finance...business studies equity finance increased by 5% in 2013 (shares and sales and retained...
TRANSCRIPT
pg. 1
BUSINESS STUDIES
FINANCE
The focus of this topic is the role of interpreting financial information in the planning and
management of a business.
Students learn to:
examine contemporary business issues to:
• explain potential conflicts between short-term and long-term financial objectives
• analyse the influence of government and the global market on financial management
• identify the limitations of financial reporting
• compare the risks involved in domestic and global financial transactions
investigate aspects of business using hypothetical situations and actual business case
studies to:
• calculate key financial ratios
• assess business performance using comparative ratio analysis
• recommend strategies to improve financial performance
• examine ethical financial reporting practices
1. Role of Financial Management
1.1 Strategic role of financial management
• A strategy helps achieve goals- how a business does something
• Strategic plan needed to grow the business- longer term/ vision
Strategy of a business:
1. Decide on goal
2. Set business objectives based on goal
3. Develop strategic plan (10 years)
4. Develop tactical plan (5 years)
5. Develop operational plan (12 months)
Objectives:
• Objectives indicate where the business wants to be/ what it wants to
be doing
• E.g. Increase dividends, market leader within 5 years
• Objectives are achieved through a carefully determined strategy
Strategic plan:
• Most important plan for a business
• Gives a long term view (up to 10 years) of where the business is going,
how it will get there, and a monitoring process
pg. 2
BUSINESS STUDIES
Managing financial resources:
• Financial management is crucial if a business wants to achieve its
financial goals
• Mismanagement leads to problems:
- Insufficient cash to pay suppliers
- Inadequate capital for expansion
- Too many assets that are non-productive
- Delays in accounts being paid
- Possible business failure
- Overstocking of materials
• Strategies for monitoring resources are necessary
• Strategic planning of financial resources aid success and growth
1.2 Objectives of financial management
– Profitability, growth, efficiency, liquidity, solvency
– Short-term and long-term
• Long term goals are achieved through short term, specific objectives
• Objectives are LPEGS- Liquidity, profitability, efficiency, growth and
solvency
Liquidity:
• The ability of a business to pay its debts as they fall due
• Related to flow of cash- controls in/ out flow of money
• Need sufficient cash flow to meet short term obligations, cash shortfalls
will result in a loss of profitability
Profitability:
• Ability to maximise profit
• Must monitor revenue, pricing policies, costs, and expenses
• Revenue- expenses= profit
Efficiency:
• Ability to minimise costs and manage its assets so that maximum profit
is achieved at the lowest possible level of assets
• Relates to operations or revenue-producing activities
• Inventory, cash and accounts receivable must be monitored
Growth:
• Long term increase in size
• Is measured by sales, profits, market share, employees, outlets
• Ensures sustainability into the future
pg. 3
BUSINESS STUDIES
Solvency:
• The ability to meet long term financial obligations
• It indicates if a business will be able to repay amounts hat have been
borrowed, i.e. if all assets were sold, could all debt be paid off?
Short-term objectives:
• Can be tactical (1-2 years) or operational (day to day)
• Reviewed regularly to see if targets are being met/ resources are being
used to the best advantage
• Short term objectives need to complement the long-term goals
Long-term objectives:
• They are broad strategic goals (more than 5 years)
• Require short-term objectives to reach them
• Reviewed annually
1.3 Interdependence with other key business functions
• Each function isn’t able to operate successfully in isolation- it relies on
others to perform its role in achieving the broader goals of the business
• Each one must interact with all the other functions to achieve its goals
• Without finance there would be very little business. Finance (funding)
flows to each functional area within a business which enables it to
achieve its goals
• all KBFs at Qantas depend on finance. Qantas spends $275 million+ a year on staff
training. Qantas has budgeted $10 billion over the next 10 years on fleet renewal.
Marketing strategies need to be funded.
Example: 5-year financial goal: 10% increase in profit
• Operations- identify potential changes to suppliers to reduce costs
• Marketing- increase market share using increased promotion and
improvements to product
• Human resources- implementing training to increase efficiency of
employees
Apple:
• Marketing – Provide various secondary market research data such
as sales analysis, to determine future marketing strategies
• Human resources – Consider costs of replacing dissatisfied staff, e.g.
recruitment and training
• Operations – Design and develop future models based on funds
allocated for R&D and production
pg. 4
BUSINESS STUDIES
2. Influences on financial management
2.1 Internal sources of finance – retained profits
• Come from the owner or inside the business
• Owners equity come from the finance contributed by the owner or
partner, used as start up capital- to establish and build the business
• Retained profits are revenue from the business that isn’t distributed. It is
the most common form of internal finance and is kept in the business to
finance future activities such as growth
Apple:
In 2012. Apple’s retained profits accounted for 86% of shareholder’s
equity, and 84% in 2013
2.2 External sources of finance
– Debt – short-term borrowing (overdraft, commercial bills, factoring), long-
term borrowing (mortgage, debentures, unsecured notes, leasing)
– Equity – ordinary shares (new issues, rights issues, placements, share
purchase plans), private equity
• External finance comes from outside the business
• Can be debt or equity
Debt: Short-term
• Used to finance temporary shortages in cash flow or finance for
working capital
• Repaid within one to two years
1. Bank overdraft
- Allows the bank account to be overdrawn up to a specific limit
- Are flexible and have lower interest rates than other short-term
borrowing (higher than long term), interest paid daily
- Assists short- term liquidity problems
2. Commercial bills
- A type of bill given for large amounts ($100,000 +) for a period
between 90-180 days
- Amount and interest are not paid until the end date of the bill
3. Factoring
- Selling accounts receivable for a discounted price (usually 90%)
- Accounts receivable are sales that haven’t been paid for yet
pg. 5
BUSINESS STUDIES
- Will improve cash flow and gearing
- “With recourse”: business responsible for bad debts
- “Without recourse”: responsibility of sales not being paid for is with the
factoring company
- Involves greater risk and can be relatively expensive, yet fast
Debt: Long-term
• Used to finance real estate, plant (factory office) and equipment
• Longer than 2 years
1. Mortgage
- Loan secured by property
- Used to finance property
- Repaid through regular principle and interest repayments
2. Debenture
- Issued for a fixed rate of interest and fixed period of time, secured
over a company’s assets
- Repay by buying back the debenture
3. Unsecured notes
- A loan for a set period of time, not secured against anything
- Very risky for lender, therefore high interest rates
4. Leasing
- Paying to use the equipment that is owned by another party
- Can use equipment without large capital outlay
Apples debt increase by 44% in 2013
Equity
• Most important source of funds as it remains in the business, they do not
have to be repaid like debt finance
1. Ordinary shares
- Most commonly traded shares
- Purchasing shares means one becomes a part owner in the business
and will receive dividends
- New issue: shares sold for the first time
- Right issue: offered only to existing shareholders
- Placements: offered directly from the company to investors- not
through ASX
- Share purchase plan: offered to existing shareholders to buy more
shares at a discounted price
2. Private equity
- Money invested in a private company
- Aims to raise capital to finance future expansion/ investment of the
business
- Company chooses who buys shares
pg. 6
BUSINESS STUDIES
Equity finance increased by 5% in 2013 (shares and sales and retained profit)
Debt vs. equity
1. Debt
- Liability, tax deductible, readily available, greater risk, significant
costs, can cause solvency problems
2. Equity
- Business’ funds, attractive to creditors and lenders, not tax deductible,
no repayment or interest, control, increased to reduce gearing (debt
to equity ratio)
Points on sources of finance:
• Consider costs, flexibility, availability of finance and level of control
when choosing source
• Finding appropriate source is done through financial decision making
• Businesses need funds to enable it to pursue its activities
2.3 Financial institutions – banks, investment banks, finance companies,
superannuation funds, life insurance companies, unit trusts and the Australian
Securities Exchange
Banks:
• Are the most common source of funds and a major operator in
financial markets
• Collect funds from financial surplus units and offer them to financial
deficit units
• Profit made through interest rate differential- higher interest rate for
borrowers compared to depositors- and bank fees
Investment (merchant) banks:
• Also known as merchant banks as they specialise their lending activities
towards the business sector
• Services include: trading in money, business finance, project financing,
foreign exchange and overseas finance, advice on mergers and
acquisitions, management of portfolios, management of trusts
Finance companies:
• Non- bank financial institutions specialise in smaller commercial
finance, regulated by the APRA
• Act primarily as intermediaries in financial markets
• Provide loans, lease finance, factoring, and overdrafts
• They raise capital through debentures, can sell assets
Insurance companies:
• Provide loans through insurance premiums
pg. 7
BUSINESS STUDIES
• Provide large amounts of equity and loan capital to businesses
• Funds received in premiums, called reserves, are invested in financial
assets
• Premiums provide for compensation during times of adversity
Superannuation funds:
• Provide funds to the business sector often for long term investment
• Tax incentives and compulsory superannuation introduced by the
government has helped these funds grow
• The source of these funds in the investments from superannuation
contributions (employers)
The ASX
• Is the primary stock exchange group in Australia, created by the
merger of the Australian stock exchange and Sydney Futures
exchange
• Act as a primary and secondary market for the trade of shares
• Ensure rules, regulations and laws are followed
Unit trusts
• Mutual funds
• Take funds from a large number of small investors and invest them in
assets- short-term money market, shares, mortgage, property, public
securities, gold, silver, oil, and gas.
2.4 Influence of government – Australian Securities and Investments
Commission, company taxation
• Government influence financial management decisions through
economic policies- monetary and fiscal policy, legislation, and roles of
government bodies or departments.
• Apple is subject to taxes in the US and other countries where
subsidiaries are based
• They have been criticised for using technicalities to pay little or no
corporate taxes on at least $US74 billion over the last 4 years
The Australian securities and investment commission (ASIC):
• An independent statutory commission that enforce business laws
• Enforce and administer the Corporation Act (company act/ law) and
protects consumers (Business police force)
• Assist in reducing fraud and unfair practice in financial markets, and
supervise the retail investment industry and trading
• Collect information about companies and make it available to the
public
pg. 8
BUSINESS STUDIES
Company tax:
• Paid by companies- tax on profits, levied at 27.5
• Paid before profits are distributed to shareholders
• Government is undertaking a process of reform of the federal tax
system- reduced from 36% since 2000
• Will lead to long term economic growth- lower tax rate, more
attractive place to invest, more people going into business
2.5 Global market influences – economic outlook, availability of funds,
interest rates
• Globalisation has created interdependence between economies and
their business sector
• Level of economic growth will directly impact on Apple sales and
therefore profits
• Apple has been able to borrow in the US due to low interest rates after
the GFC
Global economic outlook:
• If the outlook is positive, world economic growth is to increase
• Results in increase demand for products and services, and decreased
interest rates on funds borrowed internationally
• A poor economic outlook will impact in the opposite way
Availability of funds:
• International financial markets are made up of institutions,
governments and companies that are prepared to lend funds
• Various conditions and rates apply based on: risk, demand and supply
and domestic economic conditions
• E.g. GFC had a major impact on availability of funds (high risk, high
interest rates)
Interest rates:
• The higher the risk, the higher the interest rate
• Australian interest rates tend to be higher than overseas, yet the risk of
borrowing from overseas is the exchange rate movements
Trends in financial markets:
• Changed in the last 20 years due to deregulation
• Financial transactions are easier due to technology (ecommerce,
facilitated by globalisation and the internet, helps profitability)
• Downside of global financial markets can be seen from the GFC
• Changing technologies continue to impact financial markets
global market influences have a big impact on Qantas and its profitability. Prior to 2009,
Qantas benefited from a strong global economy, increasing demand for its services →
pg. 9
BUSINESS STUDIES
record net profit of $970 million (2008). The GFC caused rapid revenue declines- there was
less demand for air travel → 88% fall in net profit (2009). Qantas cut flying capacity and
replaced Qantas with Jetstar on some routes.
3. Processes of financial management
3.1 Planning and implementing – financial needs, budgets, record systems,
financial risks, financial controls
– Debt and equity financing – advantages and disadvantages of each
– Matching the terms and source of finance to business purpose
• The process involves steps: setting goals/ objectives, determine
strategies/ alternatives, evaluate options
• Long term (strategic) plans include capital expenditure (assets used to
make the business run)- generate revenue and returns
• Long- term plans also include finance, spending, developing,
marketing- they aid short-term goals and plans
The planning cycle:
1. Addressing the present financial position
2. Determining financial needs of the business plan
3. Developing budgets
4. Estimating cash flows
5. Monitoring and controlling
6. Maintaining record systems
7. Planning financial controls
8. Minimising financial risks and losses
• The financial plan is ongoing
Financial needs:
• Financial needs of a business are determined by:
- The size of the business
- Current phase of the business cycle
- Future plans- growth
- Capacity to source funds
- Management skills for assessing financial needs
• What is needed in the future will determine what the business needs
currently
Financial plans:
• They include:
- Capital expenditure
- Planned investments
- Shareholder returns
pg. 10
BUSINESS STUDIES
- R&D expenditure
- Marketing expenses
- Sources of funds
• Financial information is needed to show that the business can generate
an acceptable return for the investment being sought
Developing budgets:
• Are a forecasting tool used to assist with planning
• Used in strategic, operational and tactical plans
• Types include: cash flow, capital expenditure, raw materials and labour
budgets
• Used as a control measure: planned performance measured against
actual performance
• Used in both planning and control aspects
• Are prepared to predict a range of activities relating to short-term and
long term plans and goals
Operating budgets:
• Show sales production, expenses, raw material, labour hours
• Used in preparing budgeted financial statements
Project budgets:
• Include information about the purpose of the asset purchase, life span
of the asset and revenue it would generate
Financial budgets:
• Include budgeted revenue statement, balance sheets and cash flow
budgets
Record systems:
• Minimising error and producing accurate/ reliable statements are
important aspects of maintaining record systems
• The double entry system of accounting is one method of checking the
balancing of records (everything is recorded twice)
Financial risks:
• Loosing money/ not being able to meet debts
• Unable to meet financial obligations- bankruptcy
• The higher the risk, the greater the expectation of profits/ dividends
• To minimise risk assess: cash position, liquidity, profit levels, costs of debt
pg. 11
BUSINESS STUDIES
Financial controls:
• Problems prevent from being able to achieve goals- result in business
failure
• Most common failure problems- theft. Fraud, loss of assets, accounting
errors
• Controls include: clear authority and responsibilities for individual tasks,
separations of duties, rotation of financial duties, control of cash,
protection of assets, control of credit procedures
• Budgets and variance reporting are controls used
Financing:
• Can be internal or external
• Need to consider debt and equity and how much is needed
Debt finance:
• Funds are readily available
• Short-term borrowing is an important source of funding for businesses
• Risk and return must be considered carefully
• Advantages:
o Funds are readily available
o Increased funds → increased profits
o Tax deductible
• Disadvantages:
o Increased risk- different types of repayments (regular or lump)
o Security is required by the business
o Lenders have first claim on any money if the business ends in
bankruptcy
Equity finance:
• Shareholders’ funds represent the highest proportion of total funds to
finance business operations and assets
• Remains in the business
• Creditors and lenders are more willing to lend to a business if there are
equity funds
• Safety net for unexpected downturns
• Advantages:
o Doesn’t have to be repaid
o Cheaper than other sources- no interest payments
o Owner who contributes equity retain control over how that
finance is used
o Low gearing
o Less risk
• Disadvantages:
o Lower profits and lower returns
pg. 12
BUSINESS STUDIES
o Expectation that the owner will have about the return on
investment
Matching the terms and sources of finance to business purpose:
• Businesses must find the source of finance that is most appropriate to
fund the activities arising from these decisions
• Source of finance will be influenced by:
o The terms of finance- suitable for structure and purpose
o The cost of each source of funding- required rate of return is
taken into consideration/ balanced against the costs of each
source
o The structure of the business
o Costs- fluctuate depending on market and economic condition
o Flexibility- require funds to be variable
o Availability of finance
o Level of control
• Apple’s total short-term debt was about $20.3billion and long-term
debt was approximately $21.4billion as at Sept 2013.
• In 2013 Apple sold bonds and borrowed money to utilise low interest
rates and offset large corporations tax.
• Apple raises equity finance by selling shares on the US stock market.
Apple paid $10.5 billion in dividends in 2013, compared to $2.5 billion in
2012.
• It’s 2013 annual report anticipated quarterly dividends of $3.05 per
common share each quarter.
3.2 Monitoring and controlling – cash flow statement, income statement,
balance sheet
• Main financial controls used for monitoring: cash flow statements,
income statements, balance sheets
Cash flow statements:
• Indicates the movement of cash receipts and payments- reflection of
liquidity
• Gives information regarding a firms ability to pay its debts on time
• Users of cash flow statements include creditors, lenders, owners and
shareholders
• Shows whether a firm can:
o Generate favourable cash flow
o Pay financial commitments as they fall due
o Have sufficient funds for future expansion or change
o Obtain finance from external sources when needed
o Pay drawing to owners and dividends to shareholders
• Can be divided into operating, investing and financing activities
Apple:
pg. 13
BUSINESS STUDIES
In millions ($USD)
Period ending: September
2013
September
2012
September
2011
Opening cash
balance
$10,746 $9,815 $11,261
Cash Inflows
Operating activities $53,666 $50,856 $37,529
Cash Outflows
Investing activities ($33,774) ($48,227) ($40,419)
Financing activities ($16,379) ($1,698) $1,444
Net Cash Flow (in-
out)
Income statements (statements of financial performance/ revenue
statement)
• Determines operating efficiency and if there was a profit or loss
• Shows operating income- main function of the business (COGS) and
operating expenses
• Include income and expenses, selling, administrative and financial
expenses, COGS and net profit
o Profit= Revenue- expenses
o COGS= Opening stock + purchases- closing stock
o Gross profit= Operating income- COGS
o Net profit= gross profit- expenses
Balance sheet (statements of financial position)
• Is a determination of the financial stability of the business
• Shows the level of current and non-current assets and liabilities,
including investments and owners equity
• Indicates whether:
o The business has enough assets to cover its debts
o The interest and money borrowed can be paid (total assets>
liabilities)
o The assets of the business are being used to maximise profits
Balance sheet- the accounting equation:
• The accounting equation shows that the assets of the business may be
financed by either the owners or by parties external to the business
• The balance sheet shows the outcome of the accounting process
pg. 14
BUSINESS STUDIES
• Equations:
o Assets= Liabilities + Owners equity
o Owners equity= Assets- Liabilities
o Liabilities= Assets- Owners equity
3.3 Financial ratios
– Liquidity – current ratio (current assets ÷ current liabilities)
– Gearing – debt to equity ratio (total liabilities ÷ total equity)
– Profitability – gross profit ratio (gross profit ÷ sales); net profit ratio (net profit ÷
sales); return on equity ratio (net profit ÷ total equity)
– Efficiency – expense ratio (total expenses ÷ sales), accounts receivable
turnover ratio (sales ÷ accounts receivable)
– Comparative ratio analysis – over different time periods, against standards,
with similar businesses
• Financial statements summaries the activities of a business over a
period of time and must be analysed to increase understanding of the
implications of those activities
• Main types of analysis:
o Vertical- compares figures within one financial year
o Horizontal- compares figures from different financial years
o Trend- compares figures for period of 3-5 years
• Ratios assist in answering questions relating to profits, solvency,
efficiency, growth and return
• Analysis of financial statements is usually aimed at the areas of
financial stability (liquidity and gearing), profitability and efficiency
Liquidity:
• Current ratio
• Formula: current assets/ current liabilities
• Shows the short-term financial stability of a business (its ability to meet
its short-term financial commitments)
• It is generally accepted that a ratio of 2:1 indicates a sounds financial
position
Apple: 2015 2014 2013
1.11:1 1.08:1 1.68:1
Gearing:
• Debt to equity ratio
• Formula: total liabilities/ owners equity
• Shows the extent to which the firm is relying on debt or outside sources
to finance the business
pg. 15
BUSINESS STUDIES
• The higher the ratio, the less solvent the firm (the higher the ratio of
debt to equity, the higher the business risk)
Apple: 2015 2014 2013
143% 107% 67.6%
• Qantas is highly geared due to the capital intensive nature of the industry. Qantas’
source of funds include a mix of cash, equity, debt and lease finance. Two equity
raisings 2001 and 2002, the decision to lease planes, the high value of the Australian
dollar and improved profitability helped decrease Qantas’ gearing from 2004-2007.
However, a period of low interest rates and the favourable operating environment
and a fleet renewal program caused Qantas to increase its gearing from 2008.
Profitability:
Gross profit ratio
• Formula: gross profit/ sales
• Shows the changes from one accounting period to another and
indicates the effectiveness of planning policies concerning pricing,
sales, discounts, the valuation of stock ect.
• The higher the ratio the better. If the ratio is low, alternative suppliers
may need to be sources and competitors investigated 2015 2014 2013
40% 39% 38%
Net profit ratio
• Formula: net profit/ sales
• Represents the profit or return to the owners
• A firm will be aiming for a higher net profit ratio. A low net profit ratio
indicates that expenses should be examined to look for possibility of
reduction
2015 2014 2013
23% 22% 22%
Return on equity ratio
• Formula: net profit/ total equity
• Shows how effective the funds contributed by the owners have been in
generating profit and so the return on investment
• The higher the ratio or percentage, the better the return for the owner 2015 2014 2013
45% 35% 30%
Efficiency:
• Expense ratio
pg. 16
BUSINESS STUDIES
• Formula: total expenses/ sales
• The ratio indicates the amount of sales that are allocated to individual
expenses such as selling, administration, COGS and financial expenses
• Expense ratios indicate day-to-day efficient of the business. They need
to be kept at a reasonable level, and management must monitor
each type of expense in relation to sales.
Apple: 2015 2014 2013
9.6% 9.9% 9%
• Accounts receivable turnover ratio
• Formula: sales/ accounts receivable, answer/ 365 days
• Measures the effectiveness of a credit policy and how efficiently it
collects its debts
• High turnover ratios indicate the business has efficient debt collection
Apple: 2015 2014 2013
6.5
56 days
5.8
63 days
7 times
52 days
Comparative ratio analysis:
• For analysis to be meaningful, comparisons and benchmarks are
needed
• Judgements are then made by comparing a firm’s analysis against
other figures, percentages and ratios
• Analysis taken over a number of years can be compared with similar
business’s and against common industry standards or benchmarks
• Important to look at trends in the financial information over several
years
• Analysis can also include budget figures so that predicted figures can
be compared against actual figures
• Compare to:
o Over time- to ensure plans to achieve objectives are working
(Apple compares figures each quarter)
With similar businesses who are industry leaders (Apple compares
sales figures with competitors such as Microsoft and Samsung)
o Industry average
Against common standards (Apple compares cost of suppliers to
industry standards and aims to be market leader)
pg. 17
BUSINESS STUDIES
3.4 Limitations of financial reports – normalised earnings, capitalising
expenses, valuing assets, timing issues, debt repayments, notes to the
financial statements
• Financial reports are only as good as the detail that comes with them
and have some scope to be creative or misleading
• Users of financial reports must look in to all of these possibilities
• Limitations of Qantas’ financial reports maybe occur if the comprehensive notes
attached to the reports aren’t read by stakeholders- helps them understand better
and gives more clarity to financial position. Special circumstances may distort analysis
of results- for example natural disasters (in 2011- cyclone Yasi, Christchurch
earthquake, Japan tsunami) affect Qantas’ profitability. Financial reports don’t give
an entire picture of their debt as it doesn’t disclose when they have to be repaid. It
can also be difficult to value Qantas’ assets because they change over time.
Qantas’ long term assets are depreciated over time but the value of these assets
may not always reflect their true market value.
Normalised earnings:
• This is the process of removing one time, or unusual, influences from the
balance sheet to show the true earnings of a company
• For example the removal of a land sale, which would achieve a large
capital gain
• Users want to know what the normal earning are without the unusual
occurrences
Capitalising expenses:
• This is the process of adding capital expenses (such as R&D or the “on
costs” of buying a non current asset- like stamp duty on land) to the
balance sheet as an asset, rather than to the income statement as an
expense
• It spreads out the cost and attempts to match the cost with the benefit
gained from extra sales generated by the expense.
• This is achieved through depreciation of the capitalised expense over
several years
Valuing assets:
• This is the process of estimating the market value of assets or liabilities
• The valuations can be used for such things as investment analysis,
mergers/ acquisitions and financial reporting
• Two methods:
o Discounted cash flow method- estimates the value of an asset
based on its expected future cash flows, which are discounted
to the present
o Guideline company method- determines the value of a firm by
observing the prices of similar companies that sold in the market
• The method used will influence the assets and owners’ equity on the
balance sheet
pg. 18
BUSINESS STUDIES
Timing issues:
• Financial reports cover activities over a period of time, usually one
year. Therefore, the business’s financial position may not be a true
representation if the business has experiences seasonal fluctuations
• For example, profit figures for the 3 months of winter in a ski resort will
be higher than profit figures for the 3 months of summer
Debt repayments:
• Financial reports can be limited because they do not have the
capacity to disclose specific information about debt repayments for
example:
o How long the business has had, or has been recovering from, a
debt
o Have debt repayments been held over from another accounting
period to give a false impression
Notes to the financial statements:
• Notes to a financial statement report the detailed information that is
left out of the main document
• They are the extra detail about accounting methods or specific
transactions
Apple:
• All costs and revenue involved in launching a new product would be
considered as normalised earnings for the quarter that the product was
launched. It would be hard to compare to other quarters that don’t
have the results of a product launch in them.
• It would be difficult to estimate the market value of the brand, logo
and goodwill of Apple. The true value can only be measured if Apple
was sold.
3.5 Ethical issues related to financial reports
• Businesses have ethical and legal responsibilities in relation to financial
management
• Legal responsibilities have to be met- law
• Ethical responsibilities should be met- right thing to do
• Ethical considerations are related to legal aspects of financial
management
• Legislation is in place to guard against unethical business activity
• There are growing calls for codes of behaviour to be drawn up to
guide businesses with their financial management
Apple paid little tax in Australia compared with its global situation. E.g. IN
2012 $40 million from revenue of $6 billion
Tax minimisation strategies such as reporting higher costs of goods sold.
pg. 19
BUSINESS STUDIES
Audit accounts:
• Generally used to examine the financial affairs of a business
• Independent check of accuracy of accounts
• Three main types of audits:
o Internal audits: conducted by the business’s employees to check
procedures and accuracy to guard against waste, inefficiency,
misuse of funds, fraud and theft- ethical
o Management audits: conducted to review the business’s
strategic plan- ethical
o External audits: conducted by independent and specialised
audit accountants to guarantee the authenticity of the
company’s financial accounts- legal (these are a requirement of
the Corporations Act 2001 Cwlth)
Record keeping:
• All accounting processes depend on how accurately and honestly
data is recorded in financial reports
• Proper financial records must be kept and held for 7 years (legal
requirement)- may be audited by the government for tax purposes
• If you are audited by the ATO and found to be evading tax you can
be fined heavily
GST obligations:
• The introduction of GST was to make it more difficult for businesses and
individuals operating in the cash economy to avoid tax
• Businesses have an ethical and legal obligation to comply with GST
reporting requirements
• This includes a quarterly business activity statement (BAS) in which GST
collected, less input tax credits claimed, are reported and the balance
of GST is paid to the ATO
Reporting practises:
• Accurate financial reports are necessary for taxation purposes as well
as for other stakeholders
• Understating profit is not only illegal but can make it difficult to obtain
external sources of funds or even to sell the business
• Overstating the value of assets may prove counter-productive
4. Financial management strategies
4.1 Cash flow management
– Cash flow statements
– Distribution of payments, discounts for early payment, factoring
pg. 20
BUSINESS STUDIES
• Matching cash flow in with cash flow out is essential
• Budgets are an important tool for managing cash flows (forecasting
tool)
Cash flow statements:
• Statement of cash flow indicates the movement of cash receipts and
cash payment
• Predicts and indicates the monthly inflows and outflows of cash
• A tool to identify trends and predict change
• Outflows are easier to predict outflows (bills)
Cash flow management strategies:
• Must implement strategies to ensure that cash is available to make
payments when they are due
• Distribution of payments:
o Distributing payments throughout a period can reduce shortfalls
o Cash flow projection help identify potential short falls/ surpluses
o Key: link outflows to months with surplus cash
• Discounts for early payment:
o Incentive offered for customers who pay their bills well before the
due date
o Is effective for large amounts of money
o Positively affects cash flow status
• Factoring:
o Selling of accounts receivable for a discounted price (usually 3%)
to factoring companies
o Benefit for business- immediate cash without waiting
o Benefit for financer- 3% profit when the account is eventually
paid
Apple Inc experienced a steady improvement in its cash flow from 2011 to
2013 due to:
o Inflows from operating activities increased by 36% in 2012 and 5.5%
in 2013
o Outflows related to investing activities increased by 19% in 2012 but
decreased by 30% in 2013
o Outflows related to financing activities increased by 860% in 2013
due to Apple undertaking long term debt
Overall these changes led to an increase in Apple’s cash flow by 45%
between 2011 and 2013.
Apple carefully distributes payments throughout each quarter and are
proactive in setting prices with suppliers allowing them to forecast payments
over the financial year.
pg. 21
BUSINESS STUDIES
4.2 Working capital management
– Control of current assets – cash, receivables, inventories
– Control of current liabilities – payables, loans, overdrafts
– Strategies – leasing, sale and lease back
• Current assets are constantly changing as inventories are sold, cash is
paid out and payments are received
• Working capital makes up approximately 40% of a businesses assets
• Require constant planning and monitoring
• Insufficient working capital means there are cash shortages or liquidity
problems
• An excess of working capital means that assets are earning less than
the cost to finance them
• Must achieve a balance between using funds to create profits and
holding sufficient funds to cover payments
Control of current assets:
• Management must select the optimal amount of each current asset
held, as well as raising finance to fund those assets
• Working capital must be sufficient to maintain liquidity and access to
credit to meet unexpected and unforseen circumstances
• Cash:
o Consideration must be given to the levels of cash receivables
and inventory that are held
o Cash is controlled by a cash budget
o Enables managers to time significant outgoing expenses when
there are cash surpluses
o Ensures that the business can pay debt, loans and accounts
• Accounts receivable:
o Must be managed to ensure that their timing allows the business
to maintain adequate cash resources
o Credit ratings of prospective customers must be checked
o Implementing a credit policy
▪ Set of guidelines to staff on how to invoice, monitor and
collect customer debts
o Set credit limits, credit periods, reminders and the debt collection
policy
o A disadvantage of a too strict credit policy- customers might
choose to buy from another firm
o Factoring of accounts receivable is also an option
pg. 22
BUSINESS STUDIES
• Inventories:
o Stored goods- raw materials, work-in-progress, components parts
or finished goods
o Need to respond to customer demand- too little means lost sales
and too much means excess storage costs
o Inventory policy- sets out where, what and how many units are
stored. Usually computerised
o Just-in-time- inventory is supplied just in time to be used. No
storage costs and obsolete or damaged goods
Control of current liabilities:
• Current liabilities are financial commitments that must be paid by a
business in the short term
• Accounts payable
o Ideal to pay on time- not before or after- paying on the final
date is a cheap means of improving liquidity position
o If paid early- miss out on ‘interest free finance’ from trade credit.
