Business chapter 1

Types of businesses

Sole trader, partnership, companies, social enterprises and government business enterprises

Business

any activity conducted by an individual or individuals to produce and sell goods and services that satisfy the needs of society, as well as making profit

Sole trader

a business owned and operated by one person

Advantages of sole trader

1. Low cost of entry

2. Complete control

3. Less costly to operate

Disadvantages of sole trader

1. Personal (unlimited) liability for business debts

2. End of business when owner dies

3. Difficult to operate if sick

Partnership

a business owned by two or more people (generally a maximum of 20)

Advantages of partnership

1. Low start up costs

2. Less costly to operate than a company

3. Shared responsibility and workload

Disadvantages of partnership

1. Personal unlimited liability

2. Possibility of disputes

3. Divided loyalty and authority

Incorporation

the process that businesses go through to become a registered company and a separate legal entity from the owner/shareholder

Private limited company

an incorporated business that has a minimum of one shareholder and a maximum of 50 non-employee shareholders, and whose shares are offered only to those people whom the business wishes to have as part owners

Advantages of private limited company

1. Easier to attract finance

2. Limited liability-separate legal entity

3. Easy transfer of ownership

Disadvantages of private limited company

1. Rapid growth may lead to inefficiencies

2. Cost of formation(more expensive than sole trader or partnership

3. Public disclosure-reporting of certain information

Public listed companies

an incorporated business with a minimum of one shareholder (and no maximum), and whose shares are openly traded on the Australian Securities Exchange

Advantages of public listed companies

attract extra capital by issuing shares on the share market-greater potential for growth

Disadvantages of public listed companies

required to abide by stringent compliance rules and disclose corporate financial information

Social enterprise

a business with the objective of fulfilling a social need

Advantages of social enterprise

1. Can open up new markets- the social enterprise may meet a need that commercial businesses choose not to

2. Meeting a social need can have a positive effect on profit and market share

Disadvantages of social enterprise

1. Difficult in obtaining capital to start the business- it can be hard to find finance

2. Significant operating costs-often take on costs that conventional business would not

3. Can be difficult to focus on both social and financial objectives

Government business enterprise

a type of business that is government owned and operated

Advantages of government business enterprise

1. Can operate with some independence from government 

2. Able to carry out government policies delivering community service in areas where private sector businesses might hesitate to invest

Disadvantages of government business enterprise

1. There can be less accountability within a GBE-resulting in less productivity

2. Management of GBE’s can be less effective than that of the private sector

3. Political interference in the day to day operation of the GBE

Business objectives

To make a profit

To increase market share

To improve efficiency

To improve effectiveness

To fulfil a market need

To fulfil a social need

To meet shareholder expectations

Objective

A desired outcome or specific result that a business intends to achieve

To make a profit

what is left after business expenses have been deducted from money earned from sales

To increase market share

Increasing the proportion of total sales in a given market or industry that is controlled or held by a business, calculated for a specific period of time

To improve efficiency

How well a business uses resources to achieve objectives

To improve effectiveness

The degree to which a business has achieved its stated objective

To fulfil a market need

A market need is a gap or problem in the market that a business can look to satisfy/solve

To fulfil a social need

Businesses may look to satisfy a particular social or community cause

To meet shareholder expectations

Shareholders are often looking for a return on their investment through sharing in profits and the value of their shares increasing

Strategies

The actions that a business takes to achieve specific objectives

Key performance indicators

Specific criteria used to measure the efficiency and/or effectiveness of the businesses performance

Vision statement

States what the business aspires to become

Mission statement

Expresses why the business exists,its purpose and how it will operate

Business stakeholders

Owners,managers,employees,customers,suppliers and the general community

Stakeholders

Groups and individuals who interact with the business and have a vested interest in its activities

Owners and shareholders

A business may be owned by a sole trader, partnership of by a number of shareholders.

Those that own part of the business.

Managers

The person who has the responsibility for successfully achieving the objectives of the business

Employees

The people who work for the business and expect to be paid fairly , trained properly and treated ethically in return for their contribution to production

Customers

The people who purchases goods and services from the business , expecting high quality at competitive prices

Suppliers

Businesses or individuals who supply materials and other resources to a business so that it can conduct its operations

The general community

Individuals that live in the area in which the business operates and sells its products.

Potential conflict between stakeholders

All stakeholders who interact with a business have an interest in its activities.However, some expectations are incompatible; that is, they oppose each other. In this case, satisfying one set of stakeholders will most probably result in other stakeholders being dissatisfied. 

Conflict between employees and owners/shareholders

Employees require safe working conditions and reasonable wages, but this may reduce the business’s profit and dividends to owners/shareholders.

Conflict between management and customers

Management could attempt to maintain profit and a high dividend to satisfy shareholders by raising the prices of products, but this will upset customers, who expect reasonably priced products.

Conflict between management and the general community

Management might decide to cut costs by neglecting maintenance, which could possibly put members of the community in danger.

conflict between Suppliers and the general community

Suppliers expect to be paid fairly and promptly, but they might reduce costs by using unethical or socially irresponsible practices, which can upset members of the community.

Conflict between management and suppliers

Management wishes to keep costs down to improve profit but suppliers providing ethical materials require higher prices to cover their costs.

