Business Management

Definitions
Achievable goals a desired outcome (target) that an individual or business intends
to achieve within a certain time frame
Change any alteration in the business and work environment
Data unprocessed facts and figures such as sales figures and customer complaints
External influence factors over which the business has very little control
High risk strategies the high risk and potential for fail actions a business takes to
achieve specific goals
Holistic an approach that looks at the whole picture
Human resource the employees of the business and are generally its most
important asset
Incremental change results in minor changes, usually only involving a few
employees
Information processed data that have been deliberately selected and organised to
be useful to an individual manager
Internal influence factor over which the business has some degree of control
Management information system (MIS) provides information that organisations
require to manage themselves efficiently and effectively. Management information
systems are typically computer systems used for managing. The five primary
components: Hardware, Software, data, Procedures and People.
Operations management all the activities in which manager engage to produce a
good or service
Organisational change the framework in which the business defines how tasks are
divided, resources are used, and departments are coordinated
Outsourcing the use of external sources or businesses to undertake business
function or activities for the business
Structural change changes in the businesss structure the organisation chart
Threat factors which may cause potential decrease in sales to a business
Transformational change often results in a complete restructure throughout the
whole organisation
Vision statement states the purpose of the business; states what the business
aspires to become; its purpose and its function
Work teams groups assigned to particular sections of a business, who work
together to achieve a common goal


Nature of Management
Features of Effective Management
Management - process of coordinating a business's resources to achieve its goals.
Working with and through other people to achieve business goals in a changing
environment. Crucial to this process is the effective and efficient use of limited
resources.

Manager - someone who coordinates the business's limited resources in order to achieve
specific goals.

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 (benefits).

Every business needs effective management to succeed.
Effective management is important because:
Ensures motivated and 'on track' staff
Coordinated all 4 key business function's to achieve common business goals
Achieves business goals
Ensure efficiency (least cost in fastest time)
Ensures quality
Meets needs of stakeholders
Satisfies customer needs and wants

The role of effective management is to make sure the joint efforts of employees are
directed towards achieving the business's goals.

The purpose of management is to set goals for the company and to help meet those goals as
effectively and efficiently as possible. There are four functions of management: planning,
organising, leading and controlling.

4 functions of Management:
Planning Make plans both short terms and long term
Organising Organises resources of the business; finance, labour, inputs, facilities
Leading Leads and motivates staff
Controlling Uses controls to ensure the business achieves its goals

An effective manager:
Anticipates changes in the market
Is flexible in approach and adapts to changes in the business environment
Develops well thought out short term or strategic plans
Organises business's resources in an efficient and productive manner
Has good relationships with employees, owners or other managers

Skills of Management
Skill - the ability that comes from the knowledge, practice and talent to do something well.
Interpersonal (people)
Communication
Strategic thinking
Vision
Problem-solving
Decision-making
Flexibility
Adaptability to change
Reconciling the conflicting interests of stakeholders

Interpersonal skills are skills people use to properly interact with each other. Some of these
basic skills include speaking, listening, following direction, and attitude.

Employers often seek to hire staff with 'strong interpersonal skills' - they want people who
will work well in a team and be able to communicate effectively with colleagues, customers
and clients.

Strategic Thinking Skills
When applied in an organisational strategic management process, strategic thinking
involves the generation and application of unique business insights and opportunities
intended to create competitive advantage for a firm or organisation.

Achieving Business Goals
A business has a number of goals which are interrelated. A business goal is what the
stakeholders in a business want to achieve. Different stakeholders often want different
things from a business.

A goal is an outcome achieved within a timeframe.

Why are goals important?
1. Acts as a target
2. Help a business measure performance - benchmark
3. Motivate staff
4. Commitment

SMART goals
For goal setting to be effective they need to be:
Specific
Measurable
Achievable
Realistic
Timebound


Types of Goals
Profit - Maximise profits over the long term (total revenue - total cost)
Market share (competitive advantage) - Increase market share for a specific product
Growth - Maximise growth of the company
Share prices - Generate increased share price, which reflects investor beliefs about the
long term prospects of the company
Society - Social goals - support community, social justice, Google's "Don't be evil"
Environmental concerns - sustainable development as a goal in itself or as a marketing
strategy

Profit Goals
Profits are always an important goal because they are strongly related to the other goals
and most people associate the success of a business with how much money it makes in
profit.

Typically, large businesses share the profit between the business and the shareholders.
Payments of profit to shareholders are called dividends.

Market Share Goals
Market share is the proportion of customers the product is aimed at.

Market share is the percentage of the market a particular business's products have. When
managers lower prices they can often increase revenue and the business's share of the
market. But lower prices can lead to lower profit unless costs can also be lowered. This is
why cost cutting is such a feature of modern management.

