BUSINESS STUDIES HSC COURSE

OPERATIONS

TOPIC 1

PART I – ROLE OF OPERATIONS MANAGEMENT

Operations Business processes that involve production of goods. Refers to both manufacturing and service sector - Manufacturing – process of turning raw materials into finished products - Service sector – process involved in actually doing a service - Value adding – creation of extra or added value as inputs are transformed into outputs

Customer focus Operations is informed by the business drive to maximise profits and also increasingly by cust. Needs - Minimising waste / growth of Fairtrade movement / seek to minimise production costs

STRATEGIC ROLE OF OPERATIONS MANAGEMENT

STRATEGIC ROLE Definition To gain a competitive advantage over competition by improving the efficiency and quality of outputs Revenue/income Should be maximised to bring the greatest possible volume of money. Cost need to be minimized in

order to reduce the overall level of expenses Financial / market Directly derive income Profit centres Aspects of business that directly derive income

COST LEADERSHIP Definition When a business reduced its costs to the lowest level without reducing its quality

- Can also lower price of products - Gives business competitive advantage and maximises profits

Economies of scale

Refers to cost advantage that can be created because of an increase in operations scale - Purchasing stock in bulk, reducing unit cost - Purchase lower costs per unit of inputs / outsourcing production / global source raw materials

Input costs Labour costs Processing costs Inventory costs Quality management - Facilities - Land - Interest on

investment

- Employees - Casual employees - Overtime - Redundancy

- Machinery maintenance

- Scheduling - Product design

- Back ordering - Storage - Insurance - Damaged goods

- Sampling & inspection goods

- Machining errors - Warranty claims

GOODS/SERVICE DIFFERENTIATION Product differentiation

Distinguishing products in some way from its competitors - Strategic approach to GOODS assesses different options/determines which can be taken with

cost leadership focus - Strategic approach to SERVICES requires managers to assess how much emphasis to place on

different aspects to meet customer needs Good differentiation

- Varying the actual product features - Varying product quality - Varying any augmented features – add on or additional benefits associated with some goods

Service differentiation

- Varying amount of time spent on a service - Varying the level of expertise brought - Varying the qualifications and experience of the service provider - Varying the quality of materials/technology used in a service delivery

Cross branding Adds value to products by offering consumers added benefits

GOODS AND SERVICES IN DIFFERENT INDUSTRIES

GOODS IN DIFFERENT INDUSTRIES Standardised goods

Are those that are mass produced, usually on an assembly line - Are uniform in quality and meet a predetermined level of quality

Customised goods Those that are varied according to needs of customers - Are produced with a market focus rather than a production focus

Perishable goods and operation process

- High standards of quality, safety and cleanliness - Very short lead times and distribution that is a quick and effective as possible - Appropriate and robust packaging and cold storage processes

Non perishable - More durable manage all aspects of quality in the process – sourcing through production - Implement effective inventory management strategies

Intermediate goods

- Sometimes goods may be processed more than once - Goods are completed, one set of operational process then becomes input in further process

COST LEADERSHIP AND STANDARDISED PRODUCTS About When a product is standardised then costs associated with the production of it is minimised

- Can be mass produced without variation and economies of scale can be achieved - Service – can bring cost leadership to the service by standardising how it is performed

Dripping price Advertises one price but in the process of a customer purchasing the service numerous additional charges and costs are added final price much higher than price advertised

INTERDEPENDANCE WITH OTHER KEY BUSINESS FUNCTIONS

Definition Refers to the mutual dependence that the key functions have on one another Marketing tasks

- Meeting the needs and wants of customers through provision of products at prices the market

can pay o Promote product that has been produced o Do market research to find out what consumers wants o Pricing strategies

Human resources - Deals with the people the business employs and the issues arising from their employment - Find the employees who can produce the goods - Training and development of staff

Outsourcing – communication between GR can be more complicated Accounting and finance

- Concerned with recording and summarising financial transactions into a series of reports that are easily interpreted

o Gives capital for resources to be able to produce the goods o Makes up production budgets

Profitability – requires that a business maximises sales (revenue) and minimise costs (expenses)

PART II – INFLUENCES IN OPERATIONS MANAGEMENT

GLOBALISATION

Definition The removal of trade barriers between countries, so the movement of goods, services, labour, technology and finance are easily accessible world-wide

Global outsourcing Having other business’ overseas perform parts or all of their production processes - Good for cheap labour / no control over quality - Poor communication / poor lead times time between order and arrival

Supply chain management

Suppliers that a business uses in relation to obtaining resources (network of suppliers) - Specialisation of resources / cheaper resources

Global web Network of suppliers that a business has chosen based on lowest overall cost, lowest risk/high quality CASE STUDY Launching new airlines in Asia, cost minimisation to be more internationally competitive (70% assets)

TECHNOLOGY

Types of technology

- Machinery and robotics - CAD – comp. aided design

- Software for inventory management - CAM – comp. aided manufacturing

Advantages - More efficient – faster production - Increase lead times/cost leadership

- Improved quality same quality for all product - Reduce waste

CASE STUDY Newer planes, more training needed for less staff / higher wages – offer superior level of service

GOVERNMENT POLICIES/LEGAL REGULATION

Government policies

- OHS laws - Workplace regulations

- Environmental laws - Fair Trade Australia & AUSTRADE

Legal regulation Business has to legally comply with legislation in which the government has made compulsory in relation to the workplace (compliance cost – expense to show legal compliance)

Work Health & Safety Act

- Safe and healthy working conditions - Requires that employees be given appropriate safety training - Use of protective equipment and work with machinery that abide by noise/pollution standard

