Intro to SMEs

• Defining an SME

  • Quantitative measures

    • Employee number

      • Less than 200 full time or equivalent

    • Turnover

      • Sales less than $10 million

    • Asset value

      • Less than $5 million

    • 33% fail in the first year

  • Qualitative measures

    • Most of the management decisions are made by the owner

    • That owner provides most of the capital

    • The business has little power within the market

    • Relies heavily on external support services

• Number of SMEs

  • SMEs account for over 97% of all Australian businesses

  • They dominate most sectors of the AUstralian economy

    • Particularly agriculture, construction, scientific, and technical services

  • They tend to be found in more labour intensive industries rather than highly capital intensive ones where they can deliver more personalized service and tailer products to customer needs

• Role of SMEs

  • The number of SMEs and range of industries in which they operate show their significance for the Australian economy

  • SMEs perform the same roles int he economy as any other type of business including:

    • Producing goods and services

    • Profit / income to stakeholders

    • Employment

    • Wealth creation

    • Improving quality of life

    • Choice

    • Innovation

    • Entrepreneurship

    • Perform a shock absorbing role in the economy – SMEs are more flexible than larger businesses and can respond more quickly to changing economic conditions 

• Economic contributions of SMEs

  • Provide 57% of GDP

  • Contribute 70% of private sector employment

    • 80% of people employed in construction have jobs in SMEs

  • Contribute to Australia’s export base and balance of payments with over 10% of SMEs exporting

  • Operate in regions and markets that large businesses are unable or unwilling to operate in

    • Due to lower overheads or other

  • Act as key suppliers and outsourcing partners to larger businesses

  SME success and failure

  SMEs are the most common form of business in Australia, however, they are also very vulnerable to changes in the business environment and business cycle

  Generally, the older the business the higher the number of employees the greater the chance of business survival

  ---

• SME failure

  • Sometimes the enthusiasm and optimism clouds the owners vision of reality and poor decisions are made

  • Success is hard to achieve

  • To establish a business, all you have to do is pay a small fee to register a business name

  • A business is considered a failure when

    • Unincorporated and declared bankrupt

    • Incorporated and either forced into liquidation or voluntarily closes

• Future prospects of SMEs

  • SMEs will continue to grow in number as most businesses begin the establishment phase as small businesses

  • Specific areas of future growth include:

    • Aged care services

    • Service based businesses (providing outsourcing services)

    • Home based businesses

  • These are likely to be areas of growth for small businesses as SMEs are:

    • More flexible

    • A testing ground for innovations

SME questions

1. Identify 2 ways that SME's can be classified quantitatively

   1. Employee number

   2. Asset value

2. Identify 2 ways that SME's can be classified qualitatively 

   1. Owner provides most of the capital

   2. Relies heavily on external support services

3. Read chapter 10.2.3 of the text and outline why it is difficult to establish how many SMEs are in Australia

   1. Because there is no universally accepted definition of what an SME is, it makes it difficult to accurately apply this definition to a set number of enterprises. Additionally, the SME sector is extremely dynamic and changes daily. During a boom time in the economy, the number of SMEs increases rapidly. During a recession, business failures far outweigh business commencements.

4. What is R&D? If R&D costs a significant amount of money, why might SMEs find it hard to innovate?

   1. R&D means research and development, and because they are so expensive, it can be hard for SMEs to innovate. This is because the majority of capital of SMEs is provided by the owner, and because of that they must be prepared to make sacrifices in order to have the opportunity to innovate at the same level as larger businesses who can rely more on loans from the bank and their own income.

5. E-business has enabled SMEs to sell directly to customers globally. The main ways an SME can deal globally are; selling directly to customers globally, marketing products through local distributors, or partnering in a joint venture with a local business partner or selling through their website. Research an Australian SME that is successfully trading globally. 

   1. https://www.airwallex.com/au/case-studies/orbitkey

   2. Orbitkey is a Melbourne-based retail brand which has recently begun to expand to different continents such as Asia and Europe. More recently, they havea ccelerated European expansion to cover over 1,000 stores through the use of localised and easier payments using another Global Accounting agent, Airwallex. Because this is cheaper, it allows for Orbitkey to save money and time - both of which are important to save as an SME. The company has 20-50 employees, and faced problems when they had to transfer currency from foreign currencies to AUD - which had a variety of costs involved. In order to solve this, Airwallex provided a EUR Global Account so both customers and wholesalers could pay in the same currency to avoid fees, and then cheaply convert this into AUD. The Co-Founder stated that this worked because when people buy from warehouses such as Orbitkey, they want to be paying ‘like a local’ rather than keeping up with high prices. This partnership between Orbitkey and Airwallex has allowed both companies to create a mutually beneficial relationship to allow them to expand to a global market.

6. Read the case study below - define 'crowdfunding'

   1. Crowdfunding is the use of websites such as Kickstarter, GoFundMe, or Kofi in order to help smaller businesses gain the capital through the use of money in order to fund their business ventures. By gaining money through the use of crowdfunding, there is a risk involved where the business may fail, but there may also be rewards for those who have supported what may be a successful project. Crowfunding is a vital and incredibly helpful tool available to SMEs, because they don’t often have a large amount of assets and capital available to them (as refered to in the notes above). Crowdfunding was used in the case study of the Flow Hive in order to raise enough money to cover base manufacturing costs, rather than pay the vast majority of it out of pocket. This was successful because the Flow Hive was then sold to many beekeepers in Australia, and those who helped with the crowdfunding received their own hives once manufacturing was able to continue.

