is higher, therefore current assets is higher
o
Used for perishable goods
JIT (JUST-IN-TIME)
Holding minimal stock and only ordering as required o
o o
Improves liquidity and efficiency of operations process Lower storage costs and less chance of obsolescent stock More flexibility to respond to changes in market
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OVERCOMING RESISTANCE TO CHANGE
Force-field Analysis: change occurs when
Driving forces: the push for the need for change
Restraining forces: those that hold back from change
>
PURCHASING NEW EQUIPMENT
Long term reductions in costs Decreased time delays
Faster decision making
REDUNDANCY PAYMENTS
When an employee is made redundant, businesses are legally obliged to pay redundancy payments.
RETRAINING
May take extended period of time to re-gain productivity once re-trained
REORGANISING PLANT
Requires closure of the business while equipment is physically moved o
Temporary loss of sales
INERTIA
The resistance to change is caused mainly by fear and uncertainty of deskilling and being job less
External driving forces to overcome inertia include: o
Training programs
o
Demographics and attitudes in the work place
o
Flatter management structure
o
Introduce change agents
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GLOBAL FACTORS
GLOBAL SOURCING
Less expensive inputs from other countries - low cost region (LCR) Business may use global web of operations to reduce costs – use of subsidiaries
o
Manufacturing in developing countries
Marketing and distributing in developed countries
Finance from country with cheapest interest rates
Disadvantages o Time taken to research suppliers o
Cultural barriers
o
Increased lead time
ECONOMIES OF SCALE
The larger business operations are, the lower cost of producing individual cost becomes o
Buying bulk orders of supplies (inputs)
o
Using equipment to total capacity
Diseconomies of scale can occur however o
Inefficiency due to poor communication
o
Complex and dysfunctional management
o
Loss of direction/slow decision making – not flexible = not adapting to market changes
To overcome diseconomies, expand through joint ventures or strategic alliances
SCANNING AND LEARNING
Monitoring the global business to identify critical global trends o
Global demand of the product
o
Supply of transformed and transforming resources
o
Advancements in product and process tech
o
Emergence of new competitors
o
Changes to government policies
o
Changes to suppliers of inputs – (quality, price, delivery delays etc.)
RESEARCH AND DEVELOPMENT
The strategy associated with the creation of new products and the improvement of existing ones Crucial to the long term survival of any business
o o
Process innovation: development of operation processes to bring benefits to the business International patent: gives business 20 years protection from any organisation copying idea
o
Advantages
Disadvantages
Provide higher profit margin
May lead business from prime function
Lead to quality improvements
Opportunity cost
Gain competitive advantage
May not yield financial return
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MARKETING ROLE OF MARKETING
Developing a product and implementing a series of strategies aimed at correctly promoting, pricing and distributing the product to a core group of customers
Develop and implement strategies that generate revenue and sales for the business o
Researching the changing nature of consumer tastes and preferences
o
Development of products to provide consumers with improved standard of living and choice
STRATEGIC ROLE OF MARKETING GOODS AND SERVICES
Society o o o
Business
Increased employment Increased choice Increased standard of living
o o o
Increased brand awareness Increased market share Increased revenue streams
CHOICE
Competitiveness drives businesses to produce unique products
As such, customers are provided with increased range of choice
STANDARD OF LIVING
R&D has promoted the development of better products, to increase the quality of life Innovation has led to newer, and a wider range of products provided by business
EMPLOYMENT
Provides a source of income and employment to many Australians o
Business employ labour to provide a product, salesmen sell the products and finance
BRAND AWARENESS
Allows a product to remain in the consumers subconscious to influence consumers’ purchasing choice
Achieved through strong and effective marketing campaigns
Increased brand awareness = stronger market share
MARKET SHARE
Refers to the percentage of total sales a business has compared with competitors in the market
Increased market share = increased sales and profitability
REVENUE STREAMS
Great sales due to marketing relates to access to greater revenue streams
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PRODUCTION, SELLING, MARKETING APPROACHES
PRODUCTION APPROACH
– EARLY 1900’S
Relies on the view that consumers base their purchasing decision on the quality of the product
Product was the element of the marketing mix that was emphasised o
Promotion and place insignificant
o
Price reflects the quality of the product
SELLING APPROACH
– MID 1900’S
Relies on the view that business will be successful if they promote the benefits of the product
Promotion was the element of the marketing mix that was emphasised o
Product (small emphasis) – used to differentiate the product
o
Price and place insignificant
MARKETING APPROACH
– LATE 1900’S
Relies on the view that the consumer is at the core of all business activities
All elements of the marketing mix are needed to ensure customer satisfaction:
o
All actions of the business should be aimed at meeting the needs of the customer
o
Product - quality and features to attract the customer
o
Price - to encourage the customer to buy the product
o
Promotion - so that the customer knows about/desires the product
o
Place - so that customer gains access of the product to buy it
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TYPES OF MARKETS
RESOURCE MARKETS
Where the product and sale of raw materials occur o
E.g. gold, silver, aluminium, sugar, wheat etc.
o
Produced by BHP Billiton, Rio Tinto etc.
Labour is traded on the resource market – as it is a key factor of production
INDUSTRIAL MARKETS
Where goods that are used as supplies in the production process are traded o
The outputs of another business are used as inputs for a business with more transformed resources
o
E.g. Aluminium to build cars
INTERMEDIATE MARKETS
WHOLESALERS
Where businesses retail products, produced by other businesses, to sell retail businesses Involves purchasing in bulk to offset costs and then distributing the goods in smaller quantities to retailers
CONSUMER MARKETS
Markets where businesses sell directly to the consumer o o
Most widely recognised markets E.g. Harvey Norman, David Jones, Myers etc.
MASS MARKETS
Where the products are aimed at all consumers irrespective of age, gender, income, location o
Usually includes goods that appeal to all consumers
Water, petrol, electricity etc.
MARKET SEGMENTS
Market segmentation refers to the dividing of the mass market to smaller sub-categories o
E.g. milk is a mass market product, yet low-fat and skim milk are produced to appeal to a segmented market of “healthy -wise individuals”
NICHE MARKETS
A smaller section of a larger market segment
Have a very specific customer base
Due to less sales volume, businesses compensate with higher prices to retain profitability o E.g. rice milk
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INFLUENCES ON MARKETING
FACTORS INFLUENCING CUSTOMER CHOICE
PSYCHOLOGICAL FACTORS
The personal characteristics of a consumer that influences their behaviour: o
Motivation: the belief of the need to buy a particular product.
o o
Maslow’s hierarchy of needs shows that a consumer must first fill their basic needs
Attitudes: what we believe, feel about something and how we respond to it Perception: the opinion that a customer has about the wider world (and the product)
Different people have perceive the same thing differently
Marketing can have a slight influence on a consumers perception
o
Personality/Self-Concept: what people buy reflects how people see themselves
o
Lifestyle: the daily activities and routine of consumers, how they spend their day
o
Learning: the knowledge and experience a consumer develops in the marketplace
E.g. satisfaction from previous purchases, brand awareness from promotions etc.
SOCIOCULTURAL FACTORS
The influences on a consumer’s choices from their society, culture and religion.
Culture: defined as the society’s values, beliefs and customs
Subculture: subset of people within the culture which share specific values o
Socioeconomic status: subdivision by factors as income, education and occupation
o
Family: values/customs that are specific to the individual family
o
Reference the groups a consumer identifies themselves in e.g. religion – Christianity etc
ECONOMIC FACTORS
A person’s economic situation influences the products they will buy o
Ability to borrow, level of income, savings/inheritance etc
GOVERNMENT REGULATIONS
Fiscal policy: the use of annual budget to regulate consumer spending
Monetary policy: the RBA influencing interest rates to regulate money supply
Government laws and regulations: such as the legal age limit to purchase alcohol.
o
E.g. increasing tax discourages consumption of products
CONSUMER LAWS
Laws that protect the interest of consumers within the business environment Business must market their products according to strict legislation which attempts to promote fair/competitive behaviour in the marketplace o
Competition and Consumer Act 2010 (Cwth)
o
Fair Trading Act 1987 (NSW)
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DECEPTIVE/MISLEADING ADVERTISING
Because of advertising’s benefits, some businesses attempt to use it deceptively o
Giving misleading information (about product features or contents)
o
Overstating the benefits of the product
o
Offering discounts/offers that do not exist
o
Bait and Switch advertising – switching the consumers interest to a more profitable item
PRICE DISCRIMINATION
Giving preference to some retail stores by providing them with stock at lower prices Exceptions: o Bulk buying where stores are discounted for purchases of larger stock o
The retailer is trying to temporarily meet local competitors prices
IMPLIED CONDITIONS/WARRANTES
By law, a business must refund or exchange any faulty good when purchased regardless of warranty
RESALE PRICE MAINTENANCE
Manufacturer cannot discriminate against retailers for not selling at RRP
ETHICAL ASPECTS OF MARKETING
Not enforceable by law Rely on the goodwill of stakeholders in the business
TRUTH, ACCURACY AND GOOD TASTE IN ADVERTISING
Information in advertisements must be truthful, accurate and in good taste
Some businesses deliberately implement controversial advertisements to generate further publicity
PRODUCTS THAT MAY DAMAGE HEALTH
Government restrictions on the provision of certain products which may act as a health detriment o
These goods are known as “sin” goods e.g. cigarette s and alcohol
ENGAGING IN FAIR COMPETITION
Examples of unfair competitive behaviour: o o
o
Price Fixing between major competitors to reduce competition Loss Leader undercutting small competitors in the short term forcing them to engage in a price war Misleading Advertising
SUGGING
Disguised marketing process that use questions in a service to determine the needs of the consumer and offer the consumer a product that the business believes caters to the consumer’s desires.