Workers Compen. Act

- Liability of all employees to receive compensation for injuries they have encountered @work - Employees must pass medical examinations to work again / cannot be dismissed while injured

CASE STUDY Deregulation has placed pressure on operations to minimise costs – more resources devoted to compliance – subject to regulatory control of the Civil Aviation Authority

QUALITY EXPECTATIONS

Expectations Expectations include performance, reliability, flexibility, customisation and durability - Develop quality control and standards that meet the expectations of consumers - Must maximise customer satisfaction – if not businesses suffer long term damage to goodwill

CASE STUDY Includes arriving/departing on time, comfort based features (online check in, inflight entertainment)

COST BASED COMPETITON

Definition Business can gain a price advantage over competitors by using strategies that lower costs – reduce price lower than rivals – determining breakeven point (no loss or profit)

- Use economies of scale by bulk buying – source cheaper inputs - Produce standardised products for large markets - Use cost leadership – little difference in products in products being offered by competitors

CASE STUDY Outsourcing, reform HR practises, employ labour saving techniques, online bookings

ENVIRONMENTAL SUSTAINABLITY / CORPORATE SOCIAL RESPONSIBILITY

Env. Sustainability Responsible interaction with env. to avoid degradation of natural resources for long term quality - Ecologically sustainable packaging/ethical disposal of waste

CSR Bases actions on the respect for people/communities/society and environments – more than legal - Profit/people/planet

Legal compliance/ ethical responsible

Gives good image to business, attracts more customers, business’ moral values in regards to society - Outsourcing is ethically irresponsible as it may exploit workers on both ends

CASE STUDY Environmentally sensitive aircraft, fuel conservation (Qantas future planet / $51mill fuel eff. Benefits) - Health surveillance program, continually monitors workplace conditions – flexible practises - 2007 introduced option for paying offset for carbon dioxide emitted by their flight

PART III – OPERATIONS PROCESSES

INPUTS

Types of inputs - Labour – human effort, both mental and physical

- Energy – is required to bring inputs into transform them and to distribute them to markets - Raw materials – enable transformation processes - Capital equipment – machinery and technology - Capital labour substitution – means that machinery/tech displace people by doing their jobs

TRANSFORMED RESOURCES Materials Are the basic elements used in the production process, consist of 2 types;

- Raw materials (mines, forests) and intermediate goods (manufactured for further manufact.) Information Knowledge gained from research, investigation & instruction, which result in increased understanding

- Value lies in its ability to influence behaviour or decision making - Used to inform how inputs are used - External – market reports, statistics, official government websites - Internal – gathered from internal sources – finance reports, quality reports

CASE STUDY Individual bookings made by customers are analysed and transformed into decisions for aircraft use Customers Become transformed resources when their choices shape inputs

- Customer orientation – preferences act as an input - Maintain customer contact – used to improve customer service and cut production costs

TRANSFORMING RESOURCES Definition The inputs that carry out the transformation process. Enable change/value adding to occur Human resources Staff that are well qualified, hardworking and disciplined ca bring great productivity/efficiency

- Skills and qualifications to transform the inputs - Operate the machinery and offer aspects of the process – improved performance

CASE STUDY Cleaners and baggage handlers to pilots and sales managers Facilities The factory/office/retail outlet that is used in the transformation process of sale outputs

- Consider – location and customers / layout of plant and processes CASE STUDY Terminal buildings and contents / maintenance facilities / aircrafts / motor vehicles – some shared

TRANSFORMATION PROCESS

Definition The conversion of inputs (resources) into outputs (goods) Value added – the value of a finished product or service is greater than the inputs – increases in value

THE INFLUENCE OF VOLUME Definition Refers to how much of a product is made

Volume flexibility – how quickly transformation process can adjust to increase/decrease in demand - Essential to managing lead times - If cannot quickly adjust to changes, they can over produce wastage/high inventory costs - If backorders cannot be quickly fulfilled, it can lead to lost sales

THE INFLUENCE OF VARIETY Definition The quality or state of being different or diverse

- Mix of products made, or services delivered through transformation process - Mix flexibility – known by consumes as product range or variety of choice - Greater variety made, the more operations process needs to allow from variation

THE INFLUENCE OF VARIATION ON DEMAND Definition An increase in demand will require increased inputs from suppliers, human resources, energy use and

use of machinery and technology – should be able to predict - can be hard to meet if; - Suppliers cannot supply quickly enough - Labour is not flexible enough, skilled or available - Increase in demand will also require operation

CASE STUDY Predictable major increase in demand for school holidays and special events – decreases from 9/11

THE INFLUENCE OF VISIBILITY (customer contact) Definition Customer contact or feedback can directly affect transformation process – customer pref. shape bus.

