HSC Topic One: Business Management and Change
Case Study - Billabong
Behavioural Management Theory
* Creative thinking and innovation are of greater importance than ruthless efficiency. Managers see their roles primarily as motivating staff & communicating the company's vision to customers & stakeholders.
* Workers overcame problems and gave input into the way Billabong was run.
* Primarily to do with business culture and lack of morale caused by inertia of managers & their resistance to change
Sources of Change
* External influences
* Economic factors:
- Negative: level of unemployment and growth/interest rates means less people can afford BB's products
- Rising incomes in East Asia and South America have helped create new markets
* Social factors:
- Changing consumer tastes
- Increasing tastes in sports such as skateboarding and surfing
- BMX now included at Olympics - increases recognition of sport and clothing
* Political factors:
- Protectionism and limiting of imports through tariffs has seen BB's product strengthened in the domestic market
- Gov emphasising and pushing Aus exports, BB has seen improved overseas sales.
- Pollution of beaches discourages people from surfing
- Influences what products BB have to release
- Snow gear in countries like Switzerland and surf gear in markets like Hawai'i
- Positive: Simplifying logistical and organisational difficulties
- +: Monitoring and tracking sales - Ý control
- Internet - website - greater relationship/interaction with customers
· New Procedures
- Private à Public
- Comply with legal regulations meant Ý financial record systems for annual financial report
- Tighter control over finances so as to increase return for investors
· Business Culture
- Management team changed in 1998 when Matthew Perrin and Gary Pemberton bought 49% of BB
- Now comprised of more professional managers with greater business knowledge and procedures than the original surf enthusiasts who established the business
Structural responses to change
* Production to SE Asia and China
* Response to economic and financial influences
* Allows company to focus more on design and marketing
* Lowers costs to maintain competitive advantage in price-sensitive markets
* Cooperated with Channel V - Billabong Music Bus Tour
* Both had similar target markets
* Increased brand recognition and awareness
Reasons for resistance to change
* Developing new products - such as skateboards and sunglasses - requires money
* Acquiring smaller businesses, eg. Honolua Surf Company cost around $20billion
Inertia of owners
* International expansion brings some risk from the financial backers/owners and therefore saw resistance from shareholders
Managing change effectively
Identifying need for change
* BB gained an edge over competitors by being one of the first businesses to expand overseas in the early 1980s
* Diversifying into skateboarding and accessories increased market share
Creating culture of change
* New management team in 1998 acted as ‘change agents' achieved growth by constantly observing and pursuing new opportunities
Change Models (force field analysis)
* Ý revenue
* New opportunities for staff
* Year round demand (seasons)
* Costs of production
* Lack of new designers
* Need to hire new managers for new departments
Change and Social Responsibility
* Surfrider Foundation - Conservation and regeneration of beaches and foreshores Quality of life
* Encourages team work and a relaxed atmosphere both in the office and in retail stores
* BB has a strict ‘no child labour' policy and regularly inspects overseas production facilities
* Encourages communication between domestic and international stores/offices
* Employees are encouraged to transfer between international offices to gain new experiences
The Nature of Management
· Management Roles
-An interpersonal role is one in which the manager deals with people.
- Proactive- incorporates dynamic action and forward planning to achieve particular objectives
-An informational gathers information within the business and supply's it outside the business
-A decision-making role involves solving problems and making choices
· Skills of Management
- Ethical behaviour
Responsibilities to stakeholders include:
1. manage change
2. social justice
3. ecological sustainability
4. compliance with the law
5. codes of practice
Understanding Business Organisations with Reference to Management theories
· Contingency Theory
- Planning, Organising, Controlling
Division of labour, chain of command, autocratic leadership style meaning the manager tends to make all the decisions in the business.
- ability to understand and work with people from a variety of backgrounds and different expectations
- Leading, Motivation, Communication
- Flatter organisational structure
- democratic leadership style where managers consult employees to ask suggestions and take them into account when decision making.
- encourages the formation of coalitions to promote different points of view.
- Power and Influence within a business can have both a positive and negative effect. It can be sued to intimidate (negative) or empower others (positive).
- Legitimate power - due to status or position of the person in the firm e.g management
- Expert power - due to a result of a persons skills and expertise
- Referent power - from a person's individual characteristics (personality and charisma)
- Reward Power - to the rewards or compensation a manager distributes
- Coercive power - controls individuals by the actions or words of the manager
- Negotiating and Bargaining, Stakeholder views, Coalitions
· Nature and Sources of Change in Business
- External - Changing Nature of Markets, Economic Influences, financial, geographic, social, legal, political, technological
Internal - Effects of decelerating technological change, e-commerce, new systems and procedures, new business cultures
- Structural Response to Change
- Flat Structure
- Strategic alliances
· Reasons for Resistance to Change
Inertia of managers and owners
Cultural incompatibility in mergers and takeovers
Staffing Considerations - de-skilling, acquiring new sources, loss of career prospects and opportunities.
* Managing Change Effectively
Identifying need for change- SWOT anaysis and balance sheets
Setting Achievable goals - mission statements and company goal
Culture of Change
- Force-Field Analysis
Change and Social Responsibility
Social Responsibility is the awareness of a business's management of the social, environmental and human consequences of its actions. Customers eventually find out which businesses are acting responsibly and which are not.
- Ecological Sustainability
- Quality of Working life
- Globalisation and Managing Cultural Diversity
HSC Topic Two - Financial Planning
The Role of Financial Planning
* Strategic role of Financial Planning
Organisational goals and objectives
Managing financial resources
* Objectives of Financial management
- Liquidity -pay debts in the short term (less that 12 months)
- Profitability - ability to maximise profit
- Efficiency -manage its assets to maximise profits with the lowest possible level of assets
- Growth - increase its size in the long term
- Return on capital -profit returned to owners or stakeholders as a % of their contribution
* The planning Cycle
- Addressing present financial position e.g revenue, p & l statements, budgets
- Determining financial elements of the business plan
- Developing budgets
- Cash Flows
- Financial reports
- Maintaining record systems
- Planning financial controls
Financial Markets Relevant to business financial needs
* Major Participants in Financial markets
Financial companies -provide loans to individuals and businesses e.g personal and secured
Insurance companies -loans to the corporate sector through insurance premiums
Merchant bks (investment bks) -services such as borrowing and lending to the business sector.
