Topic 2 - Business Management

1.1 Definition

Management = the process of working with and through people to achieve business goals.

• Easy to define, hard to do in practice.

• Common misconception (esp. among junior managers): that management means making every decision and personally doing the work.

• Analogy — the orchestra conductor: the conductor doesn't play an instrument; they interpret the score and coordinate the musicians so they perform as one. Similarly, a manager doesn't do every task — they coordinate people, systems and processes so the business runs effectively (e.g. an Operations Manager at Apple never builds a computer, but ensures the people, systems and processes are in place to deliver the operations strategy).

1.2 Features of Effective Management — POLC

All effective managers, regardless of the business, perform four functions:

1.3 What Effective Management Requires

• Working with and through others — poor communicators fail to gain staff commitment

• Achieving the goals of the business — goals give direction; without them staff lack purpose and managers can't measure performance

• Getting the most from limited resources — all businesses face scarcity, so resources must be coordinated efficiently

• Efficiency — comparing resources used (costs) against what was achieved (benefits) → efficient when benefits > costs

• Effectiveness — the degree to which a goal has actually been achieved

• Balancing efficiency and effectiveness — key to competitive advantage

• Coping with a rapidly changing environment — successful managers anticipate and adjust to change

Exam tip: Efficiency = doing things right (minimising cost/waste). Effectiveness = doing the right things (achieving the goal). A good manager needs both.

2. Skills of Management

Syllabus list: interpersonal, communication, strategic thinking, vision, problem-solving, decision-making, flexibility/adaptability to change, reconciling the conflicting interests of stakeholders.

2.1 Interpersonal & Communication Skills

• Interpersonal (social) skills = building positive relationships through empathy, understanding and respect with a wide range of stakeholders.

• Include the ability to communicate, motivate, lead and inspire.

• Occur via: verbal, written, and non-verbal (body language) communication.

2.2 Strategic Thinking & Vision

• Managers/CEOs create the business's long-term strategic plan.

• They must communicate a clear vision — a statement of direction describing what the business will (and, by omission, will not) do.

• Vision = a clear, shared sense of direction that lets people work towards a common goal.

• Without vision → no commitment/cooperation, since there's no shared goal.

• Leadership = the ability to influence people to set and achieve specific goals.

2.3 Problem-Solving & Decision-Making

• Mintzberg's research: managers spend much of their time solving problems — either directly, or by organising people/processes to resolve them.

• Involves evaluating alternatives and choosing the best solution.

• Decisions have short-, medium- and long-term impacts.

• Risk of over-centralising decisions: if a manager won't delegate and insists on making every decision, this creates bottlenecks and slows the business (micromanagement).

2.4 Flexibility & Adaptability to Change

• Businesses face constantly changing SWOT factors (strengths, weaknesses, opportunities, threats).

• Managers must anticipate and adjust to change.

• An inflexible manager risks reacting too late — losing strategic opportunities or letting problems worsen.

• Passive/unprepared managers are less likely to succeed than proactive ones.

2.5 Reconciling the Conflicting Interests of Stakeholders

• Stakeholders = any group/individual with a vested interest in the business achieving its goals, or who is affected by its activities (internal & external).

• Different stakeholders want different, often conflicting, things.

Exam tip: A manager's job is to reconcile (balance) these interests — not to eliminate the conflict, but to find the best compromise for the business's long-term success.

3. Achieving Business Goals

Carefully prepared goals give managers: targets, measuring tools (benchmarks), motivation, and commitment/engagement (staff who help set goals feel ownership over them). Revision: goals should be SMART (Specific, Measurable, Achievable, Realistic, Time-bound).

Two broad categories: Financial goals and Non-financial (social) goals.

3.1 Financial Goals

Profit

• Profit = Total Revenue − Total Costs

• Maximised by: increasing sales (usually via marketing) or decreasing costs (removing inefficiencies)

• Caution: cutting costs must not reduce quality or safety

Market Share

• The business's share of total industry sales for a good/service, expressed as a %.

• Calculated: (business's sales ÷ total market sales) × 100

• Example: Google ~86.9% of global search market (2020) vs Bing 6.43%, Baidu 1.14%, DuckDuckGo 0.5% — large market share helped drive Google's revenue (~US$160.74bn, 2019).

