business managment unit 3 area of study 1

U3AOS1 - BUSINESS FOUNDATIONS ● types of businesses including sole traders, partnerships, private limited companies, public listed companies, social enterprises and government business enterprises TYPES OF BUSINESSES Business type Features Advantages Disadvantages Example SOLE TRADER Owned and operated by a single person When defining, make sure to add the owner “A sole trader is a small business, owned and operated by a single proprietor” - One owner - Business name must be registered with ASIC if different from individual’s name - Can have employees - The owner and business are considered as one entity - Unlimited liability (responsible for debts incurred by the business) - Owners may use their own TFN - The owner has full control of the business. - Can easily establish a business as the start-up costs are low. (Startup costs: refers to the money or expenses that is spent when trying to make or run their own business) - The owner gets all the profit. - Fewer tax responsibilities compared to bigger corporations - No disputes with partners - Unlimited liability (if the business can’t pay off its liabilities then the owner has to) - Need to carry all losses - The owner needs to perform a wide variety of tasks - Difficult to operate if the owner is sick - The burden of management - Difficult in gaining the finances - The business ends when the owner dies - Self employed people such as a plumber, hairdresser, gardeners, etc. - Basically, a person who owns their own business. PARTNERSHIP E.g family business Generally owned by 2 to 20 people - Not considered a separate legal entity - TFN is separate from personal - Owners have unlimited liability - Partnerships can be made verbally, in writing or by implication - Low start-up costs - Less expensive compared to a company - Shared responsibility and workload - risk/debt is shared amongst partners - May be easier to take time off or take holidays - Unlimited liability - Potential for disagreements over key decisions - If there is no legal agreement, partners may argue about pay - Divided authority and loyalty A partnership is a type of business where 2 - 20 people operate the business together. A partnership will have perpetuity as a result, and will continue to exist if one partner leaves, - Limited partnerships were introduced to allow one or more partners to contribute financially but don’t take part in running the business - A variety of skills and abilities - Minimal government regulations - Easier to raise capital - Tax advantages can exist where the partners are married, as profits can be split between them, giving them two tax-free thresholds - Difficulty finding suitable partners - Liability for debts incurred by other partners but will also have unlimited liability where all partners are responsible to repay any loses. PRIVATE LIMITED COMPANY E.g Linfox, ALDI, visy Known as proprietary limited (PTY LTD) Incorporated business that has a minimum of one shareholder and maximum of 50 non-employee shareholders - 1-50 shareholders - Where individuals can be shareholders when approved by the director (typically family members) - Must be registered with ASIC and have an Australian company name - Not listed on the ASX - Limited liability - All shareholders must agree to close the company (wound-up) - A private company must have at least one director - Limited liability (only liable up too their initial investment amount) - Easy transfer of ownership - Separate legal entity - Company can continue even if an owner/employee dies (perpetual succession) - Easier to attract finance (due to it being separate from the owner) - Experienced managers through a board of directors - The requirement to produce an annual report of audited accounts - Costly to form - Rapid growth may lead to inefficiencies - The company is taxed on any profits and dividends - Limited liability may not occur if directors mismanage shares - Public disclosure Accepted characteristics An incorporated business not listed on the stock exchange Restrictions on who can buy shares Comprise up to 50 shareholders Separate legal entity & limited liability PUBLIC LISTED COMPANY (LTD) Incorporated business with a minimum of one - Minimum of 1 shareholder - Listed on the ASX (Australian Securities Exchange) - Easy to buy/transfer shares - Company can trade anywhere - More costly - Highly complex - At least 3 directors and one shareholder - Able to gain extra capital through selling shares - ANZ - Telstra - Woolworths s h a r e h old e r a n d n o m a xim u m - T h e g e n e r al p u blic m a y b e a ble t o p u r c h a s e t h eir s h a r e s - N o r e s t ric tio n s o n t h e t r a n s f e r o f s h a r e - A r e q uir e m e n t t o p r o vid e c e r t ain in f o r m a tio n w h e n s ellin g s h a r e s f o r fi r s t tim e - A minim u m r e q uir e m e n t o f t h r e e dir e c t o r s ( o f w h o m t w o m u s t liv e in A u s t r alia ) - Ta x a tio n c a n b e m o r e f a v o u r a ble (lo w e r t a x e s 3 0 % ) - G r e a t e r p o t e n tial f o r g r o w t h - M u s t p r o d u c e a n a n n u al financial report S O CIA L E N T E R P RIS E O p e r a t e s wit h t h e p rim a ry o bj e c tiv e o f f ulfillin g a s o cial n e e d - E xis t s t o f ulfil a s o cial n e e d - It m a k e s a p r o fi t a n d u s e s it to wither reinvest it into the business or fulfil a social need - O f t e n r u n lik e a c o m m e r cial business - O w n e r s hip c o uld b e a ‘cooperative’ (owned a n d o p e r a t e d b y t h e g r o u