Topic 1: OPERATIONS

Operations can be defined as the process of converting a good or service into a

finished product.

Roles of operations management

Operations management refers to the management of that process e.g. the
allocation and maintenance of machinery and resources.

Strategic role of operations

The strategic role of operations management involves long term management
issues (3-5 years).

Cost leadership
Involves producing goods or services at the lowest possible cost. If a business can
keep its costs low then it will maximise its profits giving the business a
competitive advantage over its competitors.

Good/service differentiation
By differentiating its good/services a business will make its output stand out
from its competitors and therefore capture greater market share.

Goods and/or services in different industries

Goods and services in different industries will always be differentiated from one
another. They will always try to differentiate themselves from their competitors
in order to attract customers.

Influences on operations
There are seven major influences on operations:
● Globalisation - Globalisation is known as the increasing economic and
financial integration of economies globally. The term broadly refers to the
global alterations that are taking place to eliminate national boundaries
from the key business functions.
e.g Qantas - 70% Overseas
● Technology – Technology has also had a great influence on production.
Businesses must access the latest technology in order to compete
effectively. Newer technology makes the production process cheaper and
more efficient. Recent technologies include robotics, computer assembly
lines, computer aided design (CAD), computer aided manufacturing
(CAM), scanning systems and barcoding, wireless computer systems and
superfast broadband and smart phones and satellite navigation.
e.g Qantas - New Planes, seats
● Quality expectations – This is sometimes known as quality
assurance. These are procedures within a business designed to improve
or maintain all aspects of quality in the production process to make it
more efficient.

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 Qantas - Inflight Entertainment (comforts)
● Cost-based competition – This influence is based on the concept of a
business competing with other businesses by reducing prices.
Competition based pricing is a price set by a company for a product to
compete with another companies pricing.
e.g Qantas - reduce costs by outsourcing
● Government policies – Firstly, government needs to ensure safety
and quality standards. The safety standards relate to consumer safety.
Quality is important for the consumer. Goods produced by an Australian
manufacturer or goods imported from overseas must reach certain
standards of quality. Secondly, It is important that our export industries
produce the highest quality goods and/or services to maintain Australia’s
reputation in the global market.
Qantas - Fair Work Act for employees
● Legal regulations – Regulations affect business and the welfare of
their workers through WH&S regulations. It can also relate naming rights
e.g. Champaign must come from the campaign region of France.
e.g Australian Competition and Consumer Completion
● Environmental sustainability – In the past 10 years the concept of
environmentally responsible products has become an important issue in
production. There has been much concern whether the environment was
being damaged by the industrial activities of modern business. Things
such as developing environmentally friendly packaging have been
introduced. Environment Protection Authority was introduced to police
the way businesses dispose of its waste.
e.g Qantas uses bio fuel, 60% less carbon emmisions

Corporate social responsibility

The responsibility that a business has to other businesses and the community.

The difference between legal compliance and ethical responsibility –

This really comes down to basic morals. Some businesses comply with their legal
responsibilities simply because they have to and others do it because it is the
ethical thing to do. Some businesses would adhere to certain standards of
corporate social responsibility simply because it is the right thing to do
regardless of their legal requirements.

Environmental sustainability and social responsibility

Much of the social responsibility is driven by society itself. As time goes by the
attitudes of society change. Pressure groups such as Greenpeace have put
pressure on governments to change laws in favour of the environment, working
conditions.

Operations process
Inputs

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Transformed resources
● Materials – These are the raw materials used in the production process
● Information – This is used by a business in order to help transform the
raw materials into finished products. Market research information may
help the business to target their customers more precisely. This
information is then used (transformed) to help the business with its
production decisions.
● Customers – These people purchase the finished product after all of the
other inputs have been put together. Ideally they will have some influence
over what is produced.

Transforming resources
● Human resources – This could also be referred to as the labour that
produces the finished good. In this case we don’t simply mean factory
workers. It could be the entire work-force involved in producing the
product. It is anyone who plays a role in the output of the end product.
● Facilities – This is the place where the product is produced. This could
be the factory, bakery, shop or office.

Transformation processes
This is the actual process of converting inputs into outputs. Take the ingredients
for making bread and putting them all together to produce a loaf of bread. To
carry out this transformation there is a physical change – a loaf of bread looks
and tastes different from the parts that made it up.
Four Vs:
Volume , variety , variation , visibily
Sequencing and scheduling
Sequencing involves placing tasks into an order so that the whole operation runs
smoothly.
Scheduling involves tracking the time taken to complete a job.

Gantt charts – A gantt chart is a sequencing tool presented as a bar graph with
time and activities shown on two axes. The manager knows how long a particular
task should take and whether they are on schedule or not. It also shows what
tasks can be done simultaneously or at least overlapping.

Critical path analysis – Critical path analysis are tools that help a business to
schedule and manage complex projects. As with Gaant charts, Critical path
analysis is the shortest time a job can be completed but the longest path.

Technology, task design and process layout

● Technology – If a business employs the latest technology, it will operate

more efficiently. Computerisation has been instrumental in improving the
operations process.
● Task design – Task design involves the actual design of the task so that it
is simple and easy to complete.

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 ● Process layout – This involves the physical layout of the factory or office.
If the assembly line or office is poorly designed then the transformation
process will be inefficient.

Monitoring, control and improvement

The final stage of the transformation process is that of monitoring, controlling
and improving the process. If the process in not monitored and controlled than
the quality of the output will suffer resulting in the loss of reputation, customers
and profit. The following processes need to be monitored and controlled:
● Inventory (stock)
● The production process
● Records

Outputs
The final stage of the operations process is output. This could be regarded as the
most important stage of the process because without customer service and
warranties, all of our hard work producing a good product will mean very little if
the customer who buys the final product is not satisfied.

Maximising customer service

This happens in three ways:
● Satisfaction with the quality of the product
● Satisfaction with staff interaction with the customer
● Satisfaction with after sales service

Warranties
All products have a warranty. A warranty is an agreement and a period of time
when a manufacturer must repair or replace a product that has broken down
after purchase. Even a small inexpensive item has an implied warranty that it will
do the job it is supposed to do. As opposed to a condition, a breach of warranty
doesn’t entitle the customer to cancel the contract, but they are entitled to sue for
damages for non-compliance with warranty conditions.

Operations strategies

Performance objectives
Performance objectives can sometimes be called quality control and these are the
management procedures that are put in place to check the suitability of raw
materials going into to production process. It also helps avoid producing seconds,
wastage, increased costs, warranty claims and service problems. The
performance objectives are: QSDFCC

● Quality – this can be described as the level of excellence of a good or

service. Most business try to produce a quality output whether it be a
good or service. eg: tidy planes

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 ● Speed – It is important for a business to produce its output quickly. When
an order is received it must be produced and shipped in the time stated to
the customer. If this is not done the reputation of the business is at stake.
eg: Fast services
● Dependability – Customers want dependability when dealing with a
business. Dependability might refer to a representative or trades person
turning up on time to give a quote. That quote might need to be emailed,
faxed or posted to the customer. eg: departures on time
● Flexibility – Just as it is important to be dependable, it is also important
to be flexible e.g. being able to change direction or have a policy of
flexibility. eg: baggage options
● Customisation – To customise is to modify something according to a
customer’s individual requirements. It is important for a business to
provide a product that suits individual customers. Cars are a good
example. eg: alliances
● Cost – Cost has to be a significant performance objective. After all a
business is their to make a profit and one of the strategies for making a
profit is cost minimisation. However, cost minimisation should not be
done at the expense of quality. A business that cuts corners and cuts costs
will find that quality will suffer. eg; reduce services to unpopular
destinations

New product or service design and development

It is important for a business to be constantly developing new products or
services in order to stay ahead of the competition. Some of the things they need
to look at include:
● Implementing technology
● Improving productivity

Supply chain management

Supply chain management is the movement of raw materials, goods or services
from one stage to the next.

Logistics
This is concerned with ensuring that each stage of the supply chain comes
together in the most efficient way possible.

E-commerce
This stands for electronic commerce. The customer doesn’t directly see the
product or seller. The transaction is carried out electronically. E-commerce has
made logistics and supply chain management more efficient due to the fact that
buyers and sellers and their communication channels have improved greatly.

Global sourcing
This refers to the action of a business sourcing its raw materials from anywhere
in the world. It is done for several reasons. Firstly, to obtain the cheapest
materials – often in the Asian region - and secondly, for convenience and security
of delivery.

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Outsourcing
Recently there has been a trend for businesses of all sizes to outsource much of
their work in order to access the best talent available and also as a matter of
economics. For example, There are many companies contracting out their
manufacturing processes to contractors all around the world who assemble the
components and then sell them under a brand name. Apple doesn’t assemble its
own computers but instead contracts out its computer assembly functions.