Superannuation/Mutual funds - provide funds to the corporate sector through the investment of funds received from superannuation contributions
The Reserve bank of Australia (Government) -acts as a banker and financial agent for the federal government
* The Role of the Australian Stock Exchange (ASX) as a primary Market
The ASX is the major financial exchange in the country. It comprises the largest primary and secondary markets for companies and individuals wishing to create and exchanges financial assets in the economy
* Influences on Financial Markets
domestic markets e.g change in inflation, demands for funding, changes in government policies. Companies can be positively and negatively affected.
Overseas influences such as world events, foreign exchange rates, tax regulation for foreign operations
* Trends in Financial Markets
Technology has allowed markets to become more competitive and grow allowing financial transactions all the time. Globalisation will also give overseas investors access to Australian companies and increase opportunities for Australian investors and international markets.
Management of Funds
* Sources of Funds
- Owners Equity
- Retained Profits
- Bank Overdraft - allows a business to overdraw their account to an agreed limit
- Bank Bills
Long Term Borrowing
- Debentures -The company repays the amount of the debenture by buying back the debenture. Finance companies raise funds through debenture issues to the public.
- Leasing - involves the payment of money for the use of equipment that is owned by another party.
- Factoring - is the selling of accounts receivable for a discounted price to a finance of factoring company.
- Venture Capital - is funds supplied by investors to either a new organisation or to an already established business ready to grow or diversify.
- Grants - are provided by the government for businesses to develop and promote international competitiveness. Grants often enable an organisation to become competitive in the global environment e.g exporting organisations.
* Comparison of debt to equity financing
Debt finance refers to short and long term borrowing from external sources of an organisation
Equity Financing refers to the internal sources of finance in the organisation
Gearing/Leverage is the proportion of debt to equity which is used to finance the activities of a business
Using Financial Information
* The Accounting Framework
Revenue Statements shows the revenue earned and expenses incurred over the accounting period with the resultant profit or loss. Revenue statements show operating revenue earned from the main functions of the business e.g sales of inventories and the non-operating revenue earned from operations such as rent and commission. It also shows operating expenses such as rent, advertising, insurance.
Balance Sheets represent the assets and liabilities at a particular point in time expressed in money terms and calculates the net worth of the business. The balance sheet shows the level of current and non-current assets and liabilities including investments and owners equity. Balance sheets indicate whether
- it has enough assets to cover debt
- interest and money borrowed that can be paid
- assets used to maximise profits
- if owners are making a good return on their investment
* The accounting Equation and Relationships
(A) Assets = (L) Liabilities + (OE) Owners Equity
The accounting equation forms the basis of the accounting process which shows the relationship between assets, liabilities and owners equity. The accounting equation shows that the assets of the business may be financed by either the owners or by parties external to the business.
COGS = inventory + purchases - closing stock
* Comparative Ratio Analysis
By comparing ratios of a firm over time reveals trends and indicate directions for the future. Comparisons with other businesses and industry ratios is often used although can be inaccurate due to differences in companies and industries. Businesses often compare ratios against common standards such as statistics from the ABS.
* Limitations for Financial Reports
Historic cost accounting states that values are stated at the cost incurred at the time of purchase or acquisition, meaning financial statements will be a mixture of different year figures. Historic cost has been used for a long time although may become inaccurate in times of inflation.
Value of Intangibles licences, trademarks, brand names and goodwill.
Effective Working Capital (Liquidity) Management
* The Working Capital Ratio
Working Capital Ratio = Current Assets over Current Liabilities (2:1 ACCEPTABLE - ALTHOUGH VARIES)
The Working capital ratio shows if current assets can cover current liabilities.
* Control of Current Assets
Cash Balances are generally kept at a minimum and hold marketable securities as reserves of liquidity.
Receivables is important in terms of management of working capital. The quicker the debtors pay, the better the firms cash position.
Inventories make up a significant account of current assets and their levels must be carefully monitored so that excess or insufficient levels of stock do not occur.
* Control of Current Liabilities
Payables must be paid by their due dates due to avoid any extra cash charges imposed for late payment and to ensure that trade credit will be extended to the business in the future.
Loans - management of loans is important for establishment interest rates and ongoing charges must be investigated and monitored to minimise costs.
Overdrafts - policies should be used to manage bank overdrafts and monitor budgets on a daily or weekly basis so that cash supplies can be controlled.
* Strategies for Managing Working Capital
Sale and Lease back is the selling of an owned asset to a lesser and leasing the asset back through fixed payments for a specified number of years.
Effective Financial Planning
* Effective Cash Flow Management
The activities of a business are divided into three categories as a statement of cash flows -
1. Operating Activities - e.g inflow - cash and credit, outflow - payments to employees
2. Investing Activities -e.g selling of old motorbike, purchasing new property
3. Financing activities- e.g inflow - selling of shares, outflow - repayment of debt.
* Management Strategies
distributing payments through out a month or year or different period so that cash shortfalls do not occur - payments and bad debt of accounts by debtors can cause shortfalls of cash for businesses at important times.
discounts for early payments
* Effective profitability Management
Fixed Costs e.g insurance and salaries
Variable costs change with the level of activity within a business e.g materials and labour used in the production of a product e.g fixing a roof.
Cost Centres are particular areas, departments or sections of a business to which costs can be directly attributed. Direct costs are those allocated from a particular product, activity, department or region e.g depreciation of equipment used solely in the production of one good. Indirect costs come from shared projects, activities, departments or regions.
Staff should be motivated to minimise expenses where possible as savings can be substantial if people take a close look at costs and eliminate waste and unnecessary spending.
* Revenue Controls
Sales objectives must be at a level of sales that will cover costs (fixed and variable) and result in profit. Changes to the sales mix can affect revenue. Research should be made to identify the effects of sales mix changes before implantation.
Pricing Policy affects revenue and therefore impacts on working capital. To attract buyers while underpricing may bring high sales but still result in cash shortfalls.
Ethical and Legal Aspects of Financial Management
* Audited Accounts
An audit is an independent check of the accuracy of financial records and accounting procedures. Types of Audits-
1. Internal - conducted internally by employees
2. Management - used to review the firm's strategic plans and determine if changes need to be made.
3. External - required by corporate law to ensure it complies with Australian auditing standards.
* Australian Securities and Investments Commission (ASIC)
ASIC enforces and administers laws and protects consumers in the areas of investment, life, insurance, super and Australian banking. ASIC sets out to reduce fraud and unfair practices in financial markets and products. ASIC ensures that companies adhere to the law. Collects information about companies and makes it accessible to the public.
