HSC Business Studies Course Notes

Topic 1: Operations

1.1 Role of Operations Management

1.1.1 Strategic Role: Cost Leadership & Good/Service Differentiation

- Generally, the overarching goal of a business is to maximise profits by maximising
income/revenue or minimising costs/expenses
- Businesses should identify cost centres and profit centres
- The Ops function is a cost centre of the business ∴ a strategic aspect of Ops
management is the management of costs
- Cost Leadership: Aiming to have the lowest costs or be the most price-competitive in
the market
- Types of costs: Input costs, labour costs, processing costs, inventory costs,
quality management costs, etc.
- Possible methods: source cheaper inputs, use technology (long-term benefits, no
HR costs), standardisation / economies of scale (lower per unit input costs)
- Ops managers must strike the balance between cost and quality for maximum
profitability
- G/S Differentiation: Distinguishing a businesses products from that of its competitors
- Goods: tangible, ownership can be transferred through sale, can be
standardised/customised, can be perishable, value is objective (based on inputs)
- Services: production and consumption is simultaneous, intangible, cannot be
owned, can be standardised (e.g. customer greeting) / customised (e.g. haircut),
value is subjective
- Sometimes G/S are closely aligned e.g. fast-food is a G, but customer service /
delivery is S
- Cross Branding: Differentiation can be created from strategic alliances between
brands, this adds value to G/S by offering consumers added benefits

Differentiation of Goods Differentiation of Services

Vary Actual Features Varying Amount of Time spent on a Service

Vary Product Quality Varying Level of Expertise Brought to a
Vary Augmented Features (i.e. ‘extras’) Service
Developing Self-Service Options
Varying Quality of Materials / Technology
Used
Flexibility

1.1.2 Goods and Services in Different Industries

- Goods can be standardised or customised → customised goods are generally more
expensive
- Perishable/non-perishable → Grocery sector dominated by perishables, requires high
standards of quality and cleanliness, very short lead times, suitable packaging and
storing processes
 - Intermediate goods are processed more than once (first for their creation, then as an
input)
- Services can be standardised (e.g. fast food service) or customised (e.g. haircut,
accountant)

1.1.3 Interdependence with Other Key Business Functions

- All KBF work in synergy (the whole is greater than the sum of all the individual parts)
- Ops and Marketing: Marketing uses customer data to formulate product designs, ops
creates these goods / carries out these services
- Ops and Finance: Finance allocates funds for ops, funding all inputs
- Ops and HR: Employees are a business’s most valuable asset, carry out ops processes

1.2 Influences

1.2.1 Globalisation
- Businesses can access global markets and tap into unmet customer demand
- Significantly affects the operations function which is then structured around a series of
global production facilities
- Product design, choice of location for manufacturing facilities, quality
management, logistics, inventory management must all be altered
- Global consumers seek standardised G/S
- Opens the possibility of off-shoring, outsourcing and economies of scale

1.2.2 Technology
- The introduction of technology revolutionised operations processes
- For a high initial cost, businesses can reduce long-term costs while increasing
standardisation and quality standards
- CAD (Computer-Aided Design), CAM (Computer-aided manufacturing), CIM (Computer-
Integrated manufacturing) are all examples of technology used in operations processes
- Globalisation has been made possible as a result of technological advances

1.2.3 Quality Expectations

- People’s personal levels of satisfaction with their purchase will determine whether or
not quality expectations have been met
- Goods: Quality of Design (nature of materials used, taking into account customer
expectations/needs), Fitness for Purpose (ease of use, effectiveness), Durability (ease
of maintenance, efficiency of after-sales services)
- Services: Professionalism of the service provider (cleanliness + layout of physical
facilities, courtesy + professionalism of staff dialogue/interactions), Reliability of the
provider (efficiency of service, overall levels of competence), Level of customisation

1.2.4 Cost-based Competition

- Opportunities for price increase are limited, so reducing costs is a way to maximise
profits
- Cost leadership approach, must strike the balance between cost and quality
1.2.5 Government Policies and Legal Regulation
- WHS, material handling practices, taxation rates, industry training requirements,
employment relations, etc. are all government policies / legal regulations affecting
operations
- Other examples: fair work laws, anti-discrimination laws, environmental protection laws
- Compliance = the range of laws with which a business must comply
- Businesses incur compliance costs which can be reduced through outsourcing / off-
shoring

1.2.7 Environmental Sustainability (Ecological Sustainability)

- Three main aspects: sustainable use of renewable resources, reduction in the use of
non-renewable assets and the precautionary principle (see glossary)
- E.g. many businesses have moved towards the minimisation of waste (water, plastic,
glass, etc.)
- This is a huge factor nowadays because of social interconnectivity and societal
awareness

1.2.8 Corporate Social Responsibility (CSR)

- The Triple-Bottom-Line: Financial Returns + Social Responsibility + Environmental
Sustainability
- Placing importance on people, profit and place
- Outdoing legal compliance by tapping into ethical responsibility (towards
employees)
- E.g. working women and maternity protection, workplace diversity, safe working
conditions
- Combining environmental sustainability and social responsibility
- CSR contributes to a business’s reputation, increasing profits in the long-term

1.3 Operations Processes

1.3.1 Inputs
- Transformed Resources: Information, Customers, Materials (incl. Intermediate goods)
- Raw materials are essential substances in their natural (unprocessed) state
whereas intermediate goods have already been processed once and will be used
as inputs into another transformation process
- Information can be external (research from external sources) or internal (KPI
information, quality reports, financial reports, inventory turnover rates, customer
feedback, etc.)
- Transforming Resources: Human Resources (Labour), Energy, Time, Facilities (Plant +
Machinery)

1.3.2 Transformation Processes

1.3.2.1 Volume, Variety, Variation in Demand and Visibility (Customer Contact)
- High volume, standardised productions allow for efficient, automated production
- Low volume, customised G/S take more time, effort and money to produce
- Mix flexibility = range, variety of choice
- More variety = more deviation of operations processes = more time, effort, money, etc.
 - Variation in Demand must be followed as overproduction leads to wastage costs and
underproduction will result in unmet demand and a bad reputation
- Visibility / Customer Contact / Feedback through surveys, interviews, social media
posts, warranty claims, etc. (direct) and review of sales data, observation of customer
preferences (indirect) is crucial to shape transformation processes and maximise profits

1.3.2.2 Sequencing and Scheduling - Gantt Charts and Critical Path Analysis (CPA)
- Gantt charts and CPA are both scheduling tools
- Gantt charts can be used for simple routine tasks or for more complex, larger projects;
they can be used to schedule the work activities of an individual or a team
- Adv. of gantt charts: managers forced to plan steps and specify timeframe for each
task, make it easy to monitor actual progress against planned activities
- Critical Path is the shortest length of time it takes to complete all tasks necessary
(longest path)
- CPA Adv: enables managers to identify what needs to be done, how much time it will
take, if certain tasks can be performed simultaneously, the order of tasks, etc.

1.3.2.3 Technology, Task Design and Plant Layout

- Office technology and manufacturing technology (robotics, CAD, CAM, etc.)
- Through CAD, material usage and time required for production can be calculated
- The cost of technology is high in the short-term, but it has cost benefits in the long-
term
- Task design involves classifying job activities by grouping skills and competencies to
assist with staff recruitment (Job Description → Person Specification → Recruitment →
Selection)
- Sometimes a skills audit may be required to determine any shortfalls that need to be
addressed
- Process Layout: Equipment is grouped by function, suitable high-variety low-volume
production
- Product Layout: Assembly-line style production, repetitive tasks for employees, suitable
for low-variety high-volume production
- Fixed-position layout: Product remains in one location due to weight/bulk, e.g.
construction
- Office Layout: self-explanatory, consider hot-desking, open plans, etc. (effect of COVID-
19)

1.3.2.4 Monitoring, Control and Improvement

- Monitoring: Measuring actual performance against planned performance
- Measuring stuff like lead times, inventory turnover rates, defect rates, warranty
claims
- Control: KPOs are assessed against predetermined targets, corrective action is taken if
required
- Manager will decide what aspects of the production process to change and how
- Improvement (self-explanatory)

1.3.3 Outputs
- Alongwith G/S, customer service and warranties are also outputs
- Businesses capable of providing superior customer service / satisfaction can charge
10% more for the same G/S, grow 2x as fast as competitors, increase market share &
profits
 - Bad customer service: 1 angry customer will tell 11 others, who will tell 5 others (bad
reputation)
- The number of warranty claims will indicate problems in processing

1.4 Operations Strategies

1.4.1 Performance Objectives (KPOs)

- Quality of design / conformance / service
- Speed: G/S should reach customers as fast as possible, with short lead times, efficient
processes
- Dependability / Reliability: Measured by number of warranty claims, durability, etc.
- Flexibility: How quickly an operations process can adjust to changes in the market
- Customisation: Including mass customisation (mass produced items with customised
tweaks)
- Cost: Minimisation of expenses, balancing cheap with quality

1.4.2 New Product or Service Design and Development

- New products can be developed by identifying demand through market research or
through changes in technology which enable the production of new products