Technology
Leading edge
Businesses need to use state of the art technology as part of their operations
strategies. Computerisation has lead to the technological revolution in business
through such things as computer aided design (CAD) and the robotisation of
production. New information and communications technologies are major
influences on business both domestically and globally. The internet, mobile
phones and electronic funds transfer are opening up the global market.
BLEEDING EDGE - BRAND NEW, COSTLY, RISKY

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Established
As we move through the 21st century we also need to consider some of the
established technology that we take for granted and which has been around for a
while now and yet on the other hand was not always common 20 years ago.
These include:
● Fax machines
● ATM’s
● Photo copiers/scanners
● Barcoding of stock

Inventory management
In today’s world, businesses must decide how much stock they hold at any one
time. On one hand if too much stock is held then money is tied up reducing
liquidity. On the other hand if too little stock is held the business runs the risk of
running out of stock if the supplier has a problem at their end. There is no clear
answer to this dilemma and the business must decide on the best plan for their
particular business. It comes down to experience and also gut feeling.

LIFO and FIFO

LIFO (last-in-first-out) stock purchased most recently is sold first. LIFO is one
method used to determine Cost of Goods Sold for a business. Used when there is
no used by date and remaining stock is low.
FIFO (first-in-first-out) stock purchased first is sold, used when remaining stock
is higher

JIT
JIT is the holding of a minimum amount of stock necessary to run the business. It
is the most efficient method of inventory management.

Quality management
Quality management refers to the degree of entrepreneurial flair, innovative
skills, experience, people management skills, decision making skills and
communication skills that a manager has.

Control
Control helps to check errors and to take corrective action to maintain standards.
Things that need to be controlled include inventory – especially the amount of
inventory the business has on hand.
Assurance
It is the overseeing of the whole process. Prevents problems, faults and/or
errors.

Improvement
Continuous improvement because without continuous improvement a business
will not maintain its edge over its competitors and will fall behind.

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Overcoming resistance to change
Resistance to change is quite a common feature in business. Many business
managers feel that if a certain operations procedure is working well enough, then
why change. However, well enough is not always good enough and better, more
efficient procedures can be found. There are several reasons for resistance to
change:

Global factors
The global business of today is living in a completely different world to that of
global business 20 years ago and the main element in this change is technology.
Global factors are:
● Global sourcing – The term used to describe the practice of sourcing raw
materials and services from the global market across geopolitical
boundaries.
● Economies of scale – This is the lowering of the unit cost of production
by spreading costs over a larger output. As companies become larger and
begin to trade overseas, many will set up offices, research and production
facilities overseas, taking advantage of the fact that they can access
information and technology not always available in Australia.
● Scanning and learning – This is a process of gathering, analyzing and
dispensing business information for tactical (short term) and strategic
(long term) purposes. A business has to monitor (scan) key factors such
as demographic-economic, technological, political-legal and
social-cultural factors that may affect their business.
● Research and development – Refers to creative work undertaken on a
systematic basis in order to increase the stock of knowledge, including
knowledge of man, culture & society and the use of this knowledge to
devise new applications. Businesses must undertake in research and
development to stay at the forefront of world production development.

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Topic 2: MARKETING
The role of marketing
The strategic role of marketing
Strategic plans have a 3-5 year perspective. The marketing strategy must fit in
with the other elements of the business plan and be interdependent with other
key business functions. The role of marketing is:
● Maximise sales and therefore consumption and profits
● Increase market penetration and market share
● Maximise consumer choice
● Maximise consumer satisfaction

Production, selling and marketing approaches

Businesses will often use a variety of approaches in order to increase product
awareness, satisfy the needs of customers and increase profits.
There are three main marketing approaches and they are as follows:
● Product approach – This concept revolves around the idea that if
producers produce products and services, then consumers would want
them. There was little or no consideration of the consumer and what they
really wanted.
● Selling approach – This concentrates on selling technique to attract
customers especially if the more difficult products are to be sold. Products
that are not foremost in the mind of consumers, such as insurance and
funeral plans have to be sold aggressively.
● Marketing approach – The customer orientation has a focus on the
customer and their satisfaction by finding out what the customer wants
and supplying them with the product. Marketers must have a good
relationship with their customers and this is where the term relationship
marketing comes in. A real estate agency is a great example of a business
that relies on the marketing approach through the use of relationship
marketing.

Types of markets
● Resource markets – Are those markets for commodities such as
minerals, agricultural products, people looking for work (human
resources) and financial resources.
● Industrial markets – Are markets for goods and services which are
used in the production of other goods and services and which are often
sold to others for production.
● Intermediate markets – Are often known as reseller markets. These
markets consist of businesses that acquire goods for the purpose of

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 reselling them to others in order to make a profit. – Wholesalers, retailers
and importers.
● Consumer markets – Consist of all the individuals and households
who buy goods and services for personal consumption. Australian
consumers spend over $250 billion each year in private consumption
expenditure. Because of the lucrative size of the market it has been
divided into segments and they are, Over 50’s, Under 25’s, Working
woman, Young married couples with children, Young married couples
without children and etc.
● Mass markets – are the markets that are aimed at consumers in a very
broad sense because the products have universal appeal e.g. nearly
everyone purchases these products. Products that fall into this category
include, Gas, Eggs, Fruit and Veg and Electricity.
● Niche market – Are small, specialized markets catering for a small
clientele e.g. the Tall Man’s Shop.

Influences on marketing
Factors influencing customer choice
Psychological:
● Attitudes
● Perceived status of the product to the consumer
● Personality

Socio-cultural:
● Family
● Peer group
● Social class

Economic:
● Economic conditions (boom or recession)
● Level of income and savings
● Ability to borrow

Government:
Customer choice and marketing decisions can be greatly affected by legislation
that has been enacted to define and prevent unfair competition. The second
purpose of the government regulation is to protect consumers from unfair
business practices such as misleading advertising, deceptive packaging and poor
quality goods.

Consumer laws
Deceptive and misleading advertising – Deceptive and misleading
advertisement occurs when, in the promotion of a product or service, a
representation is made to the public that is false or misleading. That

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representation may be through the promotion of the product that may relate to
product, price or place. Laws have been enacted by governments to prohibit
misleading advertising, false claims about products and bait and switch
advertising.
- Misleading Info
- False Offers
- Bait And Switch

Price discrimination – This occurs when a seller charges different prices to

different consumers for the same product. Doing this in itself is not a problem
but when it is designed to freeze out the competition then it is outlawed.

Implied conditions – Relates to the conditions of purchase whereby it is

implied that the conditions of sale are realistic and reasonable. If a manufacturer
or retailer sells a good or service to a customer then it is implied that the good or
service is of such quality or will do things required for the price being paid. For
example five star hotels providing the service to a quality standard to justify the
price being paid.

Warranties – These are defined as both specific and implied conditions when
products are sold which certify that the goods are fit for their purpose, are
capable of doing the job, are of merchantable quality and meet the description.
This also includes a set period where the goods are guaranteed to perform to
contract and where the supplier will remedy any affect.

Ethical aspects
Truth – Truth in advertising has become an important aspect of ethical
marketing in recent years. It relates back to the areas of consumer laws above.
Not telling the truth when advertising a product can lead to legal action if the
purchaser of the product suffers financial loss, physical harm or emotional stress
as a result of purchasing a product that doesn’t do what it is supposed to do, or is
dangerous when used by certain people.

Accuracy and good taste in advertising – Advertising must be accurate

in its description of a product. Good taste in advertising is an important part of
ethical advertising. There is what is known as the advertising code of practice
and much of this is monitored by the Advertising Standards Bureau.

Products that may damage health – In todays world of ethics, it is

important to consider the marketing of products that may damage the health of
the purchaser. In this case we are talking mainly of the legal products of tobacco
and alcohol.

Sugging – selling under the guise of research. It is an off-shoot of

telemarketing. Legitimate telemarketing is a tool used by a growing number of
organisations to sell their goods and services to existing and potential customers

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by telephone. On the other hand sugging occurs when a marketer calls on the
pretence that they are doing market research, once they have found out the
information about the customer, they try to sell them a product based on that
information.

Marketing process

Situational analysis
SWOT analysis – example
Strengths Weaknesses
● Industry knowledge ● Small marketing budget
● Strong brand recognition ● New software ( needs time to reach
● Good resources as a result of a its potential)
sound ● Market research - not up to date
Financial base to put together a ● Poor sales / distribution outlets
strong marketing campaign ● Low brand awareness
● Staff have relevant skills ● Limited resources
● Local understanding / international
brand management
● New software

Opportunities Threats
● Strategic alliance with 3rd party ● Competition from local and
● Creation of a new market multicultural ad agencies
● Greater market share due to ● Consumers being more
________ knowledgable and price conscience
● Increase in sales for _______ ● Expectation of price promotions eg.
● Growing industry Discounts
● Growing economy ● Risk of competition entering market
● New social trends ---> product differentiation
● New advertising concept
● Development of infrastructure

Product life cycle

The product life cycle varies for different products in general terms, follows the
pattern of introduction (or establishment), growth, maturity and post maturity.