- Market data / surveys / interviews / warranty claims CASE STUDY Qantas is obviously high visibility because there is customer contact throughout whole process

SEQUENCING AND SCHEDULING Sequencing Refers to the order in which activities in the operations process occur Scheduling Refers to the length of time activities take within the operations process Gantt Charts A type of bar chart that shows both the scheduled and completed work over a period of time

- Outline the activities needed to be performed, order in which they should be performed and for how long – forces managers to plan the steps needed to complete a task – specify time

- Makes it easier to monitor actual progress against planned activities Critical path analys A scheduling method that shows what tasks need to be done, how long they will take and what order

is necessary to complete the tasks – simultaneous production - Shortest length of time to complete tasks - Manager see what needs to be done and allows the timing of tasks – direction/organisation

CASE STUDY Flights schedule that customers can see – make sure each flight has pilots, crew, catering & support

TECHNOLOGY Definiton The application of science or knowledge that enables people to do new things or perform established

tasks in new and better ways (leasing technology is cheaper) - Use of machinery and systems that enable businesses to undertake transformation process

Manufacturing sector – shorten process and enable fuller utilisation of raw materials – cost effective Service sector – office and communications technology – enabled whole markets to open up

Office technology Computers/storage devices/modems – formation of wide area networks - Development of technology have created opportunity for people to do more work/less time - Telecommunication – work from home

Manufactring technology

Robotics – engineering and specialised areas of research – assembly lines = programmable machines - Allow degree of precision and accuracy generally unmatched by human labour - Shapes transformation process so that they are high quality – consistent standard

CAD – computerised design tool that allows businesses to create possibilities from diff. parameters - Material usage, time for task to be calculated - Costing of the project to be quantified - Inputs parameters can be altered to reflect requirements – easy to customise

CAM – is software used to allow the manufacturing process to become computer controlled - Can be linked to cam to allow instantaneous manufacturing of designs

TASK DESIGN Definition Involves classifying job activities to make it easy for an employee to successfully perform/complete

- Overlaps the employment relations functions of job analysis, job description/person specifics - Task design job desc. person specification recruitment selection - Shows what tasks are to be completed to finish a project - Allow ongoing analysis and adjustments in each activity to ensure continuous improvement

CASE STUDY Replaced human capital – check in, online booking, electronic bag tags

PROCESS LAYOUT Definition Where all the machinery is arranged by what they do

- Functions used to make the good or provide service - Product moves from each department, depending on what transformation is needed - Allows for more flexibility and customisation – functional layout

MONITORING/CONTROLLING/IMPROVING Definition Relate to performance objectives of quality, speed, dependability, flexibility and customisation

- Ensure operations process runs efficiently, producing goods and services it was designed to - Investigate aspects of goods produced – way in which produced – STD of performance EST. - External standards – range from generalised objectives relating to industry wide costs of

practise to specific government health and safety standards - Control – provide a broad picture of what is happening in the production and operations - Corrective action – final step in control process

Control is a management function that aims to keep the business’ actual performance close to what was planned by making adjustments

CASE STUDY Detects any discrepancy between planned and actual activity

OUTPUTS

OUTPUTS Definition Are the final good or service that is delivered or provided by the customer

- Must always be responsive to customer demands - The most important output of the operations process is the goods made/service provided

Customer service – how well a business meets/exceeds the expectations of customers Warranties – a business promises to correct any defects in their product and service they deliver

CUSTOMER SERVICE Definiton Inputs, transformation and outputs are all aimed at meeting or exceeding customer expectations

- Make sure the right product is delivered at the right place and right time - If a customer expresses dissatisfaction – defective, not meeting quality expectations - Talk and listen to customers – attitude should be adopted by all departments/employees

Good customer service includes

- Personalised service - Good knowledge of product/service

- Polite and friendly - Good communication

CASE STUDY Adopted “net promoter score” as key measure in customer service - Qantas closed loop feedback program enables direct feedback from its frequent flyers

WARRANTIES Definiton Made against goods that have defects arising from an issue in transformation. It is a promise given by

the business to rectify any problems that may occur within a certain time period - Replace the item / repair the item / refund - Number of claims made against the business will give an indication of problems in processing - Trace the source of the fault in manufacturing and rectify it

PART IV – OPERATIONS STRATEGIES

Definition Strategies help the business to achieve its operations goals and objectives. Helps business too 1. Gain a competitive advantage 2. Increase profit/scales

3. Reduce costs 4. Allow the business to become more efficient and effective

PERFORMANCE OBJECTIVES

Definition Goals that relate to particular aspects of the transformation process Quality Product that is reliable and works properly/product that is made well and will not need to be

readjusted in factory / CASE STUDY - Aircraft is clean and tidy – staff are courteous, helpful & friendly Speed Refers to the time it takes for the production and the operations process to respond to changes in the

market demand / CASE STUDY – elapsed time between customers asking for their service & getting it Dependability As a performance objective; refers to how consistent and reliable a business’ product are

CASE STUDY – Measured by on tome departure and arrivals Flexibility Refers to how quickly operations processes can adjust to changes in the market

CASE STUDY – seasonal demands – must operate to a flexible performance Customisation Refers to creation of individualised products to meet the specific needs of the customers

CASE STUDY – membership in the One World Alliance where it offers more than 1000 destinations Cost Refers to the minimisation of expenses so that operations processes are conducted as cheaply as

possible / CASE STUDY – Airlines use passenger load factor as their measure of productivity

NEW PEODUCT OR SERVICE DESIGN AND DEVELOPMET

Definition A business that has the core capability to integrate leading-edge technologies with skills and innovative ideas will be a market leader in new products and services – process of bringing new product to market

1. Idea generation, product design and detail engineering – market research/analysis New product development is first stage in generating a commercialising products

2. Product range and how it is used may also need to be considered in deciding what features to emphasise in the marketing mix

Necessary to extend the range of products to match competition/cater for seasonal fluctuation

REASON FOR DEVELPOMENT & PROCESS Reasons for constant dev.