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MARKETING PROCESS
– DEVELOPING A MARKETING PLAN
Planning allows a business to examine its current position in the market, strengths, weaknesses and the most effective method of implementing such changes
SITUATIONAL ANALYSIS
Provides the firm with an opportunity to examine its current position within the markets: o
Product market share
o
Future trends and changing consumer tastes and preferences
o
Behaviour of competitors
SWOT
Examines internal and external environment of the business to develop strategies to: Strengthen the organisations weaknesses and maintain it’s strengths o o
Handle possible opportunities/threats
Strengths/Weaknesses - Internal business environment
Opportunities/Threats - External business environment
o
o
The business’ reputation, financial stability (liquidity), quality of products et c
Degree of competition in the market and changing trends in the marketplace
PRODUCT LIFE CYCLE
Examines current position of a product in the marketplace
ESTABLISHMENT PHASE
When the new product is launched o
Emphasis on building customer loyalty
o
Little awareness in the market = low sales volume = limited profits
o
Costs remain high = small profit margin
Appropriate pricing strategies for businesses to establish market share o
Penetration pricing: low price to establish quick entry
o
Prestige pricing: to establish an image of high quality to consumers
GROWTH PHASE
Brand awareness and customer loyalty grows
Strong growth in sales volume, revenue, profitability and market share
Emphasis on more promotional activity to combat competitors = higher costs
MATURITY PHASE
Product is well established = consistent sales, revenue
Increased consumer choice = limited prospects for growth
New marketing strategies to establish a competitive advantage o
Product differentiation: price, quality, after-sales service etc.
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POST-MATURITY PHASE
Final stage of product life cycle o Key decisions made by management to affect the survival of the product o
More competitors in the market = lower sales volume = lower profit margin
Decline: Production may be ceased
Renewal: aimed at revitalising the product
o
The product no longer meets the needs of consumers
o
Re-establishing competitive advantage
o
New marketing strategies to sustain interest - possible new target markets
o
Modifications to marketing mix – product in particular E.g. change of packing to invigorate new perception of product etc.
MARKET RESEARCH
Provides businesses with information needed to make decisions o
Must establish reliable sources of information
PRIMARY DATA
Info that is collected for the specific purpose it will be used for.
Observational research: Observing the target market, their actions
and how they respond to conditions
Surveys: Asking the target market the same questions over a range
of variables e.g. buying behaviour
Experimental research – usually testing the product on the market
and examining their reaction to different products and features
SECONDARY DATA
Info that already exists, pre-collected by another person i.e. historical data, Gov. census statistics
Internal Sources
o
Data within the business itself i.e. financial reports, past surveys
o
Used to compare past and present results
External sources o
Data collected by organisations outside of the business
o
Used to identify current and ongoing trends
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ESTABLISHING MARKET OBJECTIVES
Provide the framework to guide business operations
Adopt a SMART approach
General market objectives
o
Must be flexible to adapt to changing nature of market
o
Increased Market Share
o
Expansion of Geographic Markets
o
Expansion of Product Range
S M A R T
specific measurable achievable realistic timely
IDENTIFYING TARGET MARKETS
Group of consumer whom the product is developed for – usually a section of the consumer market o
Use of market segmentation (marketing strategy)
DEVELOPING MARKETING STRATEGIES
The process of developing a product and then implementing strategies to encourage purchases o
Market segmentation
o
Developing a product with strong brand, position and packaging
o
Pricing, promotional and placing/distribution strategies to encourage sales
o
Use of technology (e-marketing) and global marketing
NOTE: This syllabus dot point does not require you to expand on marketing strategies, only list the
types of marketing strategies a business can implement as part of its marketing plan.
IMPLEMENTATION, MONITORING AND CONTROLLING
IMPLEMENTATION
Implementation is the process of putting marketing strategies into action
Developing a financial forecast: a financial forecast is the expected costs of the marketing plan
MONITORING
Monitoring is the process of collecting info to measure if plans are achieving desired outcomes
Sales analysis: Examines the sale of a particular product o
Determines which products are performing well
o
Allows management to assess the effectiveness of different marketing strategies
Market share analysis: Comparing the sales performance of the business to competitors
Marketing profitability analysis: Assessing the profitability of marketing strategies
o
o
Assessment of marketing strategies in terms of brand awareness can be made Comparing monetary/non-monetary benefits of strategy vs. costs of implementation
CONTROLLING
Controlling is the process of comparing actual results with desired results
Revising the marketing strategy: Strategies should be revised according to analysis
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MARKETING STRATEGIES
MARKETING SEGMENTATION
Breaking down a market depending on similar characteristics of a customer group o Allows business to focus resources, tailor its marketing plan for target market
METHODS OF SEGMENTATION
Geographic: Based on customers’ location
Demographic: Based on particular features of the population: age, gender, income etc.
Psychographic: Based on differing personalities, lifestyles and interests of consumers
Behavioural: Based on differing knowledge and attitudes of the benefits a product provides
GOODS/SERVICE DIFFERENTIATION AND POSITION
Goods Differentiation: distinguishing the features of a product from those of competitors’ product o
Price: where it promotes itself as the cheapest provider
o
Product Quality: providing higher quality to gain competitive adv.
Service Differentiation: maintain customer loyalty o
Involves an immediate form of contact between the business and consumer
PRODUCTS
Tangible benefits: physical attributes of the product
Intangible benefits: benefits a consumer associates with the product
o
o
E.g. features, colour etc. e.g. prestige/image of owning the product
POSITION
The image of the product in the view of consumers
BRANDING
Reputation of the product
Strong brand name = higher expectations from consumers
PACKAGING
The physical appearance of the good o o
Protects the quality of the product Last point of contact before final purchase
Includes the attitudes/product knowledge of the sales person
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PRICE
Price must reflect position and branding of the product o
most influential factor for customer’s (before purchasing)
PRICING METHODS
Careful decisions must be made by management Can result in loss in market share, brand name, consumer loyalty and even product failure o Cost-plus: Adding a profit margin to the costs per unit of output Competition-based: setting prices according to the competitor’s prices Market-based: set according to supply and demand of a product
PRICING STRATEGIES MARKET SKIMMING
Setting a high price to recover costs – e.g. from establishment phase or new technology implemented o
May back-fire if consumers respond negatively to high price
PENETRATION PRICING
Setting prices at the lowest price to gain immediate group of consumers o
Aims to undercut main competitors in hope that consumers will switch to new product
o
Establishes consumer base despite comprising profit margin
LOSS LEADERS
Providing a limited number of goods at cost price or less in hope that consumers will continue buying o
Again, establishes consumer base despite comprising profit margin
PRICE POINTS
Setting different prices for similar products o
Products are differentiated by features
o
Used to market to a large market segment
o
Can result in higher costs (varied production methods)
OTHER PRICING STRATEGIES
Product-deletion pricing: Used to clear stock of unsuccessful “distressed” p roduct
Prestige pricing: charging a higher price for products consumers regard as prestigious Psychological pricing: influencing customers by minor price differences (e.g. $9.95 vs. $10.00)
Demand-based pricing: charging a higher price for higher demand products o
NOTE: This is very similar to market-based pricing methods – I would not refer to it
PRICE AND QUALITY INTERACTION
Consumers often associate price with quality o
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PROMOTION
THE PROMOTION MIX ADVERTISING
Seeks to convey a message to a broad group of consumers
Traditional advertising conducted through mass media e.g. newspapers o
Rise of e-commerce forces business to embrace tech for advertising e.g. Facebook
PERSONAL SELLING
Selling directly and personally to an individual consumer — e.g. Door-to-door sales
Whisper marketing: business engages other businesses to sell products in return for benefits (goods)
RELATIONSHIP MARKETING
Process of building long term relationships with customers o
High level of customer satisfaction, value and service
o
Encourages regular client base
SALES PROMOTIONS
Intended to generate interest and awareness of a product o
Promotions include discounts, samples, competitions, sales etc.
o
Usually use internet and email due to its cost-effectiveness
PUBLICITY AND PUBLIC RELATIONS
Creating an event to generate product awareness o
Often promoted by famous individuals
THE COMMUNICATION PROCESS OPINION LEADERS
Seeking individuals respected in the community to influence consumers o
Ideally, consumers will link the leader’s reputation with their use of the product
WORD OF MOUTH
Involves consumer’s reactions to products and their degree of satisfaction.
May influence consumers to either try or avoid a product, depending on info circulated
Business has no direct influence over this publicity
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PLACE/DISTRIBUTION
Process of distributing the product from the manufacturer to the consumer
DISTRIBUTION CHANNELS USE OF AN INTERMEDIARY
(i.e. retailer and/or wholesaler) : o
Decreased costs as retailer takes over marketing strategies, although control also decreases
o
Decreased storage, warehousing and SCM cost for wholesaler
o
Increased distribution of goods
o
Used in large industrial companies (e.g. Arnott’s biscuits)
NO USE OF AN INTERMEDIARY
(i.e. straight to consumer): o
Increased efficiency and control e.g. marketing, quality control
o
Used in service industries (e.g. dentists, hotels etc)
o
Used in large resource companies (e.g. oil companies who control their whole supply chain)
Better understanding of consumers’ needs, relationship marketing etc.
CHANNEL CHOICE
Influences the type of consumers the product attracts, perception of the product and ease of access
INTENSIVE
Product being available to a wide selection of stores/locations o
The market is saturated – all buyers already have the product
o
E.g. convenience items such as milk, newspapers etc.
SELECTIVE
Limited number of distribution outlets o
Allows business to control where product is sold
o
Ensures places are consistent with marketing strategy and goals
o
E.g. oxford shirts only sold to Myers, David Jones etc.