- Quality, supply chain management, output and cost (value / product utility) must be
considered
- New service designs are generally initiated by clients and are customised
- Explicit (obvious, what you’re paying for) and Implicit (customer service) service are
both important

1.4.3 Supply Chain Management

- Logistics: Distribution including transportation, storage (warehouses aka distribution
centres) and materials handling/packaging
Warehousing costs include damage costs, wastage/redundancy costs, theft costs,
insurance + security costs, etc.
- Warehouses and distribution centres are strategically located to minimise
transport time
- Materials handling is important for perishable goods and chemicals
- E-commerce: the buying/selling of G/S via the internet
- B2B and B2C e-commerce has grown exponentially, customers+business
connected
- Global Sourcing: Sourcing inputs globally based on consumer demand, quality of inputs
required, cost and flexibility/timeliness of supply, timezone differences

1.4.4 Outsourcing
- The use of external providers to perform business activities so as to access their
expertise, allow the business to focus on core operations, or reduce costs
 - Types: Business Process Outsourcing (BPO), Finance and Accounting Outsourcing
(FAO), Knowledge Process Outsourcing (KPO), Legal Process Outsourcing (LPO)
- Adv: Simplification, increased process capability, etc. (reduced load on core business),
efficiency/cost savings (can take advantage of cheap overseas rates), access to
skills/resources/knowledge lacking in the business
- Disadv.: communication barriers (if overseas), loss of control standards / information
security, reputation can be hurt if outsourcer has unethical practices, cost (can be
expensive in short-term), organisational change (resistant parties)

1.4.5 Technology
- Leading Edge (most advanced/innovative at a point in time): can be used to get ahead
of competitors, design new products, etc. but also come with risks, untried/untested
technology
- Established technology is widely used and accepted, benefits/downfalls are well-known

1.4.6 Inventory Management

- Holding stock Adv.: Immediate revenue stream, ready to meet consumer demand,
reduced lead times, older stock can be sold at reduced prices and initiate positive
cashflow, economies of scale (bulk production reduces costs), stock is an asset
- Holding Stock Disadv.: Spoilage / wastage / theft / obsolescence costs, waste of
capital / labour / energy which can be used elsewhere
- LIFO Method: In times of inflation, will understate gross profits, good to reduce taxable
income
- FIFO Method: In times of inflation, will overstate gross profits, good to show
shareholders
- Note - FIFO and LIFO are both accounting methods
- JIT: An inventory management approach requiring a responsive operations function
with flexible processing, aiming to reduce costs associated with holding large amounts
of stock

1.4.7 Quality Management

- Control: Reactive approach, inspections for defects at various points during production,
defined quality standards must be in place, labour must be appropriately trained to
spot and report defects
- Assurance: Proactive approach, refining the processes themselves in accordance with
industry standards to prevent defective products
- (Continuous) Improvement: Changes in production processes to decrease defect rates,
improve efficiency, reduce costs, etc.

1.4.8 Overcoming Resistance to Change

- Financial Costs causing possible resistance to change:
- Purchasing new equipment
- Redundancy payments for employees replaced by technology
- Retraining costs for employees interacting with the new equipment
- Costs associated with reorganising plant layout
- Psychological barriers (inertia) → not wanting change for personal reasons
 - To manage: be proactive → prepare employees for the change, try and get widespread
support, manage the change by evaluating it thoroughly, may need to use change
agents (e.g. Kurt Lewin’s unfreeze-change-refreeze model)

1.4.9 Global Factors

- Global Sourcing (see 1.4.3)
- Economies of scale: cost reductions through bulk production, bulk sourcing → accessing
global markets will increase the scale of production and lower per-unit costs
- Scanning and Learning: Observe the global business environment and implement
possible strategies that are working for other people, also take feedback/ideas from
employees who have worked in other businesses
- R&D: Businesses should invest in R&D to continuously improve operations and come up
with new G/S to retain and attract new customers

Operations Glossary

Term Definition

Business The organised effort of individuals to produce and sell, for a profit, the
(BS) products (i.e. goods and services) that satisfy individuals’ needs and
wants

Operations The business processes that involve transformation or, more generally,
(Ops) ‘production’

Strategic Long-term broad aims affecting all key business areas, the strategic role
of each key business function (KBF) involves the managers of each
function contributing to the strategic direction / plan of the business

Profit Centres Those aspects of a business that directly derive revenue and profits

Cost Centres Specific areas/departments/sections of a BS to which costs can be

directly attributed

Cost Leadership Aiming to have the lowest costs or be the most price-competitive in the
market

Globalisation The removal of trade barriers between nations, characterised by an

increasing integration between national economies and a high degree of
transfer of capital, labour, intellectual capital (ideas), financial resources
and technology.

Technology The design, construction and/or application of innovative devices,

methods and machinery in operations processes

Quality How well designed, well made and functional goods are, and the degree
of competence with which services are organised and delivered

Cost-Based Derived from determining the breakeven point and applying strategies to
Competition create cost advantages over competitors

Environmental / To shape business operations around practices that consume resources

Ecological today without compromising access to those resources for future
Sustainability generations

Precautionary Where environmental impacts are uncertain, a business undertakes

Principle actions that are most likely to cause the least environmental impact

Corporate Social Open and accountable actions based on respect for people,
Responsibility community/society and the broader environment. It involves businesses
(CSR) doing more than just complying with the laws and regulations.

Inputs The resources used in the transformation (production) process

Capital-Labour Machinery and technology displace people by doing the work they do
Substitution

Transformation The conversion of inputs (resources) into outputs (G/S)

Lead Time The time it takes for an order to be filled from the moment it is made

Sequencing The order in which activities in the operations process occur

Scheduling The length of time activities take within the operations process

Improvement Systematic reduction of inefficiencies and wastage, poor work processes

and the elimination of any bottlenecks

Bottleneck A part of the transformation process that slows down the overall
processing speed / creates an impediment, leading to a backlog of
incompletely processed products

Customer How well a business meets and exceeds the expectations of customers in
Service all aspects of its operations

Warranty A promise made by a BS that they will correct any defects in the G/S
they provide

Inventory / The amount of raw materials, work-in-progress and finished goods that a
Stock business has on hand at any particular point in time

Topic 2: Marketing

2.1 Role of Marketing

2.1.1 Strategic Role of Marketing Goods and Services

- Maximising profits by maximising sales, increasing brand awareness and improving
customer satisfaction
- A business’s overarching goal is to maximise profits through maximising revenue or
minimising costs, marketing focuses on increasing sales and maximising revenue
- A Marketing Plan is required to detail strategies to sell products. It should identify:
- Who/Where the market is, why they buy the product and how often they will buy
it
 - Marketing is the revenue generating activity of any business, nothing is achieved until
a sale is made
- Satisfying existing customer wants should lead to repeat sales
- Role of the marketing plan: To make sure a customer base is created and maintained

2.1.2 Interdependence with Other Key Business Functions

- Mutual dependence between KBFs, synergy, etc.
- Marketing Concept integrated into marketing plan → integrated into all aspects of the
business
- Mktg & Op.: If the marketing plan requires a G/S to be ready by a certain date, op. will
need to make sure this happens
- Mktg & Finance: Mktg costs money, finances must be available e.g. for a new
advertising scheme
- Mktg & HR: The correct staff must be employed and trained to create the designed
G/S

2.1.3 Production, Selling, Marketing Approaches

2.1.3.1 Production Approach - 1820s to 1920s

- The Industrial Revolution sparked immense demand for goods, hence businesses in this
period concentrated on production because whatever was made was sold
- Production design was based on mass production techniques rather than customer
needs/wants
- No R&D, no marketing, no effort to sell, only production

2.1.3.2 Sales / Selling Approach - 1920s to 1960s

- After WWI, productivity increased, production became more efficient, businesses
started to catch up with consumer demand, competition between businesses increased
- Businesses increased their spending on advertised in newly developed technology such
as radio ad film, sales representatives were hired and trained to personally reach
thousands of people and convince them to buy the company’s products
- Still no R&D, marketing was secondary to production, not considering customers needs
at all

2.1.3.3 Marketing Approach - 1960s to Present

- In the economic boom after WWII, business began using the marketing approach
 - Focuses on finding out what customers want through market research, placing them at
the centre of all business activities and goals, aiming to develop long-term relationships
with customers
- Characterised by the importance placed on identifying and satisfying customer needs
in all parts of the business
- Customer-oriented approach → relationship starts with the sale, strive for customer
satisfaction
- Relationship Marketing is a key feature, creating customer loyalty with good customer
service, reward programs, etc. → increases reputation too ∴ good for customer
retention and attraction

2.1.3.4 Societal Marketing Approach - 1970s to Present

- Growing public concern over environmental pollution and resource depletion caused a
shift in the emphasis of marketing plans
- To improve their public image, businesses began a more socially responsible, moral
and ethical model of marketing → emphasis on maintaining the wellbeing of customers
and society

2.1.4 Types of Markets

- See ‘Market’ in glossary for 4 key features, six types
- Resource Market: Individuals/groups engaged in all forms of primary production (e.g.
mining, fishing)
- 8% of Australia’s economy, 60%+ of Australia’s exports ($264b+), large
purchasing power
- Industrial Market: Businesses/industries that purchase products to use in their
production processes
- Intermediate Market: Wholesalers/retailers who buy and resell finished products to
make a profit
- Consumer Market: Individuals who plan to use/consume the products they buy
- Mass Market: Standardised product, customers’ needs not considered, basic
food/electricity/water
- Niche Market: More common than mass, targeting a smaller group of consumers with
a shared interest in a specialised product, segmented demographics (e.g. young
women, the elderly, etc.)