Introduction stage – Follows extensive market research, which establishes the

need for the product. This stage involves heavy product development and
promotional costs.

Growth stage – The product begins to take off as sales begin to grow, brand
loyalty is established, as is a market niche. With increasing sales, the product
begins to repay some of its establishment costs.

Maturity stage – The product has reached its peak on sales, is fully established in
its market and is contributing to profitability. Further growth may only be
achieved through costly promotion.

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Post maturity – This is reached at a time where the product or service will remain
at steady state, go through renewal or go into decline and disappear.

Market research
Market research is defined as the systematic collection and analysis of
information and findings relating to a marketing situation faced by a company.
There are two types of research and they are:
● Primary research – Involves collecting raw data from scratch. They
gather this data through surveys, discussion groups, observations and
experiments.
● Secondary research – Data that is already in existence and usually
collected by someone else for some other purpose.

Establishing marketing objectives

The objectives of a business provide the framework for the business to develop a series
of activities and operations that aim to achieve these objectives. In essence, the
objectives or goals, guide the activities of the business. It is important that the goals be
flexible so they can be adapted to the changing nature of business environments.
Businesses generally adopt a SMART approach to setting objectives; that is, an objective
needs to be:
● S = specific - the objective needs to be clear and precise and relate to the specific
elements of the business.
● M = measurable - the business needs to develop controls that are effective in
measuring the extent to which the goal has been achieved.
● A = Achievable - the business needs to have the financial and human resources
required to achieve the goal.
● R = realistic - the objective should not be based on unreasonable expectations.
● T = time - the time frame within which the business hopes to achieve the goal must
be determined.

Identifying target markets

A target market of consumers for whom a particular product has been developed.
To identify the appropriate target market for its product, a business needs to
understand the nature of consumer markets. Consumer markets are the most
recognised market in a business environment. It is where businesses sell their
product directly to the consumers.

Developing marketing strategies

The broad aim of developing marketing strategies is to satisfy the needs of the
target market and meet the objectives of the marketing plan. In developing
marketing strategies we must think of the 4P’s:
● Product – All the different goods and services that are offered to
customers and the way they are presented.
● Price – The cost of the product in the market place together with the
methods of pricing used, discounts or credit items.

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 ● Promotion – The ways in which the product is promoted – advertising of
different types, publicity or sales promotion.
● Place – The methods of distribution, storage and delivery that are used
for the products

Marketing strategies
Market segmentation
Types of market segmentation:
● Geographic
● Demographic
● Behavioural
● Psychographic

● Market segmentation is the process of breaking down a total market into

smaller markets based on the similar characteristics of a customer group.
● Geographic segmentation is the process of developing marketing
strategies based on the different geographic locations of customers. For
example Mcdonalds in India not serving beef
● Demographic segmentation refers to the selection of target groups based
on characteristics such as age, gender, income, family size and level of
education. For example Big W and K mart v Myer and David Jones
● Psychographic segmentation allows a business to segment markets based
on peoples lifestyle, personality, values and interests. For example BCF
● Behavioural segmentation examines how often and when a consumer will
make use of a product, the benefits sought when purchasing the product
and user loyalty. For example Valentines day targets men (florist),
Broadband internet companies have adopted strategies targeting different
individuals using different usage plans.

Product/service differentiation and positioning

Product differentiation – Is defined as the variation between a number of
models of the same basic product.
Product positioning – Is the image a product has in the mind of a consumer.

● Product – The product is the good or service that is offered for sale.
The product is designed to give satisfaction to the customer. Ideally a
product will have the following characteristics: quality, features, style,
brand name, attractive packaging, a range of sizes, backup service,
warranties, return if faulty policy.
● Price – There are several methods of pricing used by marketers
- Cost pricing – this method of pricing is traditional and also the
most common. The selling price is obtained by adding an explicit
profit margin to the total cost of an item.
- Market pricing – This occurs where a business prices their product
according to what the business feels the market can pay.

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 - Competitive pricing - This occurs when prices are set in relation to
competitor’s prices. If one competitor has a large share of the
market, they will become the “price leader” and other businesses
will have to follow them.
- Price skimming – This can be applied to a new product that is
attractive and which little or no competition.
- Penetration pricing – This involves charging very low prices
initially to generate high volumes of sales and gain market share. It
is used to establish customers that will be loyal to the product.
- Loss leaders – A loss leader is a product sold at a low price to
stimulate other profitable sales. One use of a loss leader is to draw
customers into a store where they are likely to buy other goods.
- Price points – These are points where the price of a product is at its
optimum.
- Promotional pricing – This involves a temporary reduction in price
on a number of products on offer in order to increase sales in the
short term.
● Promotion – This is the technique of presenting a product or service
to a customer in such a way that the customer will want to purchase that
product or service. There are several ways of promoting products to the
consumer:
- Advertising – Most people think of advertising when one talks
about marketing. It is understood that advertising is only part of
marketing and the marketing mix, albeit a very important one.
Advertising takes many forms: flyers, local newspapers, radio and
television. The types of advertising will be determined by the size
of the business.
- Personal selling and relationship marketing – This occurs when a
sales person tries to make a sale by demonstrating a product to the
customer personally. Relationship marketing is the developing of a
personal relationship with customers as a way of marketing a
product. Real estate agency is a great example.
- Sales promotion – This is a form of personal selling where a
business takes the product to the customer and demonstrates it.
- Publicity and public relations – This is any form of letting the
customer know that a product exists and can involve any of the
above promotional methods. In addition publicity may involve
testimonial letters, word of mouth information and sponsorships
of special events and sporting teams.
The communication process often involves word of mouth and opinion
leaders. Opinion leaders are used to promote a product by promoting
it in written form or verbally. Opinion leaders include such people as
well known identities.
● Place/distribution – This is the last of the four P’s of the
marketing mix and relates broadly to the ways in which the product is to
be distributed and from where it will be distributed.
- Distributional channels – This covers the way in which a product
is distributed from the factory to the consumer.

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 - Channel choice – Distribution can also refer to intermediates or
outlets used. There are three broad types of distributions used.
They are: Intensive distribution – Involves a high number of
outlets selling a product. Convenience goods are intensively
distributed in order to get maximum exposure. Selective
distribution – Involves only a small number of outlets carrying a
product. This is often designed to give exclusively to the product
particularly when a high degree of knowledge of the product is
required by the consumer and when the good is likely to be a
luxury one. Exclusive distribution – Occurs when a consumer
expects the intermediary to concentrate on their product or a few
products only. This form of distribution is common in the real
estate industry.
- Transport/warehousing/inventory – Obviously, different goods
and services have channels of distribution that use different forms
of warehousing and transport. The types of warehousing will
depend on the goods being sold. Several different warehouses
located across a city will mean ease and speed of distribution, but
may mean an increase in rental costs. The way in which inventory
(stock) is handled in the warehouse is important to the
profitability of the business. This handling must be efficient and
cost effective e.g. reordering of stock must be simple and there
shouldn’t be too much stock lying around unsold. This is why many
firms have introduced to JIT method of ordering stock.

People, processes and physical evidence

People
Quality of interaction between customer and business employees who deliver the
service. requires detailed knowledge to deliver customer service.
Processes
There are a number of perceptions of the concept of processes. Within business
and marketing. Some see processes as a means to achieve an outcome.

Physical evidence
Physical evidence is the material part of a service. Strictly speaking there are no
physical attributes to a service, so a consumer tends to rely on material
cues. There are many examples of physical evidence of a service, including
some of the following:
● Packaging
● Internet/web pages
● Brochures
● Furnishings
● Signage
● Uniforms
● Business cards
● The building itself
● Mailboxes and many others

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E-marketing
Ver

Very simply put, e-marketing or electronic marketing refers to the application of

marketing principles and techniques via electronic media and more specifically
the Internet. The terms e-marketing, internet marketing and online marketing,
are frequently interchanged, and can often be considered synonymous. It is the
process of marketing a brand using the internet.