- Advances in technology - Innovation and research/development

- Demand for improvement - Ensures competitive market

Product process 1. Market research 2. Development of prototypes 3. Prototype testing/assessment

4. Production starts 5. Quality control and assurance 6. Delivered to retail

CASE STUDY Launched new Jetstar Asia, Pacific and Japan to take advantage of growth in Asian market

SUPPLY CHAIN MANAGEMENT

Definition Is the stream of processes from receiving an initial order and distributing the product to consumer - All businesses that are linked to supply - Outsourcing has become popular - Shorter lead times = more flexible purchasing

CASE STUDY Fuel must be sourced and purchased – they must be stored and be available

LOGISTICS Definition Part of the supply chain management that plans, implements and controls the efficient and effective

flow / storage of goods, services and related information between the point of origin and consumption - Transport of physical raw materials and distribution of finished goods to markets - Focuses on the moving inputs, resources and outputs as quickly as possible - Strategies to save time and control the flow of materials to add value

Role To ensure that operations as the right item in the right quantity, at the right time, at the right place for the right price in the right condition to the right consumer

- Inventory management / purchasing inputs - Storage and warehouse - Packaging - Planning and scheduling

CASE STUDY Flights to take place undisrupted and hence at optimism efficiency

E-COMMERCE Definition The use of internet to both buy and sell goods/services. Use electronic data interchange

- Monitor individual stock items and keep accurate records - Voice Over Internet Protocol (VOIP) – real time conversations with suppliers and customers

E-procurement Use of online systems to manage, supply, allows suppliers direct access to levels of supplies B2B Direct access from one business (supplier) to another (buyer) – to assess needs of buyer and meet them B2C Selling of goods and services to consumers over the internet

GLOBAL SOURCING Definition Where a business seeks to find the most cost-efficient location for manufacturing a product, even if the

location is overseas - Increase attention to supplier relationships and the expansion of supply chains - Where a business seeks to find the most cost efficient location for manufacturing a product

CASE STUDY Employed some pilots in NZ and some cabin staff // engine maintenance carried out in Malaysia

OUTSOURCING

Definition It involves the transfer of parts (or all) of a business’ functions to and eternal 3rd party

ADVANTAGES DISADVANTAGES - Less capital expenditure and increased cost

effectiveness - Outsourcing non-core activities frees more time

to concentrate on core business processes - Access to professional, expert and high quality

- Less managerial control - Loss of jobs with decision to outsource (redundancy) - Companies may go out of business - Security and confidentiality issues

Saving capital outlay – outsources almost all of IT op. Dependency – failure causes major internal disruption/expense

TECHNOLOGY

Definition The equipment and knowledge that are available to help businesses perform certain functions or make products

LEADING EDGE About - Offers significant potential benefits to business in achieving superior performance objectives

- Brings cost to a business, including acquisition of technology, implementation costs, training and development of staff and redundancies

- Gains must be weighed against the costs involved before a decision is made CASE STUDY Supporting software may be found to need debugging in the early stages of usage

ESTABLISHED About - Already established = business is able to research the costs and benefits more accurately

- Able to make better decisions – whether technology will achieve business goals - Pressure from customers and other stakeholders to keep up with est. technologies

CASE STUDY Placed advanced orders for the new Airbus A380 – but NOT first airline to receive

INVENTORY MANAGEMENT

Definition Includes the raw materials and input suppliers used in the production process, the goods that are partially processed and the firms finished products are also known as stock

- Involves decisions about the amount of stock to be held and how to handle/store it - Improved communication (computer systems) and transport (courier systems) and use of

electronic stock monitoring systems (scanners and barcodes) o Help maintain relatively low inventory levels

ADVANTAGES DISADVANTAGES - Holding stock ensures adequate supply for

production and sale - Maintains sufficient back-up stock – no lost sales - Ability to store stocks allows a business to take

advantage of bulk buying (economies of scale)

- Large amounts of inventory are expensive to keep - Not generating income whilst in storage - Stock being held is at risk of damage, theft and

deterioration (costs to the business)

INVENTORY MANAGEMENT SYSTEMS LIFO – last in first out

- The stock purchased most recently is sold first - Used to determine a more accurate cost inventory per unit over the financial year

FIFO – first in first out

- Assumes that the first stock has been purchased is the oldest and will be sold first - Assumes that the first goods sold are the oldest and most recently acquired items remain in

the inventory on the balance sheet - COGS will be lower and income higher than LIFO JIT – Just in time Aim to hold as minimal stock as possible – reduces impact on working capital with liquidity locked up

QUALITY MANAGEMENT

Definition Involves all activities to ensure that the outputs of the business are consistent, durable and reliable and meet what was the quality standard stated in the operations plan

- A business will aim to produce a quality product or service that provides value for money - Government tries to ensure the quality of all goods by establishing laws that protect consumer

CONTROL Definition Involves checking transformed and transforming resources in all stages of production process

- Use of batch numbers and codes on products, can check where problems exist, determine production time period and identify where improvements are needed

- Compare its performance to other businesses using the industry average as a benchmark - Make necessary corrections or adjustments in order to achieve the desired results

ASSURANCE Quality control Emphasises testing of products to uncover defects, and reporting to management who make the

decision to allow or deny their release. Attempts to improve and stabilise production, to minimise issues that led to the defects in the first place

- Determining whether products or services meet or exceed customer expectations Quality assurance Involves establishing and using a set of procedures and/or processes that will prevent product defects

from occurring or errors in delivering services - Emphasis on the contribution to quality from the whole operations - Employee involvement (regular meetings of a group of employees from different sections)

o Discuss issues arising / work teams been effective strategy to discuss issues/solutions

IMPROVEMENT Total Quality Management

Relies on continuous improvement in all functional areas, not just operations - Ensures poor-quality goods are not passed on to the consumer - Quality circles – even if no current problems, there is a focus on continuous small

improvements – much more effective strategy than waiting for major improvements - Benchmarking – can identify critical processes that many need improvement

o Study the best operational processes used by its immediate competitors to select ways that firm can improve

