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CHRISTOPHER KENDIRJIAN

HSC BUSINESS STUDIES NOTES:


TOPIC 1: Operations
Role of Operations:
Strategic role of operations- Cost Leadership, Good/service
differentiation
The strategic role affects all key business functions and is aimed at two
aspects: minimising costs through cost leadership and differentiating
products from competitors
Cost leadership is aimed at having the lowest costs and to be the
most price-competitive in the market business should still be
profitable and overall product quality should not be compromised as
this can increase costs in the long term (customer complaints, warranty
issues, wastage through damaged products)
A business can be a cost leader by taking advantage of economies of
scale- these are cost advantages that can be created because of an
increase in scale of business operations, meaning the business can
purchase lower cost per unit of input. Efficiencies will be created from
improved use of technology
Good/service differentiation develops product characteristics that
are distinguishable from competitors as to achieve a larger market
share. Goods can be differentiated by varying product features, quality
and augmented features. Services are differentiated through varying
time spent, level of expertise, qualifications and experiences, quality of
materials/technology used
Cross branding can be used as a means of differentiation as it adds
value to products by offering customers added benefits e.g.
Woolworths-Caltex alliance
Case studies
QANTAS: cost leadership- standardisation minimises costs, using
technology eliminates the need for staff to interface with customers
Differentiation- Includes comfort based features such as sky beds, special
menus, lounges, online check
CRUMPLER: differentiates its products through better design, quality,
variety and incorporation of new technology

Goods/services in different industries:


Standardised goods are mass produced usually on an assembly line.
They are uniform in quality and meet a predetermined level of quality
production focused
Customised goods are those that vary according to the needs and
wants of the customers market focused
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The choice to customise or standardise is strategic as it requires cross-


functional interactions with marketing, finance and HR

Characteristics Goods Services


Tangibility and Tangible and some can Intangible and only
perishability be perishable e.g. fruit exist when being
performed
Customisation Tend to be Generally customised
standardised but can
be customised
Ownership Can be owned and this Cannot be owned
ownership is
transferrable through
sale of ownership
Time between Can have long time Production and
production and consumption of
consumption service is
simultaneous
Determination of value Can be determined Value is subjective and
through costing all depends on market.
inputs and adding a Value increases when
margin. Inputs can be provider gives high
easily determined levels of skill, longer
time, high levels of
education and
experience and high
levels of expertise

Interdependence with other key business functions:


Operations is interdependent with marketing as marketing is
concerned with product design, sales and meeting needs of consumers.
Operations needs the market research and designs from marketing in
order to translate this into products that meet customers needs and
wants
Finance provides operations with funds to produce products while
operations must ensure quality of output is high in order to generate
sales and so the funds can be put back into the finance department
Because of the changing nature of work in modern society, skills and
qualities sought from employees also change. Operations rely on
employees to effectively interact with customers to generate sales and
to also gain info on the market. HR relies on the quality of output
produced by OP in order to effectively sell products also rely on OP
for the provision of jobs
CHRISTOPHER KENDIRJIAN

Case studies
QANTAS: operations relies on HR to effectively communicate with
customers in order to establish positive relationships with customers to
ensure repeat sales and customer loyalty whilst HR require the jobs to be
performed from OP e.g. plane servicing technicians

Influences on Operations:
Globalisation, technology, quality expectations, cost-based
competition, government policies, legal regulation,
environmental sustainability
Globalisation:
removal of trade barriers between nations
high degree of transfer of capital, labour, resources and technology
between nations
global customers want standardised products, therefore OP must be
structured around this large businesses orient what they produce and
how they produce it towards meeting the needs of global consumers
businesses should increase the rate of global outsourcing in order to
create cost advantages over competitors
the development of factories in low-wage countries means businesses
are increasing their outsourcing rate
logistics and inventory management processes must be oriented
towards global markets
the use of manufacturing plants for the production of goods means that
businesses can achieve economies of scale advantages
supply chain: the range of suppliers a business has for global
businesses, the range of suppliers creates a network called the global
web
Technology:
technology is the design, construction and/or application of innovative
devices, methods and machinery upon operations processes
technology influences operations as it allows efficiencies to be created
in the operations processes by increasing the speed of production,
improving product quality and reducing costs due to wastage
Businesses are influenced to adopt modern technologies in order to
attain a competitive advantage over competitors
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Quality Expectations:
How well designed, made and functional goods are influences OP as it
shapes the way inputs are used to transform them into outputs through
value adding
Customers expectations of quality will shape the way operations are
undergone as OP managers must ensure these expectations are met in
the final product quality expectations determine the design, creation
and deliverance of products to customers
OP must follow specific standards or minimum levels of excellence
Cost-based competition:
Businesses determine their break-even point and then apply strategies
to create cost advantages over competitors
Competing with competitors in relation to price will influence
operations as OP managers would then have to ensure a cost
leadership approach is applied so that fixed and variable costs are
minimised and the business becomes price competitive
Government policies:
Policies such as taxation rates, required materials handling practices,
WHS, training, public health, environmental etc. can influence OP
primarily through the costs associated with following these policies
Government policies can also lead to new opportunities, therefore OP
managers must be aware of current governmental policies
Legal regulation:
Compliance costs are expenses associated with meeting the
requirements of the law
Many laws influence operations particularly relating to labour and
labour management, as well as environment and public health WHS,
training and development, fair work and anti-discrimination laws,
environmental protection and public health
Environmental sustainability:
Business operations should be shaped around practices that consume
resources today without compromising access to those resources for
future generations
E.g. business operations must be structured around processes that
minimise their carbon footprint
Rise in climate change influences businesses to reduce and minimise
waste, recycle water, glass, paper and metals and reduce carbon
footprint

Corporate social responsibility:


CHRISTOPHER KENDIRJIAN

- The difference between legal compliance and ethical


responsibility
- Environmental sustainability and social responsibility
CSR refers to the open and accountable business actions based on
respect for people, community and the environment. It is more than
just complying with the laws and regulations
Legal compliance are the requirements that businesses follow the
prescribed standards of the law whereas ethical responsibility sees
businesses meeting legal obligations and taking it further by following
the intentions and spirit of the law
Environmental sustainability is emphasised in current society and
businesses are required to protect the environment through policies
such as conservation, recycling and restoration
Social responsibility refers to a businesss management of the social,
environmental, political and human consequences of its actions. This
influences operations because operations processes may cease if
customers choose to stop buying its products due to the business
exploiting employees, accepting bribes or polluting the environment
Customers will reward socially responsible businesses by purchasing
their products

Case studies
QANTAS
- Globalisation- developing new airlines overseas decreases costs and
improves efficiency in production
- Technology- new planes and new operational processes influences
operations due to need for retraining= increased costs
- Government- carbon tax caused an increase in costs for Qantas and a
decrease in profit
- Environmental- purchasing new, environmentally sensitive aircrafts
- Social responsibility- health surveillance program- workplace conditions
monitored

CRUMPLER:
- Globalisation- Crumpler can outsource its manufacturing and now has a
global supply chain. Operations costs have reduced as the other countries
had lower costing inputs and labour. Globalisation has allowed Crumpler to
sell to more countries such as New York and Singapore
- Technology- CAD &CAM was introduced allowing efficiency to be increased.
Headquarters started using email in its communication to allow faster
transmission of messages within the company. Three dimensional designing
software allowed them to create new products virtually and, it could be
CHRISTOPHER KENDIRJIAN

viewed from a few perspectives.


- Quality expectations- Crumpler knew that consumers would use the bags
to hold precious technology so, the highest quality was needed. Crumpler
bags are water resistant due to the nylon shell and the inner padding.
Customers expect quality from such a higher price.
- Social responsibility and environmental sustainability: quality of
bags are high so low level of repairs is seen meaning less resources are
consumed by Crumpler. They sub-contract factories when labour standards
are low they have an independent monitor to maintain and improve
working conditions and be socially responsible

Processes of Operations:
Inputs- transformed (materials, information, customers) and
transforming resources (HR, facilities)
Inputs are resources used in the transformation process
TRANSFORMED RESOURCES:
Materials:
- Basic elements used in production process- raw materials and
intermediate goods
- Raw materials are essential substances in their unprocessed state-
come from mines, forests, oceans or recycled waste
- Intermediate goods are manufactured and used in further
manufacturing or processing e.g. steel doors used in assembly of cars
in Toyota
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Information:
- Knowledge gained from research, investigation and instruction
increased understanding
- Info can be internal and external and acts as transformed resource
when it is used to inform how inputs are used, where they are drawn
from, which suppliers are available
- External info includes market reports, stats from industry observers
and industry bodies, Gov. stats from ABS, media reports, comparative
studies
- Internal info (within business) includes financial reports, quality reports,
internal KPIs such as lead times, inventory turnover rates and
production data
Customers:
- Customers are transformed when their choices and preferences shape
quality, design and construction of products
- Customer oriented businesses take the preferences and interests of
consumers as the starting point to production processes
TRANSFORMING RESOURCES:

Inputs that carry out the transformation process enable the change
and value adding to occur
Human Resources:
- Staff are qualified, hardworking and disciplined and bring productivity
and efficiency to operations
- Employees carry out work duties and responsibilities which adds value
in transformation process
- Employees combine and coordinate other resources e.g. machinery
and technology, raw materials and finance to produce goods and
services

Facilities:
- The plant (factory or office) and machinery used in OP processes which
transform the inputs into outputs
- Modern technology, well-designed and labour friendly will be reflective
of productive operations processes
Case studies
QANTAS
Transformed resources:
- Materials- fuel + paper
- Information- statistics + transactions
- Customers customers are moved
CHRISTOPHER KENDIRJIAN

Transforming resources:
- Human Resources- employees- cabin crew and flight attendants
- Facilities- terminal buildings + holdings
CRUMPLER:
Transformed resources:
- Materials: The key material inputs are heavy-duty rip stop nylon and
thread to construct the bags. Crumplers bags have a water-resistant 900
denier shell.
- A nylon rip-stop nylon, which is super strong, lightweight, durable and
resistant to fraying, tearing and ripping.
- Information: Information from a parachute manufacturer enabled the
business to start new stitching methods that added strength to the bags.
Extensive data for the design specifications for every model of bag ever
produced by Crumpler is kept in accessible files. This allows models to be
edited and changed quickly without delay, saving time and mistakes.
- Customers: Crumpler encourages feedback from its customers. They
monitor blogs and message boards to see demands for new products and to
improve existing ones.

Transformation processes:
- The influence of volume, variety, variation in demand and
visibility (customer contact)
- Sequencing and scheduling- Gant charts, critical path analysis
- Technology, task design, process layout
- Monitoring, control and improvement
Transformation is the conversion of inputs into outputs e.g. Sony takes
plastic, metal, glass and electronic parts and transforms them through
design, manufacturing and assembly into electronic products
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Volume refers to how much of a product is made. Businesses must


quickly adjust the volume produced in relation to changes in demand.
This responsiveness to changes in volume effectively manages lead
times (the time taken for an order to be fulfilled)
Influence of Variety refers to the range of products/services a business
offers. Greater variety, the more OP processes needed to allow for
variation. Mix flexibility is the product range or variety of choice
Influence of Variation in demand: increase in demand requires more
inputs from suppliers, increased HR, increased energy use and
increased use of machinery and tech. However businesses may not be
able to meet these required changes. Decrease in demand requires
operational flexibility (staff working hours may need reducing,
production may need to slow to avoid inventory build-up)
Influence of Visibility (customer contact) refers to customer
preferences shaping what a business makes. Higher customer contact
influences greatly on OP because it means the business would need to
integrate high levels of customisation. Direct contact= customer
feedback through surveys, interviews, warranty claims. Indirect
contact= review of sales data gives indication of customer preferences.
Sequencing and scheduling:
Sequencing is the order in which activities in OP processes occur and
Scheduling is the length of time activities take in the OP processes
Gant charts:
- Outlines activities to be performed, order in which to perform and how
long each will take
- They allow manager to plan steps needed to complete a task and to
specify time required for each task
- They make it easy to monitor actual progress against planned
activities

Critical Path analysis:


- Scheduling method showing what tasks needed to be done, how long
theyll take and the order necessary to complete them
- It shows the shortest length of time it takes to complete all tasks in
operations processes
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- Allows managers to see what needs to be done and how long it will
take with this info a business can determine order to perform tasks
and see which tasks can be done simultaneously
Overall, sequencing and scheduling gives direction and organisation to OP
processes as well as providing a means of control in order to meet the
objectives of the strategic plan
Technology
Technology involves the use of machinery and systems that enable OP
processes to be more efficient and effective
In manufacturing sector, tech can be used to shorten processes and
enable fuller utilisation of raw materials operations are more cost-
effective
In services sector, office and communications tech has enabled
markets to open up
Office technology includes computers, telephones, internet modems.
These allow work to be performed quicker- greater range of tasks can
be done- also allow workers to perform jobs at greater distances from
workplace telecommunications through emails etc.
Manufacturing technology include CAD and CAM and robotics. Robotics
allows a degree of precision and accuracy that cant be achieved
through human labour. Robotics are very costly and can be
unaffordable for some businesses
CAD allows businesses to create product designs from a series of input
parameters. Generates 3-Dimensional diagrams assisting both designer
and managers to visualise what will be produced costs can be
quantified, high speed means easy to customise designs
CAM allows manufacturing processes to be computer controlled
increase precision and accuracy in production
Task design:
Task design involves classifying job activities in ways that make it easy
for an employee to successfully perform and complete tasks
A skills audit is a formal process used to determine the required level of
skills or skill shortfalls needed to perform transformation processes

Process layout:
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Process layout is the arrangement of equipment, machinery and staff


within the facility so that equipment are grouped together by the
function they perform
Considering the process layout ensures enough physical space is
available, production equipment are used effectively, appropriate tech
is used, efficient flow of the good or service in transformation and safe
work environment
Fixed position layout: product is manufactured and remains in the
same location due to its size and weight e.g. bridges employees and
equipment come to the product
Office layout: organised in workstations with each having access to
computers, phone and close access to printers
Product layout: equipment arranged relating to the sequence of tasks
performed in manufacturing a product e.g. motor vehicle assembly
Monitoring, Control and improvement:
Monitoring Control Improvement
- Measuring actual - KPIs are assessed, - Reduction of
performance against judged against set inefficiencies and
planned performance targets and wastage, poor work
- Using KPIs- predetermined corrective action is processes and the
variables that are taken if required elimination of any
measured so that - OP managers will bottlenecks (any
appropriate controls to OP make changes to aspect of
processes can be made transformation transformation that
- KPIs allow for the process such as slows down the
assessing of performance redesigning plant processing speed)
against targets layout or adjusting - Improvement is
- KPIs include: lead times, level of technology to typically sought in
inventory turnover, defect correct problems the areas of: time,
rates, IT and maintenance process flows,
costs quality, cost and
efficiency
CHRISTOPHER KENDIRJIAN

Case studies
QANTAS
Influence of 4 Vs:
a. Volume- Qantas processes millions of people worldwide
b. Variety Qantas provides a variety of services, national and international
services
c. Variation - Qantass demand may increase during school holidays and Easter.
d. Visibility - the customer can see the workings during operating time and
there is a high customer interaction
sequencing and scheduling:
- Qantas uses software to help schedule the time between flights, repairs and
down time. In addition, this automates the whole process so there are time
savings.
Technology, process layout, task design:
-Technology- increased productivity by replacing human capital and
automation, e.g. online checking
-Processes occur in the terminal, hangar and maintenance area. The process
layout is where machines and equipment are grouped. (eliminates bottlenecks
+ saves time)

CRUMPLER:
Influence of 4 Vs:
-Variety is the main influence. Crumpler uses the batch type for its production.
They are required to produce a variety of models, styles and sizes. Each model
of bag will need to be made in different sizes and colours. The batch method
allows them to produce a huge variety of many products. It also allows them to
add different styles or models when they want to.
Sequencing and scheduling:
The aim to have products out as fast as possible. Clear scheduling allows them
to have its new products available to consumers. Each task needs to be
analysed to determine the fastest way of getting things done.