Example
Coles wanted to attract a greater market share, through bullying.

When a business loses market share; it is losing its customers.

Often managers are prepared to trade off higher profits to retain customers by lower prices.
But this should be a short-term goal. The best way to increase market share is through
better products and lower costs.

Growth Goals
Growth refers to an increase in the revenues a business earns from year to year. Growth is
achieved very simply by doing things better than competing businesses.

Growth is the main goal of long-term investors.

Investors concerned with long-term goals want to invest in a business that will increase in
value over the time of investment.

Social Goals
Many businesses provide employment, which in turn creates goods and services that add to
the quality of life of people in their community as well as income.
Environmental Goals
Environmental goals are goals concerned with sustainability - reducing the business's carbon
footprint, reducing waste in packaging, reducing energy requirements and so on. Coles and
Woolworths, for example, are trying to reduce the number of plastic bags customers use to
take their groceries home.

Conflicting Nature of Goals
It's not always possible to achieve all a business's goals, as they can be incompatible
(opportunity cost)
Short tern vs long term profitability
Profitability vs market share and/or growth
Profitability vs social goals
Profitability vs environmental goals

There are four main financial goals a business attempts to achieve:
Maximise profits
Increase market share
Maximise growth
Increase share price
Profit maximisation occurs when there is a maximum difference between total revenue and
total costs.
Market share refers to the business's share of the total industry sales for a particular
product.
A small change in a business's market share can result in a large change to its profit.
A business can maximise growth either internally or externally.
Companies need to satisfy their shareholders by improving the share price and paying
healthy dividends.

Staff Involvement
Staff involvement means involving staff in the decision making process and giving them the
necessary skills and rewards. This can lead to improvements in:
Innovation (Post-It notes, the Toyota Way)
Motivation - key driver of employee engagement is sense of personal autonomy and
being part of the process
Staff involvement is also mediated by:
Mentoring - formally allocating a more experiences employee as a mentor or guide for
new employees
Training - the process of teaching staff how to perform their jobs more efficiently
Management Approaches
Classical Approach
More often adopted in businesses that mass-produce goods. Two main variations:
1. Classical-scientific approach - focuses on organising workers and production methods
2. Classical-bureaucratic approach - focuses on how businesses should be organised and
structured


Classical-scientific approach
Based on work of Frederick Taylor, who focused on improving the efficiency of production
line work using time and motion studies. Four main principles:
1. Detailed analysis of each component of task to determine most efficient method.
2. Scientifically select, train and develop each employee rather than passively leaving
them to train themselves.
3. Provide detailed instruction and supervision of each worker.
4. Divide work nearly equally between managers and workers, so that the managers
apply scientific management principles to planning the work and the workers actually
perform the tasks.
Advocated a tightly controlled workplace, with rigid rules and regulations based on
hierarchy of authority.

Example where used: McDonalds

Classical-bureaucratic approach
Pioneered by Max Weber and Henri Fayol.
Argues that a bureaucracy is the most efficient way to organise a firm, which involves:
Hierarchical organisational structure
Clear lines of communication and authority
Detailed specialisation
Rules and procedures
Impersonal evaluation of employee performance

Views main functions of management as:
Planning - the process of setting goals and deciding on methods to achieve them
Organising - the process of arranging the resources of a business to achieve the goals
Controlling - the process of evaluating and modifying tasks to ensure the set goals are
achieved

Strengths of classical approach
Increased productivity through division of labour and specialisation
Set of rational rules and regulations due to clear lines of authority and accountability
Formal rules and regulations aid the assurance of fairness and consistency regarding
business operation
Money as the key motivator (staff retention)

Weaknesses of classical approach
The theories do not promote organisational flexibility
Leadership is autocratic, and loses the benefits of employee feedback
Boredom due to division of labour increased absenteeism - lower worker satisfaction
and motivation
Traditional narrow spans of control are expensive (lots of oversight and managers)
The levels of management hierarchy slows down decision-making


Behavioural Approach
Developed by Australian-born Elton Mayo
Leading - Motivating - Communicating
This theory is characterised by:
Management working with employees
Idea that employees are motivated by more than just monetary rewards
o Employees are self-motivated
o Achieve job satisfaction
Communication between managers and workers
Democratic leadership
Importance of interpersonal skills

Leading - Motivating - Communicating LCM
Leading
Need good and empathic listening skills
Set high expectations on employees to initiate and implement ideas
Focus on needs of employees
Motivating
Recognition and positive reinforcement just as important as pay and conditions
Communicating
Need to share thoughts and plans