EXCLUSIVE
Restricting the number of products or their availability Selling at a limited number of venues o
Allows business to control all methods of the marketing mix
o
Used by hyper-exclusive products e.g. sports cars, jewellers
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PHYSICAL DISTRBUTION ISSUES TRANSPORT
Process of moving goods from one location to another Considerations: o Cost of transport and time needed o
Type of good e.g. fresh fruit = refrigeration
WAREHOUSING
Process of storing products before they are distributed
Build up in holding stock decreases lead time
Considerations: o
Type of good e.g. perishables = can only warehouse for short period
o
Cost of warehousing, inventory becoming toxic (obsolescent)
INVENTORY
Must manage levels of inventory Considerations: o Overstock can lead to obsolescent stock and clearance sales = reduction in profit o
Restricts capacity to store new/updated stock
Undersupply could damage customer loyalty
Not enough stock to satisfy consumer demand = loss in sales
PEOPLE, PROCESSING AND PHYSICAL EVIDENCE
(ADDITIONAL P’S TO M
ARKETING MIX)
People: Refers to the performance of human resources
Process: The consumer’s total experience from searching for a product to using the product
Physical evidence: The physical appearance of the product’s presentation
o
Excellent customer service = high level of customer satisfaction
o
Visual packaging influences consumer buying behaviour
o
Crucial in promoting a positive image
E-MARKETING
Provides business with opportunity to interact with consumers o
Use of emails to directly communicate
o
Online operations reaches a global audience = faster sales volumes
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GLOBAL MARKETING
Strategies must be modified to cater new foreign marketing
GLOBAL BRANDING
Effective global branding can deliver same message to customers regardless of culture o E.g. Coca-Cola logo o
As product is marketed globally, brand becomes universally recognisable
STANDARDISATION
Assuming the way the needs the product satisfies is the same world over o E.g. mobile phones, music, cosmetics, electrical equipment Cost savings option o
Higher economies of scale
o
Less R&D needed
CUSTOMISATION
Used to alter the core product to suit a variety of target markets o
Differing economic, political, sociocultural characteristics of country
o
E.g. McDonald’s in Egypt – all halal
Company’s try to use a combination of the two
GLOBAL PRICING
Customised pricing o
Different countries are charged diff prices for the same product
o
Uses cost-plus method to cover the added costs of exportation (e.g. taxes, tariffs etc.)
Market-customised pricing o
Sets pricing according to local market conditions
o
Varies pricing depending on level of demand and comp. in overseas market
o
Influenced by foreign currency exchange rates
Standard worldwide price o
Charging customers same price for a product worldwide
Domestic businesses may undercut the standardised price
Changes in exchange rate may negatively impact the exported price
COMPETIVITIVE POSITIONING
The formal process of a business determining how to differentiate itself from competitions o Developing strategies for the business to create value from these differences Value proposition o
Operational excellence: ability to run as efficiently as possible – e.g. low cost operations
o
Customer Intimacy: business develops personalized profile of customer shopping habits
o
Product Leadership: business’ ability to produce the best product first
Business can pass on cost savings to consumers Business can devise correct marketing strategy over time
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FINANCE ROLE OF FINANCIAL MANAGEMENT
The role of finance involves managing financial resources of the business to achieve its strategic goals. o
Involves the analysis, interpretation and evaluation of all financial records to the business
STRATEGIC ROLE OF FINANCIAL MANAGEMENT
Aims to ensure the business continues to operate, grow and achieve goals and objectives
OBJECTIVES OF FINANCIAL MANAGEMENT
PROFITABILITY
The ability of a business to maximise its profits
Measuring profitability using income statement
o
Achieved through increased revenue or decreased costs Costs of goods sold = + ℎ − Revenue − Costs of goods sold = − Expenses =
Measuring profitability using income statement and balance sheet =
Net profit Total equity
GROWTH
The ability of the business to increase its size in the long term more outputs = sales = profit
Measuring growth using income sheet and secondary data: = o
Business Sales Total Market Sales
× 100
NOTE: This is not a “ratio” you need to know – an understanding of market share will suffice.
EFFICIENCY
The ability of a business to minimize costs and manage its assets to achieve maximum profit
Measuring efficiency (in cost minimization) using the income sheet: =
NOTE: Lower expense ratio = higher efficiency
Measuring efficiency (ability to collect accounts receivable using the income sheet and balance sheet: =
Sales Accounts receivable
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LIQUIDITY
The ability of a business to convert their assets into cash o The ability for a business to pay short term debts using current assets =
SOLVENCY
The extent to which the business can meet its financial commitments o
Measures the financial stability of a company important for investors () =
Gearing: how much debt the business has with respect to their equity o
Higher gearing = greater financial burden the firm has to deal with = greater risk involved
SHORT TERM
Tactical and Operation goals
Reviewed regularly to see if targets are being met and if resources are being used
o
e.g. maintenance of liquidity, upgrading equipment
LONG TERM
Strategic goals Broad goals e.g. increasing profit or market share Often involves a series of short-term goals o
Business reviews progress annually to determine if changes need to be implemented
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INFLUENCES ON FINANCIAL MANAGEMENT
INTERNAL SOURCES OF FINANCE
OWNERS’ EQUITY
The funds contributed by owners to build the business.
RETAINED PROFITS
Profits of a business which are not distributed to be used as a source of finance in the future
EXTERNAL SOURCES OF FINANCE
DEBT
Any money that is loaned – with short or long term maturity o
Often incur some form of interest – set and predictable
o
Shareholders do not lose ownership/control of business
If business is liquidated, the follow investors are payed first; 1.
Holders of preferred stock (do not have voting rights)
2.
Debenture holders
3.
Ordinary shareholders
4.
Unsecured notes
SHORT TERM:
< 12 MONTHS
Overdraft: flexibility to borrow money from a bank at short notice through cheque account o
Allows a business to overdraw its account to an agreed limit
Allows a business to have a negative value in its account
Assists businesses with short-term liquidity problems – by providing working capital
o
Can have very high costs – high daily interest rates
o
Alternative: using business credit card – offers lower fixed interest rates
Commercial Bill: Borrowers receives an amount from another business with surplus funds o
Promising to pay principal + interest back between 30-180 days
However, interest rates on bank overdrafts are tax deductible in Aus.
Can be rolled over for extended time period – reassessed each time it matures
Factoring: Business sells its accounts receivable (money owed by debtors) to an external business o
Provides business with immediate (within 48 hours) short-term finance
o
Generates immediate short-term liquidity
o
o
Factoring company charges the business a fee according to credit risk Analysed by credit sales and credit rating of accounts Trade credit: can also be provided by suppliers – result of good relationship
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LONG TERM:
> 12 MONTHS
Mortgage: loan secured by the asset (being purchased) of the business o
Provides the business with a large amount of finance to purchase a non-current asset
o
Business repays through regular repayments (often monthly) over agreed period (e.g. 15yrs)
o
Interest only loan: only the interest is paid and then once a business resells the asset, which
Includes interest rate charged on top
they initially loaned out the finance to buy, the business pays back the principle; whilst keeping the excess capital gains.
Debenture: when a large business seeks to obtain finance by issuing debentures o
Large firms are invited to invest by lending finance become debenture holders A trustee is appointed to monitor the debenture-issuing business
o
Debenture holder’s loans are collateralised and given preference in the case of liquidation
o
Unsecured Notes: essentially corporate bonds that are uncollateralised o
Used to finance short term liquidity short falls
o
Incur higher rate of interest – since there is greater risk for investor
Ensure it remains profitable and can therefore repay loans + interest
Requires strong reputation and good credit ratings
Leasing (rental agreement): o
Payment of money for the use of (non -current) assets owned by another business
o
Operating lease: shorter than the life of the asset – owner carries out maintenance etc.
o
Finance lease: lessor purchases the asset on behalf of the lessee
At the end of period, business can buy leased item at the agreed ‘ residual value’
Repayments are fixed for the economic life of asset (e.g. 3-5 years for a TV)
Often incur higher interest rates
Incur penalties for cessation of lease Payment includes insurance, maintenance etc.
EQUITY
Finance raised by a company by issues shares to the public o
Increases number of owners = less control over business = dilution of returns to owners
o
No obligation to repay an initial capital investment
o
More difficult to secure: prospectus must be filled, approved by ASX and ASIC
PRIVATE EQUITY
Money invested into a (private) company not listed on the ASX
Venture capital o
Buys shares to boost capital of a business (source of finance) and receives dividends
o
Very little to say in day-to-day management of business
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ORDINARY SHARES
Occurs when a company becomes public and lists stocks on the ASX o Allows business to raise additional capital
Individuals who purchase such shares become part-owners in a company and receive dividends
New issue
o
o
Can be issued with or without voting rights First issue is known as primary market
Prospectus is issued through a stockbroker
Shares are made available on the securities exchange
o
o
Underwriter such as an investment bank is enlisted Shareholders pay for each share they purchase
Payments go straight to the business
Shareholders receive a dividend (proportion of company’s profits)
Secondary market: shares are sold by previous owner
Rights issue o
Additional shares are offered to the existing shareholders of a company
The number of shares an owner can buy is proportional to the number they own
Shares will be at a discounted rate yet shareholders are not obliged to buy o
o
However, if they do not, their rights will be diluted
If part of srcinal prospectus, rights issues does not incur expenses of new prospectus only a written proposal to shareholders is necessary
Placements o
Offering additional shares to specific institutions/investors
Does not require formal prospectus or general shareholder approval
o
Can raise up to 15% of current capital base Funds can be raised quickly, and without minimal publicity
Great for businesses seeking to expand or seek funding to perform a takeover
Share purchase plan (SPP) o
Allow existing companies to issue new shares (max $5000) to existing shareholders
Similar to a rights issue, yet whoever wants shares puts their hand to buy
Does not require a prospectus, however does require permission from ASIC
Thus, ownership is almost always diluted
OTHER SOURCES OF FINANCE
NOTE: This is isn’t in the syllabus. Don’t bother learning it, just read it to have a general understanding to place into a long response question if you have time. The others above are much more significant.
Government gifts and grants: Financial gifts to assists establishing/growing businesses o
E.g. subsidies, low interest loans, tax deductions, grants etc.
o
Business must meet strict criteria to receive such grants takes time and effort
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FINANCIAL INSTITUITIONS
BANKS – RETAIL/COMMERCIAL
Receive savings as deposits from individuals and then make investments and loans to borrowers o
Supervised by the RBA
o
Since 08-09 GFC, banks have adopted more cautious lending policies
Provide a range of financial products for clients: e.g. online banking, credit facilities, legal/tax advice
BANKS - INVESTMENT
Serve large institutional clients/governments seeking to raise substantial amounts of capitals o
They offer to underwrite shares for businesses in their IPO, often asking for equity in return
Underwriter: 3rd party which provides a business with the assurance that it will buy excess shares which aren’t sold in the IPO
They also offer advice for merging, takeovers and other financial decisions
FINANCE/LIFE INSURANCE COMPANIES
Provide diff. types of secured/unsecured loans to business o Have large amounts of capital that has been gained from clients, that needs to be invested to generate returns for the business, in the scenario where it must be pay-out a client o
Interest rates are often higher than general banks since they lend more freely
SUPERANNUATION FUNDS
Have large amounts of capital that needs to be invested to generate returns for the investors o
Used to invest in long-term securities (company shares, Gov. /company debt etc.)