Influences in Establishing an SME

Personal Qualities

• Cultural background

  • A person’s cultural background may influence their decision to

    • Start a business

    • The type of business they start

  • May also provide a person with experience to a particular type of business or the values and beliefs to run a successful business

  • Due to Australia’s cultural diversity many opportunities are available for entrepreneurs to capitalize on as they

    • Have the knowledge of overseas markets and can therefore identify a gap in the market for their cultural community

    • Can negotiate and establish supply networks in their home country

• Gender

  • The growth in the number of women operatinng businesses is greater than that of men. The reasons for this include

    • The desire for greater flexibility in working hours and location

    • Looking to remove obstacles that limit their promotional path

  • Women also tend to be more successful than men in establishing a business as they

    • Are better prepared

    • Start off small and gradually expand

    • Have prior experience

    • Know better people and management skills

    • Keep debts and overheads low

    • Borrow less money

    • Make greater use of external advisors

• Entrepreneurship

  • An entrepreneur is someone who starts, operates, and assumes the risk of a business venture in the hope of making a profit

  • Characteristics include:

    • Risk-taking

    • Confident in decision making

    • Drive

    • Determination

    • Will to succeed

    • Flair and creativity

    • Recovery from failure

    • Ability to set goals and have a vision for a business and its future

  • Main benefit:

    • Sense of freedom and independence gained from running your own buisness & satisfaction gained

  • Main burdens:

    • Long hours

    • Responsibility

    • Cash flow issues

• Motivation

  • The personal drive and determination to achieve a goal or desire.

  • Having your own business has benefits;

    • Being your own boss

    • Flexibility in hours and workplace

    • Financial benefit

• Skills and qualifications

  • Experience

    • Well developed management skills, as well as a person with hands-on experience will have a greater chance of achieving business success

    • An experienced person will understand and be realistic about the demands, both financial and personal

    • Knowing the market and the factors that influence it allows for an appropriate response to be made

  • Education

    • University, TAFE, Government Agencies

  • Qualifications

    • Although not a requirement, qualifications will help business owners. The willingness to work long hours is important

      • These may be formal qualifications or as a result of previous experience in the industry - occupational or management experience

    • Attending courses will improve the owner’s business skills

    • Personal factors, motivation, and the ‘entrepreneurial spirit’ are common traits proving successful

    • A business plan improve the chance of success for the entrepreneur

• CGEMS

  • Cultural background

  • Gender

  • Entrepreneurship

  • Motivation

  • Skills and qualifications

Motivation can be used to ensure success of a new service business because it is very likely the business will be making a loss in the first few years, or minimal profit. This is because they do not have an established customer base, and may not be very well marketed to the population. In times such as these, motivation is vital to ensure the business continues to move through these times, as during times of hardship it is very easy to simply give up on the business idea as a whole.

The Business Idea

• Sources of information

  • Entrepreneurs need to gather information about their

    • Potential idea

    • Customers

    • Business environment

  • In order to determine the likelihood of success and if they should proceed with the business venture

  • There is a range of information sources for businesses. Fees are charged for professional advisors, while the other information can be accessed freely.

  • Some sources of advice are:

    • Accountants

    • Solicitors

    • Federal, state, and local government departments

      • business.gov.au give advice

    • Trade associations

    • Bank managers

• The business idea

  • Business opportunities are everywhere and can arise from a range of situations.

    • Listening to people and their ‘wants’ are not currently available

    • Reading magazines, books, & researching the internet

    • Visiting displays with new technology or ideas from overseas

    • Accessing government statistics & research

    • Identifying a gap in the market

    • Determining improvements in a product on the market

  • A business idea needs an opportunity as well - which is the avenue to success. Identifying opportunities can be done through reviewing the market to find an opening or identifying a hobby or interest that people share

  • Competition

    • Achieving success against competitors can be done in 2 ways; product differentiation or lowest cost of production

Competition

Tactics businesses can use against competition

• Be unique

  • Differentiation

• Use social media

• Top notch customer service

Establishment Options

• There are three options when establishing a business

  1. Setting up a business from scratch

  2. Purchasing an existing business

  3. Purchasing a franchise

• Starting a new business

  • Situations that suit starting a new business include:

    • When a person has created something unique and starts a business to market their innovation or invention

    • When a person recognises a gap in the market

    • When the market has grown and existing businesses cannot supply all customers

• Starting a business from scratch

  • Advantages

    • The owner has the freedom to set up the business exactly as they wish

    • The owner is able to determine the pace of growth and change

    • There is no goodwill for which the owner has to pay

    • If funds are limited, it is possible to begin on a smaller scale

  • Disadvantages

    • There is a high risk and a measure of uncertainty, it may prove difficult to secure finance

    • Time is needed to develop a customer base, employ staff, and develop lines of credit from suppliers

    • If the start-up period is slow, then the business may not generate profits for some time

• Purchasing an existing business

  • When an existing business is purchased the business is already operating and everything associated with the business is included in the purchase - the premises, stock, staff, customers & goodwill