Outputs- customer service, warranties


Outputs are the results of a businesss efforts- final product delivered
to customers
Customer service:
- Making sure the right good or service is delivered or provided at the
right place and time is important
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- Businesses that exceed customer expectations are likely to develop


long-term customer relationships
Warranties:
- Measuring the number of warranty claims is a good indication of the
effectiveness of operations processes
- Warranty claims are made against goods that have defects arising from
an issue in transformation
- Warranty claims can lead to improvements in the transformation
processes
Case studies
CRUMPLER:
- Crumpler provides a high level of service that allows any questions about
issues after the sale. This is done online or at retailer stores.
- Store managers are well informed of all their ranges and thus it allows them
to provide quick customer service to consumers. Crumpler provides a
lifetime warranty on zippers, buckles, fabrics and bindings.
- Their warranty is called Til death do us apart

Operations strategies:
STRATEGY DESCRIPTION HOW IT AFFECTS
OPERATIONS
Performanc Quality: quality of design, - Sets benchmarks that
e quality of conformance businesses can work to
objectives- (meeting standards) and achieving and therefore
quality, quality of service improve efficiency and
speed, Speed: time taken for productiveness of
dependabil production and operations operations
ity, processes to respond to - Ability to assess actual
flexibility, changes in market demand and planned results in
customisati satisfy customer demands as order to build on areas
on, cost quickly as possible that need improvement
Dependability: how consistent
and reliable products are
how long products are useful
before they fail measured by
warranty claims for goods and
customer complaints for
services
Flexibility: how quickly OP
processes can adjust to
changes in market can be
improved by using machinery
better or buy new tech that
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increase flexibility and


capacity for services,
increasing service providers
increases flexibility
Customisation: creation of
individualised products to meet
specific needs of customers-
services generally customised
Cost: minimisation of expenses
as to be a cost leader and be
more efficient use of tech
can minimise costs and
minimise waste
New Product development involves - Allows for expansion of
product/ser undertaking market research product mix and the
vice design to determine preferences and attraction of existing and
and desires of consumers potential customers
developme use of new technology allows creates competitive
nt businesses to create new advantage and increases
products market share
New service development
considers explicit (tangible)
and implicit (intangible)
aspects of services
Supply Managing the flow of supplies - Managing logistics
chain throughout the transformation ensure quality of inputs
manageme process in order to minimise and outputs are
nt lead time maintained
Logistics refers to distribution - The use of e-commerce
and includes transportation, allows lead times to be
the use of storage, shortened and thus
warehousing and distribution customer satisfaction
centres and materials handling and loyalty to be
and packaging improved
Managers must find a secure - Global sourcing is cost-
place to hold stock until it is effective, allows access
required. They must use to expertise, access to
facilities for the storage, new technology and
protection and distribution of resources however can
stock (warehousing) have increased costs of
Warehousing has costs logistics, storage and
associated such as premises distribution and
costs, insurance, storage, theft increased complexity of
costs and damage to stock operations
costs (water damage) if not
correctly stored
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E-commerce involves buying


and selling goods and services
via the internet
Global sourcing: is
purchasing supplies from
global markets
Outsourcin Use of external providers to ADVANTAGES:
g perform business activities - Simplification of business
Outsourced OP activities can activities (less to do)
include manufacturing, design, - Efficiency and cost
IT work and accounting savings- cheaper labour,
regulatory differences
- Increased process
capability- improved
access to tech and highly
skilled labour
- Access to skills/resources
lacking within the
business at lower cost
- Capacity to focus on core
business or key
competencies
DISADVANTAGES:
- Communication and
language- lead to
confusion
- Loss of control of
standards and how info is
used in transformation
process
- Organisational change-
loss of employment
redundancy payments
- Increase in IT cost
Technology Leading edge technology is - Leading edge tech allows
- leading technology which is most for businesses to
edge, advanced or innovative at any distinguish themselves
established point in time from competitors by
Established technology is utilising the best
technology that is developed available tech help
and widely used e.g. create products quickly
computers, phones, software and of higher standards
(CAD&CAM) etc. with less waste
business operates more
effectively
- Established tech
establishes basic
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standards for
productivity and speed
Inventory Holding stock means consumer - The LIFO method
manageme demand can be met and overstates costs and
nt: alternative products can be understates gross profit
advantages offered if a particular product and can save the
and line runs out. It also means business money in
disadvanta business has opportunity for relation to tax
ges of immediate revenue and allows - The FIFO method
holding the business to promote the understates costs and
stock, use of products. Stock looks profits are overstated,
FIFO, LIFO, good on the balance sheet making the businesses
JIT (assets), older stock can be financial position untrue
sold at reduced prices - The JIT method saves
encouraging cash flow and storage costs
attracting sales of other - Managing inventory can
products improve the efficiency of
Holding stock has operations as managers
disadvantages such as cost of determine the correct
storage, spoilage if perishable, balance of stock
insurance, and theft and available in order to best
handling expenses. Also the suit the demand for
cost of obsolescence when products and to meet
stock remains unsold consumer needs and
The LIFO method assumes that wants
the last goods purchased are
the first goods sold and
therefore the cost of each unit
sold is the last cost recorded
The FIFO method assumes the
first goods purchased are also
the first goods sold and
therefore the cost of each unit
sold is the first cost recorded
The JIT method refers to exact
amounts of material inputs
arriving only as when needed
in the OP process
Quality Processes a business uses to - using quality
manageme ensure consistency, reliability, management ensures the
nt safety and fitness of purpose of business maintains and
products improves its productivity
Quality control reduces and efficiency through
problems and defects in comparing actual
products by using inspections products to set standards
at various points in the of excellence
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production process - by ensuring quality is of


predetermined quality a high standard,
standards are compared to customers will be
actual standards and action is satisfied and purchase
taken if they do not match products, leading to an
Quality assurance is the use increase in market share
of a system to ensure that set and a strong customer
standards are achieved in base
production. This is done - quality management also
through taking a series of reduces costs associated
measurements and assessing with damages and
them against pre-determined defects in the operations
quality standards processes
Quality improvement uses
continuous improvement and
total quality management
(TQM). Continuous
improvement is an ongoing
commitment to improving a
businesss goods or services.
TQM focuses on managing the
total business to deliver quality
to customers
Overcomin financial costs associated with - overcoming resistance to
g change include purchasing new change improves
resistance equipment, redundancy business performance as
to change- payments, retraining, it ensures the business
financial reorganising plant layout can adapt to a changing
costs, purchasing new equipment has external environment
purchasing high costs in the investment in and respond to external
new plant and equipment influences in order to
equipment, redundancy payments is the ensure productivity is
redundanc money given to employees maintained
y when they are forced out of - overcoming resistance
payments, work because their job skills also gives the business
retraining, are no longer relevant they opportunities to
reorganisin are quite high and can be implement the use of
g plant determined by the length of advanced technologies to
layout employment, level of pay the increase the productivity
inertia employee receives and any of operations
outstanding wages
retraining usually occurs when
change implements use of new
technology
reorganising plant layout has
costs such as testing new
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equipment, losses of
productivity due to time taken
for staff to adapt to new
working environment
inertia is the psychological
resistance to change
strategies used to overcome
resistance include identifying
the source of change,
communicating the change,
using change agents (someone
who initiates change), applying
change models such as Kurt
Lewins unfreeze-change-re-
freeze, creating a culture for
change, setting achievable
goals
Global Global sourcing involves - Global sourcing allows a
factors- purchasing supplies or services business to attain a
global in global markets. It allows a competitive advantage
sourcing, business to achieve cost through being cost-
economies advantages, access new tech, effective
of scale, access expertise and labour. - Taking advantage of
scanning However operations can economies of scale
and increase in complexity, makes products more
learning managing different regulatory price competitive
and R&D conditions between nations is - Scanning and learning
difficult and control of allows businesses to
standards may be lost improve their standards
Economies of scale refer to according to other best
cost advantages that can be practice businesses
gained by producing products - Research and
on a larger scale meaning development allows for
there is a lower cost per unit opportunities for growth
Scanning and learning is the and development of a
process of analysing and business through new
understanding global product design and
environments and learning development
from the best practice
businesses around the world.
Management journals, industry
and business associations,
conferences and forums act as
opportunities for business
learning
Research and development
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helps businesses utilise leading


edge technologies, and to
create innovative products and
solutions. It involves
ascertaining what consumers
want and assisting to create
products that meet their needs

Case studies
QANTAS
Performance objectives:
- Quality- transactions must be accurate
- Speed- Customers must be processed swiftly (reduce waiting time)
- Dependability- The service must be reliable
- Flexibility- Qantas must be able to change and react to market changes.
- Cost- Processes must be efficient
New product design and development
- Qantas has launched 2 new airlines in the Asia pacific area to take
advantage of the growth.
- Qantas constantly updates services or processes in order to main
competitive and profitable.
Supply chain managements
This is the controlling of the flow of supplies through Qantass operations, to
the final customer. -
- Fuel is purchased, sourced and stored, and moved.
- Global sourcing- Qantas sources some pilots from New Zealand, and cabin
staff at Asia. Plane maintenance is done at Malaysia.
- E commerce- Qantas has reduced time consuming and manual processes.
Real time information can be provided to customers.
Quality management
- Quality control- Inspections are carried out periodically at key stages to
make sure standards are met.
- Quality assurance The level of quality at all stages are monitored at
Qantas by measurement against standards.
- Quality improvement- Qantas invites staff to participate in brainstorming
ideas and suggestions to improve quality.
Overcoming resistance to change
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- Qantas must respond to change in respond to external factors, e.g. terrorist


attacks and the GFC. Though there are restrictions to this:
Financial restrictions
- Cost of new equipment- Billions have been spent
- New passenger and screening- over 1 billion dollars from 2001
- New IT systems
Human restrictions:
- Inertia- some managers have been unenthusiastic
- Change in skillset- Engineering staff have started strikes due to arguments
over the changes.
Global factors:
- Global sourcing-This is sourcing tasks or components for operations at a
cost advantages. Asian cabin pilots have been employed to reduce costs.
- Economies of scale- These are cost advantages due to global expansion. In
Asia, working rates are lower thus Qantas has set up maintenance there.
- Scanning and learning- Increased globalisation = increased competition +
new technology. Qantas finds, learns from and tests huge volumes of data
so that the systems will suit future customer bases.
- Research and development- Qantas researches and develops new methods
of improving processes at the airport.

CRUMPLER:
Performance objectives:
Quality is the most important to Crumpler. Their products last long and are
of high quality.
Speed is an objective of Crumpler. Recently CAD and CAM has increased the
speed of operations and the time it takes to get bags from the warehouse to
retailers. This reduces delay and costs.
Dependability is the reliability of the product or service. The company has a
reputation for having long lasting products. They will not break down and
products will always be available in their stores. There is also dependability
in supply and delivery. Crumpler always fills orders and distribute to
retailers on time and web orders.
New product design and development
Crumpler is always improving its products and developing new bags. With
the release of the Apple iPad, there was the making of the Herbus and Fur
Bags.
Recently, they upgraded their zippers. The Vislon zipper was covered with
water repellent. This made an irritating sound to customers, so a silent
option was made.
The Velcro fasteners were updated so that the bag can be closed using two
closures and the cover was under the Velcro. This meant that it was more
efficient and there were less chances of ripping
Supply chain management
The supply chain management has been outsourced to two German
CHRISTOPHER KENDIRJIAN

partners.
This has allowed the supply chain management to improve by speeding up
the delivery of products from warehouse to consumers, planning current
inventory levels and managing damaged goods returned by customers and
distributors.
The operations has been more global, warehouses have been based
overseas
Outsourcing
Crumpler outsources its manufacturing to Korea and Vietnam. Recently, this
it was in Melbourne.
This was done as Vietnam provided cheap labour, made good quality
products and had a reliable supply.
Technology
Crumplers technology is tried and tested. The core inputs like the nylon and
zippers were developed in the 1930s.
Computer programs are used to develop the design patterns on the bags. In
the program, they can set the material inputs, size, shape and even colour.
They can be inputted into the program and the robots will cut the sizes and
padding just as they like it. This saves materials and increases efficiency.
Inventory management system
FIFO is used at Crumpler. There is the assumption that the first stock that
has been purchased and is the oldest will be sold first. This prevents old
stock becoming obsolete and building up. More importantly, stock has to be
available as promoted
Quality management
Bags are regularly checked and inspected to check for any defects. However
quality assurance is heavily relied on, their factories are certified with an
ISO 9002 which means quality is assured. Also, zero defects is the aim for
them.
Change at crumple
The driving force is to be debt free, but the restraining forces are job losses.
Many jobs were lost when they outsourced overseas and reduce
manufacturing locally. When the design technology was updated, local jobs
were lost.
Global factors
Crumpler has begun obtaining its inputs from countries that specialise in it.
Zippers and buckles were manufactured in Vietnam while, Nylon was made
in china. Sheets were imported from Taiwan. By doing this, costs can be
reduced as there is a large supply of those inputs overseas.
Crumpler has increased its capacity through expanding globally. The
Vietnamese manufacturers had produced bags for similar businesses under
the same roof, but increasing its production. This has allowed them to
reduce costs, and this reduces costs and increasing profits for Crumple. By
doing this, they have been able to increase production from 300 bags to
1,000,000 units.
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To scan and learn about what competitors are doing, Crumpler keeps up to
date about travel goods trade events in Europe and USA. Unfortunately,
other companies have begun to copy them.