p o f m e m b e r s ) o r p riv a t ely o w n e d. - In divid u als c a n f e el m o r e m o tiv a t e d t o p a r ticip a t e in this objective - O p e n s n e w m a r k e t o p p o r t u nitie s - P o t e n tially h a v e a p o sitiv e e f f e c t o n p r o fi t a n d m a r k e t s h a r e s, wit h m o r e c o n s u m e r s u p p o r t - Dif fi c ult in o b t ainin g c a pit al t o s t a r t t h e b u sin e s s - C a n b e dif fi c ult t o f o c u s o n b o t h s o cial a n d fi n a n cial o bj e c tiv e s. - Competing against competitors - Difficult to gain fina n c e - R e d C r o s s - S t r e e t - W h o Giv e s a C r a p - Vin nie s - S alv a tio n A r m y G O V E R N M E N T B U SIN E S S E N T E R P RIS E S - O w n e d a n d o p e r a t e d b y t h e g o v e r n m e n t - A b o a r d o f m a n a g e m e n t o r b o a r d o f dir e c t o r s u s u ally c o n t r ols a G B E, wit h g o v e r n m e n t in p u t - C a r rie s o u t g o v e r n m e n t p olicie s w hile d eliv e rin g c o m m u nit y s e r vic e s - A ble t o c a r ry o u t g o v e r n m e n t p olicie s - O p e r a t e wit h s o m e independence from t h e g o v e r n m e n t - P r o visio n o f h e alt h y c o m p e titio n t o b u sin e s s e s o p e r a tin g in t h e p riv a t e s e c t o r, le a din g - In e f fi cie n cie s c a u s e d b y g o v e r n m e n t - M a n a g e m e n t c a n b e le s s e f f e c tiv e t h a n t h a t o f t h e p riv a t e s e c t o r - - A u s t r alia P o s t - Vic R o a d s - N B N - M e diC a r e - C o m m o n w e al th Bank - C e n t r elin k - Aims to make a profit but also carry out governmental policies - GBEs also aim to increase the value of their assets and returns to their shareholder (the government) to lower prices in the markets where GBE are competing ● business objectives including to make a profit, to increase market share, to improve efficiency, to improve effectiveness, to fulfil a market need, to fulfill a social need and to meet shareholder expectations BUSINESS OBJECTIVES - The intention of measuring targets to be achieved within a specific time frame - Enables an organisation to have a direction, increasing its chances of being successful - Mission statement - defines the company’s business - Vision statement -what the business wants to become TO MAKE A PROFIT - The surplus remaining after total costs are deducted from total revenue A.K.A revenue - expenses - Profit allows businesses to function and grow as they can be reinvested into the business - Look to increase revenue or decrease expenses - EXAMPLE: a business can develop new products, train employees and hire more staff TO INCREASE IN MARKET SHARE - Market share is an organisation’s percentage of total sales within their industry - This is an objective as businesses want to become more competitive - EXAMPLE: providing lower prices to its competitors can lead to obtaining long term customers TO FULFIL A MARKET NEED - Done by providing products and services which meet the desires of a group of customers - Can attract more sales and generate revenue - Market research can help find what the needs of different consumer groups are and the business can aim to satisfy that need - EXAMPLE: vegan food chain in certain areas TO FULFIL A SOCIAL NEED - Focuses on improving the community and environment through its business activities - By making considered choices, businesses can help address these issues while making a profit - Community. - EXAMPLE: poverty, homelessness and drug or alcohol abuse - ENVIRONMENT EXAMPLE: landfill waste, polluted waterways or extinction of native species TO MEET SHAREHOLDER EXPECTATIONS - Shareholders are people who have invested a sum of their own money into the business by purchasing shares - They expect an income from the business in dividends or hope to sell their shares at a higher price - CAPITAL GAINS: the value of the business increases - DIVIDENDS: their share in the company profits TO IMPROVE EFFICIENCY - EFFICIENCY: the best use of resources in the production process of goods and services. - To improve efficiency a business should review and evaluate all its operations to determine whether improvements can be achieved without leading to additional costs ↳ Link between efficiency and productivity: efficiency if how well a business uses their resources in order to achieve objectives, whereas productivity is the ratio ofoutputs produced compared to inputs required. TO IMPROVE EFFECTIVENESS - EFFECTIVENESS: the degree to which a process or system succeeds in achieving business objectives. - The business must ensure that it has placed strategies related to specific objectives → to asses whether the outcome meets its stated objectives ● stakeholders of businesses including owners, managers, employees, customers, suppliers and the general community STAKEHOLDERS Stakeholder Definition Owner / shareholder People that have invested money into the business and own a share in that business Directors The senior people in the business who are responsible for managing the company’s business activities Manager Responsible for overseeing different areas of the business and make decisions to ensure the business is achieving its set objectives Employees People that work in the business in exchange for wages Customers Those that purchase goods and/or services from a business Suppliers Businesses that provide resources to another business Lenders Parties (banks or other financial institutions) who provide funds (loans) to allow the business to operate or expand The general