Business Studies

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Business Studies

Topic 1: Business management and change

  1. The Nature of management:

 The nature of management

  • Large companies have shareholders, they employ people to run the business
  • Successful managers coordinate the work activities of employees to ensure everyone is working towards a common objective

•        The importance of effective management

  • Effective management is achieving the goals of business and not wasting resources
  • In international markets it has been essential for Australian businesses to increase their efficiency to be competitive

        Management roles

Interpersonal

  • Way managers deal with/interact with people
  • Based on effective communication
  • Leading involves; setting standards, fostering workers loyalty, establishing goals, encouraging and motivating workers to achieve their potential

Informational

  • Must be aware of what is happening in the business
  • Receiving, collating and analyising information and giving it to the appropriate people
  • Concerned with monitoring information
  • The control process needs to develop standards, measure performance, and make comparisons to see whether corrective actions need occur such controls include:
  • Input controls: these controls are set up before production takes place to prevent problems occurring- may insure the correct number of inputs and standards of quality.
  • Concurrent controls: occur while work in progress. Ie direct supervision
  • Feed-back controls: checking the final product to compare to the planned final product
  • Differences from the expected/planned result need to be analysed, adjustments made to better achieve the desired result
  • Management needs to monitor the external environment and stay up-to-date to establish opportunities and threats

Decisional

  • Managers make important decisions
  • May need to negotiate decisions with people

Incorporating the business roles

  • A typical example of filling all 3 roles

•         Skills of management

  • Moved away from Autocratic and rigid hierarchical structure

- People skills

  • People skills advantage of competitors

- Strategic thinking

  • Have a clear vision of the future - developing strategies to achieve this

- Vision

- Flexibility and adaptability to change

  • The need to be able to adapt to change
  • Self-managing teamwork,
  • Teamwork - cooperation between individuals to achieve common goals.
  • Managers ensure that the teams get proper training and correct equipment
  • Workers have increased control of their own behaviour
  • Complex problem-solving and decision-making,
  • Ethical and high personal standards
  • Unethical behaviour is considered unaccepted by society which can result in lower sales and profits ect…

•        Responsibility to stakeholders; reconciling conflicts of interest

  • Stakeholders often have conflicting interests:
  • Stakeholders can be put into 2 separate groups internal and external

Responsibilities to internal stakeholders:

  • Share holders provide the capital that allows the business to operate – expect fair returns
  • Employees are needed by the business to operate. The business’ responsibility is to comply with applicable employment laws
  • Businesses must provide a:
  • safe and healthy working environment
  • pay the correct wages
  • ensure equal employment opportunities to all workers
  • Society expects that the business will have a responsible attitude towards the community

Responsibility to external stakeholders:

  • Laws that control the businesses behaviour towards their stake holders
  • Each level of govt. has its own laws.
  • Businesses will be affected by the pressure of society. Firms are expected to work towards ecological sustainability

Reconciling conflicts of interest:

  • Each stakeholder has their own reasons for being involved in the business and they have different ideas about the benefits that they hope to achieve
  • What each stakeholder hopes to achieve may conflict with the desires of other groups

2. Understanding business organisations with reference to management theories

  • Classical/scientific
  • Workers had limited or no education and were not accustomed to doing anything but what they were told

  • Management as planning, organising and controlling

The theorists considered planning, organising and controlling as the key functions of management.

  • Planning: setting goals, working out the best way to achieve these goals ie) strategies
  • Strategic planning: long term
  • Tactical planning: short term
  • Operational planning: plans for the day-to-day running \

  •  Organising: designing a frame work for the business
  • What tasks need to be done?
  • Which worker does the task?
  • How the workers will be grouped?
  • Who will supervise the workers?

  • Controlling: working out ways to measure planned and actual results of management plans
  • If objectives have not been met managers must evaluate why
  • Traditional methods were completed at the end of production
  • Standards were based on mathematical computations of what the output should be.