* Corporate Raiders and Asset Stripping
Asset Stripping describes the practice of organisations that identify and sell off for a profit, assets of a company, especially one that has been acquired in a recent takeover. Entities that take over other companies and sell off the assets are known as corporate raiders.
HSC Topic 3 - Marketing
Types of Markets
Resource - BHP Billiton
Industrial - Painter
Intermediate - Gloria Jeans selling cakes
Mass - IBM Computers
Niche - ‘Mountain Bike' Magazine
Developing Marketing Strategies
Product and Service
* Qantas was under competitive pressure from Virgin Blue in the leisure market
* Qantas wanted to maintain its higher positioned government and business segments
* Expanded to a subsidiary - Jetstar - who were positioned as a value-for-money product
Price including pricing methods
* Jetstar International
* Base price for seat, Charge $30 for meal, $7 for blanket and amenity kit and $12 for entertainment kit
* Dell Computers focus much of their advertising to print media
* Use inserts/pamphlets/brochures in magazines, typically in the technology liftout section of the newspaper, where their target market is most likely to be reading
* Dell distribute products directly, with no intermediaries
* Exclusive distribution (no stores), Intensive (internet)
* Distribution system is e-commerce
Ethical and Legal Aspects
Role of Consumer Laws in dealing with
Deceptive and Misleading Advertising
* Gillette (Duracell) VS Eveready
* TV advertisement claims Duracell lasts up to four times longer than ordinary batteries
* Eveready claimed the ad infringed the TPA
* Independent tests showed the Duracell batteries never last 4x longer
* Federal Court ruled Duracell breached the TPA in the areas of misleading and deceptive conduct and false representations about the quality and benefits of goods
The Nature and Role of Markets and Marketing
Marketing is a total system of interacting activities designed to plan, price, promote and distribute products to present and potential customers.
* Types of Markets
- Resource markets e.g mining, agriculture, forestry and machinery.
- Industrial Markets purchase products to use in the production of other products e.g buying flour to make bread
- Intermediate markets (resellers) consist of wholesalers and retailers who purchase finished products and resell them to make profit
- Consumer Markets e.g cars, clothing, food
- Mass Market is when the seller mass produces, mass distributes and mass promotes one product to all buyers
- Niche Markets are micro markets made for buyers who have specific needs or lifestyles
- Production Orientation - 1820's - 1920's
When a business concentrates on making as many possible goods at the lowest price possible
- Sales Approach 1020's - 1060's
When a business concentrates on selling techniques to attract customers
- Marketing Approach 1060's - 1980's
When a business collects information on consumer trends to sell its products
* The Marketing Concept
- Consumer Orientation - when a business concentrates on maximising customer satisfaction to sell its products
- Relationship Marketing - the focus on encouraging repeat purchases and loyalty to the business by managing customer relations at the time of and after the initial purchase.
Elements of a Marketing Plan
* Establishing Market Objectives
* Identifying Target Market
- Total Market Approach - one type of product with little or no variation aimed at everyone through one distribution system.
- Market Segmentation approach - the market is subdivided into groups of people who share certain characteristics.
* Developing Marketing Strategies (examining elements of the 4 P's)
* Implementation, Monitoring and Controlling
- Financial Forecasting measures the sales potential and revenue forecasts (benefits) for strategies and compares these with anticipated costs.
- Comparing actual and planned results
1. Sales analysis - comparing of actual sales with forecast sales to determine the effectiveness of the marketing strategy
2. Market share analysis/Ratios - by comparing competitions market share to their own this can reveal changes in total sales (increase or decrease)
3. Marketing Cost Analysis - marketer breaks down the total marketing cost into specific marketing activities to access the effectiveness of each activity.
Market Research Process
Market research is the process of systematically collecting, recording and analysing information concerning a specific marketing problem.
The three steps of the market research process are;
1. Determining information needs
2. Collecting data from primary and secondary sources
3. Data analysis and interpretation -the data that represents average, typical or deviations from typical patterns. The data must be then displayed in way which statistics and figures can be conducted e.g spreadsheets
Customer and Buyer Behaviour
Customers are classified into two categories:
- Consumer - the process of purchasing goods and services for personal household use.
- Organisational - the purchase of goods and services by producers, resellers and government.
Types of Customers
- Household & Personal - personal and household spending plays a dominant role within the economy as it contributes to the level of economic activity which affects business profits, unemployment levels, interest rates levels and rate of inflation.
- The Firms market consists of businesses that purchase goods and services for further processing or for use in their production process.
- Educational institutes
- Government Customers Governments spend billions of dollars each year for a wide variety of goods and services ranging from battleships to paperclips. All purchases of the government spend public funds to buy products, the government is accountable to the public, requiring a much more formalised set of buying procedures where firms submit quotes to supply a particular good or service and the lowest bid is generally accepted.
* The Buying Process
The buying process involves 5 common steps:
1. Recognise the problem - need or want requiring satisfaction
2. Search for info - brands, product characteristics, warranty, price etc
3. Evaluate alternatives - cost and benefit analysis
5. Evaluate after purchase - stability of product, satisfaction gained or dissatisfaction may occur.
* Factors influencing Customer Choice
- Psychological influences - e.g perception, motive, attitude and personality
- Socio-cultural influences - e.g family, friends, social class, culture and subculture.
- Economic Influences -A boom is a period of low employment and rising income. Contraction is a period of slowly rising unemployment with incomes stabilising. Recession sees unemployment reach high levels and incomes fall dramatically. Expansion means unemployment levels start to fall slowly and incomes begin to rise.
- Government Influences - government will put into place policies that expand or contract the level of economic activity. These policies directly or indirectly influence business activity and customers spending habits and such will influence the marketing plan.
Developing Market Strategies
* Pricing Strategies
- Price Skimming - charging the highest price possible for innovative products
- Pricing Penetration - charges to lowest price possible for a product or service to achieve large market share
- Loss-leader - selling a product below its cost price to attract customers
- Price Lining - a limited number of key prices for selected product lines e.g one line of watches for $35 and a more expensive line at $55
* Pricing Methods
- Cost-plus margin - the total cost of production then adds on amount for profit (mark-up)
- Market - set prices according to the level of supply and demand, when demand is high prices are high
- Competition based - a business chooses a price based on competition, either below, equal to or above
* Marketing segmentation and product
1. Mass marketing or a total marketing approach - This includes basic food items, water, gas, electricity etc.
2. Concentrated Market Approach -By using the concentrated market approach the business is able to analyse its customer base more closely and design strategies to satisfy this select groups needs, and develop particular products based on customer feedback.