2.2 Influences On Marketing

2.2.1 Factors Influencing Customer Choice

- Psychological: Perception, Motivation, Attitudes (beliefs), Personality / Self-Image,
Learning (past experience with the product)
- Sociocultural: Social class / socioeconomic status, Culture, Family/Roles,
Reference/Peer groups
- Economic: Boom (low unemployment, rising incomes, increased consumer confidence,
lots of marketing potential) & Recession (customers focus on cost-effectiveness,
marketing should emphasise value and durability)
- Government: Laws e.g. Competition & Consumer Act 2010 (Cwlth), Fair Trading Act
1987 (NSW)
2.2.2 Consumer Laws
- The Australian Consumer Law (ACL) was introduced in 2011 and replaced 17
existing national, state and territory consumer laws. It applies in the same way to all
Australian consumers and businesses
- The ACL is enforced by the ACCC/ASIC as a law of the Commonwealth, it is applied &
implemented through the Competition and Consumer Act (2010). Two major
purposes:
- To protect consumers against undesirable practices (e.g. misrepresenting the
contents of products or their place of production, misleading and deceptive
advertising)
- To regulate certain trade practices that restrict competition, the government
wants to ensure a number of businesses are operating in the same market at the
same time to encourage competition
- A breach of the CCA can result in heavy penalties: $10m, 3x value of the benefit
received, 10% of annual turnover in the past 12 months (whichever is greater) +
reputation damage + legal fees
- Deceptive and Misleading Advertising - ILLEGAL:
- Bait advertising: Advertising a product available in limited quantities, then
switching customers to a higher priced item
- Fine print: The small-sized print must not contradict the overall message of the
advertisement
- Comparative Advertising: If a comparison is made to competitors’ products, it
must be valid, accurate and factual
- Environmental Claims: Must be factual
- Country of Origin: Must be factual
- Premium / Credence Claims: Must be substantiated and not misleading (e.g. ‘fat
free’)
- Prize Giveaways / Competitions: Customers must not be misled about the items
on offer or the chances of receiving them, any catch must be clearly
communicated at the outset
- Dishonest Advertising: straight up lies
- Price Discrimination - NOT ILLEGAL: Setting different prices for the same G/S for
different buyers
- Based on the seller’s belief that people of a certain demographic can pay
more/less
- Illegal only if there is a misuse of market power or it substantially reduces
competition
- Implied Conditions: Conditions not needing to be explicitly mentioned in a contract.
Products must:
- be of acceptable quality (see definition in glossary) -G
- match the description of the salesperson / promos / packaging -G
- match any sample / demo model you asked for -G
- not carry any hidden costs -G
- meet any extra promises made about performance, quality (e.g. lifetime
guarantees) -G
- have spare parts / repair facilities available for a reasonable period after
purchase -G
- be fit for the purpose the business said it would be fit for -G/S
- be delivered within a reasonable time frame -S
 - provided with acceptable care + skill or technical knowledge, taking all
necessary steps to avoid loss and damage -S
- Warranties: Business-made promise to correct any defects in the G/S they sell
- Use of warranties can be a marketing tool
- Businesses must state clearly and simply the T&C’s of a warranty
- Ensures the customer has confidence in the quality of the product
- False/misleading statements ILLEGAL
- Refunds + Exchanges are allowed if a product is faulty, not if you change your
mind

2.2.3 Ethical
2.2.3.1 Ethical Criticisms of Marketing
- Materialism: Companies create needs by trying to convince consumers that they need a
product
- Use of stereotyping: Negative stereotypes can be perpetuated if they are used in
advertising
- Use of sex to sell products: Unrealistic body goals are used to attract consumers
- Product Placement: Blurs the line between entertainment and commerciality
- Invasion of Privacy: Collecting data on consumers’ online activity and using this to send
targeted ads or even selling this data to other companies

2.2.3.2 Truth, Accuracy and Good Taste in Advertising

- Concealed Facts: Unethical but not illegal, most customers don’t fully believe ads
anyway
- Puffery: Exaggerated claims that no reasonable person would take as factual e.g. ‘best
in town’
- Vague Statements: Using ambiguous words to get the consumer to infer the company’s
meaning without explicitly saying it, often done to avoid being classed as ‘misleading’
e.g. “helps …”
- Generally, ‘bad taste’ in advertising is associated with offensive messages or
inappropriate ads
- The AANA Code of Ethics must be followed

2.2.3.3 Products That May Damage Health

- Consumer guarantees as part of the ACL give customers the right to a refund if a
product is unsafe
- If there is a risk that a product may cause injury, it must be recalled
- If the business is aware of a death, serious injury or illness associated with their
product they must report it in two days
- The marketing of junk food is heavily criticised

2.2.3.4 Engaging in Fair Competition

- The Competition and Consumer Act (2010) requires businesses to compete fairly
- Cartel Conduct: Two or more businesses that would normally be in competition with
one another must not make agreements involving price fixing, bid rigging, etc. as this
may put other companies outside of the cartel out of business ← Illegal
- Misuse of Market Power: Business takes advantage of its market power to damage/get
rid of a competitor, prevent anyone from competing in or entering the market ← Illegal
- Exclusive Dealing: When one person/business trades with another but then imposes
restrictions on them (e.g. McDs selling Coke not Pepsi) ← only illegal if the deal restricts
competition
 - Resale Price Maintenance: It is legal for a supplier to set a maximum price for retailers
to sell at, but illegal to set a minimum price or prohibit them from selling at discounts
- Mergers and Acquisitions: Any merger/acquisition that would substantially reduce
competition in that particular market is prohibited, businesses must seek permission
from the ACCC

2.2.3.5 Sugging
- A sales technique disguised as market research: asking people to complete a survey
and then suggesting a product
- Not illegal but it is unethical because invasion of privacy and deception
- Has negative implications for overall market research because ⅓ of customers now
refuse to take part in any surveys because they are suspicious that it is sugging

2.2.3.6 Why Ethical Behaviour and Government Regulation are Important in

Marketing
- Ethical behaviour creates a positive image of the business and encourages customer
loyalty → increased customer retention and attraction → increased sales → increased
profits
- Ethical behaviour will also make a business more appealing for all stakeholders
- Government regulation is important because it protects consumers and businesses,
increases consumer trust and confidence in business (which is good for the economy),
promotes healthy competition (which is good for the economy)

2.3 Marketing Process (SMEIDI)

2.3.1 Situational Analysis

- First, a SWOT Analysis
- Strengths + Weaknesses (Internal), Opportunities + Threats (External)
- Gives a clear indication of the business's position compared with its competitors
- Next, the Product life cycle
- 4 stages: Introduction, Growth, Maturity and Decline
- Reasons for decline:
- Changing public perception
- Introduction of new technologies / new products reducing demand for
older ones
- Fluctuations in the level economic activity / Differing consumer spending
habits
- Different Marketing Strategies are required in the different stages
Introduction Growth Maturity Decline

Descri BS trying to increase BS actively pursues Sales plateau as Sales decline,

ption consumer awareness brand acceptance + market becomes reduced demand
and build a market growing market share saturated (e.g. with
share for the new competitor
product products)

Produ Brand and reliability Quality maintained / Features + G/S maintained

ct are established, good improved packaging try to with some
quality differentiate the improvements /
product from rejuvenation
comp.’s
Price Often lower than Price per unit Price may need to Price is reduced to
comp. to gain a maintained /raised, be adjusted sell remaining
market foothold production costs downwards to hold stock
maintained or off comp. +
decreased (econ. of maintain market
scale) share

Place Selective distribution, Distribution channels Incentives may Distribution

lets consumers increased to meet need to be offered channels reduced,
gradually form an demand to encourage the G/S is offered
acceptance of the G/S preference over to a loyal market
rival products segment only

Promo Directed at early Seeks a wider Continues to No promotion,

tion buyers + users. audience suggest the discontinued.
Comms seek to product is tried and
educate potential true - still the best
customers about the
merits of the G/S

2.3.2 Market Research

- Step 1: Determine Information Needs: Clearly and accurately state the problem to
determine what needs to be measured (what’s relevant) and the issues involved
- Step 2: Data Collection: Collect primary (e.g. surveys, observations, experiments)
and secondary data (e.g. stats from ABS, previous sales reports
- Step 3: Data Analysis and Interpretation: Visually represent the data (e.g. in a
table), note trends, draw conclusions

2.3.3 Establishing Market Objectives

- These objectives should be closely aligned with the overall business goals (long-term)
but more customer-oriented than the goals for the entire business, concerned with
products + markets
- Should be SMART (specific, measurable, achievable, realistic, time-bound)
- 3 common goals: Increasing market share, expanding the product mix, maximising
customer service