  • Advantages

    • Sales to existing customers will generate instant income

    • A good business history increases the likelihood of business success

    • A proven track record makes it easier to obtain finance

    • Stock has already been acquired and is ready for sale

    • The seller may offer advice and training

    • Equipment is available for immediate use

    • Existing employees can provide valuable assistance

  • Disadvantages

    • The existing image and policies of the business may be difficult to change, especially if the business had a poor reputation

    • The success of the business may have been due to the previous owners personality and contacts, so may be lost when the business is sold

    • It may be difficult to assess the value of goodwill, with the likelihood that the newcomer will pay more than it is worth

    • If the business premises are leased, the new owner may experience difficulties with the existing landlord

    • Some employees may resent any change to the business operation

• Entering into a franchise agreement

  • Franchising is a popular model in Australia, and is the fastest growing area of small business in Australia

  • For a set fee, the small business owner receives the benefits of a successful business formula, a well-recognised name and established trademarks

  • Franchising has a success fate of almost three times that of independent businesses, largely because it involves an established business name backed up by managerial expertise

  • Advantages

    • The franchisor often provides training

    • The franchisee does not need to have previous business experience

    • Investment risk may be lower

    • There is immediate benefit from franchisor’s goodwill

    • Equipment and premises design are usually established and operational

    • Well-planned advertising often exists

    • Volume buying is possible, often resulting in cheaper stock

  • Disadvantages

    • The franchisor controls the operations

    • The threat of franchise termination can be carried out in some circumstances

    • Profits must be shared

    • The franchisor often charges a service fee for advice

    • The franchisee is often required to purchase stock from the franchisor

    • Contracts may be biased in favour of the franchisor

    • The goals of the franchisor may be different or incompatible with those of the franchisee

    • The franchisee may merely feel like an employee but without the benefits and security

    • The franchisee must share any burden of the franchisor’s business mistakes

Business Planning

• A business plan is a formal, written document outlining the evolution of the business idea into a plan for reality

• The main elements of the business plan are:

  • Overview

  • Operations

  • Marketing

  • Finance

  • Human Resources

Business Goals

What the business hopes to achieve

• SMART

• Types of goals

  • Strategic

    • Long term

    • Broad

      • Profit maximalisation

  • Tactical

    • Months

  • Operational

    • Day to day

    • Specific

  • Financial

    • Profit

      • Profit maximisation occurs when there is maximum difference between sales revenue and expenses

      • There are 3 ways to maximise profits

        • Increase price

        • Increase no. of units sold

        • Decrease expenses (raw materials, utilities, salaries)

      • Not all businesses aim for profit maximisation, some, especially small businesses, aim for satisfactory profits

    • Market share

      • Market share refers to the business’ share of the total industry sales for a product

      • A successful strategy to increase market share is promotion

    • Growth

      • Businesses can grow internally (employing more people, developing new products, opening more outlets, expanding overseas) or externally (acquisition, merger)

    • Increase share price

  • Non-Financial

    • Social

      • Community service

      • Provision of employment

      • Social justice

    • Environmental

      • Sustainability

• Goods/Services consideration of the market

  • Once the business idea has been developed into a business concept some fact and figures may need to be collected to see if the business will survive and generate a profit

  • Two ways to do this are:

    • Feasibility study

      • An assessment of the market (level of demand for the product, who, where, and why consumers will buy the product, potential competitors and their competitive advantages_

      • An analysis of commercial feasibility

        • Financial information

          • How long it will take to make the first sale

          • How the price will be determined

          • How much finance is needed

          • Forecasted sales

          • Costs

          • Cash flow

          • Profit

    • Market research

      • The process of systematically collecting, recording, and analysing information concerning a specific marketing problem. Without adequate, reliable, and correct information, businesses expose themselves to market embarrassments which could result in their product failing to sell

      • Market research determines information needs, collects data from primary and secondary sources and then analyses the data. Methods of collection include

        • Focus groups to measure interest from target market sample group

        • Observation in test environment to record reactions and factors that may influence success

        • Interviews, surveys, and many more strategies before, during, and after launch

Market Influences

Location

• Factors to consider

  • Rent or buy?

    • Renting

      • Flexible - Can easily move if in need of more space

      • Spending less capital

    • Buying

      • Locks in a strategic location

      • Expectation of a good stable price

      • Good investment as an asset

  • Proximity to suppliers

    • Animal food

    • Cleaning supplies

  • Target market demographics

    • Tourists

    • Families

    • Children

  • Passing trade/Visibility

  • Choice of Location

    • Standalone

    • Strip of shops

    • Shopping centres

SWOT Analysis

Analysis

• Situational analysis

  • A situational analysis is used to record and ssess information about the internal and external business environments

  • Situational analysis often incorporates a review of strengths and weaknesses (internal), and opportunities and threats (external)

    • Otherwise known as a SWOT analysis

      • Strengths

        • What the business is good at

      • Weaknesses

        • Where the business needs to improve

      • Opportunities

        • The new market opportunities

      • Threats

        • Changes in the external environment that may make the business less competitive

  • A SWOT is only a small part of the business planning process. A SWOT may generate a large amount of information and some of it might not be useful. It does not provide solutions to weaknesses or threats, nor does it inform business owners which strengths or opportunities to focus on.