Growth

• Internal strategies: employing more people, increasing sales, introducing new products (innovation), purchasing new equipment, opening more stores

• External strategies: mergers and acquisitions

  • Merger = owners of two separate businesses agree to combine and form a new organisation (e.g. Nine Entertainment Co. + Fairfax Media, 2018)

  • Acquisition/takeover = one business buys a controlling interest in another (e.g. Coca-Cola Amatil acquiring Neverfail Springwater and Mount Franklin; Facebook acquiring Instagram, WhatsApp, Oculus VR)

  • Reasons: expand product range, eliminate competition

Share Price

• A share = part ownership of a public company; shareholders are the real owners.

• Businesses aim to maximise returns to shareholders by growing share price and paying healthy dividends.

• Investors buy shares for: (1) capital gain (selling at a higher price), (2) dividends (share of profits).

• Strong share demand → easier to raise capital, higher company valuation.

3.2 Non-Financial Goals

Social Goals

• Relate to the business's impact on the surrounding community — often called Corporate Social Responsibility (CSR).

• Includes: financial support of community organisations; providing employment/training respectful of workers' non-work responsibilities; promoting social justice; providing labour/services to disadvantaged groups.

Environmental Goals

• Technically a subset of social goals, but singled out in the syllabus because environmental influence on business is growing.

• Results in: legal compliance (environmental laws) and ethical compliance (going beyond legal minimums).

3.3 Achieving a Mix of Goals

• Business goals are generally interconnected — e.g. growth often drives up share price and profit.

• Consumers increasingly favour businesses seen as socially/environmentally responsible → ethical goals can support financial goals.

• Businesses must prioritise goals to strike the right balance between financial and non-financial objectives.

3.4 Staff Involvement

Involving employees in decision-making → typically increases labour productivity. Managers engage/consult staff in: objective-setting, motivation, mentoring, and training/development.

• Innovation — good ideas come from staff who report to the manager, not just the manager themselves.

• Motivation — comes from extrinsic (external monetary/non-monetary rewards) and intrinsic/cultural sources (workplace values, culture).

• Mentoring — manager develops staff skills through on-the-job coaching, feedback, and modelling company culture.

• Training — teaching staff to do their current job more efficiently (boosts knowledge/skills).

• Development — preparing staff for greater future responsibility.

Why staff involvement matters (stats):

• "Presenteeism" (at work but unproductive) costs Australian industry $33 billion/year.

• Only 25% of employees are engaged; 25% actively disengaged; 50% doing just enough to keep their job.

• Staff turnover can cost 2.5× an employee's annual salary to replace (e.g. losing a $55,000 employee ≈ $120,000+ replacement cost).

4. Management Approaches

An approach = a style of managing/working that a business believes will best lead to success (analogy: different sporting teams use different tactics for the same game).

The Industrial Revolution drove the development of management approaches — mass production in factories created a need to efficiently coordinate large numbers of workers.

Management approaches influence: task allocation, organisational structure, levels of management, communication structure, and management styles.

4.1 Classical Approach

• Management = planning, organising, controlling (POC)

• Hierarchical organisational structure

• Autocratic leadership style

• Two sub-approaches:

a) Scientific Management (Frederick Taylor)

• Studies a task in detail to determine the one best way to perform it.

• Taylor pioneered the production line method as the most efficient form of production.

• Four principles:

  1. Examine each part of the task to find the best method

  2. Select and train suitable workers based on that examination

  3. Ensure workers use the scientific method identified

  4. Divide work: managers plan/organise/control; workers execute

• Examples: Ford's Model T assembly line; McDonald's burger production process.

b) Bureaucratic/Administrative Management (Henri Fayol, Max Weber)

• Focus: how the business should be structured for efficiency.

• Weber: businesses need — strict hierarchy, clear communication lines, jobs broken into simple/specialised tasks, rules & procedures, and impersonal (unbiased) employee evaluation.

• Fayol's functions of management formed the basis of most 20th-century management courses.

Autocratic Leadership Style ("do it the way I tell you")

• Manager makes all decisions, dictates work methods, limits worker knowledge to only the next step, frequently checks performance (sometimes punitively).

• Still relevant today — e.g. Foxconn (Taiwan), an electronics manufacturer often cited as using classical/autocratic-style management.

4.2 Behavioural Approach

• Reaction to classical management "treating workers as robots" and ignoring the human/interpersonal element.

• Management = leading, motivating, communicating

• Focus on teams, not hierarchy

• Participative/democratic leadership style

The Hawthorne Studies (Elton Mayo)

• Conducted at Western Electric Company's Hawthorne Works, Chicago, 1924–1932.

• Original aim: test whether better lighting increased productivity (ironically, Western Electric sold lightbulbs).

