Unit 3 Business Management

Unit 3 AoS 1 - BUSINESS MANAGEMENT

Key Knowledge

  • Types of businesses: Includes sole traders, partnerships, private limited companies, public listed companies, social enterprises, and government business enterprises.

  • Business objectives: Such as making a profit, increasing market share, improving efficiency, improving effectiveness, fulfilling a market need, fulfilling a social need, and meeting shareholder expectations.

  • Stakeholders of businesses: Includes owners, managers, employees, customers, suppliers, and the general community.

  • Characteristics of stakeholders: Their interests and potential conflicts between stakeholders.

  • Management styles: Include autocratic, persuasive, consultative, participative, and laissez-faire.

  • Appropriateness of management styles: Relates to the nature of the task, time, experience of employees, and manager preference.

  • Management skills: Include communication, delegation, planning, leadership, decision-making, and interpersonal skills.

  • Relationship between management styles and skills.

  • Corporate culture: Both official and real.

Key Skills

  • Identify, define, describe, and apply business management concepts and terms.

  • Interpret, discuss, compare, and evaluate business information and ideas.

  • Analyse case studies and contemporary examples of business management.

  • Apply business management knowledge to practical and/or simulated business situations.

Types of Businesses

Sole Traders

  • Definition: A sole trader is a type of business structure with only one owner who is responsible for the operations of the business.

  • Characteristics:

    • One owner.

    • Unlimited liability (the business owner must take personal responsibility for business debts).

    • The owner has complete control over decision-making and business operations.

  • Contemporary Examples:

    • Tilly Lock Media, a graphic design business in Sydney.

    • Kindling, a clothing business in Melbourne.

Advantages and Disadvantages of Sole Traders

Advantages:

  • Complete control over business decisions leading to creative freedom.

  • Entitlement to all profits, maximizing returns.

  • Simple and inexpensive to establish due to minimal legal paperwork.

Disadvantages:

  • Unlimited liability for business debts increases personal financial risk.

  • Limited expertise due to the single owner, potentially incurring additional costs for necessary skills.

  • Difficulty in raising finance can restrict business expansion.

  • Increased stress from having sole responsibility for significant decisions.

  • Lack of perpetuity as the business does not have an ongoing life.

Partnerships

Partnership

  • Definition: A partnership is a business structure with 2 to 20 owners who jointly own and operate a business.

  • Characteristics:

    • 2 to 20 owners.

    • Unlimited liability.

  • Contemporary Examples:

    • Kennedy Nolan Architects, Melbourne.

    • Poly Designs, furniture, Melbourne.

Advantages and Disadvantages of Partnerships

Advantages:

  • Access to a broader range of capital, skills, knowledge, and experience.

  • Easier to raise finance, facilitating quicker expansion.

  • Simple and inexpensive to establish.

  • Shared responsibility reduces stress on individual partners.

Disadvantages:

  • Unlimited liability increases personal financial risk.

  • Potential for conflict in decision-making.

  • Confusion due to divided authority among partners.

  • Difficulty in finding suitable partners might slow business formation.

  • Lack of perpetuity as partnerships can dissolve if a partner leaves.

Private Limited Companies (Pty Ltd)

  • Definition: A private limited company is a business structure that is a separate legal entity, owned by 1-50 shareholders and is in the private sector.

  • Characteristics:

    • 1-50 shareholders.

    • Separate legal entity.

    • Limited liability (owners are not personally liable for business debts).

    • Restrictions on share trading (not publicly traded).

    • Recognized by ‘PTY LTD’ at the end of the business name.

Public Listed Companies (Ltd)

  • Definition: A public listed company is a business structure that is a separate legal entity with an unlimited number of shareholders. Shares are sold on the stock exchange (ASX).

  • Characteristics:

    • Unlimited number of shareholders.

    • Shares sold on the stock exchange.

    • Limited liability.

    • Perpetuity (business existence isn't threatened by changes in ownership).

    • Recognized by ‘LTD’ at the end of the business name.

Advantages and Disadvantages of Public Listed Companies

Advantages:

  • Limited liability reduces personal financial risk.

  • Easier to raise additional finance by issuing shares.

  • Perpetuity ensures business continuity.

Disadvantages:

  • Complex and expensive legal process for incorporation.

  • Higher government regulation and reporting requirements.

Government Business Enterprises (GBEs)

  • Definition: A government business enterprise is owned by the government and aims to make a profit while providing a service to fund activities and provide returns to shareholders (the government).

  • Key Characteristics:

    • Public sector.

    • Government-owned (various governments act as shareholders).

    • Incorporated, has a separate legal existence.

    • Aims to make a profit through operations while delivering essential services, like communication or health.