Cash can be used for other expenses and purposes
o If paid late- poor reputation and relationship with suppliers; could
incur costs; unethical behaviours
o Control of accounts payable involves periodic review of suppliers
and their credit facilities, such as:
▪ Discounts
▪ Interest-free credit periods
▪ Extended terms for payments
o Alternative finance such as consignment finance could be used
• Loans:
o Short-term loans and bridging finance are often used as a
substitute for controlling receivables
o Businesses might not want to risk a poor relationship with a large
client regarding an overdue bill
o Loans incur costs- interest
o Generally an expensive form of borrowing- use should be
minimised
• Overdrafts:
o A convenient and cheap form of short term borrowing for a
business
o They enable a business to overcome temporary cash shortages
o Banks require regular payments to be made on overdrafts and
may charge account keeping fees, establishment fees and
interest
o Should have a policy for using and managing bank overdrafts
Strategies for managing working capital:
• Leasing:
pg. 23
BUSINESS STUDIES
o The hiring of an asset from another person or company who has
purchased the asset and retained ownership of it
o Leasing ‘frees up’ cash that can be used elsewhere in the
business
o Tax deductible
o 100% financing
o Increases the number of assets- revenue and profit can be
increased
o Apple leases their retail store
• Sale and lease back:
o The selling of an owned asset to a lessor and leasing the asset
back through fixed payments for a specified number of years
o This increases the businesses liquidity as the cash from the sale
can be used as working capital
4.3 Profitability management
– Cost controls – fixed and variable, cost centres, expense minimisation
– Revenue controls – marketing objectives
Cost controls:
• Single most important aspect of running a business
• Many companies have limited opportunities to grow, therefore cost
control is the main way to improve profits
• Key- benchmarking costs, need to be below competitors
Fixed and variable costs:
• Fixed costs do not vary with outputs/ level of activity in the business
• Variable costs increase with outputs/ effected by the activity level
• Changes in the volume of activity need to be managed in terms of the
associated changes in costs
• Design new models with cheaper components, source cheaper
suppliers, change outsourcing partners to reduce labour costs
Cost centres:
• Areas of a business which a cost can be directly attributed
• Work areas or departments can have direct or indirect (shared) costs
• Manager or team closely control these costs so wastage can be
correctly identified and fixed immediately
Expense minimisation:
• Profits can be weakened if the expenses of a business are high
• Guidelines and policies should be established to encourage staff to
minimise expenses and eliminate waste and unnecessary spending
• Waste and unnecessarily costs minimised due to costs being attributed
to all suppliers before negotiations are confirmed.
pg. 24
BUSINESS STUDIES
Revenue controls:
• Income earned from the main activity of the business
• Must have clear ideas and policies to maximise profit
Marketing objectives:
• Revenue controls revolve around marketing strategies
• Review of the break-even point (cost-volume-profit analysis) and the
marketing mix
• Sales mix will affect revenue- ensuring the business understands needs
of the customers
• Pricing policies and profit margins- critical for businesses, especially
retail
4.4 Global financial management
– Exchange rates
– Interest rates
– Methods of international payment – payment in advance, letter of credit,
clean payment, bill of exchange
– Hedging
– Derivatives
Exchange rate/ currency fluctuation:
• One countries currency must be converted to another when
transactions are conducted on a global scale
• Currency is valued by dealers buying and selling each others
currencies
• Global transactions are performed through the forex
• The exchange rate is the ratio of one current to another- telling how
much one unit is worth in another
• Importers in Australia like higher exchange rates- appreciation
• Exporters in Australia like lower exchange rates- depreciation
• Appreciation: raises the value of the Australia dollar in terms of foreign
currencies. Exporters are dearer (less competitive), importers are
cheaper
• Depreciation has the opposite effect • Qantas generates about 38% of its revenue in other countries→financially exposed to
changes in exchange rates (also purchases aircraft in foreign currency).
increase in the value of $AUD reduces the price Qantas pays for fuel,
lease and loan payments and overseas capital expenditure. Australians are more
likely to travel overseas but overseas tourists are less likely to travel to Australia.
decrease in the value of $AUD increases the price Qantas pays for
pg. 25
BUSINESS STUDIES
fuel, lease and loan payments and overseas capital expenditure. Australians are less
likely to travel overseas but overseas tourists are more likely to travel to Australia.
Interest rates:
• Need to raise funds to undertake international activities
• Tempting to borrow over seas- lower interest rates (Australia tends to
have higher interest rates than other countries)
• Adverse currency fluctuations could see the advantages of cheaper
overseas interest rates quickly eliminated
• In the beginning of 2013 Apple capitalised on low interest rates by
selling $17billion bonds. Borrowing money when interest rates are low
allows Apple to invest in new and innovative assets at a low cost.
• Qantas is exposed to movements in interest rates both in Australia and overseas. An
increase interest rates increase the interest payments Qantas pays.
Methods of international payment:
• Crucial aspect of global financial management is to select an
appropriate method of payment
• Problem of trust is solved by a third party- usually a bank
• Apple negotiates methods of payments and bills of exchange as part
of their supplier contracts. Apple is known to be ruthless in their
approach due to large volumes they require
Payment in advance:
• Allows the exporter to receive payment and then arrange for goods to
be sent
• Used if the other party is a subsidiary or when the credit worthiness of
the buyer is uncertain
• Exporter: least amount of risk- none
• Importer: exposes them to risk (will they get their goods?)
Letter of credit:
• A commitment by the importer’s bank that promises to pay the
exporter a specified amount when the exporter shows proof of
shipment
• Once the bank has made such a commitment it cannot be withdrawn
• Exporter: very popular. Slightly riskier than payment in advance but still
well liked
• Importer: liked
Clean payment (remittance):
• Occurs when the payment is sent to, but not received by, the exporter
before the goods are transported
• Easiest and quickest method
pg. 26
BUSINESS STUDIES
• Exporter: risk is minimal but requires complete trust
• Importer: not favoured
Bills of exchange:
• A document drawn up be the exporter demanding payment from the
importer at a specified time
• Goes through the Australian bank and importers bank
• Exporter: allows them to maintain control over the goods until payment
is either made or guaranteed. But this method contains the most risk for
the exporter out of all the methods
• Importer: widely used
o Document against payment-
▪ Bill of exchange is drawn up in Australian bank and sent to
importer bank with documents allowing goods to be
collected
▪ Importer can collect documents and goods only after
paying for them
▪ Exporter: risk that the importer wont pay and goods wont
be collected at all
▪ Importer: low risk
o Document against acceptance:
▪ Same process as “against payment” yet importer must
only sign acceptance of goods and terms of the payment
to receive documents/ collect goods
▪ Importer may collect goods before paying for them
▪ Exporter: high risk as importer may delay payment or not
pay at all
▪ Importer: low risk
Hedging:
• Hedging is the process of minimising the risk of currency fluctuations
• When two parties agree to exchange current and finalise a deal
immediately, the transaction is referred to as a spot exchange
• Exchange rates change constantly so the spot exchange rate many
not be the most favourable rate and changes can leave exporters out
of pocket
• Businesses can minimise the risk of currency fluctuations using hedging
• Natural hedging examples (don’t require a bank)
o Establishing offshore subsidiaries
o Arranging for import payments and export receipts
denominated in the same foreign currency so losses from a
movement in exchange rates will be offset by gains in the other
o Implement marketing strategies that attempt to reduce the price
sensitivity of the export market
o Insisting the contract is denominated in Australian dollars
pg. 27
BUSINESS STUDIES
• Financial instrument hedging:
o Financial products available, called derivatives, that can be
used to minimise or spread the risk of exchange rate fluctuation • Qantas has a successful hedging program outperforming many of its competitors.
Qantas has hedged about 94% of its fuel needs for 2015. Most of these hedges are in
the form of options → they aren’t totally locked in and can take advantage of falls in
fuel prices. Qantas also denominates some borrowings in net surplus currencies to
provide a natural hedge.
Derivatives:
• To minimise financial risks involved with exporting
• Can be as dangerous as the risks against which they are supposed to
protect
• Forward exchange contracts:
o By using a forward exchange contract the bank will guarantee
the exporter a certain exchange rate on a certain date
regardless of what the actual exchange rate is
o Usually for periods of 30, 60, 90 or 180 days
• Option contracts:
o If a business purchases an option contract it has the option to
buy or sell foreign currency when the exchange rate movement
is to its advantage
o It gives the buyer the right, but not the obligation, to buy or sell
foreign exchange currency at some time in the future
• Swap contracts:
o This allows two businesses to use an exchange rate on a
particular day, the spot rate, and reverse the transaction at the
same spot rate in the future despite what the currency
movement is
o Spot sales of one currency together with a forward repurchase of
the currency at a specified date in the future
o It can also be used with borrowings of principle and interest loans
with an agreement to exchange the net present value (principle
and interest) of one currency for the net present value of
another currency at a specified time in the future
o Apple uses derivatives to reduce the risk associated with foreign
currency and interest rate fluctuations
pg. 28
BUSINESS STUDIES
Operations
The focus of this topic is the strategies for effective operations management in
large businesses.
examine contemporary business issues to:
• discuss the balance between cost and quality in operations strategy
• examine the impact of globalisation on operations strategy
• identify the breadth of government policies that affect operations management
• explain why corporate social responsibility is a key concern in operations management
investigate aspects of business using hypothetical situations and actual business case
studies to:
• describe the features of operations management for businesses in a tertiary industry
• assess the relationship between operations and the other key business functions in two
actual businesses
• explain how operations strategy can help a business sustain its competitive advantage
• recommend possible operations strategies for one hypothetical business
1. Role of operations management
Operations:
• Refers to the transformation process of a business, which is the
conversion of inputs (resources) into outputs (goods and services)
Customer focus:
• Historically, what customers wanted was not relevant to the production
process
• Now customers and their needs are very important- want innovative
products at low costs that improve quality of life
• Customers desire firms to engage in processes that-
o Waste minimal resources in their production (lean production)
o Operate at low costs so as to maximise affordability
o Integrate environmental awareness and a need for ecological
sustainable practices
o Reflect changes in the needs of consumers over time
1.1 Strategic role of operations management – cost leadership, good/service
differentiation
• The strategic role of the operations management involves operations
managers contributing to the strategic direction or strategic plan of the
business
• Overall goal is to maximise profit- achieved by focusing on revenue or
income, and costs or expenses
Cost leadership:
pg. 29
BUSINESS STUDIES
• There are a number of costs that feature in the operations process-
inputs, labour, processing, inventory, quality management costs
• Cost leadership is aiming to have the lowest costs or to be the most
price-competitive in the market, so pricing of products can drop, whilst
maintaining the same profit margin- hence undercutting competitors
• Describes how a business can work to achieve a competitive
advantage
• A cost strategy where a business sets out to provide customers with the
best value for a relatively low price has been found to provide a
sustainable competitive advantage
• Cost leadership can also be gained by achieving low operating costs
from offering high volumes of standardised no-frill products using fewer,
standard components and with limited varieties of models
• Economies of scale:
o Refers to cost advantages that can be created as a result of an
increase in scale of the business operations
o Typically the costs savings come from being able to purchase
lower cost per unit of input and from efficiencies created
through improved use of technology and machinery
• Apple reduces its operations costs by forming a partnership with
manufacturers such as Foxconn in China. Costs of production such as
labour and materials are significantly lower in China than the USA or
Australia.
Goods and service differentiation:
• Operations managers can opt for a strategy of competing in markets
based on product differentiation
• From an operations perspective strategies will be assessed and it will be
determined which one can be undertaken with a cost leadership focus
• Product differentiation strategies for goods:
o Varying the actual product features
▪ Basic variety or more complex variety
o Varying the product quality
▪ Low quality- very affordable
▪ Increase quality- higher price
▪ Higher quality may be sold under a different name to
make it seem that both products are different goods
o Varying any augmented features (add ons)
▪ Add-ons or additional benefits associated with the good
▪ Not standard features
• Product differentiation strategies for services:
o Varying the amount of time spent on a service
o Varying the qualifications and experience of the service provider
o Varying the level of expertise brought to a service
o Varying the quality of materials/ technology used in service
delivery
pg. 30
BUSINESS STUDIES
• Cross branding or strategies alliances is an approach used to offer
consumers add on benefits (e.g. Woolworths- Caltex or Coles-Shell)
• Apple differentiates their iPhones from its competitors by the product
features and quality. Product features include their operating system
(iOS), touch screen, app, iTunes and distinctive appearances.
• The focus on iTunes and apps has been key to Apple’s success in
establishing itself as a market leader for smartphones. However, when
the iPhone 5 was released in late 2012 it fell from the top position as
highest selling smartphone, superseded by Samsung due to lack of
innovation and rising competition in the smartphone market which are
considered the main reasons for Apple’s continuous loss of market
share.
• Quality has been one of the key focuses of Apple’s as they market their
iPhones as a premium product and priced accordingly. Apple has
promoted their iPhone with a focus on innovation to differentiate it
from competitors. Quality issues in the production of the iPhone 5
(scratching of cases) led to the model being discontinued in 2013 and
replaced by the iPhone 5c which used a low cost plastic casing. This
represented a shift in Apple’s approach to quality yet low sales of the
model would suggest it was not a success.
1.2 Goods and/or services in different industries
• Manufacturing outputs are tangible, that is they physically exist and
can be touched and felt. Therefore, the outputs can be stored before
distributed to customers
• Services are not tangible. Services are more labour intensive and
require a lot of interaction with customers who consume the services
• The layout of operational processes will vary depending on whether
goods produced are standardised or not
• The choice of the process selection is strategic as it requires a high
degree of cross-functional interaction and coordination
• This means all four key business functions need to work together to
achieve the operations outcome
• Vary between sectors depending on whether good is perishable or
non-perishable
• Apples products are mostly standardised (mass produced)
• Customers can customise standardised goods through apps, music,
etc
• Apple supplies goods and services – Apple Genius bars provide
customised after sales service
• Online booking system for Genius bar provides an element of self-
service
Perishable goods and operational process:
pg. 31
BUSINESS STUDIES
• Operational processes will need to integrate a number of factors
o High standards of quality, safety, and cleanliness in all operating
processes
o Very short lead times and distribution that is as quick and
effective as possible
o Appropriate and robust packaging and cold storage processes
both through production and distribution
Non-perishable goods and operational processes:
• Non-perishable goods are inherently more durable than perishable
goods and therefore the issues of quality and inventory management
arise for the operations function
• Operational processes will need to integrate a number of factors
o Manage all aspects of quality in the process, from sourcing
through to production and distribution
o Implement effective inventory management strategies and be
highly responsive to market demand in order not to over
produce
Intermediate goods:
• Sometimes goods may be processed more than once
• Completed goods may then become inputs into further processing
Services in different industries:
• Service can also be both standardised and customized
1.3 Interdependence with other key business functions
• Interdependence refers to the mutual dependence that the key
business functions have on one another
• The key business functions work best when they overlap and
employees work towards a common goal
• Each function area depends on the support of the other if it is to
perform at capacity
• Each section of the business may perform its specialised function
extremely competently, but if they together do not work as a ‘team’
and aim for the same business goals, the business is not likely to
achieve its objectives
• Interdependence occurs when each KBF area is committed to the
same business goals as the other areas and they each work in a
coordinated and collaborative way to achieve these goals
• Operations is linked- finance funds the process, marketing advertise the
good/ service produced, human resources create or run the
production process
pg. 32
BUSINESS STUDIES
• Operations/marketing – market research from previous sales of ipad
provided Apple with benchmarks for ipad mini sales (how much to
produce). Operations provide marketing dept with costs for production
of the iPhone 5c so as to determine the price of the new iPhone
• Operations/ finance – Apple allocates a price per unit for production
of iPhones, which it pays outsourcing partners. Partners negotiate with
Apple if prices go up
• Operations/human resources – Apple tend to hire technically savvy
staff from product development to retail staff. Foxconn employed an
extra 10,000 factory staff to meet production of the iPhone 5c in 2013
2. Influences
2.1 Globalisation, technology, quality expectations, cost-based competition,
government policies, legal regulation, environmental sustainability
Globalisation:
• The removal of barriers of trade between nations.
• It allows for the transfer of capital, labour, intellectual capital and
ideas, financial resources and technology
• It is an opportunity: opens up markets, cheaper source of labour/ taxes,
global customers and supply chain
• It is a threat: increase competition, large manufactures that use same
quality/ products to develop competitors products
• To meet the needs of global consumers, many large businesses are
structuring their production around global (transnational) production
facilities
• Other processes that global businesses are involved in include
o Product design
o Location of manufacturing facilities
o Quality management
o Logistics
o Inventory management
• Economies of scale:
o Can be achieved by large businesses produced products
overseas
o The more goods produced, the lower the cost per unit
• Supply chain management and the global web:
o Supply chain are the suppliers of a business
▪ Globalisation allows for overseas suppliers to be utilised
o The Global web is the network of suppliers
▪ Chosen based on low overall cost, low risk, quality and
time
o Global businesses have many supply chains that make up a
global web
pg. 33
BUSINESS STUDIES
• Imitation, innovation and the supply chain:
o Innovator- supply chain tends to stay away from suppliers who
service their competition
▪ Innovations occur when the business creates new
products and leads the market
o Imitator- reverse engineering
▪ Using products of a competitor, taking it apart to see how
it is made, then trying to make a cheaper version (using
different materials at a lower cost)
• Apple use the global web and sources production globally (Foxconn
has factories in China, Europe and South America, produces 40% of the
world’s electronics). Apple relies on partners in China to ensure
production targets and quality standards are met. Imitation and
reverse engineering an issues (Samsung copying Apple technology).
Government:
• Political decisions affect the business rules and regulations- which
affect key business functions
• Government policies change and influence operations
• Policies such as tax, materials, practices, OH&S, training, public health,
environmental and trade practices all impact a business
• Government policies influence/ lead to laws
• In March 2013 Apple were summoned to appear before a federal
parliamentary committee to explain their pricing policies and why
Australia were forced to pay more for some of their products
compared to other countries.
Legal regulations:
• The range of laws with which a business must comply are collectively
called compliance
• The regulations that shape business practices and procedures must be
followed at the risk of penalty
• Compliances are the expenses associated with meeting the
requirements of legal regulations
• Some regulations include:
o Occupational Health and Safety:
▪ Safe and healthy working conditions
▪ Appropriate safety training/ protective equipment
▪ Changed to WHS in 2012
o Training and development:
▪ Use and application of technology
o Fair work and anti-discrimination laws:
▪ Requiring that employees be treated with dignity and
respect
o Environmental protection:
pg. 34
BUSINESS STUDIES
▪ In the use of minimsing pollution, eliminating toxic residue
and waste
▪ Public health- fair trading rules
• Apple has been repairing phones outside the warranty period for free
since the Australian Consumer Law (ACL) changed in 2011. Electronic
goods should be covered for a time that is reasonable – phones for the
durations of their contract.
Environmental sustainability:
• All business operations should be shaped around practices that
consume resources today without compromising access to those
resources of future generations
• Sustainable use of renewable resources
• Reduction in the use of non-renewable resources
• Apple’s website states: “The way products are manufactured, used
and recycled represents the largest percentage of Apple’s
greenhouse emissions. That’s why we design them for better
environmental performance to try and reduce our carbon footprint”
Technology:
• Technology= design, construction and or application of innovative
devices, methods and machinery upon operation process
• Technology and operations management:
o Technologies used in administration of operations include:
▪ Gantt charts
▪ Critical path analysis
▪ Office technologies
▪ Software
o Technologies used in operations processes include:
▪ Large machines
▪ Assembly lines
▪ Robotics
▪ CAD
▪ CAM
• Apple forced to continually patent/trademark innovations to compete.
Lack of innovation saw Samsung go into top position for smartphones.
Significant investments in R&D needed to be innovative and
competitive.
Quality expectations:
• A specific reference to how well designed, made and functional
goods are, and the degree of competence with which services are
organised and delivered
• Consumers expect that goods/ services are of a certain quality to
meet their needs
pg. 35
BUSINESS STUDIES
• Quality forms the foundations of operations processes
• The expectation that people have of businesses determine the way
that products are designed, created and delivered to customers
• Quality expectations in the level of excellence
• Quality expectation in operations management can be summarized
into several things that customers look for in products
• Goods:
o Quality of design
o Fitness for purpose
o Durability
• Services:
o Professionalism of the service provider
o Reliability of the service provider
o Level of customization
• A lot of Apple’s success has been due to its reliable, durable,
functionally simple and clean designs. Premium price with a premium
price. In 2013 the iPhone 5c (low cost option using low cost materials0
along with the iPhone 5s (premium quality) allowed them to cater for
quality expectation in multiple target markets.
Cost based competition:
• Is derived from calculating the break-even point and then applying
strategies to create cost advantages over competitors
• In operations, there is a focus on reducing costs while maintaining profit
levels= cost leadership approach
• Moving production overseas can assist in achieving cost-leadership
• Cost-based competition brings a cost leadership approach to the
operations function- focus on reducing costs to a minimum while
maintaining profit margins
• In applying a cost leadership approach to operations management,
cost can be analysed from several different perspectives
• OR costs may be divided into those which are fixed and those which
are variable
• Standardised nature of production allows Apple to shift resources and
adjust fixed and variable costs to other products of volume or demand
changes.
2.2 Corporate social responsibility
– The difference between legal compliance and ethical responsibility
– Environmental sustainability and social responsibility
Corporate social responsibility:
• Refers to open and accountable business actions based on respect for
people, community/ society and the broader environment
pg. 36
BUSINESS STUDIES
• It involves businesses doing more than just complying with the laws and
regulations
• Formerly called the triple bottom line (profit, environment, people)
• The Apple website in the section of Apple’s supplier responsibility states
“workers everywhere should have the right to safe and ethical working
conditions. 6 areas of focus: accountability, empowering workers,
labour and human rights, health and safety, environment and audited
results”.
The difference between legal compliance and ethical responsibility:
• Legal requirements require that a business follows the letter of the law
• Ethical responsibility is meeting all of their legal obligations and taking it
further by following the intention and spirit of the law
• Complying with legislation incurs compliance costs
• In demonstrating ethical responsibility, a business is demonstrating that
it values something more than just earning maximum profits because it
is allocating money over and above what it costs to comply with the
law
• Sometimes businesses seek to avoid compliance by using outsourcing
as a business strategy
• Ethical business enterprises recognise that variations in laws between
countries can undermine social and ethical responsibility
• Therefore they may seek independent sources, such as the ILO
(International labour conference) and lobby groups, to create ways of
applying ethical standards across the operations function
Environmental sustainability and social responsibility:
• Both are features of an ethical approach to operations management
• Economic development must be accomplished sustainably- there must
be a balance between economic and environmental concern
• Environmental sustainability refers to the economic and environmental
performance of a business
• Social responsibility refers to a business’s management of the social,
political and human consequences of its actions
pg. 37
BUSINESS STUDIES
3. Operations processes
3.1 Inputs
– Transformed resources (materials, information, customers)
– Transforming resources (human resources, facilities)
• Operations processes are those processes involved directly with
transformation.
• The processes may be broadly classified according to their role in
transformation:
o Inputs into transformation processes
o The actual processes of transformation
o Outputs of the transformation process
Inputs:
• Inputs are the resources used in the transformation (production)
process
• Some inputs are already owned by the business, while others come
from suppliers
Input classification:
• Inputs can be classified as transformed resources (that are changed or
converted in the operations process), and transforming resourced
(resources that carry out the transformation process)
Transformed resources:
• Are considered the resources that give the operations process its
purpose or goal
• Materials
o Are the basic elements used in the production process and
consist of two types: raw materials and intermediate goods
o Raw materials are unprocessed (natural or raw) states and
usually come from mines, forests, oceans or recycled waste
o Materials can also refer to intermediate goods, which are goods
manufactures and used in further manufacturing or processing
• Information
o Information is the knowledge gained from research,
investigation, and instruction, which results in an increase in
understanding
o Information can come from two sources: internal and external
o Information acts as a transformed reousce when it is used to
inform how inputs are used, where they are drawn from, which
suppliers and supplies are available and so on
o External information
▪ Market reports
pg. 38
BUSINESS STUDIES
▪ Statistics from industry observers
▪ Industry bodies
▪ Australian Bureau of Statistics (ABS)
▪ Media reports
▪ External information is an excellent and generally
independent source for operations managers to use
o Internal information
▪ Comes from internal sources such as financial reports,
quality reports, and internal key performances indicators
(KIPs) such as lead times, inventory turnover rates and
production data
▪ Acts as a transformed resource when it informs processes
and creates a process improvement
• Customers
o To better understand the desire and preferences of customers,
businesses can implement a customer relationship management
(CRM) program
o CRM refers to the systems that businesses use to maintain
customer contact
o CRM software can be used to improve customer services,
increase competitiveness, and identify changes in consumer
tastes
Materials (Memory chips, speakers and touch screens), Information
(development in technology) and Customers (tastes and preferences)
Transforming resources:
• Are those inputs that carry out the transformation process
• They enable the change and value adding to occur
• Human resources
o Employees are said to be the single most important input into
business because they combine and coordinate other resources
o Well designed human resources management policies such as
good job designs, extensive training programs, flexible work
practices and good communications can all assist to maximise
performance and enable the business’s objectives to be
achieved
• Facilities
o Major decisions include the design layout of the facilities, the
number of facilities to be used, their location and capacity
o Plant and machinery make a significant difference to a
businesses capacity to transform
Human resources (Apple Australia employed 2418 staff in 2013 while Foxconn
employs around 200,000) and facilities (17 final assembly plants around the
world in 2012 with 200 suppliers)
pg. 39
BUSINESS STUDIES
3.2 Transformation processes
– The influence of volume, variety, variation in demand and visibility
(customer contact)
– Sequencing and scheduling – Gantt charts, critical path analysis
– Technology, task design and process layout
– Monitoring, control and improvement
The transformation process:
• A manufacturer transforms inputs into tangible products (goods that
can be touched)
• A service organisations transforms inputs into intangible products
(services that cannot be touched)
• The operations process of a manufacturer tends to be highly
automated or mechanised
• Manufacturers use machinery, robots and computers to transform
inputs into outputs
• Service providers rely heavily on interaction with the customer and their
processes tend to be more labour- intensive; that is, staff are crucial to
the operations
The transformation processes and value adding:
• Transformation processes are also directly involved with value adding
• Costs are incurred when something created by manufacturing is
processed or when a service is created
• The addition of cost in transforming the inputs into a process, which will
turn them into outputs, adds value
• Thus, cost is often related to value
The influences of volume, variety, variation in demand, and visibility
(customer contact)
• How much to make- what volume of input to draw in and to process
o Volume refers to how much of a product is made
o Volume flexibility refers to how quickly the transformation process
can adjust to increases or decreases in demand
o This responsiveness to the required changes in volume is essential
to effectively managing lead times
o Lead time is the time it takes for an order to be fulfilled from the
moment it is made
o If businesses cannot quickly adjust to changes in market
demand, it can over produce, which may lead to wastage and
increased inventory costs
o If backorders cannot be quickly fulfilled it may result in lost sales
pg. 40
BUSINESS STUDIES
o The smartphone market is competitive and subject to rapid
change in product design and demand. Predicting volume
required involves risks and costs, such as over-ordering
components
• How much variety- what range of outputs should be made in the
process of transformation
o The mix of products made, or services delivered through the
transformation process, is sometimes called mix flexibility
o Mix flexibility is known by consumers as product range or variety
of choice
o The influence of variety on transformation processes is, the
greater the variety made, the more the operations process need
to allow of variation
o iPads, iPods, iPhones, etc.
• How much variation in demand will there be- how can the operations
processes respond to changes in demand
o An increase in demand will require increased inputs
o Increase in demand may be hard to meet if:
▪ Suppliers cannot supply quickly enough
▪ Labour is not flexible enough, skilled or available
▪ The adopted machinery cannot adjust to increased
capacity quickly, either because it is not designed to or
because it breaks down
▪ Increased energy and power are not able to be readily
sourced
o A decrease in demand will also require operational flexibility as
staff may need to have their hours reduced, production may
need to slow to avoid inventory build up and suppliers may put
on pressure due to contractual agreements
o All businesses will try to forecast demand so that adjustments can
be anticipated and a business can act accordingly
o In 2012 the demand for the iPhone 5 exceeded the initial supply
during the launch. The ability to produce more in a short period
of time depended on the suppliers and their ability to adjust
operations.
• How much customer contact (visibility) should there be and what, if
any, role should it have on transformation processes
o Customer contact or feedback can directly affect
transformation processes
o Direct contact
▪ Customer feedback
▪ Surveys
▪ Interviews
pg. 41
BUSINESS STUDIES
▪ Warranty claims
▪ Letters
▪ Wikis
▪ Verbal contact
o Indirect contact
▪ Review of sales data- gives an indication of customer
preferences
▪ Market share data- observation of peoples’ decision
making processes and customer reviews
The iPhone 4 has 2 versions with many problems in the 4 fixed in the 4S. This is
due to customer feedback.
Sequencing and scheduling tools
• Scheduling and sequencing tools are used to identify all steps in the
operations process and organise them into the most efficient order to
complete
• Gantt charts
o Created by Henry Gantt in 1917
o Outlines the activities that need to be performed, the order in
which they should be performed and how long each activity is
expected to take
o Gantt charts are used for any process that has several steps and
involves a number of different activities that need to be
performed
o Advantages include:
▪ They force the manager to plan the steps needed to
complete a task and to specify the time required for each
task
▪ They make it easy to monitor actual progress against
planned activities
• Critical path analysis (CPA)
o Scheduling method that shows PERT- programme evaluation and
review technique
o What needs to be done, how long they take and what order is
necessary to complete those tasks
o The critical path is the shortest length of time it takes to complete
all tasks necessary to complete the process or project
o Some tasks can be performed simultaneously
o Because each activity on the schedule must be completed to
make the final product the critical path is the shortest path
through the process
o Scheduling enables a manager to see what needs to be done
and allows the timing of tasks to be considered
o With this information a business will be able to see in what order
activities need to be done and also be able to see which tasks
can be done at the same time
pg. 42
BUSINESS STUDIES
o Apple have tracked an order-delivery sequence (critical path
analysis) of an iPad at 12 days, 18 hours and 8 minutes.
• Comparison
o Gantt charts are useful in business production and operations
activities are not too complicated
o In production operations where there are numerous activities-
some which cant start until the preceding operations and
production activities have been complete
o The PERT network figure outlining the critical path is then used to
schedule and plan the operations and production
o PERT allows operations and production management to obtain
an overview of the relationship between the activities in a
complex operation, evaluate progress and take any necessary
corrective action early on
Technology
• The use of machinery and systems that enable businesses to undertake
the transformation process more effectively and efficiently
• In the manufacturing sector, technology can be used to speed up
(shorten) processes and enable fuller utilization of raw materials
• This makes the operations processes more cost effective
• In the service sector, office and communications technology have
enabled whole markets to open up and allow for a small to medium
business to trade globally
• Office technology:
o Computers, keyboards, CD ROM, USB, modem, mobile phones
and hands free, paging services, answering machines, personal
organiser- personal digital assistant, combined printer
photocopier scanner and facsimile machine, EFT and EFTPOS
• Technologies have created the opportunity to do more work in less
time, which means a greater range of tasks can be completed
• These technologies have also enabled office workers to work at a
great distance from the office
• Automation is used by Apple for placement of small components that
are difficult to perform and error prone, not to eliminate work that can
be done manually.