Teams
Teamwork involves people who interact regularly and coordinate their work towards a
common goal
Managers need to foster a sense of cohesion in teams - team building exercises
Use of team approach breaks down traditional hierarchical approach to management -
flatter organisational structures
Role of manager moves from controller to facilitator, and away from autocratic to
participative management style

Participative/Democratic Leadership Style
Manger that practices behavioural approach said to use a more participative or
democratic leadership style
Share decision-making authority with employees (a 'we' approach)
Associated with flatter management structures

Advantages Disadvantages
Positive employer/employee
relations
Reduced industrial disputes
Improved motivation and job
Takes longer to reach decisions
Management more easily
undermined
Potential loss of control of
satisfaction
Employees can acquire more skills
organisation
May increase internal conflict

Comparing Classical and Behavioural Approach
CLASSICAL BEHAVIOURAL
Managers Managers
Autocratic
Centralised
Power not shared
Democratic
Decentralised
delegation
Structure Structure
Rigid
Hierarchical
Many layers
Task centered
Flexible
Flat
Delayering
People focused
Employees Employees
Specialisation
Long chain of command
Top down
communication
Greater responsibility
Multi-task and multi-
skill
Short chain of
command

Contingency Approach
Main Features of Contingency Approach
Believes there is no one set of universally applicable management principles
Highlights the need for flexibility
Management practices are adapted to suit changing circumstances

Questions
1. Describe the role of management theory in more successful businesses.
Modern management theory is attributed to thoughts. It involves choosing the best
people, focusing on opportunities, empathising with customers and understanding the
business's competitive advantage. Management theory can also involve the
decentralisation and privatisation of management, a workplace community built on
trust and respect for worker, considering workers as assets not liabilities and
developing the knowledge and skills of workers.
2. Outline the role of planning, organising and controlling in the Classical approach.
Planning is the process of setting goals and deciding on methods to achieve them.
Organising is the process of arranging the resources of a business to achieve the goals.
Controlling is the process of evaluating and modifying tasks to ensure the set goals are
achieved.
3. What is an autocratic leadership style? List its advantages and disadvantages.
The autocratic leadership style is often associated with the Classical approach. The
managers make decisions with little or no input from other workers and many
decisions are made in an attempt to maintain control over work methods. Workers are
rarely given the opportunities to make decisions without consultation.
Advantages Disadvantages
Fast and efficient
decision making
Highly organised
Keeps workers on task
Most suitable to
certain circumstances
e.g. military conflict or
training of
inexperienced workers
Often poorly received especially by more
experienced workers
Lack of flexibility
Fewer opportunities for better discussion
of ideas
Close supervision of workers
4. Outline the role of leadership, motivation and communication in the Behavioural
approach to management.
Leading involves having good and empathic listening skills, setting high expectations
on employees to initiate and implementing ideas and focusing on the needs of
employees. Motivating involves the recognition of positive reinforcement as just
important as pay and conditions. Communicating involves sharing thoughts and plans
with coworkers.
5. What is the participative/democratic leadership style? List its advantages and
disadvantages.
The participative or democratic leader is one that will engage workers in the decision
making process. Many managers will find involving workers in the decision making
process as a sign of weakness and inability to be decisive. However, there are a
number of advantages to this management approach. These include:
Experienced and skilled knowledge workers appreciate being involved in the
decision making process as it gives them ownership of the final decision.
Involving workers may lead to more effective decisions as many people can
contribute to the process.
Creates shared responsibility for the direction of the business.
A more creative and harmonious workplace.
Management Process
Coordinating Key Business Function and Resources
Key Business Functions
Operations
o Production processes, factory or office layout
Marketing
o Pricing, design, advertising, distribution channels
Finance
o Budget, financial administration, financial planning
Human Resources
o Recruiting, training, industrial relations, employment contracts

Interdependence of Business Functions
Although we look at them separately, all the key business functions are interdependent -
they need to work together to be successful, and changes in one area often affect the other
areas.

Coordinating Key Business Functions
In large businesses, key business functions are often separated into different divisions or
departments. In small businesses, responsibility for key business functions often overlap.

Specialisation is the separation of business functions into four separate 'key' business
functions to improve efficiency and effectiveness.

Business functions should be highly integrated (fitting well with each other). For instance,
production is influenced by marketing; marketing is influenced by human resource and
finance departments in a company. All parts must corporate and work together to produce
a product or service.



Operations
Operations management consists of all the activities in which managers engage to produce
a good or service.
A good is a physical product while a service is intangible, but in reality most firms
produce a combination of both.