2.3.4 Identifying Target Markets

- Customers within a target market share similar characteristics (the variable
characteristic)
- Usually businesses have a primary and a secondary target market, when the primary
target market isn’t making purchases, the secondary one can be tapped into
- Identifying a target market allows businesses to use its marketing resources more
efficiently, collect data to understand the target market’s buying behaviour over time
- Mass Marketing Approach: 1 product (little to no variation), promotional program,
price, distribution
- Market Segmentation Approach: self-explanatory
- Niche Market Approach: An extension of the segmentation approach, addresses the
needs of customers whom large stores generally ignore
2.3.5 Developing Market Strategies
- The 4Ps must be adapted to suit marketing goals and overall business goals, take into
account the product life cycle as well
- Product: quality, packaging/labelling, design, brand name, guarantee
- Price: consider cost of production, level of consumer demand, competitor prices
- Promotion: Advertising, personal selling, relationship marketing, publicity / PR, sales
promotion
- Place: Distribution networks, generally the more intermediaries the more widely the G/S
is distributed

2.3.6 Implementation, Monitoring and Controlling

- Implementation is putting the mktg strategies into operation, it involves the
daily/weekly/monthly decisions that have to be made to ensure the plan is effective
- The implementation stage is quite difficult, unforeseen situations may arise
- Monitoring means checking and observing the actual process of the mktg plan,
requires the gathering of data of actual progress
- Controlling means the comparing of planned performance against actual performance
AND taking corrective action
- Generally uses KPIs e.g. budgets, sales statistics, cost analyses
- When evaluating mktg strategies a BS must develop a financial forecast detailing costs
and revenues (but estimating revenue is difficult because it is heavily influenced by
external factors e.g. economy)

2.3.6.1 Comparing Actual and Planned Results

- Sales analysis: Compares actual sales with forecast sales to determine effectiveness of
the mktg strat
- Strength: figures are easy to collect and process
- Weakness: data doesn’t reveal exact profit level or take into account external
factors
- Market Share Analysis / Ratios: Compare a business’s market share
- A BS’s revenue falls but its market share stayed the same ∴the entire industry
fell
- Marketing Return on Investment (ROI): % change in sales as a result of a specific mktg

strategy
2.3.6.2 Revising the Marketing Strategy
- Develop a new product OR make changes to the 4Ps of the mktg mix OR Delete a
product
- Reasons to delete a product: creates an unfavourable image for the BS, outdated, not
selling
2.4 Marketing Strategies

2.4.1 Market Segmentation, Product/Service Differentiation and

Positioning
- Once the total market is divided into segments, the mktg manager selects one target
segment
- This is done based off the segmentation variable
- Demographic = age, gender, occupation / income level, family, religion, culture,
etc.
- Psychographic = lifestyle, personality, interests, motives, socioeconomic groups,
etc.
- Geographic = urban/rural, climate, landforms, etc.
- Behavioural: purchase occasion, loyalty, usage rate, price sensitivity
- How to differentiate G/S: customer service, environmental concerns, social + ethical
issues
- Positioning is very important, it is determined by the brand and its reputation

2.4.2 Products - Goods and/or Services

- The total product concept consists of the tangible and intangible benefits of purchasing
a product
- With mass-produced products, the competition is generally over intangible benefits
- Branding helps consumers identify the products they like, evaluate the quality of
products, reduce their level of perceived risk of purchase, gain a psychological reward
(if the brand is of prestige)
- Branding helps BSs gain repeat sales, introduce new products, encourage customer
loyalty (so they can charge more), increase efficiency of their mktg efforts (one ad
promotes the entire brand range)
- Trademarks signify that the BS has exclusive right of use of a brand name / symbol
- Five types of logos: brandmark, wordmark, lettermark, combination mark, emblem
- Packaging should entice first-time customers, preserve the product, separate it into
convenient units, assist with the display of the products, protect them from
damage/tampering, convey info to clients
- Labelling is also important, labels can be used to promote products but they should
also contain information such as ingredients, package size, country of origin, best
before / expiration date, etc.

2.4.3 Price
2.4.3.1 Pricing Methods
- BSs should consider its marketing objectives, the amount of competition, government
regulations, location of the product on its life cycle and the level of economic activity
when deciding on a method
- Cost-Based: The selling price is a mark-up of the cost (Cost + CostxMark-up% = Price)
- Simple and straightforward BUT
- Determining the mark-up% is difficult. If too high, BS will lose sales. If too low, BS
misses profit
- ‘Cost’ is the production/acquisition cost, doesn’t take into account mktg
- Market-Based: Based on levels of supply/demand → constantly fluctuating, difficult to
keep up with
 - Competition-Based: Lower than comp to undercut them, equal if following a price
leader, above if the product should be perceived as superior BUT any can backfire

2.4.3.2 Pricing Strategies

- BS should consider its mktg objectives, product life cycle, market, degree of product
differentiation, level of economic activity
- Price Skimming: Product priced high at introduction to recover R&D costs, then
reduced
- Price Penetration: Product priced low at introduction to gain market share, then
increased
- Loss Leader: Discounted products entice customers to a BS who end up buying more
(recover loss)
- Price Points: Set prices which products are categorised into, allows marketers to
suggest an upgrade

2.4.3.3 Price and Quality Interaction

- High pricing usually suggests superior quality products (due to high manufacturing
costs) and also provide an aura of prestige / high status so if a BS that uses premium
pricing lowered prices dramatically, it would damage their reputation
- BUT this could backfire because customers may not agree that the product is of
superior quality and hence stop buying it because the cheaper alternative is about the
same or better

2.4.4 Promotion
- Elements of the mix: advertising, personal selling, relationship mktg, sales promotions,
publicity + PR
- Advertising is paid and non-personal: print, TV, radio, outdoor, telemarketing,
window display, direct mail, internet advertising (type depends on budget,
product, target market, etc.)
- Personal selling: Selling through an agent, personalised per customer
- Relationship Marketing: encouraging LT relationships, e.g. loyalty rewards
program
- Promotions: limited edition offers, deals, samples, free gifts, refunds, comps, POP
displays
- Publicity + PR: free marketing e.g. donations, speeches, etc.
- Communication processes: opinion leaders, word of mouth
- Opinion leaders = influencers, almost 40% of Twitter users said they had made a
purchase based on an influencer’s endorsement (e.g. celebrity endorsement,
brand partnerships, etc.)
- Word of Mouth: People influencing each other during conversations, places a
newfound emphasis on customer service as one bad experience will spread more
than a good one

2.4.5 Place/Distribution
- Distribution Channels: Producer to agent to wholesaler to retailer to consumer (or part
thereof)
- Most services are just producer to consumer
- Bulky/perishable products generally just have a retailer as an intermediary
- Most common method for consumer goods is producer-wholesaler-retailer-
consumer
 - A BS that doesn’t have sales representatives will also have an agent, who never
owns the G/S
- ALSO: E-commerce (internet) and M-Commerce (mobile) are rapidly increasing in
popularity
- Channel choice: Intensive (everywhere), Selective (in some places), Exclusive (very
limited)
- E.g. milk is intensive, furniture is selective, Louis Vuitton is exclusive

2.4.5.1 Physical Distribution Issues

- Transport: Costs money, must be efficient (customers want deliveries at certain times),
must be safe (product must be retain its quality, in some cases this means refrigerated
transport)
- Warehousing: Requires a large facility, employees, extensive product tracking system,
security (to prevent theft), climate control for perishables, equipment to move products
(e.g. forklifts), etc.
- Inventory: Hard to forecast demand so inventory may be over/understocked

2.4.6 People, Processes and Physical Evidence

- People → emphasises importance of proper worker recruitment and training to ensure a
good reputation and positive perception among customers
- Processes → must be efficient, convenient to influence the ‘past experience’ factor
- Physical Evidence → e.g. cleanliness of premises, online presence

2.4.7 E-Marketing
- A direct result of globalisation and technology
- Increases convenience, is cost-effective, better reach for audiences
- Web pages, podcasts, electronic messages (email and SMS), blogs, location-based, SM
- SM raises ethical (privacy, accuracy) and legal (age restrictions) issues but is
expanding rapidly
- Blogs allow BSs to establish a reputation for expertise (by providing detailed info on
products and services), new ideas can be put out to gain feedback, informal to build
trust with customers

2.4.8 Global Marketing

2.4.8.1 Global Branding
- The worldwide use of a name / term / symbol / logo to identify the seller’s products
- Cost effective because one advertisement can be used in a number of locations
- The successful brand name can be linked to new products being introduced into the
market

2.4.8.2 Standardisation
- Assumes the way the product is used and the needs it satisfies are consistent globally
- ‘One marketing plan fits all’ → cost savings through economies of scale and evaluations
/ modifications are much simpler
- E.g. electrical equipment, music, soft drinks, movies, fast foods, etc.