  • Hierarchical organisational structure based on the division of labour

  • Pyramid structure
  • Division of labour: People without qualifications or skills could be trained to do that particular job, same repetitive job
  • Rigid chain of command: very strict line of authority
  • Small spans of control: Should be between 4 and 14 = resulted in a lot of managers

  • Autocratic leadership style
  • Managers achieve goals through other people – they must be able to influence these people in what they do and how they do it.
  • Leadership style = refers to the way managers interact with others  
  • Classical-scientific believed that managers use a high degree of direction and permit little or no participation

  • Behavioural
  • Management as leading, motivating and communicating

  • Accepted the importance of planning, organising and controlling - focused on the role of leading, motivating and communicating
  • Leading: important in dealing with change, concerned with directing people, communicating and resolving conflict
  • Managers motivating their workers led to significant improvements such as the provision of a physically attractive and safe working environments and rewards

  • Flat organisational structure, teams
  • Worker productivity would be higher if they were not as closely supervised
  • Advocated larger spans of control = need for fewer managers
  • Claimed that productivity and efficiency would be higher if people worked in a team structure

  • Participative/democratic leadership style
  •  Managers encourage a high degree of employee participation in decision making and open communication channels

  • Political
  • Uses of power and influence, management as negotiating and bargaining

Uses of power and influence;

  • How much power a manager has depends on; the personality of the leader, the characteristics of the subordinate and the environmental situation
  • A decision that doesn’t involve consultation is unlikely to be successful

Managers have power;

  • Legitimate power: right of a manager in a particular position.
  • Expert power: based on expert knowledge the person has.
  • Referent power: held by people who poses personality traits or desirable characteristics that others admire.  
  • Reward power: Capacity to reward
  • Coercive power: Managers often have to power to force people to do things they don’t want to
  • Changes to the Workplace Relations Amendment Act 2005 increased the coercive power of managers

Management as negotiating and bargaining;

  • Insight into the negotiating and bargaining aspects of management eg) managers need to negotiate and enterprise bargain with a union acting on behalf of the workers

  • Structure as coalitions

  • Occur when groups of people with different interests work together to achieve common goals. In coalitions groups are more likely to achieve goals.

  • Stakeholder view

  • Understanding that stake holders have different views on what they want from a business
  • Sometimes stake holders have a common goal eg) growth

  • Strengths and weaknesses of the classical, behavioural and political approaches

Classical-Scientific:

Advantages:

  • Focus on competitiveness through efficient use of resources and cost cutting
  • Focus on an efficient structure for the business with a clearly defined chain of command, span of control and division of labour

Weaknesses:

  • Lack of flexibility in the organisational structure and slow to respond to changes in the external environment
  • Reliance on division of labour often resulted in high levels of absenteeism, high labour turnover and poor quality
  • Autocratic leadership style alienated employees who as a result were less committed to business goals

Behavioural:

Advantages:

  • Focus was on the people in the business and it showed the importance of human resources in meeting goals of the business
  • Focus on the productivity increases, business is structured so that people work in self managed work teams with a participative leadership style
  • Focus on cost reduction through removing the middle layers of management

Weaknesses:

  • No unifying framework that showed how the whole management process worked
  • Key aspects of the theory such as work teams and a participative leadership style were more applicable to some businesses and not others  

Political:

Advantages:

  • Provided and understanding of how decisions are viewed from the perspective of the stakeholder
  • Focused on the factors that limit the ability of managers to make decisions
  • Highlighted the importance of negotiation and bargaining in decision making

Weaknesses:

  • Focused on just a few aspects of management theory
  • Ignored a large number of internal and external variables that affect the management process – as with the behavioural theory, there is no unifying frame work to explain the whole management process

  • Systems/contingency
  • Adapting management and organisational approaches to circumstances
  • Systems theory is an important contribution because it was the first theory to stress the relationships in a business
  • Relationships are not limited to those between inputs, transformations and outputs in the form of products
  • Contingency theory is all about preparing for the things that result from an uncertain future. The external environment is always changing. The economic, technological, political and social changes affect the ability of a business to be competitive
  • When a business can meet consumer needs more effectively than its competitors, its market share increases
  • Earlier theories suggested that the business environment was more static than it really is
  • Contribution of the contingency to management theory stressed the importance of reacting quickly to change by thinking strategically about the future

3. Managing change

Nature and sources of change in business

Changes are happening at a mast faster rate, changes occur from the external or internal environment

  • A manager must identify the need for change, over come resistance to the change and manage the change effectively so the business gains or maintains its competitive advantage
  • Better chance at coping with challenges and initiating change if it’s;
  • Flexible
  • Has excellent communication channels between management levels and staff
  • Provides adequate information to all management levels
  • Uses market research to keep up-to-date with changes in consumers’ needs
  • Monitors the external environment closely

  • External influences – the changing nature of markets; economic, financial, geographic, social, legal, political and technological developments

  • Changing nature of markets:
  • Before 1980 many Australian businesses operated in their own market place. There was a safe guard against over seas influences
  • Deregulation of the financial sector and the labour market,  started Australia’s movements towards free trade agreements and rapid improvements in transport
  • Goods/services became available through imports
  • Australian products are exported.