The Production Process
1. Inputs - the resources used in the process of production
a. Raw materials
b. Capital equipment
c. Labour
d. Information
e. Time
f. Money
2. Processes/transformation
a. This is the processes involved in turning the inputs into outputs
b. In manufacturing, distinguish between simply transformed manufactures (STMs)
and elaborately transformed manufactures (ETMs)
c. STMs only have a small value added, and generally become inputs into additional
manufacturing processes (intermediate goods)
3. Outputs
a. This refers to the end result of a business's efforts

Quality Management
Quality means the degree of excellence of a good or service and its fitness for a stated
purpose. Managing quality includes:
Minimising waste and defects
Conforming to standards
Reduction of variance in final output

Quality Management
Quality management is the strategy a business uses to make sure its product meets
customer expectations. Three approaches are:
1. Quality control - inspections are made at various points in production process
2. Quality assurance - focuses not just on outputs but the entire production process
3. Total quality management (TQM) - a management philosophy of continuous
improvement of the quality of products and processes
Total Quality Management
TQM uses several practices to achieve its objectives, including:
Employee empowerment
Continuous improvement
Customer focus
Marketing
Marketing is a set of interacting activities designed to plan, price, promote and distribute
products to present and potential customers. Marketing is more than just advertising.

Market Share - process of companies trying to get more consumers which results in profit

Target Markets
Marketing a product is expensive (SuperBowl advertisements 30secs millions), so most firms
want to identify the specific group of customers that are likely to buy their product - i.e.
their target market
Three broad approaches to finding target market

1. Mass Marketing
In mass marketing, the business develops a single marketing mix for the entire market.
One type of product, one promotional program, one price and one distribution
system
Very unusual now, but typical mass marketed product was Model T Ford ('You can
have any colour as long as its black')
There is no differentiation - one size fits all

2. Market Segmentation Approach
Market segmentation occurs when the business divides the total market into groups of
people who share one or more characteristics (demographic, geographic, lifestyle or
behavioural)
Common Market Segmentation
1. Demographic
Age, gender, education, occupation, religion, ethnicity, social class
2. Geographic
Urban, suburban, rural, climate
3. Lifestyle
Socioeconomic group, aspirations, interests
4. Behavioural
Loyalty, price sensitivity, use rate, purchase occasion

3. Niche Markets
Niche marketing is an extension of the market segmentation approach, which narrowly
targets segments within segments.
Focus group
Skin types
12 year old girls
Expecting mothers
Farmers

The Marketing Mix
The marketing mix refers to the combination of the four P's - product, price, promotion and
place - to achieve the businesses marketing goals.

Product
This element of the marketing mix is more than just what is sold. It also includes:
Design
Name
Packaging
Labelling
Quality
Warranty and guarantee
Customer service
Product positioning refers to the development of a product image compared with the
images of competing products.
Product Packaging
Packaging can create an image of luxury, or can appeal to environmental aspirations of
the consumer.

Product Branding
Brand and logo development is an important marketing technique that helps
distinguish a product from its competitors.

Price
Businesses want to price their products to maximise their long term profits. Factors they
must consider include:
Costs - businesses normally want to price their product ot at least cover their costs
plus a profit margin (cost plus margin). However, some goods are sold as loss leaders
(e.g. razor handles, Amazon's Kindle)
Market demand - how much of the good consumers are willing to buy at each price
level?
Prices offered by competitors - is your good or service different enough to change
higher prices? Differentiation
Discounting - is their excess stock that hasn't sold at the current price that might be
sold if it is discounted?

Promotion
Promotion is the process of informing, persuading and reminding customers about a
business's products
Attract new customers
Increase loyalty of existing customers
Encourage existing customers to buy more of the product
Main forms of promotion are:
1. Personal selling - sales assistant personally outline the features of the product/service
(Avon, Thermomix, shop assistants in stores)
2. Sales promotion - activities and materials used to attract interest (free samples,
coupons, loyalty programs)
3. Publicity - business sets up an interesting story that is picked up by the media
4. Advertising - print or electronic mass media used to communicate a message about a
product

Place
Place refers to the distribution channels through which a good/service may be sold. Three
main types of distribution channels:
Producer to customer
Producer to retailer to customer
Producer to wholesaler to retailer to customer

Finance
Accounting and Finance
Accounting is a management tool that provides information on the financial affairs of a
business.
Finance is concerned with how a business sources and manages the risk of its funding.
Finance is concerned with acquiring and managing the funds that are needed so that goods
and services can be produced.
Two sources of funds available to a business:
Debt
Equity
There must be a balance of debt and equity for business survival.
Financial reports are used to measure the financial success and stability of the business.