• Manufacturing technologies:
o Key manufacturing technologies are robotics, computer aided
design and computer aided manufacturing
o Robotics
▪ Applies to highly specialised forms of technology, capable
of complex tasks
▪ They can shape the transformation processes so that they
are very high quality, of a consistently high standard,
efficient and minimise waste
pg. 43
BUSINESS STUDIES
▪ They allow for a degree of precision and accuracy
generally unmatched by human labour
▪ High powered and highly automated form of technology
that can be used for tasks
▪ They are very high cost items that are unaffordable for
most small to medium- scale manufactures
o Computer-aided design (CAD)
▪ A computer design tool that allows businesses to create
product possibilities from a series of input parameters
▪ A graphic design tool that generates 3-D diagrams from a
set of given input data
▪ Can be viewed from multiple angels. This assists both the
designers and the end user to visualise what will be
produced
▪ From the design, materials usage can be calculated, as
can lead. This enables the costing of the project to be
qualified
▪ If the cost is too high or the design is too limited, the input
parameters can be altered
▪ Given the speed of CAD software, it is easy to customise a
series of options that meets the client’s or customer’s
needs
▪ CAD software can also design the sequence of steps that
would need to be taken to create the desired product in
the shortest possible lead time using the least amount of
materials
o Computer-aided manufacturing (CAM)
▪ Software used to allow the manufacturing process to
become computer controlled
▪ The CAD software can be linked to the CAM software to
allow the instantaneous manufacturing of designs that are
accepted by clients
▪ CAM can also be used more broadly to calculate how
much of each input resource would be required
▪ The CAM software can store historic purchasing records to
assist with present purchasing decisions
Task design:
• Task design involves classifying job activities in ways that make it easy
for an employee to successfully perform and complete the task
• Task design overlaps the employment relations functions of job analysis,
job description, and person specification
• Task design is breaking down the work into a series of jobs in which
each contributes to the final goal
• Task design → job description → person specification → recruitment →
selection
pg. 44
BUSINESS STUDIES
• Employees on an iPhone assembly line will require certain knowledge
and skills. Unskilled workers have specific functions with no shared tasks.
They are highly supervised and the speed of work is quick.
• Skills audit:
o Sometimes, a business already has available staff however the
staff may not have the requisite skills
o Under these circumstances the managers may wish to conduct
a skills audit- formal process used to determine the present level
of skilling and any skill shortfalls that need to be made up either
through recruitment or through training
Plant (factory/ office layout)
• Plant layout is the arrangement of equipment, machinery and staff
within the facility (either a factory or an office)
• An operations manager needs to consider the best layout to ensure:
o Enough physical space
o Effective use of production equipment
o The use of appropriate technology
o Adequate location of stock and warehousing requirements
o Links between processes or stages of production; that is, an
efficient flow of the goods or service through the system
o A work environment for employees that is of sufficient quality for
the task
o Conformity with legal regulations concerning site and building
constraints
o Conformity with occupational health and safety (OH&S)
standards relevant to the industry
• The alternative layout options are the:
o Process layout
o Product layout
o Fixed position layout
Process layout
• Process layout is the arrangement of machines such that the machines
and equipment are group together by the function (or process) they
perform
• The process layout is sometimes called the functional layout
• Typical of hospitals, such as the maternity wars and intensive car units
• Process layout for intermittent production:
o Process production deals with high- variety, low- volume
production
o Each product as a different sequence of production and the
production is intermittent, moving from one department to
another
o The necessary machinery is arranged according to this
sequence
pg. 45
BUSINESS STUDIES
o This approach also lends itself to “job lots”- that is, the
manufacture of parts in small quantities
o Many small to medium-sized manufacturers employ this process
o In service businesses, process layout is used to accommodate
the handling of customers with different needs
o A feature of this approach is creation of work cells or work teams
o Cellular or team-based work arrangements can be used to
create combinations of machinery and equipment to produce a
single product or a range of similar products
• Product layout:
o Product production (mass production) is characterised by the
manufacturing of a high volume of constant quality goods
o An assembly line is the most common layout for this type of
production because it aims to achieve the best possible
combination of personnel and machine use- “assembly line
balance”
o This type of layout is referred to as product layout where the
equipment arrangement related to the sequence of tasks
performed in manufacturing a product
o Work stations are arranged to match the sequence of
operations, and work flows from stations to station
o Emphasis is placed on sequencing the flow from one work cell to
another
• Fixed position layout:
o Project production deals with layout requirements for large-scale,
bulky activities such as the construction of bridges, ships, aircraft
or buildings
o With project production, it is more efficient to bring materials to
the site; workers and equipment come to the one work area
o A fixed position layout is where a product remains in one location
due to its weight or bulk
• Office layout:
o Typically an office space is organised around discrete
workstations
o Office layout is tailored to meet the needs of a business
o Enables the work to be performed efficiently in a safe office
environment
o Designed in a way that allows for smooth workflow; it should also
provide a space that enables employees to take a break from
the work environment if required
• Apple suppliers use a product layout for their manufacturing. Machines
and equipment is arranged according to the sequence in which the
iPhone is assembled.
pg. 46
BUSINESS STUDIES
Monitoring
• All operations processes should be monitored for their effectiveness
• Monitoring involves the measuring of all aspects of operations, from
supply chain management and the use of inputs, through to
transformation processes and outputs
• Collect information of the performance of operations including quality,
speed, dependability, flexibility, customisation and costs
• Monitoring is arranged around the needs to measure Key Performance
Indicators (KPI’s)- predetermined variables that are measured so
appropriate controls to operations processes can be made
• They include:
o Lead times/ wait times/ idle times
o Inventory turnover rates/ stock-out rates
o Defect rates, repair rates and warranty claims
o Process flow rates
o Capacity and volume rates/ capacity utilisation rates
o IT and maintenance costs
o Direct and indirect costs
• Monitoring of the KPIs gives operations managers a chance to
measure how the business is going and to assess performance against
targeted levels of performance
Controlling
• The main transformational processes should be subject to control
• This required effective monitoring and a focus on continuous
improvements
• Occurs when the KPIs are assessed against predetermined targets and
corrective action is taken if required
• Controlling compares what was intended to happen with what has
actually occurred
• If there is a discrepancy between performance and goals, changes
and improvements can be made
• Regular performance review indicates were corrective action may
need to be taken
• Control requires operations managers to take corrective action
Apple suppliers have a high level of supervision as many workers are unskilled.
Tasks need continual monitoring and control checks to improve time
management, improve quality, etc.
Improving
• Monitoring and control lead to improvements when there is a focus on
quality and standards
pg. 47
BUSINESS STUDIES
• Analysing the operations process and determining what can be
changes to improve quality, speed, dependability, flexibility,
customisation and cost
• Improvement typically is sought in the following areas
o Time, through the minimisation of bottlenecks, assessment of
necessity in all transformation processes and wait times
o Process flows and smoothness of transitions between
transforming processes
o Quality, through the pursuit of quality goals, measurement of
product standards and quality and an assessment of returns and
warranty claims
o Cost, through an assessment of per unit costs of production, a
review of expenses (fixed and variable) and an assessment of
per unit costs of delivery
o Efficiency, through the reduction of waste and the creation of
greater outputs per unit inputs
• Six sigma- process/ steps to try and ensure improvement continuously
occurs
o D- define process to be improved
o M- measure variables and set new goals
o A- analyse the cause of problems and alternatives
o I- improve and implement changes
o C- control
• Continuous improvement- this concept involves an ongoing
commitment to achieving perfection
• Although the goal of perfection will never be reached, the ‘striving’ is
important to the business culture
• The process becomes one of setting higher and higher standards in the
continual pursuit of improvement
• Kaizen- zero defects
• The iPhone 5 has a metal band, which is prone to scratching.
Continuous customer feedback about receiving new products with
scratches have led to tighter production standards and tougher quality
tests and controls. Longer lead times were a result.
3.3 Outputs
– Customer service
– Warranties
Outputs:
• Must always be responsive to customer demands
• Customer service refers to how well a business meets and exceeds the
expectations of customers in all aspects of its operations
• Warranties are businesses’ promises to correct any defects in their
products or in the service they deliver
pg. 48
BUSINESS STUDIES
• Both are considered outputs of the transformation process- imply that
the inputs and transformations processes are subject to scrutiny as the
outputs will be assessed by consumers
Customer service:
• Is an intangible output that requires customer contact
• Central to customer service is to make sure the right good or service is
delivered or provided at the right place at the right time
• Can increase consumer satisfaction and contribute to competitive
advantage
• May include:
o Answering questions and providing after sale advice
o Frequent and meaningful communication
o Anticipating customer needs
o Following up customer enquiries and complaints
Warranties:
• Warranty claims are made against goods that have defects arising
from an issue in transformation
• Operations managers need to trace the source of the fault in
manufacturing and rectifying it
• Warranty claims therefore lead the business to improve the
transformation process
• Apple suppliers have a high level of supervision as many workers are
unskilled. Tasks need continual monitoring and control checks to
improve time management, improve quality, etc.
• Under Australian law all businesses must ensure that the goods they sell:
o Are suitable for the purpose of job they will be used for
o Match the product description in any advertising or promotion
o Are free from defects or faults
pg. 49
BUSINESS STUDIES
4. Operations strategies
4.1 Performance objectives – quality, speed, dependability, flexibility,
customisation, cost
• Goals that relate to particular aspects of the transformation processes
• Set so that the business becomes more efficient, productive and
profitable
Quality:
• Often determined by consumer expectations, which are used to inform
the production standards
• Quality of design- how well a product is made or a service is delivered
o Beings prior to the creation of a product
o Determines the inputs and transformation processes
o As high-quality inputs add cost, this will be reflected in a higher
price that some consumers may not want to pay
• Quality of conformance- focus on how well the product meets the
standard of a prescribed design with a certain specifications
o A measure of how consistently products achieve compliance
(conformance with) the desired specifications regardless of the
standard of specifications
• Quality of service- quality of design and quality of conformance can
be applied to the design and delivery of services
o How reliable the service is
o How well the service meets the specific needs of the client
o How timely or responsive the service delivery is
• CEO Tim Cook stated “We have never been about selling the most.
We’re about selling the best experience and the happiest customers”.
The challenge is maintaining quality due to rising competition.
Speed:
• Speed refers to the time it takes for the production and the operations
processes to respond to changes in market demand
• Goals for speed include: reduce wait times, shorter lead times, faster
processing times
• Requires a reduction in procedural and technical bottlenecks and
smooth internal communications
• The level of demand of a new iPhone cannot always be accurately
determined in advance, so once it is launched operations must quickly
respond to the new level of demand.
Dependability (reliability):
• Dependability of goods refers to how long the products are useful
before they fail- e.g. warranty claims
o A highly durable product is a dependable product
pg. 50
BUSINESS STUDIES
o Perishable products can also be dependable if they are of
consistent and predictable standard
• For services, dependability refers t consistency of service standards and
reliability
o A measure for service dependability is the number of complaints
received; the fewer the complaints the more dependable the
service
• Some features of the iPhone were criticised for lack of dependability
(e.g. maps). Apple needed to respond quickly to dependability issues
in order to maintain consumer confidence in the iPhone.
Flexibility (adaptability):
• How quickly operations processes can adjust to changes in the market
o Changes in market demand cause a pressure on capacity
o It can take a business months to create a new product or extend
a product line
o Time and flexibility are related- the quicker the processing time
the greater the likelihood that processes can be adjusted quickly
• Best achieved by increasing the capacity of production
o By using plant and machinery better
o Can by new technologies
o Changing the product design thus creating a broader variety
• With services, flexibility can be achieved through
o Increasing the number of service providers
o Increasing the provider’s skill level
o Through improving the level of technology used when providing
the service
• Changing the design of the iPhone 5 to embrace colour and achieve
lower production costs was a strategy to increase its market share of
low-cost smartphones.
Cusomisation:
• Refers to creation of individualised products to meet the specific needs
of the customers
• Services are generally customised, although aspects of services can be
standardised as seen in the fast-food sector
• A customer orientation to operations means that over time businesses
would push operations processes towards customerisation
• The production of many of today’s goods and services are based on
the principle of mass customisation; a process that allows a standard,
mass-produced items such as a motor vehicle or computer, to be
personally modified to specific customer requirements
• Full customisation is rare and can only be offered when products are
created after an order specifying the requirements is received
• The cost of cusomisation is higher than the cost of mass producing
standardised products
pg. 51
BUSINESS STUDIES
• Apple products can be customised through Apps, music, cases, etc.
Cost:
• Minimising expenses- seek to become more efficient and allocate
costs better (use new technologies- inputs are better used/ less
wastage)
• Seek to reduce supplier costs, manage inventory better and find
distribution methods that are most cost and time effective
• All of the performance objectives (KPIs) will be allocated particular
targets or goals, and will be measured against the achievement of
those targets
• Apple has made cost a performance objective by: outsourcing
operations to China, switching outsourcing partners to reduce
production costs and designing the iPhone 5 c, with cheaper
components such as plastic casing.
4.2 New product or service design and development
• The design and development, launch and sale of new products
enables a business to grow and to attain a competitive advantage
Consumer approach:
• The preferences and desires of consumers, as identified by market
research, determine which products are designed and developed
Changes and innovations in technology:
• Enables new, appealing products to be made because they use
advanced technologies
Factors:
• Supply chain management- a new product will draw from suppliers
and extend the range of supplies sought, the timing or the volume of
supplies
• Quality- as demanded by customers
• Capacity- may increase the use or range of present resources, or
require an investment in new technology and machinery
• Cost- value is directly related to cost but also includes the customer’s
perception of product utility
Service design and development:
• Customised nature- taken the position of the customer or client as the
starting point in design
• Some do not require interaction with customers and therefore they
tend to be largely standardised in nature
pg. 52
BUSINESS STUDIES
• Need to consider explicit and implicit services and if any goods will be
required to deliver the service
Services using a good:
• The delivery of a service may require goods- additional aspects must
be considered when designing and developing a service
• Goods can also help in the delivery of a service
Development of the iPad mini launched in 2012.
o Market research, product concept and development –
customers wanted a smaller screen.
o Product and quality design – Apple engineers spent
months designing a smaller and lighter tablet.
o Testing and assessment – assessing customer feedback,
improvements in future models.
o Product refinement – testing iPad mini led to
developments of the iPad mini 2. Improved screen
resolution and large storage model were some ideas.
o Product launch and distribution – in 2013 the launch of the
iPad mini2 was delayed to allow the launch of the iPhone
5 to stand alone.
4.3 Supply chain management – logistics, e-commerce, global sourcing
• Acronymn: LEGS (logistics, e-commerce, global sourcing
• Supply chain management involves integrating and managing the
flow of supplies throughout the inputs, transformation processes and
outputs in order to best meet the needs of customers
• Can be determined by looking at the final product and then tracing
through all the processes it went through to add value
Logistics:
• Is the distribution, transportation, the use of storage, warehousing and
distribution centres, materials handling and packaging
• Distribution is a way of getting the good or service to the customer
o Producer → wholesaler → retailer → consumer
o Producer → agent → retailer → consumer
o Producer → retailer → consumer
o Producer → consumer
o Producer → global agent → domestic offshore agent → retailer
→ consumer
• Mode of transport selected is determined by the type of product to be
delivered, the cost involved, the capacity of the mode, as well as the
distance the product needs to travel to get to its destination
• Storage needs to be considered when there is a large amount of stock
to be held (including warehouses and distribution centers)
pg. 53
BUSINESS STUDIES
o Location is important
o J-I-T can reduce the need for storage
o Warehousing can be expensinve, but it can also save money if
used well (stock moves in and out quickly)
o Distribution centers are used for long term storage, whereas
warehouses are used for short term storage
• Material handling is an important aspect of logisitics- some products
need extra care during transportation and storage
• Packaging of products assists in protecting the product during the
transportation and storage stages of distribution
• These are government regulations surrounding materials handling and
packaging of dangerous goods (cleaning agents, chemicals)
• In 1998, to ensure new I Macs were available at Christmas, Steve Jobs
paid $50 million to buy up all the available holiday air freight space.
E-commerce:
• The buying and selling of goods and services via the internet
• Regarding supply chain management, some orders for suppliers may
needs to be placed online, and hence e-commerce plays an
important part in supply chain management
• E-procurement is using an online system to manage supplies. It allows
suppliers direct access to the business’s level of suppliers
• When stock falls to a pre-determined point, the supplier will supply
even without a formal request from the buyer enabled by what is
called business-to-business arrangement (B2B)
• The use of e-commerce has impacted on the supply chain- businesses
can sell directly to consumers online where they pay via a credit card-
business-to-consumer
• A business that sells directly to consumers online must be able to
manage supplies
• When apple.com was established, iPod sales took off. Apple realised it
was economical to ship them directly from Chinese factories to
consumer’s doors.
Global sourcing:
• Sourcing is the purchasing of inputs for the transformation process (also
known as procurement)
• Need to consider- consumer demand, quality of inputs required,
flexibility and timeliness of supply, cost of suppliers
• Trends:
o Supplier rationalisation- involves assessing the number of suppliers
in order to reduce the number of suppliers to the lease amount
o Backward vertical integration- purchasing the supplier through a
merge or acquisition
o Cost minimisation- using offshore suppliers to reduce costs
pg. 54
BUSINESS STUDIES
o Flexible/ responsive supply chain processes- lean processing
(minimise waste, lower costs, improve speed of production,
ordering only necessary stock)
• Global sourcing is businesses purchasing supplies or services without
being constrained by location. In supply chain management activity,
global sourcing means buying or sourcing from wherever the suppliers
are that best meet the sourcing requirements
• Benefits of global sourcing include: cost and expertise advantages,
access to new technologies and resources
• Challenges of global sourcing include: possible relocation of some
parts of operations, increased costs of logistics/ storage/ distribution
and managing regulatory conditions between countries
• Apple have a variety of suppliers from all around the world. E.g. Korea
and Taiwan (LCD screens, chipset, batteries and flash memory), Europe
(gyroscope, rotation of display), Inner Mongolia (rare earth minerals
used in glass polishing, colour screen, etc.) and USA (software, audio
chip, design and development).
4.4 Outsourcing – advantages and disadvantages
Outsourcing examples:
• Operations- manufacturing, designing
• Human resources- training and developing, counseling
• Administrative- data entry
• Information technology- desktop/ network outsourcing
• Finance and accounting outsourcing- preparation of financial reports
• Knowledge process outsourcing- marketing/ public relations
• Legal process outsourcing- legal support
Decisions:
• Favourable location
• Which vendor to use
• Management of contract
• Length of contract
• KPI’s/ service objectives
Options:
• Creation of shared service centers: in-house outsourcing option
• Fee for service arrangement: engaging a suppliers for a fixed service at
a pre-determined price
• Joint ventures: provider is also free to outsource to other businesses in
the same industries
• Build- operate- transfer: offshore outsourcing, involves contracting with
external organisations (agreed KPI’s)
pg. 55
BUSINESS STUDIES
Advantages Disadvantages
• Simplification
• Efficiency and cost savings
• Increased process capability
• Increased accountability
• Access to skills and resources
lacking within business
• Capacity to focus on core business
or key competencies
• Eliminate trade barriers
• Expertise of outsourcing partner
• Trading in different time zones
• Improvements to in-house
performance
• Reduced costs of production:
labour, materials, facilities and
energy
• Access to expertise, Foxconn is the
largest outsourcer in the world of
electronic products.
• Greater flexibility
• Access to the best technology
• Able to focus on core business
activity.
• Payback periods and costs
• Communication and language
• Loss of control of standard and
information security
• Organisational change and redesign
• Loss of corporate memory and
vulnerability
• Cost of adapting IT
• Increased transportation costs
• Loss of control
• Security risks
• Human resource problems/loss of jobs
• Language problems
• Dependant on other businesses
4.5 Technology – leading edge, established
Leading edge technology:
• Is the technology that is the most advanced or innovative at any point
in time
• Best technology is used to distinguish operations processes
• Use to create products faster and to higher standards, with less waste
• Helps a business operate more effectively
• Created by innovative processes and thinking
Fingerprint sensor technology
Established technology:
• Is the technology that has been developed and widely use and is
simply accepted without question
• Includes the use of computers and various software packages in
managing business operations and functions
• Functionally sounds and help to establish basic standards for
productivity and speed
pg. 56
BUSINESS STUDIES
• Includes: barcoding, robotics, CAD, CAM, CIM, IT, and FMS
• The iOS operation system that runs on the iPhone, iPod tounch and iPad
devices
4.6 Inventory management – advantages and disadvantages of holding
stock, LIFO (last-in-first-out), FIFO (first-in-first-out), JIT (just-in-time)
• Inventory refers to the amount of raw materials, work-in-progress and
finished goods that a business has on hand at any particular point in
time
• Apple must order components in advance of new product launches.
Materials are acquired through a combination of purchase orders,
supplier contracts, open orders and prepaid orders
• High inventory turnover and the number of days in which inventory is
warehoused is very low.
• JIT is employed as once products are ordered online the product is
shipped directly from China.
• This reduces lead times, demands are met quickly, Apple avoids
damage or warehousing costs and it minimises the chance of stock
becoming obsolete
Advantages of holding stock:
• Consumer demand can be met when there is stock available
• If a line runs out it can be replaced by an alternative- generating an
income
• Reduces lead times between ordering and delivery
• Stock gives opportunity to generate immediate revenue
• Can be distributed to distribution centers- can be rapidly transported
as indicated by demand
• Allows the business to promote use of products in non-traditional or
new markets
• Older stock can be sold at a reduced price- encourage cash flow and
sales
• Are an asset and reflected on the balance sheet
• Economies of scale in bulk purchasing
Disadvantages of holding stock:
• Costs- storage, spoilage, insurance, theft, handling expenses
• Invested capital, labour and energy cannot be used elsewhere as it
has been used to create the stock
• Cost of obsolescence- occurs if stock remains unsold
LIFO:
• The method of pricing inventory assumes that the last goods
purchased are also the first goods sold and therefore the cost of each
unit sold is the last cost recorded
pg. 57
BUSINESS STUDIES
• May overstate cost and understate gross profit
• May under value stocks on hand at the end of a period
FIFO:
• The method of pricing inventory assumes that the first goods
purchased are also the first goods sold and therefore the cost of each
unit sold is the first cost recorded
• Understate costs and overstate profit
• Stock at the end of a period may be overvalued
Just in time:
• Is an inventory management approach which ensures that the exact
amount of material inputs will arrive only as they are needed in the
operations process
• Allows retailers to display a wider range of products as they need to
store less- can order based on customer demand
• Saves money as it is not spent of storage, costs due to obsolescence
are minimised
• Requires a flexible operations functions with flexible processing
• Need to have a high ability to respond quickly to changes in market
demand and have reliable suppliers
4.7 Quality management
– Control
– Assurance
– Improvement
• Quality management refers to those processes that a business
undertakes to ensure consistency, reliability, safety and fitness of
purpose of product
Quality control:
• Involves the use of inspections at various points in the production
process to check for problems and defects
• Need to have a defined quality standard and parameters, as well as
tests that can test there standards
• Reactive approach- needs to be balanced with a proactive
approach that encourages continuous improvement
• Inspection and quality control:
o Business may carry out inspections of all or part of the total
volume of production
o Will be passed as okay or defective
pg. 58
BUSINESS STUDIES
Quality assurance
• Involves the use of a system to ensure the set standards are achieved
in production
• Important aspects include:
o The notion of ‘fitness for purpose’- how well a product does
what it is designed to do
o The desire to achieve ‘right first time’ so that products do not
need to be reworked, which wastes time, energy and other
resources
• Standards have been developed in response to globalization e.g. ISO
9000 (international organisations for standardization)
• These standards are voluntary but enhance domestic and international
competitiveness
Quality improvement:
• Continuous improvement is an ongoing commitment to improving a
business’s goods or service
• Basis- inclusion of staff into improvement processes (encouraged to
demonstrate initiative and suggest improvements)
• Achieved through six sigma- a quality management approach that
seeks to identify and remove the causes of problems in the operations
processes, achieving virtually defect-free production
• Total quality management is a concept that focuses on managing the
total business to deliver quality to customers
• Quality becomes both a commitment and the responsibility of every
employee of the business
• An ongoing and business-wide commitment to excellence developed
by W. Edwards Deming
• Objectives include: benchmarking, employee empowerment. Focus
on the customer and continuous improvement
• Apple requires a commitment to rigorous quality assurance. This
ensures the highest standards of total quality management. The ideal
suppliers are those who understand Apple’s culture, standards and
expectations.
• Control checks – Apple employs a secure online database that has
regularly updated information on current and potential suppliers
• Control issues with iPhone5. At least 5 million were returned to Foxconn
due to an unnamed defect
pg. 59
BUSINESS STUDIES
4.8 Overcoming resistance to change – financial costs, purchasing new
equipment, redundancy payments, retraining, reorganising plant layout,
inertia
Changes:
• Legislative and regulatory changes
• Changes in economic activity
• Social changes
• Technological changes and updates
• Most important step in overcoming resistance to change is
understanding why the change is resisted
• Resistance to change arises from financial and psychological/
emotional sources
Financial costs and resistance to change:
• Cost of purchasing new equipment
o Investment in place and equipment is expensive as it is classed
as capital cost, however the use of such equipment adds value
in the transformation process
o Allows for some operational goals to be achieved e.g. improved
processing speeds and shorter lead times, higher quality of
processing
o Decision whether to lease or buy must be made
• Cost of redundancies:
o Redundancy is a loss of work arising from job skills that are no
longer required/ relevant to the workplace
o Redundancy payouts can be quite high as they depend on the
employee’s length of service, the level of pay the employee is
at, amount of unused leave, outstanding wages
• Cost of retraining employees:
o The need to retrain employees arises with changes to business’
internal hierarchy or the acquisition of technology
o New skills need to be taught to efficiently complete tasks
• Costs associated with structural reorganization of the business,
including changes to plant layout and equipment:
o Can be high costs associated with reorganizing plants including:
▪ Transporting, placing and powering the new equipment
▪ Downtime as a result of transferring from old machinery to
new and when testing machinery/ equipment. Technology
▪ Loss of productivity in the ‘learning stage’ of implementing
new machinery/ technology
Psychological resistance to change- inertia
• Inertia is a term that describes a psychological resistance to change
• Fear of the unknown or uncertainty can cause people to resist change
o Threat of job loss
pg. 60
BUSINESS STUDIES
o Loss of career opportunities
o Intimidation (new staff, new technologies)
Managing change effectively:
• Identify the reasons for resistance to change
• Be proactive with change, not reactive- e.g. initiate change don’t wait
for it to take over
• Integrate change slowly into the business
• Communicate the changes and reasons for the changes to staff
throughout the change process
• Use change agents (someone who initiates and facilities change)-
including staff here will assist in creating a culture of change and they
will be more supportive
• Apply change models: Lewin’s unfreeze/change/refreeze or John
Kotter’s 8-step model
Lewin’s model:
• Unfreezing- break down the focus supporting the existing system and
prepare them for change
• Change- new procedures and behaviours must be communicated
and implemented
• Refreeze- requires that the manager offers positive reinforcement to
make sure the change lasts
John Kotter’s model:
• Establish a sense of necessity
• For a guiding group
• Create a vision
• Communicate the vision
• Empower people to fulfill the vision
• Recognise and reward achievements
• Consolidate improvements
• Institutionalise the changes
• Since Steve Jobs returned to Apple in the 80’s, executive staff have
been made redundant, new equipment has been procured, change
agents have been introduced and all current and new staff are
continually retrained in new technology.
• Supply chains are continually reorganised and any sign of inertia from
suppliers/staff is not tolerated.
pg. 61
BUSINESS STUDIES
4.9 Global factors – global sourcing, economies of scale, scanning and
learning, research and development
• In the modern day businesses operate globally, and this presents
opportunities for operations strategies to better meet business
objectives, but also creates new risks
Global sourcing:
• Businesses purchasing supplies or services without being constrained by
location
• Benefits for Apple include cost savings by outsourcing, proximity to
suppliers and overseas markets, and access to leading technologies.
The majority of components come from China and Mongolia (reduces
transportations costs). Negatives include worldwide economic
conditions, fuel costs, unemployment, etc.
Benefit:
• Cost advantages
• Access to new technologies
• Expertise and labour specialisation
• Operate over extended hours
Challenges:
• Relocation of parts of the business
• Increased cost of logistics
• Storage and distribution
• Different regulatory conditions
• Increased complexity
Economies of scale:
• As outputs rise operational costs decrease because of benefits such as
discounts for bulk buying and greater specialisation
• Refers to cost advantages that can be gained by producing on a
larger scale
• Operations outcomes can therefore be improved if the business
expands into overseas markets
• The business will be producing more, allowing it to achieve economies
of scale
• Efficiencies in production by using skilled labour of mega factories such
as Foxconn. Having over 300 suppliers in China, Apple outsources large
overseas production to gain lower unit costs, economies of scale and
quick lead times, giving Apple a competitive advantage.
pg. 62
BUSINESS STUDIES
Scanning and learning:
• Refers to the systematic process of acquiring information about
changes and trends in external economic conditions and using them
to make decisions about operations
• Many leading edge technologies or business practices are developed
in other countries and therefore businesses need to be continually
researching ways to improve efficiency
• Kaizen is Japanese for improvement. It emphasises continuous
improvement in all areas of the business, from the way the CEO
managers to the way assembly line workers perform their jobs
• Due to the competitive nature of the smartphone market, competitors
need to scan and learn from competitors in the design, manufacturing
and delivery of smartphones in order to remain competitive. Issues
include imitation and protection of intellectual property
Research and development:
• Systematic work undertaken to improve or create new products and
production processes, or to extend product life cycles. It can be a
costly investment but is vital for business innovation
• Government often encourages R&D through taxation incentives and
grants
• Apples investment in R&D is a crucial strategy in maintaining a
competitive position in the smartphone market. Total R&D expenses in
2013 was $4.5 billion.
pg. 63
BUSINESS STUDIES
Marketing
The focus of this topic is the main elements involved in the development and
implementation of successful marketing strategies.
examine contemporary business issues to:
• explain why goods and/or services are central to both marketing and
operations
• examine why ethical behaviour and government regulation are
important in marketing
• assess why a mix of promotional strategies is important in the marketing of
goods and services
investigate aspects of business using hypothetical situations and actual
business case studies to:
• evaluate the marketing strategies for a good or service
• analyse a marketing plan for a business
• explain how globalisation has affected marketing management
1. Role of marketing
1.1 Strategic role of marketing goods and services
Marketing:
• Marketing is a total system of interacting activities designed to plan,
price, promote and distribute products to present and potential
customers so individual and organisational objectives are satisfied
• Marketing is the range of activities that aims to identify, anticipate and
shape customer demands and satisfy these demands in a way that
furthers the business objectives
• Unique role in business as it is the only business function that generates
funds to cover the costs of operating the business and ultimately to
make a profit
Strategic role:
• A common financial business goal is profit maximisation
• The strategic role of marketing is to translate this goal into reality via the
marketing plan
• A business will develop and implement a marketing plan that sets out a
series of actions or strategies that can be used to attain greater sales,
and in doing so be able to achieve this financial goal
• Marketing at Apple plays a major role in generating sales, thereby
contributing to strategic goals such as: profit maximisation, growth, the
development of brand awareness, customer loyalty
pg. 64
BUSINESS STUDIES
Marketing plan:
• The marketing plan outlines the strategies to be used to bring the buyer
and seller together.
• The business needs to be able to identity: where the market is, who will
buy the product, why they will buy the product, and how often they
will buy the product
• The core of marketing is satisfying existing customer wants, which
should lead to repeat sales
• Marketing is the revenue-generating activity of any business. Nothing is
achieved until a sale is made
1.2 Interdependence with other key business functions
• Operations→ sales predictions→ affect volume of products made,
leads to changes in existing productions process, impact the ordering
of supplies.
• Finance→ sales and profit forecasts of marketing→ used to prepare
budgets, provide a reason for borrowing finance, used to set a system
of controls
• Human resources→ marketing determines volume and quality of
demand→ affects the number and skills of new staff required, may
require reallocation of tasks for existing staff
• The marketing concept is a business philosophy that states that all
sections of the business are involved in satisfying a customer’s needs
and wants while achieving the business’s goals
• The business should direct all its policies, plans and operations towards
achieving customer satisfaction
• The marketing plan, therefore, needs to become integrated into all
aspects of the business, with marketing strategies playing a major role
in all business activities
• Marketing is crucial to all other functions because it generates funds
• Operations – Market research enables sales forecasts for the new
model which are used by operations to prepare production schedules
• Finance – Budgets will be allocated to the marketing department to
effectively control costs and minimise expenses in their activities.
