PRELIMINARY TOPIC 2: BUSINESS MANAGEMENT Nature of Management

Manager: coordinates limited business resources to achieve goals.

Resources: - Human: employees (most important asset) - Information: knowledge + data (e.g. market research, sales reports, economic forecasts) - Physical: equipment, machinery, buildings, raw materials - Financial: funds the business uses

FEATURES OF EFFECTIVE MANAGEMENT

● Interpersonal - Lead, establish connections with contacts

● Informational - Monitor + share information, present information about business’s plans

● Decision Making - Negotiate, entrepreneurial, allocate resources, handle issues

SKILLS OF MANAGEMENT

● Problem Solving + Decision Making - Identify problem, choose best solution, monitor results

● Interpersonal + Communication Skills - Work with others, communicate, motivate, listen, understand other’s needs

● Strategic Thinking - Think long term, take holistic view, acknowledge interdependence of departments

● Flexibility and Adaptability to Change - Ability to change, prepared to take risks, make adjustments to plans

● Vision - Know where the business is headed, what it’s trying to achieve

● Reconciling Conflicting Interests of Stakeholders - Deal with stakeholder/employee conflicts, customers, business environment

ACHIEVING BUSINESS GOALS

FINANCIAL: ● Maximise share price - sell shares at profit ● Make profit - increase return from investments ● Expand market share - marketing techniques, reducing price ● Growth + Diversification - efficient production, reduce costs for units

SOCIAL:

● Operations of business can have positive influence on community ● E.g. promoting human rights, encouraging cultural diversity, empowering marginalised groups

PERSONAL: ● Help understand why people run their businesses

ENVIRONMENTAL:

● Becoming aware of environmental obligations ● Reduce use of packaging ● Eliminate wastage

❏ INTERDEPENDENT + CAN CONFLICT

Measuring Success

- ‘Triple Bottom Line’ principle - Financial performance - Employee satisfaction levels - Contributions to community programs - Stakeholders not badly affected by business goal pursuit - Goals should be a mix of all three - E.g. Ben & Jerry’s

- Product: make good ice cream - Economic: manage company for sustainable financial growth - Social: use innovations to make world better place

STAFF INVOLVEMENT INNOVATION

● A new method, product or idea ● Can be profitable

MOTIVATION

● Driving force behind actions/behaviour ● Internal energising process ● Motivated staff = more productive than unmotivated ● E.g. increased pay

MENTORING

● Experienced colleague helping + giving advice ● Equip employees for roles ● Establish workplace standards + culture, relationships ● Cheaper than outsourced training

TRAINING

● Improving employee skills for better job performance ● More expertise ● Investment into human resources

Management Approaches CLASSICAL APPROACH

● Focuses on planning, organising + controlling ● Strict hierarchical structure ● Clear communication/responsibility lines ● Specialisation (jobs broken down) ● Good for: car manufacturing, small businesses

Bureaucracy: set of rules/regulations controlling business PLANNING

● Operational - Short Term (Day to Day) ● Tactical - Medium Term (1-2 years) ● Strategic - Long Term (3-10 years)

ORGANISING

1. Determine work activities 2. Classify activities 3. Assign work + delegate activity

CONTROLLING

● Compare what was intended to happen vs what actually happened

HIERARCHICAL STRUCTURE ● Increase levels = increase authority ● Specialisation of labour ● Rigid communication lines ● Multiple levels of management ● Chain of command

AUTOCRATIC LEADERSHIP STYLE ● Effective in times of crisis ● Make all decisions ● Dictate work methods ● Limit worker knowledge about next step ● No employee input ● Good for: large businesses, when employees not equipped to make decisions

Advantages: - Directions are clear - Efficiently deals with problems - Stable, consistent environment

Disadvantages:

- Employees don’t feel valued → poor job performance - Tension among employees competing for manager approval - Create inefficiencies in production

BEHAVIOURAL APPROACH ● Humanistic approach: People are main focus of business ● Meet economic + social needs of employees ● Team based structure ● Managers have interpersonal skills

LEADING

● Seek new ideas + share information ● Build/communicate a clear vision ● Flexibility in dealing with situations ● Delegate tasks to suitable employees

MOTIVATING

● Motivated workers = higher performance ● Gain trust + respect ● Positive reinforcement + rewards ● Develop workplace culture encouraging participation