Global marketing
● Global branding
● Standardisation
● Customisation
● Global pricing
● Competitive positioning
Many businesses operate beyond domestic operations providing the business
with an opportunity to increase sales, further their brand awareness and
establish markets in new countries. Many Transnational corporations (TNC)
adopt a global marketing approach that involves developing marketing strategies
as if the entire globe were one large target market - a standardised approach.
● Global branding - A recognisable name and logo are essential when
expanding into overseas markets. It is more effective and efficient to
promote a brand rather than individual products. Brands become
universally recognised e.g. Nike, Nokia, Sony
● Standardisation - a standardisation approach is a global marketing strategy
that assumes the way that the product is used and the needs it satisfies are
the same the world over. "one marketing plan fits all" e.g. Electrical
products, mobile phones, soft drinks. Advantages of this include cost saving,
production runs can be longer (economies of scale), research and
development are reduced, promotion strategies can be standardised.
● Customisation - A customised or local approach is a global marketing
strategy that assumes the way the product is used and the needs it satisfies
are different between countries.
● Middle path - mcdonalds has a standardised name, logo, production
methods and much of its menu but there are local variation. E.g. France and
Germany serve beer, Japan serve sake, phillipines serve noodles and India
do not serve beef.
● Global pricing - Global pricing is how businesses coordinate their pricing
policy across different countries.
1. Customised pricing - This occurs whenever consumers in different
countries are charged different prices for the same product. Cost-plus
method cover the added costs of exportation e.g. Transportation, taxes,
warehousing.
2. Market-customised pricing - Sets prices according to local market
conditions. Offers more flexibility to allow marketers to vary the prices
depending on demand and competition within overseas markets.
3. Standard worldwide price - Is the practice of charging customers the same
price for a product anywhere in the world. There are 2 major risks with this
method: A domestic business may undercut that standardised price,
Changes in the exchange rate.

17
● Competitive positioning - Relates to how a business will differentiate its
product e.g. Volkswagon Group gaining a world market share of about 12%

Topic 3: FINANCE
18
The role of financial management
The strategic role of financial management
When we think of strategic we think of long term (3-5 years). So in this sense we
are thinking of long term financial management or where the business will be in
3 – 5 years in terms of its finances. Finance manager:
● Cash management
● Accounting
● Complying with legal regulations
● Budgeting for future needs
● Raising finance

Objectives of financial management

● Liquidity – Is the ability of a business to pay its short term obligations
as they fall due
● Profitability (return on capital) – Refers to the yield or profit a
business receives in return for its productive effort and investment.
● Efficiency – Describes how well a business is being run e.g. how
efficiently the business is using its resources such as labour, finance or
equipment. If a business is able to get more out of its labour resources for
the same cost, then the business has increased its efficiency.
● Solvency – Is the ability of a business to pay its long term obligations as
they fall due.

Influences on financial management

Internal sources of finance
Internal funds are those funds provided to the business by its owners and are in
the form of retained profits.

Retained profits
Profits retained by the business and which have not been distributed to the
owners/shareholders in the form of dividends. Shareholders receive dividends
from the net profit after tax has been deducted.
About half of the profits of a business are usually retained in order to continue
the operations of a business or purchase new capital equipment, although this
will vary according to the circumstances and size of the business.
OWNER CONTRIBUTIONS
External sources of finance
Debt

External (debt)
Short term

19
Overdraft - Allows a business to overdraw its account to an agreed level. This
helps with short-term liquidity (usually smaller than $100,000).
Commercial bills - Short term loan from a NBFI (Non Bank Financial Institution)
usually a larger amount greater than $100,000 to be paid back within 7-180 days
Factoring - A business can sell their 'accounts receivable' to a business (called a
debt factor) for a percentage of their total value.
Long term
Mortgages - A large loan from a bank secured against the business's lands and or
buildings.
Debentures - Large loans secured against a business's assets from investors
(instead of the bank). But, the right to collect the money can also be sold (you
won't necessarily be paying back the same people).
Unsecured notes - Large loans from investors not secured against the business's
assets.
Leasing - Lease assets e.g. building, equipment instead of buying them.

External (equity)
Ordinary shares
New issues - IPO (Initial Public Offering)
1. Issue a Prospectus (everything you need to know about a business)
2. Sell shares on the ASX
Rights issues - After the IPO
- Existing shareholders get to buy more shares
- More shares at a special price
Placements - Privately selling shares (not through an IPO)
Share purchase plans - Shareholders can choose to get shares instead of
dividends.

Private equity
There are 'private equity' firms (businesses) that buy other businesses (e.g. JP
Morgan Chase)
Advantages:
● Access to enormous amounts of money
● Easier than an IPO
● Sometimes investors have good ideas for the business.
Disadvantages:
● Original owners lose a lot of control
● Sometimes firms are not interested in growing the business (can cut costs
of shut down)

Financial institutions
Banks
Banks are the major operations in financial markets and are the most important
source of funds for businesses. Banks receive savings as deposits from
individuals, businesses and governments, and, in turn, make investments and

20
loans to borrowers. The four major banks of Australia are the Commonwealth
bank, Westpac, ANZ and NAB.

Investment banks
Investment banks provide services in both borrowing and lending (debt and
equity), primarily to the business sector (short and long term). Eg. Macquarie
bank
Investment banks:
● Trade in money, securities and financial futures
● Arrange long-term finance for company expansion
● Provide working capital
● Advise on mergers and takeovers
● Advise clients on foreign exchange cover
● Operate unit trusts
● Underwrite corporate and semi-government issues of securities
Advantages:
● Lots of different types of loans (very flexible - no set loan)
Disadvantages:
Can have conditions that are not best for the business

Finance companies
Provide loans to businesses and individuals through consumer hire-purchase
loans, personal loans and secured loans to businesses.
● Short to medium term loans eg. EG money, Esanda
Advantages:
● Fast access to money
Disadvantages:
Interest rate is higher

Superannuation funds - Life insurance companies - unit trust

All three pool together money and use it to invest in businesses.
Superannuation funds
Grown rapidly in the last 20 years due to tax incentives and compulsory
superannuation introduced by the government. These organisations provide
funds to the corporate sector through investment of funds received from
superannuation contributions.
Life insurance companies
Provides loans to the corporate sector through receipts of insurance premiums
which provide funds for investment.
Unit trusts (mutual funds)
Takes funds from a large number of small investors and invest them in specific
types of financial assets.

ASX
Where 'securities' (shares) and bought and sold. The ASX offers products and
services that include:
● Shares
● Futures

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 ● Exchange traded options
● Warrants
● Contracts for difference
● Exchange traded funds
● Real estate investment trusts
● Listed investment companies
● Internet rate securities
Primary markets: deal with the new issue of debt instruments by the borrower of
funds
Secondary markets: deal with the purchase and sale of existing securities
Advantages:
● Access to enormous amounts of money doesn't add to the businesses debt
funds
Disadvantages:
It costs money to get listed.

Influence of government
What the government does will influence the financial decisions that a business makes.

Company taxation (ATO - Australian Taxation Office)

The way that the ATO taxes businesses will have an effect on the decisions
businesses make.
Some decisions might be better for tax purposes e.g. leasing assets instead
of buying
ASIC (The Australian Securities and Investments Commission)
I, regulates companies under the Corporation Act 2001
II, monitors companies under the Corporation Act 2001
Possible punishments:
● Fines
● Fees
● Prison

Global market influences

Because Australian businesses import and export and get money from overseas
by borrowing or through equity what happens in the rest of the world influences
financial management here. The 3 main international factors that influences
financial management here in Australian too.
1. Economic outlook
what economists think about the future of the global economy
2. Availability of funds
Whether you can get money from overseas
3. Interest rates
Processes of financial management
Planning and implementing
Once it is decided by the business person what their sources of finances will be,
they now have to plan and implement their financial management.

22
Planning financial needs –What finances does the business need in the
short, medium and long term. To do this the business must determine it cash
flows so that the business knows that it is able to pay any debts as they fall due.
This assessment would also take into account the business situation with regard
to its current liquidity, profitability, efficiency, rate of growth and return on
capital.

Developing budgets – Budgets are used to plan the business activities up to

five years into the future. This is a most important step in the financial planning
cycle. The business must know how, when and why its future expenditure will be
incurred. It must also know how, when and from what direction its receipts will
come. If it doesn’t have these items under control, then the business will lack
financial direction and risks failing because of a lack of control over its financial
resources.

Maintaining record systems – Record systems keep a record of all

transactions. These keep the manager in touch with what is happening in the
business to ensure that the business plan is on track. If the expected financial
situation is not being achieved then corrective action must be taken. This could
relate to a liquidity, solvency or efficiency problem. On the other hand, the
business may be moving well financially, providing the manager with a source of
information simply to monitor the progress of the business.

Minimising financial risk – Financial risk can occur in any business

dealing. There are several possible areas of financial risk in a business:
● Collection of debts – Bad debts can be a great concern for a business
reducing profitability. Procedures need to be put in place to ensure that
debts are collected on time and that ‘bad debts’ are minimised.
● Monitoring solvency – So that a business doesn’t become to highly geared
and therefore place the business at risk. Advice should be obtained from
the business accountant or bank. Although this may not be reliable.
● Monitoring cash flows – Many businesses have failed because of
insufficient cash flow. An example might be a business that is operating
profitability in terms of profit margins and its turnover, but if it does not
have regular money flowing in then it will have cash flow difficulties. This
means it is not liquid.