• Human resources - The launch of the new iphone by the marketing
department created the need for staff training and development of
Foxconn employees (assembly, etc). Employees at retail stores need to
be trained in the specifications and promotional offers for the new
range.
pg. 65
BUSINESS STUDIES
1.3 Production, selling, marketing approaches
The production approach:
• 1820’s-1920’s
• Focused businesses on the production of goods and services
• Emphasis on producing goods
• Industrial revolution created a burst of industrial outputs- demand
exceeded supply
• Production design was based more on the demands of mass
production techniques than on customer needs and wants
The sales approach:
• 1920’s- 1960’s
• Based on the belief that a business will be successful in selling a
product if it is able to promote the benefits of the products to its target
market
• The skills of selling are considered the most important task
• Supply started to meet the demands of the market
• Production become more efficient and effective
• Lead to an increase in competition for high-quality mass produced
products
• Selling techniques were used to gain new customers and beat
competition
• Emphasis on the hard sell- door to door knocking
The marketing approach- stage 1:
• 1960’s-1980’s
• Focuses on finding out what customers want- through market research-
and then satisfying that need
• Began with the economic boom after WWII
• Focus moved from production to the customer
• Discretionary income refers to the disposable income that is available
for spending and saving after an individual has purchased the basic
necessities of food, clothing and shelter
• This was a business opportunity as consumers were able to buy more
than the necessities of life
The marketing approach- stage 2:
• 1980’s- present
• Corporate social responsibility
o Stronger public focus on the environmental pollution and
resource depletion changed marketing strategies
o Stronger focus on ecologically sustainable products
• Customer orientation:
o The whole business focuses on exceeding customer expectations
pg. 66
BUSINESS STUDIES
o Customer orientation refers to the process of collection
information from customers and basing marketing decisions and
practices on customers’ wants and interests
o Customer satisfaction measures how goods and services
supplied by a business meet or exceed customer expectations
• Relationship marketing:
o Relationship marketing is the development of long-term and
cost-effective relationships with individual customers
o It places a high priority of customer retention and continual
satisfaction
o The core of relationship marketing is customer loyalty
• Apple now employs a marketing approach. Understanding what the
customer wants and needs is integral to the success of Apple’s
marketing and the maintenance of a competitive advantage,
1.4 Types of markets – resource, industrial, intermediate, consumer, mass,
niche
Markets:
• A market is a group of individuals, organisations or both that
o Need or want products (goods or services)
o Have the money (purchasing power) to purchase the product
o Are willing to spend their money to obtain the product
o Are socially and legally authorised to purchase the product
Resource markets:
• Consist of those individuals or groups that are engaged in all forms of
primary production, including mining, agriculture, forestry and fishing
• Make up approximately 116000 enterprises
• Large purchasing power
Industrial markets:
• Includes industries and businesses that purchase products to use in the
production of other products or in their daily operations
• More than 932000 businesses
• Secondary or tertiary
Intermediate markets:
• Consists of wholesalers and retailers who purchase finished products
and resell them to make a profit
• Vast majority of goods sold to consumers are first sold to intermediate
• 168000 retails and 40000 wholesalers
pg. 67
BUSINESS STUDIES
Consumer markets:
• Consist of individuals- that is, members of a household who plan to use
or consume the product they buy
• Do not intent to use the products to make other goods and services
• Managers examine behaviours of customers
Mass markets:
• The seller mass-produces, mass- distributes and mass promotes one
product to all buyers
• Do not target specific groups, all have similar needs/ wants
• Very few products today are mass marketed yet basic food, electricity
and water are examples
Niche markets:
• Also known as a concentrated or micro-market
• Is a narrowly selected target market segment
• Mass market is divided into smaller market segments consisting of
buyers who have specific needs/ lifestyles (they are the target market)
Apple sells mainly to consumer markets but also have other intermediaries
such as JBHiFi selling Apple products
2. Influences on marketing
2.1 Factors influencing customer choice – psychological, sociocultural,
economic, government
Psychological:
• Influences within an individual that affect his or her buying behaviour
• Concerns the reason why people buy a product
• Perception:
o The process through which people select, organise and interpret
information to create meaning
o Businesses must create a positive or favourable perception
about their products in the minds of the customer
• Motive:
o The reason that makes an individual do something
o Includes comfort, health, safety, ambition, taste, pleasure fear,
amusement, cleanliness and the approval of others
• Attitude:
o A person’s overall feeling about an object or activity
o Attitudes towards the business and products will influence the
success or failure of the business’s marketing strategy
pg. 68
BUSINESS STUDIES
• Personality/ self-image:
o Collection of all the behaviours and characteristics that make up
that person. An individual’s self- image relates to how a person
views himself or herself
o Influences the type of products a person buys
o Most individuals desire to express their identity through their
purchases
o Celebrities and sportspeople are regularly used to endorse a
product, as people want their self- image to be a reflection of
those who are regarded as important or influential
• Learning:
o Refers to changes in an individual’s behaviour caused by
information and experiences
o Brand loyalty occurs when a favourable attitude towards a single
brand results in repeat sales over time
o To market products successfully, a business must assist customers
to learn about them
• The perception is that Apple products are cool and innovative, motive
is peer pressure, attitude is that Apple products are easy use, and
personality is usually those who love new gadgets. E.g. iPhone 5c in
various colours to attract teenagers (colour reveals your personality)
and iPhone5s for forward thinkers.
Sociocultural influences:
• Are influences exerted by other people and groups that affect an
individual’s buying behaviours
• Include social class, culture and subculture, family and roles and
reference/ peer group
• Social class:
o Refers to a person’s relative rank in society, based on his or her
education, income or occupation
o Influences the type, quality and quantity of products a customer
buys
o High income earners may buy products that are perceived to be
prestigious- symbolising status
o Marketing needs to be directed to a certain social status
• Culture and subculture:
o Is all the learned values, beliefs, behaviours and traditions shared
by a society
o Culture infiltrates all that we do in our everyday lives
o Determines what people wear, what and how they eat and
where or how they live
• Family and roles:
o All hold different roles within the family and groups within the
wider community
o Roles influence buying behaviour
pg. 69
BUSINESS STUDIES
o E.g. most women still make purchasing decisions related to
healthcare, food and cleaning- reflected in marketing
• Reference (peer) group:
o Is a group of people with whom a person closely identifies,
adopting their attitudes, values and beliefs
o Buying behaviour may change to match the rest of the group’s
beliefs and attitudes
• Apple users believe life is easier with Apple, apps such as Ping create
social bonds.
Economic influences:
• Economic forces influence a business’s capacity to compete and a
customer’s willingness and ability to spend
• Economic activity fluctuates from boom to recession which influences
the marketing environment
• Boom:
o Period of low unemployment and rising incomes
o Businesses and customers are optimistic about the future
o Businesses will increase production line and attempt to increase
market share by intensifying promotional efforts
o Marketing potential is large, with sales responding to all forms of
promotion
• Recession:
o Unemployment reaches high levels and incomes fall
dramatically
o There is a lack of confidence in the economy
o Spending reaches low levels- become more price conscious
o Marketing needs to stress the value and usefulness of a product
o The main goal is survival
• GFC led to falling sales and the iPhone 5c was a result of this. Strong
iPhone sales during 2008-2009 recession offset not so strong Mac sales.
Government influences:
• Use economic policies to influence the level of economic activity- will
either expand or contract the level of economic activity
• Can directly or indirectly influence business activity and customers’
spending habits- influence on marketing plan
• Regulatory forces consist of laws (statutes) and regulatory bodies that
can influence business behaviour
• Laws include:
o Competition and Consumer Act 2010 or Trade Practices Act 1974
o Sales of Goods Act 1923
o Fair Trading act 1987
• Apple needs to ensure it complies with laws related to warranties when
selling in Australia
pg. 70
BUSINESS STUDIES
2.2 Consumer laws
– Deceptive and misleading advertising
– Price discrimination
– Implied conditions
– Warranties
The Australian Consumer Law:
• To protect consumers from businesses that may cause harm from
inappropriate marketing behaviours
• In 2011 the Australia Consumer Law was introduced, which replaced 17
existing national, state and territory consumer laws
• Marketers need to be familiar with the laws that regulate their activities
and also be aware of any changes that apply to their business
• Must ensure they are up to date with the current laws and need to
apply them to all marketing practices
Competition and consumer act 2010:
• Formerly known as the Trade Practices act 1974
• Most important piece of legislation affecting marketing and business
practices
• Two main purposes:
o To protect consumers against undesirable practices, such as
misrepresenting the contents of products, their place of
production and misleading and deceptive advertising
o To regulate certain trade practices that restrict competition. The
government also wants to ensure a number of businesses are
operating at any one time in the same market to encourage
competition
• Enforced by the Australian Competition and Consumer Commission
(ACCC) and the Australian Securities and Investment Commission
(ASIC)
• Breaches of the law could end in fines from the CAA of up to $1.1
million for companies and $220000 for individuals
• The ACCC can now take on the spot action issuing $6600 fines to
companies and $1320 for individuals per infringement
Deceptive and misleading advertising:
• Fine print- important conditions written in small sized print, difficult to
read
• Before and after advertising- comparisons may be distorted, before are
worsened and after are enhanced
• Tests and surveys- make unsubstantial claims based on surveys that
weren’t conducted
pg. 71
BUSINESS STUDIES
• Country of origin- labeling needs to be accurate
• Packaging- size and shape may give a misleading interpretation of the
contents
• Special offers- misleading or deceptive if it is implied that it is only
available for an amount of time, when it is actually continuously
available
• Bait and switch advertising- involves advertising a few products at
reduced and, therefore, enticing prices to attract customers
o When the advertised products quickly run out, customers are
directed to higher priced items
• Dishonest advertising- is when an advertisement uses words that are
deceptive or claims that a product has some specific quality when it
does not
• Apple must ensure promotional information doesn’t convey a false
impression of the iPhone, or suggest certain qualities that it doesn’t
have.
Price discrimination:
• Is the setting of different prices for a product in separate markets
• Price difference is possible because:
o The markets are geographically separated
o There is product differentiation within the market
• The Competition and Consumer Act prohibits price discrimination if the
discrimination could substantially reduce competition
• Applies to discounts given, credits, rebates, services and payment
arrangements
• Means that businesses cannot give favoured treatment to some
customers but not others
• Apple must sell the iPhone at the same price to all customers in
Australia. However, this doesn’t prevent other retailers of iPhones from
determining their own price.
Implied conditions- consumer guarantees:
• Australian Consumer Law introduced a single set of statutory
guarantees- this replaced the previous system of implied conditions
• Consumer guarantees are a comprehensive set of rights and remedies
for defective goods and services
• Implied conditions are the unspoken and unwritten terms of a
contract, they are assumed to exist regardless of whether they were
especially mentioned or written into a contract
• The ACL introduced acceptable quality of products, which ensures
customers are purchasing a product that does what it says
• Acceptable quality means that the product is fit for the purpose for
which it is being sold, acceptable in appearance and finish, free from
defects, safe and durable
pg. 72
BUSINESS STUDIES
• It is a breach of the law to suggest a product has characteristics which
it does not
• Smartphones must be fit for purpose, correspond with their description
and spare parts, repairs, etc. must be available and comply with
warranty conditions.
Warranties:
• Businesses have obligations with regard to the products they sell
• Designed to offer a degree of protection to the customer if the good is
faulty or if the service is not carried out with due care and skill
• A warranty is a promise by the business to repair or replace faulty
products
• Legislation requires businesses to state, clear and simply, the terms and
conditions of the warranty
• This assures customers that the business has confidence in the quality of
its product
• False or misleading statements concerning the existence, exclusion or
certain conditions of the warranty are prohibited under the
Competition and Consumer Act
• A business is required by law to offer a refund:
o If the products are fault
o Do not match the description or a sample
o Fail to do the job they were supposed to do
• Are not required to give a refund for change of mind, the customer
finding a product at a cheaper price or if damage has occurred after
the purchase was made
• Appropriate and accurate signage is required regarding returns and
refunds
• All Apple products come with a warranty and must be compliant with
the Competition and Consumer Act.
2.3 Ethical – truth, accuracy and good taste in advertising, products that may
damage health, engaging in fair competition, sugging
Ethical influences:
• Conforming to a standard of behaviour that is acceptable in relation
to the standards of the community, the group or the organisation
• An ethical person would do nothing that would cause harm and
distress to individuals and the community as a whole, and would do
nothing to gain an advantage at the expense of others
Ethical criticisms of marketing:
• Creation of need- materialism- persuading and manipulating
consumers to buy whatever the firm wants to sell
• Stereotypical images of males and females
• Use of sex to sell products
pg. 73
BUSINESS STUDIES
• Product placement- the inclusion of advertising in entertainment
Truth and accuracy in advertising:
• Advertising- a paid, non-personal message communicated through a
mass medium
• Untruths due to concealed facts:
o Pieces of information purposefully omitted from an
advertisement can severely harm the trust customers have in a
product or a business
• Exaggerated claims:
o Puffery is exaggerated praise or flattery, especially when used for
promotional purposes that no reasonable person would take as
factual
• Vague statements:
o Statements using words so ambiguous that the consumer will
assume the advertiser’s intended message
o They deliberately use misleading language to influence buying
behaviour, yet due to the vague natural allows the marketer to
deny the intention to mislead
• Invasion of privacy:
o Online advertising can track web users and use this information
to target them with advertisements
o Raises the concern of consumer privacy, as many consumers are
unaware that data is being collected on them
• The sale of all Apple items come with a set of terms written in fine print.
Apple has been criticised for influencing children through product
placement in Toy Story 3.
Good taste in advertising:
• Offensive and inoffensive material is often subjective
• But there is usually a common agreement as to what society considers
acceptable and marketers must be aware of community sensitivity
• Growing concern of the impact mass media has on children including
in the area of sexualisation which can result in increased risk of
depression, self-esteem and identity disorders and premature sexual
activity
• The Advertising Standards Bureau (ABS) ensures acceptable advertising
standards are followed, through a national system of self-regulation
• Self-regulation is a system by which a business or industry controls its
own activities rather than being publically regulated by an outside
organisation such as the government
Products that may damage health:
• Organisations must be socially aware and responsible to the society in
which it operates
pg. 74
BUSINESS STUDIES
• Federal governments have restrictions on children’s advertising- in
Australia no advertising is allowed during programs designed for
preschoolers
• Organisations need to consider:
o Product safety
o Gambling
o Alcohol and tobacco marketing
o Advertising to children (obesity)
o The ecological sustainability of a product
o High levels of debt
Engaging in fair competition:
• Because the amount of competition can be intense, there is a
temptation for some businesses to engage in unfair marketing
strategies, which ultimately result in consumer exploitation
• Some common exploitative practices include advertisements that
make false promises or are highly exaggerated, incomplete product
descriptions; or manipulative, high pressure selling methods
• Such strategies are not only unethical but they are also unlawful
• In order to engage in fair competition, a business should develop and
adopt an ethical marketing policy, which are standards which can be
used to assess the business’s ethical performance
• Given the popularity of some Apple products, they limit the number for
purchase.
Sugging:
• Is the selling under the guise of a survey
• It is a sales technique disguised as market research
• Raises ethical issues of invasion of privacy and deception
3. Marketing process
Marketing planning process:
• Strategic marketing planning is the process of developing and
implementing marketing strategies to achieve marketing objectives
• Process: a procedure or plan of action
• Marketing: is a total system of interacting activities designed to plan,
price, promote and distribute products to present and potential
customers
3.1 Situational analysis – SWOT, product life cycle
• Attempts to answer two broad questions:
o Where is the business now?
o Where will the business be in the future?
pg. 75
BUSINESS STUDIES
• The aim is to understand the market place and the customer needs
and wants in that market place
• Uses two tools- SWOT and product life cycle
SWOT:
• Involves the identification and analysis of the internal strengths and
weaknesses of the business, and the opportunities in and threats from,
the external environment
• Strengths include internal capabilities that help the business achieve its
objectives
• Weaknesses are the internal limitations that make it difficult to achieve
objectives
• Opportunities are external factors the business may be able to exploit
to its advantage
• Threats are current and emerging external factors that may challenge
the business’s performance
• It provides the information needed to complete the situational analysis
and gives a clear indication of the business’s position compared to its
competitors
Strength
Well-established brand
Weakness
High price relative to
competitors
Opportunities
New innovations and
technologies
Threats
Increased competition
Product life cycle:
• An assessment of the products position in the product life cycle should
be carried out because different marketing strategies will need to be
used at different stages
• A business will be able to launch, modify and delete products in
response to changes in the product life cycle
• Failure to do so will result in declining sales and reduced profits
• Consists of the stages a product passes through: introduction, growth,
maturity and decline
• Introduction stage:
o The business tries to increase consumer awareness and build a
market share for the new product
o Product brand and reliability established
o Price is often noticeably lower than competitors’ prices in order
to gain a market foothold
o Promotion and communications seek to educate potential
customers about the merits of the new products
pg. 76
BUSINESS STUDIES
o Distribution is selective, which enables consumers to gradually
form an acceptance of the product
• Growth stage:
o Brand acceptance and market share are actively pursued
o Product quality is maintained and improved and support services
may be added
o Price per unit of production is maintained as the firm enjoys
increased consumer demand and a growing market share
o Promotion now seeks a wider audience
o Distribution channels are increased as the product becomes
more popular
• Maturity stage:
o Sales plateau as the market becomes saturated
o Product features and packaging try to differentiate the product
from those of competitors
o Price may need to be adjusted downwards to hold off
competitors and maintain market share
o Promotion continues to suggest the product is tried and true- still
the best
o Distribution incentives may need to be offered to encourage
preferences over rival products
• Decline stage:
o Sales begin to decline as the business faces several options
o Product maintained with improvements and rejuvenation. Cut
losses by selling it to another business
o Price is reduced to sell remaining stock
o Promotion discontinued
o Distribution channels reduced and product offered to a loyal
segment of the market only
• Why some products decline:
o Changing public perception
o New technologies
o New products reducing demand for older ones
o Level of economic activity constantly results in shifts un customer
spending habits
o Growing concern for the environment
3.2 Market research
Market research:
• Is the process of systematically collecting, recording and analysing
information concerning a specific marketing problem
• Marketing strategies perform best when they are based on accurate,
up-to-date, detailed and relevant information
• The main objective of market research is to minimise the risk of
releasing a new product
• A more accurate and responsive marketing plan can be designed
pg. 77
BUSINESS STUDIES
• Attempts to identify and outline both marketing opportunities and
problems as well as evaluating the implementations of the marketing
plan
The three steps of the market research process:
• Determining information needs:
o Information collected most by relevant
o Needs to result in marketing strategies that meet the needs of
the business’s target market
o Needs to assist the business to achieve its marketing objectives
o It may be used to increase sales and profits
• Data collection- primary sources
o Primary data are the facts and figures collected from original
sources for the purpose of the specific research problems
o Collected by the business itself- may be time consuming and
expensive
o Survey method:
▪ Conducting a survey through face- to- face personal
interviews, focus groups, electronic methods or
questionnaires
▪ Gathers first hand information and provides customer
opinions
▪ Response rates are declining- electronic means of
collecting data poses ethical concerns
o Observation method:
▪ Actions of customers are observed
▪ Ethical concerns of privacy
▪ Personal observation- someone poses as a customer in
store
▪ Electronic observation- camera or counting machines
▪ Loyalty programs, customer spending habits
▪ Electronic methods have become increasingly popular
o Experiment method:
▪ Gathering data by altering factors under tightly controlled
conditions to evaluate cause and effect
▪ Determine whether changing one of the factors will alter
the behaviour of what is being studied
o Every month Apple surveys iPhone buyers to see what is driving
demand for their products versus competitors’ products, what
features they use most, customer demographics and their level
of satisfaction with different aspects of the iPhone
• Data collection- secondary sources
o Secondary data is information that has already been collected
by some other person or organisation
o Uses internal data and external data
pg. 78
BUSINESS STUDIES
o Internal refers to information that has already been collected
from inside the business- customer feedback, sales and
management reports and research reports
o External refers to published data from outside the business-
magazines, industry association newsletters, internet sources, and
private data collecting agencies, ABS
o Apple uses sakes data and information collected from other
sources.
• Data analysis and interpretation
o Is the process of focusing on the data that represents average,
typical or deviations from typical patterns
o Information and data collected needs to be analysed and
interpreted
o Information is tabulated using computer spreadsheets, cross-
tabulation allows for comparisons to be made
o A number of people should be involved in the interpretation of
data, as people will have a range of perspectives and
understandings- limits error of personal bias
o “The growth in iPhone net sales during 2013 resulted from
increased demand for iPhones in all of the Apple’s geographical
regions, primarily due to the launch of the iPhone 5”.
3.3 Establishing market objectives
• Marketing objectives are the realistic and measurable goals to be
achieved through the marketing plan
• Should be closely aligned to the overall business goals- but more
customer orientated
Increasing market share:
• Refers to the business’s share of the total industry sales for a particular
product
• Is an important objective as small market gains often translate into
large profits
• Develop extensive product ranges, using different brand names to gain
extra market share
• Increase market share in China by 10% in the next 12 months
Expanding product mix:
• Product mix is the total range of products offered by a business
• Expanding product mix will increase profits in the long term
• Product mix needs to adapt and change with customer tastes and
preferences- need to understand customers’ needs
Maximising customer service:
• Means responding to the needs and problems of the customer
pg. 79
BUSINESS STUDIES
• High levels of customer service will increase satisfaction- leading to a
sound customer base (repeat purchases)
• Dissatisfied customers will usually tell eleven others, who will each in
turn tell another 5
• Ways to maximise customer service:
o Ask what they want
o Training employees/ rewarding them for excellent customer
service
o Anticipate market trends by conducting market research
o Looking at competitors and reviewing product mix
o Establishing and maintaining long-term relationships with
customers
o Focus on customer needs
• Genius training
3.4 Identifying target markets
Definitions:
• A target market is a group of present and potential customers to which
a business intends to sell its products
• The target market will share similar characteristics such as age, income,
lifestyle, location and spending patterns.
• A primary target market is the market segment at which most of the
marketing resources are directed
• A secondary target market is usually a smaller and less important
market segment
Apples strategy is to target different segments of the market. Apple target
specific user experiences, and build the product accordingly eg iPad mini
Purpose of selecting a target market:
• Can direct marketing strategies to a group of customers with similar
needs and wants- therefore will better satisfy them
• Able to use marketing resources more efficiently
• Promotional material is more relevant to the customers’ needs
• Better understand the consumer buying behaviour
• Collect data more effectively and make comparisons within the target
market over time
• Refine the marketing strategies used to influence customer choice
Mass marketing approach:
• 50 years ago there was a large demand for a standard product
• In a mass market, the seller mass-produces, mass-distributes and mass-
promotes one product to all buyers
• Approach assumes that individual customers all have similar needs
• Develop a single marketing mix and directs it ay the entire market for
the product
pg. 80
BUSINESS STUDIES
• There is one type of product with little or no variation, one promotional
program aimed at everyone, one price and one distribution system
used to reach all customers
Market segmentation approach:
• Businesses will divide the market into segments and direct efforts to a
particular one
• This segment then becomes the target market
• Enables a business to design a marketing plan that meets the needs of
a relatively uniform group
Niche market approach:
• Narrowly selected target market segment
• It is a segment within a segment or a micro-market
• Needs of customers in these markets are often neglected by large
businesses because it is rarely profitable for them to alter their
marketing mix to cater for very small groups
3.5 Developing marketing strategies
• Marketing strategies are actions undertaken to achieve the business’s
marketing objectives through the marketing mix
• Apple integrate all of these to consistently communicate its unique
benefits to consumers
Marketing mix:
• Refers to the combination of the four element of marketing, the four Ps-
product, price, promotion, and place- that make up the marketing
strategy
• Business has control over them, and can use them to reach target
market
• Has control over other business resources- information, finances, and
employees- that may also be used to achieve marketing objectives
• Must determine what emphasis will be placed on each of the
variables- determined by the stage of the product in the product life
cycle
Product (good and/ or service):
• Determines such features such as what the product is, its quality,
packaging and labeling, design, brand name and guarantee
• Customers buy products that not only satisfy their needs and wants but
also provide intangible benefits such as a feeling of security, prestige,
satisfaction or influence
pg. 81
BUSINESS STUDIES
Price:
• Selection of the correct price- amount of money a customer is
prepared to offer in exchange for a product
• A major pricing decision is whether to set a price above, below or
about even with the competitors price
• Must consider other costs such as production as well as level of
demand
Promotion:
• A promotion strategy details the methods to be used by a business to
inform, persuade and remind customers about its products
• Includes advertising, personal selling and relationship marketing, sales
promotion, publicity and public relations
• Advances in IT have had a significant impact on how businesses
promote their products
Place/ distribution:
• Deals with the channels of distribution: the ways of getting the product
to the customer
• Involves a number of intermediaries such as wholesalers and retailers
• Apart from retailers, intermediaries are often invisible- customers know
little about their role and operation
• Number of intermediaries chosen will determine how widely the
product will be distributed
3.6 Implementation, monitoring and controlling – developing a financial
forecast; comparing actual and planned results, revising the marketing
strategy
Implementing:
• Is the process of putting the marketing strategies into operation
• Is the how, where and when things have to be done
• To implement effectively a number of elements needs to be addressed
o If it is fully integrated
o If it is structure and organised
o If effective lines of communication have been established
o If the best people are being used for various tasks
o If marketing personnel are motived to achieve market objectives
o If employees are familiar with the objectives
• Quite a difficult stage as unforeseen situations may arise that put in
jeopardy the success of the entire marketing plan
pg. 82
BUSINESS STUDIES
Monitoring and controlling:
• Monitoring means checking and observing the actual progress of the
marketing plan
• Requires the gathering of information and reporting on any important
changes, problems or opportunities that arise during the life of the
marketing plan
• This information is used to control the plan
• Controlling involves the comparison of planned performance against
actual performance and taking corrective action to make sure the
objectives are attained
• Managers need to ask:
o What does the business want the marketing plan to achieve;
that is, what are the objectives?
o Are these objectives being achieved?
• Businesses need to outline what needs to be accomplished-
establishing KPI
• A key performance indicator is a forecast level of performance
against which actual performance can be compared
• Need to compare and evaluate actual performance against the KPI’s-
done through the use of budgets, sales statistics and cost analyses can
be used to evaluate results
• Apple monitors the sales figures for the iPhone to identify market
saturation (when sales are no longer increasing)
• They also found the iPad was more popular with men
• Corrective action may require a new model of iPhone to be launched
or identify new distribution channels to increase sales and market
share
• Apple developed the iPad mini to attract women
Developing a financial forecast:
• Details the cost and revenues for each strategy
• Measuring the sales potential and revenue forecast for each strategy
and comparing these with anticipated expenses, a business is in the
best position to decide how to allocate its resources
• Allows the marketing manager to undertake a cost-benefits
• Developing a financial forecast requires two steps:
o Cost estimate
▪ Costs of marketing plan include market research; product
development; promotion including advertising and
packaging; and distribution
o Revenue estimate
▪ Based on how must the customers are expected to buy
and for what price, and what sales staff predict they will
sell
pg. 83
BUSINESS STUDIES
▪ Projected market revenue is hard to calculate due to
changes in the external environment
Comparing actual and planned results:
• Sales analysis:
o Is the comparing of actual sales with forecast sales to determine
the effectiveness of the marketing strategies
o The more the sales figures are broken down the more clearer the
picture becomes
o Strength of sale analysis is that figures are relatively inexpensive
to collect and process
o Weakness is that data for sales revenue do not reveal the exact
profit level; such information can only be gleaned from further
investigation of total expenditure
• Market share analysis:
o A business is able to evaluate its marketing strategies as
compared with those of its competitors
o Reveal whether changes in total sales have resulted from the
business’s marketing strategies or have been due to some
uncontrollable external factor
o Place a great deal of importance on analysising market share
statistics- a 1% fall in market share can represent millions of
dollars in lost sales
• Marketing profitability analysis:
o Is a method in which the business breaks down the total
marketing costs into specific marketing activities
o Includes advertising, transport, administration, and order
processing
o Comparing the costs of specific marketing activities with the
results achieved can assess the effectiveness of each activity
o This helps in deciding how best to allocate marketing resources
in the future
Revising the marketing strategy:
• After analysis has been complete business is able to assess which
objectives are being met and which are not
• Marketing plan can then be revised and modified- equally as
important as other steps in the process
• Changes in marketing mix:
o Product modification- businesses that continually upgrade their
products will be able to maintain a competitive advantage
o Price modification- needs to be revised in response to changes
in the external business environment
o Promotion modification- need to change over time
corresponding to the life cycle of the product
pg. 84
BUSINESS STUDIES
o Place modification- as a product’s success increases, the
distribution channels will need to be expanded to cater for the
growing market
• New product development:
o Products have a life span of between 5-10 years
o If a business wants to achieve long-term growth, it must
continually introduce new products
• Product deletion:
o Is the elimination of some lines of products
o A business will have to eliminate outdates products as they may
create an unfavorable image, which could rub off onto other
products being sold
o In the decline stage a product must either be deleted or
redeveloped
4. Marketing strategies
4.1 Market segmentation, product/service differentiation and positioning
Market segmentation:
• Involves dividing the total market into segments from which the target
market is chosen
• The aim of market segmentation is to increase sales, market share and
profits by better understanding and responding to the desires of the
different target customers
Segmenting consumer markets:
• Demographic segmentation- divided based on size of population, age,
sex, income, culture and family size
o Due to the ease with which these demographic variables can
be measured their use is widespread amongst marketers
o Age and gender most widely used
o iPhones are targeted at high income earners in developed
countries
• Geographic segmentation- divided according to geographic location
o Consumers in different locations may have different needs and
tastes/ preferences
o Marketing mix may differ from one geographic location to the
other
o Variables include climate and city size
o High growth of smartphone sales in Asia has required changes to
the marketing mix for the iPhone to remain competitive
• Psychographic segmentation- dividing market according to
personality, characteristics, motives, opinions, socioeconomic groups
and lifestyle
pg. 85
BUSINESS STUDIES
o Focus on why people behave the way they do
o Includes research into preferences such as brand, music, radio,
and TV as well as habits and interests
o iTunes show how Apple identified the interests and habits of
consumers
• Behavioural segmentation- divided according to consumer
relationships with the product
o Includes the customers knowledge of, attitudes towards, use of,
or benefits sought from the product
o Identifying what the customer wants from the product- important
as marketers are able to design products that directly satisfy
these desires
o Network carriers will segment customers based on usage.
Differentiation:
• Products that are made the same or similar are made to appear
different from and/ or better than those of their competitors
• Factors include changes to packaging or labeling, top quality service,
convenience, features, value for money and environmental
• Customer service:
o High levels are expected
o Pre-sale and after-sale services are important for expensive
purchases
o Includes the presentation of the premises, atmosphere and
range of products
• Environmental concerns:
o People more concerned with physical environment
o Businesses that adopt a ‘green philosophy’ may increase sales
• Convenience:
o Consumers are busy- select products that are convenient to use
• Social and ethical issues:
o Consumers are becoming more ethically minded
o Actively purchase products or brands that they believe do not
exploit workers, producers or environment
o Provides businesses with opportunities to satisfy the demands of
this growing number of consumers
o Consumers are prepared to pay more for the guarantee of fair
labour practices ect. (Fair Trade Movement)
Product/ service positioning:
• It is how potential buyers perceive the product
• Business will attempt to create an image that differentiates its product/
service
• Use other elements of marketing mix to shape and maintain this image
• Achieved through the product/ services name, price, packaging,
styling, promotion and channels of distribution
pg. 86
BUSINESS STUDIES
• Apple is positioned to produce high quality and high priced products,
using leading edge technology, and this is what customers come to
expect.