COMMUNICATING

● Two way flow of information ● Exchanging all information ● Keep employees ‘in-the-loop’

ORGANISATIONAL STRUCTURE

Teamwork:

- Removes middle management - Increase delegation + employee responsibility - Manager: controller → facilitator

DEMOCRATIC LEADERSHIP STYLE

● Manager includes employees in decisions ● Employee commitment to business goals → involvement ● Range of perspectives for decision making

Advantages: - Motivation + job satisfaction - Positive employer/employee relationships

Disadvantages:

- Time consuming decisions - Undermined/weakened manager

CONTINGENCY APPROACH

● Need for flexibility and adaptation to suit changing circumstances ● Solving problems in unique situations

Management Process COORDINATING KEY BUSINESS FUNCTIONS AND RESOURCES

● Interdependent ● Division of key functions → requires greater coordination ● Functions work toward business goals

OPERATIONS

Operation: processes involving transformation (i.e. production) - Operation Management: creating, operating & controlling transformation process

● Establishes level of quality ● Influence cost of production

GOODS/SERVICES Tangibles: can be touched (e.g. bread, clothing, car)

Intangibles: can’t be touched (e.g. training programs) THE PRODUCTION PROCESS Inputs:

- Material: raw materials converted by transformation process - Capital Equipment: plant, machinery, property to conduct operations - Labour: people involved in production - Information: (market) research, developments, assist in design + delivery - Money: can convert to materials, capital or labour

Transformation Process:

Non-Reusable Inputs: raw materials, ingredients, parts and information

Reusable Inputs: facilities, equipment, technology, labour Primary Aspects:

- Inbound Logistics: ordering, handling, storing inputs (physical, financial + human resources) - Outbound Logistics: assembling, storing, delivering good/service to customers - Sales: sales force administration + customer account management

Secondary Aspects:

- Procurement: getting resources - Technology Development: technological support for value adding - Human Resources: having right people with right skills - Systems: information, reporting, planning, controlling systems in place - Marketing: what customers want, planning, pricing, promoting, distributing goods and services

Value Adding:

- Additions of cost through process of transformation QUALITY MANAGEMENT

● Strategy ● Business products meets consumer expectations

- Minimise waste and defects - Conform to standards - Reduce variance in final output

Quality Control: inspections at points in production process to check for defects Quality Assurance: system so business achieves set standards in production Total Quality Management: on-going, business wide commitment to excellence

MARKETING Marketing: planning, executing the conception, pricing, promotion + distribution of goods/services IDENTIFICATION OF THE TARGET MARKET Target Market: group of customers with similar characteristics (who may purchase products)

● Mass Marketing: large range ● Market Segmentation: subdivided into characteristic sharing groups

- Age, gender, education, occupation, religion, ethnicity, socioeconomic group ● Niche Market: narrowly selected target market segment

Satisfying Needs and Wants of Customers: ● Use marketing resources efficiently ● Understand consumer buying behaviour ● Refine marketing strategies to influence consumer choice

MARKETING MIX

Product - Quality, design, name, warranty, packaging, labelling - Must have intangible benefits - Positioning → development of product image - Branding → marketing tool for instant recognition

Price

- COST PLUS MARGIN: set profit margin is added to production cost - DEMAND PRICING: guess what market is prepared to pay - COMPETITOR’S PRICE: below/equal to/above competitors - PRESTIGE PRICING: based on product’s image - MARKET PRICE: (fluctuates) interaction of quantity customers purchase/producers can supply - DISCOUNT PRICE: reducing price to stimulate demand - PENETRATION PRICING: set price below competitors - MARKET SKIMMING PRICING: one of a kind = high pricing, lowered when others enter - PSYCHOLOGICAL PRICING: e.g. $49.99 instead of $50

Promotion - Method to inform, persuade, remind customers - Attract new customers → awareness - Increase brand loyalty → reinforcing image - Encourage existing customers - PERSONAL SELLING: modified to suit individual, build good relationship, time consuming - SALES PROMOTION: attract interest e.g. free samples, coupons - PUBLICITY: free news story, enhance public image - ADVERTISING: mass media, create demand