UNIT TRUSTS
Individuals trust a trustee with their funds
Trustee places funds into various investments in hope to generate the highest yield for investors
o
Types of unit trusts: property trust, equity trusts, mortgage trusts, fixed-interest trusts
AUSTRALIAN SECURITIES EXCHANGE
As a primary market, enabling businesses to raise new capital through the issue of shares
As a secondary market, transaction of existing shares between individuals
Initial public offering (IPO): process a business must initially undergo to list on the ASX
1.
Must be of reasonable size, and have been successful in operations for a reasonable time
2.
Business then must issue a prospectus
Gives potential investors a detailed depiction of the business and its finances
Comprehensive outline of key functions, past finances and predicted performance
3.
Investors can then apply for a share allocation
4.
According to supply and demand, the stock may become oversubscribed, or undersubscribed
5.
Shares may then be re-traded on the secondary market by shareholders
An investment bank is usually hired as an underwriter Funds received are then used by the business to expand or invest
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INFLUENCE ON GOVERNMENT
Monetary policy: the RBA uses the cash rate to influence the interest rate of banks o
This in turn will influence economic activity
o
Increasing interest rate = higher cost of debt finance = less borrowing = less spending
Government grants: the federal government offers low-interest loans and grants to businesses that
will make a significant contribution to the economy o
The Export Market Development Grant: 50% rebate on marketing costs for exporters
o
New Enterprise Incentive Scheme: proves new small businesses with accredited training, advice and mentoring + ongoing income support for up to one year
AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION (ASIC)
Regulates corporations, markets and the provision of financial services - Corporations Act 2001 (Cwth) o Aims to assist in reducing fraud and unfair practices in financial market o
Primary legal instrument that oversees business operations and financial reporting, ensuring that company directors and financial service providers carry out duties honestly
COMPANY TAXATION
Flat rate of 30%
Aus. Gov. has undertaken a process of reform of the federal tax system
o
o
Paid before dividends are distributed Decrease company tax by 2-3% or introduction of a progressive taxation scheme
SMEs are taxed at a smaller rate then large businesses
o o
Will boost net profit, encouraging businesses to expand Will attract offshore investments = boosts in domestic economy = boost in employment
GLOBAL MARKET INFLUENCES
ECONOMIC OUTLOOK
Refers to the projected changes in level of economic growth world wide Increases in global economic growth can lead to increased demand for products and services – requiring excess funds. It can also lead to decreased interest rates of funds borrowed internationally – providing higher levels of net profit and lower risk
AVAILABILITY OF FUNDS
The ease which a business can access funds internationally
GFC (2008-09) had major impact on the availability of funds causing higher interest rates and more cautious lending
INTEREST RATES
Traditionally, Aus. Interest rates tend to be higher than other countries Aus. Businesses can be tempted to borrow sources of finance from overseas o However, exchange rates/fluctuations can often outweigh advantage of lower interest rates
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PROCESSES OF FINANCIAL MANAGEMENT
PLANNING AND IMPLEMENTING
FINANCIAL NEEDS
Financial information must be collected and analysed to forecast trending financial needs o
Business must then also ensure it manages its financial resources accordingly
BUDGETS
A budget is a quantitative plan for providing financial direction to a business o
It provides a framework for decision making
o
It acts as a control mechanism to compare planned results with actual results
o
Has a degree of flexibility to respond to the changing nature of the business context
3 types of budgets: o
Operating budgets: relate to expenses of the main business activities
o
Project budgets: capital expenditure and R&D
o
Financial budgets: collaboration of operation and project budgets to estimate and predict
forecasts of funding required in the future
RECORD SYSTEM
A record system refers to the processes and practices that business uses to record financial info o
Businesses must consider how they record info hard copy or digitally
o
Digital tech have made systems more efficient to record and analyse Human error must be minimized to produce accurate and reliable financial reports
Can be ensured by auditing reports and employing a double entry system
Business must also consider the confidentiality of info and ensure securities are in place
o
Management information systems (MIS) are also a consideration for large businesses
By recording all items twice, errors can be found by variance in balance
o
Allows managers from different functions to gain access to info according to needs
The need for accurate/reliable financial reports are because management bases most decisions on it
FINANCIAL RISKS
Business must be proactive to be aware of future threats to finances o
Insurance can be taken out to protect the business against unexpected costs/loss of profits
o
Risk of a business being unable to cover financial obligation - leads to bankruptcy
To minimize risk, adequate perception of risk profile must be undertaken
Further, profits must be sufficient to cover the cost of debt, liquidity must be high
FINANCIAL CONTROLS
Financial controls (such as policies and budgets) must be employed to ensure business objective are effectively being met due to the risks which can occur; theft, errors in record systems etc.
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DEBT AND EQUITY FINANCE
Businesses must determine a balance between debt and equity finance
Debt Finance
Lenders have first claim on recovered finance in the incident of liquidation Debt must be paid by periodic repayments
Equity Finance
Shareholders have residual claim on assets
Equity has no maturity date
No interest payments exist
Features
Advantages
Interest payments are tax deductible Lenders require a lower rate of return Debt providers have no voting rights
Readily available Tax deductions available on interest payments
Disadvantages
Increased risk due to principal + interest charges that must be repaid Collateral required by the lender as security Lenders are payed first in cases of liquidation
Shareholders require higher rate of return Equity holders have voting rights No interest payments cheaper source of finance Low gearing (use resources of the owner – not external source of finance) Less risk for the business and owners Lower profits-returns for the srcinal owner
Owner loses complete control
of decision making Lower profits-returns for the srcinal owner
MATCHING THE TERMS AND SOURCE OF FINANCE TO BUSINESS PURPOSE
Matching principle: involves using appropriate finance for the intended use of finance o
Current assets fund current liabilities
o
Non-current assets fund non-current liabilities
Various things influence the source of finance a business uses: o o o
Terms of finance Cost of each source of funding Structure of the business
o o o
Flexibility of the source Availability of finance Level of control maintained by the business
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MONITORING AND CONTROLLING
Accounting info must be monitored and regularly reviewed to ensure its consistent o
This is essential since managers base decision making process on such information
CASH FLOW STATEMENT
Cash flow monitoring is essential for a business since it reveals the business’ ability to: o
Generate a favourable cash flow i.e. inflows > outflows
o
Pay its financial commitments setting its credit rating
o o
Have sufficient funds for future expansion Pay dividends to owners/shareholders
The cash flow statement summarises cash transactions that have occurred over a period of time o
Gives info regarding a firm’s ability to pay debts on time
o
Can identify trends and be a useful predictor of change
INCOME STATEMENT
The income statement summarises the income and expenses of a business over a period of time o
Indicates the operating efficiency and profitability of a business
o
By examining figures from previous income statements, managers can analyse trends as expenses, income, and consequently profit levels fluctuate
BALANCE SHEET
The balance sheet summarises the assets, liabilities and equity in a business at a given time in the year Taken on any particular day - usually the last day of the financial year o o
Gives an indication of the financial stability of the business (short term/long term) - liquidity = +
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FINANCIAL RATIOS
Accounting: a tool managers use to help manage a business’s finance and make informed decisions o
Financial reports give a detailed measure of the achievement of financial objectives
o
Provide financial trends for the management to analyse
Analysis involves analysing the financial info into acceptable forms that make it more meaningful
Interpretation is making judgements/decisions based on the data gathered from analysis
LIQUIDITY
Liquidity involves how efficiently a business can meet its financial commitments in the short term o Business must have sufficient resources (current assets) to pay debts (current liabilities) =
()
= ∶
()
Also known as the working capital ratio o
o
A ratio of 2:1 indicates a sound financial position for a business
Very high ratios may be criticised as inefficient use of working capital
This does not apply to all industries/businesses
Only gives a limited indication of the business to meet liabilities
PROFITABILITY
Profitability refers to the earning performance of the business o
Indicates capacity to use its resource to maximise profits =
Sales
×
GPR measures the business’ profitability before expenses o
The higher the ratio, the better
o
Low ratios suggest that maybe alternative (cheaper) suppliers should be sourced =
Gross profit
Net profit Sales
×
NPR measures the business’ profitability after all expenses have been paid o
Higher NPR’s indicate a business’ ability to reduce expenses efficiently
o
When comparing with other businesses, NPR must be calculated before tax since tax liabilities will vary from one business to another =
Net profit
×
Total equity
The ROE ratio reflects the return owners receive as a result of their investments o Higher ROE often reflects a less equity finance (and thus more dependence on debt finance) o
As a result, investments may be more riskier
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GEARING
Gearing determines the firm’s solvency, i.e. its long -term financial stability
=
×
There is no optimal level of gearing, although it is rare for a company to have no gearing o
Higher ratio = less solvent business = greater risk = greater potential for profit
o
Furthermore, greater risk from high gearing may discourage investment
EFFICIENCY
The ability of the firm to use resources effectively o
Greater efficiency = greater profits = greater stability =
Total expenses Sales
Indicates the day-to-day efficiency of the business o
Higher ratios may indicate expenses which are not promoting an increase in profits
o
E.g. unsuccessful marketing campaign – advertising costs =
×
Sales Accounts receivable
Measures how effectively a business collects its debts o
Avg. length of time for customers to pay accounts is determined by dividing 365 by ratio
o
High turnover ratio compared to credit policy indicates the firm’s inability to collect debts
COMPARATIVE RATIO ANALYSIS
Over different time periods: compare the financial stability & analyse trends of a business over time o
Vertical analysis: compares figures within one financial year
o
Horizontal analysis: compares the same figures/ratios from diff. financial years
o
Trend analysis: compares the same figures/ratios for periods > 3 yrs.