Price

• Cost based

  • A pricing method derived from calculating the total cost of producing or

    purchasing a product and then adding a mark–up for profit.

• Market based

  • A method of setting prices according to the interaction between the levels of

    supply and demand — whatever the market is prepared to pay

• Competition based

  • Choosing a price that is either below, equal to or above that of the

    competitors.

• Goods/Services consideration of the market

  • Once the business idea has been developed into a business concept some fact and figures may need to be collected to see if the business will survive and generate a profit

  • Two ways to do this are:

    • Feasibility study

      • An assessment of the market (level of demand for the product, who, where, and why consumers will buy the product, potential competitors and their competitive advantages_

      • An analysis of commercial feasibility

        • Financial information

          • How long it will take to make the first sale

          • How the price will be determined

          • How much finance is needed

          • Forecasted sales

          • Costs

          • Cash flow

          • Profit

    • Market research

      • The process of systematically collecting, recording, and analysing information concerning a specific marketing problem. Without adequate, reliable, and correct information, businesses expose themselves to market embarrassments which could result in their product failing to sell

      • Market research determines information needs, collects data from primary and secondary sources and then analyses the data. Methods of collection include

        • Focus groups to measure interest from target market sample group

        • Observation in test environment to record reactions and factors that may influence success

        • Interviews, surveys, and many more strategies before, during, and after launch

• Sources of Finance

  • Debt

    • Debt finance can be short OR long term and is borrowed form external sources by a business

      • The advantage of choosing debt finance is that the owner does not have to give up any share or ownership of the business

      • Another advantage is that the interest payable is tax deductable

      • The disadvantage is the cost of interest

    • Types of debt finance include

      • Short term: Less than ONE year

        • Overdrafts, commercial bills, and factoring

      • Long term: More than ONE year

        • Mortgage, debenture, unsecured note

  • Equity

    • Equity finance can be internal OR externally sourced by a business

    • The advantage of choosing equity finance is that it does not need to be repaid to the owner/investor unless the owner leaves the business or investor withdraws the investment. Dividends are only made if profit is achieved and is at the discretion of the directors of the business

Management Processes

• One of the key responsibilities of management as a part of the management process is to coordinate the 4 business functions and resources effectively

• These 4 business functions are:

  • Operations

  • Finance

  • Marketing

  • Human Resources

• These are interdependent, overlap and work towards common goals

Operations

• Introduction

  • Every business has an operations function

  • This is sometimes referred to as manufacturing or production, but is essentially the process of transforming the business’ inputs into outputs

  • Both goods and service industries involve an operations process. The inputs and outputs may be different but the transformation process is still the same

• The production process

  • Inputs, in the form of resources, can be

    • Physical

      • Raw materials

    • Financial

      • Cash flow

      • Capital funds

    • Human

      • Labour

    • Informational

      • Skills/expertise

      • Training

      • Computer software

      • Programs

  • The production process converts inputs into outputs by value-adding

  • This should result in an output that is more valuable than the total of inputs

  • The aim of most businesses is to make the production process as efficient as possible

• Definitions

  • Transformed (changed/used up) inputs

    • Resources that are changed or converted as part of the production process

    • They will be part of the finished output but not in their original state

    • Examples

      • Raw materials

      • Information

      • Customers

  • Transforming (doing the changing) inputs

    • Resources that change or convert other resources during the production process

    • They remain in the business and are not part of the finished output

    • Examples

      • Human resources

      • Facilities

• Differentiate between the transformation of a good to that of a service in operations

  • Manufacturing goods and the transformation of the tangible items are generally standardised and masss produced, whereas in service operations the product is intangible and customised, often made to suit the individual’s requirements. The cost of operations in tangible goods can often be high as they are capital intensive, however, service operations have a low capital cost but high training and education requriements and cost. Additionally, services by their nature are inherently non-durable, as opposed to goods which may be able to last over time, though the work of services done may have lasting effects.

• Approaches in operations

  • Operations can assist the business in achieving business gaosl through the adoption of one of the following approaches:

    • Cost leadership

      • Aiming to develop a competitive advantage based on price

      • Aim to reduce production costs to continue making a profit

        • This may involve:

          • Producing more standardised products with fewer options

          • Changing suppliers/negotiating better deals

          • Increasing production volumes to achieve economies of scale

          • Using technology to reduce waste and increase efficiency

          • Changing the quality and type of inputs used

          • Outsourcing

      • Where businesses aim to have the lowest cost in the market/industry. A cost leader is the business with the lowest cost in the market/industry.

    • Good / service differentiation

      • Seek to produce outputs that have better or more unique features

  • The choice of approach will then impact the basis of the business’ competitive advantage and the focus of operations management

1. Outline the role of operations management

   1. Operations essentially the process of transforming a buisness’s inputs into outputs. Approaches to operations management can differ based on business goals, and can be through cost leadership and value-adding to ensure profitability or good or service differentiation to produce outputs that have better or more unique features.

2. Outline the key differences between the production processes of a good and a service

   1. Goods and services have a variety of differences that we can use to differentiate between the two. For example, goods are tangible items, meaning they can be touched. However, services are intangible services. Additionally, where goods can be stored and generally able to be produced without minimal involvement from the consumer, services cannot be stored and most often must be produced and consumed at the same time for and by the consumer. The production process of transforming a good is very capital intensive and often requires machinery, whereas the transformation of a service is usually very labour intensive and heavily impacted by the skills and level of customer service of the person providing the service.

