Topic 2 

Business management 

Nature of management 

• Features of effective management 

• Skills of management 

• Achieving business goals

• Profits, market share, growth, share price, social goals, and the environment

• Behavioural approach 

• Management as leading, motivating, communicating

• Teams

• Participative/ democratic leadership style

• Contingency approach

• Adapting to changing circumstances 

Management process

• Coordinating key business functions and resources

• Operations 

• Goods and/or services

• The production process

• Quality management 

• Marketing

• Identification of the target market 

• Mass marketing

• Market segmentation

• Niche market

• Marketing mix 

• Product

• Positioning

• Packaging

• Branding

• Price

• Pricing methods: Cost based, market based, competition based, discount based

• Pricing strategies: skimming, price penetration, loss leaders, price points

• Promotion

• Personal selling

• Sales promotion

• Publicity

• Advertising

• Place

• Distribution channel

• Channel choice

• Human resources

• Recruitment

• Training

• Employment contracts

• Separation

• Voluntary

• Retirement

• Redundancy 

• Involuntary

• Retrenchment 

• dismissal

• Finance

• Cash flow statements 

• Income statements

• Balance sheets

• Ethical business behaviour 

Nature of management 

Features of effective management 

Every business needs effective management to succeed.

• The traditional definition of management is the process of coordinating a business's resources to achieve its goals

An effective manager needs to be good at 

• Leading 

• Planning

• Organising

• Controlling

Skills of management 

Interpersonal skills (people skills)

• A manager needs to be able to communicate effectively with their team to ensure that they understand the objectives of the business

• Managers need to build relationships with employees whilst also motivating them

Communication skills

• Communication is the exchange of information between individuals

• Managers need two way communication to be successful 

• Non-verbal communication such as body language is equally important

Strategic thinking skills

• Strategic thinking involves thinking about a business as a whole by taking on board the long-term goals of a business to visualise the bigger picture

Vision skills

• When the manager has a vision for the future of a business, it sends them on the right track to improvement

• A clear vision allows for a common goal between employees

Problem solving skills

• Problem-solving is a broad set of activities involved in searching for, identifying, and implementing a course of action to correct an unworkable situation

• If a manager can’t quickly and effectively solve problems it will lead to decreased productivity

Decision making skills

• Decision-making is the process of identifying the options available and then choosing a specific course of action to solve the problem

• This should be done within specific time frames

• Effective decision making should involve employee input

Flexibility

• Being flexible refers to being responsible to change and being able to adjust to changing circumstances

Adapting to change

• Change is the act or process in which something transforms or becomes different

• Successful managers anticipate and adjust to changing circumstances

Reconciling the conflicting interests of stakeholders

• This means that managers need to interact with all stakeholders of a business and have a vested interest in ensuring all parties are included in business objectives

• Business managers recognise that they increase their chance of success if they pursue goals that align with the interest of stakeholders

Achieving business goals

• A goal is a desired outcome or target

Why are goals important for managers?

1. Serving as targets - Managers set goals

2. Measuring - some goals act as benchmarks

3. Motivation - good quality goals present a challenge

4. Commitment - participation by employees is vital

Profits, market share, growth, share price, social goals, and the environment

Profits

•  A financial goal for a business is to maximise profits

•  Profit is what is left after the cost of producing and supplying the product (expenses) which have been deducted from the sales (revenue)

Profit = total revenue - total costs

•  Businesses aim for profit maximisation - the maximum difference between total revenue and total costs

Market share

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

•  An increase in market share suggests the business is doing well

•  An increase in the market share for the business is important for a business to dominate the market 

Growth

• Growth refers to the ability of a business to increase its size in the long term

• Growth of a business can be achieved by:

•  Increasing physical size of a business

•  Employing more people

•  Increasing sales and profits

•  Purchasing new equipment

•  Establishing more outlets in Australia and overseas.

Share price

•  A share is part ownership of public company - shareholders are the real owners

•  Companies that wish to be successful need to maximise the returns of their shareholders

Social goals

• Many businesses develop social goals and adopt strategies that will better the community

Environmental goals

•  Businesses becoming more environmentally aware by adopting practices such as ‘recycle, renew, regenerate’ (products are environmentally friendly)

• Practices of sustainable development (balance between economic growth and environment

• Allows for a better brand reputation

Achieving a mix of business goals 

• Managers need to have a mix of goals as there are different stakeholders of a business.