TOPIC 2: Marketing
Role of Marketing:
Strategic role of marketing goods and services
The strategic role of marketing refers to the long-term goal of achieving
profit maximisation. This is achieved through providing choice,
improving standard of living, providing employment, creating brand
awareness and increasing market share

Interdependence with other key business functions:


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Operations produces goods or services with features that customers


will respond positively to so that marketing can develop strategies to
market and sell the product
HR relies on marketing for the provision of jobs while marketing
depends on the effectiveness of HR to produce and market products
because employees are the face of the business and can influences the
level of sales
Finance prepares budgets and forecasts for promotional campaigns
and sales which is needed by the marketing department whereas
finance depends on the effectiveness of marketing to generate sales
and income back into the finance department

Production, selling, marketing approaches:


The production approach (1880s to 1920s) held during industrial
revolution and businesses felt that producing better quality products
would result in customers naturally wanting to buy their products
focus on increasing production and lowering price no consideration
for customer needs/preferences
The selling approach (1920s to 1960s) placed emphasis on strategies
to persuade customers of their need to buy a product due to increased
competition uses extensive advertising and aggressive sales
approaches through sales representatives
The marketing approach (1960s to 1980s) focuses on finding out what
customers want through market research and then satisfying that
need customer-orientated, marketing strategies used, satisfies
customers
The change in social and economic conditions has seen changes to
marketing approach, now including aspects of CSR, customer
orientations and relationship marketing

Types of markets- resource, industrial, intermediate, consumer,


mass, niche:
Resource markets consists of all forms of primary production- mining,
agriculture, forestry and fishing
Industrial market includes industries and businesses that purchase
products or components that will be used in the production of other
products e.g. Tip Top Bakery buys flour to make bread and Sony buys
plastic and metals to produce TVs
Intermediate markets consists of wholesalers and retailers who
purchase finished products in bulk from producers and then resell them
to make profit e.g. subway buys goods to make sandwiches and then
sell to consumers
Consumer markets consist of individuals- that is, members of a
household who plan to use or consume the products they buy for their
own personal use
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Mass markets (can go under consumer markets) have large demands


for standardised undifferentiated products which are mass produced,
mass-distributed and mass-promoted to all buyers assumption that
all customers in the market have similar needs and wants e.g. toilet
papers, tissue boxes, toothpaste, bread, water etc.
Niche markets (can go under consumer markets) is a concentrated or
micro market and is characterised by low-volume high-value markets
where specialised needs of customers are identified and provided for.
E.g. Rolls-Royce cars for the wealthy
Case studies
QANTAS
Interdependence:
- Finance- budgets need to be set out for marketing
- Human resources- staff need to be employed and trained
- Operations- The operations may physically limit the amount of staff for
operations
CRUMPLER:
Interdependence:
- The marketing strategies are dependent upon the developments in
operations which allows it to make new and innovative products.
- The operations department must give information to the marketing
department on what is being produced before it can be marketed.
Types of market:
- Crumpler originally produced messenger bags in the mass market.
- Crumpler has begun market segmentation (demographic) to produce other
type of bags such as camera and laptop bags.
- The ranges of bags are targeted at 1835-year-olds, through the use of
giving their bags names, e.g. The seedy One, The old Banger.

Influences on Marketing:
Factors influencing customer choice- psychological,
sociocultural, economic, government
Psychological:
- Influences within an individual that affect his or her buying behaviour.
This includes individuals perception, motives, attitudes, personality and
self-image and learning
- Perception is the process of selecting, organising and interpreting info
to create meaning individuals with positive perception of products
will be inclined to purchase products managers must create positive
perception
- Motives are the reason customers purchase products main motives
for purchasing products include comfort, health, safety, ambition,
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taste, pleasure, cleanliness and approval of others advertising aims


at influencing motives
- Attitudes is a customers overall feeling about a product/service and
can influence the success or failure of the businesses marketing
strategy negative attitudes mean business has to change strategies
- Personality and self-image: personality is the collection of
behaviours and characteristics that make up customers and will
influence the types of brands a customer buys e.g. style of car, clothing
or jewellery a person buys reflects their personality. Self-image is how a
person views themselves customers will buy products if their self-
image is improved
- Learning: refers to changes in an individuals behaviour caused by
info and experiences managers must assist customers to learn about
its products and encourage brand loyalty
Sociocultural influences:
- Forces exerted by other people and groups that affect customer buying
behaviour
- A persons social class influences the type, quality and quantity of
products a customer buys e.g. high class people will buys products that
are perceived to be prestigious
- A persons culture and subculture is all the learned values, beliefs,
behaviours and traditions shared by a society and influence buying
behaviours because it controls what customers do in everyday life
can determine what people wear, eat and how to live. E.g. greater
culture for healthy, nutritious foods have caused the development of
low-fat, sugar-free processed foods
- A persons family roles influence buying behaviour e.g. women make
decisions about groceries, health products and laundry suppliers.
Children influence parents to purchase products
- Peer groups influence buying behaviour as individuals within the
group adopt the same attitudes, values and beliefs and their buying
choices may change to match the rest of the group e.g. friends can
influence each others buying behaviour according to experiences
Economic influences:
- Influences a businesss capacity to compete and customers willingness
and ability to spend
- Booms are periods of low unemployment and rising incomes
customers are optimistic and will spend more
- Recessions are periods of high unemployment and falling incomes
customers cant afford to purchase products
Government influences:
- Economic policy measures influence level of economic activity gov
can put policies in place to expand or contract the level of eco activity
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- A number of laws such as Competition and Consumer Act 2010, Sale of


Goods Act 1923 and the Fair Trading Act 1987 have influenced
marketing decisions and thus influence consumer buying behaviour
Consumer law- deceptive and misleading advertising, price
discrimination, implied conditions, warranties:
The Australian Consumer Law 2011, replaced 17 existing national,
state and territory consumer laws
Marketing managers must ensure they are aware of consumer laws in
order to apply the policies within their business. They may need to
introduce changes such as to advertising promotion, repackaging,
changing credit policies for customers
Deceptive and misleading advertising:
- The Competition and Consumer Act makes deceptive and misleading
advertising illegal
- It uses words, images or ideas that are deceptive and claim that a
product has specific features when it doesnt
- Such deceptive and misleading processes can include:
Fine print- important conditions written small sized and difficult to
read
Before and after advertisements- comparisons of effects of
products before and after may be distorted so that before
images are worsened and after images are enhanced
Tests and surveys can be used to make unsubstantiated claims
such as 9 out of 10 people prefer when no survey has been
conducted
Country of origin- made in Australia and product of Australia
are two different things
Packaging- size and shape of packaging may give false
impression of the size and shape of the product
Special offer- ads may state that special offer is for limited time
only however could really be continuously available
- BAIT and SWITCH advertising, advertises a few products at reduced
prices to attract customers, however when these run out, customers
are directed to higher priced items
- Dishonest advertising can use words that are deceptive or claim a
product has features when it doesnt
Price discrimination:
- Setting of different prices for a product in separate markets. This is
possible because markets are in different geographical locations and
there is differentiation in the market e.g. business and domestic
electricity prices
- Businesses cannot give favoured treatment to some customers and
deny it to others
Implied conditions;
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- Unspoken and unwritten terms of a contract these conditions are


assumed to exist regardless of whether they were mentioned or not
e.g. product must be of acceptable quality and be fit for purpose and
free from defects and safe to use

Warranties:
- Offering a degree of protection to the customer if the good is faulty or
if the service is not carried out with care and skill
- A warranty is a promise made by a business to repair or replace faulty
products
- False or misleading statements concerning the existence, exclusion or
certain conditions of warranties is prohibited under the Competition
and Consumer Act

Ethical- truth, accuracy and good taste in advertising, products


that may damage health, engaging in fair competition, sugging
Truth:
- Words such as special, low fat, great value can be interpreted in
many different ways
- The main unethical practices regarding truth are:
Concealed facts- pieces of info are purposely omitted from an ad
Exaggerated claims- puffery- exaggerated praise or flattery esp
when used for promo purposed that wouldnt be taken as factual
e.g. mineral water is advertised as having natural bubbles
Vague statements- using ambiguous words that forces the
consumer to assume the intended message from the advertiser
Good taste in advertising:
- Being aware of community sensitivities e.g. violence against women,
Indigenous Australians; and not pushing these boundaries when
advertising
Products that may damage health:
- Advertising junk foods is considered unethical as it attempts to
convince younger markets of their need to integrate these foods into
their daily diet, not considering that obesity rates approach epidemic
proportions
- Marketers often advertise junk food during childrens television
programs however the government sets restrictions on this
Engaging in fair competition:
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- Businesses should be fair when referencing competitors and ads should


not insult or make false assertions about competitors
- Some examples of anti-competitive conduct include misuse of market
power, exclusive dealing, re-sale price maintenance and mergers
Sugging:
- Selling products under the guise of conducting market research it is
unethical as it invades privacy and is deceptive

Ethical criticisms of marketing:


- Creation of needs- materialism
- Stereotypical images of males and females
- Use of sex to sell products
- Invasion of privacy
Importance of ethical behaviour Importance of government
regulation
Leads to marketing opportunities Protect consumers and
due to positive image and businesses
publicity Leads to increased customer
Attract customers (increase trust and confidenceincreased
loyalty) and reward business by sales= good for economy
purchasing product Promotes and stimulates
Positive effect on HR- competition and fair
productivity, absentee rates, tradebenefit consumers and
turnover will improve businesses
Attract more investorsmore Encourage businesses to do the
appealing to stakeholders right thing
Improve reputation

Case studies
CRUMPLER:
Consumer laws:
- Crumplers warranty service is testament to the quality of their products.
The business believes that their warranty should reflect the quality of the
product and customer confidence in the product.
- If the Crumpler bags fail while they are in the bags owner, it will be
replaced or repaired.

Ethical:
The beer for bags campaign is encouraging the illegal trade of alcohol and
promotes drinking amongst the 183 demographic were taking beer off
the streets and giving you the bags. In Brisbane and Adelaide, police closed
CHRISTOPHER KENDIRJIAN

down the sale, arguing that Crumpler were in breach of liquor licensing
laws.

Processes of Marketing:
Situational analysis (SWOT, product life cycle), market
research, establishing market objectives, identifying target
markets, developing marketing strategies
Situational analysis:
SWOT ANALYSIS:
Internal External
Strengths: Opportunities:
What is business good at? Technology
Products popular? Strong economy
Customers loyal? Low interest rates
Skilled workforce? New markets
Efficient functioning? Expansion through mergers
High quality?
Equipment
Weaknesses: Threats:
Incompetent managers New laws
Past failures New competition
Are computer systems obsolete? Trends in markets
Info collected from this determines objectives and marketing
strategies to achieve objectives

PRODUCT LIFE CYCLE:

Introduction Growth Maturity Decline


Product Product brand Quality Features and Maintained
and reliability maintained packaging try with some
established and to improvement
improved differentiate s or
support product from rejuvenations
services may competitors may sell to
be added other
businesses if
not
successful
Price Lower than Maintained May need to Reduced to
competitors in as consumer be lowered to sell
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order to gain demand hold off remaining


position in increases competitors stock
market and market and maintain
share grows market share
Promoti Directed at Seeks wider Continues to Discontinued
on early buyers audience suggest the
and product has
communication been tried
seeks to and is true-
educate still the best
consumers
about merits of
product
Distribu Selective, Channels Incentives Channels
tion enable gradual increased as offered to reduced and
acceptance of product encourage product
product becomes preference offered to
more popular over loyal
competitor segment of
products market
Market research:
Process of systematically collecting, recording and analysing info
concerning a specific marketing problem
Steps of market research:
1. Determining informational needs: define the problem and
identify the most appropriate info the business needs to solve
problem
2. Data collection- primary and secondary:
- Primary data is facts and figures collected from original
sources and can be collected by the business itself
collection is directed at solving a specific marketing problem
find out what customers are thinking surveys, focus groups,
experimental research
- Secondary data comprises info that has already been
collected by other people or organisations census data and
household expenditure surveys gathered by government and
private orgs
3. Data analysis and interpretation: results from surveys are
entered into computers and organised into tables and graphs
for analysis and presentation. Cross-tabulation allows
comparisons to be made between different variables
Establishing market objectives:
Realistic and measurable goals to be achieved through the
marketing plan
Common market objectives include:
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- Increasing market share: important objective for businesses


dominating the market, because small market gains often translate
into large profits
- Expanding the product mix: developing the ideal product range
by understanding customer needs each item in product mix
should attempt to satisfy the needs of different target markets
- Maximising customer service: high levels of customer service
will result in improved customer satisfaction and positive reaction
from customers towards products
Identifying target markets:
Target market is the group of customers whom the business directs
its marketing strategies towards
Businesses need to serve the market in a cost-effective way yet still
generate revenue and profits
The target market should be compatible with the businesses
resources and objectives
A primary target market is that which most of the marketing
resources are directed. A secondary market is usually smaller and
less important
Undifferentiated markets are mass markets- large range of
customers assuming all customers have similar needs single
marketing mix with no product variation
Differentiated markets are segmented markets- total market
subdivided into groups of people who share one or more common
characteristics
Concentrated markets are niche markets- narrowly selected target
market segment aka micro market avoids direct competition
with large department stores, allows access to specialised staff,
equipment, resources etc.
Developing marketing strategies:

Marketing strategies details how the four Ps will be used to achieve


marketing objectives. It should satisfy the needs of target markets

Implementation, monitoring and controlling (develop financial


forecast, compare actual and planned results, revise the
marketing strategy)
Implementation:
Turning plans into actions putting marketing strategies into
operation
Financial forecasts are budgets for both planned expenses and
revenues
Expense budgets may include research costs, product development
costs, promotion costs, distribution costs
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Monitoring:
Sales analysis, market share analysis and market profitability
analysis are KPIs that can be used to monitor the effectiveness of a
businesss marketing plan
Controlling:
Using the above KPIs, a business can compare actual and planned
results in order to see where the plan is working and where it is not
Businesses can also revise the marketing strategy i.e. change the
marketing mix as to achieve the marketing objectives more
effectively. Changes can include product, price, promotion and place
modifications
Developing new products allows a business to achieve long-term
growth
Case studies
QANTAS
SWOT
Strengths
Lowering of costs and increased efficiency
Largest Australian based airline loyalty programme
Excellent safety record
Globally recognised name and logo
Weaknesses
Relatively complex fleet
High labour and operating costs
Union disputes
Safety incidents

Opportunities
Creating a new airline in asia
Developing E commerce
Evolving aircraft technology
Threats
Weakening in the domestic and international market
Competition
Fuel costs increasing

Product lifestyle
Introduction- Qantas, started a new product and had promoted heavily. The
brand awareness was built up.
Growth- Profitability increased by 14% in 2010 and routes were expanded.
Profitability was achieved for the first time.
Maturity- Sales levelled off and competition increased. Many changes were
done to the lounge, planes and checking.
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Market research
Information about customer needs, brand preferences and characteristics
were identified.
The data source was selected. (Surveys, mail based surveys, complaint
monitoring, government statistics, magazines and interviews)
Marketing objectives
Qantas attempted to:
i. Maintain the combined domestic market share
ii. Grow Jetstar in Asia
iii. Increase customer service standards
iv. Match demand with capacity
v. Reduces losses in international departments
Implementing, monitoring and controlling the marketing plan:
Developing financial forecasts of revenue using past sales data and surveys. Estimations
are then done after.
Comparing actual and planned results- done using (sales analysis + market share analysis
+ market profitability). They reveal the current situation of the business.
Revising marketing strategies and taking action.
Qantas revised its marketing by reducing prices to stimulate demand, reduced flight
frequencies and cancelled orders for new planes.