Global standards: o
Liquidity: ratio of (1.2-2.5):1
o
ROE ratio: should be greater than current interest rates
o
Gearing (debt to equity) ratio: less than 60%
Benchmarking: comparing results to other businesses (competitors)
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LIMITATIONS OF FINANCIAL REPORTS
Detailed accounts may seem confusing to people without an accounting background
Profits can be artificially reduced to reduce tax liabilities
Normalised earnings: the removal an unusual influence from the balance sheet o
Helps to more accurately represent the true earnings of a company
o
e.g. sale of a land sale = reflection of large capital gain or cyclical swings in the economy
Capitalising expenses: process of adding capital expense as an asset
Valuing assets: process of re-valuing assets of a business by an independent,
o
E.g. R&D, development expenditure, stamp duty on non-current assets etc. objective expert
o
Due to inflation/depreciation, the historical cost of assets do not reflect their true value
o
Accountants may also depreciate assets using standards and applying the matching principle
Timing issues: seasonal variations may not reflect the businesses success all-year-round o
Accountants may adjust the time of revenue inflows/debt repayments to make the business appear more profitable
Debt repayments: statements do not disclose specific details regarding the nature of debt finance
Notes to the financial statements: details and additional information not included on the statements o
Appear at the end of the financial reports
o
Allow managers to justify or explain the nature of unusual statistics in the statements
o
E.g. the method of accounting used, the types of loan repayments used etc.
ETHICAL ISSUES RELATED TO FINANCIAL REPORTS
Financial decisions need to be morally and ethically correct o
Managers must display integrity, confidentiality and professionalism
and not misuse
finances Audited accounts: independent check of the accuracy of financial records & accounting procedures o
Internal audits: conducted internally by employees to check accuracy of records
o
Management audits: conducted to review firm’s strategic plan & determine changes needed
o
External audits: firm’s financial reports are investigated by an independent/specialised audit
Requirement of the Corporations Act 2001 (Cwth.)
Companies must reveal salary packages of executive… providing greater
pressure for executives to perform according to what they are paid
Auditor then issues a statement indicating records are accurate
Record keeping: source documents must be created for every transaction o
Intentionally evading tax obligations by not claiming transactions and dealing in tax
o
Can result in even larger fines and harm the business’ reputation
GST obligations: business’ have the obligation to comply with GST reporting requirements
Reporting practices: Information on financial reports to stakeholders must be accurate and correct
o
Unethical for business’ to keep GST payments, as opposed to paying th e government back
o
By pretending profits are lower than actual, the business is defrauding the ATO = unethical Furthermore, banks may not lend to the business due to such low profits
Also, when selling the businesses, investors may be discouraged due to low profits
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FINANCIAL MANAGEMENT STRATEGIES
CASH FLOW MANAGEMENT Cash flow management is the management of cash flow ( movement of cash) in a business
o
Optimal cash flow:
=
Cash Inflows
Cash Outflows
Sales
Payments from creditors Sales of assets
Payments to creditors o Interest paid on loans
Payments of dividends Purchase of assets
Rent
Payment of operating expenses
Interest (investments/loans etc.)
Loan repayment
Monitored by cash flow statements: show general patterns of short-term cash flow management
MANAGEMENT STRATEGIES
Management must implement strategies to ensure cash is available o
I.e. Collecting accounts receivable or using overdrafts to overcome temp. cash shortfalls
DISTRIBUTION OF PAYMENTS
Ensuring all predictable large expenses are spread out throughout the year
Stretching accounts payable by paying liabilities/expenses as late as possible
o Keeps money in bank longer = develops greater interest = higher revenue Prepay expenses in the future (when large cash inflow occurs and all debts are payed)
DISCOUNTS FOR EARLY PAYMENT
Offering creditors discounts for early payments (e.g. 2-5%) o
Encourages creditors to pay ASAP = improving cash flow status
FACTORING
Selling of accounts receivable (debts owed) to a factoring company at a discounted price o
Immediate cash inflow = Increases in cash flow status = improvement in working capital
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WORKING CAPITAL
(LIQUIDITY)
MANAGEMENT
Working capital: current assets used in the day-to-day running of the business o
Represents the funds needed to produce profits and provide cash for short term liquidity = −
Working capital ratio: used to determine whether working capital is being manage effectively
CONTROL OF CURRENT ASSETS
Ensuring there are enough current assets to pay off current liabilities when they fall due
CASH
The balance in the business’ bank account - most liquid current asset
1.
Leasebacks: when assets are sold to a firm who specialises in leasing assets
2.
o
Business receives cash from the sale as capital and can lease back the asset
o
There is now immediate cash but repayments become an ongoing expense
Cash budgets: detailed anticipation of cash inflows and outflows
ACCOUNTS RECEIVABLE
(DEBTORS)
Business must ensure they monitor the collection of receivables
1.
Credit policies: Check credit rating of prospective customers, set credit limits etc
2. 3.
Factoring: Sell accounts receivable to factoring firms Invoice discounting: offer discounts to customers to speed up payment
o
o
Monitoring timing allows the business to maintain adequate cash resources
Conversely, businesses can impose late payment fees
INVENTORIES
Business must ensure they monitor the levels of inventory they have to ensure liquidity o
Holding unused stock = unnecessary expenses (storage, insurance etc.)
o
Further, loss or damaged stock due to poor monitoring will lead to lost cash for the business
1.
Computerises inventory management: use of EDI – barcodes and scanners
2.
Physical stocktake: to recording inventory
3.
JIT system: reduce costs of inventory
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CONTROL OF CURRENT LIABILITIES ACCOUNTS PAYABLES (CREDITORS)
Sums of money owed by the business to other businesses from whom it has purchased products
1.
Periodically review credit facilities which suppliers provide;
2.
Stretching accounts payable until final due date
3.
Take advantage of discounts and interest-free credit period offered by creditors
LOANS 1.
Interest rates and ongoing charges must be monitored to minimize costs
2.
Periodically review alternative sources of funds from diff. banks/financial institutions
OVERDRAFTS
Overdraft accounts must be monitored to ensure costs are minimized
1.
Promptly deposit cash received into overdraft account to balance out the account
2.
Overdraft policies: policies for using/managing bank overdrafts
STRATEGIES LEASING
The hiring of an asset from another business who retains ownership of it o
o
Does not require high initial capital “Frees up” cash – can be used elsewhere in the business
o
Lease payment becomes an expense – tax deductible
Can increase number of assets (lower short-term cost) = higher profits/revenue achieved
SALE AND LEASE BACK
The selling of an owned asset to a lessor and leasing the asset back through fixed payments o
Increased business’ short term liquidity – cash obtained from sale is used as working capital
o
Consequently, the business can lease newer models of the same equipment if available
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PROFITABILITY MANAGEMENT
Control of both business’ cost and revenue
Ensuring business: o
Does not overspend
o
Limits writing off assets
o
Maintain financials records/records transactions correctly
COST CONTROLS FIXED AND VARIABLE
Fixed costs: not dependent on the level of operating activity in the business o
E.g. salaries, rent, insurance and fixed-interest payment on loans
o
Reduced by cheaper insurance, rent and loan payments
Variable costs: varies proportional to the level of operating activity o
E.g. materials, labour etc.
o
Reduced by reducing number of employees, sharing resources with other businesses, using JIT inventory management
COST CENTRES
A particular section of the business which does not directly add to profits yet adds to the costs o lE.g. R&D, help desks etc
EXPENSE MINIMISATION
Establishing guidelines and policies to encourage staff to minimize expenses where possible
JIT system to reduce warehousing costs etc.
Substituting labour for machinery
Budgets to help determine greatest expenses contributing to cash flow problems
o
E.g. eliminating waste and unnecessary spending
REVENUE CONTROLS MARKETING OBJECTIVES
Sales forecast must be pitched at levels of sales that will cover costs and result in a profit.
Cost-volume profit-analysis: determines the level of revenue sufficient for business to break even o
Predicts the effect of level of activity, prices and costs on profit
Cost-based pricing: sets percentage mark-up to ensure fixed amount of profit is received on each sale o Discounts can be offered on products which will increase sales
Higher volume sales + lower profit margin = stable revenue
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GLOBAL FINANCIAL MANAGEMENT Financial risks are greater when associated with global expansion compared to domestically
EXCHANGE RATES
Foreign exchange rate: ratio of converting one currency to another via the foreign exchange market
Effects of currency fluctuations:
Appreciation
Raises the value of the Aus. Dollar in terms of
Depreciation
foreign currencies
E.g. $1 AU will buy more foreign currency
Exports are more expensive on international
foreign currencies
markets = less sales
Imports are cheaper = reduced costs
Decrease in the value of $AU in terms of E.g. $1 AU will buy less foreign currency Exports are cheaper on international markets = more sales internationally
Imports are more expensive = increased costs
INTEREST RATES
Business’ often borrows finances from overseas due to cost benefits: o
Lower rates of interest rates
o
Business’ can benefit from exchange rate fluctuations (the converse is also true)
o
Fewer restrictions on loans (amount borrowed, repayment period, conditions etc.)
o
Newer technology in global banking industry
Despite the benefits, there are often great risks: o Depreciation of AU currency = increase in repayments costs (vice versa) o
Business is affected by foreign currency’s economic cycle (rates become highly volatile)
HEDGING
Strategy used to reduce financial risk in global transaction o
Transaction exposure: the risk of unfavourable changes in the value of a country’s currency which can increase a business’ costs and thus decrease its’ profits
o
Exchange rate can change from time of purchase to time payment is made.
USE OF SUBSIDIARIES
A natural form of hedging where a global business sets up a sub-business which supplies its inputs o
The global corporation can then ensure all transactions occur in the same currency
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DERIVATIVES
1.
A special contract between global businesses and suppliers Forward exchange contracts: the current exchange rate is agreed on for a future transaction. Regardless of the true rate on the agreed date, the exchange rate stays the same.
2.