• Business goals are interdependent (require to work together) to help the business achieve its prime function

•  Some goals are compatible - certain strategies may assist in achieving multiple goals

•  At times when the goals of a business may be in conflict, the business may need to compromise its goals

Staff involvement

•  Vital to provide a work environment that maximises employee involvement and satisfaction → results in high levels of labour productivity

•  Staff involvement provides 2 advantages: increased employee motivation and solutions to organisational problems.

•  Staff involvement will only be fully successful if a business provides employees with the necessary expertise as well as recognising the importance of:

1. Innovation

•  Innovation occurs when a new idea is applied to improving an existing product or idea

•  Businesses can gain a competitive advantage if they innovate successfully

•  Encourages staff creativity through brainstorming and asking for solutions

•  Reward employees with innovative ideas

2. Motivation

•  Higher motivation = higher productivity - Low motivation = low productivity

•  Motivation through rewards

•  Motivation through reward (pay) or motivation through punishment (Fired)

•  Good managers should be good motivators

•  The overall success of the business largely depends on motivated and skilled employees who are committed to its goals

3. Mentoring

•  Mentoring programs encourage staff involvement

•  More experienced staff can offer advice and guidance to co-workers as an act of support, also resulting in skill transfers and gained expertise

•  Individuals understand what is expected of them (values and beliefs of the workplace)

4. Training

• On-the-job training, seminars, and re-training when using technology

•  Training improves productivity and skills → higher staff efficiency

•  Training can also be looked at as an investment opportunity

•  Higher training allows for staff to be able to adapt to a rapidly changing technological environment

•  May involve teaching new employees specific skills, allowing existing employees to upgrade their skills with the aim of developing multi-skilled employees.

Management approaches

Classical approach

The Classical approach stresses how best to manage and organise workers so as to improve productivity (output).

Management as planning, organising, and controlling

1. Management as planning

Planning is the function of determining the business objectives and the strategies required to achieve its objectives

•  Levels of planning:

             a. Strategic planning: (long-term) is for 3-5 years.

             b. Tactical planning (medium-term) is flexible (1-2 years).

             c. Operational planning (short-term). Addresses the day-to-day operations

2. Management as organising 

Organising is the process of arranging the resources of the business to achieve its goals.

•  Determining the work activities = work activities broken down into smaller steps

• Classifying and grouping activities = similar activities can be grouped together

•  Assigning work and delegating authority = who will carry out the work

3. Management as controlling 

Controlling is the process of evaluating and modifying tasks to ensure that they set goals are being achieved.

•  For example changing production procedures if goals are not being achieved.

•  Establish standards - Measure performance - take corrective action

Hierarchical organisational structure

•  Increasing authority at higher levels of hierarchy

•  Several levels of management - each with separate roles and responsibilities

•  Specialisation of labour - tasks being divided into separate jobs

•  A chain of command which clearly shown whose responsible to whom

•  Many levels of management determined by top levels

Autocratic leadership style

•  Managers use a high degree of direction with little participation in decision making by employees. - Expect employees to follow orders

•  Manager makes all decisions and dictates work

Behavioural approach 

• Emphasises the need for management to have a positive relationship with employees

• Communication between all levels of the business

Management as leading, motivating, communicating

Leading: Managers endeavour to influence or motivate people in the business to work to achieve the business objectives. Individuals must be trusted to be a leader

Motivating: The individual, internal process that energises, directs and sustains a person's behaviour. Motivated employees are more productive

Communicating: Unless managers are able to share their thoughts and plans, they will find it difficult to influence others

Teams

• Flatter organisational structure allows for ease of communication and flow of ideas

Participative/democratic leadership style

• This leadership style is where the manager consults with employees to ask their suggestions and then seriously consider those suggestions when making a decision

• Shared decision making / employees have an input

Contingency approach 

Adapting to changing circumstances 

• The factors that influence a business are constantly changing, so the business needs to adapt to take advantage of opportunities and to ensure factors that threaten the business are managed to minimise threats

• The way a business operates is dependent on the nature/circumstances of the business

