Business Management

Unit 1: Nature of management

1.1 Features of effective management- The traditional definition of management is the process of coordinating a business’s resources to achieve its goals.- The four main resources are:

- Human (employees).- Information (market research, sales reports).- Physical resources (equipment, machinery).- Financial resources (funds).

- A manager is someone who coordinates the business’s limited resources in order to achieve specific goals.- The contemporary definition of management is the process of working with and through people to achieve the goals of the business in a rapidly changing environment.- Management requires:

- Working through others.- Achieving the goals of the business (effectiveness).- Getting the most from limited resources (efficiency).- Balancing efficiency and effectiveness.- Coping with a rapidly changing environment.

- Effectiveness measures the degree to which a goal has been achieved.- Efficiency compares the resources needed to achieve a goal (the costs) against what was actually achieved (the benefits).

1.2 Skills of management- Interpersonal:

- Delegate.- Actively listen.- Communicate effectively.- Negotiate.- Discipline subordinates.- Motivate.- Lead.

- An intrapreneur is an individual who takes on the entrepreneurial roles within a business.- Communication:

- Transmission of ideas and information throughout the business (via listening and technology).- Aware of any barriers that might prevent good communication.- Avoid ambiguity.- Create an environment where people aren’t afraid to challenge ideas and put forward their views.

- Strategic Thinking:- Think about the future.- Making plans in an uncertain environment.

- Vision:

- Aim for the ideal - everything going to plan.- Effective managers can turn what they imagine into words and communicate the vision to all the stakeholders.- Typically, a highly competitive business producing quality products.

- Problem-Solving:- Problems (challenges that needs to be overcome) require a great deal of thought and analysis.- Adopt a systemic approach (define problem, evaluate alternative solutions, select best alternative).

- Decision-Making:- Associated with problem-solving.- Time needed to get info. analyse it and make sound decisions.

- Flexibility:- Putting into place systems and procedures enable the business to respond quickly to changes in the external environment.- E.g. placing employees on part-time during low consumer demand, instead of dismissing them.

- Adaptability to change:- Uncertain environment: changes in consumer demand.- E.g. McDonald’s introducing fruits and salads.- E.g. Kmart getting rid of TV’s as they focused on everyday low prices.

- Reconciling the conflicting interests of stakeholders:- Customers/employees want more benefits, but shareholders want to minimise costs- Manager’s job to fix these conflicts.- E.g. James Hardie and past employees suffering from asbestos poisoning.

1.3 Achieving business goals- A goal is a desired outcome or target that an individual or business intends to achieve within a certain time frame.- Goals benefit managers by:

- Serving as targets.- Acting as measuring sticks.- Motivation.- Commitment.

- The best method of writing goals is using the S.M.A.R.T. method:- S – Specific (must be straightforward).- M – Measurable (progress must be able to be measured).- A – Achievable (must be within reach).- R – Realistic (must be something that managers and employees are willing to work towards).- T – Time bound (must have deadlines).

1.3.1 Types of goals- Financial Goals include:

- Maximise profits.- Increase market share.- Maximise growth.- Improve share price.

- Social Goals include:- Community service.- Provision of employment.- Social justice.

- Environmental Goals include:- Sustainable development.

1.3.2 Achieving a mix of goalsThere are a range of goals due to the range of different stakeholders who have different needs, which means a mix of goals are needed. It is not easy to find the best balance, as there are conflicts between goals and compromises must be made (e.g. Walmart has highly effective cost-reduction strategies but poor social goals, such as low paid employees).

1.3.3 Staff involvement- Innovation includes:

- Important in developing new ways of conducting business activities.- Managers developing new ways of involving staff in the business so that they have a personal stake in the success of the business.- e.g. Kmart employees dressing up as popular characters, which is effective and highly motivational.

- Motivation includes:- Employees often need additional reasons, other than their wage or salary, to be really involved in the business.- Recognition is a key strategy. When employees demonstrate superior customer service, managers notice and with acknowledgement and reinforce the behaviour.