- World’s best practise – comparison of firms performance with highest standards achieved WW o Compare its productivity or performance with highest standards – bus. used as models

- Key performance indicators – vary from industry to industry based on industry benchmarks commonly accepted

With improved quality – business will experience reduced operations costs, higher sales and repeat customers and hence more profit

CASE STUDY Functionality – safety, meals, entertainment, seat width and comfort Appearance – cleanliness of aircraft, lounges and crew Reliability – on time departure and arrivals Durability – keeping up with trends in the industry Recovery – resolution of service failure (natural disasters, mechanical failures) Contact – knowledge, courtesy and helpfulness

OVERCOMING RESISTANCE TO CHANGE

Driving forces Those that push towards the need for change Restraining forces Those that hold the business back and resist any change that is attempted Challenges Identify and develop strategies to overcome the resistance to change

FINANCIAL COSTS About Purchasing new equipment, redundancy payments – restraining costs to operate and manage new eq.

PURCHASING NEW EQUPMENT About Assess the cost of the installation of the equipment, its impact on production / expected profitability

- Long term impacts on the financial position – new equipment and technology = debt finance - Internal influence because the managers decide whether and how to use it - Weigh up long term cost savings against the short term impact on the business

REDUNDANCY PAYMENTS Definition When an employee is no longer required because their job no longer exists or they have been replaced

by new technology or equipment / made redundant by changes to business operations - Redundancy payments represent a significant cost of implementing change

RETRAINING Definition Another cost consideration is the cost of retraining staff so that they are productive/efficient/effective

- Extended period before employees are back to the productivity - Without adequate training, benefits will not be fully realised - Implementation of comprehensive training programs to overcome employee resistance

REORGANISING PLANT LAYOUT Definition The plant layout may have to change to manage more product variety or volume

INERTIA Definition Internal stakeholders such as owners, managers and employees can become comfortable in a stable

environment as there is a feeling of security and predictability - Major reason for resisting to change - Comes down to the way the decision making has been set up - Has to identify as many forces for change as possible and use its skills for effective

management to create a positive culture for change - Could include retraining programs, work trams and a flatter management

STRATEGIES TO OVERCOME RESISTANCE TO CHANGE Strategies - Offer support – reduces fear and anxiety

- Build trust among employees - Make sure the changes are reasonable

- Allow employees to participate in process - Follow a sensible time frame

Managing change effectively

- Identify need for change - Set achievable goals - Create a culture for change - Encourage teamwork

- Prepare the business and employees for it - Outline reasons for change - Reinforce changes once implemented - Promote rewards and recognition of empl.

Process - Establish a sense of necessity - Empower people to fulfil the vision

- Create a vision / communicate the vision - Consolidate improvements

GLOBAL FACTORS

Globalisation Can present many cost saving opportunities for managers if they choose to expand operations - Well-structured global supply chain will have a competitive edge - Opportunity to source inputs from cheaper sources overseas, to expand and achieve EOS and

develop new products for an international market

GLOBAL SOURCING Definition Global sourcing refers to the practise of sourcing goods/services from across national boundaries

- Aims to exploit global efficiencies in the delivery of a product – low cost skill labour/materials - Global web – involves a business sourcing inputs from the cheapest regions for manufacturing - Distributing products to any nation that demands them - Often revolves around reducing costs and achieving better economies of scale

CASE STUDY Having labour intensive tasks performed in countries with lower wage rates than ours - CHINA

ECONOMIES OF SCALE Definition Economies of scale refers to the cost advantage that a business obtain due to expansion

- Having larger manufacturing facilities, moving closer to raw materials and labour/delivering services to a larger market

- Increasing in size, the business spreads its costs over more units - By adopting a global approach – there is potential for organisations to achieve EOS - Have joint venture or strategic alliance with a business in the same industry

CASE STUDY Decided to have maintenance of the new A380 carried out in Asia

SCANNING AND LEARNING

Definition Means that operations managers must scan the global environment to identify and learn the critical global trends that may impact on the business

- Continuously monitoring – business has informed basis for making strategic planning decisions - Changes to the suppliers of materials will need to be monitored and assessed - Quality, quantity, price and potential delivery delays will be significant - Learn about a technological innovation or research into new product development that may be

applicable to its industry CASE STUDY Management at Qantas must find, absorb, learn from and test an increasing volume of data and

information for potential input to or changes to the operations process

RESEARCH AND DEVELOPMENT Definition Many large businesses and even many smaller businesses have research and development

departments - Global businesses have extensive research and development facilities - Investment in spending – major influence on future - They develop new technologies, new processes and new products - Investment in this means developing and maintaining a competitive edge over market - Research generation of new ideas lead to new products - Will examine all possible vehicle types and options that might meet potential demand

MARKETING

TOPIC 2

PART I – ROLE OF MARKETING

Definition Marketing is the process of interacting activities designed to plan, price, promote and distribute products to satisfy customers wants and needs

- Stats reveal that more than 70% of new products fail in the first year due to poor marketing

STRATEGIC ROLE OF MARKETING GOODS AND SERVICES

Definition Setting goals and objectives for the business long term (5-10yrs) Profit maximisation

Maximum difference between total revenue and costs being paid - Increasing profit - expansion of business - increase sales

MARKETING PLAN

Definition This is a document that lists activities aimed at achieving particular marketing outcomes for a product - Develop customer awareness and demand form customer base - Organised marketing campaign - Careful research and design - customer is central focus

Marketing plan Where the market is, who will buy the product, aim to satisfy existing customers

INTERDEPENCANCE WITH OTHER KEY BUSINESS FUNCTIONS

Operations - Marketing promotes what operations has created CASE STUDY May constrain marketing by establishing physical limits such as scheduling of flight/rollout of initiatives Finance - Finance gives a budget for marketing activities to allow them to promote Human resources - Acquisition and selection of marketing staff

- Training and development of staff - offering incentives and rewards

PRODUCTION, SELLING, MARKETING APPROACHES

1820-1920 Production appr.