• Result: productivity rose for both groups (more light and less light) → lighting hypothesis disproved.

• Follow-up: 5 women in a bank wiring room given special privileges (leave workstation without permission, rest breaks, free lunches, varied pay/workdays) → productivity again increased significantly.

• Conclusion: productivity gains came from how workers were treated/supervised (the "Hawthorne Effect"), not physical conditions or material rewards. Human relations and social needs are crucial to management.

Three Key Elements of the Behavioural Approach

1. Leading, motivating, communicating — draws on interpersonal, communication and vision skills

2. Teams — achieving things with/through people via teamwork; fewer management layers; more delegated authority and collective responsibility

3. Participative/democratic leadership — fosters strategic "buy-in" and higher motivation

   • Note: good management isn't innate — organisations must actively develop these skills in managers through training and development programs.

4.3 Contingency Approach

• Contingency = management style should change in response to circumstances — there is no single "best" approach.

• A manager might act as a scientific/classical manager in one situation and a behavioural manager in another, depending on what the situation demands.

• Analogy: asking "is a hammer or screwdriver the better tool?" — depends entirely on the problem being solved.

• Emerged because neither Classical nor Behavioural approaches worked in every situation — Contingency resolves this by blending/borrowing from both as needed.

• Example driver of contingency thinking: rapid, large-scale change like COVID-19, which forced businesses, schools and individuals to adapt quickly.

4.4 Quick Comparison Table

5. Management Process — Coordinating Key Business Functions

5.1 The Four Key Business Functions

Quick-sort examples:

5.2 Interdependence

• Interdependence = the dependence between different key business functions, where each can only achieve its strategic role by relying on the actions of the others. No function operates effectively in isolation.

• Worked example — Toyota increasing hybrid market share:

  • Operations — changes how cars are manufactured

  • Marketing — develops pricing/promotion plans for the expanded hybrid range

  • Finance — allocates funds to expand hybrid production

  • HR — recruits new staff with the right skills or retrains existing staff

  • Each function depends on the others: Operations relies on Finance for funding; Marketing relies on Operations to supply enough stock; HR relies on Operations to identify the skillset needed; Finance supports HR by funding recruitment/training.

5.3 Coordinating Business Functions in an SME vs Large Business

• Small business (SME): the 4 functions are usually carried out by a few employees, who juggle multiple, often overlapping tasks. Some SMEs choose to outsource one or more functions to focus on what they do best.

• Large business: each function typically has its own dedicated department/division staffed by many specialised employees.

Exam tip: For SME-focused questions, emphasise role overlap, limited staff numbers, and the option to outsource — this is what distinguishes SME coordination from large-business coordination.

5.4 Operations in Detail

• Operations management = all activities managers engage in to produce a good or deliver a service; involves creating, operating and controlling the transformation process.

• Cause → Effect: operations management influences the quality, cost and availability of products → this directly affects the business's ability to achieve goals like maximising profit, increasing market share, or providing a reasonable shareholder return.

• Effective operations management also affects competitive position by: establishing quality level, influencing overall production cost (largest share of capital/labour expense), and determining whether enough product is available to meet demand.

Goods vs Services

• Many businesses produce a combination of goods and services (e.g. buying a car with a warranty and after-sales service).

The Transformation (Production) Process Three key elements:

1. Inputs — resources used in the transformation process

2. Processes — the conversion of inputs into outputs

3. Outputs — the end result delivered to the consumer (good or service)

Types of inputs:

• Transformed inputs — changed/converted by the process:

  • Materials — raw materials or intermediate goods

  • Information — e.g. sales data, customer feedback, orders processed into useful outputs

  • Customers — customer preferences shape the process (e.g. haircut, massage)

• Transforming inputs/resources — carry out the transformation, causing the change to occur:

  • Human resources — staff effectiveness determines success of value-adding

  • Facilities — plant, factory/office, and machinery

Worked example — bread: ingredients bought → mixed and blended → baked → cooled and wrapped → delivered to retail outlets. Production brings together finance, equipment, technology, management and people (again showing interdependence with HR and Finance).

• Businesses often pursue cost leadership (lowest-cost producer in the market) to gain competitive advantage, so operations managers focus on minimising costs.

• Other factors affecting transformation: technology (how tasks are completed) and workplace layout (how efficiently materials, equipment and staff move through production).

• (Extension/Year 12 concepts, useful context): Sequencing (order of activities — Gantt charts) and scheduling (time taken — Critical Path Analysis).