3. Product Differentiation - is the process of developing and promoting differences between the businesses products and those of its competitors. e.g jeans with designer labels and washing detergent with brightener additives
- Channels of Distribution or marketing channels are routes taken to get the product from the factory to the customer. The process usually involves a number of intermediaries such as wholesalers, brokers, agents or retailers.
- To choose the channel of distribution the location is the main contributor of the business market or market coverage (number of outlets a firm chooses for it product). There are three ways a business can cover a market -
1. Intensive distribution - when a business saturates the market with their product e.g milk, lollies and newspapers
2. Selective Distribution - businesses use a moderate proportion of possible outlets where customers are prepared to travel e.g clothing, furniture
3. Exclusive Distribution - only one retail, outlet in a large geographical area for exclusive and expensive products.
- Physical Distribution
2. Warehousing - involves receiving, storing and dispatching goods.
3. Inventory - controlled through a system that maintains quantities and varieties of products appropriate for the target market.
· Effects on Distribution
2. Local Government
- Approving new development applications and alteration to existing premises
- Fire regulations
- Determining land zoning and the purpose for which a building and land can be used
- Parking regulations
- Health regulations
- Size, shape and location of business signs
Ethical and legal Aspects
Environmentally responsible products
Materialism - an individuals desire to constantly acquire possessions
Impact of retail development -intensely competitive environment may result in some retailers using questionable marketing practices
Sugging - Selling Under Guise of a survey,
Role of Consumer Law
Deceptive and misleading
Implied Conditions or terms
Merchandise quality meaning that the product is of a standard a reasonable person would expect for the price
Fitness of purpose meaning that the product is suitable for the purpose for which is being sold. That is, it will perform as the instructions or advertisement implies
Resale Price Maintenance
Legislations to respond to ethical and legal aspects of marketing:
The Trade Practice Act 1974 is one of the most important pieces of legislation in Australia and has two purposes:
1. To protect consumers from misleading and deceptive conduct
2. Restrictive trade practices to restrict competition as well as ensuring that a number of businesses are operation at any one time in the same market, to avoid the problem of monopolistic power.
Fair Trade Act (FTA) is a mirrors legislation that covers sole traders and partnership as well as companies
Implied conditions in both Acts:
- Merchantable quality - worth the money
- Fit for purpose - does its jobs.
HSC Topic Four: Employment Relations
Managing the ER function
* ALDI Supermarkets
* Individual store managers are expected to solve all instore problems - there is no ‘area manager' or specialist ER department
Key influences on ER
* Staff are rostered from week to week availability
* As most staff are Uni students, availabilities shift according to exams etc
* Flight Centre
* Staff are encouraged to report grievances to branch manager
* Complaints are dealt with through a formal procedure
* Flight Centre
* Managers work instore with employees
* Flight Centre
* Everyone must attend meetings regardless of scheduling
Training and Development
* All new employees undertake a 3hour orientation program
* Includes a tour and screening of a recent film - familiarity of the workplace
* A detailed handbook is provided to all new employees
Flexible Working Conditions
* Flight Centre
* Allows great flexibility on a ‘give and take' system
* Employees can take time off, but also must attend weekend meetings if scheduled
Legal Framework of Employment
The Employment Contract
* Cinema Award
* Industrial award with the parties involved being the company, union and Industrial Court
* Award is kept on premises at all times for quick reference
Types of Employment Contract
* People are employed on a full-time basis only
* ALDI believes full-time employees are more committed to the business
Definition and Causes
* Engineers want a 5.7% Ý in wages
* Qantas are disagreeing saying they have extra expenses due to soaring fuel costs
* “We will not compromise the future competitiveness of our business”
Types of Industrial Conflict
Overt - Strike
* Engineers strike due to wage conditions
* Aimed at causing disruption to services
Ethical and Legal Aspects
* S.A.F.E (Safe Airline For Everyone) OHS Management System
* Fatigue Management Program
* Policies associated with employments practices including recruiting, pay, promotions and terminations on basis of sex, religion etc
* Prohibits any form of harassment, joking or other abusive conduct
* Affirmative Action Policies are in place with the aim of ensuring all employees are provided with equal opportunities in recruitment, promotion, transfer, training and conditions of service
The Nature of Employment Relations
* Stakeholders in the employment relations process
Employment relations refer to the total relationship between and employer and employee and incorporates all issues in the employer-employee relationship in the workplace including recruitment, equal opportunity, training and development and organisational structure.
An employer -
- Exercises control over employees
- Has responsibility fro payment of wages
- Holds the power to dismiss employees
An employee is under an employer's control, which may include:
- Location of the workforce
- The way in which the work is performed
- Degree of supervision involved.
* Managing the employment relations function
In larger enterprises line managers (specialist managers) are responsible for the management of staff. Line Managers may also be trained in legal compliance such as OHS, EEO and workplace resolution of conflict.
Key Influences on Employment Relations
Changing work patterns including -
- Contracting or outsourcing
- Smaller permanent workforce and hire casual/ temp employees Part-time and casual employees are 27% of the workforce today
- Flexible working hours for flexible working arrangements
Population Shifts - women now comprise 44% of the workforce and have a 70% participation rate (proportion of women aged 15-69 employed or actively looking for work).
Overview of Major employment legislation
Employment contract creates obligations for both employer and employee and ensure all businesses operate within a legal framework of common law and statute law (law passed by federal and state parliaments in Acts).
New Organisational Behavioural Influences
Flat management and Team structures are becoming popular as the offer employees sharing management functions which creates opportunities for employee empowerment and leader ship.
The Economic Cycle - The demand for labour is determined by the demands for goods and services within the economy.
Globalisation -Globalisation is creating interest in the management of diverse workforces at an international level seeing transnational companies introduce standardised global management employment contracts for all countries in which they operate.
Effective Employment Relations
· Communications system
Grievance procedures acknowledge that employment relations are a two-way communication process. Procedures are mainly used to deal with personality conflicts and disciplinary matters that ensure issues do not develop into a serious dispute.