Demand for goods customers wanted were so high businesses could sell products without advertising - Based on manufacturing products rather than customers wants and needs

1920-1960 Selling approach

- Advertise your product (radio, magazine, newspaper etc.) - Promotion was the element of marketing mix that was emphasise - Did not recognise customers wants and needs

1960-1980 Cust. orientated

- Satisfying the customers wants and needs by finding out what they want - Market research

1980-present Marketing app.

- Corporate responsibility – ecological sustainability / ethical responsibility - Developing a relationship with customers - customer orientation

Relationship marketing

The development of long term and cost effective relationships with individual care - Customer loyalty - Rewards programs

TYPES OF MARKETS

Market Is a group of individuals, organisations or both that; - Need or want products - Have the money (purchasing power) to purchase the product

Resource market Consists of those individuals or groups that are engaged in all forms of primary production Industrial market Includes industries and businesses that purchase products to use in the production of other products

or in their daily operation Consumer market Consists of individuals – members of a household who plan to use or consume the products they buy Mass market The seller mass-produces, mass-distributes and mass-promotes one product to all buyers Niche market Narrowly selected target market segmentation. Mass market is divided into smaller groups

PART II – INFLUENCES ON MARKETING

CONSUMER CHOICE

Definition The products the consumers choose based on internal/external factors that will satisfy wants/needs

Physiological factors - internal Definition Influence within an individual that effects their buying habits/behaviour Perception How you see/the way you look at a product Motive Reason behind wanting to purchase the product Attitudes What the person feels about the product Personality How you view yourself in relation to buying the product

Sociocultural influence – external Definition Forces exerted by other people on you to make you buy a product

- Family / friends - Culture/ religion - Social class

Economic factors Boom period - More products available higher priced products

- More job security Recession - Tend to save instead of spend

- Businesses close down - reduction in choice of products

CASE STUDY Travel is a discretionary spend – decrease in eco. activity can result in downward shift in demand

Government influences Definition - Puts certain rules on types of marketing they can do

- Setting of interest rates - (higher = less likely to use credit cards and spend loan money)

CONSUMER LAWS

Competition and Consumer Act Use 1. To protect consumers against undesirable practises, such as misrepresenting the contents of

products, their place of production, and misleading and deceptive advertising 2. The regulate certain trade practises that restrict competition 3. Ensure a number of businesses are operating at any one time in the same market for comp.

Breaches of act Result in the relevant consumer agency taking civil or criminal proceedings against business/individual - Unconscionable conduct - Any practise by a business that is not reasonable, often illegal

CASE STUDY Qantas fined millions of $$ by the ACCC after colluding with airlines to fix fuel surcharges on its freight services to the US

Aus. Competition and Consumer Commission

- Fair contract terms - Safety of consumer products and related services - Rules about specific types of sales practises - Has power to issue on the spot infringement notices

Deceptive and misleading advertising Bait and switch Product is advertised at a very cheap price. When customers go to the store they find the product sold

out/unavailable and the salesperson tries to sell them a more expensive product Dishonest advertising

An advertisement uses words that are deceptive or claims that a product has some specific quality when it doesn’t

Fine print Important conditions written in difficult to read size Before/after adv. Distorted/enhanced images

Price discrimination About Act of charging different customers different prices for the same good or service

- Product differentiation within one market - CAC prohibits this if the discrimination could sustainably reduce competition - Businesses cannot give favoured treatments to some customers and deny others

Examples Ladies night – men must pay full price for drinks at the bar, but women pay only 50% off regular price

Implied conditions Definition Unspoken or unwritten terms of a contract. These condition are assumed to exist regardless of

whether they were especially mentioned in a contract - Acceptable quality – product is fit for the purpose for which it is being sold (safe/ no defects) - Consumer guarantees – comprehensive set of rights and remedies for defective goods

Types of implied conditions

The seller has the right to sell the product - Consumer buying assumes that the goods being sold are not stolen

Goods are fit for the purpose for which they are sold - Purpose of the product, there is an implied condition the goods will be fit for that purpose

Goods are acceptable (merchantable) quality - Acceptable quality if product is more expensive, expected higher quality

Warranties Definition Promise is made by a business that they will correct any defects in the goods that they produce

- Promise to repair or replace faulty products - Business has confidence in quality of its product

Refunds and exchanges Definition A business is required by law to offer a refund if the product

- Are faulty - Do not match the description of sample

ETHICAL INFLUENCES

Ethical criticism of markets Ethics A persons or society’s moral attitudes to issue moral/ethics vary from person to person Legal Society/person has to comply with its government regulations Advertising Ethics – bad taste / legal – misleading and false advertising CASE STUDY Aims to produce environmentally responsible products

- Boxed meals – sustainably reduce waste - Lighting and air-conditioning improvements using solar energy

Main ethical criticisms

- Creation of need – materialism - Stereotypical images of males and females - Use of sex to sell products – unrealistic images a portrayed - Invasion of privacy – online advertising