4.2 Products – goods and/or services
– Branding
– Packaging
• Products are goods or services that can be offered in exchange for the
purpose of satisfying a need or want
Tangible and intangible products
• The total product concept refers to tangible and intangible benefits
(attributes) a product possesses
• Most products are a combination of tangible and intangible
components
• A product is a ‘collection of satisfactions’, which might include a
variety of things such as the packaging, the brand name, the warranty
and the after- sales service
• Intangible elements can be used to differentiate one business’s
products from its competitors
Product branding
• Businesses spend a lot of money making sure customers instantly
recognise their brand name and the products associated with them
• A brand is a name, term, symbol, design or any combination of these
that identifies a specific product and distinguishes it from its
competitors
• Brand name is that part of the brand that can be spoken
• Brand name can include letters, numbers, a combination of letters and
numbers or pronounceable symbols
• Branding can help customers-
o Identify the specific products they like
o Evaluate the quality of the business
o Reduce their level of perceived risk of purchase
o Gain a psychological reward that comes from purchasing a
brand that symbolises status and prestige
• Branding can help businesses-
o Gain repeat sales
o Introduce new products into the market
o Encourage customer loyalty
o With their promotional activities- promotion of one product
indirectly promotes all other similarly branded products
• Powerful marketing tool- spend great deal of time, money and effort
creating and protecting their brand name
pg. 87
BUSINESS STUDIES
• Trademark- signifies that the brand name or symbol is registered and
the business has exclusive right of use
• Strong brand image and highly visible placement of logo on device.
Most valuable brand in the world
Branding- symbols and logos
• A brand symbol/ logo is a graphic representation that identifies a
business or product
• Does not have to duplicate the words in the brand name
• Some businesses encourage the instant recognition of their brand
symbol rather than their brand name
Branding strategies:
Have high appeal with customers because they are recognised across the
country, and widely available and offer reliability with consistent quality
• Private/ house brand is one that is owned by a manufacture
• Generic brands are products with no brand name at all
o They carry only the name of the product, in plan packaging
Packaging
• Involves the development of a container and the graphic design for a
product
• Well designed packaging will give a positive impression of the product
and encourage first-time customers
• Packaging:
o Preserves the product
o Protects the product from damage or tampering
o Attracts customer attention
o Divides the product into convenient units
o Assists with the display of the product
o Makes transportation and storage easier
o Acts as a form of communication
• Consumers see certain colours and draw conclusions about the
product even before reading the label
• The shape of the packaging can become part of the product itself as
consumers readily associate a unique shape with a specific product
• Apple packaging is suggestive of quality and part of the buying
experience. A lot of consumers keep the packaging
Labelling
• Is the presentation of information on a product or its packaging
• A label is that part of the package that contains information
• Businesses use labels to promote other products or to encourage
proper use of products and therefore greater customer satisfaction
with products
pg. 88
BUSINESS STUDIES
• A label will provide information about ingredients, operating
procedures, shelf life, package size or country of origin
• In Australia there are a number of laws specifying information that must
be included in the labeling for certain products
• Regulations are aimed at protecting the consumer from misleading or
deceptive claims and the unsafe use of products
4.3 Price including pricing methods – cost, market, competition-based
– Pricing strategies – skimming, penetration, loss leaders, price points
– Price and quality interaction
• Price refers to the amount of money a customer is prepared to offer in
exchange for a product
• Price set too high or too low is damaging- needs to be in-between
• Businesses will attempt to gain some control over the price by
differentiating their product
Pricing methods
• The business’s marketing objectives and costs of production provide an
indication of what it should charge for its products
• Must consider amount of competition, government regulations,
location of product in the product lifecycle and the level of economic
activity
• Pricing strategies are used, once a method us chosen, to adjust the
basic price, depending on the marketing objectives and conditions
within the marketplace
• Cost based (mark-up) pricing:
o Is a pricing method derived from the cost of producing or
purchasing a product and then adding a mark-up
o Determines the total cost of producing one unit of the product
o Then add an amount to cover additional costs and to provide
an adequate profit margin
o A mark-up is a predetermined amount, usually expressed as a
percentage, that a business adds to the cost of a product to
determine its basic price
o The total of the cost plus the mark-up is the selling price of the
product
o Cost + (cost x mark-up%) = price
o Very simple and straightforward pricing policy used mainly by
wholesalers and retailers
o It has two major drawbacks:
▪ Difficulty in accurately determining an appropriate mark-
up percentage
pg. 89
BUSINESS STUDIES
▪ Product is priced after promotion and associated costs are
incurred without taking into consideration/ account the
other elements of the marketing mix or the state of the
market
• Market based pricing:
o Is a method of setting prices according to the interaction
between the levels of supply and demand- whatever the market
is prepared to pay
o Supply is the quantity of a product businesses are willing to offer
for sales at a particular price
o Demand is the quantity of a product consumers are willing to
purchase at a particular price
o When demand for a product is greater than its supply, there will
be a shortage in the market- this will force up the price of the
goods
o When the supply of a product is greater than its demand, a
surplus will exist in the market- the price of the product will
consequently fall
o Prices are constantly changing in relation to fluctuation in the
levels of supply and demand- this makes the method difficult to
apply
• Competition- based pricing:
o Is where the price covers cost (cost of raw materials and the cost
of operating the business) and is comparable to the competitors
price
o Often used when there is a high degree of competition from
businesses producing similar products
o Once a business has established a base price, it can then
decide to choose a price either:
▪ Below that of competitors (undercutting)- way of breaking
into an established market
▪ Equal to that of competitors- avoids having to undertake
market research to find out what the consumer would pay
▪ Above that of competitors- wish consumers to perceive
the product as superior
o Price leader- is a major business in an industry whose pricing
decisions heavily influence the pricing decisions of its
competitors
Pricing strategies:
• The extent to which a business uses any of the following strategies
depends primarily on:
o Its marketing objectives
o The lifecycle of the product
o The market for the product
o The degree of product differentiation
o The level of economic activity
pg. 90
BUSINESS STUDIES
• Have to be modified depending upon changes within the external
business environment
• Bundle pricing- is where customers gain a ‘package’ of goods and
services in addition to the tangible good they have purchased
• Price skimming (links to the competitive based method)
o Occurs when a business charges the highest possible price for
the product during the introduction stage of its lifecycle
o Some customers are willing to pay a high price for a products
novelty features because of the prestige or status that ownership
gives
o The objective is to recover the costs of research and
development as quickly as possible, before competition enters
the market
o Apple uses market skimming for new iPhone models
• Price penetration (links to cost + margin method)
o Occurs when a business charges the lowest price for a product
or service as to achieve a large market share
o Aims to quickly achieve a large market share for a product
o Objective is to sell a large number of products during the early
stages of the lifecycle and thus discourage competitors from
entering the market or from taking market share from existing
businesses
o It is more difficult to raise prices significantly than it is to lower
them
o May be locked into low sales revenue until it substantially
modifies the product at a later stage
• Loss leader
o Is a product sold at or below cost price
o For special promotions, businesses deliberately sell a product at a
loss to attract customers to the shop
o It hopes that the extra customers will buy other products as well
o Once the customers are in the store, they will usually buy other
products and spend more than what attracted them into the
store to begin with
o Often used when the business:
▪ Is overstocked or a product is slow to sell
▪ Wants to increase the traffic flow in the expectation of
gaining new customers
▪ Wants to build a reputation of having low prices
o The main danger of this practice is that if it is done incorrectly the
business may lose money
• Price points:
o Is selling products only at a certain predetermined price
o Chooses a limited number of key prices or price points for
selected product lines
o This means the store would not apply a fixed mark-up to the
products
pg. 91
BUSINESS STUDIES
o Makes it easier for the customer to find the type of product they
needs
o Makes it easier for the business to encourage the customer to
‘trade up’ to a more expensive model
Price and quality interactions
• Products of superior quality are normally sold for a higher price
• Usually due to the higher manufacturing cost involved in producing
them
• Helps determine the image customers have of products or brands
• Prestige/ premium pricing is a pricing strategy where a high price is
charged to give the product an aura of quality and status
• Designed to encourage status-conscious consumers to buy the
product
• Based on the tendency for consumers to assume that expensive
products are of superior quality and distinction
• Does not apply to all products such as high priced and infrequently
purchased items
• Consumers may believe that high prices reflect either expensive
packaging or market exploitation
• May lead to a reduction in sales- consumers perceive there to be litter
actual differences between the quality of a low and high-priced item
• People associate the high price with a product of better quality.
4.4 Promotion
– Elements of the promotion mix – advertising, personal selling and
relationship marketing, sales promotions, publicity and public relations
– The communication process – opinion leaders, word of mouth
• Promotion describes the methods used by a business to inform,
persuade and remind a target market about its products
• Promotion attempts to:
o Attract new customers
o Increase brand loyalty
o Encourage existing customers to purchase more
o Provide information
o Encourage new and existing customers to purchase new
products
Elements of the promotion mix
• Promotion mix is the various promotion methods a business uses in its
promotional campaign, methods include advertising, personal selling
and relationship marketing, sales promotion, publicity and public
relations
• Advertising:
pg. 92
BUSINESS STUDIES
o Is a paid, non-personal message communicated through a mass
medium
o Purpose is to inform, persuade and remind- can increase sales
and profits
o Provides businesses with the flexibility to reach an extremely large
audience or to focus on a small, distinct target market segment
o Advertising media refers to the many forms of communication
used to reach an audience
o Businesses need to develop the most cost-effective means to
advertise their products
o Main advertising media includes mass marketing, direct
marketing catalogues, telemarketing, e-marketing, social media
advertising and billboards
o Which type of advertising media a business selects depends on a
number of variables including:
▪ Type of product and its positioning
▪ Size of the target market and its characteristics
▪ Business’s marketing budget
▪ Cost of the advertising medium
▪ Products position on the product life cycle
o Sometimes a business will undertake an extensive advertising
campaign that involves a number of advertising media in order
to create a saturated coverage of a wide target market
TV and mass media promoting the benefits of Apple products, product
placement in movies and TV shows e.g. The Office and Toy Story 3.
Social media, websites.
• Personal selling:
o Involves the activities of a sales representative directed to a
customer in an attempt to make a sale
o Involves the human aspect of promotion
o Require the personal contact of a sales representative to
familiarize the customer with the product
o It is an expensive promotional method, yet offers unique
advantages including:
▪ Message can be modified to suit the individual customer
circumstances
▪ Individualised assistance to a customer can create a long-
term relationship resulting in repeat sales
▪ Sales consultants can provide after-sales customer service
in relation to product features, installation warranties and
servicing
Specially trained staff at Apple stores. Apple ensure existing customers are
happy by connecting them with the brand.
• Relationship marketing:
pg. 93
BUSINESS STUDIES
o Is the development of long-term, cost-effective and strong
relationships within individual customers
o Create customer loyalty by meeting the needs of customers on
an individual basis thereby creating reasons to keep customers
coming back
o Includes the use of rewards cards
o These schemes reward those loyal customers who spend
specified amounts or make repeat purchases
o Provide a competitive advantage
• Sales promotion:
o Is the use of activities or materials as direct inducement to
customers
Apple gives 10% discounts to students at the start of the school year.
o Aims to:
▪ Entice new customers
▪ Encourage trial purchases of a new product
▪ Increases sales to existing customers and repeat purchases
o Used to increase the effectiveness of other promotional activities
o Examples include:
▪ Coupons- offer discounts for a product
▪ Premiums- is a gift that a business offers the customer in
return for using the product
▪ Refunds- part of the purchase price is given back,
customers who send in voucher with a specific proof of
purchase
▪ Samples- free item or container of a product
▪ Point-of-purchase display- special signs, displays and racks
to gain customer attention
• Publicity and public relations:
o Publicity is any free news story about a business’s products
o Publicity is free and not controlled (timing) by the business
o Aims to:
▪ Enhance the image of the product
▪ Raise awareness of a product
▪ Highlight the business’s favourable features
▪ Helps reduce any negative image that may have been
created
o Public relations are those activities aimed at creating and
maintaining favourable relations between a business and its
customers
o Exposes a business or idea to an audience by using often unpaid
third parties as outlets
o Done by working with the media, making speeches, or attention-
seeking gestures
o Apple rely on secrecy to build momentum for a new launch. Use
of media to create a highly publicised event of new product
launches
pg. 94
BUSINESS STUDIES
o Public relations activities can assist a business in achieving its
objectives of increased sales, including:
▪ Effective communication of message
▪ Issue monitoring
▪ Crisis management
The communications process
• Marketing managers can use a variety of channels to communicate a
message
• A channel is any method used for carrying a message
• Most common channels include print or electronic media advertising
• Noise is any interference or distraction that affects any or all stages in
the communication process
• Customers are more willing to purchase a product if the message is
communicated via a trusted channel
• Option leaders:
o Is a person who influence others
o Opinions are respected, and they are often sought out for
advice
o Marketing managers use opinion leaders as information outlets
for new products or to endorse an existing one
o Includes actors, athletes, musicians and models
o Celebrity endorsement E.g. U2 appear in ads and played at 2014
launch of the iPhones.
• Word of mouth:
o Customers trust word of mouth communication more than
business sponsored commercials, especially if the message is
being communicated by a friend or opinion leader
o Word of mouth communication occurs when people influence
each other during conversations
o Increasing using social media platforms to engage in a form of
word of mouth communication
4.5 Place/distribution
– Distribution channels
– Channel choice – intensive, selective, exclusive
– Physical distribution issues – transport, warehousing, inventory
• Place/ distribution are activities that make the products available to
customers when and where they want to purchase them
• Distribution is necessary because most products are not used by the
same business that makes them
Distribution channels
pg. 95
BUSINESS STUDIES
• Are the routes taken to get the product from the factory to the
customer
• Usually involves a number of intermediaries, that are often invisible
• Traditional distribution channels:
o Product to consumer
▪ No intermediaries
o Product to retailer to consumer
▪ Retailer is intermediary- buys from producer, sells to
consumer
o Product to wholesales to retailer to consumer
▪ Wholesaler buys in bulk, sells in smaller quantities to retailers
o Product to agent to wholesaler to retailer to consumer
▪ Agents distribute to wholesaler but never own the product
• Innovative distribution methods- non store retailing:
o Non- store retailing is retailing activity conducted away from the
traditional store
o Includes door-to- door selling, mail order catalogues, party-plan
merchandise and vending machines
o Businesses are beginning to exploit types of electronic marketing
(e-marketing) as alternative methods
o Telemarketing:
▪ The use of a telephone to make a sale
▪ Allows customers to purchase via their television or
personal computer
o Internet marketing:
▪ Businesses are moving away from the telephone and onto
the internet for product communication
o As more people use the internet for shopping, the traditional
distribution channels will be modified
o Electronic post and parcel delivery channels will be used more
extensively to meet the increased demand
• Apple uses traditional channels (producer to retailer to customer) and
innovative channels (internet marketing, e-commerce via producer to
consumer)
• In 2013 30% sales were through direct channels (online and Apple
retailers), and 70% through indirect channels (network carriers and
other retailers)
Channel choice
• Market coverage refers to the number of outlets a firm chooses for its
products
• A business can decide to cover the market in one of three ways as
follows, the difference being the intensity of the coverage:
o Intensive distribution- when the business wishes to saturate the
market with its product
pg. 96
BUSINESS STUDIES
o Selective distribution- using only a moderate proportion of all
possible outlets
o Exclusive distribution- use of only one retail outlet for a product in
a large geographic area
• Apple has opened 415 retail stores in key cities around the world (13
countries) in up-market, quality shopping venues.
Physical distribution:
• Is all those activities concerned with the efficient movement of the
products from the producer to the customer
• Is the movement of the products through their channels of distribution
• Transport:
o An intricate network of transportation is required to deliver the
vast array of products on supermarket shelves
o Methods of transportation depend on the type of product and
the degree of service the business wishes to provide
o Includes air, rail, road and sea
Apple uses a small variety of transport methods (air, ship and road)
• Warehousing:
o Set of activities involved in receiving, storing and dispatching
goods
o Acts as a central organising point for the efficient delivery of
products
o Apple uses e-commerce and sells directly to the consumer to
avoid large warehousing costs
• Inventory:
o Inventory control is a system that maintains quantities and
varieties of products appropriate for the target market
o The goal of inventory is to find a balance between too high and
too low
o To avoid costs (theft and damage) Apple employs a just in time
inventory method.
4.6 People, processes and physical evidence
• The four Ps are considered appropriate for tangible products
• As the service sector has expanded three more Ps have been added
• People, process and physical evidence apply to intangible products
People
• The people element refers to the quality of interaction between the
customer and those within the business who will deliver the service
• Customers base their perceptions and make judgments about a
business based on how the employees treat them
• Involved in delivering the marketing message because they are the
‘human face’ of the business
pg. 97
BUSINESS STUDIES
• All businesses should develop a culture of customer focus put into
practice
• Customers’ experience must match reality
• Strong focus on sales and customer service – customer obsessed,
empathetic staff
Process
• Refers to the flow of activities that a business will follow in its delivery of
a service
• Without tangible products, the processes must be highly efficient to
achieve customer satisfaction
• Any business that has inefficient processes will lose customers and
damage its reputation
• Online ordering system, free upgrade of iOS for existing customer, pre-
ordering
Physical evidence
• Refers to the environment in which the service will be delivered
• It also includes materials needed to carry out the service such as
signage, brochures, calling cards, letterheads, business logos and
websites
• Unlike tangible goods, it is difficult for a business’s marketing services to
provide customers with a ‘try before you buy’ sample unless a free trial
is offered
• A business should provide high-quality physical evidence to create an
image of value and excellence
• Apple has opened 415 retail stores in key cities around the world (13
countries) in up-market, quality shopping venues.
4.7 E-marketing
• E-marketing is the practice of using the internet to perform marketing
activities
• It encourages globalization as products/ services are marketed
worldwide
• Its an effective way of attracting more customers
• Australian retailers have been slow to adopt e-marketing
• It is posing a big risk to Australian businesses as Australian are
purchasing products from overseas suppliers online rather than from
local outlets
• Apple products use internet based apps and online services such as
iCloud
• Apple.com is customised to suit different regions around the world and
sells Apple products directly to the consumer
• Apple uses social media accounts to create publicity and support
product launches
pg. 98
BUSINESS STUDIES
E-marketing technologies:
• Web pages
o A web page is a display of information accessible on the wen
through a web browser
o A website is a collection of related web pages, usually
associated with a particular business or organisation
o A home page can provide detailed information about the
business
• Podcasts
o Podcasting involves the distribution of digital audio or video files
over the internet
o If a particular podcast is aimed at the same audience as the
target customers of a business, podcast advertising can be a
very effective way of reaching customers
• SMS
o Is the means by which text messages can be sent between
mobile phones
o Distinct advantage over email, as messages are delivered
automatically to one or more recipients without the need for
them to dial in or log on
o Use to alert regular customers of any special deals on offers and
notify suppliers of the arrival of a good shipment
• Blogs
o A weblog or blog is an online journal that can be added to by
readers
o Allows for communication between the business and its existing
and potential customers
o It allows the business owner and employees to establish a
reputation for expertise, by providing detailed information on
products and services
o New ideas for products and services can be put to public to fain
comments and feedback
o Presents a human face to the public and builds trust
• Web 2.0
o Refers to the transformation of the world wide web into a more
creative and interactive platform for information sharing rather
than just a means of retrieving information
o Networking sites can provide a powerful public relations tool- low
cost
Social media advertising:
pg. 99
BUSINESS STUDIES
• SMA is a form of online advertising using social media platforms such as
Facebook, YouTube and Twitter to deliver targeted commercial
messages to potential customers
• Advantages:
o Inexpensive in comparison to traditional advertising methods
o Easy to use and monitor
o An effective method to gain exposure
• Disadvantages:
o A marketer does not have control over what online consumers
write about the business’s products
o Bloggers have the freedom to discuss, review, criticize and even
ridicule a product/ business
o It is more difficult to accurately measure the reach and
frequency
• Concerns and legal issues of SMA:
o Issues of privacy, accuracy, honesty and consumer trust
o Establishing age limits for users
o Proliferation of fake and unofficial ‘fan pages’
4.8 Global marketing
– Global branding
– Standardisation
– Customisation
– Global pricing
– Competitive positioning
Global branding:
• Is the worldwide use of a name, term, symbol or logo to identify the
seller’s products
• It equates to global recognition
• In 2013 Apple was named the world’s most powerful brand. The Apple
logo is globally recognised.
• Reasons in favour of global branding include:
o Cost effective- ads can be used in many locations
o Provides a uniform world image
o If brand is successful it is easier to introduce new products
Global pricing:
• Is how businesses coordinate their pricing policy across different
countries
• Price is the only element of the marketing mix that generates income,
whereas the rest of the elements generate cost, therefore its vital to
get the right price
pg. 100
BUSINESS STUDIES
• Customised pricing:
o Occurs whenever consumers in different countries are charged
different prices for the same product
o Based on the cost + mark up method
• Market-customised pricing:
o Sets prices according to local market conditions
• Standardised pricing:
o Charges customers the same price for a product anywhere in
the world
• Apple takes into account local market considerations when setting
prices such as freight charges, local taxes, import duties, competition,
local laws, etc. The price of the iPhone 5 varied from $649 in USA, $777
in Singapore, $844 in Australia and $892 in Germany and France ($US)
Standardisation:
• The standardised approach is a global marketing strategy that
assumes the way the product is used and the needs it satisfies are the
same anywhere in the world
• It is a ‘one marketing plan fits all’ approach
• Cost savings include economies of scale as production runs longer, less
R&D, after sales services simplified, promotion strategies standardised
• Apple uses the standardised approach with their products. Whilst
pricing may differ, the same product is found in every country in which
it is sold. The iPhone ads focused on people from various nationalities,
speaking their own language on their colourful iPhone 5c.
Customisation:
• Customised (local) approach is a global marketing strategy that
assumes the way the product is used and the needs it satisfies are
different between countries
• Marketing plan needs to be customised according to political,
economic, sociocultural characteristics of the target market
• Apple uses elements of customisation. Eg Apple products have local
variations.
Competitive positioning:
• Relates to how a business will differentiate its products
• Must show on a global scale how their product is better than
competitors
• Should strive to achieve product leadership, positive customer
relationships and operational excellence
• Apple has positioned its products in the high end of the market in terms
of quality and design, and was priced accordingly. Apple are now
turning to high growth economies such as China and India. New
pg. 101
BUSINESS STUDIES
marketing strategies are needed due to lower income levels and other
demographic factors. E.g. iPhone 5c.
Human Resources
pg. 102
BUSINESS STUDIES
The focus of this topic is the contribution of human resource management to business
performance.
examine contemporary business issues to:
• discuss the influence of government on the process of determining employment
contracts
• explain how businesses exhibit corporate social responsibility in the management of
human resources
• analyse the causes of two workplace disputes and the strategies used to resolve them
• examine the advantages of a diverse, culturally competent workforce for a global
business
investigate aspects of business using hypothetical situations and actual business case studies
to:
• explain the interdependence between human resources and other key business
functions
• compare the process of negotiating enterprise/collective agreements with the
negotiation of individual contracts
• discuss the advantages and disadvantages of outsourcing in the global market
• evaluate the effectiveness of human resource management for one business and
recommend appropriate alternative strategies
1. Role of human resource management
1.1 Strategic role of human resources
• Human resource management refers to the management of the total
relationship between an employer and employee
• Includes recruitment, equal opportunity, training, development,
separation and how they can be aligned to achieve business goals
• Employees are seen as an asset, encouraged to be open in
communication and goal orientated
• Aims to reduce conflict through effective procedures and relationships
• Staff costs are generally at least 60% of operational costs
• Qantas is one of Australia’s largest employers, employing over 28000
people (92% based in Australia) across 200 separate job categories
1.2 Interdependence with other key business functions
• In larger businesses, the HR manager is a member of the executive
committee and plays a significant role is strategic planning
• Most specialist HR managers are responsible for:
o Human resource planning and job design
o Acquisition: recruitment, selection and placement
o Development: induction, training, career development and
performance appraisal
o Maintenance of staff: wellbeing, legal responsibilities and
communication
o Performance management and rewards
o Separation
pg. 103
BUSINESS STUDIES
o Managing diversity: equal opportunities and legislation
• Operations – Staff need to be trained when new operations
technology is adopted (e.g. new aircraft and security systems).
Operational changes such as cutting flights during the GFC changes
size and type of workforce.
• Marketing – The right staff must be employed and trained to create the
service that satisfies Qantas’ consumers. People are an important part
of marketing at Qantas.
• Finance – Recent financial decisions at Qantas like outsourcing, cutting
flights, launching new airlines in Asia have affected staff levels and the
levels of industrial disputes (e.g. industrial shut down in 2011). Staffing is
Qantas’ biggest expense.
1.3 Outsourcing
– Human resource functions
– Using contractors – domestic, global
• Globalisation and rapid technological change have led to increased
pressure to be competitive
• Led to the development of new organisational structures, with the
growth of contracting out or outsourcing business functions
• Use to obtain a superior service than would be provided internally
• Top reasons for outsourcing include reduced cost, focus on core,
improve quality, increase speed to market, foster innovation, and
conserve capital
Outsourcing human resource functions:
• Allows firms to focus more on their core business as they grow, while
experts in HR assist by planning for growth, development and
management of staff during this phase
• May also be used to review business practices and implement
strategies to transform the business using independent consultants with
no perceived internal ‘agenda’
• Qantas has increased looked to outsourcing to become more cost
effective and to simplify its business.
Using contractors:
• Contractors are an external provider of services to a business. It may
be an individual or a business
• Used to create cost savings or to access greater expertise and
capabilities to improve competitiveness
• Particularly used for processing functions as they are repetitive and
easily measured
pg. 104
BUSINESS STUDIES
• Recommended for non-core functions, allowing staff to focus on the
broader aspects of managing a firm
• Major risks include cost overruns (or cost increases), loss of quality,
difficulty coordinating activities, and difficulty monitoring quality and
performance in outsourced activities
• Businesses should set clear and legally binding terms, timeframes and
conditions in a contractor agreement to avoid conflict and expensive
litigation further down the track
• Qantas uses subcontractors to create cost savings, access greater
expertise and improve its competitiveness.
• Domestic subcontracting:
o It allows forms to focus their resources on essential business
activities, leaving some of the detailed support- or compliance-
related activities, to experts
o Others seek the benefits of fresh ideas and perspectives such as
leadership development
o Has the potential to improve the quality and productivity of a
business’s service without the resource scale normally required to
achieve this level Risks include the potential loss of direct
customer contact, which may impact on sales over the long
term
Outsources domestic voice, data and domestic services to
Telstra
Outsources data centres, its mainframe and mid-range computing
operations and project management to IBM
• Global outsourcing:
o Outsourcing may take two forms:
▪ Process outsourcing- is the dominant form of outsourcing
of repetitive, easily measured and documented work
▪ Project outsourcing- is more commonly found in areas such
as human resources, marketing, design, IT and research. It
involves a greater use of intellectual property and
strategic business knowledge
o It operates in larger time frames, more difficult to measure,
quality cannot be anticipated and therefore holds more risk
o Global outsourcing risks include:
▪ Difficulty controlling quality and reliability
▪ Cultural differences, which may impact on customer
service
▪ Security issues
▪ The lack of remedies for breach of contract or other legal
matters under foreign legal systems
▪ High labour turnover
▪ Well qualified employees may be replaced with less
qualified staff, causing the quality of the service to decline
pg. 105
BUSINESS STUDIES
o If the function to be outsourced can be clearly identified,
measured, managed and supported by a binding legal
framework, then it may be more suited to outsourcing
Contracts some maintenance jobs overseas to Singapore and New
Zealand
Established a base in London for about 400 of its international flight
attendants saving them about $18 million through rostering efficiencies
and reduced accommodation and allowance costs
Outsources its IT applications support and maintenance to 2
companies in India
Outsources entire reservation system to a Munich based company
called Amadeus, includes the moving of its inventory of fares, seats,
departure control and boarding passes.