Main Accounting Reports
There are 3 main accounting reports we will look at:
Cash flow statements, which provides information about the liquidity of the business
Income statements, which detail the income received and expenses incurred by the
business over a period of time (also called profit and loss statement, statement of
financial performance or revenue statement)
Balance sheets, which detail the financial stability of a business in terms of what it
owns and what it owes (also called the balance sheet)

Why are accounting reports useful?
They provide information to:
Management, to assist in decision making
Owners, so they can understand how well managers are running their business
Potential investors, so they can determine whether they are willing to invest in the
business
Tax office, so they can assess the tax payable by the business
Government regulators, so they can determine whether the business is operating
within the constraints of laws and regulations
Suppliers, so they can determine their willingness to extend credit on goods or service
supplied
Lenders, so they can determine whether any debt covenants have been breaches

Balance Sheet
A balance sheet is a snapshot of a business at a point in time. They are also known as
statements of financial position over periods of time. Overall, it is the best indicator of
financial status of a business.

Assets = Liabilities + Owner's Equity

Assets
Assets are items of monetary value to an organisation, i.e. items we can actually put a price
on.
Separate into:
Current assets: assets which are reasonably expected to be converted into cash within
12 months
e.g. cash, accounts receivable, stock
Non-current assets: assets which are expected to be held for longer than 1 year
e.g. buildings, fixtures and fittings, intangibles - things of worth that have no
physical substance e.g. logos, trademarks, patents, reputation
Intangible assets: things of worth which have no physical substance, e.g. a business
that has a strong brand name or a good reputation - Goodwill

Goodwill is the monetary value of the reputation of a business.
Goodwill can change over time depending on the business's reputation over their
Business Life Cycle. A damaged reputation can impact the whole business as their
image will be destroyed causing a decline in clients.

Liabilities
Liabilities are debts owed to other organisations, e.g. suppliers, loans, accounts payable.
Current liabilities are items of debt expected to be repaid within 12 months
e.g. accounts payable, credit card loans, accrued expenses
Non-current liabilities are items of long-term debt.
e.g. mortgaged, leases, long service leave entitlements, maternity leave

Owner's Equity
Owner's equity is the funds contributed by the owners to establish and build the business,
also referred to as capital.
It determines the value of the business.
Owner's Equity = Assets - Liabilities

When a business earns a profit, it can choose to take this home for personal use or keep it
within the business for further expansion. Keeping profit with a business is known as
retained profit.

Owner's equity is classified as a liability as it is a type of debts that the business carries, i.e.
the business owes the owner's equity to the owner - it is their money and their right to
remove it from the business should they choose to do so. It is also a liability as it represents
the level of risk that the owner's took in investing their personal funds and earnings into the
business.

A successful business will see an increase in its owner's equity, which can be:
Reinvested in the business
Partly repaid to the owners
Set aside as reserves for future use

Balance Sheet Example
ASSETS LIABILITIES
Current Assets
Cash $1000
Inventory $10 000
Accounts receivable
$2000
Current Liabilities
Credit Card $3000
Accounts payable $5000
Total Current Assets
= $13 000
Total Current Liabilities
= $8000
Non-current assets
Fixtures & fittings $20 000
Non-current liabilities
Mortgage $100 000
Intangibles $30 000
Buildings $100 000

Bank overdraft $2000
Total non-current assets
= $150 000
Total liabilities
= $110 000
Owner's equity
Owner's capital $40 000
Retained profit $13 000
Total owner's equity
= $53 000
Total Assets
= $163 000
Total Liabilities & Owner's Equity
= $ 163 000
ASSETS - LIABILITY = NET WORTH

Cash Flow Statements
A cash flow statement shows a business's inflows and outflows of cash over a period of time
(usually monthly).

Cash flow statements are essential to determine if the business has enough cash available
to meet payments and other financial obligations, i.e. outflows.

If a business has enough cash to cover its short-term debts, it is said to be 'liquid' or
'soluble'.

The term liquidity comes from this idea, meaning the amount of cash a business has readily
available and how quickly they can turn current assets into cash, e.g. stock and accounts
receivable.

Cash flow statements are closely related to a budget as they look at how much money a
business has coming in and going out to ensure all debts can be paid.

They are also an excellent way to analyse past business performance and to learn how the
business can improve to ensure cash flow remains stable and the correct amount that is
required.

Past cash flow statements also help a business to predict sales in the future which helps
with managing income, minimising expenses and predicting decline.