Workers participation is used to improve communication, empower employees and to develop commitment to achieving quality and efficiency.
Team Briefings - quality circles are used for employees to meet to discuss and analyses and resolve problems such as safety and quality within the business.
· Rewards (intrinsic-non-monetery, extrinsic - money)
Rewards system should motivate staff and to be equitable, communicated, consistent, relevant and cost effective, managers can also link rewards with performance and skills recognised with other employees, analysis of stats and surveys compiled by recruitment agencies.
· Training and Development
The aim for training is to seek a long-term change in employee's skills, knowledge, attitudes and behaviour in order to improve work performance in the organisation (44% of employees who had worked for their employer for longer that 1 year received some kind of training ABS 1998). Induction programs are used to introduce the new employee to the job, co-workers, the organisation and environment. A well-prepared induction program includes, promoting a positive attitude, building confidence and promotes working relationships. Training programs ensure that all staff are retrained and all motivation and commitment is enhanced through promotional opportunities for all employees over the longer term.
· Flexible working conditions
Flexible Working Conditions are patterns of work that allow a business to run more efficiently and balance work, increase moral and family responsibilities effectively.
· Measures of effectiveness
Quantitative measures effectiveness in economic terms (costs and profits). Key measures include - vacancies in labour, time lost/costs of injuries and sickness etc.
Qualitative evaluation involves detailed feedback and research on key issues which slows judgements to be made about changes including - feedback from supervisors, customers, employees, performance appraisals and industrial disputes.
Legal Framework of Employment
· The employment contract
An employment contract is a legally binding, formal agreement between employer and employee
ER in the workplace is governed by:
Common law - is developed by courts and tribunals. Under common law judges make decisions based on the facts of a case, guided by precedent (decisions made in the past
Awards are legally binding agreement, which sets out minimum wages and conditions of employees. The difference between state and federal awards are the way they apply to employers. State awards apply to all employers employing someone in an industry or occupation covered by a n award. Federal awards are binding on all employers who are respondent (linked) to the award.
Agreements - Employees may be covered by certified enterprise agreements (CA'S) or Australian Workplace Agreements (AWA'S). Union or non-union collective certified agreements and AWA'S co-exist with awards that mean that an award remains a safety net. Any agreement made must not disadvantage the worker overall in relation to the relevant reward.
Types of employment contracts
Casual work, Part- time Flexible employment and Permanent employees
· Definition and causes
Industrial dispute is defined as a withdrawal from work by a group of employees, or refusal by an employer or a number of employers to permit some or all of their members to work. Perspectives on conflict:
- Unitary approach assumes stakeholders such as employees are their employers work ‘hand-in-hand' to achieve shared goals
- Pluralist Perspective active roles played by unions and employer associations and the framework developed by the government. This approach sees conflict as a legitimate outlet for pressures and tensions between stakeholders and their competing interests.
- Radical Perspective (Marxist approach) recognises conflict as inevitable and reflects the traditional view of an ‘us-versus-them', conflict-based relationship between employer and employees.
· Types of industrial action
Overt (highly visible) - lockouts, pickets, strikes, work bans, work-to-rule (refusal to perform duties)
Covert (covered) - absenteeism, sabotage, turnover, exclusion from decision-making
· Roles of stakeholders in resolving disputes
- Governments - provide institutions, policy and legislative framework
- Trade Unions - represent employees by negotiating with management. Employers and associations
- Anti-Discrimination Board (state) - ensure all cases on anti-discrimination are resolved through provision of information, investigation and conciliation.
- Civil Courts - enforce legislation and handle common law actions
- Industrial Tribunals (AIRC) - provide arbitration and conciliation for resolutions and unfair dismissal
- Human Rights Commission (federal) - monitors and reviews legislation to do with human rights, investigates treatment in the workforce. Refers complaints to the federal court.
· Dispute resolution processes
When disputes develop the following dispute methods can be used:
- Workplace negotiations with a supervisor
- Grievance procedures
- Stop-work meetings
- High level negotiations
- Parties may take common law action
- Business could close
- Parties may resign, be dismissed or transferred
Conciliation is when a dispute cannot be resolves and may be referred to a third party to hear both sides of the story. The commissioner calls a compulsory conference and attempts to help both sides reach an agreement. Is conciliation fails the dispute is referred to arbitration.
Arbitration occurs when a judge (AIRC Commissioner) or a panel of judges who hear both arguments in a dispute in a formal matter and a judgement is handed down based on merits of evidence that becomes legally binding on all parties.
Mediation is the confidential discussion of issues in a non-threatening environment, in the presence of a neutral objective third party and is more recently used as a first step in their dispute resolution or grievance procedures.
Common law action is open to any party involved. Parties may make direct claims for damages caused by the parties taking the action, or for breach of contract resulting from such action.
Business closure of the establishment permanently or temporarily may be a resolution or outcome for a dispute or some firms outsource some of the functions of the business to divide productivity.
Ethical and Legal Aspects
· Issues in the workplace
Fair working conditions can be achieved through:
- Implementing change with agreement of employees
- Compliance with social justice and industrial legislation (OHS, Anti-discrimination etc)
- Providing a safe and healthy working environment, equipment, supervision and training
- Provide study leave and training opportunities
- Offer rewards and benefits
- Create challenging, interesting, meaningful work to stimulate staff
- Establish a code of practice
- Evaluate and benchmarking performance
In 1985 the National Occupational Health and Safety commission Act 1953 the following is required
- Employers must ensure the health, safety and welfare at work for all employees (site, equipment, safe system of work)
- All employers must take out workers compensation
- Employers must take steps to ensure that people on site who are not employees are not exposed to risk.
NSW Workers Compensation Act 1987 and NSW Workplace Injury Management and Workers Compensation Act 1998, benefits are payable if employees experience total or partial incapacity to perform work, need medical attention, hospital or rehabilitation treatment. Common law redress can also include an employee taking legal action against an employer within 6 years of the injury if the employer did not take reasonable steps in providing welfare of the employee.
Strategies used to eliminate discrimination include:
- Written and communicated policies
- Training staff in cultural diversity issues
- Appointing a grievance officer and specify grievance procedures
- Actively evaluate implementation and effectiveness of policies
Agencies that offer support for Anti-Discrimination cases include;
- Human Rights and Equal Employment opportunity Commission (HREOC)
- Anti-Discrimination Board (NSW)
Strategies firms can use to improve equality include:
- Developing a policy statement to inform all staff that an affirmative action program can be initiated
- Developing a code of practice
- Implement a system to gather, monitor and evaluate statistics
- Training staff in EEO awareness
- Keeping staff aware of vacancies or opportunities within the business
- Conduct exit interviews for reasons for employee resignation.