• Quality management

  • Quality management is an operations strategy used to ensure that the product meets the customers’ expectations

  • If the quality is high, the price is expected to be high as well - if the price is low, there is an expectation from the consumers that the good or service is of a lower quality as well. Consumer expectations of quality are influenced by the price of the good or service offered.

• Quality management approaches

  • Quality management is used to:

    • Minimise waste and defects

    • Ensure products meet standards

    • Minimise variation in the final product

    • Strong competitive position

    • Improved reputation and customer satisfaction

    • Reduced costs and increased productivity and profits

  • There are 3 approaches to quality management

    • Quality control

      • Involves the use of spot checks and inspections at various points of the production process

        • This approach reduces problems and defects in the product - picking them up before the process continues

        • Minimises errors and waste, ensurings tandards are met

        • Benchmarks are set before the physical checks are complete

        • Actual performance is then compared to these benchmarks

        • Competitiveness is achieved when costs associated with waste and faulty products are reduced

      • Can be implemented at short-notice

      • Focus on outputs - work-in-progress and finished goods

      • Achieved by sampling and checking (inspection)

    • Quality assurance

      • A system employed across the whole business to ensure product standards are achieved

      • Quality assurance focuses on the production process rather than on the end product

        • This is a pro-active strategy rather than a reactive one like QC

        • Standards achieved throughout process preventing defects

      • A widely used international standard is the ISO 9000 series of quality certification

      • Medium to long process;cannot be implemented quickly

      • Focus on processes

      • Chieved by improving production processes

      • Targeted at the whole organisation

    • Total quality management

      • An ongoing process; a way of thinking and doing that requires an improvement culture in which everyone looks for ways of doing better. Building this culture involves making everyone feel their contributions are valued and helping them to develop their capabilities

        • Commitment to excellence

        • Aim to creatre a defect free process with customer focus

        • Can improve price and product competitiveness

        • There are a number of TWM approaches

          • Quality circles

            • Achieve employee empowerment - involve a small team that meets regularly to solve problems related to provess

          • Identifying customers and their requirements

          • Establishing and using objectives for all areas of activitiy

          • Basing decisions on researched hard facts rather than on hunches

          • Identifying and eliminating the root cause of problems

          • Educating and training employees

        • Can be broken up into

          • Continuous improvement

          • Commitment to excellence

Inspections

• Objectives of inspection

  • Defective or Non-Defective

  • Locates problem

    • Spoil, semifinished product

• Types of inspection methods

  • Revolving inspection

Marketing

• Marketing does not always involve selling

• Orgamisations such as churches, schools, and charities attempt to market certain ideas, places, causes, or people

• Sometimes ‘marketing’ and ‘selling’ are used to mean the same thing, what is the difference?

  • Marketing is a total system of interacting activities designed to plan, price, promote, and distribute products to present to potential consumers

• The role of marketing

  • MORE THAN ADVERTISING

• Everything a business does should be directed towards putting the customer first - a customer-oriented approach

• Can be the defining factor when competition intensifies

• With a customer-oriented approach, a focus on satisfying the needs and wants of the consumer, all activities of the business should be directed to the marketing of the good or service

• Marketing is a philosophy that all sections of the business are involved in, to satisfy the customers needs and watnsa s well as achieving the business’s goals

• This affects organisation policies, plans, and operations

• The marketing plan needs to be integreated into all aspects of the business

• Explain the effect on internal business operations and interdependence when the contemporary/modern marketing approach is applied

  • The modern marketing appraoch of customer oriented service provides a focus on satisfying the wants and needs of consumers. In order to do this, all internal business operations, the interdependent functions of operations, finance, marketing, and human resources should be focused on marketing the good and service to the consumers and relying on one another in order to reach the preferred outcome.

• The contemporary marketing approach

  • Traditional marketing methods are not necessarily outdated, but they don’t really consider the customer who they are selling to

  • Contemporary marketing is more than just placing an ad in local media

    • It is a way of thinking

    • Strategies that stress the importance of customer orientation

      • The customer is at the centre of every business decision

    • The needs and wants of the customer are the focus

    • Strong links to relationship marketing

      • Developing long-term cost effective relationships with customers

    • The relationship does not end with the sale; this is where it begins

    • Businesses that use this approach have higher sales in the long term

• Target market and marketing approaches

  • There are 3 types of marketing approaches that businesses tend to adopt

    • Mass marketing

      • The business tarkets its product at the whole market/population

        • This is used where there is a large demand for a standardised product

          • The seller mass produces and mass distributes and mass promotes ONE product to all buyers

          • Dettol is mass produced as it can be used by all households in the same way

          • A single marketing mix is developed and directed at an entire market

          • There are only a few products that can be marketed this way

    • Market segmentation

      • The business targets the whole market, but subdivides this into smaller markets

        • These groups or segments share ONE or more characteristics from the four elements

          • Demographics (population)

            • Age

            • Gender

            • Education

            • Family size

            • Family life cycle

            • Occupation

            • Social class

            • Religion

            • Ethnicity

          • Geographics (where they live)