Categories in Cash Flow Statements
Larger businesses will break down their cash flow statements into 3 sections:
Cash from operating activities - cash flows related to the main trading operations of
the business
Cash from investing activities - cash flows related to the sale and purchase of assets
(such as land, financial assets)
Cash from financing activities - cash flows related to the acquisition and repayment of
debt and equity finance



Cash flow statement for Isabelle's Ice Cream Parlour
Month October November December January February March April May June
Inflows 200 600 600 700 500 200 100 100 100
Outflows 500 400 400 400 400 100 200 150 100
Closing
balance
-300 -100 100 400 500 600 500 450 450
Questions
1. Isabelle's ice cream parlour is affected by seasonal influences. Explain why this is the
case.
The outflows and inflows are higher in summer due to increased production for this
season while the winter months have less outflows and inflows as production is not as
high in colder months.
2. Identify the months experiencing negative cash flow.
October and November
3. Recommend two ways Isabelle could improve her cash flow throughout the year
(using the hints provided).
Produce less in October and winter months.

Mr Kelleher's 'Kooking Klasses' cash flow statement for Quarter 1, 2014
Inflows January $ February $ March $
Sales 7000 10,000 12,000
Bank account
interest
100 200 400
Total inflows 7100 10,200 12,400
Outflows
Raw materials 1000 5000 3000
Rent 2000 2000 2000
Wages 1500 3000 2500
Electricity 500 2000 800
Phone bill 100 500 200
Total outflows 4200 12500 8500
Cash surplus/ deficit 2900 600 4500
1. Identify the month/s in which Mr Kelleher is experiencing negative cash flow.
None.
2. What expenses seem particularly high?
Materials, rent & wages.
3. Propose 3 ways Mr Kelleher could manage his cash flow more effectively (based on the
information you have been given from his expenses and cash surplus/deficit.
Spend less on materials and wages to increase closing balance.



Income Statement
Summary of income earned and expenses incurred over a period of trading.
Profit = revenue - expenses
It is useful as it shows business owners and prospective investors exactly how much money
has come into the business as revenue, how much has gone out as expenditure and how
much has been kept as profit.

Five main categories:
1. Revenue from sales (or income)
2. Costs of goods sold (COGS)
3. Expenses
4. Net profit

1. COGS
COGS = opening stock + purchases - closing stock
Purely service businesses have no stock, so COGS will be zero

2. Gross Profit
Gross Profit = Revenue - COGS
Gross profit shows the mark-up the firm is making on the cost price of the goods it
has sold. In a purely service business, revenue from sales will equal gross profit.

3. Net Profit
Net Profit = Gross Profit - Expenses

4. Revenue from Sales (Net Sales)
Revenue from sales (or net sales) is revenue earned from sales minus returns and
discounts.

Expenses
Includes all the other costs associated with the business, and can be classified into 5
categories:
1. Selling (sales wages, advertising, delivery etc.)
2. Administrative (stationary, rent, phone, office wages etc.)
3. Financial (interest payments, lease payments, dividends, insurance etc.)
Expenses can also be classified as operating (ie. Occurring in normal course of trading) and
non-operating (unusual, one-off) expenses.

Income Statement for 'Designer Dogs' for the year ended 30 June, 2013
Sales $500 000
Less COGS $300 000
Gross Profit $200 000
Less expenses
Selling Expenses Advertising 50 000
Telephone 1000 51000
Administration Expenses Salaries 20 000
Stationary 500 20500
Financial Expenses Interest on loan 500
Insurance 3000 3500 75 000
NET PROFIT (Gross profit - total
expenses)
$125 000

Human Resources
Human resource management is the effective management of the formal relationship
between the employer and the employees.

HRM includes:
Hiring the best people
Develop cooperative and effective working relationships
Motivating staff
Providing staff with opportunities for training and development

Human Resource Cycle staffing process
Acquisition
Three activities involved in acquisition stage:
1. Planning: identifying staffing needs; job analysis
2. Recruitment: Attracting people to apply for the position, both internal and external
3. Selection: testing, interviewing and hiring

1. Planning
Businesses need to:
Forecast heir future demand for employees
Analyse the prospective employee's duties (job description) and key
qualifications required (job specification)
2. Recruitment
Main sources of employees are:
Advertisements in media
Recruitment agencies
Schools, TAFE colleges and universities
Public employment agencies
Internal searches

3. Employee Selection
Identify skills, qualifications and experience of each applicant, and relate them to
those in the job specification. Employee selection may involve:
Submission of curriculum vitae and covering letter
Testing
Interviews
Background checks

Training and Development
Training involves teaching staff to perform their job more efficiently and effectively by
boosting their knowledge and skills.
Developing is the process of preparing employees to take on more responsibility.
Evolution of technology creates the need for ongoing training.

Maintenance
Businesses want to encourage good workers to remain. The business can use a combination
of monetary and non-monetary benefits as part of a remuneration package.
Non-monetary benefits include providing childcare, flexible working hours,
telecommuting.