community A group of people that live in the same place in which the business operates in Government Competitors Rival businesses that sell similar products in the same market Trade unions Groups that represent and protects the rights of workers in a particular industry ● characteristics of stakeholders of businesses including their interests and potential conflicts between stakeholders STAKEHOLDER INTERESTS Stakeholder Interests Owner / shareholder Want the business to be successful so they earn a return on their investment Directors Expect to be involved in setting the strategic direction of the business and to be remunerated fairly for their service Manager Want the business to be successful and grow as they often have their employment and income tied to business performance Employees Want the business to be profitable and growing so they have guaranteed continued employment and income Customers ● Want the business to provide a quality product at a reasonable price ● Want guaranteed level of quality and service ● Want the business to act in an ethical and socially responsible manner Suppliers ● Want the business to be profitable (so they get paid) ● Want to establish and guarantee a long-term relationship The general community ● Want the business to act in a socially responsible manner in their treatment of customers and employees as well as the environment and give back to the community ● To benefit from employment opportunities created by the business ● For the business to participate in the community Government ● Receive taxation revenue from profitable businesses ● To provide incentives for business to relocate to benefit a community Competitors ● Want to gain a competitive advantage and have healthy competition Trade unions ● To see workers treated fairly within a business ● See workers receive fair wages and good working conditions ● To see a business thrive to ensure it continues to employ local residents ● To see good products at fair prices STAKEHOLDERS + CONFLICTING INTERESTS Stakeholder Conflicting interests Management and employees Management would like to increase profits Employees want improved pay and conditions Shareholders and employees Shareholders want improved returns through profits Employees want profits returned to them in the form of increase pay Shareholders and the Shareholders want improved returns through profits community The community wants the business to ‘give back’ to the community Shareholders and customers Shareholders want improved returns through profits Customers want lower prices and/or improved quality of goods and services STAKEHOLDER + CSR CONSIDERATIONS Stakeholder Corporate social responsibility considerations Shareholder May only invest in the business with a proven record of ethical behaviour in its dealings with employees, customers, suppliers and the community Manager Some managers may only wish to work with socially responsible businesses Managers can work with other employees to draft policies that reflect a socially responsible person Employees Some employees may only seek employment in businesses that have a track record of CSR Customers Customers may seek out businesses that - Reduce waste - Treat employees and suppliers ethically - Provide service to customers that is above any minimum legal requirement ● management styles including autocratic, persuasive, consultative, participative and laissez-faire MANAGEMENT STYLES AUTOCRATIC MANAGEMENT STYLE A manager makes decisions and directs employees without any input from them. Characteristics When is it best? - Management makes decisions without employee input - Centralised control - One-way communication - Clear communication - When time is lacking and decisions need to be made quickly - When employees lack experience and knowledge - Simple tasks A Business Management has full control and may gain employee’s trust and support by explaining the reasons for decisions - All solutions generally come from the manager, as there is no contribution from employees - Businesses cannot benefit from the ideas of employees Employee - Employees have less responsibility and risk as they only have to follow the manager’s instructions - Employees may feel like they are being considered when the benefits of management are explained to them - Employee growth may be limited as there are no opportunities for contributions - Employee motivation may decrease as they feel undervalued from being excluded from decision making - Employees may take more sick leave days due to ongoing low motivation Time - Decision making may be quick as there is no discussion of consultation - Work tasks can be completed quickly as directions are clear and employees compliance is immediate The manager has to take some time to explain business decisions to employees Money Production can occur quickly due to quick decision making which results in higher outputs and potentially increased sales The cost of replacing employees who may have left due to low motivation CONSULTATIVE MANAGEMENT STYLE A manager seeking input from employees on business decisions but make final decisions themselves Characteristics When is it best - Two-way communication - The manager makes decisions (centralised) - Discussions are encouraged - When there is time available - When employees have experience and knowledge that the manager can use - When more complex tasks or problems need to be solved or something is changing Advantages Disadvantages Business Management can gain a variety of ideas from suggestions of employees which can lead to