  • These changes have put massive pressure on Australian firms to becoming increasingly competitive

  • Economic influences
  • Government tries to regulate the economic conditions a business operates under. Through;
  • Inflation rate
  • Unemployment rate
  • Level of economic growth
  • Influence of other countries on our economy
  • Gross domestic product is affected by business activity
  • Less spending in one area can result in bigger spending in another area.
  • The main measures used by the government currently are;
  • Monetary policy – implemented by the Reserve Bank of Australia , implements changes through influencing interests rates
  • Fiscal policy – operates mainly through the commonwealth budget, can cause a reduction in the level of aggregated spending by planning a tighter budget

  • Financial Influences
  • Deregulation – allowed market forces of supply and demand to determine the price of finance
  • 2 main sources of finance for businesses
  • Debt Finance – Any money that a business has borrowed and owes
  • Equity finance – Internal sources of finance
  • Generally for Australian businesses the globalisation of Australian financial markets has resulted in a more flexible, competitive and market-orientated approach to finance

  • Geographic influences
  • Geographic influences on Australia include;
  • Our location in the Asia-pacific
  • Population shifts eg) from rural to suburban
  • The increased average age of our population
  • Variations in the number of refugees and skilled migrants accepted into Australia
  • The rapid economic growth of nearby Asian countries
  • The increased international standing of Australian cities

  • Social influences
  • Society expects the business to give to the community’s quality of life
  • Contributions include; sponsoring sporting teams, making donations and assisting in community projects
  • Businesses need to be aware of their community’s needs, opinions and attitudes. They also need to respond to changes in their community
  • Society expects businesses to behave ethically and responsibly.
  • Interest groups within the community Influence the businesses choices
  • If businesses meet societies expectations they will benefit

  • Legal influences
  • Aim of government regulations = promote fair conduct.
  • In many Aust industries regulations have been removed to enable firms to have less competition and better efficiency
  • Regulations have been extended by professional associations through the establishment of acceptable codes of conduct.

  • Political influences
  • Influences businesses through govt policies

  • Technological developments
  • Developments in technology have resulted in increased efficiency and productivity
  • Therefore consumers achieve greater satisfaction for their needs and wants
  • Technological changes in communication and transport have made Australia a part of the world economy
  • Awareness of what other countries and societies develop has resulted in changes in consumer demand, production methods & governments’ rules
  • Not all developments are advantageous for businesses – some pose threats

Internal

  • Internal sources can also promote the need for change.

The affects of accelerating technology:

  • Cause employees to retrain, redefine their jobs and work in teams
  • Business must monitor internal influences to remain competitive

New systems and procedures:

  • JIT effectively manages stock.
  • Most businesses have computerized stock control systems
  • Better communications through technology – text messages, email
  • E commerce can be used for business – business suppliers or business consumers.

New business cultures:

  • Culture may be traditional, formal, inflexible and even reluctant to accept change.

Structural responses to change:

  • Businesses can change their structure, products, people and culture.
  • Outsourcing
  • Profitable to concentrate on main activity and outsource other areas
  • Businesses can now outsource several areas –employees may need to be dismissed or retrained by the firm, saving on floor space and labour costs
  • Flat structures
  • When the middle layers of management are removed
  • The flatter structure has a shorter chain of command and a wider span of control
  • Improved communication and motivated employees
  • Strategic alliances
  • Sometimes firms in direct competition may benefit from joining together
  • The strategic alliance could also enable a firm to gain entry into a new market area  
  • Networks 

Managing change effectively

  • Flexibility needs to be built into a firms strategic plan, manages need to implement change smoothly and iron out any resistance in its path
  • Management of change will be more effective if the firm can;
  • Identify the need for the change
  • Set achievable goals
  • Create a culture of change
  • Utilising the change models available

  • Reasons for resistance to change:
  • Financial costs - incurred through purchasing new equipment, re-organizing the plant layout, re-training staff and redundancy payouts, upgrading computer systems
  • Inertia of managers and owners people often prefer things/situations that stay the same than things that change. Some businesses may use change agents to help bring about change.
  • Cultural incompatibility in mergers/takeovers:

- cultural incompatibility is a conflict between the informal, unwritten rules and procedures of 2 once individual businesses. it may result in;

  • lower morale amoungst the staff of one firm
  • insecurity feelings amoungst staff
  • Staffing – de-skilling, acquiring new skills, loss of career prospects/promotion opportunities
  • Deskilling – occurs where the introduction of new technology led to employees not needed

  • Managing change effectively:
  • Identifying the need for change:
  • Effective managers constantly monitor the internal external business environments
  • Performance needs to be compared to what has been planned with the performance of specific competitors and the industry as a whole.
  • Setting achievable goals:
  • Goals set by management should be SMART;

Specific

Measurable

Achievable

Realistic

Timed and Timely

  • Must be realistic goals with actual time frames – must be measureable
  • Ability to change will rely on finance and business culture
  • Strategic goals can be broken down into short-term objectives
  • Evaluate current position first - situational analysis eg) SWOT then build on strengths and fix weaknesses ect
  • Creating culture of change (encouraging team work approach using change agents):
  • ‘Culture of change’ accepts change as a continual state
  • Change should be a constant feature of the business life cycle
  • A coordinated approach needs to be adopted, addressing every factor of cultural resistance;
  1. Survey the organisation to identify key elements of the culture,  those requiring change or resistant to change
  2. Communicate why things have to change.
  3. Promote managers who will achieve or initiate change
  4. Commence the reorganisation
  5. Implement an appropriate evaluation and reward system to reflect the new ideas
  • Change agents will also work to encourage a cultural acceptance of change.
  • All change carries a degree of risk

  • Change models – Force field analysis, Lewin’s unfreeze/change/unfreeze model:
  1. force field analysis:
  • Analyses change as a state of imbalance between driving forces and restraining forces. The driving and restraining forces are in a equilibrium if they are of equal strength (unchanging state)
  • Force field analysis is finding a way to disturb the equilibrium -  increasing the driving forces or weakening the restraining forces or both

  1. unfreeze/change/freeze
  • Defrost the business – change – freeze to retain
  • Change that is driven to quickly and forcefully can have damaging affects on the business
  • Three basic steps;
  1. UNFREEZING: persuade staff to be receptive to the possibility of change. Managers need to highlight the areas of concern or show aspects better in other businesses
  2. CHANGING: Once managers and workers actually desire change, then a solution or range of solutions is forwarded and acted upon. This must be done as soon as possible
  3. REFREEZING: New procedures must be formalised eg) written down, repeated and disseminated. Ensure structure, technology and employees are considered during the refreezing process. Ways to freeze behaviour in individuals include: awards, recognition, rewards and demonstration of benefits to individuals
  • Not a modern model – businesses are never frozen

  1. Change and social responsibility:

  • Ecological sustainability, quality of working life, technology, globalisation/managing cultural diversity, e commerce

Ecological sustainability:

  • Refers to the production of goods and services at a level which is compatible with the long term preservation of the environment
  • Management should balance goals and ecological sustainability
  • Managers have the responsibility to protect the natural environment and ensure that their methods of production incorporate sustainable resource use
  • Sustainable practises have advantages ie) customer loyalty

Quality of working life:

  • Proposed changes shouldn’t degrade the quality of working life eg) reorganising/relocating – consideration of ergonomics is critical ie) desk height
  • Stress levels should be minimised eg) realistic deadlines, enough rostered staff

Technology:

  • Driving force behind change – advantages in efficiency and cost.
  • Issues that should be considered;
  • Whether new technology will make existing jobs redundant, it may be possible to retain these employees to perform new tasks
  • Whether it will disadvantage customers
  • Ensuring its health and safety aspects

Globalisation and managing cultural diversity:

  • GLOBALISATION created enormous growth opportunities for businesses which can utilise the global economy
  • Creates ethical and cultural obligations/challenges

Topic 2 - Financial Planning and management

The role of financial planning:

  • Strategic role of financial management
  • Short term financial objectives eg) profit & covering costs
  • Strategic – ensuring the business continues to operate, grow and profit

The decision making process used by owners and managers for all objectives –

  • Financial managers need strong accounting knowledge/skills

  • Objectives of financial management – liquidity, profitability, efficiency, growth, return on capital
  • Different ways to measure financial success
  1. Owners – amount of profit
  2. Financial managers - efficiency, rate of growth, liquidity, return on the capital
  • Financial reports = a detailed financial picture of the business