2.4.8.3 Customisation
- Assumes the way the product is used and the needs it satisfies are different between
countries
 - Marketing plan must be customised according the economic, political and sociocultural
characteristics of the target country

2.4.8.4 Global Pricing

- Three strategies: customised, market-customised, standard worldwide
- Customised: Different countries are charged different prices for the same product using
the cost-plus method so it covers the added cost of taxes, transportation, tariffs,
warehousing, etc.
- Market-customised: Price set according to local market conditions and competition
levels
- Standard worldwide: two major risks - a domestic business may undercut the
standardised price + changes in the exchange rate may negatively impact the
exported price

2.4.8.5 Competitive Positioning

- How a BS will differentiate its products + carve out a place in the competitive
marketing environment
- To develop and maintain a competitive position in an increasingly challenging
environment, businesses must gain a deep understanding of their dynamic
environments in which they operate and form strategies according to evolving
conditions

Marketing Glossary

Term Definition

Marketing The process of planning and executing the conception, pricing,

(Mktg) promotion and distribution of ideas, goods and services to create
exchanges that satisfy individual and organisational objectives / A total
system of interacting activities designed to plan, price, promote and
distribute products to present and potential customers.

Marketing The business philosophy that all sections of the business are involved in
Concept satisfying customers’ needs and wants while achieving business goals

Customer The process of collecting information from customers and basing

Orientation marketing decisions and practices on customers’ wants and interests

Customer Measures how goods and/or services supplied by a business meet or

Satisfaction exceed customer expectation

Relationship The development of long-term, cost-effective relationships with individual

Mktg customers

Market A group of individuals, organisations or both that: need or want products

(G/S); have the money (purchasing power) to purchase them; are willing
to spend their money to obtain them; and are socially+legally authorised
to purchase them.

Customer The decisions and actions of customers when they search for, evaluate,
Choice Buying select and purchase goods and services
Behaviour)
Implied The unspoken and unwritten terms of a contract
Conditions

Consumer Provide consumers with rights to certain remedies from retailers &
Guarantees manufacturers where Gs purchased fail to comply with the consumer
guarantee provisions in ACL

Acceptable Products that are safe, lasting, with no faults, look acceptable and are
Quality functional

Materialism An individual’s desire to constantly acquire possessions

Product The inclusion of advertising in entertainment

Placement

SWOT Analysis Involves the identification and analysis of the internal S+W of the
business as well as the opportunities in + threats from the external
environment

Product Life The stages a product passes through: introduction, growth, maturity and
Cycle decline

Market Research The process of systematically collecting, recording and analysing

information concerning a specific marketing problem

Market Share The business’s share of the total industry sales for a particular product

Target Market A group of present and potential customers to which a business intends
to sell to

Marketing mix The combination of the 4 Ps of marketing - Product, Price, Place,

Promotion - that make up the marketing strategy

Segmentation A characteristic of an individual or group that is used by marketing

Variable managers to divide a total market into segments

Positioning When marketers try to create an image/identity for a product compared

with that of competing products

Brand A name, term, design, symbol or any combination of these that identifies
a specific product / BS and distinguishes it from competitors

Price The amount of money a customer is prepared to offer in exchange for a

product

Promotion Methods used by a BS to inform, persuade, remind a target mkt about its
products

Advertising A paid, non-personal message communicated through a mass medium

Public Relations Those activities aimed at creating and maintaining favourable relations
(PR) between a BS and its customers

Publicity Any free news story about a business’s products

Place/ Activities that make G/S available to customers when/where they want to
Distribution buy them

Market The number of outlets a firm chooses for its products

Coverage

Inventory A system that maintains quantities/varieties of goods appropriate for the

Control target mkt

People Quality of the interaction btwn customer and those within the BS who will
deliver S

Processes The flow of activities that a business will follow in its delivery of a service

Physical Everything the customer sees when interacting with a business

Evidence

Topic 3: Finance

3.1 Role of Financial Management

3.1.1 Strategic Role of Financial Management

- To plan, manage control and safeguard finances to help the business achieve their
strategic and financial goals whilst managing global financial risks
- Includes: setting financial objectives, sourcing finance, preparing budgets and
forecasting future finances, preparing financial statements, maintaining sufficient cash
flow, distributing funds to other parts of the business

3.1.2 Objectives of Financial Management (PLEGS)

- Profitability (ST/LT): Will satisfy owners/shareholders in the ST and ensure BS
sustainability in the LT
- Gross Profit = Sales - COGS
- Net Profit = Gross Profit - Expenses
- Gross Profit Margin = (gross profit ÷ sales) x 100%
- Net Profit Margin = (net profit ÷ sales) x 100%
- Liquidity (ST): The extent to which a business can meet its financial commitments in
the ST, a measure of how quickly a current asset can be converted to cash to pay
current liabilities
- Current Ratio = Current Assets ÷ Current Liabilities
- Working Capital = funds available for ST commitments = Current Assets -
Current Liabilities
- Efficiency (ST/LT): The ability of a BS to minimise its costs and manage its assets so
that maximum profit is achieved with the lowest possible level of assets
- In financial mgmt, improved by: monitoring BS assets (e.g. collecting accounts
receivable faster) and monitoring expenses relative to sales generated
- Growth (ST/LT): The ability of a BS to increase its size in the LT (e.g. increase market
share or geographic scope)
- Solvency (LT): The extent to which a BS can meet its financial commitments in the ST
and the LT
 - Debt to equity ratio (aka gearing, leverage) = Total Liabilities ÷ Total Equity
- Remember: Operational (day-to-day) and Tactical (1-2 years) goals are ST and
Strategic (5+yrs) are LT
- Possible Conflicts between ST and LT goals:
- LT growth may increase expenses and hence decrease profitability in the ST
- R&D is expensive in ST but may be rewarding in the LT

3.1.3 Interdependence with other Key Business Functions

- Finance allocates funds to all KBFs (ops for buying inputs, HR to pay staff, mktg for
promotions)
- Finances also relies on the KBFs to work together and generate sales (ops produces
with help of HR, mktg promotes), providing income to the finance department

3.2 Influences on Financial Management

3.2.1 Internal Sources of Finance - Retained Profits

- When a business doesn’t distribute all of its profits as dividends and instead keeps
some
- Cheap and accessible but requires the business to make a healthy enough profit to
support growth

3.2.2 External Sources of Finance

3.2.2.1 Short Term External Sources of Finance (Debt)
- Overdraft: When a bank allows a BS/individual to overdraw their account up to an
agreed limit and for a specified time, to help overcome a temporary cash shortfall
- Interest is generally compounded daily, but only on the amount borrowed
- Commercial Bills: ST loans issued by financial institutions for amounts over $100k for
30-180 days
- Usually secured against business assets and can be rolled over
- Factoring: The selling of accounts receivable for a discounted price to a
finance/factoring company
- Without recourse = BS transfers responsibility to the factoring company
(expensive)
- With recourse = BS still responsible for the bad debt (cheaper)

3.2.2.2 Long Term External Sources of Finance (Debt)

- Mortgage: A loan secured by the property of the borrower, the property cannot be sold
or used as security for further borrowing until the mortgage is repaid (+ interest,
agreed regular repayments)
- Usually low interest rates because it is secured against a property
- Raising a deposit is still substantial, there is also the risk of property depreciation
- Debentures: A promise issued by a company to repay a loan for a fixed rate of interest
and for a fixed period of time (generally 1-5 years), used to raise a large amount of
funds
- Only incorporated companies can raise debentures, generally public
- Requires a prospectus when public companies issue debentures to investors via
the ASX
- Unsecured Notes: Loan from investors for a set period of time, higher interest rate bc
unsecured
 - Similar to debentures, interest rate depends on the creditworthiness of the
business
- Leasing: The payment of money for the use of equipment that is owned by another
party
- Operating Lease = Assets leased for short periods (usually shorter than the life of
the asset), easy to cancel, owner carries out maintenance
- Financial Lease = lessor purchases the asset on behalf of the lessee (usually for
the life of the asset / 3-5yrs), penalties for cancellation, e.g. plant / vehicles /
equipment / furniture / fittings
- Long financial leases are cheaper than long operating leases

*Note: Unincorporated businesses (i.e. sole traders / partnerships) would be best suited to
normal ST/LT loans through banks since debentures, unsecured notes, commercial bills, etc.
not suitable

3.2.2.3 Long Term External Sources of Finance (Equity) - Ordinary Shares and
Private Equity
- New Issue: Security that has been issued and sold for the first time on a public market
e.g. ASX
- Most common form is an IPO (initial public offering) or float = when a private
company lists on a stock exchange for the first time to raise capital by selling
shares to the public
- A prospectus must be issued and lodged with ASIC
- Rights Issue: Invitation to existing shareholders to purchase more shares in the same
company at a discount, number of shares offered is proportional to number of shares
held
- Prospectus required
- Placements: Creating new shares in return for capital and issuing them to selected
investors at a discounted rate, generally the targeted investors purchase >$500k worth
of shares
- Can disadvantage existing shareholders by diluting their ownership / share in
earnings
- Share Purchase Plans: Existing shareholders are offered more shares in the same
company at a discounted rate, maximum of $30k per shareholder
- Different from rights issue in that the offered shares are not in proportion to held
shares, so every shareholder is entitled to purchase the same quantity of new
shares
- Private Equity: Private companies approach investors for capital in exchange for
ownership/control
- Unincorporated Businesses: Sole traders should change legal structure to a partnership,
partnerships should introduce new partners or change legal structure to a
public/private company