            • Urban

            • Suburban

            • Rural

            • Regional

            • City size

            • Climate

            • Landforms

          • Psychographics (personality)

            • Consumer opinions and interests

            • Socioeconomic group

            • Motives

            • Personality

            • Aspirations

          • Behavioural (loyalty or how they respond to a product)

    • Niche marketing

      • The buisness targets a small market by specific demographic qualities

    • Benefits of defining the target market

• Price

  • Methods

    • Cost based pricing; profit margin

      • Adding a mark up to the cost it took to produce

    • Market based pricing

      • Price set according to supply/demand

    • Competitor pricing

      • Price at or below competitors

  • Strategies

    • Prestige pricing

      • High pricing

        • Elicit prestige image

      • Psychological pricing

        • $4.99 instead of $5

      • Market penetration

        • Just below competition to establish market share

      • Loss leader

        • Below cost price to attract consumers

  • Outline how price can be used as a marketing strategy to increase sales

    • By having different prices for their products, businesses can establish themselves and differentiate themselves from competitors. In order to increase sales, businesses can establish competitor pricing to lower the cost of their product to consumers and establish a greater market share through market penetration, giving consumers an incentive to choose your businesses as opposed to another one that has a higher price.

• Promotion

  • The intention is to inform, persuade, and remind consumers about the business product. The forms of promotion should consider the level of technical detail, the target market, and the competitive market

    • Sales promotion

      • Activities used to attract interest for the product

        • Samples, coupons, POP displays

    • Advertising

      • Print or electronic mass media used to communicate a message about the product.

      • Used to attract potential customers and create demand

    • Personal selling and relationship marketing

      • The use of activities of a sales rep to direct a specific message to a customer to make a sale

      • Relationship marketing refers to the development of long-term, cost effective, and strong relationships with individual customers

    • Publicity and PR

      • Any free news story about a business’ products

      • PR are activities aimed at creating and maintaining favourable relations between business and its customers

  • Changes in tech

    • Advances in ICT are having a significant impact on how businesses promote

    • Particularly for small businesses who have limited promotional budgets, the internet has allowed them to take more control over their promotional activities

      • Facebook, Twitter, LinkedIn, Youtube, blogs, podcasts

        • All forms of social media

      • SMA (Social Media Advertising) can have positive results especially when combined with traditional advertising methods

      • It is inexpensive in comparison to traditional marketing methods

      • Easy to use and monitor

      • An effective method of gaining exposure

• Place

  • This refers to activities that make the products available to consumers, when and where they want to purchase

  • A distribution channel is the path the product takes, how many ‘go betweens’ producer and consumer

  • There is also non-store retailing that is gaining in popularity

    • Ecommerce which refers to buying and selling via the internet

    • Mobile commerce which refers to the buying and selling from a mobile device

• People

  • Everyone involved in the product of a business

  • All people involved in the business can have an impact on the marketing mix

  • Establish a culture, affect the perception of the business and products it offers

• Processes

  • The flow of activities or mechanisms that take place when there is any interaction between the customer and a business

    • Delivery of the product

    • How the customer finds out about the product, selects it, and purchases it

    • All businesses set up operating systems and processes as part of the way they do business

    • The total purchasing experience is important in achieving customer satisfaction

• Physical evidence

  • Everything that the customer sees when interacting with a business

    • Features of the product the business is selling?

    • The physical environment - such as design/layout

    • This assists in positioning the brand and attracting the target market

Finance

• Introduction to finance

  • Finance refers to how a business funds its activities as well as the costs, risks, terms, and benefits of different types of borrowings

  • Finance encompasses a number of issues for a business:

    • Where do we get money from to fund our business operations?

    • What costs are involved in running our business?

    • How do we ensure we always have enough cash to cover the costs?

    • What revenue are we earning in our business?

    • How do we ensure that we collect the cash that we are owed by our customers?

    • How do we ensure that our revenue is greater than our costs?

  • Financial managers must be able to manage any borrowings and use appropriate types of borrowing that match the financial needs

  • Borrowing is a useful source of finance, but it comes at a price.

    • Managing this risk is the key to successful financial management

  • Cost management is crucual to maximising profit. Businesses who can minimise costs while maintaining quality, reliability, high service level, etc. can gain a competitive advantage

  • Risk management is crucial because of the uncertainty of business and the chance of making a financial loss

  • Understanding the concept of finance, alongside accounting, is necessary for business owners to make informed decisions, interpret financial information correctly, and plan.

• Accounting

  • Accounting is a way of recording the financial transactions of a business

  • Every transaction is entered into the accounting system, manual or computerised, to keep track of money flowing in and out of the business

  • Every transaction is recorded twice in the accounting records

    • This is known as double entry bookkeeping and ensures that the financial statements are accurate

• Accountability

  • The purpose of accounting is to provide information that is useful and accurate presented in a clear and concise form to help with planning and provide confidence to business managers

  • A business is accountable for its operations

    • To owners/shareholders

    • To government

    • To customers

    • To employees

    • To the environment

  • Businesses are therefore requried to keep detailed financial records and to prepare annual financial statements that are a summary of the years transactions

  • Public companies must also have these statements audited by an independent accountant to ensure they are true and fair