5.5 Quality Management

• Quality = degree of excellence of a good/service and its fitness for its stated purpose (e.g. reliable, easy to use, durable, well designed).

• Quality management = the strategy a business uses to ensure its product meets customer expectations.

Benefits of quality management practices:

• Reduced waste and defects

• Reduced variance in final output

• Strengthened competitive position

• Improved reputation and customer satisfaction

• Reduced costs

• Increased productivity and profits

Three main quality management strategies:

• TQM — a business-wide, ongoing commitment to excellence, shared responsibility among all employees; aims for a defect-free process with a strong customer focus. Often uses quality circles — teams of up to 10 workers who meet regularly to solve process/design/quality problems and present ideas to management (employee empowerment).

• Continuous improvement — an ongoing commitment to achieving perfection by continually raising standards. Kaizen (Japanese for "improvement") applies this philosophy to all levels of the business, from the CEO to assembly-line workers.

Exam tip — QA vs QC: Quality assurance = preventing defects (proactive, process-focused, before production). Quality control = detecting defects (reactive, inspection-focused, after/during production).

6. Management and Change

"There is only one constant in business, and that is change."

6.1 What Is Change?

• Change = any alteration in the internal or external environment (e.g. production methods, consumer tastes, markets, how employees perform tasks).

• Driven by accelerating technology, globalisation, sustainability concerns, changing consumer preferences, and government regulation.

• Proactive managers create opportunities from change (new tech, new products, new markets) and anticipate threats.

• Reactive managers fear change and only respond after it happens — a weaker position.

Organisational change = the adoption of a new idea or behaviour in response to internal/external influences, altering the business's form or operation over time. The ability to embrace and manage change can determine a business's competitive advantage. Businesses may respond by modifying corporate culture, restructuring, changing work practices, or hiring staff with new skills.

6.2 Responding to Internal and External Influences

Internal influences:

• Management — especially new managers, who are often key change drivers

• Employees — can recommend changes to policy, process, and product

External influences (syllabus list): Economic · Financial · Geographical · Social · Legal · Political · Institutional · Technological · Competitive situation · Markets

Competitors as a driver of change (cause → effect):

Effects of accelerating technology:

• Positive: faster communication/decision-making → lower costs (cloud storage, videoconferencing, AI, real-time data); e-commerce improves B2B/B2C interactions (convenience, lower transaction costs, access to global markets)

• Negative: financial/time cost of staff training and new tech implementation; job redundancy; cybersecurity risk

6.3 How Businesses Respond to Change

Responding to change often requires alterations to: organisational structure, business culture, human resources, and operations.

• Change may be transformational (major — e.g. whole-organisation restructure) or incremental (minor — e.g. affecting only a few employees).

John Kotter's 8-Step Change Model:

1. Establish a sense of necessity/urgency

2. Form a guiding group

3. Create a vision

4. Communicate the vision

5. Empower people to fulfil the vision

6. Recognise and reward achievements (short-term wins)

7. Consolidate/reinforce improvements (prevent reverting to old practices)

8. Institutionalise/embed the changes into business culture and operations

6.4 Managing Change Effectively

Three core strategies (syllabus dot points):

1. Identify the need for change & set achievable goals

• Requires business information systems — collecting, processing and retrieving accurate, up-to-date information quickly. This processed information becomes the raw material for decision-making; without it, a business can't accurately identify what needs to change.

• Goals should be achievable: external changes may require reassessing the business's vision/goals; managers should consult employees and communicate goals clearly.

• Businesses should identify driving forces of change (the internal/external influences pushing change) and restraining forces (e.g. resistance to change), then manage the balance to reduce resistance.

2. Develop strategies to overcome resistance to change

Common reasons for resistance:

• Financial costs (are the changes worth it?)

• Cost of purchasing new equipment

• Redundancy payments

• Retraining requirements

• Reorganising plant layout

• Inertia — an unenthusiastic response; people dislike leaving their comfort zone, fear the unknown, and dislike losing control → leadership is critical here

Strategies to reduce resistance:

• Create a culture of change — identify and use change agents (supportive individuals who champion the change)

• Effective, open communication with all stakeholders about the need for and progress of change

• Positive leadership — high expectations of employees' ability to change; genuine concern for employee welfare; conflict resolution; open-mindedness; clear communication of vision

3. Use management consultants

• Businesses hire consultants for: a wide range of business experience, specialised knowledge/skills, an objective (external) viewpoint, access to the latest research, and awareness of industry best practice.