Liquidity:

  • How quickly an asset can be converted into cash
  • Current assets – expected to be cash within 12 months
  • Current liabilities – debts due to be paid within 12 months
  • Accounts payable – money a business owes ie) bank loans

Profitability:

  • Measured on the REVENUE STATEMENT
  • Net profit = revenue after expenses are paid

REVENUE -        COST OF GOODS = GROSS PROFIT – EXPENSES = NET PROFIT

  • Expenses may be: wages, loans, rent ect

Gross profit

  • Gross profit = is the profit made on sold goods after paying the expenses of purchase and transport

Efficiency:

  • Relates to profitability: decreased costs = increased profits
  • Calculated using the expense ratio
  • Lower the result the more efficient the business

Growth:

  • Growth can be achieved by;
  • Increasing the physical size of the business eg) bigger premises
  • Increasing the value of assets
  • Increasing sales and profits
  • Opening more branches or offices
  • Taking over a competitor
  • Merging with another business
  • Diversifying or buying an other business

Return on capital:

  • Return on capital = the amount of profit returned
  • Calculated as a percentage of the owners’ original investment

The planning cycle

  • Planning = Goals, objectives worked out, strategies decided upon and methods to measure progress

Goal > strategy > Monitoring > control

Financial markets relevant to business financial needs:

  • Major participants in financial markets
  • Banks - with the deregulation Aust has more participants in the market
  • banks
  • insurance companies
  • merchant banks
  • superannuation funds
  • other companies
  • government

  • Financial market is more competitive – compete in interest rates offered and products to sell

Banks:

  • online banking, detailed statements, business credit cards and bank overdraft management
  • business insurance and superannuation
  • international trade finance
  • risk management

  • Merchant banks for businesses instead of individual savers

Finance and insurance companies:

  • Provide loans
  • Secured loans require some sort of asset
  • Unsecured loans do not require an asset
  • Arrange commercial bills, leasing finance and debentures

Superannuation funds:

  • Superannuation funds earn returns by selling debt securities to businesses which repay these loans with interest

Companies:

  • Can offer their surplus cash to other businesses as a loan
  • Sell debentures and corporate bonds through the Aust stock exchange

Government:

  • Participates to influence the Aust economy – monetary policy
  •  Reserve bank of Aust will buy and sell govt securities and loans and adjust interest rates to alter the economic cycle
  • Offers low interest on grants that will help influence the economy

  • Roles of the Australian Stock exchange as a primary market

  • Australian Stock exchange is the market where
  • Primary Market = new shares sold for equity finance
  • Secondary market = second hand shares, businesses can invest
  • Debt securities eg) debentures are brought and sold
  • Role has increased due to deregulation, developing technologies and increase in the amount of sales and debt securities

  • Overseas and domestic market influences and trends in financial markets and their implications for business financial needs
  • Need to be aware of the influences on the market from within and outside Australia
  • The cost of finance =  rate of interest charged
  • Freeing the financial sector led to independent monitoring and regulation - Australian Prudential Regulation Authority
  • Aust dollar influences Aust market

Management of fund;

  • Sources of funds
  • Internal – owners equity, retained profits

Owner’s equity:

  • Owner investing own money
  • Other equity finance comes from selling shares in the business
  • Advantage = the cost of the finance can be postponed
  • Disadvantage =  in diluted ownership
  • More complex to organise
  • There are different types of shares
  • Ordinary shares = basic form of equity capital
  • Preference shares – preference over ordinary shares

Retained profit:

  • Retained profits = undistributed or unclaimed profits

  • External – short term borrowing, (over draft, bank bills), long term borrowing (mortgage, debentures) leasing, factoring, venture capital, grants

  • Debt finance = money that has been borrowed
  • Other types of external sources of finance are; (these are not loans)
  • factoring
  • venture capital
  • grants

Short term borrowing

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Bank overdraft

  • Allows businesses to borrow money and have a negative amount
  • High costs and financial risk
  • Current taxation laws allows interest to be claimed on tax

Bank bill

  • Written order for a loan amount guaranteed by the bank
  • Money is borrowed from another company with surplus funds
  • The funds and interest will be paid to a particular person or business on a certain day in the future – usually 90 days

Trade credit

  • Loan from a supplier

Long term borrowing

Mortgage

  • Long term - Loans used to finance the purchase of property
  • ...

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