Truth and accuracy in advertising Definition Ethical businesses should ensure their advertising is truthful as they can be held morally responsible

for misleading the public Concealed facts - Pieces of information purposely omitted from an advertisement – harm customers trust Exaggerated claims - Puffery – cannot be proved or confirmed by a customer – one shampoo is superior to others Vague statements - Statements using ambiguous words that consumer will assume advertisers intended message

- Allow the marketer to deny any intention to mislead of deceive

Good taste in advertising About This is highly subjective. There is usually common agreement as to what society considers acceptable

and marketers must be away of community sensitivities sexualisation of children - Society is recognising the growing role that mass media is playing in children’s lives

Products that may damage health About Some major food companies have developed initiatives to either limit advertising to young children or

alter their products in response to criticism about the way unhealthy goods are marketed to kids - Aim at reducing junk food marketing – not working - In Australia, no advertising is allowed during pre-school children programs

Engaging in fair competition CAC - Compete fairly and contains provisions relating to fair competition

- Part 4 – deters certain anti-competitive behaviour by business that limit or prevent comp. Cartel conduct Exists when businesses agree to act together instead of competing against one another

- Designed to increase profits of cartel members – puts other companies out of business

Anti-competitive agreements

Contracts or arrangements containing provisions which have the effect of substantially lessening competition in a market

Misuse of market power

Prohibits corporations who have substantial degree of market power from taking advantage of it for the purpose of damaging a competitor

Others - Exclusive dealing / mergers - Resale price maintenance

Sugging Definition Selling under the guise of a survey – is a sales technique disguised as market research

- Is not illegal but raises ethical issues (deception and invasion of privacy) - People now refuse to participate in telephone, online and personal surveys because of this

A marketing code of ethics Aus. Association of National Advertise Code of Ethics

- If consumers think advertisement breaches code of ethics, they can make a complaint - Ensure that the code of ethics is followed - Administering a national system of advertising self-regulation through the Board

Importance of ethical behaviour and government regulations Ethical behaviour - Lead to significant marketing and business opportunities

- Enjoy publicity in the media – creates positive image - Can attract customers to the business and increase customer loyalty – more products sold - More consumers are becoming ethically aware

Government regulations

- Protects consumers and business - Increases consumer trust and confidence in business = higher sales - Promotes competition and fare trade - Encourages business to do the right thing – more equal market

PART III – MARKETING PROCESS

SITUATIONAL ANALYSIS

SWOT – strengths / weaknesses / opportunities / threats Definition Identification and analysis of the internal strengths and weaknesses of the business, opportunities in,

and threats from the external environment - Provides information needed to complete situational analysis - Gives clear indication of the business’ position compared with its competitors - Internal forces – unique to each business by analysing them, management can see S and W

CASE STUDY Strengths - Multi brand strategy (Jetstar) - Extensive network – part of Oneworld

Alliance and Emirates partnership - Globally recognised brand

Opportunities - Continually evolving aircraft tech - Expansion of Jetstar international (asia)

Weaknesses - Relatively complex fleet of aircraft - High labour and other operations costs than

some competitors Threats

- Weakening in the domestic and inter. Mrkt - Competitive challenges – virgin/tiger - Increase in fuel costs

Product lifecycle Definition Stages a product passes through. A business must be able to launch, modify and delete products in

response to changes in the lifecycle. Failure to do this = declining sales / no profit Why do some products decline?

- Changing public perception of fashion - New technologies replace old products fluctuation of economic activity

Introduction stage Growth stage Maturity stage Decline stage Description Business tries to increase

consumer awareness and build market share

Brand acceptance and market share are actively pursued by producers

Sales plateau as the market becomes saturated

Sales begin to decline as the business faces several options

Product Brand reliability established

Quality is maintained and improved. Support services may be added

Features and packaging try be different to competitors

Product is maintained with some rejuvenation/ improvement. Cut loss

Price Often noticeably lower than competitors’ price to gain market foothold

Price per unit of producing is maintained as increased consumer demand and growth in market share

Price may need to be adjusted downwards to hold off competitors and maintain market share

Price is reduced to sell remaining stock

Promotion Directed at early buyers Communications seek to educate potential customers

Promotion now seeks a wider audience

Continues to suggest product is tried and true – still the best

Promotion is discontinued

Distribution Is selective, which enables consumers to gradually form an acceptance of product

Distribution channels are increased as the product becomes more popular

Incentives may need to be offered to encourage preference over rival products

Distribution channels reduced and product offered to loyal segment of the market only

CASE STUDY Growth stage Record earnings in 2016-17 Enhance cust. Experience – launch new routes + network

MARKET RESEARCH

Definition Process of collecting, recording and analysing information to find out customers wants and needs - Provides feedback on how customers feel about business and its products - More accurate and responsive marketing plan can be designed reduce risk of failure

Marketing data Information relevant to the defined marketing problem primary sources of data

Facts and figures collected from original sources - Surveying customers - Observation through sample groups - Testing product on the market for a reaction - Loyalty/membership cards

CASE STUDY - Inflight, mail based surveys,

complaint monitoring and discussion with customer contact staff

Secondary sources of data

Information has already been collected by some other organisation or person and is summarised - Australian Bureau of Statistics - Industry magazines/newsletters - Sales reports (financial reports)

Process of research 1. Determining information needs - Problem is clearly stated to determine what needs to be measured and issues involved - Who is the target market? - How can I increase sales? 2. Collecting data from primary and secondary sources - Plans are made to gather data 3. Analysing and interpreting data

CASE STUDY Replaced its cold food boxes with hot breakfasts and dinners – choice of menu for business Statistical interpretation an.