• Financing with equity and debt

  • Equity

    • An internal source of finance

    • Includes start-up capital by owners

    • Net profit reinvested in the business

    • Cash contributed from shares

    • Venture capital - private equity provided in exchange for part ownership of a business

  • Debt

    • Requires interest payments and therefore poses a higher financial risk for the business

    • The length of time over the money is to be repaid, either short or long term, needs to be oconsidered when selecting for current and future needs

    • Firms should match the asset to be purchased, its expected return and productive life expectancy with the funds available

    • Firms with high debt levels and low equity are considered high risk

• The financial statements

  • The balance sheet

    • Shows the assets, liabilities, and owner’s equity

    • Is a statement of financial position

    • Is drawn up at a point in time

      • The balance sheet lists all the business’s assets and liabilities on a certain date

      • By nature of its name, both sides of the balance sheet must equal the same

      • Assets = Liabilities + Owner’s Equity

  • The income statement

    • Shows the revenue less the costs = profit earned

    • Is a statement of financial performance

    • Is drawn up for a period of time

    • Also known as the revenue statement or profit and loss (P&L)

    • It is a summary of all the revenue earned LESS than all the expenses incurred for a period of time

    • The amount left over is called the PROFIT

    • There are a few formulas to calculate profit

      • Sales - Cost of Goods Sold (COGS) = Gross Profit

      • Gross Profit - Expenses = Net Profit

      • COGS = Opening stock + Purchases - Closing stock

    • If the business sells goods then there will be a COGS and Gross Profit calculation included

    • However, if the income statmeent is for a service business, then there will NOT be a COGS or Gross Profit calculation

  • The cashflow statement

    • Shows the cash inflows and outflows

      • These are referred to as cash receipts and cash payments

    • Is a statement of financial liquidity

      • A business is said to be liquid when it can meet its short term debts as they fall due. Therefore, liquidity describes whether a business has good cash flow

    • Is drawn up for a period of time

    • Cashdlow statements highlight periods of surplus and deficit cash positions. They are vital to assess whether inflows match outflows

    • Casfhlow statements are most useful when prepared as a forecast so that the business can plan for periods of cash shortfall

• Assets

  • Assets are divided into current and non-current assets

  • Non-current assets

    • Expected to be held by the business for more than 12 months

    • Include plant, machinery, vehicles, furniture

    • Can also incude intagible items such as goodweill, trademarks, designs, and patents

      • A good name or easily identifiable logo = goodwill, it has worth

  • Current assets

    • Items easily converted into cash and are expected to be used within 12 months

    • Include cash, stock, and accounts receivable (debtors)

• Liabilities

  • Liabilities are items of debt owed to outside parties or organisations

  • Current liabilities

    • Amounts due to be repaid in less than 12 months

    • Including bank overdrafts, accounts payable (creditors), and short term loans

  • Non-current liabilities

    • Amounts due for repayment in more than 12 months

    • Including mortgages and loans

• Owner’s equity

  • Owner’s equity is normall divided into capital and retained profits

  • Capital is the amount invested by the owner(s) of the business, including shareholders.

  • It is a liability as it is owed by the business back to those owners

  • Retained profits are profits that are reinvested in the business rather than paid out to the owner (as drawings) or to shareholders (as dividends)

    • They are also essentially owed back to the owner(s) because their capital was used to generate the profit, thus they are entitled to it

Human Resources

• Human resources influences

  • Source of Employees

    • Human Resources

      • Costs

        • Wage

        • Non-Wage

          • Business expenses

        • Recruitment

          • Job descriptions written to determine requirements

        • Superannuation

          • All employers make a financial contribution to a fund that employees can access when they retire

      • Skill

Role of HR

• HR must fulfil a number of important requirements

  • Staffing objectives

  • Specific duties to be performed

  • Skill base of existing staff

  • Forecast of future staff requirements and skills

  • Methods used to recruit staff

  • Produce an organisational chart

  • Manage employee records / administrative tasks

• Skills and on-costs

  • HR must also consider the necessary skills of their employees. Recruitment must seek to attract a pool of qualified applicants with the most suitable skills

  • Training is a key role for HR where the skills of the existing workforce are improved.

    • Skills can be job-specific

      • Can use specific software

    • Can also be general in nature

      • Organised

  • The total cost of an employee is made up of wage/salary but also the on-costs (approx. 30-40%). This includes superannuation, annual leave, sick leave, public holidays, workers compensation insurance premiums etc.

    • Superannuation is a provision made from employers to employees (11.5%) that can be accessed on retirement

    • Annual leave loading is an extra payment most employees receive on top of their annual leave pay (17.5%) added to holiday pay

• Human Resources is the staffing process!