Separation
Separation is the ending of the employment relationship. There are two main categories:
Voluntary, which includes retirement, resignation and redundancy
Involuntary, which includes retrenchment and dismissal

Employment Contracts
An employment contract is a legally binding, formal agreement between an employer and
an employee. Three different types of employment contracts:
Award
Enterprise agreement
Common law contract

Award
An award is a legal document that sets out minimum wages and conditions for an
industry or occupation. Awards cover things like rates of pay, overtime, penalty rates
and allowances. The conditions in awards apply on top of the minimum conditions in
the National Employment Standards.
National Employment Standards
Apply to all full and part-time workers in Australia, include:
Must be paid penalty rates to work more than 38 hours per week
Entitled to 12 months unpaid parental leave
Entitled to four weeks annual leave
Entitled to 10 days personal, carer's and compassionate leave

Enterprise Agreement
Enterprise bargaining is wage and working conditions being negotiated at the level of
the individual organisations. Unlike awards, which provide similar standards for all
workers in the entire industry covered by a specific award, collective agreements
usually apply only to workers for one employer - although on occasion a short-term
collaborative agreement (for example, on a building-site) yields a multi-
employer/employee agreement.


Common Law Contract
Common law employment contracts cover those employees not under any award or
enterprise agreement.
More common among professional and managerial employees.
Contracts signed individually and not open to public scrutiny

Questions
2. Identify the main functions of the staffing process and why this is important to
business.
1. Acquisition - planning, recruitment and selection of employees.
2. Development - training of employees for effective and efficient performance in
the workplace.
3. Maintenance - monetary and non-monetary benefits to encourage employees.
4. Separation - ending the of the employment relationship - either voluntary or
involuntary.
Human resources are important to the business as it assists in achieving the business
goals in correspondence to the other key business functions.

5. Identify the overall aim of training and development
Training and development aims to teach employees to perform their work efficiently
and effectively to achieve the business goals.

6. Outline how training and development can benefit both employees and employers
Training and development can improve the efficiency and effectiveness of production.
This is beneficial for employers as increases production and quality of products leads
to increased sales. This may cause an increase in wages for employees. The efficiency
and effective production methods may also be appealing to employees as work is not
boring or inefficient.

7. Clarify what type of employees are usually covered by a common law contract
Common law employment contracts cover those employees not under any award or
enterprise agreement. They are more common among professional and managerial
employees.

8. State the areas covered by the Fair Work Act 2009
The Fair Work Act 2009 ensures workplace rights and minimum wage.

Ethical Business Behaviour
Corporate Social Responsibility - The corporate belief that a company needs to be
responsible for its actions socially, ethically, and environmentally.
Questions
1. Give two reasons why effective management is important?
Effective management is important because:
Ensures motivated and 'on track' staff
Coordinated all 4 key business function's to achieve common business goals
Achieves business goals
Ensure efficiency (least cost in fastest time)
Ensures quality
Meets needs of stakeholders
Satisfies customer needs and wants

2. Define interdependence and give an example of this in relation to the 4 key functions.
Interdependence refers to the mutual dependence that the 4 key business functions
have on one another as each overlap and require support from the others to function
at full capacity.

Examples include marketing relies on finance to help create budgets for promotions
whereas marketing generates funds for finance.

3. Define operations management.
Operations management is all the activities in which managers engage to produce a
good or service.

4. Give an example of a tangible good.
Anything you can touch, for example, a can of coke, a book and iPod.

5. Give an example of an intangible good.
A service such as a hairdresser, physio, beautician.

6. Define transformation.
Transformation is the conversion of inputs (resources) into outputs (goods or
services).

7. Identify the 6 categories of inputs.
1. Material inputs
2. Capital equipment
3. Labour
4. Information
5. Time
6. Money

8. What are the 3 aspects of quality management?
1. Quality control
2. Quality assurance
3. Total Quality Management

9. What is the marketing concept?
The marketing concept is a philosophy that states that all sections of the business are
involved in satisfying a customer's needs and wants.

10. What are the 3 types of target markets?
1. Mass
2. Segmented
3. Niche

11. What are the 4 aspects of the marketing mix?
1. Product
2. Price
3. Promotion
4. Place

12. What is a marketing strategy?
A marketing strategy is any action undertaken to achieve a business's marketing goals
through the marketing mix.

13. What is product positioning?
Product positioning is developing a product image, for example, Australian made, high
quality, cost effective.

14. What are the 4 stages of the product life cycle?
The 4 stages of the product life cycle include introduction, growth, maturity and
decline.