Marketing strategies:
Market segmentation, product/service differentiation and
positioning
Segmentation:
Involves dividing the total market into segments or parts aim is to
increase sales, market share and profits by better understanding
and responding to the desires of the different target customers
Segmentation may be demographic (age, gender, education,
income), geographic (urban, suburban, rural), psychographic
(lifestyle, personality, motives, socioeconomic group) and
behavioural (purchase occasion, benefits sought, loyalty, usage
rate, price sensitivity)
Product differentiation:
Developing and promoting distinguishable characteristics in
products compared to competitors business gains more control in
the market particularly with price
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Differences can include packaging/labelling, convenience, better


value for money, environmentally friendly products
These factors persuade customers into thinking that the businesss
products are superior to competitors products e.g. jeans with
designer labels, exclusive restaurants offering full-table service
Positioning:
Customers perception of products in relation to that of competitors
This can be achieved through the product/services name, price,
packaging, styling, promotion and channels of distribution
E.g. Rolex watches immediately evoke an image of the products
quality as its image gives the product its position within the market

MARKETING MIX:
product, price, promotion, place/distribution
PRODU Branding:
CT Name, term, symbol, design identifying a specific product and
distinguishes it from competitors
Manufacturers brand are products branded by the businesses that make
them e.g. sunbeam, Kraft, Billabong high appeal to customers because
they are recognised across the country, are widely available and are
reliable and high quality
Private or house brand is owned by the retailer or wholesaler. Often
cheaper products because retailer or wholesaler can buy at lower costs
e.g. Myer sells own brand Miss Shop
Generic brands are products with no brand name at all plain
packaging cheaper to manufacture and sell
Benefits of branding for consumers:
- Identify specific products they like
- Evaluate quality
- Reduce level of perceived risk of purchase
- Psychological reward symbolises status and prestige
Benefits of branding for business:
- Gain repeat sales because customers recognise products
- Introduce new products with same brand customers already familiar
- Promotion of one product, simultaneously promotes others
- Encourage customer loyalty business can charge higher price
Packaging:
Development of a container and the graphic design for a product well
designed will give positive impression of the product and encourage first-
time customers can create images of luxury, sensuality and
exclusiveness, helping to promote the product
Packaging:
- Preserves product
- Protects from damage
- Attracts customers attention
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- Divides product into convenient units


- Assists with display of product
- Makes transportation and storage easier
PRICE Pricing methods:
1. Cost-based: determine cost and add amount to cover additional
costs (insurance, transport). Total cost plus mark-up becomes the
selling price
2. Market-based: set according to interaction between the levels of
supply and demand high demand= higher price
3. Competition-based: price covers costs and then is set according to
competitors price, either higher, equal to or lower than competitors
Pricing strategies:
1. Price skimming: charge the highest price for product during
introduction stage of life cycle objective is to recover costs research
and development as quickly as possible before competition enters the
market. E.g. Apple iPhone are initially advertised as highly priced,
however dropped in price as time goes by
2. Price penetration: charges the lowest price possible for a product
aim is to achieve a large market share quickly discourage
competitors from entering the market however it is more difficult to
raise prices than it is to lower them
3. Loss leader: is a product sold at or below cost price the hope is
that customers are attracted to and buy other products
4. Price points: is selling products only at certain predetermined
prices it makes it easier for customers to find the type of product
they need and also makes it easier for businesses to encourage the
customer to trade up to a more expensive model
Price and quality interaction: this helps customers determine the
image they have of products higher priced items are perceived as high
quality and status customers assume that cheap products are cheap
quality and thus businesses use premium pricing (high price) to make
consumers perceive their products as high in quality and status
PROMO the methods used by a business to inform, persuade and remind a target
TION market about its products attempts to attract new customers, increase
brand loyalty, encourage existing customers to purchase more, provide
info so customers make informed decisions
Advertising is a paid, non-personal message communicated through a
mass medium allows business to reach large audiences or focus on
small distinct markets. E.g. mass marketing (TV, radio, newspaper), direct
marketing catalogues, telemarketing (telephones), e-marketing
(internet), social media advertising, billboards
Personal selling and relationship marketing: personal selling
involves activates of a sales consultant directed to a customer in an
attempt to make sale message can be modified to customer
circumstances, individual assistance establishes positive relationships.
Relationship marketing is the development of long-term, cost-effective
and strong relationships with individual customers aim is to create
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customer loyalty by meeting needs on individual basis e.g. loyalty


programs offered by Woolworths (everyday rewards card)
Sales promotion: use of activities or materials as direct inducements to
customers and aims to entice new customers, encourage trial purchases
of new products and increase sales to existing customers and repeat
purchases e.g. coupons, premiums, refunds, samples, point of purchase
displays
Publicity and public relations: publicity is any free news story about a
business and is used to enhance the image of products, raise awareness
of product, highlight favourable features and reduce negative image.
Public relations are activities aimed at creating and maintaining
favourable relations between business and customers can be done by
sponsoring community events, donating to charities, making speeches on
special occasions
Communication process: customers are more willing to purchase
products if message is communicated via a respected channel such as
opinion leader (famous person influencing others) and word of mouth
(social media aids this)
PLACE/ Activities that make products available to customers when and where
DISTRI they want to purchase them
Distribution channels are the routes taken to get a product from the
BUTIO
factory to the consumer and can be directly from the producer to
N customer or can involve intermediaries such as retailers, wholesalers or
agents. Some innovative distribution channels include door to door
selling and vending machines. Modern channels primarily include
telemarketing and internet marketing
Channel choice- a business chooses the channel according to market
coverage for its product. Channels are:
- Intensive- market is saturated with businesss products e.g. milk,
newspaper, lollies
- Selective- moderate proportion of all possible outlets e.g. clothing,
furniture, electrical appliances
- Exclusive- use of one retail outlet for a product in a large geographic
area, usually for expensive products such as Ferrari cars
Physical distribution issues are activities concerned with the efficient
movement of products from producer to consumers and are:
- Transportation- depends on type of product as well as quantity being
transported. Options include rail, road, air, sea
- Warehousing- activities involved in receiving, storing and dispatching
goods
- Inventory- finding the right balance is necessary in order to meet
consumer demands and not fall short on stock which could lead to lost
sales use inventory control system to find the right balance
CHRISTOPHER KENDIRJIAN

People, processes and physical evidence:


Particularly for service industries
People element refers to the quality of interaction between the
customer and those within the business who will deliver the service
Processes refer to the flow of activities that a business will follow in
its delivery of a service processes must be highly efficient to
achieve customer satisfaction
Physical evidence refers to the environment in which the service will
be delivered customers need to feel safe, comfortable and
attracted in the physical aspect to services

E-marketing:
Is the practice of using the internet to perform marketing activities
faster, more efficient way of doing business and also an effective
way of attracting customers
Such e-marketing technologies include web pages, podcasts, SMS,
blogs, Web2.0, social media advertising
Social media advertising is inexpensive, easy to use and monitor,
and effective to gain exposure in a market
Global marketing: global branding, standardisation,
customisation, global pricing, competitive positioning
Global branding:
- Worldwide use of a name, term , symbol or logo to identify the
sellers products
- It can be cost effective because only one ad can be used in many
locations
- It provides uniform worldwide image
- Successful brand name may be linked to new products introduced
into the market
Standardisation:
- Assumes the way the product is used and the needs it satisfies is
the same over the world
- Marketing mix is the same in all markets
- E.g. electrical equipment, mobile phones, soft drinks
- Can be cost-effective as businesses can take advantage of
economies of scale also promotional strategies may be standardised
therefore saving money
Customisation:
- Assumes the way a product is used as well as the needs it satisfies
are different between countries e.g. maccas serve beer in Germany
- Marketing plan is customised to suit the economic, political and
sociocultural characteristics of the target country
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- Can be more expensive however may result in greater profits and


market share due to increased customer satisfaction

Global pricing:
- How businesses coordinate their pricing policies across different
countries
- Customised pricing occurs whenever consumers in different
countries are charged different prices for the same products
because costs can differ between nations
- Market customised pricing sets prices according to the local market
conditions e.g. competition, demand
- Standard worldwide pricing is charging the same price for a product
anywhere in the world 2 risks involved: domestic businesses may
undercut the standardised price and changes in exchange rates may
negatively impact exported prices

Competitive positioning:
- Relates to how a business will carve out a place within the
competitive market environment and position its product through
differentiation
- In order to do this, businesses must gain deeper understanding of
the dynamic enviro in which they operate, and form their strategies
according to evolving conditions
Case studies
Qantas:
Product
This is the benefits and attributes designed to suit the customers needs. They
include scheduling features,
Frequent flyer schemes (points are earned towards free tickets), intangible
benefits (safety and reliability) and the brand name.
Price
This is the cost of the service to the customer. Pricing methods used are:
Cost plus margin- Qantas adds a percentage on top of the COGS
Market- Qantas lowers costs if the market demand is high
Competition- Qantas may lower costs if the competitors are decreasing
prices
Pricing strategies include: Price penetration- reducing prices to gain market
share AND Loss leading- Qantas made a loss in the short term in order to
compete against other competitors
Promotion
This is the methods that an organisation uses to communicate its products for
CHRISTOPHER KENDIRJIAN

radio, newspapers and posters. Some strategies are:


a)Advertising utilising agencies to create media ads for tv, radio, and print
media- Qantas had spent 44 million dollars in 3 years in order to target
corporation. Qantas produced and displayed an advertisement at the Athens
Olympics.
b) Publicity- utilising news releases, press conferences and interviews- They
supported clean up Australia day, world vision and cultural activities such as
the Sydney dance company.
c) Sales promotions- short term inducements during times of huge demand-
Qantas released 10000 tickets at 49 dollars to promote their airline.
Place
This is how the service will reach and be distributed to the consumer. It can be
direct or indirect- Direct (selling directly to the customer). Sales via travel
centres called Qantas holidays- Airport ticket sales- Online Qantas receives
over 8.4 million hits per month. Indirect (using intermediaries)- Qantas has
relationships with travel agents, such as flight centre and American express.
People
This is the appropriate use of the right staff and people Qantas customers
have direct contact with employees on the ground, and due to this, the staff
must have the right personal attributes and training.
Processes
This is the systems used to assist the organisation in delivering the service.
The way the service is reflects on Qantas.
Recently, Qantas introduced, Q Bag Tag where passenger can drop their
bags and go.
Physical evidence
This is the environment which allows the consumer again to make judgments
on the organisation. E.g. terminals and the website design.
Global marketing:
Global branding
The same brand/logo (flying kangaroo) >> increases revenue and growth +
recognition
Packaging and designing costs are reduced.

Standardisation
This is the standardising of the many elements of the marketing mix. >>>
allows economies of scale to be achieved.
There is the one world name and logo on all planes + tickets >> improves
corporate image+ captures greater share.
Customisation
This is the ability to differentiate the marketing to target different markets.
Qantas adjust/tailors its marketing based on the markets. Japanese markets
will have Asian dishes and Japanese fluent speakers.
COCA COLA AMATIL:
Market segmentation Coke uses psychographic segmentation- diet coke
targeted at health conscious market from ages 18-35
CHRISTOPHER KENDIRJIAN

Product differentiation: price differentiation shown as diet coke is priced


higher than PepsiLite
Product:
- Uses the Coca Cola brand for Diet Coke as the brand has a strong
customer loyalty and perception of high quality
Price:
- Competition-based pricing is used where Coke products are priced
slightly higher than competitors superior in quality
Promotion:
- TV advertisements, point of purchase displays, opinion leaders such as
Taylor Swift
Place:
- Uses intensive distribution as it has a large target market and so Coke
products saturate the market across the world making its products easily
accessible to all consumers
e-marketing: social media advertising is used by Coke e.g. Instagram public
awareness
global marketing:
- Use of global branding has positively impacted Coke as the brand is
globally recognised
- Customised approach is used as coke products in some countries are
modified to suit the particular market e.g. the language of the writing on
labels is customised to certain countries
- Global pricing customised pricing is used
- Competitive positioning is used through differentiation Coke is
differentiated from PepsiCo and thus maintains a competitive position
globally

TOPIC 3: Finance
Role of Financial Management:
Strategic role of financial management:
The strategic role of financial management is to ensure that planning
and monitoring of a businesss financial resources enables the
achieving of financial objectives. Financial management must set
financial objectives and ensure the business can achieve them, source
finance, prepare budgets and financial statements, distribute funds to
other parts of the business and maintain sufficient cash flow
Objectives of financial management: profitability, growth,
efficiency, liquidity, solvency- Short term and long-term goals
Profitability is the ability of a business to maximise its profits in
the long-term. In order to do this a business must monitor
revenue, pricing policies, costs and expenses, inventory levels and
level of assets
CHRISTOPHER KENDIRJIAN

Growth is the ability of a business to increase in size in the long


term business uses asset structure to increase sales, profits and
market share ensures business is sustainable into the future
can be done through mergers, acquisitions and diversification
(merging or acquiring with other business in unrelated field)
Efficiency is the ability of a business to minimise costs and
manage assets so that maximum profit is achieved with the lowest
possible level of assets get more outputs with less inputs such
as labour, materials, facilities etc
Liquidity is the ability of a business to pay its short term debts as
they fall due must have sufficient cash flow in order to readily
convert current assets into cash quickly e.g. by selling inventory
Solvency is the extent to which a business can meet its financial
commitments in the long-term (greater than 12 months)
indication to investors and shareholders of the risks associated
with their investments
Objectives can be short-term and long-term. Short-term objectives
include maximising profit, market share and increasing liquidity.
These are tactical (one to two years) and operational (day to day).
Long-term objectives can be growth, profitability, solvency and
efficiency and are generally strategic goals (5+ years) and require
a series of short term goals to be achieved
Interdependence with other key business functions:
- All functions of a business require some form of funding and
therefore rely on finance for the provision of funds
- Finance relies on the effectiveness of all other key business
functions in generating sales and profit that can be put back into the
finance department
Case studies
Qantas:
Strategic role: To manage the financial resources effectively and efficiently
so that Qantas may achieve its financial objectives such as growth, efficiency
and return on capital.
Objectives:
- Profitability is a major goal in Qantas and is seen through their constant
increase in net profit after each year e.g. in 2015 net profit was $203m
compared to 2016 $240m
- Qantas annual financial report 2016 stated that Qantas will continue to
access new markets and revenue streams, building on its success to
date
Interdependence:
Marketing- marketing is needed in order for finance to be generated
Human resources- funds are required to renumerate staff and train staff.
Operations- funds are required for the daily running of the business.
Influences on financial management:
CHRISTOPHER KENDIRJIAN

Internal sources of funds- owners equity and retained profits

Advantages Disadvantages
Owners equity- - No interest - May be difficult to
money contributed by payable= cheap raise equity as the
owners in the form of way of growing owners lack
capital company financial resources
Retained profits- - Company value - Often insufficient to
profits that are kept in increases through fund a businesss
the business rather growth strategies
than distributed to the - Funds are kept and
shareholders used for business
activity
- No interest paid

External sources of funds:


- Debt: short term (overdraft, commercial bills, factoring) and
long term (mortgage, debentures, leasing, unsecured notes)
- Equity: ordinary shares (new issues, rights issues, placements,
share purchase plans), private equity
source of debt fund Short Advantages Disadvantages
or
long
term
debt
Overdraft- bank allows a business to Short - Draws out cash - Interest
overdraw their cheque account up to term to an agreed charged on
an agreed limit in order to overcome limit- no daily basis+
temporary cash shortfalls. Commonly overspending small charges
used for short term assets such as - Cheap+ for unused
stock convenient balance
- Interest is tax - Repaid on
deductable demand
- Form of
security on
assets
Commercial bill- loans from Short - Low interest - Bank charges
financial institutions for amounts term rates acceptance
usually greater than 100k and paid - Flexible in fee
back within 30 to 180 days delaying bill for - Bill expires in
longer periods 180 days
- Lender is
secured to get
money back
plus interest
CHRISTOPHER KENDIRJIAN

Factoring- the process of selling Short - Receives - The business


accounts receivables at a discount to term majority of does not
a factoring company in return for receivables collect all of its
immediate cash - Time is not receivables
consumed with
chasing debtors
and taking legal
action
- Improves
working capital
Mortgage- a loan secured by the Long - Interest rates - Higher
property of the borrower and is term lower charges-
commonly used to purchase non- - Less risk for stamp duty,
current assets such as buildings, land lender registration
and equipment - Access to large fees, valuation
amounts of fees
funds
Debenture- issued by public Long - Can be - Expensive due
companies for a fixed rate of interest term thousands of to high start-
and a fixed period of time. They are lenders up costs-
secured against the assets of the - Secured loan advertising,
company - Agrees to pay marketing,
interest accounting
monthly, - High interest
attracting new rates
investors
Leasing- payment of money to Long - Rent payments - More
lessor (owner) for the use of term are tax expensive
equipment that is owned by another deductable because no
party. - Helps conserve ownership is
working capital attained
as business - Maintenance
doesnt need to of property of
outlay large lessor costs
amounts to
purchase assets
Unsecured notes- loan from Long - Not secured - Most risk to
investors for a set period and are not term against assets investors
secured against businesss assets (no - Can generate - High rate of
collateral) money for interest
share purchases
and acquisitions
CHRISTOPHER KENDIRJIAN

External equity: Ordinary shares and private equity


- Purchase of ordinary shares means the individual becomes part owners
in publicly listed companies and will receive dividends
- New issues are securities that have been issued and sold for the first
time on a public market
- Rights issues is the privilege granted to shareholders to buy new
shares in the same company
- Placements are the allotment of shares made directly from companies
to investors
- Share purchase plans are offerings to existing shareholders in public
companies to purchase more shares without brokerage fees
- Private equity is the money invested in private companies not listed
on the ASX. The aim is to raise capital for future expansion/investment

Financial institutions- banks, investment banks, finance


companies, superannuation funds, life insurance companies,
unit trusts and the Australian securities exchange
Banks:
- Major operators in financial markets and most important source of
funds for businesses
- They receive savings as deposits from individuals and make
investments and loans to borrowers
Investment banks:
- Provide borrowing and lending primarily to the business sector e.g.
Macquarie bank
- Provide customised loans to suit individual businesss needs
- They trade in money, securities and financial futures, arrange long-
term finance for company expansion, provide working capital, advise
on mergers and takeovers and arrange overseas finance
Finance companies:
- Non-bank financial intermediaries that specialise in smaller commercial
finance
- Provide short-medium loans to businesses through consumer hire-
purchase plans, personal loans and secured loans
- Some specialise in factoring or cash flow financing
Superannuation funds:
- Provide funds to corporate sector through investment of funds received
from superannuation contributions from individuals
- They are able to invest in long-term securities such as company shares,
gov and company debt because of their long-term nature
CHRISTOPHER KENDIRJIAN

Unit trusts:
- A.k.a mutual funds, take funds from a large number of small investors
and invest them in specific types of financial assets.
- Such investments include the short-term money market, shares,
mortgages and public shares
Life insurance companies:
- Provide loans to corporate sector through receipts of insurance
premiums, which provide funds for investment
- The funds received from premiums (called reserves) are invested in
financial assets
ASX:
- Australian securities exchange functions as a market operator
- It is a market where shares are bought and sold
- It acts as a primary market enabling companies to raise new capital
through the issue of shares and through the receipt of proceeds from
the sale of securities.
- It acts as a secondary market where pre-owned or second hand shares
are traded between investors who may be individuals, businesses,
governments or financial institutions

Influence of government- ASIC and company tax


ASIC:
An independent statutory commission that enforces and administers
the Corporations Act 2011 and protects consumers in the areas of
investments, life and general insurance, super and banking in
Australia.
It aims to reduce fraud and unfair practices in financial markets by
regulating companies and ensuring they adhere to the law
It collects info about companies and makes it available to public
therefore failure to comply with regulations can caused negative
publicity
Company tax:
Companies in Australia pay company tax on profits
It is 30% of profits before they are distributed to shareholders as
dividends
CHRISTOPHER KENDIRJIAN

Global market influences- global economic outlook, availability


of funds, interest rates
Global economic outlook:
- Globalisation has created more interdependence between economies
relying on trade for expansion and increased profits
- The GEO is the projected changes to the level of economic growth
throughout the world. If the outlook is positive, this will impact on
businesses in the following ways:
Increased demand for products and services means business needs to
increase production to meet demand and would therefore require more
funds in order to purchase equipment, employ more staff or retrain
existing staff and expand the size of the business
A decrease in interest rates on funds borrowed from global markets due
to the decrease in the level of risk associated with repayments sales
and profits will increase
Availability of funds:
- International financial markets are made up of institutions, companies
and governments that are prepared to lend money to individuals,
companies or government, however various conditions and rates will
apply depending on risk associated, demand and supply and domestic
economic conditions
Interest rates:
- Interest is the cost of borrowing money
- The higher the level of risk involved in lending to a business, the higher
the interest rate
- Australian interest rates tend to be higher than other countries
therefore Australian businesses are eager to borrow funds from
overseas markets to gain the advantage of lower interest rates
- However, these low rates could fluctuate and could end up costing
more in the long-term

Processes of Financial Management:


CHRISTOPHER KENDIRJIAN

determini
ng
financial
needs

establishi
developin
ng
g
financial
budgets
controls

identifyin
maintaini
g
ng record
financial
systems
risks

Determining financial needs:


A Business needs to determine its financial needs in order to determine
where the business is headed and how it will get there
Financial information such as from financial statements, forecasts,
budgets etc can identify a businesss financial needs e.g. low debt to
equity levels on a balance sheet will indicate that a business needs
greater debt finance in order to generate more return and profit
Financial needs will depend on the size of the business, current phase
of the business life cycle, future plans for growth and capacity to
source finance
Developing budgets:
Provide info in quantitative terms about requirements to achieve a
particular goal
They can show:
- The cash required for planned activities
- The cost of capital expenditure
- The estimated use and cost of raw materials or inventory
- The number and cost of labour and hours required for production
Budgets reflect strategic planning and how resources will be used to
meet objectives
Enable constant monitoring of objectives and provides a basis for
administrative control, direction of sales effort, production planning,
price setting etc.
CHRISTOPHER KENDIRJIAN

As a control measure, planned performance can be measured against


actual performance and corrective action taken as needed
Budgets can be categorised into :
- Operating budgets relate to the main activities of the business- sales,
production, raw materials, direct labour, expenses and cost of goods
sold
- Project budgets relate to capital expenditure and research and
development
- Financial budgets relate to the financial data of a business- include
budgeted income statement, balance sheet and cash flow statement
Record systems:
Mechanisms employed by a business to ensure that data are recorded
and the info provided by record systems are accurate, reliable, efficient
and accessible
The double entry system is used to control and minimise errors
Financial risks:
The risk to a business of being unable to cover its financial obligations
If business uses debt funding, there is a higher risk
The higher the risk the greater the expectation of profit
Profit must be sufficient to cover the cost of debt as well as increasing
profits to justify the amount of risk taken by owners and shareholders

Financial controls:
Policies and procedures that ensure that the plans of the business will
be achieved in the most efficient, cost-effective way
Common causes of financial problems include theft, fraud, damage or
loss of assets and errors in record systems
Budgets and comparing actual and planned results is a form of
financial control
Common policies and procedures that promote control:
Clear authorisation and responsibility of tasks
Separation of duties
Rotation of duties
Control of cash e.g. cash banked daily
Protection of assets
Control of credit procedures

Debt finance
Advantages Disadvantages
- Funds are readily available - Increased risk because of high
- Increased funds should increase cost (interest, bank charges and
CHRISTOPHER KENDIRJIAN

profit gov charges may increase)


- Interest payments are tax - Security (collateral) required by
deductible the business
- Flexible payment period and - Regular repayments have to be
types of debt available made
- It will not dilute current - Lenders have claim on any
ownership in the business money if business becomes
insolvent
Equity finance
Advantages Disadvantages
- Doesnt have to be repaid unless - Lower profits/return for owners
owner leaves the business - Owner expects return on
- Cheaper= no interest investment
- Owners have control over how - Long, expensive process to
the money is used obtain funds
- Low gearing - Ownership is diluted i.e. current
owners have less control

Comparison between debt and equity


Debt Equity
- Lenders have prior claim in the - Shareholders have residential
event of liquidation claim on assets
- Debt must be repaid by periodic - Equity has no maturity date
repayments - Dividends not tax deductible
- Interest is tax deductible - Shareholders require higher
- Lenders require low rate of return due to high risk
return - Dividends are not fixed, may be
- Interest payments are fixed reduced according to availability
- Debt providers have no voting of funds
rights - Equity holders have voting rights

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 i.e. short term assets
will require short term finance and long-term assets will require long-
term finance
- The source of finance will be determined by:
The terms of finance- short term or long tern
The cost of each source
The structure of the business- incorporated/unincorporated businesses

Monitoring and controlling- cash flow statements, income


statement and balance sheet
CASH FLOW STATEMENT:
CHRISTOPHER KENDIRJIAN

Indicates the movement of cash receipts (inflows) and cash


payments (outflows)
Used by creditors/lenders as well as owners/shareholders to assess
the ability of a business to manage its cash shows liquidity of a
business
It shows whether a firm can:
- Generate positive cash flow
- Pay financial commitments on time
- Have funds available for expansion or change
- Obtain finance from external sources when needed
- Pay drawings to owners or dividends to shareholders
The statement is split into three categories:
1. Operating activities: inflows include cash and credit sales.
Outflows include suppliers, employees, rent
2. Investing activities: purchase and sale of non-current assets or
investments. Inflows include selling assets. Outflows include
purchasing new equipment
3. Financing activities: inflows include equity (shares). Outflows
include repayment of debt
The statement is created monthly which helps to monitor and
control the achievement of financial obligations
INCOME STATEMENT:
A.k.a profit and loss statement
Shows efficiency income earned vs expenses incurred over a set
period of time
Usually in years (financial years)
Managers can make comparisons with previous years to see
whether expenses and profit is increasing or decreasing
BALANCE SHEET:

A.k.a statements of financial position


Represents the businesss assets and liabilities at a particular point in
time and shows the net worth of the business
It is prepared at the end of an accounting period
Assets:
- Items of value owned by the business
- Current assets (cash, accounts receivable, stock) can be turned into
cash within 12 months whereas non-current assets (vehicle, building,
furniture, equipment) are not expected to be turned into cash within 12
months

Liabilities:
CHRISTOPHER KENDIRJIAN

- What the business owes (debt)


- Current liabilities (overdraft, accounts payable, creditors) are paid
within 12 months and non-current liabilities (bank loans, mortgages)
are paid after 12 months
- Balance sheet indicates whether:
Business has enough assets to cover liabilities
The interest and money borrowed can be paid
The assets of the business are being used to maximise profit
The owners of the business are making a good return on their
investment

Financial ratios- liquidity, gearing, profitability, efficiency,


comparative ratio analysis
Allows for analysis of business performance and whether objectives
are being met
Helps managers identify trends, make predictions, assist future
planning and develop corrective strategies
3 types of analysis: vertical (compare results between one financial
year), horizontal (different financial years) and trend analysis (3 to 5
years)
Liquidity: current ratio (working capital ratio)
Current assets/current liabilities
- Shows how easily a business can pay its short term liabilities
- A ratio of 2:1 is recommended
- A low ratio suggests the business may find it difficult to meet it short
term debts and would be suggested to source more equity finance as
opposed to debt finance in order to reduce its current liabilities
- A high ratio however could mean profitability is being sacrificed as
large amounts of assets should be used for investments to grow the
business
Gearing: debt to equity ratio
Total liabilities/total equity
- Shows the relationship between the level of debt compared to equity
that a business uses to fund its activities
- Shows the ability to meet long-term financial commitments i.e. shows
solvency
- Highly geared businesses are at more risk of insolvency however have
a greater potential for profit
- Low geared businesses are at less risk of insolvency however have a
lower potential for profit
- A ratio of 0.7:1 is acceptable
CHRISTOPHER KENDIRJIAN

Profitability: net profit ratio, gross profit ratio, return on equity ratio
(Gross profit/sales) x100
Shows what percentage of each sales dollar is gross profit
The higher the ratio the better. If it is declining, then the business may
need to reduce COGS or increase sales by seeking cheaper suppliers or
increase their prices
(Net profit/sales) x100
Takes into account expenses and the higher this ratio the better
A declining ratio shows that the businesss expenses are rising at a
faster rate than sales or that sales have fallen while expenses have
remained the same
If ratio is decreasing, business should reduce expenses such as wages
(by outsourcing), use penetration pricing to increase sales by selling a
greater volume of products
(Net profit/owners equity) x100
Shows the reward owners receive for using and risking their funds
(equity). It informs owners if the business is a good investment
compared to other businesses
Ideal ratio would be 10%
Efficiency: expense ratio, accounts receivable turnover ratio
Total expenses/sales
Shows the proportion of each dollar earned that is absorbed by
expenses
The lower the ratio, the more efficient the business
If the ratio is rising, the business can increase prices or find cheaper
ways of operating e.g. find cheaper suppliers, use energy efficient
lighting and recycle paper
Sales/Accounts receivable, then do 365 divided by this answer
Shows the number of days it takes a business to collect payment from
its accounts receivables how long it takes to recover credit sales
Usually 30 days is acceptable but depends on industry
If business is waiting too long, it can use factoring or offer discounts for
early payment or charge interest for late payment

Comparative ratio analysis:


Ratios are compared:
CHRISTOPHER KENDIRJIAN

With previous years: to indicate trends


With industry standards: to show the position of the business within
the industry
With similar businesses: to show the businesss performance in
comparison to its competitors

Limitations of financial reports: normalised earnings,


capitalising expenses, valuing assets, timing issues, debt
repayment, notes on financial statements
Normalised - Removing one off items off the balance sheet to show
earnings the true earnings of the business e.g. removal of land
sale that would show a large capital gain
Capitalising - Adding a capital expense to the balance sheet as an
expenses asset instead of the income statement
- E.g. research and development, development
expenditure
Valuing assets - Estimating the market value of assets. The assets
historical cost may be used (purchased cost) which is
inaccurate because current market cost could have
appreciated or depreciated from the purchased price
false impression of businesss worth
Timing issues - When recording revenue, expenses related to the
generating of that revenue should be recorded too so
that revenue earned will match the costs that were
incurred to earn that revenue
Debt - Financial reports are limited as they dont disclose info
repayments about debt repayments and therefore doesnt show the
capacity of the business to repay its debts
Notes to the - Details and additional info that are left out of the main
financial reporting documents e.g. accounting methodologies
statement

Ethical issues in financial reports:


Business owners have ethical and legal obligations to ensure financial
records are accurate
Stating the risk of debt used should be recorded so shareholders will
be aware of potential risk in investing in the business
Over estimating expenses and understating revenue is an ethical
issue
Unethical behaviour is investigated through audits (internal and
external and management audits)
Internal audits are done by employees who check accounting
procedures and accuracy of financial records
CHRISTOPHER KENDIRJIAN

External audits are a requirement of the Corporations Act 2001 to


guarantee authenticity. It is done by independent and specialised
audit accountants
Management audits are conducted to review strategic plans and
determine if changes should be made
Qantas:
- Limitations of financial reports: do not disclose when their debts need
to be paid
- Ethical considerations in financial reports: Qantas must abide by
ethical and legal responsibilities in financial management. They have
done this by:
Having accounts which are certified by professional accounting
bodies.
Abiding by the corporations act.
Having the financial reports independently audited.