Unfair Dismissal refers to the termination of an employee on unfair grounds. There are three ways, which an employee may be dismissed:
1- Summary dismissal based on serious breach of employment contract e.g theft, fraud, intoxication
2- A dismissal ‘on-notice' is based on failure to perform job adequately
3- Dismissal due to employee no longer being needed known as retrenchment or redundancy.
‘Workplace relations Act 1996' objective is to create a system, which gives access to cheap, simple and fair process of appeal.
HSC Topic 5 - Global Business
Global Business Strategy
Methods of International Expansion
Foreign Direct Investment
* Joint Venture Strategy
* A contractual agreement between SB and SAZABY, a Japanese retailer and restauranteur, who provided them with intimate understanding of the way the Japanese viewed food, coffee and food industry
Relocation of Production
* Production to SE Asia and China
* Response to economic and financial influences
* Although they operate separately, Jetstar's strong association with Qantas provides the airline with access to Qantas's intellectual properties and ability to take use of Qantas's already successful business plan.
Reasons for Expansion
Increase Sales/Find New Markets
* Targeting the leisure market through Jetstar
* Previously unserviced routes
Acquire Resources and Technology
* OneWorld Alliance
* Expansion into Europe, America and South America through codeshare options
Minimise Competitive Risk
* Tiger Airways offering budget Aus to SE Asia fares
* Introduce budget Jetstar brand to same routes
Cushioning Economic Cycle
* Domestic customers may be less likely to purchase the expensive product
* Expanding route network increases customers from other locations too, who are looking to travel to Australia
Specific Influences on Global Business
* Air Services Agreements
· Under the Australia-Germany agreement, Qantas can operate a certain number of services to a selection of points in Germany, and under the Australia-Singapore agreement, the airline can operate services beyond Singapore to Germany. Qantas combines these rights to operate its daily flights to Frankfurt and carry traffic between Australia and Germany, including passengers departing or joining the aircraft in Singapore.
* Must secure many contracts with overseas businesses for services such as maintenance, catering, cleaning and airport operations like check-in and customer service.
* Contracts with aircraft manufactures regarding delivery dates etc
* Using arbitration as a mechanism of dispute resolution, instead of litigation, is both cheaper and less time consuming
* Trademark - registration of their own trademark increases protection
* As a coffee product, someone or some group can easily pass off a product as a Starbucks coffee
* Flight Attendants who are the front line of the business must be multi-lingual to increase business-customer relations
* Many flight attendants speak Cantonese, French, German, Italian, Japanese, Korean, Malaysian, Mandarin & Spanish
* Menu must be flexible enough to adapt to a country's individual tastes
* Eg. McOz Burger in Australia
* If they were to expand into a predominantly Jewish country, trading would be forbidden on Saturdays - the Sabbath
* Food and beverages must be “kosher”
Managing Global Business
Methods of Payment
* Payment in advance for the airfare
* Low credit risk, leaving the airline in control
* Uses hedging as a means of offsetting losses arising from foreign currency translations
* The money gained or lost through such translations are recorded in the foreign currency translation reserve in the Balance Sheet
* Manages foreign exchange risks through use of forward exchange contracts and the interest rate risks through interest rate swap contracts
* Risk minimisation strategy that covers unforseen losses arising from currency conversions and losses in normal business operations
Research of Market
* Qantas may collect personal information when you deal with them over the telephone, send them correspondence (whether by letter, fax or email), visit their web sites or when you have contact with them in person.
* Such information could be useful when analysing the demographics of passengers on a particular route.
* Coca-Cola Amatil, McDonalds, Google, Nike
* Among the world's most recognised brands and logos
* Differentiated: Domestic - CityFlyer
* Standardised: International and Domestic - both campaigns stress customer service and operational excellence Operations
* Outsourcing operations such as maintenance to lower cost facilities in Malaysia
* Set up a machinery service and supply centre
* Equipment servicing, purchase and maintenance can be done in-house
* Results in consistent and reliable operations
* Different components of the new A380 were manufactured around the world and transport to France
* Divides its board into different sections - Services, Freight, Maintenance etc
* Increases efficiency of each section
* The Qantas Group employs approximately 36,000 people and offers services across a network covering 140 destinations in 37 countries - 57 in Australia and 83 in other countries (including those covered by codeshare partners) in Australia, Asia and the Pacific, the Americas, Europe and Africa.
* Qantas also runs a Cadet Pilot Program to equip graduates with the necessary skills to be employed as a Qantas pilot
Labour Law Variations/Minimum standards of labour
* There are locations in which Domino's operates that have minimum standards of labour to which they adhere. This is in line with maintaining a strong global brand and image of the business
* Qantas follows an ethnocentric approach to staffing, where all key management positions at all company locations are filled by parent company personnel (Qantas).
Management Responsibility in a Global Environment
* Supports local community by purchasing local products through local suppliers
* Qantas has set a target of 7.5% improvement in aviation fuel efficiency by June 2011.
* In September 2007, the Qantas Group launched a Carbon Offset Program that allows Qantas and Jetstar passengers to offset their share of flight emissions when making a booking
* JetLite airfares
· Nature and Trends
- Financial and capital markets - more mobile and flows between countries, since the 1970's which many countries phased out their controls on foreign exchange trading.
- Labour markets - become less global in the last 60 years. Due to political barriers the flow of people is more restricted and restrictions are placed on the movement of low or unskilled labour.
- Consumer markets - countries are achieving cost savings by specializing in products they can produce efficiently resulting in cheaper prices on the world market, which generates increased sales in existing markets. Technology and communication advances have also changed consumer markets due to businesses being able to reach much larger markets.
· Trends in Global Trade since World War II
No area has changed more then that of global trade. Large growth in merchandise exports that are the sale of domestically made products to customers in another country.
1945 - 1960 - US domination of global trade 1960 - 1980 - Japan and Europe re-emerge and rebuild after war 1980 to present - the global marketplace
* Drivers of Globalisation
- Transnational corporation (TNC) are any business that has productive activity in two or more country and which operates on a worldwide scale. It attempts to combine the benefits of economies of scale with the benefits of responding to local conditions.