Management process 

Coordinating key business functions and resources

• The four functions are all interdependent

• Need to be organised in the most effective manner

Operations 

• Involves efficiency planning, organising and supervising production and manufacturing 

• Supply chain management and logistics. Considers use of resource and cost effectiveness 

• Operations involves combining and transforming inputs to produce a final good or provide a service

Operations will directly affect a businesses competitive position because it wil:

• Establish the level of quality of the product 

• Influence the cost of production 

• Determine if supply will meet demand

Goods and/or services

• A manufacturer will transform inputs into goods - tangible products

• Tangible products are physical products that can be handled and stored before being sold to consumers

• A service organisation will transform inputs into services - intangible, cannot be touched

• Many businesses produce a combination of both manufactured goods and service

The production process

There are three elements of the production process: Inputs, transformation process, outputs.

Inputs

TransformED resources

Inputs changed and converted in the operations process

• Raw materials

• Information (e.g. market research)

• Customers (their choices shape inputs)

TransformING resources

Inputs that carry out the operations process, enabling the change and value adding to occur

• Human resources

• Facilities - the plant (factory or office) and machinery used in the operations process

Process

• The conversion of inputs into outputs

• Can be done using three different methods

• Job production: Produces unique products, made on demand

• Batch production: Made in groups of the same output

• Flow production: A continuous flow of production, use assembly lines and produce high volumes

Outputs

• the service or good that is delivered or provided to the customer

• Management must ensure that the output meets the demand of the customer. Need to consider quality, efficiency and flexibility in the planning process

Quality management 

• Quality is the degree of excellence of goods or services and their fitness for a stated purpose

• Quality management refers to the strategy which a business uses to make sure that it’s product meets customer expectations

Quality control 

The use of inspections at various points in the production process to check for problems or defects

• Aims to identify and correct defects

• A reactive approach 

• A corrective techniques

Quality assurance 

A system for ensuring quality in the process by which products are developed so that a business achieves set standards in production.

• Aims to prevent defects or issues

• A proactive approach 

• A preventative technique 

Total quality management 

• Total quality improvement/total quality management is an ongoing, business-wide commitment to excellence that is applied to every aspect of the business. (it is a holistic approach)

• The aim of TQM is to create a defect-free production process and maintain customer focus in operations

• To achieve TQM objectives a range of approaches can be used, including:

• Employee empowerment

• Continuous improvement

• Customer focus

Marketing 

Identification of the target market 

A target market is the ideal group of customers for a business in which marketing will be pushed towards. Selecting a target market should be the earliest step of marketing.

Mass marketing

• Directs to the entire market in the same way

• Generates a single offer and marketing mix for everyone

• Less personal marketing tactics

• Best for widely consumed items e.g toilet paper and petrol

Market segmentation 

• Divides the market into distinct segments

• Business directs its efforts towards a particular segment of the total market

• Divides the market into a group of people with shared characteristics 

Niche market

• A specific, narrow customer base

• Usually priced higher to make up for the limited number of customers

• Business is vulnerable to demand 

• Gains an advantage by focusing all efforts on their exclusive product

Marketing mix 

Product

A good or service that can be exchanged in the market. The product strategy aims to differentiate the product from others.

Positioning (image)

• The act of designing the businesses offering and image to occupy a distinctive place in the consumers mind

• How a product is different from its competitors and where it sits in customers minds

• Directly linked to consumer loyalty

• Businesses want consumers to think of their product first

Packaging

• Distinctive, memorable, positive brand reputation

• Attracts interest to the product

• Can create an image of loyalty

Product branding

• The name, term, sign, symbol or design that is used to identify a suppliers good or service and its associated image to the public

• Differentiates from competitors 

• Brand name can become a key selling point

• Makes the product distinctive e.g. apple logo, mcdonalds M

Price

The amount a business charges for its customer for its product. Directly affects the amount sold and profit made.

Pricing methods (how the price is set)

Cost based: Calculating the total cost of production and adding a percentage to make profit.