better decision making outcomes Employees may offer suggestions that are not suitable because they do not fully understand the complexity of a business situation Employee May have increased motivation because they can contribute to decision making and therefore feel valued by the business Potential for employee conflict, resentment or feelings of being undervalued when ideas are ignored or overlooked during decision making Time Decision making may be slower as the manager consults employees for their input Money Potential for increased sales and profit as the quality of decisions and outcomes may be improved from employee input PARTICIPATIVE MANAGEMENT STYLE A manager communicates and discusses information with employees in order to make decisions together Characteristics When is it best - Two-way communication - Employees are able to make decisions (decentralised) - Information is shared among employees - When there is sufficient time to discuss decisions - When employees are experienced or knowledgeable - When problem-solving is required or more complex tasks often during times of change or when creativity is required Advantages Disadvantages Business - May improve quality of decisions from using various perspectives of managers and employees - Can improve the relationship between management and employees due to sharing experiences and ideas - Considering multiple views may result in a compromise that decreases the quality of decisions - Managers may lose some control as employees now have decision making power as well Employe e - Employee motivation and productivity may increase due to participation in decision making - Employees feel highly valued and can develop a sense of ownership over decisions and meeting business objectives - Potential for highly positive and supportive work environments - Employee growth may increase due to more opportunities to - Potential for conflict between employees when there is a disagreement between shared views and opinions - Some employees prefer to follow instructions and may not be comfortable contributing ideas acquire new skills and experiences Time Decisions can take a long time as a consensus between everyone has to be reached Money Potential for increased sales and profit as the quality of decisions and outcomes are improved with the manager and employee collaboration LAISSEZ-FAIRE MANAGEMENT STYLE A manager communicates business objectives to employees and allows them to make decisions independently Characteristics When is it best - Two-way communication - Employees are empowered to make decisions (decentralised) - The manager is only involved if asked or to set certain parameters - Can be appropriate in both time pressure situations and where time is not an issue - When highly skilled employees that can be trusted take control - High creativity required Advantages Disadvantages Business Creates an environment that can encourage creative and innovative solutions - Accommodating multiple views may result in a compromise that decreases the quality of decisions - Managers may lose some control as employees now have decision making powers as well Employe e - May have increased motivation and productivity due to a highly independent work environment, high levels of trust and empowerment - Can increase opportunities for employee growth that are either coached of self-directed Potential for conflict when employees do not cooperate and insist on implementing their own ideas Time Potential for employees to spend large amounts of time on discussions regarding decision making Money Potential for increased sales and profit as the quality of decisions and outcomes are improved through highly innovative solutions Potential for employees to allocate excessive resources to business decisions ● the appropriateness of management styles in relation to the nature of the task, time, experience of employees and manager preference APPROPIATENESS OF MANAGEMENT STYLES TIME The length of time in which a manager must complete a task or make a business decision can change and thus influence the management style utilised. EXPERIENCE OF EMPLOYEES A manager’s approach to their management style can be influenced by the level of experience employees have within the business. NATURE OF TASK The nature of tasks to be completed can influence the appropriateness of the management style used. MANAGER PREFERENCE A manager’s preferences can be highly individualised and may determine which management style is most appropriate for them to use. ● management skills including communication, delegation, planning, leadership, decision-making and interpersonal MANAGEMENT SKILLS COMMUNICATING - The exchanging of information between people - Conveying and receiving information effectively in both oral and written forms - Managers will communicate both internally and externally - Communication skills include - Speaking and writing well - Demonstrating and communicating in a two-way process - Using active listening techniques DELEGATING - The transfer of authority and responsibility from a manager to an employee to carry out specific activities - Delegation: - Shows employees they are trusted - Allows employees to demonstrate their own skills and style - Allows the manager to better manage time while maintaining accountability - Requires a manager to accurately match the task demands with the skill set of the employee and their level of responsibility within the business - Often involves delegating financial management PLANNING - The ability to set objectives and decide upon the