Options contracts: The buyer has the option (not obligation) to buy/sell foreign currency when
exchange rate is to their advantage. This means the buyer can lock into buying or selling a set amount of currency in the future at the current exchange rate. 3.
Swap contracts: two parties exchange currency in the spot market with an agreement to reverse the
transaction in the future. The exchange rate is called a spot rate.
METHODS OF INTERNATIONAL PAYMENT PAYMENT IN ADVANCE
Exporter receives payment first and then goods are sent o Exposes the exporter to virtually no risk o
Used if party is a subsidiary or when credit rating of buyer is uncertain
o
Very few importers agree to these terms because it exposes them to the most risk
No guarantee they will receive what they ordered
LETTERS OF CREDIT
Commitment by importer’s bank : promises payment to exporter with proof of shipping o
Cannot be withdrawn
BILL OF EXCHANGE
International bank used as an intermediary: ensures goods are received - payments are made o
Exporter sends documents to importer’s bank along to allow importer to collect
goods o
Importer’s bank hands over documents once payment has been made
o
Importer’s bank then transfers funds to exporter’s bank
CLEAN PAYMENT (REMITTANCE)
Export ships goods before receiving payment o
Quickest method of settling an international transaction
o
Requires complete trust between both parties
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HUMAN RESOURCES ROLE OF HUMAN RESOURCE MANAGEMENT
The role of HRM is the process of managing an organisations workforce
STRATEGIC ROLE OF HRM
The strategic role of HRM involves making decisions that will meet the strategic goals of the business o o
Remunerating staff Works with other departments to recruit the appropriate staff
o
Ensures the working conditions/benefits of employees comply with legal regulation
o
Implement a range of training and development programs for staff
o
Develop a number of rewards to motivate valued staff
OUTSOURCING
Outsourcing refers to the transferring of a certain business function to a third party business o
Aims to become more cost effective
o
Enables the business to spend more time on its core function
HUMAN RESOURCES FUNCTION
By outsourcing the HRM function, a business can gain advice and knowledge from a specialist and experienced third party HR company o o
However, may back-fire if external business does not understand culture/staff of the bus. Further, a business may neglect dealing with manager-employee relations since the HR is outsourced, although the business is still responsible to monitor these relations
USE OF CONTRACTORS
Contractors are third-party providers of a service to a business o
Achieves cost-savings, greater competitiveness and more time to spend on prime-function
DOMESTIC CONTRACTS
Occurs when the contractor is located domestically in Australia o
Contract of service occurs when an employee is offering their service to a business on a
regular basis and is subject to the lawful control and authority of the employer o
Contract for service occurs when a third-party individual or business provides a service for a
fixed period at an agreed fee
GLOBAL CONTRACTS
Occurs when the contractor is located globally, outside Australia o Cheaper costs o
Access to labour without WHS/minimum labour requirement issues
o
Cultural differences may pose a threat to product quality
May have a negative impact on CSR
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KEY INFLUENCES
STAKEHOLDERS
EMPLOYERS
Employer: refers to the individual or organisation that pays others to work for its business
Shareholders may appoint a group of managers to take on this responsibility (HRM) o Works with other departments to recruit the appropriate staff o o
Ensures the working conditions/benefits of employees comply with legal regulation Implement a range of training and development programs for staff
o
Develop a number of rewards to motivate valued staff
EMPLOYEES
Employee: refers to an individual who provides their skills to a business in return for a regular income o
Have the responsibility to complete tasks in a manner described by the employer
o
Businesses seek to introduce initiatives aimed at developing family-friendly practices
Provision of child care centres
Flexibility in starting and finish times
Allowing various staff to work from home (due to advancements in tech)
EMPLOYER ASSOCIATIONS
Employer associations: organisations that aim to promote the interests of employer o
They lobby governments to develop policies at the interest of the employer Advise members who are employees on current government workplace legislation
o
E.g. National Farmers’ Federation or Employers First
o
UNIONS
Unions: organisations that aim to protect and promote the interests of employees in the workplace o
Assists employees with disputes in the workplace
o
Advise members on workplace rights, wage levels, WHS issues, etc.
o
E.g. NSW Nurses’ Association and Workers Union
o
Shop steward: the union representative of a workplace
o
Employ industrial officers to assist members with workplace concerns
Employers can deny these officers access to conduct meetings with members onsite
Since the mid-1980s there has been a steady decline in union members; this is due to: o
Deals with workplace disputes and refers major grievance issues to the union itself
o
Move towards private-sector organisations providing services on behalf of the government Move from manufacturing-based economy towards service-based economy
o
More employees hired as part-time or casual; joining a union is not worth the costs $$
NOTE: The following is not seemingly necessary – Australian Council of Trade Unions (ACTU) o
Lobbies government for improved working conditions/wage increases for all Aus. Employees
o
Works with other unions to provide submissions to Fair Work Australia for national wage case hearings (when all stakeholders approach Fair Work Australia to increase min. wage)
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GOVERNMENT ORGANISATIONS
1.
Government organisations establishes the legal framework for stakeholders to follow o One of the most influential stakeholders in the employment relationship process Fair Work Australia (FWA): established by the Fair Work Act 2009 (Cwth.) o
Encourages the prevention and settlement of industrial disputes by conciliation/arbitration
o
Determines minimum wages through national wage case hearings
o
Arbitrate on unfair dismissal claims
o
Applies the Better Off Overall Test to certain enterprise agreements
2.
Federal Court of Australia: acts as an avenue for appeal regarding decisions made by the FWA
o Applies penalties to parties who breach legally binding decisions made during arbitration Other agencies/organisations (NOTE: These are not necessary, again.) o
Human Rights and Equal Opportunity Commission: enforces Gov. legislation on discrimination `
o
Equal Opportunity for Women in the Workplace Agency (EOWA): promotes equal opportunity for women Equal Opportunity for Women in the Workplace Act 1999 (Cwth.)
SOCIETY
Society sets expectations for workplace practices and employment conditions
LEGAL – THE CURRENT LEGAL FRAMEWORK
The employment relationship is subject to considerable number of regulations and laws
THE EMPLOYMENT CONTRACT
The legislative conditions outlined in this contract apply to all workplaces o
An employee is any person subject to a contract of service
COMMON LAW
Developed by courts– judges make decisions based on the facts of a case, guided by precedent
Duties of employers: – CWW o
Duty of care: it is the employer’s legal obligation to provide employees w/ a safe workplace
Employees must be provided with necessary skills, knowledge, equipment, clothing
Employers must warn employees of risks that usually don’t arise ( e.g. slippery
floors) o
Duty to pay the agreed wage: when an employee commences employment, the business is legally obliged to pay the employee the collect, legal wage according to the award
o
Duty to provide work: it is the responsibility of the employer to provide a constant source of employment in the case of no work, they employer must pay out a redundant package
Duties of employees: – OSD o
Duty to obey lawful commands: when employed by an employer, the employee is expected to follow the lawful instructions of management
o
Duty to work with skill: the employee is obligated to use their skills in a competent manner
o
Duty to disclose relevant information: an employee must disclose relevant information which may affect their performance as a precautionary measure
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MINIMUM EMPLOYMENT STANDARDS
(NES)
The FWA 2009 provides a safety net of 10 enforceable national employment standards
For the list of all 10 see: 10 NES Entitlements
NOTE: You should try your best to memorize these. Acronym: HPAC-FaLS-PR : Hours, Parental leave, Annual leave, Carers/compassionate leave, Flexible
arrangements, Long service leave, community Service leave, Public holidays, Redundancy pay.
MINIMUM WAGE RATES
Refers to an employee’s minimum rate of pay for hours worked o
FWA reviews and makes adjustments to the minimum wage each year
o
FWA is responsible for ensuring employers pay employees at the minimum wage or above
AWARDS
The legal doc specifying the minimum wages and working conditions for all employees in an industry o
Wage: an hourly rate of pay; may include overtime payments for extra hours worked
o
Salary: an annual rate of pay, divided in equally pay periods; expected to work extra hours
(at no extra pay) to complete tasks o
Working conditions: non-wage aspects of an award (e.g. work hours, tasks, responsibilities)
ENTERPRISE (CERTIFIED) AGREEMENTS
An agreement negotiated between an employer and all its employees, exclusive to each business Agreement process: o The agreements must be negotiated by staff and employees
Unions may assist employees in the negotiation process – enterprise bargaining
o
The agreement must then be approved by FWA
o
Here, they are subject to the Better Off Overall Tests: where Fair Work Aus. examines whether employees will benefit from a new agreement as opposed to current awards
TYPES OF EMPLOYMENT CONTRACT
Part-time: involves an employee working a fixed set of hours per week o
Entitled to all the benefits of full-time staff (sick/annual leave, holiday loading) on a pro rata basis (entitlements are proportional to the hours an employee works)
Permanent (Full-time): involves an employee who is provided with continuing employment o
Work between 35-40 hours/week
o
Are often paid an overtime allowance for extra hours (according to wage agreement)
o
Entitled to minimum of four weeks holidays per year and one week long-service leave a year
Casual: an employee who is employed for short periods of time o Must work for a minimum of one to three shifts a week o
Employer is not obligated to provide ongoing, regular work
o
Do not receive any entitlements, yet are paid 1.5x the full-time wage
Their employment is subject to the employer’s demands
Fixed-term contracts: when an employee is only held for a specific period of time o
Both parties are in agreement to this time period
o
Contract can only be cancelled upon consent of both parties
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WORK HEALTH AND SAFETY
(WHS) AND WORKERS COMPENSATION
Workers Compensation: governs the process of employees gaining compensation for injuries o
Workers Compensation Act 1987 (NSW)
o
Workers Compensation and Workplace Injury Management Act 1998 (NSW)
ANTIDISCRIMINATION AND EEO
Various anti-discriminations laws, enforced by the Human Rights and Equal Opportunity Commission, prohibit discrimination in the workplace: o
o
Sex Discrimination Act 1984 (Cwth.) Racial Discrimination Act 1975 (Cwth.)
o
Disability Discrimination Act 1992 (Cwth.)