Social Enterprises

  • Definition: A social enterprise is primarily focused on benefiting the community or environment, with profits redirected back into the business for further social/environmental causes.

  • Key Characteristics:

    • Primary objective is to fulfill a social need.

    • Operates like a business and produces goods/services to sell.

Advantages and Disadvantages of Social Enterprises

Advantages:

  • Positive impact on people and the environment can boost sales and profit.

  • Ability to meet societal needs and wants that are not commercially viable.

Disadvantages:

  • Significant operating costs can decrease profit.

  • Balancing financial and social objectives may be challenging.

Business Objectives and Strategies

  • Objectives: Goals providing direction for actions to be achieved within a set timeframe.

  • Strategies: Actions taken to achieve objectives.

Objectives

  1. To make a profit: Maximize revenue and minimize expenses.

    • Example: Woolworths, with a net profit increase from $855 million (2024) to $963 million (2025).

  2. To increase market share: Maximize the proportion of sales compared to competitors.

    • Market share statistics: Woolworths Group: 37%, Coles Group: 28%, Aldi: 10%, IGA: 7%.

  3. To improve efficiency: Enhance resource utilization to reduce waste.

    • Example: Woolworths implements AI technology to detect scanning errors at self-serve checkouts.

  4. To improve effectiveness: Achieve stated short-term and long-term objectives.

    • Example: Woolworths aims for 100% renewable electricity by 2025.

  5. To fulfill a market need: Close gaps in the market for customer satisfaction.

    • Example: Woolworths launched Lower Shelf Price for over 500 everyday items.

  6. To fulfill a social need: Address community/environmental concerns inadequately recognized.

    • Example: Who Gives A Crap, selling recycled toilet paper and donating profits to WaterAid.

  7. To meet shareholder expectations: Maximizing returns on investment.

    • Example: Woolworths declared a total dividend of 84 cents per share.

Stakeholders of Businesses

Definition

  • A stakeholder is any person or group with a vested interest in a business, capable of affecting or being affected by it.

Examples and Interests of Stakeholders

  • Employees: Seek fair pay and job security.

  • Managers: Aimed at pay, job security, promotions.

  • Owners: Interested in profit returns.

  • Customers: Expect quality products at fair prices.

  • Suppliers: Prefer regular purchases and timely payments.

  • General Community: Desires CSR behaviors from businesses.

Stakeholder Conflicts

  • Conflicts arise from opposing interests, complicating how the business satisfies various stakeholder needs.

    • Example: Owners want higher profits, while employees seek higher wages, leading to increased costs.

    • Example: Managers aiming to reduce costs may conflict with suppliers wanting fair compensation.

Management Styles

Overview

  • Different management styles impact how decisions are made and how employees are treated. The main styles are:

  1. Autocratic - Centralized decision-making, one-way communication, task-oriented.

  2. Persuasive - Similar to autocratic but attempts to convince employees about decisions made.

  3. Consultative - Manager consults employees before making centralized decisions.

  4. Participative - Decentralized decision-making, collaborative environments.

  5. Laissez-Faire - Managers provide objectives; employees execute with autonomy.

Management Skills

Key Skills

  1. Communication: Clear information exchange and instruction.

  2. Delegation: Authorizing employees to perform specific tasks.

  3. Planning: Establishing goals and strategic paths for the future.

  4. Leading: Influencing and motivating staff to achieve business objectives.

  5. Decision-Making: Identifying and choosing the correct course of action.

  6. Interpersonal Skills: Building relationships and rapport with employees.

Corporate Culture

Definition

  • Corporate culture refers to the shared values and beliefs within a business, reflecting official (stated) and real (actual) behaviors.

Benefits of a Positive Corporate Culture

  • Leads to enhanced motivation and productivity among employees.

  • Encourages collaboration and improves overall job satisfaction.

Summary of Corporate Culture Types

  1. Official Culture: Formally expressed in written statements by management.

  2. Real Culture: Unofficial behaviors exhibited by employees reflecting their interactions and attitudes.

Practice Questions and Solutions

Practice Questions

  1. Define the term ‘stakeholder.’

  2. Distinguish between a social enterprise and a government business enterprise.

  3. Evaluate whether the participative or consultative style is more suitable for experienced employees.

Solutions

  1. A stakeholder is any person or group who has a vested interest in a business and can affect or be affected by that business.

  2. A social enterprise is privately owned and aims primarily to meet social needs, while a GBE is publicly owned and has objectives of profitability and service provision.

  3. (Refer to appropriate analysis from the participative and consultative management styles).

Summary

  • Business management encompasses a range of topics including types of businesses, objectives, stakeholders, management styles, skills, and corporate culture. This comprehensive review aids in understanding the mechanisms driving business operations and the relationships within business contexts.