Businesses that trade globally have other financial risks and they are to do
with exchange rate risks. They are:
● Nominal exchange rate – The risk of losing money on international
transactions as a result of changes in the exchange rate.
● Real exchange rate risk – Risk involved when overseas parties prices go up
during the course of a transaction.
● Political and default risk – Occurs when we deal with countries that have
unstable governments.

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Financial controls – Controlling is the setting of standards, measuring
performance and taking corrective action if necessary. In terms of financial
management, these controls include budgets, the various financial statements
and the use of financial ratios. These three controls will lead the manager
towards the correct decisions regarding the liquidity, profitability, efficiency and
future growth of the business.

Comparison of debt and equity financing

Each of these types of finance have advantages and disadvantages. There is no
right or wrong with these costs and benefits.

The benefits of debt include:

● Flexible repayment periods available
● No initial expensive outlay
● Interest on repayment is tax deductable
● Ownership and control of the business remains with the owners
The costs of debt include:
● Over the life of the loan, interest rates may rise, causing repayments to
increase, leading to increased gearing and financial risk

The benefits of equity include:

● No funds to repay
● No interest charged
The costs of equity include:
● The business has to make higher profits to attract investors into the
business
● Dividends paid to shareholders are not tax deductable
● Owners lose some control of the business to partners/share holders.

Matching the terms and source of finance to business needs

Most business will use a combination of internal and external sources of finances.
Within this they are likely to use a mix of debt and equity finance. It is important
to note that there is no correct source of finance that a business must use.

A small business is likely to use:

● Internal sources such as retained profits or personal savings
● External sources such as bank overdrafts or mortgages

A large business is likely to use:

● Internal sources such as retained profits
● External sources such as bank bills or debentures
● Other sources such as leasing, factoring, venture capital or grants.

Monitoring and controlling

Check if objectives have been reached.
● Cash flow statements
This report shows the movement of cash receipts (inflows, such as money from
sales) and cash payments (outflows)

24
 ● Income statements
This report is used to help the business to calculate how much profit it has made
over a period of time by showing profits or losses, expenses and income.
● Balance sheets
This shows the value of assets, value of liabilities and owners equity balances at a
certain point in time. It is called s balance sheet because at that point of time
assets are equal to liabilities and owners equity.

Financial ratios
Liquidity
Current ratio = current assets divided by current liabilities
Shows short term financial stability
Gearing
Debt to equity ratio= total liabilities divided by total equity
Shows extent to which the firm is relying on debt finance
Profitability
Gross profit ratio = gross profit divided by sales (revenue)
- shows changes from 1 year to the next
Net profit ratio = net profit divided by sales (revenue)
- shows return to business
Return on equity ratio = Net profit divided by total equity
- shows how the funds contributed have been in generating profit
Efficiency
Expense ratio = expenses divided by sales
Accounts receivable turnover ratio = credit sales divided by Accounts receivable
divided by 365

Comparative ratio analysis

Ratios are used mainly for comparison purposes to give meaning to raw figures.
There are 3 broad ways in which businesses use their ratios for comparison
purposes:
● Consider trends overtime
● Make a comparison with similar businesses
● Measure against industry averages

Limitations of financial reports

● Notes to the financial statements may be confusing
● Annual reports can be out of date (timing issues)
● Spreading costs out over a long period of time to avoid negative
affects on revenue (capitalising expenses)
● One off large payments are removed (normalised earnings)
● How do you value “intangibles” such as goodwill, trademarks
and brand names

25
 ● Timing issues

Ethical issues related to financial reports

Ethics are very important in business, because without ethics there can be no
trust. There are several ethical issues and these include:
● Audited accounts (misuse of funds) – It is a universal and legal
practice for the accounts of public companies to be audited by a team of
independent accountants (auditors) to test for authenticity, truth and
fairness, in particular the misuse of funds.
● Inappropriate cut off periods – Cut off periods for reports must be
appropriate. Here we mean that the report should represent information
in the current period – not just before a loss is expected.
● Corporate raiding – Involves a business buying a large number of
shares in another company with the aim of gaining control of that
company.
● Asset stripping – This is the process of buying an undervalued
company with the intent to sell off its assets for a profit. The individual
assets of the company, such as the equipment and property, may be more
valuable than the company as a whole due to such factors as poor
management or poor economic conditions.

Financial management strategies

Cash flow management
A cash flow statement provides managers with useful information for making up
a budget for the next year. It shows the receipts and payments the business has
made (movement of cash inflow and outflow)

Distribution of payments
In order to manage cash flow a business can do three things:
● Distribute payments across the year
● Give a discount for early payment – Encourages customers to pay early.
Often known as “early bird” discounts.
● Factor debts

Working capital management

Short term liquidity is important for a business. It means a business can take
advantage of profit opportunities when they arise, as well as meet short-term
financial obligations, pay creditors on time to claim discounts, pay tax, and meet
payments on loans and overdrafts. A business must have sufficient liquidity so
that cash is available or current asset can be converted to cash to pay debts.
Working capital is the term businesses use to describe the funds available for the
short-term financial commitments of a business. Through the operating cycle of a
business, current assets are constantly changing as inventories are sold, cash is

26
paid out and payments are received. Working capital is often the major asset of a
business and current assets make up approximately 40% of a businesses assets.

Control of current assets

Management of current assets is important for monitoring working capital.
Excess inventories and lack of control over accounts receivable lead to an
increased level of unused assets, leading in turn to increased costs and liquidity
problems. Control of current assets requires management to select the optimal
amount of each current asset held, as well as raising the finance required to fund
those assets. The costs and benefits of holding assets must be assessed.
● Cash
● Receivables
● Inventories

Control of current liabilities

As previously explained, current liabilities are financial commitments that must
be paid by a business in the short term. Minimising the costs related to a firm's
current liabilities is an important part of the management of working capital.
This involves being able to convert current assets into cash to ensure that the
business's creditors (accounts payable, bank loans or overdrafts) are paid.
● Accounts payable
● Loans
● Overdrafts

Strategies for managing working capital

Businesses use a number of strategies to manage working capital, which is
required to fund the day-to-day operations of a business. Strategies for working
capital management include:
● Leasing
● Sale and lease back

Profitability management
Profitability management involves the control of both the business's costs and its
revenue. Accurate and up to date financial data and reports are essential tools for
effective profitability management.

COST CONTROLS
Fixed and variable costs
Before a business can control its costs, management must have a clear
understanding of what those costs are. Businesses generally have fixed costs and
variable costs.
Fixed costs are not dependent on the level of operating activity in a business.
Fixed costs do not change when the level of activity changes - they must be paid
regardless of what happens in the business.
Variable costs are those that change proportionately with the level of operating
activity in a business.

27
Monitoring the levels of both fixed and variable costs is important in a business.
Changes in the volume of activity need to be managed in terms of the associated
changes in cost. Comparisons of costs with budgets, standards and previous
periods ensure that costs are minimised and profits maximised.

Cost centres
A businesses costs and expenses must be accounted for, and management needs
to be able to identify their source and amounts. A number of costs can be directly
attributable to a particular department or section of a business, and these are
termed cost centres. A cost centre in a retail store or service business would be
called a service cost centre. A cost centre in manufacturing would be called a
production cost centre.

Expense minimisation
Profits can be weakened if the expenses of a business are high, as they consume
valuable resources within a business. Guidelines and policies should be
established to encourage staff to minimise expenses where possible. Savings can
be substantial if people take a critical look at costs and eliminate waste and
unnecessary spending.

REVENUE CONTROLS
Revenue is the income earned from the main activity of a business. For most
businesses, revenue comes from sales or, in the case of a service business, from
fees for professional services or commission.

Marketing objectives
Sales objectives must be pitched at a level of sales that will cover costs, both fixed
and variable, and result in a profit. A cost-volume profit analysis can determine
the level of revenue sufficient for a business to cover its fixed and variable costs
to breakeven, and predict the effect on profit of changes in the level of activity.

Global financial management

Exchange rates
When businesses only do business within Australia the concept of exchange rates
is of no consequence. This is because the business is dealing in the one currency
and a dollar is worth the same amount from Cairns to Perth and Darwin to
Adelaide. When companies become involved in international business,
management needs to have a good knowledge of the international world of
finance. This results from the fact that each country has its own particular
currency which is acceptable for domestic transactions, but which is
unacceptable on international transactions.

Interest rates
Whether borrowing money domestically or internationally, the cost of borrowing
is interest. High interest rates will attract foreign funds into Australia for

28
investment purposes, increase the demand for Australian dollars and therefore
push up its value. It will also have the effect of reducing demand for Australian
exports because of the increased value of the dollar. Likewise, low interest rates
will divert foreign funds from Australia, reduce the demand for the Australian
dollar and depreciate its value.

Methods of payment
There are four main methods of international payment, which are all
accompanied by different levels of risk for both importers and exporters.

