Unit 1 Business Management 2011 AOS 1 – Introducing Business

Key knowledge This knowledge includes • Features of organisations including for profit and not-for-profit organisations; • Objectives of different types of organisations; • Distinctions between small, medium and large businesses; • The contribution of small business to the economy; • The internal and external (operating and macro) environments of a business; • Business ethics and socially responsible management and their impact on various stakeholders.

Key Terms Business Small business Franchise Micro business Large business Not-for-profit organisation Charity Internal environment External environment Operating environment Macro environment Social responsibility Business ethics Entrepreneur Incorporated business

Organisations

What is an organisation? Organisation = 2 + people with a common goal Business = an organisation that provides goods or services to consumers in order to make a profit

Types of organisations FOR PROFIT organisation The focus of FOR PROFIT organisations is profit attainment and growth. NOT-FOR-PROFIT organisation The focus of NOT-FOR-PROFIT organisations is on providing specific service to the community.

Examples of organisations Work place Sporting clubs Organisations Charity groups School

Industry Sectors

Industry sector Industry sector is the different types businesses/ organisations producing goods and services in the same industry or business area. Accommodation, Cafes and restaurants Agriculture, forestry and fishing Communication services Construction Cultural and recreation services Education Electricity, Gas and water supply Finance and insurance Government Administration and Defence Health and community services Manufacturing Mining Personal and other services Property and business Services Retail trade Transport and storage Wholesale trade

Small business

Small business FACT “small businesses make up over 96% of all businesses in Australia”.

Distinctions between small, medium and large businesses In classifying businesses as either small, medium or large you need to consider: The number of employees The type of business ownership The level of independence in decision-making The size of the market share (the percentage or proportion of the total available market or market segment that is being serviced by a company. ...) How the business is financed

Small, medium or large? Feature Small Medium Large Employee # Micro 1-5 Up to 20 – non manufacturing Less than 100 - manufacturing 20 - 199 200+ Ownership 1 -2 owners Independent Few owners Mostly private Many public shareholders Legal structure Sole trader (1) Partnership Private company Public company Decision making Owner Simple Owner and possibly directors Directors and mgmt Complex & may be slow Sources of finance Owner’s funds Hard to get loan Owner/partners funds Easier to get loan Numerous – cash reserves, profits, shares, loans Market share & location Small, not dominant Local Medium, some dominance in a region Large, dominant, National/Multi national

Example Size: Large Business More than 200 employees Legal structure: Public organisation Ownership: Many public shareholders Decision making: Directors and managers Sources of finance: Investors/shareholders/banks... Market share / location: Large dominant – national locations

Corner Milkbar Size: Small business 1-5 employees Legal structure: Sole trader/partnership Ownership: 1-2 owners / independent Decision making: Owner Sources of finance: Owner /bank loan Market share / location: Small / 1 location

Micro Business A very small business that employs fewer than five people. Many micro businesses are also ‘home-based businesses’. The micro business main place of operation is usually the owners home. According to ABS more than 70% of small businesses in Australia are home based businesses.

Examples of Micro businesses

Franchise An arrangement that allows one organisation with a product, idea, name or trademark to grant certain rights and information to an independent business owner. In return the business owner pays a fee and royalties to the owner.

Features of organisations Profit Not for profit Eg: ________________ Are financially and socially accountable for actions Objective: profit, market share Ownership: sole traders, partnership or shareholders Profits: distributed to owners Employees: paid Eg: _________________ Are financially and socially accountable for actions Objective: social goals Ownership: not owned per say Profits: Used to cover costs and surpluses re-invested Employees: paid or volunteers

Objectives of organisations ALL organisations, whether they are for- profit and not-for-profit, should all set objectives – this increases their chances of success. Major objectives include: Financial objective Social objectives Personal objectives of managers and owners

1. Financial objective Every business wants to make a profit! A business may set several objectives to achieve its main objective of increasing profit: Increase sales Increase market share Expand the business

2. Social objective All organisations operate within a community and have certain responsibilities. The main social objectives are: Community service Social justice Ecological sustainability

3. Personal objectives of manager and owners Business owners normally have a number of personal objectives: Be their own boss Make money Power Satisfy a gap in the market

Mission and Vision Statements

Mission and Vision statements It is vital for an organisation to have a mission and vision statement and every organisation should have one. It provides the organisation and the people involved clarity and a clear sense of direction.

What is the purpose of a mission statement? A mission statement is a brief description of a company's fundamental purpose. A mission statement answers the question, "Why do we exist?“ The mission statement articulates the company's purpose both for those in the organization and for the public.

What is the purpose of a vision statement? A vision statement is sometimes called a picture of your company in the future but it’s so much more than that. Your vision statement is your inspiration, the framework for all your strategic planning. A vision statement may apply to an entire company or to a single division of that company. Whether for all or part of an organization, the vision statement answers the question, “Where do we want to go?”