3.2.3 Financial Institutions

- Banks: Receive savings as deposits from individuals, BSs and govts at a low interest
rate → make investments/loans to borrowers at a higher interest rate (to make a profit
through interest)
- Investment Banks: Provide borrowing and lending services primarily to the BS sector
- Finance Companies: Mainly provide short/medium term loans to BSs, raise money
through debentures, some specialise in factoring or cash flow financing
 - Superannuation Funds: Invest money received from super contributions in things like
company shares, property and managed funds so that their members will earn
investment returns
- Life Insurance Companies: Policy holders pay regular premiums and the insurer
guarantees to pay the designated beneficiary a sum of money upon circumstances
specified in a contract, life insurance companies use premiums to provide equity/loans
to the corporate sector which provides funds for investments
- Unit Trusts / Mutual Funds: Take funds from a large number of small investors, manage
portfolio, invest money, distribute capital gains
- The ASX: Acts as a primary and secondary market (see glossary) → the secondary
market increases liquidity of financial assets and therefore influences the primary
market for securities

3.2.4 Influence of Government

- ASIC: An independent statutory commission accountable to the Commonwealth
parliament
- Enforces and administers the Corporations Act 2001
- Protects consumers in the areas of investments, life/general insurance, super,
banking
- Aim is to assist in reducing fraud / unfair practices in financial markets and
products
- Company Tax: Paid by incorporated BSs before profits are distributed as dividends,
levied at a flat rate (i.e. 25% for BSs with an annual turnover of <$50m, otherwise
30%)

3.2.5 Global Market Influences

- Economic Outlook: Positive means ↑ demand (↑production ∴need funds to purchase
equipment, employ/train staff, expand BS, etc.) or ↓interest rates (expenses ↓, profits
↑). Negative outlook will have the opposite effect e.g. COVID-19 recession
- Availability of Funds: How easily a BS can borrow funds on international financial
markets
- The Australian economy has become more integrated with the global financial
system since its deregulation in the 1970-80s → Australians can borrow/invest in
financial assets overseas and foreigners can do the same in Australian markets
- Interest Rates: The cost of borrowing money, proportional to risk
- Australian interest rates are generally higher than other countries so people may
be tempted to borrow from overseas but then the risk lies in adverse changes to
conversion rates

3.3 Processes of Financial Management

3.3.1 Planning and Implementing

3.3.1.1 Determining Financial Needs
- Collect financial information such as balance sheets, income statements, cash flow
statements, bank statements, budgets, break-even analysis, sales/price forecasts,
weekly department reports, etc.
- Financial needs are determined by BS size, life cycle phase, growth plans, capacity to
source finance
3.3.1.2 Developing Budgets
- Help managers allocate resources, evaluate performance and formulate plans towards
BS goals
- In preparation, consider: past figures/trends, potential market trends/fluctuations,
foreseeable internal changes, current orders + plant capacity, potential external
changes (e.g. availability of inputs)
- Operating Budgets: Sales, production, raw materials, direct labour, expenses, COGS
- Project Budgets: Capital expenditure, R&D
- Financial Budgets: Income statement, balance sheet, cash flow statement (liquidity)

3.3.1.3 Maintaining Record Systems

- Management bases its decisions on the information in BS records, so it must be
accurate + reliable
- Obligation by law: BSs must keep records of their financial transactions for at least 5
years (for tax)
3.3.1.4 Identifying Financial Risks
- Credit Risk: Risk associated with borrowing money and having sufficient funds to meet
repayments
- Market Risk: Changing conditions in a specific marketplace e.g. ↑ competition, ↓
demand
- Liquidity Risk: If the cash flow is strong enough to keep the BS afloat, meeting
liabilities, etc.
- Operational Risk: Dangers in day-to-day BS mgmt e.g. legal problems, HR issues, BS
model risk

3.3.1.5 Establishing Financial Controls

- The BS monitors and controls the allocation + usage of its resources through financial
control policies
- Some policy examples: Asset protection (e.g. locking buildings, surveillance on
inventory), Control of Cash (e.g. not keeping money on premises overnight), Separation
of duties, clear authorisation + responsibility for specific business tasks, qualification
restrictions in staff

3.3.2 Monitoring and Controlling

3.3.2.1 Cash Flow Statement
- Indicates the movement of cash receipts/payments resulting from transactions over a
period of time
- BS activities are divided into Operating, Investing (purchase/sale of non-current assets
and investments) and Financing (debt/equity sourcing, repayments, etc.)
- Brackets are usually used to delineate cash outflow / payments

3.3.2.2 Income Statement

- Summary of the income earned and expenses incurred over a period of trading
- Steps: Record income/revenue, record COGS, calculate gross profit (revenue - COGS),
calculate net profit by subtracting all other expenses (i.e. Selling, Administrative,
Financial)
3.3.2.3 Balance Sheet
- Represents a business’s assets and liabilities at a particular point in time and shows net
worth
- Usually prepared at the end of an accounting period
- Includes assets (current and noncurrent), liabilities (current and noncurrent and
owners’ equity
- Accounting Equation: Assets = Liabilities + Owners Equity

3.3.3 Financial Ratios

- Vertical analysis = comparing figures within one financial year
- Horizontal analysis = comparing figures from different financial years
- Trend analysis = comparing figures for periods of 3-5 years
- Liquidity: Current Ratio = Current Assets ÷ Current Liabilities (2:1 is generally a good
ratio)
- Gearing (solvency): Debt to Equity Ratio = Total Liabilities ÷ Total Equity
- Higher ratio → less solvent → higher risk with regard to LT financial stability (keep
it <1)
- Profitability: Net profit ratio, gross profit ratio (not for service BSs - no COGS) as normal
- Return on equity ratio = Net profit ÷ Total Equity → ROI for shareholders ∴ higher
the better
- Efficiency: Expense Ratio = Total Expenses ÷ Sales → lower the better
- Accounts Receivable Turnover Ratio = Sales ÷ Accounts Receivable → measures
the effectiveness of a firm’s credit policy and how quickly it collects its debts
- (365 ÷ AccRec Ratio) gives average length of time it takes a BS to convert
balance into cash
- Comparative Ratio Analysis: Compare these ratios to previous results, benchmarks set
by budgets, other businesses / the industry average, etc.

3.3.4 Limitations of Financial Reports

- Normalised Earnings: One-off or unusual items that affect probability are adjusted on
the financial report so it can more accurately reflect the true earnings of the business ←
strategy
- Capitalising Expenses: A BS can choose to list a cost as an asset, usually happens when
the cost has not been used up / has future economic value, depreciation will be shown
on the financial reports
- Valuing Assets: Depreciation rates are an estimate, sometimes historical cost is used
but that is inaccurate, intangible assets (e.g. goodwill, trademarks, patents, etc.) are
hard to value
- Timing Issues: Expenses and revenue that are related should be recorded in the same
accounting period’s financial reports (matching principle)
 - Debt Repayments: Some BSs have a separate account called ‘Provision for doubtful
debts’ on their balance sheet which reduces the accounts receivable value, BSs can
manipulate their debts to provide a more favourable overview in their financial reports
- Notes to the financial statement: Contain important information not in the main
reporting documents e.g. accounting methods used to record/report transactions, how
certain figures were calculated, etc.

3.3.5 Ethical Issues Related to Financial Reports

- Legislations are in place to prevent unethical practices but often they are not enough
- Audited Accounts: An independent check of the accuracy of financial records and
accounting procedures, purpose is to ensure the reports are accurate and fairly
presented.
- Internal Audit: Conducted internally by employees
- Management Audit: Conducted to review the firm’s strategic plan
- External Audit: Independent specialised accountants review the records. By law,
‘large’ businesses must have their annual financial report audited (Corporations
Act Cth 2001)
- Auditors verify records physically e.g. count cash, check inventory + condition,
etc.
- Record Keeping: Temptation to do cash transactions and not record them as revenue,
reducing tax
- Reporting Practices: Similar to record keeping but heavier focus on the info sent to
stakeholders

3.4 Financial Management Strategies

3.4.1 Cash Flow Management

- Cash flow statements help owners anticipate and prepare for future highs and lows, 3
strategies:
- Distributing payments across the year to avoid large outflows in particular
months
- Offering debtors a discount for early payments can stimulate cashflow
- Factoring (see 3.2.2.1)

3.4.2 Working Capital Management (Current Assets - Current Liabilities)

- BSs try to keep cash balances at a minimum and hold marketable securities as
reserves of liquidity
- BSs must ensure they collect receivables in a timely manner e.g. late fees, early
discounts, reminders
- Inventory must be carefully managed, too much or too little can negatively affect
profits, see 1.4.6
- Payables should be timed to maximise liquidity e.g. holding back, early discounts,
avoiding late fees
- Loan repayments + interest must be managed, avoid short-term loans because they’re
expensive
- Monitor bank charges for overdrafts and monitor budgets regularly to manage cash
supplies
- Strategies to manage working capital:
 - Leasing: Affordable, easy to forecast repayments, tax deductible, easy to
upgrade
- Sale and lease-back: selling an owned asset to a lessor and then leasing it back.
This improves a BS’s liquidity since it gives the BS a large cash injection + lets
them use equipment