Market based: Setting the prices according to the interaction between the levels of supply and demand. (what the market is willing to pay)

Competition based: A price is chosen that is below, equal or above their competitor

Discount based: The price of stock is reduced to stimulate demand

Pricing strategies 

Market skimming: where a business sets a high price for a product

Market penetration: If a product has a low price when it enters the market, to gains a large number of sales

Loss leaders: When products are priced below their cost price in order to attract customers

Price points: (psychological pricing) Where a business sets different prices for similar products

Promotion 

Promotions mix

Personal selling: the consumer is directly approached by a salesperson

Advertising: Paid, non-personal presentation through mass media (TV)

Sale promotion: providing incentives to consumers to purchase the product

Publicity: an unpaid promotion that is not paid for by the business. Eg. celeb wearing a brand

Place

Distribution channel 

Producer → consumer (direct & simple, common for services)

Producer → retailer → consumer (Perishable items, hard to move/store objects)

Producer → wholesaler → retailer → consumer (Most common for goods)

Channel choice

Intensive distribution: product available everywhere eg. Coke

Selective distribution: product available at a few outlets eg. Nike

Exclusive distribution: product available at very limited stores eg. Rolex, Rolls Royce

Human resources

Human labour used to transform inputs to outputs. Should work to keep employees motivated and happy.

The Human resource cycle: The human resource cycle covers all stages in the process of employing staff, from initial planning through to recruitment selection, induction, training, and development, performance management and eventually separation of employment.

Recruitment (acquisition)

Acquisition - hiring new employees

• Acquisition is concerned with attracting and recruiting the right staff for the business

• A business must ensure it determines staffing needs and an analysis of the job.

• The business must ensure that all positions have a job description and job specification

• After the business determines its staffing needs it needs to undertake the recruitment process

Internal recruitment: Filling job vacancies with present employees rather than looking outside the business

External recruitment: Filling job vacancies from outside the existing employees 

Employee Selection:

• Involves gathering information about each applicant for a position, then using that information to choose the most appropriate applicant. E.g. Interviews, testing & background checks.

Training and development

Training: the process of teaching staff how to perform their job more efficiently and effectively by boosting their knowledge and skills

Development: The process of preparing staff to take on greater responsibilities in the future

• Training and development is aimed at improving employee skills and abilities

• This may be necessary for new employees, depending on experience but essential for existing employees to maintain/upgrade their knowledge and skills

Benefits for the employee:

• Opportunity for promotion and self-improvement

• Improved job satisfaction

• Greater adaptability

Benefits for the employer:

• Higher productivity

• Goals more effectively met

• Reduced costs from mistakes, defects and errors

• A more capable office

Types of training and development:

• Off-the-job-training: employees trained away from the office

• On-the-job-training: Employee learns a specific skill in the workplace

• Corporate universities: Businesses form a partnership with academic institution to develop training

• Mentoring: Mentor acts as a coach supporting employee

• Online training: delivering training through electronic devices

• Action learning: Learning by experience, solving real world problems

Employment contracts

• Employee contracts are legally binding formal agreements between the employee and employer

Employer obligations

• Provide work

• Payment of income

• Provide reasonable care for the safety of staff

• Meet requirements of industrial relations legislation

Employee obligations

• Obey lawful and reasonable commands

• Use care and skill

• Act in good faith

Minimum employment standards

• Employees are entitled to minimum employment standards (2010)

• Applies to full time and part-time employees

• The 10 standards outline coordination for:

• Hours of work

• Parental leave

• Flexible work for parents

• Annual leave

• Personal leave

• Public holidays

• Community service leave

• Information in the workplace

• Long service leave

• Notice of termination and redundancy

Awards

• Outlines an employee's minimum pay and conditions. 

Enterprise agreements

• A negotiated arrangement between an employer and a union or a group of employees. 

Individual common law contracts

• Exist when employers and employees have the right to sue for compensation if either party does not fulfil their part of the contract.

Separation 

• Separation is the ending of employment relations

• Separation may be voluntary or involuntary

Voluntary separation

• Occurs when an employee chooses to leave the business of their own free will. E.g. Retirement, redundancy.

Retirement: Occurs when an employee decides to give up full-time or part-time work.

Redundancy: Is when a particular job a person is doing is no longer required to be performed, usually due to technological changes, a merger or takeover.

Involuntary separation

• Occurs when an employee is asked to leave the business against their will. E.g. Retrenchment, dismissal.

Retrenchment: Is when a business dismisses an employee because there is not enough work to justify paying him or her.