methods to achieve them - Planning helps provide the business direction and reduces uncertainty - Planning often involves a process of a model (SOS AIM) Planning: different levels - Strategical: Long term planning (3-5 years) - Tactical: Mid-level planning (1-2 years) - Operational: Short term planning (day-to-day) Planning process: SOS AIM 1. Set objectives 2. SWOT analysis 3. Develop and evaluate alternatives 4. Implement plan 5. Monitor and review results LEADING - Ability to influence or motivate people to work towards the achievement of the business’s objectives - Good leadership leads to improved morale and the achievement of objectives - Good leaders should: - Ask, rather than tell - Work in collaborative teams - Understand technology and encourage its effective use - Create an environment for effective decision making - Have a deep understanding of themselves, and live by the value of the business - Be more sensitive to cultural differences - Be less controlling and strive more for integration - Function as part of alliances and partnerships - Share authority and decision making DECISION MAKING - Identifying and defining problems and opportunities and choosing a solution - The ability to select the most appropriate course of action from a range of alternatives - Range from straightforward to complex and managers need to assess the risk associated with each decision - This includes: - The ability to make decisions within a time frame - Assessing the risks associated with making a decision and choosing the best alternative INTERPERSONAL SKILLS - The manager’s capacity to deal or liaise with people and build positive relationships - The ability to communicate and interact with a range of people and develop positive relationships - Helps build a strong culture where relationships are valued - Perceiving emotions of staff by observing staff in various situations - Using emotions to assist activities so the task is completed as efficiently as possible - Understanding emotions and their effect on the employee’s ability to complete tasks in a given situation - Managing emotions by regulating the emotions of others so as to ensure tasks are completed CORPORATE CULTURE Corporate culture can be revealed officially in the policies, objectives or slogans of a business. - The shared values and beliefs of the people within the business - A business where employees share the same values creates a positive environment where employees spend more time together and collaborate more OFFICIAL CORPORATE CULTURE - What the business intends the culture to be. It can be seen in official documents such as: - The mission statement - Stated values - Policies REAL CORPORATE CULTURE - The unwritten or informal rules and values that the people within the business have. It can be seen in areas such as: - The overriding management style - The way staff dress - How employees treat each other and customers There are two types of corporate culture, Official Corporate Culture is the formal guidelines determined by the owners and managers, whereas Real Corporate Culture is the actual practices and behaviours that occur within a business. STRATEGIES AND INDICATORS OF OFFICIAL CORPORATE CULTURE: Strategy Examples Intended effect Shared objective Vision statement. Mission statement Provides an indication of a businesses purpose, values and beliefs and give employees a shared goal Policies Business policies and procedure documents Develops consistent behaviours and expectations among employees through written rules, regulations and processes Training Scheduled training programs Provides employees with the skills or knowledge to behave, interact or make decisions in a particular way Symbols Business name, logos, slogans Help employees and customers identify the business Uniform Compulsory uniform for employees Clearly identifies employees and projects a professional image STRATEGIES AND INDICATORS OR REAL CORPORATE CULTURE: Strategy Examples Intended effect Hiring - Hiring employees with similar values - Hiring external employees - Build group of employees that match for the business’s corporate culture and work well together - Introduces new ideas, skills and experiences to the business Promotion criteria - Promotion based on performance - Preference for internal promotions instead of hiring externally - Encouraged employees to grow and perform to higher levels - Encourages loyalty and good performance among the employees of a business Management style - Autocratic, persuasive - Consultative, participative - Laissez-Faire - Promotes quicker work outcomes - Promotes employee involvement - Promotes independence and creativity among employees Work layout - Open-plan offices and collaborative spaces - Partitioned cubicles and closed door offices - Promotes teamwork and collaboration among employees - Promotes employees to work independently and autonomously Dress code (non-uniform) - Business attire - Casual wear - Projects professional image and promotes formal interactions between employees - Projects a relaxed image and facilities open interactions between employees to promote innovation and creativity Rituals - Regular work meetings - Social gatherings - Establishes habitual behaviours and expectations among employees - Builds social bonds among employees to facilitate better working relationships Celebrations - Employee of the month awards, rewards for specific achievements - Length of service recognitions - Rewards work achievements and impressive performance - Rewards experience and promotes loyalty