2. Key influences
2.1 Stakeholders – employers, employees, employer associations, unions,
government organisations, society
• Employers and employees are the major stakeholders in a business
• Nature of their relation is influenced by other stakeholders
• Stakeholders have a common interest in the survival/ success of
business
Employers:
• Work on areas in HR such as developing programs to improve
performance of the business
• Recent legislation today encourages them to negotiate agreements
and resolve disputes as well as developing programs to improve
employee performance
• Improving management training in Australia is important in improving
human resource management
• Due to legislation, employers have gained more power to make
agreements relevant to the individual workplace or enterprise
• They type of leadership and management style adopted by an
organisation will have important implications for its employment
relations environment
Employees:
• Employees are the ‘human capital’ essential to the production process
• More highly educated than in the past- many feel driven to build their
career through a succession of jobs in a range of different
organisations
• Employees demand more challenges, interesting workdays,
involvement in decision making, independence and autonomy, career
paths, a fair day’s wage and workplace flexibility
pg. 106
BUSINESS STUDIES
• Businesses hoping to retain and motivate skilled staff need to put extra
effort into developing staff career and training plans, rewards and
opportunities for greater employee involvement
• Many unions have responded to worker fears and have made some
employment issues- such as job security and limitations on the use of
casuals- a priority in negotiating agreements
• Enterprise bargaining/ workplace agreements has impacted on the
employee workplace
Employer associations:
• Are organisations that represent and assist employer groups
• Established as a counter balance to growing unions power in the early
1900’s
• Created by employers as a counter-party to unions
• They assisted employers in formulating policies and processed logs of
claims served on their members by unions
• Their main role today is to act on behalf of employers in collective
bargaining sessions and before industrial tribunals, courts, commissions
and committees
• Their activities include:
o Proving advice
o Making submissions to safety net wage cases
o Negotiating agreements
o Lobbying governments and other organisations
• Employer associations represent employers on a broader range of
issues; human resources and industrial relations matters make up just
one aspect of their role
• Examples:
o Australian Medical Associations
o Meat and livestock corporation
o Australia Chamber of commerce and industry
o Australian industry group
Trade unions:
• Are organisations formed by employees in an industry, trade or
occupation to represent them in efforts to improve wages and the
working conditions of their members
• Developed out of employee dissatisfaction after the Industrial
Revolution
• The system for resolving industrial disputes, established in 1904, provided
inions with an official bargaining position in the making of industrial
agreements
• In 1927, the Australian Council of Trade Unions was formed as the
governing organisation of all unions in Australia
• Focus on making improvements in wages and conditions
pg. 107
BUSINESS STUDIES
• From this unions won major improvements in terms and conditions of
employment
• Union memberships have fallen dramatically, as many have allowed
their trade union membership to lapse
• This may reflect employees moving on to managing roles, where
individual performance- based contacts are more common
• Unions are still represented in around two-thirds of workplaces (over 100
unions) with more than 20 employees
• Unions are under pressure globally as membership declines to
historically low levels
• In response, unions are expanding their range of services and
becoming more active in recruiting to regain membership number
• They are:
o Proving representation in disputes
o Free or discounted legal services
o Superannuation schemes
o Cheap home loans
o Training programs through TAFE
o Insurance
o Cheap holiday units to rent
o Income protection against illness or accident
o OHS advice
• Reasons membership numbers have declined include:
o Collapse of the centralized wage-fixing system
o Community attitudes often favour individual rather than
collective approaches to problems
o Poor image given of unions in media
o Recent legislative changes which reduce power and role of
unions
o Unions becoming too dependent on tribunal systems in past, lost
contact at grass-root level
o Globalisation
• Unions are developing global union structures to counterbalance the
power of global corporations and globalisation of businesses
Governments and government organisations:
• Governments have significantly affected the industrial relations system
as a result of their key roles
• Legislation:
o Elected representative pass laws in parliament
o These provide the legal framework for industrial relations
o Legislation has led to the growth of the judicial system and the
institutions/ processes used to settle disputes
• Employer:
pg. 108
BUSINESS STUDIES
o Employ almost one-third of the Australian workforce as teachers,
nurses, clerks, police officers, postal workers, transport workers
and in other roles
• Responsible economic manger:
o Governments operating at the macro level are keen to ensure
non-inflationary, stable economic growth and a high standard of
living for all Australia
• Administrator of government policies on industrial relations:
o Governments are able to implement the legislation they enact
o Achieved through publishing information and guidelines
providing advice to the government and the public and
investigating breaches of legislation
• Representative of Australia in the international arena, in foreign affairs,
trade and international labour matter:
o The government generally implements legislation based on the
treaties and conventions it signs with international organisations
• Governments have attempted to increase their power to regulate the
industrial relations system through the use of the External Affairs and
Corporations power, given under the Constitution of Australia
• The Federal government is restricted in its power to act on industrial
relations by the Commonwealth Constitution
• Focused on reducing the powers of industrial tribunals and
encouraging decentralized bargaining in the workplace
• According to Section 51 of the Constitution, the powers to make laws
on industrial relations are derived from the:
o Power to resolve disputes across state borders or
o Corporations power or
o External affairs power
• Statutes:
o Are laws made by federal and state parliaments; for example,
laws relating to employment conditions
o These statutes provide the framework for awards and
agreements, the resolution of disputes and require employers to:
▪ Meet OHS requirement
▪ Maintain workers’ compensation insurance
▪ Provide superannuation, annual leave and long service
▪ Ensure workplace is free from discrimination
▪ Give each new employee a Fair Work Information sheet
o Since January 2010, Australia has shifted from a dual federal and
state industrial relations system to a national industrial relations
framework
o This move recognises the efficiency of a more standardised
system to business, particularly national and foreign owned
business that previously had to manage employees operating
under different state and national systems
pg. 109
BUSINESS STUDIES
o The new system gives employers and employees the same
workplace rights and obligations regardless of what state they
live in
o Key elements of the new framework:
▪ A national framework for industrial relations covering most
private employees of all states except WA
▪ Ten National Employment Standards developed to provide
basic protection to all employees
▪ Collective bargaining and good faith bargaining required
by all parties
▪ Modern awards for specific industries and occupations
▪ Enterprise bargaining continued
▪ Annual National Wage Vase sets minimum wage
▪ Protection from unfair dismissal
▪ Fair Work Australia administers Fair Work Act 2009, replaces
Australian Industrial Relations Commission, and absorbs the
Industrial registry and the Workplace Ombudsman
o The modern awards, NES and the national minimum wage order,
make up a new safety net for employees covered by the
national workplace relations system
o The 122 modern awards replace thousands of previous state and
federal awards, and together with the NES and national
minimum wage order, make up a new safety net for employees
o They do not replace enterprise awards, which are made with a
specific enterprise
• Industrial tribunals and courts:
o Industrial tribunals exist at the federal and state levels to enforce
laws established by governments
o Fair work Australia’s primary functions include settling disputes
through conciliation, supervising the making of agreements or
awards and award simplification, hearing appeals, and handling
unfair dismissal cases
o They assist in resolving disputes involving employers, employees,
unions and employer associations who are covered by the
national workplace relations system
o Their work is conducted by individual members or groups of
members who are responsible for specific industries or disputes,
and are skilled in mediation, conciliation and arbitration
o Members must have knowledge or experience in one or more of
the fields of workplace relations, economics, social policy,
business, industry or commerce
o Breaches of Fair Work Australia orders can lead to fines of up to
$6600 for individual workers and $33000 for unions
• Federal courts:
o The federal court of Australia is a judicial court
pg. 110
BUSINESS STUDIES
o Under the Constitution only courts have the judicial power
(power to interpret and apply law) to determine disputes about
existing rights and to make decisions about these matters
o There is a division of the court that enforces industrial relations
legislation by administering court actions that arise under
Australian industrial laws
o It has jurisdiction to impose sanctions against individuals, unions
or employers who breach industrial legislation relating to the
workplace
o It also has the power to approve the disamalgamation (splitting
up) of unions, declare unauthorized action taken during a
dispute and hear cases under the Corporations Act 2001
• Other government agencies:
o Other government stakeholders include:
▪ Australian Human Rights Commission
▪ Equal employment for Women Agency
▪ Anti-discrimination board
o Safe Work Australia began operating as an independent
statutory agency in 2009
o Its primary responsibility is to improve occupational health and
safety, and workers’ compensation arrangements across
Australia
Society:
• In 1948 the UN passed the Universal Declaration of Human Rights
• This recognised the importance of work to people’s lives and the need
for fair and just conditions and rights for those at work
• The relationship between employers and employees has often been a
battleground, as reflected in frequent disputes and changes in
legislation in Australia over the last decade
• Multinational corporations increasingly use contractors to supply or
manufacture key components or services, creating opportunities
globally for suppliers with the most cost effective operations
• Community demands for safety and wellbeing at work have increased
over recent decades, as has the pressure to eliminate discrimination
against female, indigenous and disabled members of the working
community
• There is an ongoing battle between the need for the business to find
ways to reduce its biggest cost- labour- as pressure increases from
global competition, and the needs of employees, particularly those
with dependent families
Employers Qantas has restructured its
organisation, outsourced more
functions, relocated staff
overseas, launched discount
airlines and hired more casual
pg. 111
BUSINESS STUDIES
staff to cut costs and increase
flexibility. They have taken a
confrontational stance with
unions
Employees Qantas employs over 28000 full
time employees. They are
concerned with existing levels of
pay, working conditions and job
security. They have been
angered by Qantas’s cost saving
tactics
Trade unions Qantas has a highly unionised
workforce. They are represented
by 18 different unions. They have
reacted angrily to Qantas’ drive
to cut labour costs and have
wages a political, community
and industrial campaign against
Qantas
Employer Associations Qantas is a member of the
Australian International Airlines
Operation Group. They make
sure Qantas’ concerns are
represented to the government
at the federal level and to the
community
Government organisations The government enacts
employment relations legislation
such as Fair work Act,
Corporations Law, Work Health
and Safety Act and Workers
Compensation.
Society Society want as few disputes as
possible as they rely on the
dependability of Qantas when
travelling either domestically or
internationally.
pg. 112
BUSINESS STUDIES
2.2 Legal – the current legal framework
– The employment contract – common law (rights and obligations of
employers and employees), minimum employment standards, minimum
wage rates, awards, enterprise agreements, other employment contracts
– Work health and safety and workers compensation
– Antidiscrimination and equal employment opportunity
The current legal framework:
• The employment contract creates obligations for both employer and
employee
• All businesses operate within a legal framework of common law and
statute law
• Legislation covers the nature of employment contracts and
agreements
• Employee welfare is provided for through occupational health and
safety legislations and specific legislation
• Rudd Labor government in 2007, introduced a new legislative
framework for industrial relations- enacted through Fair Work Australia
(2009)
• Work Choice laws were abolished
• Unregistered individual common law contracts of employment, casual
work and independent contracting remain common options for
individual employment
• There arrangements shift the responsibility of organising employment
conditions onto the employee
• Shifted from a strongly centalised (government controlled) industrial
relations system in the 1980’s to a decentralised (business have more
control) and more fragmented system today
The employment contract:
• Most basic work place relationship is employee/ employer
• Employment contracts are a legally binding, formal agreement
between employers and employees
• A written contract gives more protection to both parties than a verbal
contract, as disputes often occur over contracts if working
arrangements are not clear
• Encourages the parties to clarify the key duties and responsibilities of a
job
• Qantas have had to implement the 10 National Employment Standards
into their practises.
• Qantas will face big penalties if it is proved they do not bargain in
good faith when negotiating new enterprise agreements.
• A contract is legally enforceable when:
o The parties involved intend to create a legal relationship
pg. 113
BUSINESS STUDIES
o One party offers and the other accepts the offer
o Both parities obtain benefits
o Both parties have the capacity to contract
o Consent is genuine and not pressured
o The offer foes not contravene any public interest (break laws)
Common law:
• Common law is developed by courts and tribunals
• Judges make decisions based on the facts of a case, guided by
precedent
• The body of common law is developed from decisions made over time
by judges
• Employers and employees have basic obligations in any employment
relationship
• Employer obligations include:
o Providing work- employers are not allowed to stand down
employees if there is no work
o Payment of income and expenses- required to pay the income
and reimburse employees for expenses legitimately incurred as a
result of performing their work
o Meeting requirements of industrial relations legislation- includes
providing a workplace and work practices as well as ensuring
that workers are protected against unfair dismissal
o Duty of care- employers are legally bound under the federal and
state OH&S Acts, to provide reasonable care for the safety of the
employee by:
▪ A safe system of work
▪ Providing and maintaining premises
▪ Providing resources, information, training, and supervision
necessary to ensure the health and safety of workers
▪ Protecting workers against risks arising out of their work
activities
• Employee obligations include:
o Obey lawful and reasonable commands made by the employer-
when employees do not obey such orders they place
themselves at risk of dismissal
▪ Reasonable orders are those that do not expose
employees to physical danger or contravene awards or
existing laws
o Use care and skill in the performance of their work activities
o Act in good faith and in the interests of the employer
Minimum employment standards:
• From 2010, minimum employment standards have been expanded
from the five Australia Fair Pay and Conditions Standards
pg. 114
BUSINESS STUDIES
• The standard covered basic rates of pay and casual loading,
maximum ordinary hours of work, annual leave, personal leave and
parental leave
• The National Employment Standards have been developed in
consultation with business, unions and the community
• They must be provided by employers and state minimum conditions for
employees
• They have been planned to provide a greater safety net for
employees, particularly for the most vulnerable
• 10 standards:
o Maximum weekly hours: 38 hours
o Requests flexible working arrangement
o Parental leave
o Annual leave
o Personal/ carer’s leave
o Community service leave
o Long service leave
o Public holidays
o Notice of termination and redundancy pay
o Provisions of Fair Work Information Statement
Minimum wage rates:
• From 2010, the employee’s base rate of pay for ordinary hours worked
has been determined by:
o The award or agreement that covers the employee
o The national minimum wage
• The main objective of the panel is to establish and maintain a safety
net of fair minimum wages
• It must consider submissions from interested parties, and the following
criteria in changing the minimum wage:
o The performance and competitiveness of the national economy,
including productivity, business competitiveness and visibility,
inflation, and employment growth
o Promoting social inclusion through increased workforce
participation
o Relative living standards and the needs of low-income earners
o The principle of equal pay for work of equal or comparable
value
o Providing a comprehensive range of fair minimum wages to
junior employees, trainees and employees with a disability
• The national minimum wage in 2017 July is $694.90 per week or $18.29
Awards:
• Awards are legally binding documents containing minimum terms and
conditions of employment
pg. 115
BUSINESS STUDIES
• Include minimum wages, penalty rates, types of employment, flexible
working arrangements, hours of work, rest breaks, classifications,
allowances, leave and leave loading, superannuation, redundancy
entitlements, and procedures for consultation
• They cover a large proportion of employees in lower skilled
occupational groups in the hospitality, retailing and community
service sectors
• The process of simplifying awards aims to reduce the complexity and
costs to businesses involved with interpreting such agreements
• Under the national system, employees may now be covered by
modern awards or enterprise agreements, which can be developed
or varied through Fair Work Australia
• Fair work ombudsman- representatives of FWA that deal with
complaints
• The process for making an award requires lodgment of a dispute by a
union or employer association, as the Constitution only allows for
dispute settlement at the federal level
• Award breaches may be reported by employees to Fair Work
Australia
• FWA inspectors are able to investigate workplace complaints and
provide assistance in resolving them
• Employers who refuse, delay or obstruct a visit may be penalised
Enterprise agreements:
• Are collective agreements made at a workplace level between an
employer and a group of employees about terms and conditions of
employment
• Collective agreements are made between a group of employees (or
one or more unions representing employees) and an employer or
group of employers
• They offer broader terms and conditions than a modern award, and
are an alternative to a modern award n
• Under the new FWA Act 2009, there are three types of enterprise
agreements:
o Single-enterprise agreements- between a single employer and a
group of employees
o Multi-enterprise agreements- made between two or more
employers and groups of their employees
o Greenfields agreements: single- enterprise and multi-enterprise
agreements relating to a genuine new enterprise of the
employer(s) that are made before any employees to be
covered by the agreement are employed
• Key features of the agreement:
o Cover rates of pay, penalty rates and overtime, allowances,
hours of work, personal and annual leave, any matters related to
the relationship between the employer and the employees, plus
pg. 116
BUSINESS STUDIES
their representative organisations involved, and how the
agreement will operate include a nominal expiry date
o They must be approved by FWA, who must be satisfied that the
agreement:
▪ Has been made with the genuine agreement of those
involved
▪ Passes a better off overall test (BOOT) compared to the
modern award
▪ Does not include any unlawful terms or designated
outworker terms
▪ Covers a representative group of employees
▪ Covers matters tat may be included in an enterprise
agreement
▪ Has a specific nominal expiry date (no more than 4 years)
▪ Includes a dispute settlement procedure
▪ Includes a flexibility clause and a consultation clause
▪ Provides opportunities for employees to be represented by
a bargaining representative and to bargain in good faith
during the negotiation of an agreement
Other employment contracts:
• Individual contracts:
o Exist when an employer and an individual employee negotiate a
contract covering pay and conditions
o Cover employees not on federal agreements or specific state
agreements, particularly for those earning over the limit of award
wages
o More common in the private sector and at the professional and
managerial level
o Many are informal and offer much less protection than other
agreements
o They are generally required to provide conditions that equate
with minimum provisions of related awards; if they do not, they
are in breach of the law
• Independent contractors:
o Often known as consultants or freelancers, undertake work for
others; however, they do not have the same legal status as an
employee
o Generally undertake a contact, service or project for another
business and work for multiple clients
o Contractors tend to have a set term or specific project for their
contract, control their own work and may delegate some of their
work to others
o Submit an invoice on completion of a task, stage or project
o A contractor carries most of the risk on a job undertaken,
including covering their own superannuation, tax, insurances
and leave
pg. 117
BUSINESS STUDIES
o Many employers prefer to rely on independent contractors as it
allows employment risks such as sickness to be shifted to the
person undertaking the work
• Contracts for casual work:
o Casual employees are in employment that is short term, irregular
and uncertain; they are not entitled to paid holiday or sick leave
o Have contracts with employers for short-term, irregular or
seasonal work
o Many employers prefer casual staff as it reduces costs for
recruitment dismissals and other on-costs
o Often receive a 20-25% loading to compensate them for their
lack of entitlements and job security
o Many casual employees find they miss out on training and
promotion, experience fluctuating income, and have difficulty
obtaining credit
o Also more likely to experience workplace accidents and are less
committed to the organisations that employ them
• Part-time contracts:
o Part-time work is increasing in Australia
o A factor of this is the GFC of 2008-09 as employers reduced hours
for some jobs in response to the downturn
o Part-time employees have a continuing employment contract
and work less than 35 hours a week
o They do have access to the employment entitlements offered to
full-time employees, but on a pro rata basis (in proportion to the
percentage of time they work compared to a full-time
employee)
Occupational health and safety
• In 1985, the Commonwealth Government, concerned at the high
levels of injury, accidents and disease in the workplace, introduced the
National Occupation Health and Safety Commission Act 1985
• Safe Work Australia was established to conduct research and develop
national standards, codes of practice and common approaches to
WHS/OHS legislation- endorsed by the state government
• Common law supports laws developed by the states, by requiring that
employers provide competent staff and a reasonably safe system of
work
• OHS laws will improve productivity by reducing the compliance costs of
businesses and improve the quality of occupational health and safety
conditions for all Australians
• In NSW, under the Work Health and Safety Act 2011, the following are
required:
o Employers must ensure the health, safety and welfare at work of
all employees by providing a safe system of work
o All employers must take out workers’ compensation insurance, or
face imprisonment or a $555000 fine
pg. 118
BUSINESS STUDIES
o Employers must take steps to ensure that people on-site who are
not employees are not exposed to risks arising from work being
undertaken
o Employees are required to take reasonable care for the health
and safety of others, to cooperate with employers and comply
with OHS requirements
o Employees who engage in bullying, skylarking or interfering with
machinery or any other behaviour that outs other employees at
risk are breaching their duties and could be fined
o Health and safety committees must be established at
workplaces with more than 20 employees if requested by a
majority of employees or if directed by WorkCover
o WorkCover is a government organisation who enforce WH&S in
the public sector
o WorkCover inspectors may inspect the workplace, collect
information, and issue improvement and prohibition notices
under the Factories, Shops and Industries Act 1962. This may in
some cases, mean that work ceases
o WorkCover must be notified of any deaths or serious injuries in the
workplace, ad any plans to carry out dangerous work
o Corporations may be fines up to $555000, $825000 if repeat
offenders, and individuals $10000 and $82500 respectively for
breaches
• Six-step approach to OHS:
o Develop a WHS policy and related programs
o Set up a consultation mechanism with employees, through
meetings, workshops, suggestions boxes, surveys and
noticeboards- ensure input is gained from all staff
o Established a training strategy for new and existing staff at all
levels. This may include emergency procedure training, or
specific hazard training
o Establish a hazard identification and workplace assessment
process
o Develop and implement risk control. This will involve minimising,
rectifying, eliminating and reviewing workplace risk
o Promote, maintain and improve these strategies. Key to
successful programs is regular feedback, and advice from staff,
and evaluation of records
• The Australian Council of Trade Unions conduct its own surveys
• In best practice businesses, management undertakes regular safety
audits, benchmarks their performance and implements comprehensive
safety programs
• Policy statements, safety signs and reminders are visible and there is
regular ongoing training for staff who are aware of safety rules and
prepared for emergencies
• Qantas WH&S program has increased safety awareness and led ti an
80% reduction in employee injuries since 2001
pg. 119
BUSINESS STUDIES
Workers’ compensation:
• Workers’ compensating provides a range of benefits to an employee
suffering from an injury or disease related to their work. It is also
provided to families of injured employees when the injury/ disease was
caused by, or related to, their work
• In NSW OHS laws and workers’ compensation matters are administered
by WorkCover
o WorkCover are a statutory body responsible for achieving safe
workplaces, effective return to work and security for injured
workers
• All employers must:
o Take out a policy with a licensed insurer
o Keep time and wages records, a register of injuries, and
complete accident and internal investigation forms, or face a
penalty of $55000 or six months jail
o Notify insurers of significant injuries within 48 hours
o Establish, in consultation with the insurer and the employee’s
doctor, an injury management plan and a return-to-work plan
for all injured workers, when fit for suitable duties
o Pass on compensation monies to the person entitled as soon as
possible
• Employees must notify their employer as soon as possible of an injury or
work-related illness
• Compensation is provided to employees suffering injuries or illnesses,
substantially developed from their work
• Absences or injuries made on a journey to or from work are also
covered by the Act
• Supports injured workers through providing the benefits and assistance
needed to recover and return to safe, durable work, if that is possible
• Benefits are payable if employees experience total or partial
incapacity to perform work; there is a need for medical, hospital or
rehabilitation treatment; or if there is permanent or partial loss of use of
parts of the body
• If an employee on a journey to or from work substantially increases the
risk by deviating from or interrupting the journey, benefits may not be
payable
• An injured employee may claim compensation, a lump sum payment
or sue for common law damages for negligence
• Compensation is paid for:
o Loss of wages for time off work
o Medical and rehabilitation expenses, and the cost of associated
travel and modifications to the home or vehicle
o Permanent impairment or loss of use of a part of the body
o Pain and suffering if the damage is assessed as being over
$10000
• Legal assistance may be provided to support a claim
pg. 120
BUSINESS STUDIES
• Benefits may not be payable if employees have deliberately injured
themselves or are solely responsible for the injury through their willful
misbehavior or misconduct
• Permanent disablement or death in these circumstances does allow
the payment of benefits
• For more employees, ‘provisional liabilities payments’ are made for up
to 12 weeks after an injury
• Claims for medical expenses compensation up to $5000
• Formal claims are generally made for matters extending beyond this
period or for medical costs greater then $5000
• Eligibility for lump sum payments and the calculation of these
payments under statutory law is now based on the principle of
thresholds for degree of body ‘permanent impairment’ and is capped
at $250000, plus weekly income support and medical costs for life
• Pain and suffering compensation is additional and only paid for a
degree of permanent impairment greater than 10% and is capped at
$50000
• The maximum penalty for a false claim under the NSW Workers
Compensation Act is $5500 or 12 months’ imprisonment, and for insurers
who delay commencing payments penalties up to $50000 apply
• They must take out worker’s compensation insurance
• Common law redress:
o Employees may take action against an employer when the
employer or another employee has been negligent or breached
their duty, if the employee has a permanent body impairment of
more than 15% and if the injury occurred at least 6 months prior
to the claim
o Common law action has been taken for serious disease
o Such claims are heard in the district or supreme courts
o If employees are unsuccessful in their actions, they will continue
to receive worker’s compensation as required under statutory
law
o Legal advice must be considered before seeking damages
obtained under common law redress
o James Hardie Industries asbestos victims (class action was taken)
Anti-discrimination
• Discrimination occurs when a policy or a practice disadvantages a
person or a group of people because of a personal characteristic that
is irrelevant to the performance of the work
• It includes harassment and vilification
• Anti-discrimination legislation has been enacted to protect employees
from direct and indirect discrimination
• To prevent discrimination and to avoid large fines, employers need to:
o Comply with legislation
o Audit all policies and practices to ensure they do not
discriminate
pg. 121
BUSINESS STUDIES
• Employers and managers working in HR need to be familiar with the
following legislation:
o Human rights and equal opportunity commission Act 1986
o Affirmative Action Act 1986
o Sex discrimination Act 1984
o Anti-discrimination Act 1977
• The agencies available to support the legislation are the Australian
Human Rights Commission, the Equal Opportunity for Women Agency
and the Anti-Discrimination Board
• Under discrimination laws it is illegal to take adverse action in
employment on the grounds of person’s:
o Race, sex, sexual preference, colour or age
o Physical or mental disability
o Religious faith or political opinion
o Social origin or national extraction
o Marital status and career responsibilities
o Pregnancy or potential pregnancy
• Protection has been further enhanced under the FWA
• It allows freedom of association for members or non-members of a
union and protection in a wider range of employment aspects
• People who suffer discrimination may take a range of actions internally,
formally or informally
• Strategies used increasingly by businesses to eliminate discrimination
include:
o Committing to a workplace free from discrimination
o Writing and communicating policies to prevent discrimination
and harassment, including a code of conduct
o Making sure all policies and procedures are clearly documented
and accessible to employees, offer inform and formal options,
and guarantee timely responses, confidentiality and objectivity
o Training managers and staff in cultural diversity issues and ways
to prevent or deal with discrimination and harassment, primarily
using face-to-face and interactive training programs
o Appointing a grievance officer and specifying grievance
procedures involving issues such as sexual/ racial harassment
o Regularly evaluating record keeping, implementation and
effectiveness of policies, workplace culture and action taken to
resolve complaints
• All employers are required to take reasonable steps to eliminate
discrimination
• Employers associations and anti-discrimination agencies can help
business develop a strategy that ensures consistency and fairness in
handling of complaints
• Qantas investigates and takes seriously all claims of discrimination
• Qantas ensures female employees are treated with fairness and equity.
They have taken measures to increase the number of women in
pg. 122
BUSINESS STUDIES
management (up by 11% since 2007) and on the Qantas Board (up by
15% since 2007) and support those in executive roles.
Equal employment opportunity:
• Refers to equitable policies and practices in recruitment, selection,
training and promotion
• EEO ensures that the best person for the job is chosen, the business
gains the person with skills and abilities most appropriate to its needs,
and a more positive work environment is promoted
• The level of equity in a business is reflected in the extent to which
women and minority groups have access to different occupations and
positions within the business
• Also reflected in grievance expressed or legal action undertaken on
the grounds of discrimination or sex-based harassment
• Employers with more than 100 employees, and all higher education
institutions, are obliged to develop an affirmative action
• The report must:
o Established the workplace profile and analyse the issues in the
specific workplace
o Report on the actions taken by the employer to address priority
issues
o Describe the action plans for the following period and evaluate
the strategies used
• Businesses are then assessed as complying or not complying with
requirements
• The aim of the program is to remove discriminatory employment
barriers and take actions to promote equal opportunity for women in
the workplace
• FWA must not take action to ensure that no existing or proposed award
or enterprise agreement discriminates on a wide variety of grounds
• The Equal Opportunity for Women in the Workplace Agency
recommends that businesses focus on six areas to improve equity within
their business
o Recruitment, promotion and separation
o Access to all occupations and areas
o Equitable total remuneration
o Training and career development
o Work and life balance
o Sexual harassment and working relationships
• Some specific strategies businesses can use to improve equity include
the following:
o Establishing a strategic plan that incorporates the business
objectives, strategies and targets
o Developing a policy statement and informing all staff that an
affirmative action program has been initiated
pg. 123
BUSINESS STUDIES
o Developing a code of practice to communicate to customers
and suppliers the business’s commitment to equity
o Implementing a system to gather, monitor and evaluate statistics
on employment
o Evaluating all current work policies, practices and industrial
agreements for equity/ discrimination
o Training all recruitment staff and interview panels in EEO
awareness
o Making awareness of EEO a criterion in performance appraisal
and promotion
o Keeping all staff, including those on leave, informed of
vacancies or other opportunities within the business
o Conducting exit interviews to ascertain reasons for employee
resignations
o Benchmarking to analyse the effectiveness of the business’s
strategies on EEO
2.3 Economic
The economic cycle:
• The demand for labour is determined by the demand for goods/
services in the economy
• If labour shortages develop during periods of economic growth,
employers compete for employees by offing higher wages
• During downturns in the economic cycle, the demand for goods and
services falls
• Businesses are forced to reduce the size of their workforce (downsize)
and limit their capacity to provide significant wage increases
• Structural changes:
o Structural change refers to a change in the nature and patter of
production of goods and services within an economy. This
includes a significant growth in the level of services in an
economy compared to other sectors
o Led to a rapid employment growth in the service sector (86%
total)
o As each sector grows, recruitment, selection and remuneration
become important industry issues
o With an ageing population, flexible staffing arrangements,
retention and mentoring increase in importance
o Effective training and staff empowerment are also critical to
business success in such customer service-based industries
o In manufacturing, removal of protective tariffs and quotas has
increased business exposure to international competition
o The subsequent fall in employment in manufacturing has been
hastened by rapid technological changes
pg. 124
BUSINESS STUDIES
Globalisation:
• Globalisation of business has increased the level of international
competition
• Many restructure, outsource non-core functions or subcontract
production in order to compete effectively
• Increasingly prepared to relocate production units in other cities, states
or countries where dispute levels, labour and regulatory costs are much
lower
• Enterprise bargaining has allowed many employers to trade-off
restrictive/ inefficient work practices for wage increases in industrial
agreements
• Training in the management of multicultural workforces, with differing
approaches to power, authority and the role of groups/ individuals, is
increasing with the globalisation of business
• Increasing role for international organisations to promote trade
between countries that adhere to social justice principles
2.4 Technological
• Technological change is the major source of improvements in
productivity, communication and competition between businesses
• Causing the nature of production and services to change, new jobs to
be created, and others to be made redundant
• A suite of electronic communications options allow firms to operate
‘anywhere, anytime’ and to harness staff through telecommunicating
• Use of new communications technology does increase the need for
ongoing training programs and new protocols to ensure that work-life
balance is maintained in an environment in which society often
expects people to be ‘always on call’
Technological change in Qantas includes:
➢ New security systems in response to terrorism threats
➢ New planes (Dreamliner and A380)
➢ New inflight entertainment systems
➢ New online check-in, self-service kiosks, etc.
As a result, Qantas’ staff have had to learn new skills, or their jobs may
have become redundant
2.5 Social – changing work patterns, living standards
Changing work patterns:
• Dramatic growth in part-time and casual
• Part-time work offers flexibility in balancing work and personal life
• Work patterns are changing, and commentators refer to this trend as
‘labour fragmentation’
pg. 125
BUSINESS STUDIES
• In May 2010 part-time men was 17% and part-time women was 46%
• In 2009 69% of part-time men and 45% of part time women wanted to
work full time/ full time hours
• Indicates that the GFC in 2008 led to a lot of full time workers being
forced into casual and part-time work
• Career flexibility and job mobility:
o Workers are taking more control over their own careers
o Around 14-16% of employees are considered job mobile
o Only 44% of full-time employees have worked for their current
employer for more than 5 years
o The most mobile employees are found in the retail or hospitality
industry
o Many leave full-time positions after developing specialists skills
and experience to become independent contractors or
consultants
o Many employees will find that they must learn new skills to adjust
to changes in their jobs
o Others will have to train themselves for new jobs that open up
when old ones disappear
• Rising female participation rate:
o Women compromise 48% of the workforce, 69.9% part-time
workforce and 54.3% full time workforce (compared to men at
83.4%)
o Their influence on the workforce is reflected in increasing calls for
work-life balance, and in recent improvements in parental and
carer’s leave conditions
• Ageing of the workforce:
o Likely to see a significant shortage of skills in the community over
the next few years
o Flexible working arrangements will be critical in utilizing this
ageing workforce- mainly in health, education and society and
culture
o Businesses and government will need to respond by upskilling the
population, creating incentives to encourage staff to postpone
retirement and implementing appropriate human resource
strategies to transfer skills to those remaining in the workforce
o Removing discrimination in the recruitment of older workers,
providing opportunities to update skills and offering targeted
health and safety programs will also be essential
• Early retirement:
o The average age of retirement from full-time work has increase
and is 53 (58 for males and 47 for females)
o Participation in part-time work is much higher
o Older employees are using a gradual withdrawal approach to
retirement
o Reasons for this include eligibility for superannuation, health
reasons, financial reasons or to relieve boredom
pg. 126
BUSINESS STUDIES
Living standards:
• Australians are aware of the pressure from the global competition on
these hard-won benefits and out living standards
• All political parties recognise the importance of these conditions to the
average Australian at work, and are unlikely to challenge these rights in
future
• Companies who seek to undercut conditions will be challenged by
unions keen to avoid erosion of our living standards
• Casualised workers suffer from higher levels of stress due to difficult in
purchasing assets, including homes and managing finances and debt
with unstable or uncertain income
• Social expectations in terms of home ownership, holidays and
ownership of consumer goods are an important factor in the rising
participation of women in full-time and part-time work and in the rising
retirement age for women
• Concerns are frequently rained about the loss of weekends for families
working flexible hours and shifts
• The blurring of work and home lives is creating an expectation that
employees and businesses will be ‘always on’
• Governments have responded by implementing legislation to make
workplaces more family friendly, through providing carer’s leave, job
share, part- time and flexible working hours
• Major concern for Australians about their living standards and working
life has been present over the last few years
• Main concerns include:
o Increasing income equality in Australia, as growth in real wages
has lagged behind profit growth in recent years and the
widening gap between average male and female wages
o The casualization of the workforce, with 2 million Australians now
working part-time or casually, and the pressure this creates on
family finances and life
o Increasing pressure to manage the finances in their lives as
governments retreat from welfare and encourage individual
responsibility for retirement, healthcare, education and debt
management
o Lack of work-life balance, with long working hours and loss of
holidays and weekends with families
• About 24% if staff at Qantas are now part-time or casual
• Female employees now comprise 41% of Qantas’ total workforce
following an increase in the participation rate of women
• Qantas have adopted more family friendly practises such as building
new child care facilities and a keep in touch program for staff on
maternity leave
• The number of women accepted into its graduate intake and
leadership program has increased
pg. 127
BUSINESS STUDIES
• Population shifts have created a more ethnically and culturally diverse
workforce at Qantas requiring more cultural awareness
2.6 Ethics and corporate social responsibility
• Ethical business practices are those practices that are socially
responsible, morally right, honorable and fair
• A socially responsible, ethical employer recognises that:
o A pleasant working environment and good working conditions
are valuable in motivation and retaining staff
o Performance and motivation are maximized when staff feel
secure, confident in their work, recognised, safe, equally valued
and rewarded for their efforts
o An effective workplace benefits from good working relationships
and teamwork
o The business depends on community support, as a source of staff
and as a source of business (that is, customers) and resources
o Management should be committed to an ethical workplace
culture
o Customers eventually find out which businesses are acting
responsibly and which are not
• An ethical framework must be developed for the workplace, in
collaboration with the major stakeholders
Modern society expects more form Qantas than just making profits.