Dismissal: Is when the behaviour of an employee is unacceptable, and it then becomes necessary for a business to terminate the employee's employment contract.

Finance 

The financial resources needed to pay for all aspects of each key business. Finance allows inputs to be acquired

Equity finance: Includes all funds that are obtained from people who become shareholders or private equity investors

Debt finance: Borrowed funds, generally from financial institutions such as banks or from another business

Gearing: The businesses reliance on debt vs equity. Can be highly geared (high reliance on debt) or lowly geared (low reliance of debt)

Cash flow statements

A cash flow statement is a financial report that summarises cash transactions.

• Details the inflows and outflows of cash and help predict future cash flows

• Details the inflows and outflows of cash and helps predict future cash flow

Credit transactions: Credit the business has been given - Yet to be paid but set to come in 

Liquidity: The businesses ability to meet (pay) short term financial obligations (expenses/repayments)

Cash flow statement equation: Opening balance + Inflow - outflow = closing balance

(closing balance becomes next months opening balance)

There are three main areas of cash flow statements:

• Operating activities - related to the main activities of the business

• Investing activities - created by purchases of sales of non-current assets and investments

• Financing activities - created by activities involving investors and the creditors who provide the funds to start and run the business.

Wages - operating outflow

Divided payments - financing outflow

Payment to a supplier - investing outflow

Purchase of a company car - investing inflow

Loan repayment - financing outflow

Sale of land - investing inflow

Income statements 

A summary of all the revenues that are generated for the business and all the expenses that are incurred to earn the revenue. Income statements record both cash and credit purchases/sales. 

There are 5 main categories of items:

• Revenue or incomes

• Cost of goods sold (COGS)

• Gross profit

• Expenses

• Net profit

How to calculate the income statement

1. Calculate the total revenue or operating income

2. Calculate the cost of goods sold (COGS) and calculate the gross profit

3. Itemise all other expenses

4. Calculate net profit

5. Income statement

1.  (COGS) Cost of Goods Sold -

COGS = opening stock + purchases - closing stock

2. Gross profit = difference between sales and revenue and the cost of purchasing the stock

Gross profit = sales profit - COGS

3. Net profit - the profit remaining after all other expenses have been paid for

Net profit = Gross profit - Total expenses

Balance sheets 

• Provides business assets and liabilities at a particular point in time

• It shows the net worth of the business (financial stability)

• A balance sheet helps the business monitor debt ans equity labels and assist in making decisions

The sum of items on the left hand side must equal the sum of items in the right hand side

Key Accounting Equation:  Assets = Liabilities + Owners Equity

• A = L + OE

Assets: 

• Items of value that the business owns and directly controls

• Items of financial value which help a business generate revenue for a profit

• Current assets - those who can be converted into cash within one year

• Eg cash, inventory (stock), accounts receivable (debtors), repaid expenses (prepayments 

• Non current assets - Used for a greater that one year accounting period. Used for more than 12 months

• Eg buildings, motor vehicles, machinery, technology, intangibles

Liabilities:

• Debt owned by the business

• Classified by how long it takes for businesses to repay debts

• Current liabilities - short term debts of the business. Must be repaid within 12 months

• Eg overdraft, accounts payable (creditors)

• Non current liabilities - Long term debts of the business. Can be repaid over a longer period of time

• Eg mortgage

Owners equity

• Amount of capital put into a business by the owner/s

• Represents the net worth of the business (difference between assets and liabilities)

Ethical business behaviour

• Ethics are standards that define what is acceptable and unacceptable behaviour

• Business ethics is the application of moral standards to business behaviour

• Unethical business behaviour leads to - Lawsuits, wasted time, ruined careers, scandals

Triple bottom line

• Businesses that focus on ethical and social responsibilities are often rewarded with increased business performance

• The triple bottom line focuses not on making a profit however mainly focuses on the importance of social and environment performance

• The ‘profit’ bottom line - A measure of the traditional profit and loss financial bottom line

• The ‘people’ bottom line - a measure of how socially responsible a business has been 

• The ‘planet’ bottom line - A measure of how sustainable and environmentally responsible the business has been

• Application of moral standards to business behaviour:

• Fair and honest business practices

• Decent workplace relations

• Conflict of interest situations

• Accurate financial management

• Truthful communication