• Caveat: the quality of consultants' advice can vary.

7. Additional Syllabus Points (General Content — Not From Your Slides)

These three sub-points were not present in any of your uploaded files. The content below reflects standard NSW Business Studies syllabus material — check it against your textbook/teacher notes.

7.1 Qualities of Managers With High Personal and Ethical Standards

• Honesty and integrity — truthful in dealings with stakeholders (staff, customers, shareholders, suppliers)

• Accountability — taking responsibility for decisions and their outcomes, rather than shifting blame

• Fairness — treating employees and other stakeholders equitably (e.g. in pay, promotion, performance evaluation)

• Transparency — open, clear communication about business decisions and their reasoning

• Respect for others — valuing the wellbeing, rights, and diverse backgrounds of employees and stakeholders

• Social and environmental responsibility — considering the wider impact of business decisions on society and the environment, not just short-term profit

• Leading by example — modelling the ethical standards and behaviour expected of staff

• Commitment to legal compliance — meeting (or exceeding) workplace, consumer, and environmental laws

Exam tip: Ethical managers balance the profit motive against the interests of stakeholders — this links directly back to Section 2.5 (reconciling conflicting stakeholder interests).

7.2 Effective Cash Flow Management

• Cash flow = the movement of cash into (cash inflows) and out of (cash outflows) a business over a period of time.

• Effective cash flow management ensures a business has enough cash on hand to meet its short-term obligations (wages, suppliers, rent, loan repayments) — a business can be profitable "on paper" but still fail if it runs out of cash (insolvency).

Strategies for effective cash flow management:

• Distinguishing between cash and profit — profit is an accounting concept; cash flow is the actual money available

• Cash flow statements/budgets — forecasting expected inflows and outflows to anticipate shortfalls

• Managing debtors (collecting money owed promptly) and creditors (negotiating favourable payment terms with suppliers)

• Maintaining a cash reserve/contingency fund for unexpected expenses

• Careful management of inventory levels (excess stock ties up cash)

• Arranging finance facilities (e.g. an overdraft) for short-term cash shortfalls

7.3 Role of the Income Statement and Balance Sheet

Both are key financial statements used to describe a business's financial performance and position.

• The income statement helps managers and stakeholders assess whether the business is generating enough revenue to cover costs and produce a profit — informing decisions like cost-cutting or pricing changes.

• The balance sheet helps assess the business's overall financial stability and its ability to meet long-term obligations, by showing what it owns versus what it owes.

• Together, these two statements give a fuller picture of financial performance: the income statement shows how the business performed over time, while the balance sheet shows where the business stands as a result.

8. Exam Technique Reminders

P.E.E./PEEL structure for extended responses:

1. Point — identify the concept or dot point

2. Explain — explain the concept in detail, showing course/syllabus knowledge

3. Example — apply it to a real or hypothetical business (case study)

4. Link — connect back to the main point/question being asked

Business Report structure (if asked to write one):

• Title, To:/From:

• Executive Summary (key points + recommendations in brief)

• Body — organised by issue, using PEEL; each issue can end with a recommendation

• Conclusion — summarises key points, no new content

• Use headings/subheadings, third person, syllabus terminology, and refer directly to the case study throughout

9. Self-Check Questions

• What is the definition of management, and why is the conductor analogy useful?

• List and briefly explain the four functions of POLC.

• Explain the difference between efficiency and effectiveness.

• Name the 7 management skills from the syllabus and give one example of each.

• Explain two examples of conflicting stakeholder interests and how a manager might reconcile them.

• List 3 financial and 2 non-financial business goals, with a definition for each.

• Compare the Classical, Behavioural and Contingency approaches to management across structure, leadership style and view of the worker.

• Explain the Hawthorne Studies and what they revealed about worker productivity.

• Give two advantages and two disadvantages of autocratic leadership.

• Name the 4 key business functions and give one responsibility of each.

• Explain, with an example, what "interdependence" means between business functions.

• How does coordinating business functions differ between an SME and a large business?

• Define quality control, quality assurance, and quality improvement, and explain the difference between QA and QC.

• List 3 internal and 3 external influences that can drive business change.

• Explain 3 reasons employees resist change, and 3 strategies to reduce that resistance.

• Outline the benefits of using management consultants — and one limitation.

• Explain the difference between the income statement and the balance sheet.

• Why can a profitable business still fail due to poor cash flow?

• List 3 qualities of a manager with high ethical standards.