Such laws seek to protect employees, yet it is the responsibility of the employee to report claims
SOCIAL
Workforces are now characterised by greater diversity in ethnicity, culture and gender
Social influences impact the methods by which a plan manages its employment-relations functions
CHANGING WORK PATTERNS
Women: more women in the workforce, despite under-representation of women management o
Increased women in workforce coincides with growth in the part-time work sector
o
Employees may seek to incorporate heavier discrimination acts
Flexibility: Traditional hours of work in from 9am-5pm are beginning to disappear o o
Employers may seek to change awards on the basis of overtime pay Greater casualization of the work force
Service-based country: fewer unskilled jobs available within the market
Greater cultural diversity
LIVING STANDARDS
Education: There is a direct relation between higher education and higher earning capacity
Publicity and Politics: Businesses are now more exposed to th e public. o
E.g. after the GFC, business’ were forced to reveal
TECHNOLOGICAL
Technology has had great impacts on human resources management. o
However, has also seen the decline in the manufacturing sector to decrease physical labour Advantages
Allows the business to develop more efficient production techniques and products Reduces the repetitive nature of labour-intensive work
Disadvantages
Loss of employment as technology replaced workers in the production line Reduced employee drive and confidence in fear of being made redundant due to technology
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ECONOMIC
Economic cycle
Businesses (w/ more $$) hire more labour for the provision of these products (↑employment) (↑ job secuirty)
In growth, an employee may spends more $$$ on products (↑consumer demand)
Impact of inflation
In growth, consumers spends more $$$ on products (↑consumer confidence)
Businesses increase production (↑employment); yet also increase price of products (↑cost of living)
Employees demand higher wages (↑business costs)
Business reduces workforce (↓employment)
Globalisation o
Government has encouraged foreign-owned business to establish operations in Australia
In hope of providing consumers with greater choice, lower prices, and employment
However, has created increase competition for domestic businesses
ETHICS AND CORPORATE SOCIAL RESPONSIBILITY
Corporate social responsibility is the duty of care that a business has towards its stakeholders. Effective CSR strategies can enhance the reputation of a business within the community o Further, this may be used to promote recruitment of staff for the business A business meets its CSR through its actions, by: o
Engaging in strategies that promote work-life balance and enhance workplace flexibility
o
Encourage staff to volunteer their time into community-building projects
o
Complying with WHS measures and anti-discrimination legislation
o
Adopting environmentally friendly practices
o
Applying a code of conduct to company operation
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HUMAN RESOURCES PROCESSES
The HR cycle: o
Acquisition
o
Development
o
Maintenance
o
Separation
ACQUISITION
IDENTIFYING STAFF NEEDS
This process may simply involve training the existing staff to cope with business changes or implementing incentives to increase their productive capacity
However, if the staff need is not met, the specific job must be identified and analysed, involving: o A job description: describes duties, tasks and responsibilities of a job o
A job specification: outlines key skills, experience and qualification of the needed staff –
o
A remuneration figure: determines the value of the job; outlining payment and entitlements
- Independence here with other functions to determine skills needed
RECRUITMENT
Recruit: to accumulate a pool of potential candidates for a job: o
Internal: promotion existing staff
o
External: recruiting new staff outside the business
Outsourcing the recruitment function Recruiting students from universities and schools via cadetships or grad programs
Online career sites such as SEEK.com.au
Traditional advertisements in newspapers
Poaching/Headhunting from competitors by offering better remuneration packages
SELECTION
Selection: is a screening process
1.
Information gathered from applicants is reviewed (depends on budget
Application forms
Interviews – individual or group based
Assessment centres
Tests – theory-based, logical reasoning, handwriting
2. 3.
The best candidate is chosen There may be a process of negotiation over pay and entitlement issues
4.
The candidate is often placed on a 3-month probation period before made permanent
The selection process must be completed quickly and effectively since applicants may have applied for several other jobs
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DEVELOPMENT
Induction programs: introduces the new employee to the business and its culture
Training programs: activities aimed at improving an employees present and future performance
o
Reveal to the employee the goals and structure of the business
o
Results in upgrading of skills, knowledge and competency to better meet business goals
o
On-the-job training: apprenticeships and traineeships
o
Off-the-job training: TAFE, university and college courses
Development programs: preparing employees for future responsibilities within the business o
May be due to change in business’ strategies or growth
o
Development programs must be evaluated to determine they are achieving their objectives:
Performance appraisal: a formal assessment of how well a person is working
Provides a basis of the individual’s weakn esses (where training is needed)
Possible promotions and further developments
Training and Development will often result in: o
Increased motivation of employees and thus efficiency
o
Greater business flexibility
o
Improved use of technology
MAINTENANCE
MAINTENANCE OF DATABASES
A database is used to maintain the records of a business A skills inventory is used to store the skills, expertise and qualifications of all staff
Databases must be kept highly secure by the implementation of full-proof technology
MAINTENANCE OF HR
Databases can be used in a number of areas of employee administration
1.
Firms must provide a comfortable work environment to maintain and motivate valuable staff
2.
Developing rewards to motivate staff
3.
Managing workplace disputes and implementing grievance procedures to prevent relation issues
Consequences on staff: o
Increasing productivity
o
Improving the level of morale and loyalty among staff
o
Improving communication between management and workers
o
Decreases costs through lower staff turnover (rate at which employees leave the business)
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SEPERATION
Separation: the ending of the employment relationship (termination of the employment contract)
Must be handled well to ensure effective employment relations with the remaining workforce
VOLUNTARY
Retirement: the decision of a person to withdraw from active working life o
Dominant reason is age, yet can be health, lack of motivation or a change of lifestyle
o
The increased life expectancy has meant that people do not retire in their 60s anymore
Resignation: occurs when a person decides to leave their job o Employees need to give notice of their intention to leave the job – generally 1-4 weeks Voluntary redundancy: when a business needs to downsize, individuals are allowed to nominate
themselves for redundancy o
A business may need to reduce staff due to mergers and takeovers, new tech, downsizing
o
Individuals may find it in their financial interest to leave the job earlier and find another + receive the redundancy package
INVOLUNTARY
Involuntary redundancy: involves removing a position when its duties are no longer needed o
Retrenchment occurs when there is not enough work for the employees
o
Employer must ensure the steps are set out in the Employment Protection Act 1982 (NSW) and the Fair Work Act 2009 (Cwth.)
Must provide a redundancy package based on years of service
Selection process must be clear and transparent Other options must first be explores and analysed
Dismissal: occurs when an employee has not met their terms of the employment contract o
Employees have the right to appeal the employer’s decision to an industrial relations tribunal
o
Federal government has passed unfair dismissal legislation e.g. anti-discrimination acts
o
The classification of their employees (casual, part or full-time) 1may affect the way the worker is dismissed
o
Dismissal can be instant or after warnings according to their company’s dismissal policies
Instant or summary dismissal: the immediate termination of the employee’s
contract without notice
due to Misconduct; e.g. absenteeism, drunkenness, gross negligence, theft
After warnings: occurs after the employer has issued a series of warnings
May occur due to continual lateness, failure to perform duties
Employers must be issued with written warnings and provided with assistance to improve behaviour
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HUMAN RESOURCE STRATEGIES
Effective human resource strategies ensure the businesses employees are loyal and committed: o
Increased productivity
o
Increased level of morale among workers
o
Improved communication between management and workers
o
Reduces the level of absenteeism
o
Reduces the costs due to lower staff turnover
All these factors will develop a competitive advantage for the firm
LEADERSHIP STYLE
Leadership style is the manner and approach in which leaders of a business interact with staff
Leaders will often make use of a combination of three styles: o Authoritarian (autocratic) – management makes all decisions with no input from staff
o
o
Allows no room for employees to contribute to the process of making decisions
Advantage: Decisions are made quickly
Disadvantage: Low employee morale and productivity
Participative (democratic) – management includes employees in the decision making process
Advantages: boosts employee morale and motivates staff to empower them
Disadvantages: Decisions may take longer time
Delegative (laissez-faire) – employees make all decision with no input from management
Advantages: staff feel a stron g sense of worth and empowerment
Disadvantages: There may be conflict of interests, and decisions take longer time
JOB DESIGN
The process of defining the work activities and tasks the need to be done by an employee o
Must satisfy both the needs of the business and employee
Effective job design leads to increased productivity and efficiency o Job satisfaction: extent to which employees are satisfied with their role o
Job enlargement: enlarging the roles associated with a job
o
Job rotation: moving an employee through different tasks to overcome boredom
o
Job enrichment: making use of the employee’s talents/abilities in their workplace
GENERAL TASKS
Job design using general tasks allows employees to engage in a variety of areas in the business Benefits
Disadvantages
Eliminates repetition and boredom
No specialisation and weaker skills set
Boosts morale and satisfaction
SPECIFIC TASKS
Job design using specific tasks involves specialisation of labour where an employee only has one role Benefits
Disadvantages
Greater productivity/efficiency (short term)
Employer dissatisfaction and boredom Lowered morale and productivity (long term)
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RECRUITMENT
Internal recruitment: occurs when the position is filled by existing employees within the business Benefits
Disadvantages
Incentive for staff to improve performance/ Promotions are seen as reward for hard work
Staff which have been overlooked for the position may lose motivation
Employee has existing understanding of culture within the business
Then business is closed to new ideas which may be offered when recruiting externally
Cheaper than external recruitment
External recruitment: occurs when the position is filled by an individual outside of the business Benefits
Disadvantages
Wider applicant pool
May take time for the new employee to settle into the organisation
The new employee may offer unique ideas
The employee feel resent by existing staff
Recruiters often look for two types of skills in employees: o
o
General skills: Business often look for general skills when recruiting
Also known as “soft” skills; e.g. communication techniques, attitudes, flexibility etc.
These are important to an employer since they can’t be taught
Specific skills: In most cases, businesses require specific skills to fill a job
These skills are outlined in the job specification; e.g. qualifications, experience etc.