Strategies of Financial Management:


Cash flow management cash flow statements distribution of
payments, discounts for early payment, factoring
Distribution of payments:

Distributing payments throughout the months, weeks or other periods


so that large expenses do not occur at the same time and cash
shortfalls do not occur
This releases pressure on managers as lump sums of expenses wont
build up
The business can ask creditors if they can pay earlier or later
according to which months the business has greater cash inflows in,
as to avoid cash shortages
Discounts for early payment:
Offering debtors a discount for early payment will encourage early
payment and the business can obtain cash relatively quicker than the
date that should be paid, thus improving cash flow. Usually a discount
between 1-5%
More effective when targeting creditors who owe the largest amounts
over the financial year period
Factoring:
The selling of accounts receivable for a discounted price to a finance
company. This increases the amount of available cash improving the
liquidity of the business saves following up costs.
CHRISTOPHER KENDIRJIAN

working capital management control of current assets (cash,


receivables, inventories) control of current liabilities (payables,
loans, overdrafts) strategies leasing, sale and lease back
net working capital= current assets-current liabilities
insufficient working capital means there are cash shortages or liquidity
problems meaning the business needs to find new funding sources or
sell off non-current assets
excess working capital means assets are earning less than the cost to
finance them
working capital management determines the best mix of current assets
and current liabilities needed to achieve the objectives of the business

Control of current assets:


Control of cash:
- preparing cash budgets allows financial managers to identify months in
which cash shortages may occur and therefore be careful not to
overspend during that month and conserve working capital
- cash ensures the business can meet its short term liabilities
- a business must control cash by planning for the timing of cash
receipts, cash payments and asset purchases as well as avoiding cash
shortages or excess cash build up
Control of receivables:
- it is a problem when customers do not pay their debts on time as a
business might need this cash to meet its own commitments
- managing accounts receivables ensures a business can maintain
adequate cash resources
- establishing a credit policy ensures customers are encouraged to pay
debts on time as they may have to pay fees for overdue bills
- a business can also send monthly statements to customers so they
know when to expect accounts
Control of inventories:
- to maintain a sufficient level of working capital, sales must be
maintained and businesses must maintain stock in order to generate
sales and meet consumer demand
- not enough stock means customers will go else where
- business must ensure a sufficient inventory turnover is generated so
that purchases and suppliers can be paid
CHRISTOPHER KENDIRJIAN

Control of current liabilities:


Control of payables:
must monitor payables and ensure that their timing allows the
maintenance of adequate cash resources
holding back in paying accounts payable until the final due date can
take advantage of interest-free periods and therefore increase working
capital by improving liquidity
discounts from creditors should be taken advantage of to reduce costs
and assist with cash flow
a business should pay their payables by their due date as to avoid
extra charges which would thus reduce working capital
Control of loans:
a business must investigate the establishment costs, interest rates and
ongoing charges of short-term loans in order to minimise costs
investigating alternative sources of funds from different financial
institutions in order to find the cheapest price, would in turn, increase
working capital
Control of Overdrafts:
controlling overdrafts is concerned with minimising operational costs in
the form of interest
Businesses should have a policy for using and managing bank
overdrafts and monitor budgets on a daily or weekly basis so that cash
suppliers can be controlled.
Strategies for managing working capital:
Leasing:
- Leasing conserves working capital as there is no upfront payment and
rent payments are tax deductible. As a result, cash can be used
elsewhere in the business
- Leasing is the hiring of an asset from another person or company who
has purchased the asset and retains ownership of it
Sale and lease-back:
- Sale and lease back is the selling of an owned asset to a lessor
(someone that leases property) and then leasing the asset back
through fixed payments for a specified number of years
- This increases a businesss liquidity as cash obtained from the sale is
then used as working capital
CHRISTOPHER KENDIRJIAN

Profitability management cost controls fixed and variable,


cost centres, expense minimisation revenue controls
marketing objectives
Profitability management is the control of the businesss costs and
income
Cost controls:
Costs associated with a business decision need to be carefully
examined before it is implemented
Fixed and variable costs:
Changes in the volume of activity in a business can have associated
changes in costs, therefore both fixed and variable costs must be
managed
Comparing costs with budgets, industry standards and previous periods
will ensure that costs are minimised and profits are maximised
Cost centres:
A cost centre is a particular area, department or section within a
business to which costs are directly attributed
Managers of cost centres can then be responsible for the variable costs
such as the cost of raw materials and labour costs for overtime
The monitoring of costs and where they come from, allows managers to
develop corrective strategies to control and minimise costs in order to
increase profit
Expense minimisation:
Expense minimisation is to reduce expenses to a minimum, where
possible
Using expense budgets is the best way to minimise expenses
Profits are weakened when expenses are high and therefore guidelines
and policies should be established to encourage staff to minimise
expenses where possible
Eliminating wastage and unnecessary spending will allow for expenses
to be minimised and thus profitability improved
Revenue controls:

A business must have clear ideas and policies, particularly about its
marketing objectives including sales objectives, sales mix and
pricing policies
Marketing objectives:
A businesss sales objectives must be set at a level that would cover
costs, both fixed and variable and thus result in a profit
CHRISTOPHER KENDIRJIAN

A cost-volume-profit analysis can determine the level of revenue


sufficient for a business to cover its fixed and variable costs to break
even and predict the effect on profit of changes in the level of
activity, prices or costs
Changes to the sales mix will affect revenue e.g. a business may
introduce new products or delete unprofitable ones as to increase
profit and reduce wastage and costs
By meeting customer needs by introducing new products (through
undergoing market research), the business can increase sales
Pricing policies affect revenue as overpricing can fail to attract
buyers whereas under-pricing may bring higher sales but may still
result in cash shortfalls and low profits. A business must consider
certain factors when deciding on a price such as costs associated,
competitors prices, short and long-term goals and government
policies

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 rates:
In all global transactions, one currency is converted into another- this
is performed through the foreign exchange market which determined
the price of one currency relative to another
Foreign exchange rate is the ratio of one currency to another and it
tells how much of one unit one currency is worth in terms of another
If a currency Appreciates, (upward movement of Australian dollar)
against the US dollar, each unit of foreign currency buys fewer
Australian dollars. This would make our exports more expensive
(more expensive for US to purchase our products) but makes our
imports cheaper (cheaper for us to buy US products). This reduces
international competitiveness of Australian exporting businesses,
meaning Australian businesses sell fewer products overseas
If a currency Depreciates, the Australia dollar is lower in comparison
to US dollar therefore each unit of foreign currency buys more
Australian dollars, resulting in our exports becoming cheaper and the
price of imports rising. Australian exporters would therefore sell more
products overseas, however imports would decrease
Thus currency fluctuations impact revenue, profitability and
production costs
Interest rates:
CHRISTOPHER KENDIRJIAN

Businesses will often take advantage of cheaper interest rates


overseas, however interest rates can fluctuate and can thus increase
the level of interest a business must pay and therefore decrease
profitability
Methods of international payment:
Payment in Advanced payments are sent to the exporter by mail,
advanced electronic transfer or bank draft
For the exporter, this is the safest method however this
method is the most risky for the importer
Letter of A commitment by the importers bank, promising to pay
credit the exporter a specified amount when the documents
proving shipment of goods are presented. Once the
bank has made this commitment, it cannot be
withdrawn. It is popular with exporters because it
doesnt rely on the importer for payment, but rather the
importers bank
Clean Exporter ships goods directly to the importer before
payment payment is received. This only happens when exporter
knows the importer will pay.
Bill of Document ordering an importer to pay an exporter at a
exchange certain point in time
Before sending the goods, exporter will create a bill of
exchange
After exporter ships goods, it gives the bill of exchange
to its bank and the bank then sends the bill to the
importers bank
Once the importer pays the money to his/her bank,
transferring of ownership of the goods to the importer is
done

Hedging:
The practice of protecting the business from adverse
(unfavourable) changes in exchange rates by entering into a
contract at the present time to buy or sell foreign exchange at a
specified rate on a given date in the future
Derivatives:
Financial tool that is used to hedge against unfavourable changes in
Australias exchange rate
A forward contract involves firms entering into a contract at the
present time to buy or sell foreign exchange at a specific rate on a
given date in the future exchange rate is fixed regardless of future
fluctuations
CHRISTOPHER KENDIRJIAN

An options contract gives the buyer the right to buy or sell foreign
currency at some time in the future
A swap contract is an agreement to exchange currency in a spot
market with agreement to reverse the transaction in the future
Case studies
Qantas:
Working capital management: uses leasing of non-current assets
such as planes and buildings as a way to increase working capital
Profitability management- revenue controls: The revenue was
controlled via:
Setting clear sales objectives and breaking them down
Discounting airfares to maintain loads- pricing policies
Reconfiguring its planes with more economy class seats- sales mix changed
to introduce better products and thus increase profitability
Profitability management- cost controls: Qantas reduced its costs by 20%
by:
Cutting flying capacity and cutting services back
Cancelling orders for new planes
Restructuring
Fuel conservation
global financial management:
when the Australian dollar appreciates against other currencies, fuel,
payments and capital expenses are cheaper
hedging- Qantas uses derivatives such as future interest payments and
forward exchange contracts in order to protect its capital base, exploit its
financials, minimise capital costs and reduce financial distress

Crumpler:
Methods of international payments: uses payment in advanced for
international suppliers. Transactions are made online

TOPIC 4: HR
Role of HRM:
Strategic role of human resource management (HRM):
The strategic role of HRM is to manage positive relationships
between employers and employees in order to best meet the
strategic plan of the business
HRM must develop an effective workforce in order to add value to
other parts of the business because employees are the business
best asset
HRM must focus on specific strategies to retain, reward, and
motivate effective and skilled employees to achieve the businesss
objectives
CHRISTOPHER KENDIRJIAN

Interdependence with other key business functions:


Marketing, operations and finance departments depend on HR for the
provision of skilled and productive labour in order to meet the
objectives of each function
HR depends on the other key functions for the provision of labour and
also for the generating of funds that can be used to pay wages to
employees
Outsourcing- HR functions- using contractors (domestic and
global sub-contracting):
- Outsourcing is the use of 3rd party specialist businesses to undergo
business functions. It takes advantage of their specialist skills and to
achieve a reduction in labour costs. Outsourcing can obtain superior
services, better functional quality and lower cost than what would be
provided internally
Outsourcing HR functions:
External experts in HR assist by planning for growth, development
and management of staff
May be used to review business practices in order to implement
strategies to transform the business and increase its effectiveness
HR functions that can be outsourced include recruitment, leadership
training, mediation and review of compo systems, training and
development and benchmarking
Using contractors:
Contractors are external providers of services to a business- can be
an individual or separate business
Used mainly for functions that are repetitive and easily measured
and are generally non-core functions
Risks can include: increased costs, loss of quality standards, hard to
communicate, difficult to monitor quality and performance
Domestic subcontracting:
- Avoids employment of additional in-house staff but rather leaving
detailed support or compliance-related activities to experts such as
payroll management or order fulfilment
Global subcontracting:
- Some businesses turn to global contractors in order to deal with global
competition and the global recession also to reduce costs
- Can be process outsourcing (repetitive, easily measured tasks e.g.
recruitment, customer complaints) and project outsourcing (greater
use of intellectual property and strategic business knowledge and
takes longer in time and is difficult to measure and the quality cant be
anticipated
CHRISTOPHER KENDIRJIAN

Advantages Disadvantages
- Expand capacity - Quality may fall
- Improve quality to an extent - Costs may increase
- Save costs to an extent - Hidden costs
- Conserve capital - Lack of communication
- Focus on core business functions - Reduced business learning
through reliance on experts

Case studies
Qantas:
Strategic role: To manage effectively the relationship between employer and
employees in order to achieve its goals, minimise costs, improve quality in
working life and ensure legal compliance.