Payment in advance is one method and source of finance used by businesses

helping to expand globally. Although this method is the safest option for the
exporters, it is of high risk to the importer as payment is made before the goods
have been exported, creating unfavourable cash flow. Foreign businesses seeking
to buy are also concerned that the goods may not be sent if payment is made in
advance. Thus, exporters who insist on this payment method as their sole
manner of doing business may lose to competitors who offer more attractive
payment terms. Telegraphic transfer or international cheque (bank draft) are
the main ways of payment in advance internationally.

Letters of credit are another method used by businesses globally as a

payment method. Letters of credit are one of the most secure instruments
available to international traders. A letter of credit is made a guarantee of a bank
in the interests of the buyer that full payment will be made to the exporter,
provided that the terms and conditions stated in the letter of credit have been
reached, as verified through the arrangement of all required documents. The
buyer establishes credit and pays his or her bank to provide this service. A letter
of credit is most useful when reliable credit information about a foreign buyer is
difficult to obtain, but the exporter is satisfied with the creditworthiness of the
buyer’s foreign bank. A letter of credit also safeguards the buyer since no
payment commitment arises until the goods have been shipped as promised. The
main advantage of a letter of credit is that it abolishes the need for up-front cash
payments. However, sellers may confront interruptions with letters of credit,
such as unsustainable delivery schedules or unacceptable costs. Attempts to
amend the terms and conditions of a letter of credit may also cause problems in
the transaction. Discrepancies in the documents submitted by the seller may also
cause the issuing bank to void the letter of credit. For exporters this is a low to
medium level of risk, as the issuing bank will pay for the goods shipped as long as
the fulfilment of all terms and conditions of the letter of credit are reached. For
importers it is relatively a safe option of payment as there is a level of assurance
that the exporter has shipped the goods before payment is required.

Clean payments, also known as clean remittance. This is the most efficient
method of international payment. This method revolves around the trust of all
parties apart of the transaction. This method occurs when the payment is made
and sent to, but not received by, the exporter before the goods produced in the
foreign country are transferred. The payment is dealt with through an account
system where the exporter is paid after obtainment of the goods through

29
invoice. The risk of the exporter is low, but unfortunately it is not a method of
payment favoured by importers. Key benefits of this payment method are that
payments are facilitated between local and overseas parties and that payments
can be made in any major currency as long as the amount agreed upon is
reached.

Bills of exchange are a non-interest-bearing written order used primarily in

international trade that involve the exporter’s bank handling the documentation
that has been drawn up, demanding payment from the importing party in a
certain time period that is to be set. This method is the most thoroughly used
within the global market in relation to methods of international payment. It gives
the exporter control over the goods until full payment has been received or
guaranteed. A bill of exchange is not a contract itself, but is often used to fulfil a
contract. A bill of exchange is transferable and can secure one party to pay a
separate or third party that was not involved in its establishment. If these bills
are issued by a bank, they can be referred to as bank drafts. If they are issued by
individuals, they can be referred to as trade drafts.
There are two types of bills of exchange:

● Document against payment

This method will allow the importer to only receive or collect the goods after
payment is made and secured. The exporter will go to its bank and create a
document (bill of exchange), then proceeding to send it to the importers
bank. Following these interactions the importers bank will transfer the
money to the bank of the exporter.

● Document against acceptance

This method will allow the importer the opportunity to collect or retrieve the
goods before payment. The importer must sign only acceptance of the goods
and the conditions and terms of the bill of exchange to in turn receive
documents allowing them to pay for the goods at a later date.

The use of bills of exchange is high but the method of international payment
comes with great risk. Using the documents against payment method there is
possibilities of the importer not paying for the goods. The great risk with the
Documents against acceptance method is the risk that the importer may delay
payments or not pay at all.

Hedging
If an Australian business orders goods from an American company, deliverable in
12 months time and the value of the Australian dollar fall against the currency of
the country from where the goods are being made, then the Australian business
will have to pay more for those goods when they are delivered.

Now, it could very well be that the Australian dollar rises against the U.S dollar
during the year, in which case the Australian borrower pays less than they
expected.

30
Derivatives
Derivatives are international financial instruments for spreading risk or hedging.
They include futures, options, swaps and forward contracts. For example, an
Australian investor purchasing shares of an American company (Using U.S dollars
to do so) would be exposed to exchange rate risk while holding that stock. To
hedge the risk, the investor could purchase currency futures to lock in a specified
exchange rate.

Topic 4: HUMAN RESOURCES

31
The role of human resource management
The strategic role of human resources
The strategic role of human resources involves the long term planning of staffing
it also involves ensuring that staff are productive, well trained and satisfied in
their job. The human resources manager is the line manager who directs all
aspects of management relating to personnel within the firm. Their function is to
ensure that their role as human resource manager is in harmony with the goals
of the firm that they work for. Specifically the role of the human resource
manager is to identify broad needs within the firm relation to issues of:
● Employment
● Induction and training
● Job satisfaction
● Job performance and rewards (motivation)
● Employee benefits, health and safety issues
● Industrial issues (maintenance)
● Retrenchment, retirement and dismissal (attrition)

Outsourcing

Human resource functions

Outsourcing is a situation whereby a business contracts certain work out to
professionals such as lawyers and accountants. Businesses of all sizes and
functions outsource. Many people think that only small businesses outsource
because they are not big enough to have a human resources department, an IT
department, a publications department and an operations department etc. This
is clearly not the case large businesses outsource as well.

Using contractors – Domestic and global

A contract worker is someone who works for an employer on a periodic basis as
required. Rather than employ full time staff, many businesses in Australia use
contract workers. Globally, many businesses use contract workers particularly
businesses which produce goods in an overseas country. It is usually cheaper to
employ contract workers than have them on the full time/permanent pay roll. As
in the domestic situation, the workers can be used as needed and the business
doesn’t necessarily have to set up large production facilities.

Key influences
Stakeholders
Those who have a vested interest in the business.
Employers and employees
32
Employers or management is the group of people who own and manage a
business. Employer’s goals are to produce goods and services, make a profit,
expand and increase market share. Employers pay their employees in return for
their work they do in the business.

Employer associations and unions

Employer associations advise employers of their rights and obligations with
regard to their employees and provide representation at industrial relations
commission hearings where necessary. Any employer, small, medium or large
may have membership of their relevant employer association.

Unions represent employees in the workplace. The union movement began as

craft or trade based organisations, but the modern union is based less in this way.
Unions are now more broadly based rather than strictly craft or trade based.
Unions represent groups of employees on issues such as pay conditions, health
and safety and job security. They also represent employees when making
collective agreements, industrial conflicts and in wage negotiations. Unions will
assist employees with individual disputes in the workplace.
The national union group in Australia is the Australian Council of Trade Unions.
(ACTU)

Government organisations (state and federal)

Government plays a major role in the resolution of industrial issues in as much as
it creates Industrial Relations Commissions (state and federal). It is in the best
interests of government to ensure that there is a stable employment relation’s
situation in their State or Commonwealth jurisdiction. An unstable employment
relation’s situation can lead to defeat at the ballot box.
Governments set awards. Awards specifies minimum working conditions, WHS,
rostering etc. and pay (Sick pay,, annual leave, overtime etc.)
A certified agreement or enterprise agreement is a work agreement between an
employer and employee.
Some government organisations are:
● Industrial Relations Commission
● Anti-discrimination board
● Human Rights and Equal Opportunities Commission
● Equal opportunity tribunal
● Fair Work Australia

Society
Society is a major stakeholder in the human resources/employment relations
situation. The nature of human resource management is often dictated by the
attitudes of society and the changing nature of society. In recent years things
such as attitudes towards people with disabilities, racial issues, attitudes towards
gay marriage and changing work patterns and population shifts have become
important issues in the workplace. Society as a whole has an interest in the
outcomes of HR and are interested in whether the business complies with the
legal frame work, applies ethical practices and provides a duty of care.

33
Legal – the current legal framework
Statue law covering HR is the Fair Work Act (Cth) 2009 – established Fair Work
Australia as an independent ‘umpire’.
HR managers must comply with the legal framework otherwise they can expose
the business to:
● Criminal punishments
● Lawsuits by employees
● Public outrage

The employment contract

● Contract of Service
● It is a legally binding, formal agreement between employer and employee.
● A written contract gives more protection to both parties than a verbal
contract, as disputes often occur over contracts if working arrangements
are not clean and it is one person’s word against another.
● A written contract also encourages the parties to clarify the key duties and
responsibilities of a job.

Common law
Employers and employees have certain rights and obligations to each other
under common law. These rights and obligations have been identified by the
court system as legal standards of behaviour.

EMPLOYERS:
● Pay correct wages
● Forward PAYG tax to the ATO
● Must make superannuation contributions
● Act in a way that will not affect n employees reputation, cause mental
distress etc.
EMPLOYEES
● Follow lawful and reasonable instructions
● Use due care in performance of all duties.
● Are accountable for all money and property (e.g. laptops and phones)
received while in employment
● Faithful to an employers interest

---------------------------------------Fair Work Act 2009---------------------------------------

Statute
These take priority over common law. The Fair Work Act is the current statute
law.
● Minimum employment standards – employers and employees agree to a
rate of pay that is less than the applicable minimal wage. This is reviewed
each financial year.