- Mentoring includes: - Modern approach to employee/staff involvement.- Mentoring is where the experienced person in the business trains & counsels another employee.- It is an expensive strategy, but in the long term it’s a highly effective strategy as it leads to highly competent employees.- Socialisation is the process a new employee undergoes in the first few weeks of employment through which he or she learns how to cope and succeed.

- Training includes:- Staff will never really be involved in a business if they are unable to do their job well.- Training is about giving employees the skills they need to do their current job well.- The best result is a multi-skilled employee. Multiskilling allows employees to develop skills in a wide range of tasks through ongoing training.

- Multiskilled employees:- Adapt to a rapidly changing technological environment.- Provide better customer service.- Participate effectively in work teams.- Gain promotions.

Unit 2: Management Approaches

2.1 Classical Approach

- Management stresses how best to manage and organise workers so as to improve productivity (output).- The history of the approach:

- Was developed during the industrial revolution due to mass production.- Problems arose in training employees, organising management, scheduling manufacturing processes and dealing with work dissatisfaction.- Business owners have to plan, organise, direct, control and staff different types of operations.

- Classical-Scientific approach:- Devised by Frederick W Taylor.- Scientific management: studies a job in great detail to discover the best way to perform it.- Division of labour to improve efficiency and productivity.- Management to control workers and ensure they follow rules and regulations based on hierarchy of authority.

- Classical-Bureaucratic approach- Devised by Max Webber and Henri Fayol.- Set of rules and regulations that control a business.- Strict hierarchical organisational structure.- Clear lines of communication and responsibility.- Division of labour.- Rules and procedures.- Organisation’s goal more important than individual interests.- Reward for effort should be fair.

2.1.1 Management as planning, organising and controlling- Planning is the preparation of a predetermined course of action for a business. Effective planning provides a vision and goals for a business, strategies to achieve the vision and goals, and anticipation of future directions for change- Levels of planning include:

- Strategic (long-term) planning:- Is planning for the following 3-5 years.- This level of planning will assist in determining where in the market the business wants to be.- What the business wants to achieve in relation to its competitors.

- Tactical (medium-term) planning:- Is flexible and adaptable planning.- Over 1-2 years.- Assists in implementing the strategic plan.- Tactical planning allows the business to respond quickly to changes.- How the goals will be achieved through the allocation of resources.

- Operational (short-term) planning-- Provides specific details about the way in which the business will operate in the short term.- Management controls the day-to-day operations that contribute to achieving short-term actions and goals.

- Organising is the structuring of the organisation to translate plans and goals into action.

- The organisation process is the range of activities that translate the goals of the business into reality:

1. Determining the work activities-work activities required to achieve management objectives must be determined and broken down into smaller steps.2. Classifying and grouping activities-similar activities can be grouped together

to improve efficiency.3. Assigning work and delegating authority-determine who is to carry out the

work and who has responsibility to ensure that the work is carried out.- Controlling compares what was intended to happen with what has actually occurred.

- Control methods is the need to monitor (check) the quality of the products being manufactured or provided- Quality control:

- Involves inspectors checking finished products, and detecting and removing any components or final products that do not meet the required standard.- This method can involve considerable waste, as substandard products have to be scrapped.

- Quality assurance- Occurs during and after production.- Stop faults occurring in the first place.- Less wasteful than quality control.- Aims to make sure that products are produced to pre-set standards.- Responsibility of the employees working in teams.

- Total quality management- Encouraging all employees in the workplace to think about quality in everything they do.

2.1.2 Hierarchical organisational structure- Management hierarchy is the arrangement that provides increasing authority at higher levels of the hierarchy.- The primary characteristic of traditional hierarchical organisational structures has been the grouping of people according to the specialised functions they perform, such as marketing, finance, human resources and operations.- Other characteristics are:

- Rigid lines of communication.

- Numerous levels of management.- Clearly distinguishable organisational positions, roles and responsibilities.- A chain of command.- Specialisation of labour.

- Specialisation of Labour refers to the degree to which tasks are divided into separate jobs.- A chain of command is a system that determines responsibility, supervision and accountability of members of the organisation.

2.1.3 Autocratic leadership style- A manager’s leadership style is essentially their way of doing things – their behaviour and attitude.- The two main types of leadership style are:

- Autocratic or authoritarian – strong, centralized control- Participative or democratic – authority and power are decentralized.