Differences The Mission statement focuses on the organisations present state. The Vision statement focuses on the organisations future.

Example of a Mission Statement Mercedes Benz We commit ourselves to: Total quality management (TQM) through a process of continuous improvement; Motivate our internal customers to meet the expectations of our external customers; A culture of clear and transparent responsibility through leadership by example; An effective communication, to achieve maximum co-operation and ensure team work..... For the achievement of positive results.

Example of a Vision statement Ford To become the world's leading Consumer Company for automotive products and services.

Legal structure

Legal structure Sole trader – Partnership – Private organisation- Public organisation -

Sole trader (also known as sole proprietorship) One owner Responsible for all the decision making of the business Responsible for all the money that is put into the business Legally responsible if the business fails All profits and loses accrue to the owner.

Partnership Two or more people work together Shared assets Shared profits Each partner is jointly responsible for all the debts incurred by the business If one partner leaves the business could fail if another partner is not found If business fails partners are fully responsible

Private and public organisation/company Larger companies are usually public companies Often family companies Public companies are recognised by the word ‘Limited’ ‘LTD’ after their name Private companies have the letters ‘PTY LTD’ after their names meaning ‘proprietary limited’ Unlimited number of shareholders Public can purchase their shares Restricted to a maximum of 50 shareholders Shares can only be traded with permission of other shareholders. Legally obliged to publicly report their activities

How are public/private companies different from sole traders and partnerships? Sole traders and partnerships are considered as one with their business so if the business fails they fail. Public and private have their own independent legal entity so if the business fails the owners/ shareholders are only liable for the amount they invested. Eg. If you invest $100 you only loose $100.

Legal structure Advantages Disadvantages Sole trader Owner makes all the decisions for the business Must invest all the start up costs Partnership Share the investment costs Tensions between partners can cause problems for the business Private company The business can have up to 50 shareholders investing in their company only limited to 50 share Public company Can trade on the share market Any decisions made need to go through share holders

Business environments

Business environments Conditions which businesses operate within Internal environment = factors within the business over which the business has some control External environment = factors outside the business. Two areas: Operating environment – external factors who have a direct impact on the business Macro environment – broad operating conditions (forces) which all businesses operate under but have no control over.

Business environments Internal: Employees Management & Management styles Corporate culture Policies Management structure Owners Operating: Customers Suppliers Competitors Regulatory bodies Interest groups and trade unions Macro: Economic Legal Environmental Social Political Technological Internal External: Operating External: Macro

Internal Environment One of your employees is rude and provides poor customer service all the time. How can this affect your business? Your business has a strong culture – all staff follow policies and procedures, objectives are clear and sales targets are always met. How does this affect your business?

External Environment - Operating You never pay your suppliers on time and you are rude to them when they deliver your products. How can this affect your business? You are always a step ahead of your competitor – offering better deals and customer service. How does this affect your business?

External Environment - Macro An earthquake destroys your business and you are left with nothing. How does this affect your business? You own a chocolate shop, the government introduces a ‘Chocolate is healthy’ campaign. How does this affect your business?

Remember....... Internal environment – deals with everything that goes on INSIDE the business External Environments – Operating and Macro – deal with things that affect the business from the OUTSIDE

Stakeholders

stakeholders Stakeholders are individuals or groups that have a vested interest in the activities of an organisation. Two important issues which are of increasing concern to stakeholders are: Is the business conducting its operations in an ethical or fair manner? Is the business acting in a socially responsible manner?

Who are the business stakeholders? community suppliers customers shareholders BUSINESS employees competitors Creditors / banks government management

The contribution of small business to the econony

The contribution of small business to the economy = a system set up to determine what to produce, how to produce and to whom production will be distributed to. Small business helps our economy as it: Generates jobs Around 30% of Australia’s economic activity is generated by small business Develops entrepreneurs Offers services med-large businesses may/can’t offer

Ethics and Socially Responsible Management

Ethics & socially responsible management & its impact on stakeholders Business ethics = application of moral standards (what’s socially considered right or wrong) to business behaviour Corporate social responsibility (CSR) = accountability to stakeholders. Business decision making which considers the community and other stakeholders. Goes beyond legal requirements. Behaving ethically and with social responsibility are increasingly imported and expected today. These decisions affect stakeholders

Ethical issues Behaving fairly and honestly in business (this applies to both the business and consumer) Truthful communication in business (false or misleading promotion is both unethical & illegal) Dealing with employees ethically (leads to healthy workplace relations) Conflict of interest (some has competing personal or professional interests) Business owners should strive to act honestly, with integrity and consideration for all stakeholders A business’ culture will affect behaviour of people within a business A business may implement a code of conduct to encourage ethical behaviour