Interdependence with other Key Business Functions


Finance- Funds are required to remunerate staff, e.g. training and
development.
Marketing- the right staff must be employed and trained so that
consumers are satisfied.
Operations- many services were cut and the frequency of flights was
reduced.
Outsourcing
Qantas has outsourced business operations globally in order to become more
simple and cost effective. Qantas uses domestic subcontractors to create cost
savings, access greater expertise and to cope with the competitiveness.
- The call centre was outsourced to the Melbourne operator sales force.
- Domestic voice and data are outsourced to Telstra.
- Maintenance jobs were outsourced to Singapore and new Zealand
Crumpler:
- Outsourcing: Crumpler bags are manufactured in China. It is the
responsibility of these foreign contractors to deal with their own human
resource issues
Influences on HRM:
Stakeholders employers, employees, employer associations,
unions, government organisations, society
Employers:
Exercise control over employees, have responsibility for payment of
wages/salaries and have the power to dismiss employees
Employers influence HRM because they determine the daily
interactions with employees and can be involved in the resolution of
disputes
CHRISTOPHER KENDIRJIAN

They can influence HRM if their interaction with employees causes


employee dissatisfaction which would reduce productivity and
efficiency HRM would then have to resolve this issue
Employees:
Work under the control of employers and are the labour force of the
business
Employees are a businesss most valuable asset and therefore HRM
must ensure they are skilled and motivated by developing training
plans, rewards and greater employee involvement
Employees influence HRM as their effective labour is essential for the
business achieving its objectives listed in its strategic goal
Employer associations:
Organisations that represent and assist employer groups they are
usually respondents to the awards covering the employees of their
members and covering employers in the same or related industry
Assist employers in formulating policies and dealing with logs of claims
(demands made by workers often through trade union)
They influence HRM as they defend employers and ensure that HRM
policies are correct and suit both employers and employees
Trade unions:
Organisations formed by employees in an industry to represent them in
efforts to improve wages and the working conditions of their members
Influence HRM as they support employees and enforce fair policies in
which HRM must respond to
Government and government organisations:
Influence HRM because they act as:
- Legislators: who pass laws in parliament which provide a legal
framework for industrial relations also the judicial system has
grown, meaning bargaining power and resolving disputes is easier
for employers and employees
- Employer: who employ 1/3 of Aussie workers as teachers, nurses,
clerks, police officers and postal workers
- Responsible economic managers: who ensure non-inflationary, stable
economic growth and high standards of living for all Australians
- Administrator of government policies: who implement legislation
they enact through providing guidelines to the public as well as
investigating breaches of legislation
Statutes:
Laws made by federal and state parliaments e.g. laws on employment
conditions
CHRISTOPHER KENDIRJIAN

Provide framework for awards and agreements and resolution of


disputes
These laws require employers to meet WHS requirements, provide all
employees with superannuation, annual and long-service leave and
ensure employment practices in the workplace are free from
discrimination. The laws also give each new employee a fair work
information statement which provides info about each employee rights
National frameworks are taking over individual federal and state
frameworks (more standardised approach) e.g. Fair Work Act 2009
FWA 2009 covers all employees of constitutional corporations, in all
states. The system gives employers and employees the same
workplace rights and obligations regardless of the state they work in
Industrial tribunals:
Primary function including settling disputes through conciliation,
hearing appeals and handling unfair dismissals
Federal court:
Judicial court that enforces industrial relations legislation by
administering court actions that arise under Australian industrial laws
It also has the power to approve the splitting up of unions and hear
cases under the Corporations Act 2001
Other government agencies:
Australian Human Rights Commission, the Workplace Gender Equity
Agency (WGEA), safe work Australia
Society:
- Society have a number of expectations regarding employment
CSR
Case study:
Crumpler
- Stakeholders: Crumpler is a member of ARA (Australian Retailers
Association) which provides services such as business consulting,
policy development and advocacy to government bodies. Crumpler
abides by the ARAs code of Fair Trading when dealing with
customers by making honest and accurate environmental claims in
its advertising and marketing. Complying with these policies allows
Crumpler to remain stakeholders in the ARA and benefit from its
services
Qantas:
Stakeholders:
- Employees: these include cabin crew, ground and admin staff. In
2011-12, there were many disputes between employees and Qantas
due to conditions and pay
CHRISTOPHER KENDIRJIAN

- Unions: many of its employees are under unions and include the
Australian Workers Union, Allied services union and the Australian
manufacturing union who oppose outsourcing and job cuts
- Government organisations: Qantas must abide by policies through
departments such as courts, tribunals and agencies

Legal- current legal framework:


- Employment contract
- WHS and Workers Compensation
- Anti-discrimination and equal employment opportunity
Employment contracts:
- A legally binding, formal agreement made between an employer and
employee and includes arrangements such as hours, discipline
policies, bonuses, overtime, super and salary/wages
Common law: is developed by courts and tribunals. Judges make
decisions based on facts of a case, guided by precedent (decisions made
in the past). Employers and employees have certain rights and obligations
under common law and include:
Rights and responsibilities of Rights and responsibilities of
employers employees
- Provide work - Carry out duties that are
- Pay income and expenses beneficial to the business
- Meet requirements of - Maintain business
industrial relations legislation confidentiality
- Provide a duty of care for - Act safely
employees - Follow reasonable written and
verbal procedures and policies
- Work with integrity in dealings
with colleagues and customers
- Give appropriate notice of
termination of employment
- Have a right to being paid,
receive minimum awards,
have access to paid and
unpaid leave entitlements and
have a safe working
environment

Minimum employment standards: 10 National employment standards


that must be provided by employers and state the minimum conditions for
employees. It acts as a safety net for employees, particularly those that
are low-paid. The standards include maximum weekly hours of work,
annual leave and long service leave
CHRISTOPHER KENDIRJIAN

Minimum wage rates: employees have a base rate of pay for a number
of ordinary hours they work and is determined by modern awards,
enterprise agreements or national minimum wages
Awards: the legally enforceable minimum terms and conditions that
apply to a business or industry. It covers things such as base pay rates,
conditions for different types of employment, overtime and penalty rates,
allowances, hours of work and superannuation. Individual flexibility
arrangements (IFAs) allow an employee to come to an agreement with
employer that varies the modern award or enterprise agreement to
address their individual circumstances
Enterprise agreements: collective agreements made at a workplace
level between an employer and group of employees (collective
agreements) about terms and conditions of employment. They offer
broader terms and conditions than modern awards and therefore is an
alternative to the modern awards. There are single-enterprise
agreements, multi-enterprise agreements (between 2 or more employees
and employers) and greenfields agreement (single and multi-agreements)
relating to a new enterprise or the employer that are made before any
employees are employed. Key features of enterprise agreements are:
- Cover rates of pay, penalty and overtime rates, allowance, hours of
work, personal and annual leave
- Must be approved by FWC who ensures the agreement:
Is agreed by those involved
Passes Better off overall test (BOOT) compared to modern award i.e.
it is better off overall, than modern awards
Covers a representative group of employees
Has an expiry date
Has flexible clause (allows for variation if required)
Provides opportunity for employee bargaining
Other employment contracts: can include:
- Individual contracts: that exist when employers and an individual
employee negotiate a contract covering pay and conditions
- Independent contractors: (consultants/freelances) undertake works
for a business however dont have the same legal status as an
employee
- Casual contract: have short term, irregular or season work and arent
entitled to holiday or sick leave
- Part-time contracts: have a continuing employment contract and
work <30 hours per week. They have access to entitlements offered
to full-time employees
Work Health and Safety:
Covers employees and employers and is enforced by the NSW Work
Health and Safety Act 2011. It is required that:
CHRISTOPHER KENDIRJIAN

- Employers ensure maintenance of health and safety of all employees


by providing a safe system of works (ensure plant and substances
used safely)
- Employers take out Workers Comp insurance
- Employers take steps to ensure people on-site that arent employees
are not exposed to risks
- Employees take reasonable care for the health and safety of others
- WorkCover NSW inspect workplace and issue fines for lack of
compliance
Workers Compensation:
Administered by Work Cover NSW which is a statutory body responsible
for achieving safe workplace, effective return to work and security for
injured workers
All employers must take out a policy with licensed insurers, keep
records of injuries and complete accident reports and notify insurers of
significant injuries within 48 hours
An injured employee may claim compo, a lump sum payment or sue for
common law damages for negligence
Common law redress can be sought where the employer or another
employee has been negligent or breached their duty, leading to serious
injury or death
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. Such
characteristics can include race, sex, colour, age, physical/mental
disability, religion and pregnancy
Equal employment opportunity:
Refers to the equitable practices and policies in recruitment,
selection, training and promotion
Affirmative action refers to measures to eliminate direct and indirect
discrimination and for implementing positive steps to overcome lack
of equal employment opportunities for women
The Workplace Gender Equality Agency (WGEA) was established to
reflect this new focus by:
- Advising and assisting employers in promoting gender equality
- Reviewing compliance with the legislation
- Providing research findings and educational programs to improve
gender equality outcomes

Economic, technological, social, ethics and CSR influences


Economic:
CHRISTOPHER KENDIRJIAN

Eco factors impact the demand for labour and the pressure of wage
growth
It involves the economic cycle, inflation and globalisation
Globalisation has increased competitive pressures on businesses,
with many increasingly recruiting or outsourcing functions offshore
Technological:
Can be a source of improvement in productivity, communication and
competition between businesses, however it can cause redundancy
through the process of capital labour substitution
It can also cause the need for re-training which will increase costs
however improve the productivity of a businesss workforce

Social influences:
Changing work patterns:
Increase in part-time and casual work means an increase in career
flexibility and job mobility, increased participation rates of women
and ageing population (flexible working arrangements is critical in
utilising this ageing workforce)
Also increase in early retirement
Living standards:
High living standards include WHS, regular wage increases,
performance bonuses, fringe benefits, leave and superannuation
benefits
There is pressure from global competition and conflict for desire of
high living standards work life balance
Ethics and CSR:
Ethical business practices are those that are socially responsible,
morally right, honourable and fair
Managers must recognise that:
- Pleasant working environments motivate and retain staff
- Performance and motivation is maximised when staff feel secure,
confident, acknowledged, safe and rewarded
- Business depends on community as it is a source of staff and a
source of customers and resources
Business should develop a code of conduct/ethics
In relation to working conditions, managers must:
- Comply with social justice and industrial legislation
- Provide safe and healthy working environment
CHRISTOPHER KENDIRJIAN

- Establish a code of practice (statement of principles used (ethical or


socially responsible practices)
Embracing ethical principles of CSR, allows businesses to benefit from
having a committed workforce and good public reputation
Case study:
Crumpler
Economic influences
Due to the global economic slowdown, they have heavily into
resources at their headquarters and employed additional staff.
It will pay handsome dividends into the future as we concentrate on
developing new products and opening stores.
Technological influences
Crumpler does not employ workers for manufacturing so
improvements in manufacturing technology have minimal impact on
staffing or the business workload.
Their staff benefit from technological advances, which can improve
the productivity, efficiency and effectiveness. E.g. Improved
computer designs through improved computer software.
Qantas:
Technological influences
New security systems had to be introduced because of many
terrorism acts in the decade.
New technologies, e.g. in built entertainment and online check ins
were introduced to maintain competitiveness, but new skills had to
be learnt. Some jobs were lost.
Social influences
More part time and casual employees (casualization)>> reducing
costs and improving competitiveness. In Addition, there is much
more flexibility to cope with the peaks and troughs in demand.
There is a higher proportion of woman in senior roles.
There is a more culturally and ethnically diverse workforce. (Due to
migration and globalization).

Processes of HRM:
Acquisition, development, maintenance, separation
Acquisition:
The process of attracting and recruiting the right staff for the role in
a business
It involves identifying staff needs by analysing the internal
environment (business goals and culture to determine required and
appropriate skills needed by potential staff in order to fit
organisational structure) and external environment (eco conditions,
competition, technology, legal, political and social factors
CHRISTOPHER KENDIRJIAN

Recruitment is locating and attracting the right quantity and


quality of staff to apply for employment opportunities
Selection is gathering info about each applicant and using that info
to choose most appropriate
Placement involves allocation the employee with a position that
best utilises the skills of the individual to meet the needs of the
business
Development:
Effective development programs that ensure experienced and
talented staff are retained it enhances employee motivation and
commitment to the business through promotional opportunities in
the long-term
Induction introduces new employees to a job, their co-workers,
the business and its culture. It gives new employees positive
attitudes to the job and business builds confidence as it stresses
major safety policies/procedures and it establishes good working
relationships with other staff/managers
Training seeks long-term change in employees skills, knowledge,
attitudes and behaviour in order to improve work performance
helps business adapt to change and remain competitive (lack of
training=high staff turnover rate)
Organisational development is important because flatter
organisational structures are common today with increased team
and project based structures employees contribute ideas which
improves efficiency, effectiveness and response to customer needs
Due to these flat structures, reduced promotional opportunities (no
hierarchy) means strategies need to be developed to enhance
employee satisfaction e.g. job enlargement, job rotation, job
enrichment, and job sharing motivate and retain staff
Mentoring and coaching are used to motivate and develop staff
with leadership potential. Mentoring is focused on building personal
relationships while coaching improves skills and performance
CHRISTOPHER KENDIRJIAN

Performance appraisal is a systematic process of assessing


employee performance using a set of criteria/standards. Involves four
main objectives:
- Provide feedback from management to employees
- Act as measurement for which promotions and pay rises will be
determined
- Help business monitor employee selection
- Identify employees training and development needs

Maintenance:
Processes needed to retain staff and manage their wellbeing at work
Offers family friendly programs that support a work-life balance
provides flexible job roles such as job sharing, multiskilling,
telecommuting, part-time work and flexible hours
Communication and workplace culture:
Poor communication results in workplace conflicts and high turnover
rates. Methods of communication include regular team meetings, staff
seminars, social functions and staff surveys focuses on building trust
between employees and avoiding conflict
Employee participation:
Firms encourage employee participation to improve communication,
employee empowerment and their commitment to improving quality
and efficiencies
Benefits:
Monetary or non-monetary
Businesses carefully consider the value of these benefits in terms
of retention of staff and workplace culture, as they are expensive and
some attract an employer-paid fringe benefits tax (FBT)- is a tax
CHRISTOPHER KENDIRJIAN

employers must pay on certain benefits they provide to their


employees or their employees associates, such as a family member. It
is based on the taxable value of the various fringe benefits provided.
Common benefits include flexible working arrangements, paid
training, travel allowances and company cars
Features of a family friendly reward system:

Legal compliance and CSR:


Acting in a legal manner towards employees ensures their maintenance
and retention
Business implements a range of proactive and preventative strategies
in health and safety, anti-discrimination and conflict resolution, in order
to minimise exposure to risk
Separation:
Voluntary separation is when employees choose to quit e.g.
retirement
Involuntary separation is when employees are dismissed or
retrenched/made redundant due to their job not being needed any
longer due to lack of work or capital labour substitution
Dismissal can be based on poor performance or serious misconduct
or redundancy
An unfair dismissal is when employees are dismissed believing
that the action is harsh, unreasonable or unjust and therefore HR
CHRISTOPHER KENDIRJIAN

managers must take care when dismissing employees so they avoid


costly claims and potential loss of a good reputation
Case study:
Crumpler
- Acquisition for Crumpler occurs through the traditional means of
print media recruitment and, more recently, the use of online
position advertising. Senior management shortlist and interview all
full time staff. Casual retail staff are recruited by the national retail
manager.
- Development: Crumpler has no formal training program in place.
Staff are encouraged to seek training relevant to their day-to-day
roles.
- Maintenance: Each staff member is valued at Crumpler. Flexible
working conditions are in place so that every employee has the
chance to adjust their hours and conditions to their needs. All full-
time staff are entitled to bonus payments, subject to performance
results. Full-time and casual staff come together each year for a
national Christmas party, as well as smaller events and get together
in individual stores and offices.
- Separation: Casual staff members most often leave to pursue other
opportunities.
Qantas:
- Acquisition: This is the identifying of staff needs in recruitment and
selection. This involves a job analysis so that the job description
(defines the scope of activities) can be produced. The possible
candidates are tested and examined.
- Development: This is the developing of the ability to adapt
employees to the job. Training is done on the job (internships and job
rotation) and off the job (online courses). This reduces accidents and
increases efficiency and the quality of services.
- Maintenance: This is the maintaining of the employees interest
and motivation in the job. It can be achieved via remuneration
(compensation) via 2 ways or both:
This is paying the employee salaries or rates for their services
Providing intrinsic benefits e.g. flexible times and increasing parental
leave.
- Separation: This is the leaving of an employee from a corporation.
With the GFC, many employees involuntarily separated. Qantas in
2011 had a workers strike, causing many employees to voluntarily
separate and thus give Qantas a bad reputation (lack of compliance
with CSR)
Strategies of HRM:
Leadership styles:
CHRISTOPHER KENDIRJIAN