Corporate social responsibility

The obligations a business has over and above its legal responsibilities to the wellbeing of employees and customer, shareholders and the community, as well as the environment

Management styles

Autocratic,persuasive,consultative,participative and laissez-faire

Management style

The behaviour and attitude of the manager when making decisions , when directing and motivating staff, and when implementing plans to achieve business objectives

Autocratic management style

one where the manager tells staff what decisions have been made

Advantages of autocratic management style

1. Control is centralized at the top management level, so time is used efficiently and problems are dealt with quickly, because there is no discussion or consultation.

2. Directions and procedures are clearly defined; there is little uncertainty.

Disadvantages of autocratic management style

1. No employee input is allowed, so ideas are not encouraged or shared. This means employees do not get the chance to develop their skills, and they do not feel valued.

   2.When no responsibility is given to lower level staff, job satisfaction decreases. This impacts on issues such as absenteeism and staff turnover.

Persuasive management style

one where the manager attempts to ‘sell’ decisions made

advantages of persuasive management style

1. Instructions and explanations remain clear and constant.

   2.Managers can gain some trust and support through persuasion.

Disadvantages of persuasive management style

1. Attitudes and trust remain negative. Employees fail to give full support to management.

   2.Communication is still poor and limited to a top-to-bottom, one-way system.

Consultative management style

one where the manager consults employees before making decisions

advantages of consultative management style

1. Asking for suggestions from employees allows for a greater variety of ideas and should improve the quality of management decisions

   2.When decisions are discussed and fine-tuned before implementation, tasks are completed more efficiently and with better results.

Disadvantages of consultative management style

1. The time taken to consult all the relevant employees can slow the entire process.

   2.When a number of ideas are shared, some are bound to be ignored or overlooked in the final decision. This may cause conflict or resentment.

Participative management style

one where the manager unites with staff to make decisions together

advantages of participative management style

1. There is a high level of trust, often resulting in improved employee performance.

   2.Employees have a greater opportunity to acquire more skills.

Disadvantages of participative management style

1. Not all employees may want to contribute.

   2.the role of management, and the control of the manager, may be weakened and undermined, with employees given too much power in some cases.

Laissez-faire

one where the employees assume total responsibility for, and control of, workplace operations

advantages of laissez-faire management style

1. Employees feel a sense of ownership, which can promote outstanding results.
   2.Communication is completely open, and ideas are both discussed and shared.

Disadvantages of laissez faire management style

1. The focus on meeting business objectives can be easily eroded. Management may find themselves with a failed business and nothing to manage.

   2.This style can breed personal conflicts, where individuals do not cooperate    cases, management is not there to direct or negotiate.

Contingency management theory

Stresses the need for flexibility and the adaption of management styles to suit the situation

Appropriateness of the selected management style

Nature of the task

Time

Experience of employees

Manager preference

Management skills

The abilities or competencies that managers use to achieve business objectives

What are the management skills

Communication, delegation , planning, leadership,decision making and interpersonal

Communication

the ability to transfer information from a sender to a receiver, and to listen to feedback.Communication can come in many forms  such as verbally,emails,reports,letters etc.Managers need to communicate to stakeholders both  internally and externally. Management can use communication to ensure that all team members understand the tasks and goals they are working towards, as well as to provide feedback and guidance.

Delegation

the ability to transfer authority and responsibility from a manager to an employee to carry out specific activities.Delegating is an appropriate skill to use in order to manage time effectively and to enable staff to learn new skills. It can lead to fresh ideas and an improvement in employee motivation.Delegation has benefits for both the managers and employees.For managers it frees up time so they can focus on other tasks as the workload is shared.For employees they feel valued  and also get to develop their skills by taking on their responsibilities

Planning

:the ability to define business objectives and decide on the methods or strategies to achieve them.There are levels of planning called strategic,tactical and operational.

Leadership

the ability to influence or motivate people to work towards the achievement of business objectives.effective leaderships helps build trust between management and the employees.Effective leaders will lead by example as well as support others when they find times challenging.

Decision making

the ability to identify the options available and then choose a specific course of action from the alternatives. Effective decision-making involves being able to make decisions within a particular time frame. Effective decision making will ensure  the best strategies are implemented so the business can achieve their objectives and drive the business forward.

Interpersonal skills

the ability to deal or liaise with people and build positive relationships with staff. This skill is very important because it is through other people that managers achieve business objectives. A manager who is able to identify and recognise how other people see things and then make use of these views in a logical and understanding manner is most likely to be effective in achieving objectives.Helps build a harmonious and collaborative work environment.

Corporate culture

The values, ideas , expectations and beliefs shared by members of the business

Official corporate culture

Corporate culture can be revealed officially in the policies, objectives or slogans of a business.

Real corporate culture

Corporate culture can also be seen in the unwritten or informal rules that guide how people in the business behave, such as the way staff dress, the language staff use, and the way that staff treat each other and customers.

Elements of a corporate culture

1. Values and practices - The way things are done in the business 

2. Symbols - The events or objects that are established to represent something the business believes to be important 

3.  Rituals, rites and celebrations - The routine behavioral patterns in a business’ everyday life 

4. Heroes - Business’ successful employees who reflect its values and act as example for other