3.4.3 Profitability Management (Cost + Revenue Controls)

- Fixed and Variable costs must be managed
- Cost centres must be accounted for and monitored for greater control of total costs
- Expense Minimisation is also crucial, must be balanced with quality though (see cost
leadership)
- Marketing Objectives must be pitched at a level of sales that will cover costs and result
in a profit, pricing should also be managed to maximise revenue

3.4.4 Global Financial Management

- Exchange Rates fluctuate: If AUD appreciates relative to foreign currency, the intl
competitiveness of Australian exporting businesses will fall, but imports will be
cheaper. Opposite for depreciation
- Natural Hedging: e.g. establishing offshore subsidiaries, arrange for import
payments and export receipts to be denominated in the same foreign currency
(so losses from one will be offset by gains from the other), import/export
contracts all in AUD (transfers risk to the external party), implement mktg
strategies to reduce the price sensitivity of exported products
- Since Australian interest rates are generally higher than US, Japan, etc. BSs may
choose to borrow from overseas, but this might end up being more expensive (ties in
with exchange rate fluctuations)
- Derivatives (aka Financial Instrument Hedging): Forward Exchange Contract
(fixed future rate), Options Contract (forward exchange but with the option to get
out of it), Swap Contract (swap loan obligations with an intl business)
- Methods of Payment: in order of level of risk for exporter
- Payment in Advance: Exporter receives payment and then arranges for goods to
be sent. Very few importers agree to this bc there is no guarantee they will
receive what they ordered.
- Letter of Credit: Very popular with exporters, requires a letter from a secure bank
assuring the exporter that the funds will be paid once certain conditions are met.
If the buyer doesn’t pay, the bank will have to so these letters are only given out
if the bank trusts the importer
- Bill of Exchange: Most popular. Exporter draws up a BoE with their Australian
bank, sends to importer’s bank with documents allowing importer to collect the
goods, importer’s bank hands over documents after a payment (D/P) or
agreement (D/A) is made.
- D/P = Document against Payment; D/A = Document against Agreement
(more risky)
- Clean Payment: Importer pays after they receive the goods in an agreed credit
term
Marketing Glossary

Term Definition

Financial The planning and monitoring of a business’s financial resources to enable

Management the business to achieve its financial objectives

Short Term (ST) Less than 12 months, also ‘Current’ (so Current Liabilities are to be paid
in 12mo.)

Long Term (LT) More than 12 months, also ‘Non-Current’

Internal Finance Funds generated from within the business

External Finance Funds provided by sources outside the business

Debt Finance The ST and LT borrowing from external sources by a business

Superannuation A scheme set up by the federal govt which requires all employers to
make a financial contribution to a fund that will provide benefits to an
employee when they retire

Primary Market Deals with the issue of debt instruments by the borrower of funds

Secondary Deals with the purchase and sale of existing securities

Market

Global Economic The projected changes to the level of economic growth around the world
Outlook

Budget Financial doc used to estimate future revenue and expenses over a
period of time

Record Systems The mechanisms used by a BS to ensure that data is recorded and the
information provided is accurate, reliable, efficient and accessible

Assets Items of value owned by a BS

Liabilities Items of debt owed to outside parties

Liquidity The extent to which a BS can meet its financial commitments in the ST
(<12 months)

Solvency The extent to which a BS can meet its financial commitments in the LT
(>12 months)

Cost Centre A particular department / section of a BS to which costs can be directly

attributed

Hedging The process of minimising the risk of currency fluctuations

Topic 4: Human Resources

4.1 Role of Human Resource Management

4.1.1 Strategic Role of Human Resources

- Effective HRM sees the employee as an asset rather than a cost, encouraging open
communication and goal orientation. It accepts that legitimate differences exist in
workplaces but aims to reduce conflict through appropriate procedures and
relationships
- BSs should focus on the use of specific HRM strategies to retain, reward + motivate
good employees

4.1.2 Interdependence with other Key Business Functions

- Effective management will result in employees contributing better + more efficiently to
the production of G/S (Ops), stronger relationship between BS and customers (Mktg), all
this will overall increase profitability / share prices etc. (Finance)

4.1.3 Outsourcing
- Reasons: Reduce costs, focus on core, improve quality, increase speed to market,
foster innovation
- HR functions such as recruitment, induction, training, mediation, etc. are commonly
outsourced
- Contractors are used to reduce costs or access greater expertise to improve
competitiveness, mainly for processing functions (repetitive and easily measured) that
are non-core
- Can be domestic or global ← see 1.4.4 for advantages and disadvantages

4.2 Key Influences

4.2.1 Stakeholders
- Employers exercise control over employees; responsible for wage/salary payment, have
the power to dismiss employees, must comply with legal regulations
- Business seeking to manage the trade off between not overpaying workers and
attracting / retaining quality staff (i.e. efficient, effective, innovative, productive)
- Employees work under employers (where, when and how they decide); seek to
maximise benefit from pay, conditions, respect, promotion / development / training
opportunities, culture, etc.
- A strategic HR manager will use these influences to secure ↑ productivity, ↓
turnover, etc.
- Employer associations provide advice on awards / unfair dismissals / discrimination
issues, negotiate agreements (e.g. serve counter-logs to processed LoCs), educate on
employment laws
- Trade Unions (currently 14% of the workforce, down from 51% in 1976, largest industry
is E&T at 37%) represent employees in an effort to improve wages / working conditions
of their members.
- Government Laws at Federal and State levels impose legal compliance obligations
 - Federal: Fair Work Act (Fair Work Commission), Age / Disability / Sex / Racial
Discrimination Act (Human Rights Commission)
- NSW: Anti-Discrimination Act 1977, WHS Act 2011, Workers Compensation Act
1987
- Society: Work is important to people’s lives, people working is important to society

4.2.2 Legal - The Current Legal Framework

4.2.2.1 The Employment Contract

- Employers are obligated to provide work, a safe work environment and pay income
- Employees are obligated to obey lawful orders, use care and skill, act honestly and not
breach confidentiality (rights work vice versa) ← these arise from common law
- 11 National Employment Standards (NES): ← contained in the Fair Work Act 2009
(statute law)
1. Maximum weekly hours (38)
2. Right to request flexible working arrangements
3. Parental leave and related entitlements - upto 12 months unpaid leave, right to
ask for 12 more
4. Annual Leave - 4 weeks paid leave per year
5. Personal/carer’s leave (10 days paid, 2 days unpaid), Compassionate leave (2
days), Family/Domestic Violence Leave (5 days unpaid)
6. Community Service Leave - e.g. up to 10 days paid leave for jury service
7. Long Service Leave - paid leave depending on the employee’s service
8. Public Holidays - paid day off (unpaid for casuals)
9. Notice of Termination + Redundancy Pay - upto 5 weeks notice of termination,
upto 16 weeks redundancy pay (based on employee’s service length)
10.Provision of a Fair Work Information Statement
11.Provision of a Casual Employment Information Statement
- Minimum Wage: An employee’s base rate of pay for the number of ordinary hours they
have worked, generally determined by a modern award or national minimum wage →
reviewed + set annually by the Fair Work Commission each financial year
- Award: A determination that explains the legally enforceable minimum Ts+Cs that
apply to a business or industry, there are currently 122 e.g. Air Pilots Award (2020),
Real Estate Industry Award (2020)
- Enterprise Agreement (aka collective agreement): Offer broader Ts+Cs than a modern
award, must be approved by the Fair Work Commission and satisfactorily pass the
BOOT (‘better off overall test’)
- Common Law Employment Contracts: when an employer and an individual employee
negotiate a contract covering pay/conditions, generally for higher income employees in
the private sector

4.2.2.2 Work Health and Safety and Workers Compensation

 - State governments enacts and enforces WHS Act 2011 (NSW)
Responsibilities of Employers Responsibilities of
Employees

- Ensure the health, safety and welfare at work of all - Cooperate with
employees employers in
- Ensure that plant and substances are used, handled, ensuring health and
stored and transported safely safety of others
- Give employees the necessary info, training and - Take reasonable care
supervision to carry out their job safely for health and safety
- Ensure the business’s outputs are not a health risk to of others
others
- Report any deaths or serious injuries in the workplace
- Notify SafeWork NSW of any plans to carry out
dangerous work
- Employers are required to take out workers compensation insurance → supports injured
employees in their recovery and return to work
- Read up more on this before exams

4.2.2.3 Anti-Discrimination and Equal Employment Opportunity (EEO)

- No person/group should be disadvantaged based on a personal characteristic irrelevant
to the performance of the work
- Legislation enforcing this:
- Affirmative Action (EEO for Women) Act 1986 (Cwlth)
- Sex Discrimination Act 1984 (Cwlth) and Anti-Discrimination Act 1977 (Cwlth)