- Global customers
- The impact of technology
- The role of government
Government have promoted international trade by trying to reduce trade barriers through Trade Agreements: Trade agreements create the conditions in which trade can occur more freely.
Policy Changes- Privatization and Deregulation: By deregulating domestic financial markets, as well as the privatizing many domestic financial industries, the government has pushed the national economies with the global economy.
- Deregulation of financial markets:
Deregulation is the process of removing government regulations from industry in order to achieve efficiency though greater competition.
The deregulation of financial markets has opened national markets to global investing, borrowing and has increased the flow of international trade. In this case it has enabled more overseas businesses to establish operations in other foreign nations.
Global Business Strategy
* Methods of International Expansion:
- Foreign Direct Investment:
Foreign Direct Investment: occurs when a business from one country owns property, assets or business interests in another country. E.g (Acquisition strategy) takeovers or mergers, (Greenfield strategy) involves commencing a new business venture from scratch, or a joint venture.
- Relocation of production:
Relocation of production involves shifting an entire business function offshore. Relocation of production occurs when the domestic production facility closed down and then set up in another country to reduce labor costs, to get around trade barriers or to be closer to customers.
- Management Contract:
Management contract is an arrangement under which a global business provides managerial assistance and technical expertise to a second or host business for a fee. This method of entry allows the global business to operate in many foreign countries without the expense of production facilities.
Licensing: An arrangement in which one business permits another licensee to produce and market its products, copyright and intellectual properties for a fee.
Franchising: An arrangement where one business sells another the right to use its operating methods, products, trademark and practices in return for a fee.
Reasons for international expansion:
- Increase sales/find new markets:
- Minimize Competitor's risk:
- Gaining Economies of scale:
Economies of scale: reduction in costs of production that arises from increasing the size or scale of the production facility and spreading fixed costs over a larger output.
- Accessing technology
- Acquiring resources:
Businesses go global to access resources such as raw materials, labor or technology if they are unavailable or too expensive domestically.
- Cushioning the economic cycle:
Economic cycle: Cynical pattern of fluctuations in spending.
By spreading sales in more than one country, a business will be less exposed to changes in demand in any one market because of the differences in the timing of the economic cycles in different countries; while sales may fall in the home country in recession, they increase in another.
Businesses diversify markets and suppliers by developing global markets so that they can avoid swings in sales and profits in any one market. This then makes them less vulnerable to economic or competitive threats in any one market.
- Tax Minimization:
Businesses try to maximize their after-tax profit by locating their activities in countries (tax havens) with favorable taxation laws. Thus increasing their net profit after tax and return on investment.
- Regulatory Differences:
Domestic laws may directly and indirectly affect the ability of the business to compete in its home environment, as the government has put in place many regulations.
Specific influences on global business
· Financial Influences:
- Currency Fluctuations:
When costs and revenues are transferred between nations, the exchange rate can further increase or decrease the value of net profit for a global business.
Types of risks:
- Transaction exposure occurs when currency fluctuations can affect the financial costs of revenues of an overseas business transaction. Thus a business agrees to buy a product from another business valued at a certain price in June, which is then payable in November.
- Economic Exposure is the impact of unexpected exchange rate changes the value of business operations. Thus can affect a business's overall sales and profitability. Therefore the products become more expensive in foreign markets, which results in a loss of profitability.
- Interest Rates:
Interest rates are the price, expressed as a percentage per annum for borrowing or lending money. Low interest rates mean that the cost of borrowing falls, allowing businesses to expand their activities either domestically or internationally more easier.
- Overseas borrowing:
- Rate of interest can be cheaper
- Finance may be acquired more quickly and easily
- Fewer restrictions such as on the amount that can be borrowed, the repayment period or the conditions of the loan
When borrowing overseas, a business will use the international capital market. This can be because they cannot raise funds from banks or investors in its own country.
International capital market is a network of individuals, businesses, financial institutions and governments that invest and borrow across national borders
· Political Influences:
Political risk is any political event, which results in a drastic change to the country's business environment, thus having a negative impact upon businesses operations and profits
- Tension between protectionism and free trade
Protectionism is the practice of creating artificial barriers to free trade in order to protect domestic industries and jobs. Protection reduces the amount of goods and services traded internationally.
Tariffs: Tax on imported goods, which lead to an increase in prices. The effect of this makes the domestic produced goods more attractive.
Quotas: A restriction on the amount of imported goods that can enter the country. The effort of this is to limit the number of imported products available, thus leading to an increase of the price.
Subsidies: Financial assistance given by a government. The effort of this is to reduce the domestic producer's costs of production, making them more competitive.
Free trade: the reduction/removal of trade barriers between countries.
- International organizations and treaties (WTO)
- The General Agreement on Tariffs and Trade (GATT) was formed in 1948 to promote free trade by reducing trade barriers.
- Was successful in early year because it reduced tariffs on manufactured goods and also it promoted international trade.
The World Trade Organisation
- Created on 1 January 1995 and had the power to enforce international trade agreements
- It is the role of the WTO to implement and advance global trade agreements and to resolve trade disputes between countries.
- Encourages the development of multilateral trade agreements, which have contributed to lowing trade barriers in the world.
- Trade Agreements:
A trade agreement is a negotiated relationship between countries that regulates trade between them. Many governments have entered into either bilateral or multilateral trade agreements with other countries, which are used for the interests of the domestic producers and to help improve trade relations, which consequently has promoted international trade.
Multilateral trade agreements are agreements between two or more countries where trade barriers are removed or lessened.
Bilateral agreements: Trade between two countries that under specific agreements that give each country some benefit.
Regionalism means that there is a focus on securing trade agreements between groups of countries in a geographic location.
Regional economic integration: is the process whereby countries in a geographic region work together to reduce international trade barriers.
Regional Trading Bloc is a group of nations in a geographic region undergoing some form of economic integration.
- War and Civil Unrest:
· Legal Influences:
Trade agreements are the nearest things to international laws. Employees who are working in other countries should then be alert to avoid breaking local laws.
A contract is a legally enforceable agreement. It outlines the details of the agreement and the rights and obligations of each of the parties involved. Most global business dealings involve some form of contract.
Legal systems of countries can fall into one of three categories:
- Common law: is based on traditions, custom and previous court decisions. (Also has an element of civil law). They tend to be very detailed with all potential situations
- Civil law: is based on a very detailed set of laws governing the way of conducting business. They tend to be shorter and less specific, because many of the issues are already included in the civil code.