- Managers should bring a range of leadership styles to their positions that can change according to the situation.- Most managers typically have a dominant style.

- A manager using an autocratic leadership style tends to make all the decisions, dictates work methods, limits worker knowledge about what needs to be done to the next step to be performed, frequently checks employee performance and sometimes gives feedback that is punitive.- The advantages of this style are:

- Directions and procedures are clearly defined.- Employees’ roles and expectations are set out plainly, so management can monitor their performance.- Provides a stable and constant environment.- Control is centralised at top-level management.

The disadvantages of this style are:- No employee input allowed, so ideas are not encouraged or shared.- It ignores the importance of employee morale and motivation. Job satisfaction decreases which ultimately affects absenteeism and staff turnover.- Conflict, or potential for conflict increases, and tension between employees.- An ‘us and them’ mentality may develop as a result of the lack of employee input.

2.2 Behavioural approach- The behavioural approach to management stresses that people (employees) should be the main focus of the way the in which the business is organised. It was pioneered by Elton Mayo.- The main features of behavioural management approach include:

- Humanistic approach: employees are the most important resource.- Economic and social needs of employees should be satisfied.- Employee participation in decision-making.- Team-based structure.- Managers need good interpersonal skills.- Democratic leadership style emerging.

2.2.1 Management as leading, motivating, communicating- Leading: having a vision of where the business should be in the long and short term- Motivating: energising and encouraging employees to achieve the business’ goals- Communicating: exchanging information between people; the sending and receiving of messages.

2.2.2 Teams- Teamwork involves people who interact regularly coordinate their work towards a common goal.- Well functioning teams can produce superior performance.- Managers require a good understanding of team/group dynamics.- The development of work teams has resulted in flatter organisational structures.- The role of managers is changing from controller to facilitator.- Businesses are adopting flatter management structures which results in:

- ‘de-layering’ of traditional hierarchical structure- establishment of market-focused work teams- each work team responsible for a wide range of production functions.

- Reducing the levels of management gives greater responsibility to individuals in the business.- Flatter organisational structures have evolved due to a ‘de-layering’ of management structures resulting in the elimination of one or more management levels.

2.2.3 Participative/democratic leadership style- A participative or democratic leadership style is one in which the manager consults with employees to ask their suggestions and then seriously considers those suggestions when making decisions.- The main advantages of this style are:

- Communication is a two way process.

- Employer/ employee relations are positive and there is reduced likelihood of industrial disputes.- Motivation and job satisfaction are optimal.- Employees have a greater opportunity to acquire more skills.- Power sharing encourages the development of work teams and employees display high levels of commitment.- There is a high level of trust.

- The main disadvantages of this style are:- Reaching decisions and introducing tasks can be time consuming. The quality of decisions may also suffer due to compromises.- The role of management may be weakened and undermined.- Internal conflict may arise with so many views and opinions.- The importance of the organisational structure may be minimised, leading to an informal system.- Not all employees want to contribute.

2.3 Contingency approach- The contingency approach stresses the need for flexibility and adaption of management practices and ideas to suit changing circumstances.- Due to the unstable business environment, managers need to be flexible and borrow and blend from a wide range of management approaches.

Unit 3: Management Process

3.1 Co-ordinating key business functions and resources- Strategies are the actions that a business takes to achieve specific goals.- Outsourcing is the use of external sources or businesses to undertake business functions or activities for the business. - For a business to be successful, it is crucial that all the goals and strategies are linked and working harmoniously. - Division refers to the separation of key business functions into specialised units or department. The business is divided into functional areas.

3.2 Operations- Operations refers to the business processes that involve transformation.- Operations management consists of all the activities in which managers engage to produce a good or service.

3.2.1 Goods and/or services- Tangibles are goods that can be touched.- Intangibles include services that cannot be touched.- Most modern businesses provide a combination of manufactured goods and services.

3.2.2 The production process- The three key elements of the production process include inputs, the transformation process and outputs.- Inputs are resources used in the production process and include raw materials (e.g. steel), capital equipment (e.g. machinery), labour (e.g. worker), information, time and money.