4.2.3 Economic
- In a downturn/trough/recession: businesses may downsize
- In an upturn/peak/boom: employers may need to offer more benefits to retain
employees, unions have a higher bargaining power ← pay increase may result in
inflation
- Structural Change has led to rapid growth in the services sector

4.2.4 Technological
- For employees: can make life easier (e.g. WFH) BUT can also steal their jobs (e.g.
robotics)
- For employers: can reduce costs (e.g. robotics, online acquisition) BUT also pose risks
(e.g. leading edge tech) and increase costs (i.e. redundancy payouts, initial investment)

4.2.5 Social
- Changing Work Patterns: Dramatic growth in part-time (PT) work, need for career
flexibility, increased participation rates for women and older workers
- Adv of PT work: cheaper for employers (no sick/annual leave costs), more flexible
for employees → lets them decide their own work-life balance
- Disadv of PT: higher staff turnover results in loss of corporate memory and
increased training costs, employees don’t get full time pay, employees don’t get
sick/annual leaves
- Australian living standards are much higher than other countries (e.g. compare to US)
- Also consider an ageing workforce, increased participation rates for women and older
workers
4.2.6 Ethics and Corporate Social Responsibility
- Ethical framework such as a code of conduct or a code of ethics may be in place
- Benefits of ethical practices: ↑ staff retention, ↓ absenteeism, ↑ business performance,
↑ reputation (positive publicity), ↓ costs (recruitment and training)
- Safe and fair working conditions that improve employee welfare (incl challenging,
interesting, etc.)
- CSR triple bottom line (see 1.2.8)

4.3 Processes of Human Resource Management

4.3.1 Acquisition
- Identifying Staffing Needs: Analyse internal (e.g. goals, culture) and external (e.g.
economic conditions, technological advancements) environments → forecast
demand/supply → identify shortages → job analysis + job design
- Recruitment and Selection

4.3.2 Development
- Keeps employees motivated by facilitating career growth, retains talented staff,
upskilling benefits business productivity and reduces long-term costs
- Induction: introduces new employees to their job, co-workers, business, culture →
fosters a positive attitude, builds confidence, establishes positive working relationships
with co-workers/supervisors
- Training: Activities designed to give employees the skills/knowledge req. to do their
CURRENT job
- Individual Development: Same as training but for FUTURE roles in the business (e.g. ↑
responsibility)
- Organisational Development: Developing strategies to ↑ employee
participation/motivation/retention
- Job enlargement, job rotation, job enrichment, job sharing
- Mentoring and Coaching: Mentoring = mutually beneficial (suits experienced staff keen
to transfer knowledge); Coaching = improving skills/performance (helps individuals
manage specific work roles more effectively)
- Performance Appraisal: assessing employee performance against set criteria/standards

4.3.3 Maintenance
- Workplace communication + culture: e.g. suggestion boxes, social events, staff
surveys, team mtgs
- Anti-discrimination, anti-bullying, WHS compliance, physical + emotional wellbeing ←
legal + CSR
- Rewards (monetary and non-monetary)
- Flexible and family-friendly arrangements: e.g. WFH, job sharing, paid leaves, etc.
For development + maintenance: interest/skills → motivation → productivity/retention →
profits

4.3.4 Separation
- Voluntary: Resignation, Retirement (a form of resignation), voluntary redundancy
(accepts a package)
 - Involuntary: involuntary redundancy (retrenchment), contract expiry, dismissal
- Unfair dismissal: Harsh/unreasonable/unjust → remedy application with FWC
- Business should keep documentation to justify a dismissal e.g. poor performance
records

4.4 Strategies in Human Resource Management

4.4.1 Leadership Style

- Autocratic / Authoritarian: Manager makes decisions and tells employees (e.g. military)
- ↓ decision making time , ↑ efficiency, ↓ employee satisfaction, ↑ staff turnover
- Use for consistent output or when staff are less experienced
- Delegative: Manager delegates initiative to team members (best of both worlds)
- Democratic / Participative: Team members involved in decision making process (opp. of
auth.)
- Good if the team members are knowledgeable and skilled, otherwise not really

4.4.2 Job Design

- Should encompass: task, challenge, variety, social interaction, flexibility, autonomy,
opportunity for ongoing learning and development, resources, opportunity for
achievement
- A poorly designed job will give rise to maintenance, separation and recruitment
issues/costs
- Specific task = low autonomy, general task = high autonomy
- Can achieve good job design through: simplification, rotation, enlargement, enrichment

4.4.3 Recruitment
- Internal recruitment: cheaper, builds loyalty, motivational for staff (see growth), little
value added (no new skills), unsuccessful applicants may be demotivated
- External recruitment: new ideas/perspectives/skills, diversity, publicity for BS, induction
/ association with culture takes time, loss of productivity in orientation period
- General skills = soft skills (not measurable); Specific skills = qualifications (measurable)

4.4.4 Training and Development

- Training → superior work performance (current) → courses, coaching
- Development → enhance employee skills in line with BS future needs → career
transition

4.4.5 Performance Management

- Developmental = individual employee performance; administrative = collective BS
performance
- Uses: assess performance against organisational standards, identify opportunities for
productivity improvement, assess legal compliance, justify staffing decisions (feedback
to HRM about acquisition), identify training/development needs, provide feedback and
recognition
- BSs must document performance management, will be useful for dismissal in
separation
4.4.6 Rewards
- Monetary: pay, bonuses, commissions, etc.; Non-monetary: awards, recognition,
feedback, advancement, interesting work / challenge, career security
- Group rewards are used when the team is directly working together
- Performance Pay (when employees equal or exceed a set of predetermined criteria):
commission, share plan, bonus, profit sharing, gainsharing
- When coming up with a remuneration system, consider: business goals, union power,
BS viability / profitability, competitors’ remuneration, economic conditions

4.4.7 Global
- Costs differ by country (e.g. legal compliance costs), increased access to skills, consider
supply
- Polycentric (hire/appoint locals to foreign mgmt roles), Ethnocentric (send Australians
overseas to perform foreign mgmt roles), Geocentric (hire/appoint people regardless of
background)

4.4.8 Workplace Disputes

- Industrial dispute = ceased work e.g. strike, lockout
- Common issues: remuneration, failure to comply with awards, employment conditions
- Negotiation (formal/informal compromise) → Mediation (neutral 3rd party) → Grievance
procedures (formal process written into award/agreement e.g. work your way up to
FWC)
- Courts/Tribunals: Conciliation (mediation undertaken by FWC) → Arbitration (legally
binding outcome)

4.5 Effectiveness of Human Resource Management - Indicators

- Corporate Culture: see →
- Benchmarking key variables (self-
explanatory) e.g. number of
applicants per position,
recruitment costs, revenue per
employee, gender equity
benchmarks, etc.
- Changes in staff turnover: high
turnover is costly
- Absenteeism: high absenteeism
indicates poor business culture
and is costly
- Accidents: Helps identify skill gaps
that can be filled with training
- Levels of Disputation: e.g. number/type/resolution of unfair
dismissal/bullying/discrimination claims
- Worker Satisfaction: take employee feedback (confidentially), qualitative + quantitative

Human Resources Glossary

Term Definition
Human The management of the total relationship between an employer and an
Resource employee in order to achieve the strategic goals of the business
Mgmt (HRM)

Outsourcing Contracting out BS functions involving the use of third-party specialist

BSs, aiming to take advantage of the specialist skills provided by them
and achieve a reduction in labour costs

Contractor An external provider of services to a business

Employer Assn An organisation that represents and assists employer groups, usually
respondents to the awards covering their members’ employees and
cover employers in the same/similar industries

Log of Claims List of demands made by workers (often through a union) against their
(LoC) employers covering specific wages and conditions

Common Law Law developed by courts and tribunals, based on the outcome of
previous cases

Statute Law Law developed by parliament

Enterprise A collective agreement made at a workplace level between an employer

Agreement and an employee about terms and conditions of employment

Workers’ A range of benefits to an employee suffering from a work-related injury

Compensation or disease. Also given to families of injured employees.

Affirmative Measures taken to eliminate discrimination and to implement positive

Action steps to overcome the current and historical causes of lack of equal EEO
for women

Structural A change in the nature + pattern of the production of G/S within an

Change economy

Recruitment The process of finding and attracting the right quantity and quality of
applicants for an employment vacancy or anticipated vacancy at the
right cost

Acquisition The process of attracting and recruiting the right staff for roles in a
business

Development Enhancing employee skills in line with the changing and future needs of
the BS

Maintenance The process of managing staff needs for health and safety, industrial
relations and legal responsibilities, including compensation and benefits,
of all staff

Separation Process of employees leaving voluntarily/through dismissal/retrenchment

processes

Redundancy When a person’s job no longer exists, usually due to technological

changes, an organisational restructure or a merger or acquisition
Retrenchment When a business dismisses an employee because there is not enough
work to justify paying them

Job Design The number, kind and variety of tasks that a worker is expected to carry
out for a job

Corporate The values, ideas, expectations and beliefs shared by members of a

Culture business