Example of HR programs implemented by Qantas are:
• Working life – a health surveillance program, including flexible work
practises
• Cultural diversity – Reconciliation Action Plan focusing on employing
Indigenous Australians
• Key principles may include ensuring equity in workplace processes,
legal compliance, and commitment to customers
• The benefits accruing from ethical practices are becoming increasingly
evident from research and include the following:
o Staff retention and absenteeism rates improve as staff feel more
valued and motivated
o Business costs (such as recruitment and training) are reduced
and business performance is enhanced
o There are significant marketing and business opportunities- best
practice employers enjoy regular publicity in the media, in
journals and on the internet
Working conditions:
• An ethical employer can be expected to achieve safe and fair
working conditions that improve the welfare of employees
• These include:
pg. 128
BUSINESS STUDIES
o Compliance with social justice and industrial legislation (OH&S,
anti-discrimination etc.)
o Providing a safe and healthy working environment, safe working
practices and equipment, appropriate supervision and training
in safety and health, without which, workplace incidents may
occur
o Creating challenging, interesting and meaningful work to
stimulate intrinsic rewards for staff
o Improving communication and fostering teamwork and
empowerment of staff
o Providing study leave and training opportunities to reduce skill
obsolescence and improve access to management positions
o Offering equitable and open rewards and benefits subject to
clear criteria
o Offering flexible working hours and conditions that promote a
balance between work and life
o A strategic plan supported by management that incorporates
specific ethical responsibility
o Implementing change through collaboration with staff
o Establishing a code of practice for customers, employees and
suppliers
o Evaluating and benchmarking its performance to ensure it is
operating at best practice
• Working conditions have come under focus over the last 2 decades
• The pressure to become competitive has been reflected in the rapid
growth of precarious employment (predominantly casual/ part-time)
• Exploitation of adult workers through outworking and subcontracting
locally and offshore is often raised as a major ethical issue
• There are concerns surrounding child labour globally and the ‘race to
the bottom’ by businesses to secure cheap labour
• Businesses argue that only jobs that are unskilled and offer a major
labour cost differential are shifted offshore
• Also argue that shareholder pressure for ongoing profits requires them
to constantly search for more efficient approaches to managing their
most costly resource (employees)
• Businesses are sensitive to consumer concerns due to the success of
consumer lobby groups and actions, and media scrutiny
• Responses demonstrate corporate social responsibility through such
strategies as regularly undertaking audits of their factories abroad, and
working with agencies to support ethical practices in their local and
offshore operations
pg. 129
BUSINESS STUDIES
3. Processes of human resource management
• Human resource management is focused in acquiring, developing,
maintaining and managing staff productively to achieve the business’s
goals
• This involves managing the relationship between employer and
employees effectively to develop and retain talented, competent,
productive employees
Human resource planning:
• During the boom years firms had to bid for staff in a ‘war for talent’
• In the future, labour shortage looms due to the ageing Australian
population
• Two major HR aspects need to be planned in all businesses:
o The short- term and long- term human resource needs for the
business, through a human resource inventory of the business
▪ The needs will be influenced by business development
plans, business strategy, the nature and location of the
development, and external factors including government
policies, economic, technological, social trends and
organizational structure
o The strategy needed to meet these needs
▪ This may include recruitment, downsizing, outsourcing or
specific programs to build new capabilities, improve
competitiveness, transform culture or quality
3.1 Acquisition
• Acquiring the right staff is a critical process in managing human
resource management processes
• Acquisition involves analysing:
o The internal environment- particularly the business’s goals and
culture
▪ The focus may be on cost containment, growth,
downsizing, improved customer service or quality, or other
internal goals
o The external environment- including economic conditions,
competition, technology, and legal, political and social factors
• Job analysis and job design are required to meet the needs of new
positions
• These are undertaken through staff interviews, observations, and
reports from performance appraisals and evaluations
• Job specifications and descriptions can then be developed and
prepared for applications through external recruitment
• Identifying staffing needs – Qantas will conduct a job analysis to
produce a job description which defines the scope of job activities,
major responsibilities and positioning of the job at Qantas
pg. 130
BUSINESS STUDIES
• Recruitment – Sources or recruitment for Qantas are internal and
external. Due to high recruitment costs (advertising), these methods
are constantly evaluated
• Employee selection – Qantas conducts interviews, personality tests,
background checks, selection decisions, physical examinations which
ends in a job offer and contract of employment. The wrong choice
can be costly for Qantas
Recruitment, selections and placement:
• Recruitment is the process of locating and attracting the right quantity
and quality of staff to apply for employment vacancies or anticipated
vacancies at the right cost
• Employment selection involves gathering information about each
applicant and using that information to choose the most appropriate
applicant
• Effective recruitment and employment selection involves:
o Evaluating and hiring qualified job applicants who are motivated
and have values and goals aligned with the business and its
culture
o A fair, non-discriminatory and legally compliant selection policy
and process
o Giving applicants a realistic understanding of their job
description and responsibilities
o Using strategies that will prove useful for later selection and
placement decisions
o Using strategies that are aligned with other human resource
strategies and the business’s needs
• Most businesses use a mixture of internal and external recruitment
3.2 Development
• Effective development programs ensure that experienced and
talented staff are retained
• They enhance employees’ motivation and commitment to the
business through promotion opportunities over the longer term
• Training and development needs change as an employee’s career
develops
Training and development at Qantas is about a $275 million a year
investment. Its objectives include:
➢ Increased efficiency
➢ Improved quality of service
➢ Fewer accidents and damage to equipment
➢ Personal growth of employees
➢ Make employees more flexible and adaptable to change
➢ Reduce absenteeism and staff turnover
Training includes:
pg. 131
BUSINESS STUDIES
➢ On the job (apprenticeships, coaching, job rotation, mentoring,
etc.)
➢ Off the job (simulation, Qantas College Online, day and block
release at Qantas’ Centre of Service Excellence)
• Development focuses on enhancing the skills of the employee
through:
o Further professional learning
o Mentoring or coaching
o Performance appraisal and management to allow them to take
advantage of opportunities to develop a career with the
business
Induction:
• An effective induction program is carefully planned to introduce a new
employee to the job, their co-workers, the business and its culture
• Most employees who leave a business depart in the first three months;
therefore, the need for support is greatest when an employee is in a
new job
• A well-prepared induction program:
o Gives employees a positive attitude to the job and the business
o Builds a new employee’s confidence in the job
o Stresses the major safety policies and procedures, and explains
their application
o Helps establish good working relationships with co-workers and
supervisors
Training:
• The aim of training is to seek a long-term change in employees’ skills,
knowledge, attitudes and behaviour in order to improve work
performance in the business
• It is essential in overcoming business weaknesses, building on strengths
and maintaining staff commitment
• A focus on acquiring new skills and knowledge helps a business adapt
to change and stay ahead of the competition
• The majority of employees who attend a formal course or study for an
educational qualifications receive some assistance from their employer
• A business’s ability to remain competitive can be affected by the
extent of training it offers
• A lack of training may be damaging in the long run because it could
result in higher turnover rates as staff seek development in other
businesses
• The key features of an effective training program include:
o Assessing the needs of an individual, the job and the business
o Determining the objectives of the training program for the
business, job and individual
pg. 132
BUSINESS STUDIES
o Consider the internal and external influences- including the
attitude of the employee to training, staffing, financial and
physical resources available to operate the program, as well as
any new research on relevant training issues and government
programs or support available for training
o Determine the process:
▪ The content of the training program
▪ The learning principles to be applied, including
participation, repetition, demonstration and feedback
▪ The learning methods to be applied, such as simulation
training, lectures
▪ The location of the training program, whether on-site or
off-site
▪ The participants involved
o Evaluate the training program. Strategies include:
▪ Tests and surveys- both prior to and after training
▪ Performance appraisal
▪ Observation
▪ Benchmarking of key indicators- such as defects, customer
complaints and accident rates
Organisational development:
• In the current era, businesses tend to have a flatter management
structure
• Businesses with flatter structures benefit from employees’ ability to
develop shared ideas and solutions to problems
• It can improve efficiency, effectiveness and response to customer
needs, however it can reduce the promotional opportunities of
employee’s
• Managers therefore need to use strategies to help motivate and retain
talented staff. Strategies include:
o Job enlargement- increasing the breadth of tasks in a job
o Job rotation
o Job enrichment- increasing the responsibilities of a staff member
o Job sharing- where two people share the same job
o Self-managing teams- teams in which roles and decisions are
determined by their members
o Mentoring and coaching- where a leader or more experienced
member of staff provides advice and support to another person
developing skills in the area
Mentoring and coaching:
• Mentoring and coaching are increasingly used to motivate and
develop staff with leadership potential
pg. 133
BUSINESS STUDIES
• Mentoring is a mutually agreed role, which is more focused on building
a personal relationship that encompasses the life experience of both
parties
• Often those being mentored select their mentors and are free to
accept or reject the advice offered
• Coaching is focusing on improving skills and performance, and on
helping individuals mange specific work roles more effectively
• Coaches may be provided by the business, or may be sought by those
seeking further development
Performance appraisal:
• Is a systematic process of analysing and evaluating employee
performance for strengths, weaknesses and opportunities for
development
• Used to assess an employee’s suitability for promotion and their
potential value to the business’s success
• Performance appraisal involves four main objectives:
o To provide feedback from management to employees
regarding work performance
o To act as a measurement against which promotion and pay rises
can be determine
o To help the business monitor its employee selection
o To identify employees’ training and development needs
• Managers need to ensure the criteria are job related, the appraising
staff have been trained and that there is no discrimination in the
process
• Employees are more likely to value a performance appraisal if they are
given a chance to discuss their performance and to challenge their
evaluation
• Performance appraisal tools include:
o Behaviour observation scales- supervisor observes and records
evidence of behaviour and performance over time
o Interview- formal discussion between supervisor and employee
o Management by objectives- objectives set for the employee,
performance rewarded according to results
o Critical incident method- records how employee responds in
specific situations and times, tends to be used for employees
who are supervisors
o Graphic rating scale- employee performance is rated on a
range of descriptors and traits such as enthusiasm, reliability,
cooperation, ability to plan, quantity and quality of work
undertaken
o Essay evaluation method- supervisors write a report on
employee’s strengths and weaknesses
pg. 134
BUSINESS STUDIES
o Performance ranking method- employees ranked from best to
worst
o 360- degree feedback- employees receive feedback
anonymously from peers or managers
3.3 Maintenance
• Maintenance focuses on the processes needed to retain staff and
manage their wellbeing at work
• It involves looking after staff wellbeing, safety and health, managing
communications effectively, and complying with industrial agreements
and legal responsibilities
• Staff wellbeing can be achieved through allowing them to have
control and make decisions
• Employee participations strategies will increase and foster involvement
in decision making
• Effective communication strategies support employee participation
and a strong workplace culture
• Employees have the right to a healthy and safe work environment
• Offering family-friendly programs that support work-life balance is
critical- this include flexible job roles to suit family needs
• Employees also expect that industrial agreements, and payroll
obligations and benefits are met
• Records management is an addition role involving the retainment of
records of:
o Application forms, taxations, earnings, conditions of work,
employment history with the firm, superannuation, professional
learning, achievements and performance management reports
• These records may be needed by the employee in the future and are
a useful tool for accountability and reference checks
• Remuneration – used to increase job satisfaction, reward peak
performance and reduce staff turnover, Qantas has aimed to keep
increasing pay by about 3% per year.
• Work environment – excellent staff facilities help motivate and retain
staff
• Flexible working conditions – Increasing maternity leave from 10 to 12
weeks, up to 10 days’ carers leave, a keep in touch program for staff
on maternity leave, new child care facilities in Sydney, Melbourne and
Brisbane
• Increasing parental leave for primary care givers from 52 to 104 weeks
• Complying with existing legislation regarding human resource
Communication and workplace culture:
• Effective workplace relationships depend heavily on the strength of a
business’s communications systems
pg. 135
BUSINESS STUDIES
• Common methods of communication include regular team meetings
between managers, or supervisors, and employees; staff bulletins and
newsletters; staff seminars; social functions; suggestion boxes and staff
surveys; and email and intranet
• Email is often criticized for being a source of misunderstandings and
tension- there are also issue of whether staff will attend to emails at
home, this becoming a common source of workplace conflicts
• Strategies that focus on building trust and direct communication
between people are critical in preventing conflicts and escalating
issues
• Help in building a positions workplace culture
• Redesigning office layouts to have one or two central locations of
breaks and meeting are becoming common to enhance
communication/ culture
• Daily ‘walk around’ by management, particularly when it involves
positive interactions with staff is still effective
• Recognition of staff achievements is critical in building a positive
workplace culture
• Communications with employees should always be constructive, even
when there are problems with employees
Employee participation:
• The nature of workplace communication is changing with the
increasing use of email and increased opportunities for employee
participation
• Businesses encourage employee participation to improve
communication, empower employees and develop their commitment
to improving quality and efficiency
• Businesses benefit from employee experience and knowledge on the
job and improvements they suggest are often critical to a business’s
competitiveness and success
• The value and effectiveness of employee participation depends on the
training, knowledge and skills of the employees involved
• Effective participation is fostered through regular team meetings/
briefings to discuss customer feedback, company trends and issues
• Employee participation strategies include:
o Participation through membership of the board of directors- this
allows an employee or senior employee to represent staff of the
board
o Participation through ownership- employees buy shares in their
company, which may result in increased commitment
o Joint consultative committees- these are formally established
groups consisting of employees, management representatives
and may or may not include union representatives
▪ Original purpose was to provide management with the
views of employees on a range of issues, enhance
communication and improve efficiency and productivity
pg. 136
BUSINESS STUDIES
o Participation in collective bargaining- it is a requirement that a
majority of employees be involved in developing and enterprise
agreement
o Team briefings- teams provide an excellent opportunity for
employees to share knowledge, skills and experience; to find
solutions to problems and develop innovations
o Employee surveys and feedback from performance interviews-
many businesses use a range of surveys and reports from staff to
seek valued feedback on ways to improve business
performance
Benefits:
• Benefits are often a litmus test of the workplace culture as they are
available to all staff
• They may be monetary in value or non-monetary, and the extent of
benefits available will reflect the resources of the business and the
nature of its activities
• Typical benefits include flexible working arrangements, paid training
opportunities, travel allowance, health insurance, subsidised gym
membership, housing and company car
• Some benefits attract an employer paid fringe benefit tax
• Benefits that may be considered for FBT include airline transport,
expense accounts, board and accommodation, housing loans, living-
away-from-home allowance, car parking, property and entertainment
allowance
Flexible and family-friendly work arrangements:
• Employees want a work life balance- this is being responded to with
more flexible working arrangements, in order to attract and retain
talented staff
• A family friendly workplace may include:
o Workplace participation and training
▪ Increased multiskilling to allow staff to ‘fill in’ for others
▪ Staff meetings to discuss work-life issues
o Flexible working arrangements
▪ Part time, variable full-time/ part-time work, career breaks,
job sharing, flexible hours and work from home
o Family support
▪ Arrangements to check children, phone policy, employee
assistance, seminars, respite care for elderly and disabled,
supporting community service
o Child care
▪ Employer-supported ventures, joint venture, reserved child
care places, vacation care programs, sick children
arrangements, advice/ referral service
o Leave
pg. 137
BUSINESS STUDIES
▪ Maternity, paternity and family leave
o Other
▪ Flexible salary packages, support on parental leave, work-
family information, relocation policies (such as school
matching service), family days, work experience for
children
• Flexible working conditions allow businesses to work more efficiently
and allow employees to balance work and family responsibilities more
effectively
• Home based work is becoming more practical as the electronic
methods of communication and technology improve
• Typical flexible working conditions include:
o Flexible remuneration (reward) options
o Flexible working hours
o Flexible study/ work arrangements
o Career break schemes
o Job sharing
o Work-from-home arrangements
o Family leave
o Part-year work arrangements
• Family-friendly programs are effective in retaining staff in the longer
term as they recognise the interdependence of work and family life,
and reduce problems involved in managing family responsibilities
• Employees are able to leave and later re-enter the workforce, thus
reducing separation, recruitment and training costs for new employees
Legal compliance and corporate social responsibility:
• All employers are required by law to ensure that human resource
procedures and policies comply with existing legislation, including anti-
discrimination and sex discrimination legislation, occupational health
and safety, taxation, social justice legislation, and industrial relations
legislation and agreements
• Bullying and sexual harassment are the issues behind high levels of staff
stress, absenteeism, turnover and low productivity and morale
• A major focus of maintenance is for human resource managers to
minimise the exposure of the business to risk by implementing a range
of proactive and preventative strategies in health and safety, anti-
discrimination and conflict resolution
• Bullying is common in industries where there are a high number of
vulnerable employers such as apprentices, young staff or migrant
workers
• It can be minimised by:
o Providing information about workplace bullying
o Inducting and training employees in company policy,
procedures to deal with bullying and consequences of bullying
o Providing training to increase cultural awareness
pg. 138
BUSINESS STUDIES
o Promoting a culture that is based on open communication,
respect, fairness and trust
o Ensuring management is committed to resolving bullying and
grievances
o Having mentoring or buddy systems for new and young
employees
o Having a member of staff, appointed by the staff, to handle
complaints and grievance
3.4 Separation
• Separation, where and employee leaves a business, may be voluntary
or involuntary
• Voluntary separation may take the form of resignation, relocation,
voluntary redundancy or retirement
• Involuntary separation may take the form of contract expiry,
retrenchment or dismissal
• To avoid claims of discrimination and adverse effects of the morale
and productivity of remaining staff, involuntary separation must be
managed carefully and in compliance with legislation, awards and
agreements
• Acceptable situations for redundancy would include closure of the
workplace site, completion of the project on which the employee
worked, lack of contracts or orders for work, a downturn in demand
from customers or a need to reduce staff due to financial difficulties in
the business
• When determining who will be retrenched length of service, standard
of performance, future potential and whether some staff may be
willing to leave voluntarily must be considered
• Notice and leave entitlements given may comply with legislation and
industrial agreements
• It is rare to see retrenched or redundant staff leave cheerfully, even
when the separation is handled in a professional and caring manner
• When an employee’s employment is terminated, the employer must
provide a written statement confirming the termination and date of
determination
• Most awards and agreements have common provisions relating to
termination, change and redundancy that cover matters including the
procedures for retrenchment, amount of notice to be given or pay in
lieu of notice and severance pay
• Qantas has had to downsize their staff over recent years due to the
GFC, international competition, changes in technology and falls in
profits
• They have just downsized by 5000 staff over the last 3 years –
involuntary separation
pg. 139
BUSINESS STUDIES
Dismissal:
• Summary dismissal is an instant form of dismissal that applies to
employees involved in gross or serious misconduct, such as theft
• Termination for misconduct must meet the test of being fair and
reasonable, given the circumstances
• Fair Work Australia will determine is these levels have been met or not
• If there is any doubt, payment of notice in lieu will generally avoid an
unfair dismissal claim for serious misconduct
• Dismissal can also be based on poor performance or redundancy due
to organisational restructuring, a downturn in business or technological
change making a job redundant
• Widespread restructuring and managerial policies are major factors
contributing to industrial disputes and unfair dismissal claims
• Employers need to prove that they have followed all the processes
required before dismissing an employer
• In the case of poor performance, businesses are required to:
o Give employees a written warning about their poor performance
over a period of time
o Give them advice and support so they have the opportunity to
improve
o Notify employees of the reason for termination and an
opportunity to respond
• In the case of redundancy, the employer may be asked to show that:
o The employee’s job was no longer needed; that the redundancy
is genuine
o There was no appropriate work available elsewhere within the
organisation
o The employee was consulted about alternative redeployment
options in the business
Unfair dismissal:
• Selecting staff for dismissal can be risky and requires awareness of
legislation and industrial agreements
• Documentation of processes undertaken is also required to avoid
claims of unfair dismissal
• Fair Work Australia provides these grounds for unfair dismissal claims for
employees covered by the national system
• A claim can be deemed unfair by FWA if they find that
o The employee was dismissed
o The dismissal was harsh, unjust or unreasonable
o The dismissal was not a case of genune redundancy
o The dismissal was not consistent with the Small Business Fair
Dismissal Code, where the employee was employed by a small
business
• Employees are able to claim unfair dismissal if:
pg. 140
BUSINESS STUDIES
o The business has more than 15 employees, who have been
employed for more than 6 months
o The processes for dismissal have not been carried out correctly
• The claim may be resolved through informal conferences, telephone
conferences or by a formal hearing
• Reinstatement will be the remedy for a claim that is upheld, unless it is
not in the interests of either of the parties, in which case compensation
may be ordered
• An employer has the right to object to a claim on the basis that it is
vexatious or frivolous, not submitted in an appropriate time frame, not
reasonably likely to succeed, not a case of unfair dismissal or that the
person making the claim is not eligible
• Many businesses have preferred to avoid the risk by hiring casuals and
contractors
• Other businesses have tightened their employment contracts- including
job description, probation periods and measurable targets to allow for
dismissal of staff if required
• For many it has been regarded as cheaper and less time consuming to
settle the claim, regardless of whether or not it is valid
• Many have needed to consult specialists in the area of termination to
avoid these problems
4. Strategies in human resource management
4.1 Leadership style
• 2009 survey showed:
o Employees remained concerned that their immediate managers
are “all talk and no action”
o That the quality of overall management continues to be the
“most hated” aspect of a job
o Management quality was the biggest employee ‘dislike’ factor-
major influence on employee motivation and retention
Leadership styles:
• Leadership style is the manner and approach in which leaders of a
business interact with staff:
o Providing directions and instructions
o Implementing plans and organising staff
o Motivating staff
• The classical authoritative, autocratic (directive) approaches- focus on
planning, organising and controlling
• The behavioural approach- sees management as leading, motivating
and communicating, is most commonly seen in a participative or
democratic leadership style
pg. 141
BUSINESS STUDIES
• The contingency approach- uses the most appropriate approach
depending on the situation and changes in circumstance
• Directive- emphasis on immediate compliance from employees
• Visionary- emphasis on long-term vision and leadership
• Affiliative- emphasis on the creation of harmony
• Participation- emphasis on group consensus and generating new ideas
• Pacesetting- emphasis on accomplishment of tasks to high standards
• Coaching- emphasis on the professional growth of employees
• Under government ownership and the domestic duopoly between TAA
and Ansett, Qantas management adopted a more autocratic
leadership style. Qantas management has total control over decision
making and there was very little contact between workers and top
management. In 1991, the domestic aviation industry was deregulated
and in 1995 Qantas was privatised. As a result, Qantas had to change
its leadership style and adopt a more democratic style. -> Qantas
employees now have much more input into decision making
4.2 Job design – general or specific tasks
• Job design is the process of designing the content of a job and how it
will interact with other jobs and employees, so as to motivate and
retain an employee and achieve the business’s goals
• Job analysis is an ongoing process which is a detailed analysis of all the
tasks, responsibilities, personal attributes and reporting relationships
needed in a position
• Employees are more motivated and likely to share ideas if they have
autonomy, have a clear task identity, are well trained and feel
competent, and receive feedback that allows them to be recognised
and develop further
• Employees are more motivated when they are able to plan, schedule
and determine how to do a job
• Organisation needs to be a strength for businesses like Qantas. The
more organised and efficient the different components of Qantas are,
the better its functions. There is a wide variety of tasks required in
Qantas from baggage handling to flying the superjumbo A380.
• Well-designed jobs at Qantas can address problems such as work
overload, repetitiveness, shift work and occupational heal and safety.
• Job design is an ongoing process at Qantas aimed at allowing
employee input, give employees a sense of accomplishment,
balances static and dynamic work and provides feedback about their
performance
Core elements of a well-designed job:
• Social interaction, opportunity for achievement, resources, flexibility,
discretion and autonomy, variety of tasks, challenge, task, opportunity
for ongoing learning and development
pg. 142
BUSINESS STUDIES
Job design steps:
• Analyse the existing work situation using observation, feedback and
organisational data
• Identify technical, managerial and administrative tasks to be
performed
• Identify needs and aspirations of employees for new positions
• Decide how the job will fit in with the work group
• Consult with key stakeholders and modify as required
• Implement changes slowly, provide training, consult and use feedback
to modify
• Include procedures for review of progress
• Assess and review progress, discuss with employees
Job design methods:
• Job design is a useful method in developing the knowledge and
leadership skills of employees identified for future promotion in
succession planning
• Job rotation- employees move from one job to another on a rotating
basis
• Job enlargement- employees are given additional tasks to increase the
variety and challenge involved in a position
• Job enrichment- employees are given more challenging tasks,
responsibility, autonomy and decision-making power
• Semi-autonomous work groups- a multifunctional work group of
employees who take responsibility for a production process, or project,
share and manage tasks to achieve targets without direct supervision
• Cross-functional, team-based matrix structures- employees are part of
project teams for specific projects until each project is completed.
They report to functional heads and project leaders
• Flexible work structures- employees are offered flexible options to meet
personal needs
Specialised job design:
• Involves jobs being broken down into specialist skills areas in order to
improve knowledge and skills, to increase outputs, to reduce errors and
labour costs, and to control quality
• It rarely leads to greater challenges or job satisfaction, is repetitious
and boring, employees have little input, there is limited social
interaction/ sharing of ideas and there is no identifiable end product
• It is believed to reduce the ability to absorb knowledge and may even
limit knowledge sharing- management assumes greater control
4.3 Recruitment – internal or external, general or specific skills
pg. 143
BUSINESS STUDIES
• Recruitment is the process of locating and attracting the right quantity
and quality of staff to apply for employment vacancies or anticipated
vacancies at the right cost
• Effective recruitment and selection allows the most appropriate
applicant to be selected
• Recruiting a diverse workforce is becoming more important as
globalisation increases, as it allows for effective communication with a
wide customer base, and demonstrates CSR
• The sources and methods used will depend on the recruitment goals
and policies of the business
• A poor selection process leads to increased costs and lower
productivity by increasing:
o Training costs (if poorly qualified staff are selected)
o Job dissatisfaction, lower performance, industrial unrest/ labour
turnover if the business or the job does not meet the
expectations of candidates selected
o The absenteeism rate if staff feel inadequate for the job/ business
or feel excessive work pressure
o Accident or defect rate, fines if inappropriate/ untrained staff
are selected
o Claims of discrimination if the process is not undertaken
appropriately
• Main purpose of recruitment at Qantas is to attract a sufficient number
of applicants for different jobs to achieve optimal selection rations,
which helps ensure the hiring of qualified candidates.
• Qantas uses a mix of internal (filing vacancies from inside) and external
recruitment (filing vacancies from outside)
Internal or external recruitment
• Internal recruitment involves filling job vacancies with people from
within the business
o Sources include employees, former applicants and former
employers
o Invited to apply through intranet postings, staff records,
promotion lists, word of mouth, email and other methods
• External recruitment involves filling job vacancies with people from
outside the business
o Obtained through newspaper advertisements, online
advertisements and referrals through recruitment agencies,
company websites, trade unions, trade shows, management
networks, professional associations, schools, radio and television
• The fastest growing recruitment methods today are via social
networking sites and viral reality sites, including business videos
• Internal – promotions, transfers -> provides motivation of employees to
perform well and develop skills, lowers overall training and induction
pg. 144
BUSINESS STUDIES
costs. However, may lower the influx of new ideas and innovation +
employees may not be prepared or qualified for the vacancy
• External – advertisements, contracts, head hunters, competitors ->
tends to increase selection accuracy and tends to bring in new ideas
and innovations. However, increases recruitment and selection costs
and takes longer to fill vacancies
Internal- advantages Internal- disadvantages
• Motivational for staff- development
opportunity
• Builds community and loyalty
• Business only needs to hire at base level
• Employees know the culture, operations-
productivity maintained
• Can lead to a succession of promotion
opportunities in line with succession
planning
• Recognises and rewards staff for effort
and achievement
• Cheaper than external recruitment, less
chance of a failure as staff are observed
in operation, strengths and weaknesses
are known
• Can reinforce negative culture
• Can lead to rivalry for positions
• Need established framework for
training and merit-based appraisal
system
• Often attracts a significant number of
internal applicants, need to manage
unsuccessful applicants who will be
demotivated, can lead to poor
working relationships
• Little value added, no new skill
External- advantages External- disadvantages
• Wider applicant pool
• New ideas, perspectives and skills may
produce better solutions to business issues
• Get specific skills needed, save on training
• Dilutes internal politics
• More diversity in employment- equal
employment opportunity
• Can shape new employee to business
• Risk of unknown staff
• Lost productivity in initial phases of
orientation and induction phase
• New employee may not fit culture,
and may not be accepted by
internal rivals
• Takes a lot of effort and time
• Risk of legal claims
• Many firms consider internal potential candidates first and move to
external recruitment when appropriate internal staff are not available
• The recruitment process needs to be managed very carefully and
applicants given a realistic job preview during the process- to avoid
expensive acceptance errors
• Background checking and contact with referees is critical to verify
qualifications and experience provided
General skills
• Focus on attracting staff with general skills, attitudes and behaviours
that are a good cultural fit for their business
pg. 145
BUSINESS STUDIES
• The job can then be customised to suit the recruits who can be trained
and developed according to the business’s needs
• These behavioural ‘soft’ skills, are often critical in building a successful
workforce, and are not really ‘learned’, whereas specific skills can be
taught
• Important because many jobs today require individuals to work
independently and undertake many different tasks
• Generally indicate that the employee has a capacity and willingness
to learn
Specific skills
• Most businesses are concerned about skill shortages and still need to
target employees with specific skills to fill gaps in their business
• Sophisticated software is available to support workforces and
recruitment planning
• Many businesses are recruiting overseas or using outsourcing and
overseas recruitment to overcome skills gaps in their businesses,
particularly through skilled migration programs
• There is a significant shortage developing in more highly skilled and
professional areas including specialist project management skills
• Employee poaching is the practice of enticing employees to work for
another business
4.4 Training and development – current or future skills
• Training aims to develop skills, knowledge and attitudes that lead to
superior work performance
• Training is critical as businesses report significant labour market
problems, including a shortage of skilled labour, and a mismatch
between what skills are needed and what is available
• Development is focused on enhancing the skills of the employee to
upgrade their skills in line with the changing and future needs of the
business
• Encourages employees to take advantage of opportunities to develop
a career with the business
• The business benefits by retaining the employee’s experience and
knowledge of the business, and by helping it maintain competitiveness
• Businesses need to use skills in the economy, the demand for these skills,
and the changing nature of work and the general pattern of
employment
• Qantas has invested more than $275 mil a year in training and
development over the past 5 years.