TRAINING AND DEVELOPMENT
Training and development (T/D) allows employers to provide employees with an avenue to develop
and enhance their skills o
Training: is focused on building on the current skills of an employee to enhance the quality of
their current work o
Development: focuses on teaching the employees skills to build them up for future roles
T/D may be formal or informal: o
Formal training includes lectures, trainee and apprentice schemes and external classes
o
Informal training includes the use of coaches or mentors in the workforce, or experience
gained from working on the job
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PERFORMANCE MANAGEMENT
Performance management is the process of recognising the efforts/contributions of employees. This
occurs through communication between employers and employees:
o
Clarification of expectations
o
Evaluation of employee performance
Benefits of performance management: o
Employees have a clear understanding of how to succeed in their job
o
Employees understand their role in the business
o
Employers can identify any issues early and assist the employee to improve performance Performance management can be undergone to meet two different purposes: o
Administrative purposes which aim to use data from performance management to promote/sack employees, reward employees, or even as a “paper -trail” for documenting
HRM in the case of legal action o
Developmental purposes involve providing the employee with training opportunities to
further their skill and ability. Discussing strengths/weaknesses also improve performance.
PERFORMANCE MANAGEMENT CYCLE 1.
Planning: focused on goal setting between the employer and
employee
2.
o
Expectations are developed
o
Goals are established – SMART goals
Assessment
Planning
Checking-in: management observe the employee’s performance
to provide feedback. o
Here, they should reward achievement and encourage
Checking-in
improvement where needed o
This will improve communication, productivity and employee motivation through recognition of the employee’s works
3.
Assessment: the process of measur ing an employee’s performance against objectives planned o
Discuss the employee’s accomplishment/failure of goals suggest possible causes
o
Developing and implementing new goals where necessary
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REWARDS
Monetary: the most common form of rewards in an business; extend beyond legal entitlements o
According to sales: a commission type bonus (paid extra as a percentage of their sales)
o
Piece rates: a commission based according to individual’s output and productivity
o
Bonuses: paid at end of the year, Christmas etc. to reward hard work
o
Shared ownership schemes: where employees are offered shares in the business as a reward
Non-monetary: extra benefits not characterised by money o
More flexible working hours
o o
Increased status in the job Annual leave/long-service leave etc.
Intrinsic: rewards gained from within the employee themselves; o
Satisfaction of a job well done, or that the job is socially rewarding (e.g. charity)
REWARDING METHODS
Individual or group: businesses must decide whether they want to reward employees individually or
in the groups they succeed in:
Benefits
Disadvantages
Encourages a sense of team work
Group members may not have worked equally as hard
Improves communication between staff working in the teams
Employees may have different personal goals not recognised through team achievement
Performance pay: when a portion of an employee’s wage is based on their performance o
Based on the belief that employee motivation is derived through increased financial benefits Benefits Financial rewards are often a key motivator, thus pay may improve performance Good employees are attracted to work for the organisation as they feel they will get paid for their successful work attributes
Disadvantages Not all employees are motivated by money; some rather other rewards, e.g. recognition Performance of an employee is affected by more than just motivation (e.g. health conditions) thus it is difficult to measure
Encourages unmotivated/inefficient individuals to improve performance
Conflict may arise due to the performance measuring process
GLOBAL
Seeking human resources globally can offer many advantages: o
Cost: countries with weaker labour policies can be exploited for cheap labour
o
Skills: the skills required may be provided better overseas (e.g. IT departments in India)
o
Supply: the employers required may not be abundant in Australia, and thus require global
sourcing
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WORKPLACE DISPUTES
Workplace disputes are problems that arises between employers and an employee(s) at a workplace o
They can lead to strikes (withdrawal of labour) or lockouts (halting of work)
o
They can ruin a company’s brand and reputation
Workplace disputes can arise from: o
Wage demands or other entitlements
o
Current working conditions
o
Management policies
Disputes are unavoidable, however they can be minimized and resolved effectively with proper management procedures: o
Autocratic: Management takes a hostile approach to resolve the dispute without considering the issues of the employees this may lower workforce morale
o
Behavioural: Management considers staff concerns, provides feedback and aims to resolve the dispute this is mutually beneficial in addressing the problem
Grievance procedures are the procedures that HR stakeholders must follow to resolve a dispute o
Provides a clear outline of issues regarded as workplace grievances
o
Provides a mechanism to achieve quick resolution of disputes
o
Employees are allowed avenues to communicate and air problems
Employers are able to reprimand staff for unsatisfactory work or conduct
Illustrates the correct process to raise complaints
DISPUTE RESOLVING PROCESS
Negotiation
Discussion with both parties to resolve the process
• Employer associations/unions may be called in to assit with negotiations in small businesses • Experts in the field of negotiation may be hired to work with HR in large businesses
Mediation
Independent party requrest to reach a settlement
• Occurs when negotitation has failed • Meidator may suggest ideas or present issues in an alternative way
Conciliation
Fair Work Australia is asked to mediate the dispute
• Both parties must be satisfied with the final outcome • Conditions of agreement are not legally binding
Arbitration
An independent 3rd party is appointed by FWA as a commisioner
• Arguments are presented on each side • Such as in a court case • 3rd party commisioner evaluates and reaches a final decision which is legally binding
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INDICATORS OF THE EFFECTIVENESS
OF HRM
CORPORATE CULTURE
Corporate culture refers to the unique value and beliefs within a business o
A strong culture encourages employees be responsible, take initiative, and work in teams
BENCHMARKING KEY VARIABLES
Benchmarking key variables is the process of measuring an employee’s performance a gainst established standards o
Similarly to industry benchmarking in a business, businesses assess the performance of employees to develop strategies which may improve their performance
CHANGES IN STAFF TURNOVER
Staff turnover refers to the rate at which employees leave the business o
High levels caused by voluntary separation indicates a poor employment relationship and the dissatisfaction of employees
This may be caused due to the culture, management style, or other factors
o
High staff turnover indicates high costs due to redundancy payments and recruitment
o
Current stag may also move to competing firms and cause a threat to the business
ABSENTEEISM
Absenteeism refers to an employee unable to attend work due to illness/family etc. o
Frequent absenteeism may occur due to low morale and high dissatisfaction
o
This can have huge costs to a business since labour is not being used, the employee still must
i.e. employees may use “sick days” as an excuse not to go to work
be paid AND replacement staff must be found.
LEVEL OF DISPUTES
The frequency and number of disputes can indicate the effectiveness of HRM o
More disputes indicates a dysfunctional employee-employer relationship
ACCIDENTS
Accidents across many areas of the workforce due to human error o
By following WHS standards and recording accidents, management can minimize accidents
WORKER SATISFACTION
The more satisfied employees are in their work, the more loyal they will become
Dissatisfaction of employees can be seen by the quality of their work, attitudes, number of disputes and absenteeism
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INTERDEPENDENCE INTERDEPENDENCE WITH OTHER KEY BUSINESS FUNCTIONS Business functions must interrelate with each other to achieve goals due to specialisation which must occur in large businesses. Therefore with specialisation, there is significant interdependence between business functions due to their great reliance on each other.
Operations
Human
Marketing
Finance
Resources OPERATIONS AND HUMAN RESOURCES Operations use human capital as a major input, especially in the case of a service-based business such as Qantas. Thus there is great interdependence between the two functions as human resources ensures that operations has the appropriate staff and skilled labour. At Qantas, this occurs by HR recruiting all the staff in the operations process. HR is also involved in the training and development of staff involved in operations. With the introduction of the new Boeing 787 this saw development and re-training of new and existing pilots. HR is also responsible for motivating staff in the operations function through benefits, both monetary and nonmonetary, such as the flight discounts Qantas provides to their operations staff.
OPERATIONS AND MARKETING The operations function affects marketing decisions by defining the constraints and capabilities of marketing campaigns. Further, marketing provides a basis of changing consumer tastes and product features to incorporate in order to gain a competitive advantage in the market. At Qantas, the operations management alters flight services according to marketing trends analysed by the marketing function.
OPERATIONS
AN D FINANCE
The finance function of a business is heavily interrelated to the operations function since it is the one providing operations with the funding to continue to produce. Financial management sets budgets for operations management to stick too, and further analyses the financial performance and efficiency of existing operations schemes. For example, the financial management function at Qantas recently increased their budget on capital expenditure for operations from $2.5 billion to $2.8 billion in 2013. Many operational activities are also heavily reliant on funds, thus further amplifying the interrelation between both functions; such as the funding for new plans (of up to $1.9 billion in 2012) for Qantas.
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HUMAN RESOURCES
AND MARKETING
Most notably, human resources provides marketing with the necessary training and acquirement of staff. Consequently, due to Qantas’ service-based nature, there is a lot of customer interaction, thus requiring a skilled strong workforce to satisfy customers. Further, HR involves with hiring out and outsourcing additional support when required as a result of marketing campaigns and analysed marketing trends.
HUMAN RESOURCES
AND FINANCE
Human resources require funds to remunerate staff and to fund effective HR strategies such as training and development. In 2012, one of Qantas’ largest expense was recruitment and training wit h over $275 million, further extending the interdependence between these two functions. Further, decisions made by financial management such as outsourcing, cutting flights and the launch of new airlines in Asia have not only caused increasing industrial disputes for Qantas, but also had a great impact on staffing levels and HR.
FINANCE AND MARKETING Finance depends on marketing to generate funds through the marketing strategies employed. Finance establishes the budgets and forecasts for promotional campaigns. This is seen by the marketing strategies Qantas has implemented (through a differentiation strategy by creating new lounges, flights and check-in facilities). Also, by the use of sales promotions during non-peak times, the Qantas marketing team helps boost sales in times of variation in demand. Consequently, these strategies are judged by finance to analyse the success of the marketing strategy in yielding the greatest sales and market share. Further, finance can also provide the necessary funding to modify production as a result of new marketing campaigns.
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REFERENCES Chapman, Stephen, Llian Merritt, and Cassy Norris. Business studies in action: HSC course. 2nd ed. Milton, Qld.: John Wiley and Sons, 2000. Print. Hickey, Marianne, Tony Nader, and Tim Williams. Cambridge HSC business studies. Cambridge: Cambridge University Press, 2005. Print. Williams, Tim. HSC business studies. Port Melbourne, Vic.: Cambridge University Press, 2011. Print.
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