Place

- Distribution - PRODUCER TO CUSTOMER: no intermediaries - PRODUCER TO RETAILER TO CUSTOMER: retailer = intermediary (bulky/perishable products) - PRODUCER TO WHOLESALER TO RETAILER TO CUSTOMER: most common

FINANCE Accounting: managerial/administrative tool for recording financial transactions

Finance: how a business funds its activities, costs, risks, different borrowings

Financial Statement: report summarises transactions over periods of time

CASH FLOW STATEMENT ● Shows movement of cash receipts (inflows) + cash payments ● Whether inflows can match outflows ● INFLOWS: sales, credit sales when paid, interest from investments, non-operating income ● OUTFLOWS: stock payments, expenses (wages, insurance), non-operating expenses

Liquidity: amount of cash business has access to, how readily it can convert assets to cash for debt

● CASH FROM OPERATING: trading operations ● CASH FROM INVESTING: sale/purchase of assets ● CASH FROM FINANCING: acquisition/repayment of debt + equity finance

INCOME STATEMENT ● Summary of income + expenses over trading period ● Revenue & expenditure

COGS - value of stock business has sold

OPENING STOCK + PURCHASES - CLOSING STOCK Gross Profit

SALES - COGS Expenses - costs - operating + non-operating

● Selling: (traced to need for sales) commission, salaries, wages, advertising, electricity ● Administrative: (running the business) stationery, rent, telephone ● Financial: (borrowing money + minimising business risk) interest, lease, insurance payments

Net Profit - difference between gross profit and expenses GROSS PROFIT - EXPENSES BALANCE SHEET

● Statement of business assets + liabilities (financial position) at a time ● Financial Stability - what it owes vs. what it owns ● Should balance → Assets = Liabilities

Assets

- Items of value (given monetary value) - Current (used up in 12 months) and non-current (used in 3+ years) - Tangible and intangible - Assets = Liabilities + Owner’s Equity

Liabilities

- Items of debt owed to other organisations (e.g. suppliers, banks) - Loans, mortgages, accounts to be paid, credit card debt, accumulated expenses - Current (expect repaid 12 months or less) and non-current (long term debt)

Owner’s Equity

- Capital - Funds contributed by owner (establish + build business) - Considered liability

Undistributed Profits: money made and kept for future use

HUMAN RESOURCES ● Effective management of relationship (employer/employee)

RECRUITMENT

● Attracting qualified job applicants to select one appropriate for job ● HR manager:

- Analyse existing workforce - Identify no. of employees needed - Identify required skills and experience for future

Internal Recruitment: filling jobs with existing employees

External Recruitment: fillings jobs with people outside business Selection:

- Gather information about applicants, use it to select

Methods: - Written Application - Testing - Interviews - Background Checks

TRAINING

● Teaching staff to perform job efficiently ● On-the-job: advisers, traineeships, apprenticeships, job rotation ● Off-the-job: TAFE, university, in-services, seminars ● Action Learning: learning by experience of solving real workplace issues

EMPLOYMENT CONTRACTS ● Legally binding, formal agreement between employer and employee ● AWARD: set minimum terms and conditions (inflexible, don't allow for individual recognition) ● ENTERPRISE AGREEMENT: negotiated (employer and union/group of employees) ● COMMON LAW CONTRACT: when employers/employees have right to sue for compensation if

either party doesn’t fulfill contract ● Outlines rights and responsibilities of employer and employee

SEPARATION - VOLUNTARY/INVOLUNTARY

● Ending of employment relationship Voluntary: employee chooses to leave business (free will) Retirement: employee gives up full/part-time work

Resignation: ‘quitting’ voluntary ending of relationship

Redundancy: job/person no longer required (can be technological changes, merger, takeover) - Voluntary: informed business is cutting down, choose to leave (redundancy package)

Involuntary: employee asked to leave (against will) Retrenchment: dismissed isn’t enough work to justify paying them

Dismissal: unacceptable employee behaviour → necessary termination of contract - Unfair Dismissal: dismissal for discriminatory reasons e.g. race, sex, illness

Redundancy (Involuntary): (not enough volunteers) business forced to decide who is made redundant ETHICAL BUSINESS BEHAVIOUR

● Application of moral standards to business behaviour

● Fair and honest business practices ● Decent workplace relations ● Conflict of interest situations

● Accurate financial management ● Truthful communication

Management and Change