- Theocratic law: is based on religious rule.
- Dispute Resolution:
Resolving a dispute between residents of two or more countries can be complicated due to differences in legal systems and culture.
- Intellectual Property:
Intellectual Property is the assets that result from a person's intellectual effort.
They Include Brand names, Trademarks and Copyright.
It is expensive for a business to register its intellectual property in every country. Also, not all countries enforce the laws strongly, if at all, as they are not given a high priority. Thus if not protected, other countries can produce under the same brand name and can result in loss of sales and reputation for the business. The WTO sets detailed minimum standards of protection that each member nation must provide through its agreement on trade-related aspects of Intellectual property rights.
· Social and Cultural Influences
- Varying Business practices and ethics - negotiations, bribes etc.
Managing Global business
* Financial Management:
- Credit risk:
A great fear for new exporters is that they will not be paid for their goods or importers will not receive their goods after payment. Credit risks can be reduced either by researching the potential customers, various payment methods or through insurance. A letter of credit reduces the level of risk to an exporter completely because it guarantees payment from the importers bank.
- Methods of payments:
Payment is sent to the exporter by mail, electronic transfer or bank drafts. In this case the, method allows the exporter to receive payment and then arrange for the good to be sent. However few importers will agree to this, because it exposes them to the most risk.
Open account is the method of payment where an exporter delivers the goods and later bills the importers. Exporters will use an open account only when they have developed a long relationship or if they are related businesses
Hedging is the practice of protecting the business from adverse changes in exchange rates by entering into a contract at the present time to buy or sell foreign currency at a specified exchange rate on a given date in the future.
Derivatives are simple financial instruments, which are used to lessen the risks associated with currency fluctuations.
Types of Derivatives:
- Forward contract: Agreements to buy currency at a specific rate on a given date in the future. Thus the importer will know the price of the goods prior to sale, regardless of changes in exchange rates.
- Foreign-Currency option gives the purchaser the right, but not the obligation, to buy or sell a certain amount of foreign currency at a set exchange rate within a specified date in the future.
The Export Finance and Insurance Corporation (EFIC) aims to provide insurance for exporters in the case they do not receive payment for their goods. It also insures Australian overseas investments against political risks such as civil unrest, revolutions and foreign exchange restrictions.
The Australian government helps by providing grants through the Export Market Development Grants scheme to offset marketing costs incurred when entering or developing export markets.
- Research of Market:
Businesses marketing on a global scale needs to rely on market research (primary and secondary) so that they may understand the environment they are working in. It needs information to make specific marketing decision, such as the price to charge, the type of packing necessary, the products wanted and any product characteristics needing modification.
- Global Branding:
A global brand is a brand name that is used in all markets around the world. A global brand will always have the same positioning around the world, although the marketing mix might vary from country to country.
- Standardization and differentiation
Standardization means offering a common product on a worldwide basis.
Differentiation: Differentiated approach is an international marketing strategy that assumes the way the product is used and the needs it satisfies are different between countries.
Sourcing is the set of processes and steps a business uses to acquire the different resources it needs to make its own products
Sourcing strategy: One of the first decisions to be made is where and how to obtain the resources needed by the business. A sourcing strategy is usually developed which determines the appropriate level of vertical integration.
- Vertical integration refers to the extent to which the business either provides its own inputs or buys them from other sources. Level of V.I is based on whether management decides to make the inputs itself or buy them from other suppliers.
· Employment relations:
- Organisational structure:
Organisational structure refers to the way in which a business divides its activities among separate units and coordinates activities between those units. This structure defines how individuals and organizational units are grouped to carry out business activities.
Centralized decision-making is the extent to which decision-making is centralized at a high level in one location, such as the headquarters.
Decentralized decision-making: is the degree to which decisions are made by individual subsidiaries
As subsidiaries are closer to local markets they will have a better understanding of the local culture, demands, competitors and laws. Thus they are able to pick up on any changes quicker and adapt to them faster and better then a centralized structure.
Types of organizational structure:
International division structure: International division structure is one that separates domestic operations from international by creating a separate international division with its own manager.
International area structure: Under an international area structure, the business's entire global operations are organized into countries or geographic regions. Under this structure, each geographic division has its own set of operations, marketing and employee relations but the parent-company makes decisions on overall corporate strategy and coordinates the activities of various units
Management positions require people who are preferably bicultural, able to appreciate and understand the business practices and customs in the host country, and who can speak the language of both home and host countries.
- Shortage of Skilled Labour
To overcome shortage of skilled labour a global business many employ an expatriate (a citizen of one country working in another) to manage the operation until local people can be found and trained.
- Labour Law Variations
- Staffing systems
There are three approaches to staffing:
- The ethnocentric approach to staffing is one in which all key management positions at all company locations are filled by parent company personnel.
- A Polycentric approach to staffing is one in which personnel from the host country manage the subsidiaries, which the parent company personnel fill the key roles at company headquarters
- A Geocentric approach to staffing means seeking the best people for key jobs throughout the entire organisation, irrespective of nationality.
* Evaluation of Strategies
Management Responsibility in a Global Market
* Ethical Practice
Tax havens save a business millions of dollars, which benefits stakeholders. However, decrease the tax revenue available to the country, which help solve social problems such as poverty and unemployment.
Transfer pricing allows a business to obtain a profit from both the seller and the buyer. Not only is the profit hidden, but the manipulation of the transfer price also reduces customs duties and important tariffs for example buying products from a subsidiary at lower than market prices
- Minimum Standards of Labour
Labour standards refer to those conditions that affect business employees, or those of its suppliers, sub-contractors, or other in the production line. Developing countries sweatshop conditions raise ethical issues of labour standards. Human rights codes of conduct can implemented to ensure and insist that all suppliers adhere to labour standards.
- Dumping Illegal Products
Due to weak health and safety laws in developing countries transnational corporations use vulnerable markets as a means of disposing of harmful or illegal products that cannot be sold in other markets such as harmful chemicals, poorly designed machinery and inappropriate foodstuffs.
- Ecological Sustainability
Ecological sustainability is a growing pressure for businesses to adopt environmentally friendly practices. Modern environment problems effect the management of a company and other activities. Decisions regarding the location of production facilities, the development of product lines and the type of raw materials that are used in production are all affected by environmental considerations.