15. Identify one of the four methods used by managers when determining what price to
charge for their product?
1. Cost plus margin
2. Market price
3. Competitor's price
4. Discount price

16. What are two of the four elements of the production mix?
1. Personal selling
2. Sales promotion
3. Publicity
4. Advertising

17. What is one channel of distribution?
1. Producer to consumer
2. Producer to retailer to consumer
3. Producer to wholesaler to retailer to consumer

18. What is the COGS formula?
COGS = opening stock + purchases - closing stock

19. What is the Gross Profit formula?
GP = sales - COGS

20. What is the Net Profit Formula?
NP = GP - expenses

21. What are the 3 types of financial statements?
1. Cash flow
2. Income statement
3. Balance sheet

22. Define a current asset.
A current asset is anything of value that is expected to be used or turned over within
12 months, for example, cash or stock.

23. What are the 4 steps in the Human Resources cycle staffing process?
1. Acquisition
2. Development
3. Maintenance
4. Separation

24. Identify one piece of legislation relevant to Human Resources.
Fair Work Act 2009
Anti-discrimination Act 1977
Affirmative Action (EEO for women) Act 1986 (Commonwealth)
Workplace Health & Safety 2011

25. Identify one type of reward employees could receive.
Monetary or non-monetary.
Management and Change
Key Terms
Transformational vs incremental change
Structural change
Outsourcing
Business information system (BIS) or management information system (MIS)
Driving forces vs restraining forces
Change agent
Management consultant
Best practice
Change management

Management and Change
Change is any alteration in the work environment, and can be due to internal or external
influences. Examples include:
Foreign exchange rates
Changes in consumer tastes
New product marketed by competitor
Loss of key employees
Introduction of new product by the business
Increase in interest rates


Responding to Internal and External Influences
External Influences
Economics
Financial
Geographical
Social
Legal
Political
Institutional
Technological
Competitive situation
Markets

Internal Influences
products
location
resources
management
business culture

Managing Change Effectively
Responding to Change
Successful managers are the ones who can anticipate and adjust to changing
circumstances
Proactive vs reactive

Identifying the Need for Change
In order for managers to be able to identify the need for change they need to have access to
detailed information about all facets of the business.
Most successful businesses have effective business information systems (BIS) that
gather, organise and summarise important information about the business.

BIS - what sort of information?
Sales management - customer details, orders, returns
Operations - inventory, supply ordering, maintenance costs, production costs
Financial - accounts receivable, accounts payable, accounting, cash management,
investment management
HR - wages and superannuation, leave entitlements

How is change implemented?
Use management consultants
Staff involvement in the change process
Set achievable goals
Create a work place culture that embraces change as an opportunity

Management Consultants
Businesses can seek advice form management consultants who may specialise in different
areas, such as:
Risk management
Business process reengineering
Strategy
Recruitment
Change management
Using management consultants can often be a way of overcoming resistance to change, if it
is seen as being driven by a disinterested party

Setting Achievable Goals
A vision statement states the purpose of the business, and businesses also establish specific
company goals that are measurable.
As the business environment changes, businesses may need to adapt their vision and goals.
It is important that businesses set achievable goals, otherwise it can generate cynicism from
employees and lead to a reduction in motivation and commitment.

Driving and Resisting Forces

Resistance to Change
Although managers may attempt to drive change in an organisation, there will always be
resisting forces:
Most employees dislike change, as it requires them to learn new skills and work under
more uncertainty
Employees fear job loss that may result from the change
Effective changes cost money, for which there are always other uses
There may be disagreement as to the rationale for the change and the tactical
approach taken

Strategies for Managing Resistance
Allow employee participation
Clear communication or rationale and process
Provide constant updates and feedback
Support with training and education
Two way communication
Use of change agents
Positive leadership

What is changed?
In responding to change, businesses often undergo changes in:
Organisational structure
Business culture
Human resources functions
Operations functions

Key changes in Organisational Structure
Rise of outsourcing
Use of flatter organisational structures
Development of project teams rather than hierarchical organisational structure

Key changes in Business Culture
A business that is open to change and constantly tries to reinvent itself will navigate a
changing business environment more effectively.

Key changes in Human Resource Management
HR will need to reevaluate recruitment procedures to find people who adapt well
to change
Training needs to be offered to improve teamwork skills and more independent
decision making
Performance appraisal and reward systems must reinforce new behaviours
A clear vision needs to be communicated to employees

Key changes in Operations
Production processes must reflect developments in technology
Emphasis on quality assurance

Responding to Change
1. Identify Change
2. Who are the impacted businesses?
3. What strategies need to be implemented in the key business functions? (Operations,
Marketing, Finance & Human Resources)
4. Which management approach? (Classical, Behavioural or Contingency)
5. Identify the future conflicts between stakeholders and provide solutions