- The transformation process is the conversion of inputs into outputs.- Elaborately transformed manufactures (ETMs) are manufactured goods that are highly processed and valued.- Simply transformed manufactures (STMs) are goods that can be further processed in a wide range of processes.- Value added is the creation of extra or added value as raw materials are transformed into intermediate or finished products through the stages of production.- Transformation processes in service businesses are less physical and take the form of knowledge, inputs and expertise.- Transformation by service businesses differ from a good because the output cannot be physically held in stock and they rely heavily on the interaction with the customer.- Outputs are the finished goods or services.

3.2.3 Quality management- Quality management is the strategy that a business uses to make sure that its product meets customer expectations. Three quality approaches are quality control, quality assurance and total quality management.- Quality control involves the use of inspections at various points in the production process to check for problems and defects. Performance is measured in relation to set standards or benchmarks.- Quality assurance involves the use of a system where a business achieves set standards in production. A widely used international standard is the ISO 9000 series of quality certifications.- Total quality management (TQM) is an ongoing, business-wide commitment to excellence that is applied to every aspect of the business’s operation. A number of approaches may be used, such as employee empowerment, continuous improvement and improved customer focus.

3.3 Marketing- For a business to make a profit, it needs to create and market products that consumers will purchase.- Marketing is a total system of interacting activities designed to plan, price, promote and distribute products to present and potential customers.

3.3.1 Identification of the target market- A target market is a group of customers with similar characteristics who presently, or who may in the future, purchase the product.- Three broad approaches can be adopted when selecting a target market: the mass marketing approach, the market segmentation approach or the niche market approach.- A mass marketing approach seeks a large range of customers. Examples of this are basic food items, water, gas and electricity.- A business segments its market so it can better direct its marketing strategies to specific groups of customers.- Market segmentation occurs when the total market is subdivided into groups of people who share one or more common characteristic.- Consumer buying behaviour refers to the decisions and actions of consumers when they purchase goods and services for personal household use.

- A target market refers to the group of customers to which a business intends to sell its product. It better satisfies the needs of the group, because the business can:

- use its marketing resources more efficiently- better understand the consumer buying behaviour of the target market- collect data more effectively and make comparisons- refine marketing strategies used to influence consumer choice

- Both primary and secondary target markets are utilised.- A niche market is a narrowly selected target market segment.

3.3.2 Marketing Mix- Marketing strategies are actions undertaken to achieve the business’s marketing goals through the marketing mix.- A business controls four basic marketing strategies to reach its target market: product, price, promotion and place (the four Ps of the marketing mix).- A product can be goods or service, and consists of both tangible and intangible features.Product- Product positioning is the development of a product image compared with the image of the competing products.- Packaging helps preserve, inform, protect and promote the product.- Product branding is the brand and associated brand logo.Price- A business must select the most appropriate pricing method suitable to its product and market conditions.- Cost plus margin – calculating the total cost of production and adding a percentage for profit.- Discount price – reducing the price of stock that is not selling to stimulate demand.- Competitors’ price – choosing a price that is either blow, equal to or above that of the competitors.- Market price – pricing according to the interactions between the quantity that customers are willing to purchase.Promotion- Promotion refers to the methods used by a business to inform, persuade and remind customers about its products.- Personal selling – a sales assistant outlines the features of the goods or service to the customer.- Sales promotion – activities and materials are used to attract interest and support for the good or service (e.g. coupons and free samples).- Publicity – the business sets up a free news story about its product.- Advertising – print or electronic mass media are used to communicate a message about the product.Place- Channels of distribution (place) is a way of getting the product to the customer.- Producer to customer – this is the simplest channel and involves no intermediaries.- Producer to retailer to customer – this channel is often used for bulky or perishable products.- Producer to wholesaler to retailer to customer - this is the most used method.

3.4 Finance

- Accounting is a financial management tool that is involved with the recording and analysis of all the business’s financial transactions.- Finance details how a business funds its activities.- Contingencies are unanticipated events that can lead to financial difficulty.- It is vital for a business to be able to manage its borrowings and to use appropriate types of borrowings.- There are three main financial statements created by accounting processes: the cash flow statement, the income statement (also called revenue statement, profit and loss (P&L) statement or statement of financial performance), and the balance sheet (or statement of financial position).