  • Manage the workforce as a primary resource

  • Create and develop teams

  • Enable maximum efficiency

  • Reactive and proactive

• Human resource cycle:

  1. Staff acquisition

     1.5 Employment contract

  2. Staff development

  3. Staff maintenance

  4. Staff separation

• Job analysis

  • This is a systematic study of each employees duties, tasks, and work environment

  • Occurs prior to recruitment and informs HR of how many new recruits they need, what the new recruits will be doing, and the skills that they will need

  • This information will inform the job description and specification

• Job description and specification

  • Job description

    • A written statement describing the employee’s duties, tasks, and responsibilities associated with the job

  • Job specification

    • A list of the key qualifications needed to perform a particular job in terms of education, skills, and experience

• Acquisition

  • Internally

    • Memo to HR

    • HR compile list of suitable applicants

  • Externally

    • Advertisements in the media

    • Private employment / recruitment agencies

      • Expensive but effective

    • Schools, TAFE colleges, or universities

    • Public employment agencies - Employment National

• Internal recruitment

  • Advantages

    • Employees are already known to the employer, so the choice may be easier

    • Applicants are already familiar with the business and its objectives, culture, and processes

    • If the position is a managerial or supervisory position, it creates a career path within the business to reward valued employees

    • Costs of advertising the position are reduced and no external agencies need to be paid

  • Disadvantages

    • There may be no-one suitable from within the business

    • If there is more than one internal applicant, it can lead to conflict or jealousies between those employees

    • Applicants may be set in their ways and not open to new ideas

    • The successful applicant from within may have to be replaced, so an external recruitment process may be necessary anyway

• External recruitment

  • Advantages

    • There is a wider range of applicants to choose from

    • Outside applicants may bring new ideas and fresh approaches to tasks

    • Different qualifications or experiences from those already within the business can be specified in the advertising process

    • This method allows for rapid growth of the business because it allows for an increase in actual staff numbers

  • Disadvantages

    • The applicants are all unknown, so the choice may be more difficult

    • Qualified employees from within the business may resent outsiders coming in, particularly if it is a managerial or supervisory position

    • There are costs associated with advertising the position

    • The field of applicants may be larger, so the process of selection may become more time-consuming

• Recruitment advertisement

  • Recruitment is the process of finding and attracting the right people to apply for a job vacancy

  • For this to occur, the advertisement must be clear and accessible

  • Innovating methods are now being used

• Acquisition

  • Selection

    • Finding a candidate whose skills, qualifications, and experience match the criteria in the job description and specifications

      • Written application, testing, interviews, background checks

  • Negotiation over pay and entitlements

  • Induction

    • Welcomes the new employee to the organisation

    • Lectures about the organisation, its culture, its future goals

    • Assigning a mentor

    • Chance for organisation to impart own particular culture

    • Require structure and planning

    • Ad hoc (rubbish, short, bad) inductions can result in a bad start for the employee

  • IF YOU GOT THE WRONG CANDIDATE

    • Your new employee needs to be let go, very hard to do!

    • If employee is past their probation period, may require payout

    • Need to begin recruitment process again. Some short listed applicants may have gone elsewhere

• Employment Contracts

  • 3 Types

    • Award

      • Explains the legally enforceable minimum terms and conditions that apply to a business or industry

      • Apply to all employees covered by national workplace relations system, except for managers or higher income earners

      • Contents include

        • Base pay rates

        • Conditions and requirements for different types of employment (full time, part time, casual)

        • Overtime and penalty rates

        • Allowances

        • Leave and leave loading

        • Hours of work

        • Requirements for annual wage or salary arrangements

        • Superannuation entitlement

        • Conditions and procedures for consultation, representation, and settling disputes

        • Outworkers

        • Redundancy conditions

      • Apply ON TOP OF minimum conditions in the National Employment Standards

      • Have a flexibility term that allows negotiation to some of the conditions

    • Enterprise Agreement

      • Collective agreements made at a workplace level between an employer and a group of employees about terms and conditions of employment

      • Offer broader terms and conditions than a modern award

      • 3 types of enterprise agreements

        • Single enterprise agreements

          • Made between a single employer and a group of employees. Can involve more than one employer in limited cases (e.g. joint venture)

        • Multi enterprise agreements

          • Made between two or more employers and groups of their employees. May occur if they share common funding, operat ecollaborately, and/or have a common regulatory system, such as a group of hospitals

        • Greenfields agreements

          • Single enterprise and multi enterprise agreements relating to a genuine new enterprise of the employer(s) made before any employees to be covered by the agreement are employed. Made with unions.

      • Enterprise agreements may cover

        • Rates of pay

        • Penalty rates

        • Overtime

        • Allowances

        • Hours of work

        • Personal and annual leave

        • Any matters related to the relationship between the employer and the employees

      • These must be approved by the Fair Work Commission

    • Individual Contract

      • Cover employees not on federal agreements or specific state agreements, particularly for those earning higher incomes

• Staff Maintenance

  • Workspace and Work environment

    • Culture

    • Physical features

    • Open door policy

  • Results

    • Productivity

    • Satisfaction

    • Loyalty

    • Morale

    • Improved communication

    • Lower absenteeism

    • Lower staff turnover

  • Rewards for employment

    • Monetary

      • Minimum wage rates and awards

      • Salary, annual payment / 52

      • Some organisations provide wages above award rates

      • Some industries provide productivity allowances

      • Some workers receive allowances for other reasons

        • Meals, longer hours per day, etc.

      • Paid

        • According to sales (Commission)

        • Based on output (Piece rates)

        • Bonuses (Hard work)

        • Shared ownership (Share plan)

        • Fringe benefits (Car, house loan)

    • Non-monetary

Business Management

Nature of Management

• Traditional definition:

  • Process of coordinating a business’s resources to achieve its goals

  • Contemporary definition

    • Process of working with and through other people to achieve business goals in a changing environment

    • moved to diff notes