• Qantas’ training program is planned and is integral to its business
strategy and to maintaining or developing a sustainable competitive
advantage
• Ongoing training is critical due to the airline industry’s rapid
technological change and global comp
pg. 146
BUSINESS STUDIES
• Qantas has implemented training programs in new security
procedures, international business class, engineering and maintenance
and informational technology procedures
• Benefits of T&D to Qantas:
- Enhanced organisational productivity because employees can do
their jobs more effectively
- Enhanced ability to cope with change because employees have a
variety of skills
- A more committed workforce
• Qantas also uses online learning to train its staff -> lead to nationally
recognised qualifications and has enabled Qantas to quickly and
economically upgrade and maintain the skills and knowledge of its
workforce
Options needed to be considered
• Invest in further in-house training and development
• Recruit staff for specific skills
• Retain experts who retire on part-time basis
• Retain women through flexible work structures such as
telecommunicating
• Share staff with other firms, or do work for other firms (insourcing)
• Outsource functions to specialist forms or agencies, even overseas
• Sponsor overseas migrants for areas of major shortages
• Build networks or alliances with other firms with specialist skills or skills
needed in the future
4.5 Performance management – developmental or administrative
• Performance management is a systematic process of evaluating and
managing employee performance in order to achieve the best
outcomes for a business
• Two objectives:
o Evaluating an individuals performance
o Using that information to develop the individual
• Qantas managers are appraised -> that is their performance is
assessed in a formal and systematic way, measured against factors like
job knowledge, quality, leadership abilities etc.
• Qantas uses it as a tool to encourage strong performers to maintain
their high level of performance and to motivate poorer performers to
do better
• The objectives of performance management at Qantas are:
- To provide a rational basis for pay and promotion decisions
- To provide individual feedback to aid performance improvement
Value of performance management:
• Assess legal compliance
pg. 147
BUSINESS STUDIES
• Justify staffing decisions
• Identify training and development needs
• Provide feedback and recognition
• Assess performance against organisational standards
• Identify opportunities for productivity improvement
Development:
• This model of performance management is focused on using data to
develop the individual skills and abilities of employees, so they improve
their effectiveness in their roles, overcome weaknesses, and are
prepared for promotion
Administrative:
• This model of performance management provides information, often
following an annual appraisal, which can be used by management for
planning in human resource functions such as training, development,
rewards, pay levels, benefits and performance improvements
Benefits of effective performance management
Benefits for business Benefits for individual
• Assists with human resource planning
• Can plan to overcome gaps or
weaknesses found in performance
• Shows the effectiveness of current
selection processes and whether staff
recruited match the cultural fit and
skills required for the organisation
• Identifies training and development or
legal compliance needed
• Evaluation of rewards and benefits
programs
• Communicates expectations, helps
build trust, promotes long-term
organisational development
• Helps identify, motivate and retain
talented staff for leadership succession
• Identifies and documents poor
performance, and links it with training
and improvement strategies
• Comparison of contribution to organisation
and performance against agreed
standards
• Helps assess rewards and benefits linked to
performance
• Builds self-efficacy as contributions
recognised- important in motivation and
retention
• Identifies strengths and weaknesses,
creating opportunities for training and
development, coaching or mentoring
• Creates opportunity for employee to
provide feedback
• Initiative recognised and rewarded
• Fosters promotion on merit
• Employee focus is aligned with
organisational strategy
• Performance appraisal and performance management are more
readily accepted by employees when they are designed
collaboratively with key stakeholders
pg. 148
BUSINESS STUDIES
• Effective performance appraisal systems set expectations and
standards in advance, against which performance can be measured,
rewarded and plans for improvement developed
• Effective performance management is fostered when businesses:
o Have clear job descriptions so people know what tasks or roles
they need to perform
o Match people with the right skills to the role and the culture of
the business
o Set mutually agreed goals and standards for performance,
which include ‘people’ based goals for everyone, including
senior management
o Provide appropriate induction, training and development, so
staff are competent and are able to experience personal
growth
o Provide effective training for those leading performance
appraisal and management
o Provide regular and constructive feedback on performance so
staff can continue learning and improving
o Provide opportunities for internal promotion and development,
and provide support, counseling, mentoring or coaching to
support staff
o Recognise and reward employees appropriately for their
achievements
o Use employee surveys and feedback, including exit interviews, to
assess the effectiveness of the performance management
system and staff satisfaction, and to understand the reasons for
staff turnover
4.6 Rewards – monetary and non-monetary, individual or group,
performance pay
• A well-planned reward system is a key strategy in attracting, motivating
and retaining employees
• A reward system can reinforce strategies to facilitate change or
support desirable corporate values, such as a focus on the customer
Monetary and non-monetary rewards
• Rewards can be monetary, non-monetary, intrinsic or extrinsic
• Rewards are to be distinguished from benefits, which are available to
all members of staff
• Reward systems are also increasingly linked to performance
management through enterprise bargaining and individual contracts
• Intrinsic rewards are generally non-monetary and can come from the
job or tasks itself, or the work environment
• Extrinsic rewards can be both monetary and non-monetary and can
be direct (wages/ incentives) or indirect (fringe benefits such as child
care or car)
pg. 149
BUSINESS STUDIES
• Monetary rewards -> wages and salaries, performance based pay
(particularly senior managers), cash bonus to each eligible staff
member in recognition of their contribution to Qantas’ record profit
results, entitlements
• Non-monetary -> interesting and challenging work, promotion, safe
and healthy environment
Individual or group rewards
• Rewards are often related to individual performance; however, this
can lead to conflict and rivalry if not managed effectively
• Increasing use of group- and team-based structures have increased
the need for cooperation and made it difficult to distinguish
performance of individuals within teams
• Many tools can be used by the human resource manager in
developing a reward system
• Key issues to consider in designing a reward and benefits system in
terms of the business include:
o Business strategies
o Economic conditions- supply and demand for labour and skills
shortages
o Organisational objectives of rewards
o Rewards and benefits of competitors
o Relevant awards and agreements, minimum employment
standards
o Union power
o Profitability/ viability of the business
• Key issues to consider in designing a reward and benefits system for
individual employees are:
o Performance related- incentive plans for performance above
standards or criteria, bonuses, piece rates, commission,
production- related incentives
o Job related- role and level of responsibility, scope of supervision,
base pay, interpersonal skills, knowledge and skills, experience,
value to the company
o Other individual considerations- group incentives, the
employee’s value, specific job conditions and their individual
bargaining power
• The reward system should aim to motivate staff and be equitable,
clearly communicated, defensible, relevant, cost effective and
integrated with corporate strategy
• It must also be simple to understand and administer, and consistently
applied to all employees
4.7 Global – costs, skills, supply
pg. 150
BUSINESS STUDIES
• Globalisation of business, as well as technological developments in the
internet, human resource application and telecommunications, has
significantly increased the competition faced by any business
• These advances have also increased the complexity of managing
human resources
• Business typically expand, initially, through indirect exporting and
demand via the internet for their productions
• This is followed by expanding by exporting and sourcing products,
services or processes through the global web
• When success if felt, expansion occurs through licensing and sales
offices, relocation of production, and acquisition or joint venture
• The rapid growth of global outsourcing of routine and repetitive tasks,
illustrates the potential for businesses to develop creative strategies
that access lower cost labour, modern technology and work practices,
while complying with regulations and pay scales in overseas countries
• In addition to labour costs, issues including business language skills are
important influences on the choice of location for offshoring and
outsourcing
• A business planning to expand overseas needs to consider whether it
wishes to use a polycentric, ethnocentric or geocentric staffing
approach
• A polycentric staffing approach uses host country staffing with parent
country staff in corporate management at its headquarters
o Helps company access good marker knowledge, cost efficient,
satisfies local pressure for employment opportunities
o May limit management experience for host-country staff
• A geocentric staffing approach uses the staff with the most
appropriate skillset for a particular role and location, and builds a pool
of managers with global experience
o Complex and expensive policy due to the local employment
regulations, relocation and retraining costs
• An ethnocentric approach uses parent-country staff in its organisation
o Limit its ability to interact with customers and learn from overseas
markets
• Compliance with overseas labour market regulations is critical to avoid
difficulties with local governments and disruption to business
• Cultural awareness and language training for all staff need to be
implemented to foster effective communication and positive
relationships between employees
• Qantas’ workforce is made up of 99 nationalities, speaking 51 different
languages
• Uses a polycentric and ethnocentric approach to staffing -> tried to
hire host country nationals (HCNs) instead of transferring its domestic
staff to work in foreign operations. This approach has 2 advs:
- HCNs already understand local laws, culture, the state of the
economy and language
- Avoids extra expenses
pg. 151
BUSINESS STUDIES
• Disadv – HCNs may need to be trained to become familiar with the
Qantas business’ culture and practices
• They have also outsourced some suctions such as IT, maintenance and
call centre operations to reduce labour costs
4.8 Workplace disputes
– Resolution – negotiation, mediation, grievance procedures, involvement of
courts and tribunals
• Disputes are conflicts, disagreements or dissatisfaction between
individuals and/or groups
• Stakeholders often have conflicting interests- leading to disputes
• They may be informal, formal, overt or covert- can be costly to all
involved
• Covert disputes are conflicts that are only recognised by the business
itself
• Workplace conflicts also lead to other problems in the workplace,
higher levels of absenteeism, low productivity, legal claims and high
staff turnover, which may be even more costly in the long run
• An industrial dispute is a disagreement over an issue between an
employer and its employees, which results in employees ceasing work
• Strikes refer to situations in which workers withdraw their labour
o Strikes are the most overt form of industrial action and aim to
attract publicity and support for the employee’s case
• Lockouts occur when employers close the entrance to a workplace
and refuse admission to the workers
o Lockouts have been used frequently in long disputes in
manufacturing to promote concession bargaining, to push
employees to sign individual agreements, and in response to
strike actions
• Each withdrawal or refusal is made to enforce a demand, to resist a
demand or to express a grievance
• Legal claims for matters such as discrimination, harassment and
bullying are not included in these disputes
• Some employers seek to minimise conflict, others stifle it through tough
tactics, while other mage more collaboratively through negotiation
with staff and unions
• The major causes of disputes recognised by the ABS are disputes
relating to negotiation of awards and enterprise agreements
• These issues typically include disputes about:
o Remuneration- wages, allowances, entitlements and
superannuation
o Employment conditions- working hours, leave, benefits, general
employment conditions
o Job security issues- retrenchment of employees, downsizing,
restricting, use of contractors, outsourcing, re-classification of the
workforce, industry- related matters
pg. 152
BUSINESS STUDIES
• Matters outside agreements also cause disputes:
o Health and safety- physical working conditions, safety matters,
compensation provisions, protective clothing and equipment,
uncomfortable working conditions, employee amenities,
equipment conditions and overly strenuous physical tasks
o Managerial policy- decisions and policies of line managers,
disciplinary matters, suspensions, discriminations, decisions that
impact upon work and family issues, production limits or quotas,
principles of promotion and other work practices
o Union issues- employer approaches to the union, inter-union and
intra-union disputes, sympathy stoppages in support of
employees in another industry, and recognition of union activities
o Political or social protests
• 70% of Qantas workers are party to an EBA. Qantas deals with 16 unions
and is a party to 33 awards and 44 union enterprise agreements
• Resolution – negotiation, mediation, grievance procedures,
involvement of courts and tribunals
• Qantas has workplace dispute strategies in place to overcome
disputes with minimal disruption. This hasn’t always worked to plan
particularly in 2011-2913, however over the last 2 years workplace
disputes have been dealt with much more amicably and successfully
for Qantas
Resolution of disputes
• The key stakeholders involved in resolving disputes include employees,
employers, governments, trade unions, employer associations, courts
and industrial tribunals
• Dispute resolution in Australia has been heavily influenced by
government philosophies and evolving policies on industrial relations
• Both labour and liberal parties have played a significant role in the
legislation and processes of resolving industrial disputes
• The focus on resolution at the workplace level has continued, but
through collective and enterprise-based bargaining rather than
individual bargaining
• Before either party may take protected industrial action, there must
also be proof that both parties have attempted to bargain in good
faith
Key stakeholders and their role in resolving workplace disputes:
• Employers and managers
o Use grievance procedures and negotiate agreements with
employees to resolve disputes
o Line managers are playing a much greater role today in
resolving disputes
• Employees
pg. 153
BUSINESS STUDIES
o Use grievance procedures and negotiate agreements with
employers, with or without unions, on a collective or individual
basis
• Trade unions
o Represent employees in disputes from the shop floor to the
national level, negotiate with management, employers and
associations, represent employees in tribunals
• Anti-discrimination boards
o Work closely with the Human Rights and Equal Opportunity
Commission to ensure that disputes about discrimination on the
basis of age, colour, sex, disability, criminal record, political
opinion, race or religion in the workplace are resolved through
provision of information, investigation and conciliation
o Can refer cases to Administrative Revise Tribunal for
determination
• Civil courts
o Federal Court, state supreme courts.
o Enforce legislation
o Handle common law action
• Industrial tribunals FWA
o Interpret legislation
o Make and supervise awards and agreements
o Provide conciliation and arbitration for the resolution of disputes
and unfair dismissal claims
• Human Rights Commission
o Monitors and reviews how legislation relating to human rights is
implemented
o It can investigate and conciliate complaints about discrimination
in employment opportunities or a person’s treatment in the
workplace
o Refers complaints of sex discrimination in awards and
agreements for determination to the Federal Court
• Governments
o Provide the institutions, policy and legislative framework for the
resolution of conflict
o Investigate breaches of legislation
• Employer associations
o Provide information and support employers, assist in negotiations
with unions, represent employers in tribunals
Negotiation
• A method of resolving disputes when discssions between the parties
result in a compromise and a formal or informal agreement
• This process can benefit the parties involved by increasing their
knowledge of company policy, business’s objectives, workers’
concerns and issues involved in implementing change
pg. 154
BUSINESS STUDIES
Mediation
• Is the confidential discussion of issues in a non-threatening
environment, in the presence of a neutral, objective third party
• The third party may be independent and agreed on by key parties in a
dispute, or a representative from a business, tribunal or government
agency such as FWA, AHRC, or the Anti-discrimination Board of NSW
• It allows the parties to become empowered by resolving their own
disputes, and it reduced the risk of disputes escalating and leading to
expensive legal costs or industrial action
Grievance procedures
• Are formal procedures, generally written into an award or agreement,
that state agreed processes to resolve disputes in the workplace
• Are useful in reducing the risk of an issue rapidly becoming a serious
dispute
• Most businesses have established a formal process, now required in
modern awards and other agreements, by which issues can be
handled
• Effective grievance procedures require a full description of the
complaint to be made by the employees with the complaint
• The person the grievance is made against should be given details of
the allegation and an opportunity to provide their view
• It is a useful strategy for resolving issues before they escalate
Involvement of courts and tribunals
• Industrial disputes that escalate to the level of courts and tribunals are
most likely to occur when disputes have passed their nominal expiry
date, bargaining has commenced towards a new agreement, and
negotiations have failed
• Employees and employers then enter a period where industrial action
may be protected until a new agreement is developed
• May require conciliation
o Conciliation is a process where a third party is involved in helping
two other parties reach and agreement
o FWA will appoint a conciliation member to hear both sides of the
dispute
o The conciliation member calls a conference and attempts to
help both sides reach an agreement
o The member may require all parties to continue negotiations on
some aspects, reduce the ambit of the dispute or develop other
strategies to resolve the dispute and then report back for
another conference
• If conciliation fails the matter may be referred to arbitration, if it is in the
award or agreement, or if the parties agree
pg. 155
BUSINESS STUDIES
o Arbitration is the process where a third party hears both sides of a
dispute and makes a legally binding decision to resolve the
dispute
o A member or a panel of memebers hears both sides of the
dispute in a more formal, court-like setting
o A judgment is handed down based on the merits of the
evidence that becomes legally binding on all parties
o Orders may end a restrictive work practice or behaviour, or
require a secret ballot of union members if strike action is
proposed
o FWA may also order that staff be reinstated or that the parties
return to the tribunal at a later date for further negotiations
• Common law action:
o Common law action is open to any party involved in or affected
by industrial action
o Parties may make direct claims for damages caused by the
parties taking the action, or for breach of contract resulting from
such action
o This option is not available if the action is a protected action
during a bargaining period
o Common law action in civil courts is also available to those on
individual common law contracts of employment disputing
matters not covered in legislation or relevant awards
Benefits and costs of workplace disputes
• Conflict may encourage employees and managers to share ideas and
resolve problems that improve workplace practices and foster
innovation
• Conflict is costly for parties directly involved and other stakeholders
who are indirectly affected
Factor Benefit Cost
Financial • Increases empowerment of all
parties who “own an agreement
• Empowerment can lead to
increased productivity, fewer
disputes and reduced
absenteeism/ labour turnover
• Lost production and sales
adversely affect a firms income
and levels of debt
• Reputation may be damaged
• Legal representation and fines
imposed can be a financial
burden on firms
Personal • Conflict helps workers to gain
management’s attention on major
issues that may have caused
dissatisfaction and stress for a long
time
• Stress can be created through
intensification of work and
changes due to restructuring the
workplace
• Rumors or threats of downsizing
cause fear, insecurity and
lowering of staff morale
pg. 156
BUSINESS STUDIES
• Better work relationships may result
from a clearer understanding of
work problems
Social • Introduction of multiskilling, new
training opportunities and career
paths benefit individuals and
society
• Occupational health and safety
problems may be reduced
• Community bitterness can be
directed at unions, employees or
employers in the industry where
disputes affect the general public
• Verbal/ physical abuse may
occur
Political • Governments can change their
policies in response to workplace
conflict
• Draw public attention to the need
to protect worker entitlement
• Loss of national income in
extended disputes can affect
economic growth
• Impact government policies-
especially election time
International • Changes to work practices
following conflict can improve
international competitiveness
• Loss of export income, markets
and reputation for stability-
overseas buyers may look
elsewhere
5. Effectiveness of human resource management
The role of the HR manager is to decide how the employment relationship will
be best managed so that it is cost-effective, achieves the business’s goals
and contributes to the ‘bottom line’
5.1 Indicators
• Indicators are performance measures that are used to evaluate
organisational or individual effectiveness
• Indicators can be compared to those of best practice businesses or
internal divisions to determine strengths and weaknesses- known as
benchmarking
• Benchmarking is a process in which indicators are used to compare
business performance between internal sections of a business or
between businesses
• Indicators are gathered and collated in HR audits
Human resources effectiveness indicators (functional area- indicators):
• Human resources planning- number of staff/ budgeted staff
• Recruitment and selection- application rejection, acceptance rates for
job offers, recruitment costs, vacancies filled within target time
pg. 157
BUSINESS STUDIES
• Training and development- training days/ hours per employee, training
time/ budgeted time, cost of training, test outcomes, succession
planning rate, promotion rate
• Employee rewards and benefits- costs of rewards and benefits, labour
turnover rates, absence rates/ total hours worked
• Industrial relations- grievance records, industrial disputes, work
stoppages, time lost through disputes
• Performance appraisal- appraisals undertaken, goals achieved or not
achieved
• Separation/ termination- separation rates, dismissal rates, resignation
rates
• General HRM effectiveness- labour costs/ sales and gross profit per
employee, growth in market share
Using indicators for improvement:
• Communicating and educating employees about company vision,
strategy and expectations at an operational level
• Planning and setting goals for employees that are translated into
meaningful tasks, and ensuring staff known how to achieve them
• Developing employees effectively to improve performance
• Evaluating performance, providing coaching and feedback in formal
reviews
• Linking rewards to performance measures
• Providing organisational feedback for ongoing planning purposes
– Corporate culture
• Most businesses that are successful in the long term maintain a
balance between concern for success (expansion or profit) and regard
for their employees
• Better work and employment relationships begin with an understanding
of how to develop a positive corporate (business/ workplace) culture
• A corporate (business/ workplace) culture refers to the values, ideas,
expectations and beliefs shared by members of the business
• Without dedicated, trained and motivated employees, the best
organised plans will never be achieved
• HR covers all types of interactions among people: conflicts,
cooperative efforts and interpersonal and group relationships
• The indicators that reveal a workplace has a poor corporate culture
include
o High staff turnover
o Poor customer service
o High levels of absenteeism
o Accidents
o Disputes and internal conflicts
pg. 158
BUSINESS STUDIES
• These problems are reflected in poor business performance, lower
sales, lower profits than competitors and ultimately the ‘bottom line’
• Effective workplace relationships depend heavily on the quality of a
business’s communications system and participation of employees in
decision making
• Strategies that focus on building trust and direct communication
between people, and value their ideas are critical in building a positive
workplace culture
• Steve Jobs built a corporate culture around being revolutionaries and
rebels, Apple is known for using T-shirts, parties and celebrations to build
cohesion, a collaborative workforce with teams, innovative working
conditions and a place where employees ideas are valued
– Benchmarking key variables
• Benchmarking may follow a more comprehensive HR audit or may be
undertaken using basic indicators
• The purpose is to compare a business’s performance in specific areas
against other similar businesses or divisions, or against ‘best practice’
businesses
• The aim is then to initiate changes to foster improvement
• Benchmarking is commonly undertaken in a number of ways:
o Informal benchmarking includes any strategies such as
networking through informal discussions with colleagues in other
businesses, undertaking visits to other businesses, researching
best practice online and attending conferences
o Performance benchmarking involves comparing the
performance levels of a process/ activity with other businesses
o Best practice benchmarking involves comparing performance
levels with those of another best practise business in specific
areas using a structured process to gain skills and knowledge
and to modify organisational processes
o Balance scorecard benchmarking is used for measuring whether
the activities of a business are meeting its objectives established
in the strategic plan. It benchmarks key performance variables
with targets aligned with the strategic plan
• The approach used for benchmarking needs to be chosen for it
suitability to the business’s needs and resources as it can be a very
costly and time-consuming process
• It may provide useful information about the business’s HR, but may
focus excessively on costs rather than what is actually being achieved
or may be achieved
• The most important information is the long-term performance of those
recruited and the development needs of talented staff with future
potential in the business
• Qantas benchmarks the following indicators internally (previous year)
or externally (different organisations typically in their industry)
pg. 159
BUSINESS STUDIES
Human resource audits:
• A human resource audit can be used to systematically analyse and
evaluate human resource activities and their effectiveness
• This can be performance in a number of ways:
o Performance of one division or the business itself against another
is benchmarked and compared to industry ‘best practice’ to
determine areas of weakness and for improvement
o An outside consultant conducts research to analyse problems
and suggest solutions
o Key performance variables are evaluated by management
o A legal compliance analysis may be undertaken to determine
areas of variance from laws and company policies. High levels of
fines, workers’ compensation claims and unfair dismissal claims
would indicate this type of audit was required
o A management by objectives approach can be used to
determine areas of poor performance against targets
established
Quantitative measures:
• These should be able to demonstrate the actual effect of indicators in
economic terms- that is, in terms of costs and profits
• Key variables often include:
o Variances in labour budgets
o Time lost/ costs on injuries and sickness
o Performance appraisals completed compared with targets
o Percentage of goals achieved
o Levels of labour turnover, particularly with those initiated with
employees
• Benchmarking of such variables is undertaken frequently by businesses
seeking to operate at world’s best practice, or in accordance with
standards in quality assurance programs
Qualitative evaluation:
• Involved detailed feedback and research on key issues, which allow
judgements to be made about changes in behaviour or quality od
service provided
• Benchmarking major variables is essential in planning for continuous
improvement
o High or increasing absenteeism and labour turnover rates are
indicators of problems including boredom, poor relationships,
and lack of training or opportunities to develop
o Analysis of industrial disputes and the issues raised may provide
useful feedback about issues such as health and safety, rewards
and benefits, and relationships in the workplace
pg. 160
BUSINESS STUDIES
o Feedback from performance appraisals provides information
useful in evaluating and planning training, recruitment and
selection, development rewards and separation processes
o Feedback from supervisors, consultative committees, customers
and employees in organisational surveys provides useful insight
into workers satisfaction, empowerment and customer service
• Research by external businesses and institutions also provide valuable
information for analysis and comparison
• Businesses need to consider domestic and international trends and
management practices when planning strategies for improving the
effectiveness of HR management and business performance
– Changes in staff turnover
• Staff turnover refers to the separation of employees from an employer
both voluntary and involuntary, through dismissal or retrenchment. It is
often shown as a percentage of total staff numbers
• Staff turnover in Australia averages around 12-15% per year, and
fluctuates with the economic cycle, with around half being voluntary
due to resignation and retirement
• In assessing the significance of turnover, it is important for businesses to
benchmark their turnover against that of other businesses in the
industry; and to determine the type of staff leaving and their reason
• The cost of high labour turnover are great, and involve high costs
through payouts for entitlements, hiring, inducting and training new
staff
• Productivity and service quality, corporate skills and knowledge are
lost, particularly is there has been poor succession planning
• Lack of a focused workplace culture un such an environment reduces
employee commitment and loyalty
• Some level of turnover is considered healthy in businesses, as new ideas
are brought in and often stimulate innovation in work practices
• However, a major change or a significant increase in turnover is a
major warning sign
• Staff turnover as increased from 4.6% in 2014 to 4.7% in 2015, however
these are both quite an improvement on the 2013 figure of 5.5% and
the 2009 figure of 8.7%.
– Absenteeism
• Absenteeism refers to employee absences, on an average day,
without sick leave or leave approved in advance
• High levels of absenteeism and/or lateness may indicate that workers
are dissatisfied or that there is conflict within the workplace
• In terms of lost revenue, such unofficial expressions of conflict may be
even more costly to firms than official and overt forms of conflict
• Firms need to have much higher staffing levels to cope with high
absentee levels to cope with high absentee levels
pg. 161
BUSINESS STUDIES
• Therefore, revenue is lost as work is disrupted and can lead to lower
productivity and higher labour costs
• Qantas absenteeism rates decreased in 2013 and 2014 – 9.1 and 9
days respectively (from 9.6 days in 2012). This shows HRM is effective
and reflects employee health and wellbeing, the level of staff
engagement and productivity.
– Accidents
• Around 5.3% of Australia’s 12 million employees experience a work-
related injury or illness each year
• According to the Safe Work Australia, in 2010 there were 132000
workers’ compensation claims for serious work-related injuries or
illnesses involving one week or more off work, a permanent incapacity
or fatality
• Employees most likely to experience an injury at work are young males
engaged in physical work, followed by tradespeople, labourers and
transport workers
• Women in the hospitality and health related services experience high
rates of injury
• The most common types of workplace fatalities are associated with
road crashes, particularly for tradesmen and transport workers; while
injuries are associated with lifting, pushing and pulling objects, or being
hit by an object
• All businesses need to adopt a systematic, legally compliant approach
to managing occupational health and safety
• Occupational health and safety indicators are benchmarked
internationally using a number of indicators including:
o Lost Time Injury Frequency Rates. A lost-time injury is an event
that results in a fatality, permanent disability or time of one
day/shift or more lost from work. The LTIFR is the number of lost-
time injuries per million hours worked (number of lost-time injuries
x 1000000/ total hours worked in accounting period)
o Safe Work Australia rates based on accepted workers’
compensation claims that involved the loss of one or more
working weeks (termed serious claims). Claims for shorter periods
are not counted in this rate
• Best practice businesses:
o Have regular safety audits and comprehensive safety programs,
and use data to improve
o Build a culture of safety. They communicate effectively about
health and safety using visible policy statements, safety signs and
reminders
o Provide careful induction and regular ongoing training for staff to
ensure they are aware of safety rules and prepared for
emergencies
pg. 162
BUSINESS STUDIES
o Consult employees and health and safety personnel on the
implications of changes in the workplace
• Such businesses save on compensation claims, absenteeism, lost work
time, replacement costs for damaged equipment, and loss of morale
in the workplace
• Customers appreciate the effort businesses make in producing a safer
product or service; therefore, such businesses also improve their image
to their customers
• Qantas uses 2 indicators – TRIFR (total recordable injury frequency rate)
and LWCFR (lost work case frequency rate). These have both
increased in 2015, indicating a deterioration in Qantas’ injury
prevention performance.
– Levels of disputation
• There are many, often costly, overt and covert manifestations of
disputes that employers need to monitor and evaluate
• Qantas has been plagued by recent industrial issues (2011 – 2013) with
engineers, baggage handlers, flight attendants and even pilots. This
historical high number of disputes has affected the reliability of the
network and harmed Qantas’ brand. However, 2013 – 2015 has seen
negotiations between Qantas and unions become more amicable,
with 18 EBAs (Enterprise Bargaining Agreements) being agreed upon
with little or no disputation
Types of industrial conflict:
• Overt manifestations:
o By employees- pickets, strikes, stop-work meetings, work bans
and boycotts, and work-to-rule
o By management- lockouts, stand-downs, dismissals,
retrenchments
• Covert manifestations:
o By employees- absenteeism, high labour turnover rates, theft and
sabotage, higher defect rates, reduced productivity, lack of
cooperation
o By management- discrimination, harassment, lack of
cooperation, exclusion from decision making
Indicators of industrial disputation:
• Although strikes and lockouts are officially recorded indicators of
industrial disputes, there are a range of other forms used in the
workplace
o Work bans- a ban or boycott is a refusal to work overtime,
handle a product, piece of equipment, process, or even a
refusal to work with particular individuals. A green ban often
pg. 163
BUSINESS STUDIES
refers to a refusal to carry out work that is considered harmful to
the environment or natural resources such as forests
o Work-to-rule- this action occurs when employees refuse to
perform any duties additional to the work they normally are
required to perform. This is most common as a form of industrial
action in community service
o Go slow- in this action, employees work at a slower rate than
normal, causing customer complaints, and an expensive
backlog of work to be caught up at a later date
o Sabotage- vandalism, cyber attacks, and internal theft are not
uncommon, but are rarely discussed publicly by firms. They may
involve employees taking action to harm or destroy the image of
a firm, for example by contaminating food or disrupting
production
• Employees should be concerned if there are a number of formal
grievances reported, as they are an indicator of poor quality
relationships in the workplace and can be very damaging if they
attract media attention or move through the legal system
• Ongoing grievances are likely to be reflected in higher levels of staff
turnover and or/ industrial disputes
• Apart from negotiations related to the making of awards and
agreements, managerial policy is one of the most common causes of
disputes
• Decisions and policies of line managers, organisational restructuring,
discrimination, decisions that impact on work and family life, and
changing work practices such as the use of outsourcing and contracts
• Such disputes are more commonly reflected in grievances, fines,
bands, accidents, poor customer service, declining productivity, and
higher absenteeism and labour turnover
• Disputes are more common in large businesses where relationships and
communication between employees and management tend to be
more impersonal, and the scope for mistrust and misunderstanding is
greater
– Worker satisfaction
• Employee satisfaction is a key factor in employee commitment, job
performance and staff turnover
• Employee satisfaction surveys are useful in helping employers measure
and understand how their staff feel about their work, their
management and the culture of an organisation
• Such surveys can be used to improve management style and
processes, benefits and rewards systems, the physical working
environment, employee relationships and other employee needs
• Employee feedback needs to be confidential and analysed by
professionals qualified to interpret such feedback
• Managers need to track, communicate and act upon the results
pg. 164
BUSINESS STUDIES
• Pay is not that significant in employee satisfaction, unless there are
significant pay differentials in the workplace
• Effective leadership is one of the most important influences on
employee satisfaction, particularly when employees feel recognised
and encourages, where management is transparent, promotion is
merit based, and communication is honest and respectful
• Employee satisfaction is improved by matching the purpose of the
business with the skills and cultural fit of the employee
• Employees who indicate emotional exhaustion with the job, particularly
if it impacts on family life, are often less satisfied with work
• Employees value a family-friendly culture, adequate breaks during the
day, effective resourcing to do their job, rewards for effort and
performance, opportunities for sabbaticals or ‘leave’ options, and
workplace wellbeing strategies such as the gym
• Ongoing training and mentoring or coaching is much more effective
than pay differentials in fostering employee commitment
• It is the holistic approach to employees, which values and cares for
them, that is the most effective in building commitment, satisfaction
and retraining effective employees
• Qantas sees worker satisfaction as being important as it directly effects
motivation and productivity. It is difficult to measure. Qantas uses
measures such as surveys, invitations for employee feedback and
external consultants.