The way managers communicate with employees to inspire and


motivate them to work together to achieve business goals. There are
two common types of leadership style:

Autocratic Participative/democratic
Managers make decisions quickly More consultative approach,
without input from staff encouraging employees to be
Works well with more engaged in decision-
unskilled/inexperienced making process
workforce because the work is Gives workers a greater sense of
highly organised and controlled ownership and thus higher job
It can decrease staff motivation satisfaction and productivity
and satisfaction which can result Emphasis on high quality output
in high levels of absenteeism rather than efficiency
and staff turnover Takes longer to make decisions
Workers compliance is often Workers are seen as a resource
recognised through financial that can be developed over time
reward

Job design: general/specific tasks


Job design is the number, kind and variety of tasks that a worker is
expected to carry out in the course of performing their job
Job design (specific tasks) is best represented through scientific
management approach by Frederick Taylor which states there is one
best way of doing a job and workers skills should be matched to job
requirements may cause demotivation of workers as they complete
the same, repetitive tasks each day
Job design (general tasks) refers to a greater variety of tasks to be
performed by workers. Main objective is to improve worker satisfaction
and productivity through increased motivation as their tasks change
from day to day
Elements of a well-designed job can include flexibility, variety,
challenge, social interaction
Recruitment- internal/external, general/specific skills:
Recruitment is the process of locating and attracting the right quantity
and quality of staff to apply for employment vacancies at the right cost
Internal recruitment involves filling job vacancies with people from
within the business e.g. employees (promotion) or former applicants
External recruitment involves filling job vacancies with people from
outside the business through newspapers, online ads, recruitment
agencies
CHRISTOPHER KENDIRJIAN

Advantages Disadvantages
Inter Staff motivation Can reinforce
nal Builds commitment and loyalty negative culture
Productivity maintained employees Can lead to rivalry
already familiar with workplace for positions
culture Unsuccessful
Recognises and rewards staff internal applicants
Cheaper as there is a less chance of may be demotivated
failure because strengths and Little value added-
weaknesses of staff are already no new skills
known
Exter Wider applicant pool Risk of unknown
nal New ideas, perspectives and skills staff may not fit
Get specific skills- save money on culture
training Lost productivity in
More diversity- business fosters initial stages due to
equal employment opportunities- induction processes
CSR Takes a lot of time
Builds organisational brand through and effort
publicity Risk of legal claims

General skills: a business attracts staff with general skills, attitudes


and behaviours that are a good cultural fit for the business
General skills include flexibility and versatility, social confidence,
positive attitude, motivation and the ability to work as a team and/or
independently
HR managers value these skills as it indicates their capacity and
willingness to learn and adapt to change
Specific skills: highly specialised and are required for some jobs
within science, technology and engineering sectors
Many businesses are recruiting overseas or using outsourcing in order
to overcome skill gaps in the business
employee poaching is the practice of enticing employees to work for
another business companies hire employees from their competitors
Training and development:
Training develops skills, knowledge and attitudes which increases work
performance
Development enhances skills of employees in line with the changing
and future needs of the organisation
Business benefits as it retains employees experience and knowledge if
the business, and by helping it maintain its competitiveness
May be costly
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Performance management:
Addresses both individual and business performance successful
individual performance will often translate into the businesss strategic
objectives being met
Performance management:
- Identifies opportunities for productivity improvement
- Assesses legal compliance
- Justifies staffing decisions
- Provides feedback and recognition
- Identifies training and development needs
- Assesses performance against organisational standards
Developmental performance management improves individual
performance through establishing objectives such as reaching target
sales that are consistent with achieving the organisations goals
Administrative performance management assesses the progress
of the business in meeting its strategic goals and where necessary,
identifying areas for improvement such as establishing new goals or
employee performance
Benefits of performance management
Developmental Administrative
Assist with HR planning Higher productivity
Can plan to overcome gaps or Better financial performance
weaknesses found in Helps assess rewards/benefits
performance linked to performance
Identifies training and Creates opportunities for
development or legal compliance employees to provide feedback
needs Employee focus is aligned with
Builds trust through organisational strategy
communication of expectations
Helps identify, motivate and
retain talented staff for
leadership succession

Rewards: monetary/non-monetary, individual or group, performance pay:


Well planned rewards systems are a key strategy in attracting,
motivating and retaining employees
Monetary rewards have a financial value e.g. bonuses, allowances and
commissions
Non-monetary rewards have no financial value e.g. opportunity for
learning and development, social activities, company car
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A competitive advantage can be achieved through remuneration (both


monetary and non-monetary benefits that employees receive for their
work effort) due to higher employee satisfaction and therefore
increased productivity and business success
Individual/group rewards can be through gain-sharing plans which
are rewards for teams such as shares, cash bonuses or annual bonuses
by improvements in productivity, cost savings and sales and profits
Performance pay is a type of remuneration that is based on
distributing rewards according to individual employee performance
Global strategies: cost, skills, supply
- Increasing labour costs means businesses outsource some HR
activities to lower labour cost countries
- Some businesses use subsidiaries (company owned by parent
company, located overseas) offshore, to take advantage of the
opportunity to reduce production costs, gain access to new markets
and skills, and source a greater amount of supply for a cheaper price
- Businesses can use the temporary work visa to allow skilled
migrants to enter Australia in order to overcome skill shortages
Workplace disputes:
Disputes are conflicts, disagreements or dissatisfaction between
individuals/groups
It occurs between stakeholders as they have conflicting interests
Industrial disputes are disagreements over issues between employers
and employees where employees cease work
Strikes refers to situations where workers withdraw their labour
Lock outs is when employers refuse entry of workers into the
workplace
Workplace disputes can be caused by:
- Remuneration- wages, allowances etc
- Employment conditions- hours, benefits
- Job security- retrenchment, downsizing, outsourcing
- Health and safety- physical working conditions, overly strenuous
tasks, protective clothing, uncomfortable conditions
- Political and social protests
Resolution of disputes:
NEGOTIATION:
A method of resolving disputes where discussions are made between the
two parties which results in a compromise and a formal or informal
agreement is made
MEDIATION:
Confidential discussion of issues in a non-threatening environment, in the
presence of a neutral, objective third party. The mediator may be a
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representative from the Fair Work Commission or Anti-discrimination


board. This method reduces the risk of industrial disputes escalating and
leading to expensive legal costs or industrial action
GRIEVANCE PROCEDURES:
Formal procedures generally written into an award or agreement that
states agreed processes to resolve a dispute in the workplace. It is useful
in reducing the risk of an issue rapidly becoming a serious dispute

INVOLVEMENT OF COURTS/TRIBUNALS:
Conciliation and arbitration:
- A dispute may be referred to FWC who appoint a conciliator to hear
both sides
- Conciliation is when a third party helps resolve a dispute through
calling a conference if this fails, arbitration is used
- Arbitration is where a third party hears dispute and makes a legally
binding decision to resolve the dispute. An order (decision that
requires employees and employers to carry out from the tribunal)
may be handed down and may end a restrictive work
practice/behaviour
Common law action:
- Common law action is open to any party involved in or affected by
industrial action
- Benefit of industrial action is that relationships and conditions may
be improved
Case study:
Crumpler
Leadership style: The participative approach to leadership is utilized.
The employees are encouraged to contribute their ideas and thoughts and
take creative ownership of the business, the emphasis is on letting
employees do their job with minimal interference
Workplace disputes: Workplace disputes are rare at Crumpler due to
the positive working environment. Disputes are settled within the
company, rather than through external arbitration, through largely
informal discussion with senior management, who seek to address all
issues as soon as possible without resulting in more tensions. The close
working environment makes it clear as to whether disputes are settled
and staff are satisfied.
Qantas:
Leadership style
- The autocratic leadership style was utilized in the 1990s where
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management had the most power over decisions. In recent years, it


has been more democratic and employees have a larger say into
decision making.
Job design
- The various components of Qantas are organized based on functions.
The entire job from the baggage handling to the planes is set so that
it is as efficient as possible. Though, the strategies utilized are:
o Job enlargement giving a more varied task list to employees
o Job rotation- allowing employees to move to different tasks
o Job enrichment- allowing employees to be more responsible and
interdependent
Recruitment
- Applicants are attracted for various jobs. Internal (filing vacancies)
and external recruitment (from the outside) methods are utilised.
Training and development
- This is done to increase the performance of employees. Pilots
undergo over 22000 hours in training and the Qantas college
online is utilised to allow staff to learn online.
- These activities have increased productivity, improved services and
enables them to have a more committed workforce.
Performance management
- Employees are assessed and measured against benchmarks. (e.g.
quality, no. of output) . This motivates poorer performers to do
better. The objectives are to:
o To provide a basis for payments
o To assess the success of training and development
o To clarify performance expectations
Rewards
- These are benefits to the employee for their service so that they
may stay motivated and consistent. They may be:
Monetary- These involve wages and salaries. Higher performers in
Qantas gain a higher pay (as a bonus). Superannuation, company cars
and maternity leave are provided.
Non-monetary- These are intrinsic benefits, e.g. job recognition,
promotion and good relationships.
Dispute resolution
- Qantas has methods of dispute resolution such as: grievance
procedures, negotiation, mediation and court involvement.
In 2011, the strikes from engineers, pilots and ground staff occurred
due to the fact that Qantas would not agree to the terms of a 3%
annual rise.
Industrial action occurred. Eventually, arbitration was needed and all
the parties had to agree. This was ratified by fair work Australia.

Effectiveness of HRM:
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HR managers must decide how employment relationships will be best


managed. This can be achieved through assessing previous
management techniques as well as evaluating key performance
indicators this determines the effectiveness of HRM
Indicators are performance measures that are used to evaluate
organisational or individual effectiveness
Benchmarking is a process where indicators are used to compare
business performance between internal sections of a business or with
other businesses
Indicators are gathered and collated in HR audits (diagnostic tool used
to evaluate HR policies and practices in order to identify problems and
develop solutions to rectify the problems
Key performance indicators:
Corporate culture:
Refers to values, ideas, expectations and beliefs shared by members of
the business
The effectiveness of a business corporate culture can be reflected by
other KPIs such as staff turnover, absenteeism, accidents, disputes
and worker satisfaction
Good communication with employees as well as including them in
decision making, reflects a positive corporate culture
Strategies that build trust and direct communication between people is
essential in building positive workplace culture
Other factors contributing to a positive workplace culture include:
health and training rewards, flexible and family friendly practices, high
levels of training and mentoring and a fun, vibrant atmosphere
Benchmarking key variables:
Involves comprehensive HR audit or may be undertaken using basic
indicators
The purpose is to compare business performance in specific areas to
other businesses or against best practice businesses to initiate
changes to foster improvement
Common methods of benchmarking include:
- Informal benchmarking: strategies such as networking through
informal discussions with colleagues in other businesses,
undertaking visits to other businesses, researching best practice
online and attending conferences
- Performance benchmarking: comparing performance levels of a
process/activity with other businesses
- Best practice benchmarking: compare performance with best
practice businesses in order to gain skills and knowledge and to
modify organisational processes
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- Balanced scorecard benchmarking: used for measuring whether


the activities of a business are meeting its objectives in strategic
plan
The approach is determined according to its suitability to the needs of
the business and resources because it can be very costly and time-
consuming
Types of benchmarking:
HR Audits: used to systematically analyse and evaluate the effectiveness
of HRM by having an outside consultant conducting research into the
business in order to analyse problems and suggest solutions. A
Management by Objectives approach is used to determine areas of poor
performance against targets established
Quantitative measures: demonstrate the effectiveness of HRM in
economic terms costs and profits. Some variables often include:
variances in labour budgets, time lost and costs associated with injuries
and sickness, percentage of goals achieved and levels of labour turnover
Qualitative measures: involves detailed feedback and research on key
issues which allows judgements to be made about changes in behaviour
or quality of service provided. Major sources of qualitative information
include feedback from middle management, surveys and focus groups
about workplace culture

Changes in staff turnover:


Staff turnover refers to the loss of employees by a business who leave
for a variety of reasons
Its important for businesses to benchmark their turnover against that
of other businesses in the industry and to determine the type of staff
and reason for leaving
Staff may leave to seek new opportunities or promotion and others
may leave due to toxic workplace environment
Costs of high turnover are great and can include: payouts for
entitlements, hiring, inducting and training new staff
Lack of a focused workplace culture will reduce employee commitment
and loyalty and will thus be reflected in a high turnover rate, meaning
HRM is ineffective
Some level of turnover is HEALTHY as the business needs new and
fresh ideas in order to stimulate innovation however major changes
start to become a concern
Absenteeism:

Refers to a worker who neglects to turn up for work when they were
scheduled to do so
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High levels of absenteeism means workers are dissatisfied or there


may be conflict in the workplace
If absenteeism increases costs and decreases revenue then HRM is
ineffective
Poorly designed jobs and a lack of positive employer-employee
relationships can contribute to high levels of absenteeism
Accidents:

HRM is effective when businesses adopt systematic, legal compliant


approaches to managing WHS of employees. Best practice businesses:
- Have regular safety audits and comprehensive safety programs
- Build a culture of safety (communication must be high)
- Provide careful induction and regular safety training
These businesses save on compensation claims, absenteeism, lost
work time and loss of morale in the workplace
Levels of disputation:

Indicators of industrial disputation include:


- Work bans- employees refuse to work overtime or with particular
individuals
- Work-to-rule- employees refuse to perform additional duties
- Go slow- employees work at a slower rate than usual
- Sabotage- employees take deliberate action to harm or destroy the
image of the firm
High levels of formal grievances reported, indicates poor quality
relationships in the workplace and thus HRM is ineffective
Worker satisfaction:
Satisfaction is integral to employee commitment, job performance and
staff turnover
Surveys allow HR managers to measure and understand how staff feel
about work, management and business culture
Training programs improve satisfaction as employees develop skills and
can perform their job with greater pride and efficiency
Other ways to improve satisfaction is through recognition and
encouragement of employees, providing family-friendly culture,
adequate breaks, rewards for effort and performance
Case study:
Qantas:
Staff turnover:
- This is how much of the staff leave annually.
- The turnover rate has increased in 2015 from 4.7% to 5%. This means that
HRM has not been effective.
Absenteeism
- This is the absence from the workforce due to illness. Qantass levels have
stayed at 9.3% for 2 years.
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Accidents
- This is the amount of accidents that have been working as a result of the
tasks.
- In 2015, the injury rate was reduced from 41.5% to 35.3%. This means
that those employees are available for longer and no replacements are
required.
Levels of disputation
- This is the amount of tension between the corporation and the employees.
In recent years, there have been high amounts of strikes and industrial
actions due to the recent action to axe jobs, introduce part time
employees and outsourcing.
Worker satisfaction
- This is how happy workers are at the organisation. It is related to
motivation and productivity. It is hard to measure and Qantas analyses it
via surveys, invitations for employee feedback.