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 ● Awards – awards are legally binding orders, usually made by a court or
industrial tribunal, which define working conditions and set wage rates
and other entitlements. Awards cover a whole industry or occupation.

Economic
The state of the economy, particularly as it impacts on the viability of business
and business expectations and investment. Unions are not as active during times
of recession as they are during times of economic growth. Key economic
variables having an impact on human resources and employment relations are:
● The level of wage increases meaning fewer people are hired
● Attitudes to downsizing and job cutting
● The capacity of the employer to pay
● International competition which may not give the employer confidence to
hire employees
● Government funding which may or may not support employers taking on
new workers such as apprentices and/or old workers
● The productivity of labour, when technology is increasing and likely to
replace labour with machines or computers

Technological
The influences of technology has been one of the most discussed areas when it
comes to human resources because the assumption is that technology will take
away jobs and to an extent it has in some areas. However, for every job lost to
technology, many more are created by the technology itself through
opportunities provided by that technology. The reasons why some jobs are lost is
that technology, specifically IT systems can record, process, communicate and
react to vast amounts of information entered by users. Information technology
applications in office and service sector environments include common desktop
applications such as word processors, spread sheets, databases, e-mail and
internet browsers.

Social influences – changing work patterns and living

standards
The approaches to human resources have changed greatly over recent years due
to the changing nature of the workforce and changing living standards.
The main social influences are:
● Much of the workforce is casual, working at all hours
● The population has become increasingly mobile
● There is a drift from country areas to the cities
Rather than stay in the same job for life, many people will change careers
several times in their working life. The workforce is prepared to move from
city to city and State to State in order to improve their living standards and to
obtain the job they want. There has also been a trend for the workforce to
move from the country to the city in search of work as the rural sector
continues its labour force decline. This is largely due to the decline in
importance of the Australian rural sector.

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 Ethics and corporate social responsibility
Ethics and corporate social responsibility is an important aspect of human
resource issues from an ethical point of view. Some of the ethical issues
include:
● Working conditions such as workers compensation, superannuation, paid
maternity/paternity leave, staff amenities and counselling
● WH&S
● Complying with Employment Relations Laws

Processes of human resource management

Acquisition
Acquisition refers to the ways in which employees are recruited for the firm.
Acquiring the correct staff is a very important issue in a business because
staffs are the most valuable resource a business has. If the correct staff are not
acquired then a good deal of time and money will be wasted in terms of
inefficient production and the time and the cost of acquiring new staff to replace
the ones that have been let go. For acquisition the business needs to be able to
identify staff needs, recruit suitable applicants with the expertise and
appropriate skills to complete the job and then select the best possible candidate.
A selection panel is established: culling of the applicants, notifying the selected
applicants of an interview, selecting successful applicant – selection process.
Some recruitment processes may involve written tests and medical examinations.

Development
- Development has four strands:
● Induction: familiarising the employees with the workplace (corporate,
culture, customer service, WHS, Equal Employment Opportunity, record
keeping etc.)
● Performance appraisal: evaluating the performance of employees
and is usually conducted by employees supervisor. Outcomes include
promotion, an increase in pay, improvement programs or termination.
● Training: involves educating an employee in the skills and processes of
the job. It could be in-house, online or off site.
● Development: involves selecting workers for educational programs to
focus on roles they aspire to in the future.

Maintenance
The concept of maintenance can cover several areas including:
● A safe working environment
● Job satisfaction
● Job security
● Good working conditions and pay
● Career path
● Social justice in the work place

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Monetary benefits include: wages (based on hourly rates) and salaries (annual
rate of pay). May be paid according to sales (commission), based on output, as
bonuses, fringe benefits (company car, phone, discounted purchases) etc.

Non-monetary benefits include: greater job variety, flexible working hours,

allowed to manage yourself and intrinsic rewards (job satisfaction, good inner
feeling about work) etc.

Separation
Separation of human resources is the business term that describes the reduction
of staff members for a variety of reasons, Including:
● Retirement
● Resignation
● Redundancy and retrenchment
● Relocation
● Dismissal
Separation can be voluntary and involuntary.

Strategies in human resource management

Leadership style
There are 4 broad leadership styles that we must consider:
● Authoritarian (Autocratic) – This style is used when leaders tell
their employees what they want done and how they want it accomplished,
without getting the advice of their followers. Some of the appropriate
conditions to use it is when the manager has all the information to solve a
problem, they are short on time, and their employees are hopefully well
motivated
● Participative (Democratic) – This style involves the leader
including one or more employees in the decision making process
(determining what to do and how to do it). However, the leader maintains
the financial decision making authority. Using this style is not a sign of
weakness, rather it is a sign of strength that employees will respect. It is
normally when managers have part of the information and their
employees have other parts. It allows employees to become part of the
team and allows managers to make better decisions.
● Delegative (Laissez-Faire) – Here employees make their own
judgements, determine what has to be done and how to do it.
● Adaptive – This occurs when skilled managers use all three styles
depending on the circumstances of the job or types of employee they are
dealing with.

Job design
Job design is a work arrangement aimed at reducing or overcoming job
dissatisfaction arising from repetitive and mechanical tasks. Through job design,

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organisations try to raise productivity levels by offering non-monetary rewards
such as greater satisfaction from a sense of personal achievement in meeting the
increased challenge and responsibility of one’s work. Job enlargement, job
enrichment, job rotation and job simplification are the various techniques used
in a job design exercise.

Key benefits include:

● Increased productivity and efficiency
● Less need for close staff supervision, checking and control when staff
know their jobs
● A skilled, flexible, responsive workforce trained in the right areas
● Targeted training to suit job design
● Improved talent management and succession planning
● Improved employee attraction, engagement and retention

Recruitment
It is in the area of recruitment that the human resources manager is seen to have
the highest profile. This is because it is the human resource manager is doing the
actual recruiting even though it may be senior management that sets the
parameters of what is required. However the human resource manager will have
acted in an advisory capacity with regard to the requirements of the position and
type of person who would be best suited for the position.
In all cases, the factors influencing the recruiting effort involve:
● Identifying the need to fill a position
● Preparing a job description and requirements of the job – qualifications,
experience, skills, personality
Internal sources of recruitment are through promotion or transfer. External
sources of recruitment are from referrals, walk-ins, agencies, schools and trade
unions. External recruitment is carried out through the mediums of television,
radio, newspapers, trade journals, computer services and through companies
merging or being taken over.

In terms of general and specific skills, the cost of recruitment and selection will
vary according to the level of position that is to be filled.

Training and development – current or future skills

Once the new employee has been selected it is important that the employer
carries out effective training and development programs. These programs are
crucial if a firm is to maximise its productivity. It is important to determine the
training needs and priorities in the firm. When determining training needs and
priorities, decisions need to be made by the human resource manager regarding:
● Who will be trained
● The aims and objectives of training
● The subject matter
● What training methods will be used
● What outcomes are expected
● How the training is evaluated

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It is important for the firm to identify the people who are capable and who will
benefit themselves and the firm from the training. The aim of the training is to
increase the skills, productivity and efficiency of its workforce to improve current
and future skills. Current skills can be maintained and improved as can future
skills be developed for the future needs of the business.

Training methods can include:

● Classroom training
● Simulation
● On-the job training
● Off-the job training
● Technology

Performance management
Performance management or appraisal is the process of assessing the
performance of employees against actual results and expectations of the
manager. Performance management can focus on the performance of an
organisation, a department or employee.
If people are motivated then they are more likely to be more satisfied in their
jobs and perform at a much higher level. Job satisfaction occurs when people feel
relaxed and happy in the job they are in. A major function of this job satisfaction
is the employee’s working environment. Some of the conditions leading to job
satisfaction are:
● Mentally challenging work
● Personal interest in the work
● Reward and performance
● Work which is not too physically tiring
● Pleasant working conditions
● Training and development and opportunities for promotion
Part of making a job more satisfying is the concept of job retrenchment, which is
in any way of making a job more meaningful and personally rewarding.
In order to work efficiently and to assist in motivation, the employee needs to
have regular feedback on the job that they are doing.

Rewards – monetary and non-monetary, individual or

group and performance pay
Financial and non-financial rewards
An effective and efficient employment relations structure is one that incorporates
the means to motivate all employees. When we think of rewards we tend to think
of financial rewards, but in the world of employment relations there are other
rewards in addition to the financial ones.