3.4.1 Cash flow statement- A cash flow statement shows the movement of cash receipts (inflows) and cash receipts (outflows) over a period of time.- Liquidity is used to describe whether a business has a good or adequate cash flow.- Cash flow reports are vital for the information they give on the timing of payments and receipts of income.- Cash flow statements are divided into three categories: cash flows from operating activities, those from investing activities and those from financing activities.

3.4.2 Income Statement- The income statement is a summary of the income earned and the expenses incurred over a trading period.- The main classification of items in the income statement are revenues, cost of goods sold (COGS) and expenses.- Gross profit = Sales - Cost of goods sold (COGS)- COGS = Opening stock + Purchases - Closing stock- Expenses are simply costs and can be broken down into selling, administrative or financial. - Selling costs include commission, salaries, wages, advertising, delivery expenses, electricity.- Administrative costs include stationary, office salaries, rent, rates, telephone, audit fees, accountant’s fees, insurance.- Financial costs include interest payments, lease payments, dividends and insurance payments.- They can also be classified as operating or non-operating.

- Net profit = Gross profit – Expenses

3.4.3 Balance Sheet- The balance sheet shows the overall financial stability of the business.- The main items in the balance sheet are assets, liabilities and owners’ equity.- Assets are items of value to the business and can be either current or non current.- Liabilities are debts or business borrowing and can be either current or non current.- Owner’s equity items refers to the owners’ claims and is considered a liability from the point of view of the business.- The balance sheet should always balance.- This means the assets must equal the liabilities.- The balance sheet equation is: Assets = Liabilities + Owner’s equity or A = L + OE.

3.5 Human Resources- Human resource management is the effective management of the formal relationship between the employer and the employee.- The main functions of staffing are to attract and acquire, train and develop, reward, maintain, and separate the people needed to achieve the business’s goals.

3.5.1 Recruitment- Human resource planning involves developing strategies to meet the business’s future staffing needs.- A job analysis is a systematic study of each employee’s duties, tasks and work environment. It comprises a job description and job specification.- A job description is a written statement describing the employee's duties, tasks and responsibilities.- A job specification is the list of key qualifications needed to perform a job in terms of education, skills and experience.- After the planning stage, the recruitment of staff commences to find the best person for the job.- Recruitment involves finding and attracting the right people to apply for a job vacancy.- A business can recruit from staff within the business (internal) or seek new applicants from outside sources (external).- Once job applicants are found, the process of selecting the right applicant begins.- Employee selection is the means by which the employer chooses the most suitable applicant for the vacancy.- Resumés, testing, interviews and background checks can be used to recruit staff.

3.5.2 Training- Training provides employees with the right knowledge and skills to perform their job effectively and efficiently.- Development focuses on preparing the employee to take on more responsibilities within the business in the future.- Ongoing training for all employees can be promoted by the business becoming a learning organisation.- Training needs must be identified well in advance of any proposed technological implementation.- Training should be viewed as an investment in the human capital of the business.- Examples of training include:

- Formal off-the-job training (e.g. simulations).- Informal off-the-job training (e.g. coaching, job rotation).- Action learning - learning by experience to solve real world problems.- Competency-based training - identifies areas that need training (e.g. medical).- Corporate universities - form partnerships (e.g. Coles and Qantas).- Training technologies (e.g. web-based training, multimedia).

3.5.3 Employment Contracts- An employment contract is a legally binding, formal agreement between an employer and an employee.

- There are three different types of employment contract:- award: an employee’s minimum pay and conditions- enterprise agreement a negotiated arrangement between an employer and a union or a group of employees- common law exists when employers and employees have the right to sue for compensation if either party does not fulfil their part of the contract.

- The employment contract outlines the rights and responsibilities of the employer and the employee.- The National Employment Standards are a set of minimum employment conditions employees are entitled to. A modern award must not exclude their standards.- As the nature of work and the characteristics of the workforce change, employees are seeking more involvement in the decision-making process.- One of the most important pieces of legislation relating to employment arrangements is the Australian government’s Fair Work Act 2009.- Businesses need to be aware of their legal responsibilities when employing staff, especially concerning discrimination and equal employment occupational health and safety.