Non-monetary rewards include:

● Training

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 ● Career paths
● Equity
● Job security
● Time off with pay

Monetary rewards include:

● Wages & salaries
● Performance based pay
● Regular increases

Global – costs, skills, supply

We live in a global environment and the globalisation of human resources has
become a major factor influencing the recruitment of labour.
About 2.5% of the world’s population lives outside their country. As
communications improve, in particular the World Wide Web it allows people to
access and apply for jobs all over the world. Large corporations actively aim to
attract scarce labour in this way. The communications revolution allows for the
movement of intelligence e.g. workers who have particular skills or qualifications
are attracted to move from one country to another in order to improve their
salaries. Scarcity of labour leads to increased costs of hiring that labour. In many
cases businesses must look overseas to recruit labour. In many cases when the
supply of skilled workers doesn’t exist in Australia then businesses must look
overseas for that labour.

Workplace disputes
When a disagreement occurs and talks between management and
unions/employees break down, then a conflict or dispute exists.
The Australian Bureau of Statistics categorises the causes of industrial disputes
into eight broad groups:
● Wage demands
● Management policy
● Working conditions
● Political goals
● Social issues

Dispute resolution process

● Grievance procedures – step 1, the grievance is taken to a supervisor who
is obliged to reply as soon as possible. Step 2, supervision where the
parties again attempt to reach agreement. Step 3, senior management, the
industrial relations manager or human resources manager. Full time
union officials are also involved at this stage. If an agreement fails to be
reached at this stage the matter will be referred to the appropriate
industrial tribunal.
● Conciliation and arbitration – once the above steps have been taken either
party can inform the industrial registrar and request a formal conference.
In this case a commissioner will order a compulsory conference of the two
parties to mediate the dispute. Arbitration is the next step where a

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 commissioner listens to the arguments of both parties and makes a
decision – an award or order, which is legally binding on both parties. An
appeal can be heard by the full bench of the IRC.

Negotiation- is the settling of the limits of a dispute and discussing where each
party stands.

Mediation – when a third party who is mutually acceptable and neutral sits down
with both parties.

Common law action – is based on the decision of a judge to solve a dispute

Business division/closure – conflict may resolve in closure of all or part of the

business.

Effectiveness of human resource

management
Indicators CABCLAW
By indicators we mean what makes for effective human resource management.
There are a number of things that make this happen:

● Corporate culture – a good corporate culture is important to the

development of effective human resource management. A good corporate
culture should include things such as: Communication systems, grievance
procedures, worker participation and team briefings, rewards and
training and development. Corporate culture refers to the culture within
an organisation.
● Accidents – This is a good indicator of human resource management
effectiveness. The efficient human resource manager will ensure that all
WH&S provisions are being adhered to. If this is the case the accident rate
will be down, which in turn will lead to a happier, more productive
workplace.

● Benchmarking Key Variables – An important element of the work

done by the human resource manager and indeed any business person is
to measure the effectiveness of what they are doing. Benchmarking refers
to the establishment points of reference from which quality or excellence
is measured. Quality can come in two forms, the quality of the workforce
and the quality of the work they produce.

● Changes in staff turnover – When staff stay with an employer, then

the employee is likely to be doing a good job and vice versa. The cost of
finding new employees can be substantial, particularly with executive
positions and senior executives feel more relaxed about the workplace
when turnover is low. Stable employment usually means satisfaction with
the organisation or the supervisors within it. It is this that the human

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 resource manager will attempt to achieve. They will work to find ways to
reduce staff turnover which may include things such as increased
responsibility, greater autonomy, better working conditions and
environment and increased pay if necessary.
● Levels of disputation – A key factor in deterlmining the effectiveness
of human resource management is the level of disputation. Obviously the
lower the level of industrial disputation, the greater the likelihood that
effective human resource management practices are being implemented
in the work place. Employees who are happy in their workplace are less
likely to fall into dispute with management.

● Absenteeism – The things that cause absenteeism include

dissatisfactions with supervisors or the job or the lack of opportunity. No
job will suit every employee, but the human resources manager must try
to make the job as satisfying as possible – not only to reduce absenteeism
but also to increase productivity in the workplace. The other aspect of
absenteeism is the huge cost to the business. Other workers have to cover
for the absent employee or casual staff have to be employed to take their
place for the period. Either way it is a big cost for the business to bare.

● Worker satisfaction – Worker satisfaction covers all of the areas

discussed above. From benchmarking, staff turnover, absenteeism, all
these factors are indicators of satisfaction in the workplace.

INTERDEPENDANCE WITH OTHER BUSINESS

FUNCTIONS
As with all topics of business studies, each business function is dependant on
another. Each business function relies on the other. Like a football team, there are
specialist players in different positions who rely on the productive efforts of their
team mates. If one player doesn’t do what he or she is supposed to do then the
whole team will fall down. For example, the marketing department requires
information from the accounting and finance department to see if there are
sufficient funds available to undertake a particular marketing campaign and for
them to actually fund the campaign. The human resource department must
supply the right personnel to staff the marketing project and the operations
department must provide the correct resources to produce the product.

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Finance case study
FINANCE
Access to finance is a critical issue facing any company, regardless of whether
they are just starting, looking to expand locally or into global markets, or are just
keeping the business operating until the company is stable enough to operate
independently.
AussieBum has remained a private company and is operated by co-directors
Sean Ashby and Guyon Holland. As a private company, they are not obliged to
report financial details or profit outcomes. However, the following information
regarding the financial performance of AussieBum is available:
• commenced operations with a start-up capital of $20 000, which was solely
contributed by Sean Ashby
• turnover achieved in the first year was $30 000
• grew by 15–20 per cent per quarter for the first 5 years
• in April 2008, five different sizes over a range of 300 styles led to 7000 orders
per week
• turnover achieved in 2007 was in excess of $10 million. It was expected to hit
$22 million in 2008–09.
• sales occurred in 75 countries in 2007, expanding to 120 countries in 2009
• 90 per cent of sales were achieved internationally. Major financial influences on
sales, revenues and profits for AussieBum include the following:
• the global financial crisis saw demand for products decrease worldwide
• the strong current value of the Australian dollar increases the price of
AussieBum products for international clients
• maintaining manufacturing in Australia places continued pressure on costs so
the business can remain competitive
• sourcing fabrics that maintain quality but don’t substantially add to costs
• fluctuations in the exchange rate. An appreciation of the Australian dollar
reduces tourism from overseas.
• increased competition from overseas manufacturers. The high Australian dollar
combined with lower costs places increasing pressure on AussieBum’s ability to
maintain prices at their current level. Financial management strategies Financial
management strategies focus on recognising the sensitivity of customers to
changes in prices, exclusivity of brands given to retailers, the split between fixed
and variable costs, and the costs passed on by local suppliers and producers.
Price sensitivity of customers (cash flow management) AussieBum considers the
price sensitivity of its customers but recognises that there are three key issues to
consider when pricing products:
• costs as determined by suppliers and internal factors
• the degree of differentiation offered by AussieBum through high-level design,
research and development.
• the value customers feel they are receiving from the product — not only in
terms of value for money but in terms of the lifestyle and ‘community’ they are
buying into.

Brand exclusivity (working capital management)

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AussieBum licenses some international retailers to sell its products through their
stores. By allowing only certain retailers to sell the products (exclusivity),
AussieBum is able to demand payment prior to delivery and can control the
price.

Fixed and variable costs

AussieBum is not typical in its cost structure. Fixed and variable costs are
determined by a product line, rather than considering the range of products as a
whole. AussieBum will first look at an idea, develop the idea and then produce a
sample. It is at this point that costs are considered from a finished product point
of view.

Local supply costs

AussieBum aims to have a collaborative relationship with its suppliers. This
allows the company to be able to ‘step in’ and inform local producers when
production has deviated from design or plans. This assists in keeping costs down
through minimising waste and faulty products. This approach also benefits the
supplier. Meeting deadlines, quality standards and cost budgets means the
products are able to be marketed quickly, sales occur and the supplier is offered
further contracts — their business grows as well.

Performance review
A final strategy adopted by Ashby and Holland is to constantly review their
performance. Each quarter they reassess the business plan, financial strategies,
product lines and marketing. This allows them to keep on top of their business
and avoid errors or decisions that may adversely affect the company.

Credit risk
Credit risk represents the risk to AussieBum of a customer initiating a
transaction and then failing to complete that transaction through insufficient
credit or fraud. AussieBum is exposed to credit risk through the use of online
shopping — the majority of its sales are made online using credit card facilities.
The risk of credit fraud is minimised by AussieBum through the use of PayPal.
PayPal is a system that makes it safer to make and accept payments online. The
system remembers and safeguards a customer’s BSB and account numbers, as
well as credit and debit card numbers, so that the customer does not have to type
these details each time they buy online. PayPal also offers an additional layer of
security for AussieBum through easy processes for dealing with fraudulent
activities. Finally, a philosophy held by Ashby and Holland is to grow with your
assets. They avoid borrowing money and are currently operating debt-free. This
allows them to grow slowly, consider all options and possibilities, and not get
ahead of themselves.

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