3.5.4 Separation- The final stage in the employment cycle is the ‘separation stage’, in which employees leave the workplace on a voluntary or involuntary basis.- This stage must be handled carefully and sensitively by the human resource manager.- Voluntary separation occurs when an employee decides to give up full-time or part-time work and includes: retirement, resignation and redundancy.- Involuntary separation occurs when an employee is asked to leave the business against their will and includes: retrenchment, dismissal and redundancy.- Redundancy is when a particular job a person is doing is no longer required to be performed, usually due to technological changes, a merger or takeover.- Retrenchment is when a business dismisses an employee because there is not enough work to justify paying them.- Unfair dismissal occurs when an employer dismisses an employee for discriminatory reasons.- The final stage in the employment cycle is the ‘separation stage’, in which employees leave the workplace on a voluntary or involuntary basis.- This stage must be handled carefully and sensitively by the human resource manager.

3.6 Ethical Business Behaviour- The majority of businesses want to be seen as responsible corporate citizens.- The triple bottom line refers to the economic, environmental and social performance of a business.- Ethics are standards that define what is acceptable and unacceptable behaviour.- Business ethics is the application of moral standards to business behaviour such as:

- fair and honest business practices- decent workplace relations- conflict of interest situations- accurate financial management- truthful communication.

- A corporate code of conduct encourages ethical business behaviour.

Unit 4: Management and Change

4.1 Responding to internal and external influences- Change is any alteration in the business environment.- Changes can be major (transformational) or minor (incremental).- When a business responds to the forces of change, the result will be a change to its:

- organisational structure - including outsourcing, flatter structures and work teams- business culture - for a business to survive in the long term, changes should be reflected in its culture- human resource management practices - including recruitment and selection. training, performance appraisal, and redundancy procedures- operations management - including flexible manufacturing and quality assurances.

4.2 Managing Change Effectively- To manage change effectively requires the change to be as productive as possible; to make it a process for revitalising and strengthening the business.- Managers must develop strategies for managing change effectively.- A business information system (BIS) gathers data, organises and summarises them and then converts them into practical information to be used by managers who use them to make decisions.- Manipulation and threat are two high-risk strategies for managing change.

4.2.1 Identifying the need for change- Identifying the need for change and setting achievable goals are two low-risk strategies for managing change.- A business’s success or failure to accurately identify what needs to be changed depends on its ability to collect, organise, process and retrieve information quickly.resistance to change & management consultants.

4.2.2 Setting Achievable Goals- A vision statement states the purpose of the business.- Unachievable goals will cause cynicism among employees and damage relationships between employees and supervisors.- Goals devised after consultation with employees and communicated clearly have a greater chance of being realised.

4.2.3 Resistance to Change- At the same time as managers are undertaking change for the best of reasons, there will be restraining forces working against the change, creating resistance.- The main reasons for resistance to change include:

- management (may make hasty decisions or be indecisive)- fear of job loss (fearful of changes that threaten job security or require new work routines)- disruption to routine (worried that they cannot adapt to the new procedures that threaten established work routines)- time (either poor timing, or lack of time)- fear of the unknown (feelings of lack of control and anxiety)- inertia (prefer to stay with the safe and predictable status quo)

- cost (financial cost of implementing major changes can be substantial).- Driving forces are those forces that initiate, encourage and support the change.- Restraining forces are those that work against the change, creating resistance.- Resistance to change is common among managers and employees.- Two strategies for overcoming resistance to change include:

- creating a culture of change (encouraging teamwork)- providing positive leadership (sharing the vision).

4.2.4 Management Consultants- A management consultant is someone who has specialised knowledge and skills within an area of business.- They provide:

- a wide range of business experiences- specialised knowledge and skills- an objective viewpoint- access to the latest research- awareness of industry best practices (the highest standard)

- Change management is a methodical approach to dealing with change, both from the perspective of the business and on the individual level.- Management consultants can provide strategies by:

- undertaking change readiness reviews- creating a supportive business culture- actively involving all stakeholders in the change process- gaining and recognising early achievements