Process of focussing on the data that represent average, typical or deviations from typical patterns

ESTABLISHING MARKET OBJECTIVES

Definition Realistic and measurable goals to be achieved through the marketing plan. Objectives should be closely aligned to the overall business goals

- Increase market share - Expanding product range

SMART S – Specific

The objectives needs to be clear and precise and relate to specific elements of the business - Increase market share

SMART M - Measurable

Business to develop controls that are effective in measuring the extent to which goals are achieved - Checking if business is generating an increase in sales and profitability

SMART A – Achievable

The business needs to have the financial and human resources required to achieve goals - Whether they have enough money to gain market share with price differentiation strategy

SMART R – Realistic

Objective should not be based on unreasonable expectations, must be possible to achieve - Consider how competitors are setting prices and whether they can survive doing the same

SMART T – Time

Time frame within the business hopes to achieve the goal must be determined - 1-2 years or 3-5 years or 5-10 years

CASE STUDY - Maintain Qantas/Jetstar’s combined domestic market share of 62% - Enhanced partnerships (emirates, American airlines, china eastern) – expand international - Align Qantas and Jetstar with Asian growth

IDENTIFYING TARGET MARKETS

Definition A group of present and potential customers to which a business intends to sell its products. Customer share similar characteristics such as age, income, lifestyle and spending

Primary target m. Market segmentation at which most of the marketing resources are directed Secondary target Usually a smaller and less important market segmentation

Importance of target markets Why? Allows the business to better satisfy the wants and needs of targeted group. Are able to;

- Use marketing resources more efficiently more cost effective and time efficient - Promotion is more relevant to customers – more likely to be noticed - Refine marketing strategies used to influence customer choice

Mass market app. Mass produces mass distributes mass promotes ONE PRODUCT to all buyers Mkt. segmentation Total market is subdivided into groups of people who share common characteristics Niche approach Needs of customers in these markets are often neglected by large business narrowly selected

IMPLEMENTATION, MONITORING AND CONTROLLING

Implementation Process of putting the marketing strategies into operations - Is the plan fully integrated with all other sections of the business? - How should the business be structured and organised? - Have effective lines of communication been established between departments? - Are all other employees’ familiar with marketing objectives and strategies?

CASE STUDY Developing a financial forecast of revenue using - Statistical models - Past sales fata - Executive judgement

Estimates cost such as; - Promotion costs / product development costs

Monitoring Checking and observing the actual progress of the marketing plan comparison of planned performance to actual performance

- Involves predictions in relation to marketing plan - Estimates sales (increase by 5%) - Estimates cost (what is the marketing budget)

CASE STUDY Comparing actual and planned results using a number of performance criteria - Market share analysis

o Comparing business sales with the performance of competitors (virgin airlines) Controlling Taking corrective action to make sure the objectives are attained

- Compares financial forecasts with actual figures detained from marketing plan o Sales figures, budgets and profitability

- They need to take corrective action and re-think their marketing objectives and strategies CASE STUDY Corrective action

- Forecast 6% growth in 2009 – actually experienced a 1.9% reduction mainly due to GFC o Lowered prices to stimulate demand, reducing flight frequency on some routes

- Expanding in Asian markets to take advantage of the aviation growth in that region

PART IV – MARKETING STRATEGIES

MARKET SEGMENTATION

Occurs when the total market is subdivided into groups of people who share one or more common characteristics

Segmenting consumer markets Segmentation variable

Characteristics of individuals or groups that are used by marketing managers to divide a total market into segments

Definition Divisions Demographic is the process of dividing the total market according to

particular features of a population Age / Gender / Education / Occupation Religion / Ethnicity

Geographic is the process of dividing the total market according to geographic locations

- E.g. – less luxury items rurally – more staple item

Region / Urban Suburban / Rural City size / Climate

Psychographic is the process of dividing the total market according to personality characteristics

Lifestyle / Personality Motives / Socioeconomic group

Behavioural is the process of dividing the total market according to the customers’ relationship to the product

Purchase occasion / Benefits sought (benefits they seek) Loyalty / Usage rate

CASE STUDY Mainly uses behavioural segmentation further broken down demographically - Business segment

o Routine business – conferences / meetings etc. o emergency business – crisis

- leisure segment o holiday – multi destination touring / weekender o visiting friends and family

- Jetstar domestic targets cost sensitive travellers – low yielding leisure routes to Aus. Dest.

PRODUCT/SERVICE DIFFERENTIATION AND POSITIONING

Product positioning

Establishing a product in the market against its competing product - Marketers try create an image or identity for their product developed in customer minds

Product/service differentiation

Process of developing and promoting differences between the business’ products and competitors - Occurs when products that are similar are made to appear different from/better than

competitors - Seller is able to gain a bit more control in marketplace, especially with price

o Offering top quality customer service personalisation o Convenience o Better value for money / more features quality, safety, luxury (Mercedes Benz)

PRODUCTS – GOODS AND SERVICES

Products Definition Offers a consumer tangible and intangible benefits. Central to all marketing activities is flexible Tangible benefits Refer to the physical attributes of the product

- Design - Colour - Features of product

Intangible benefits Benefits a consumer associates with purchasing a product - Prestige and image associated with owning a particular brand - Aftersales service a business offers customer help desks / warranties

Branding Definition Reputation that a business or product has developed over a period of time. A term, symbol, design or

any combination of these that identifies a specific product - Provides message to consumers about quality / value / prestige associated with product - Able to form judgements on its product quality, price and value - Distinguishes a product from competitors

Manufacturers or national brands – owned by manufacturer Private or house brand – owned by retailer or wholesaler

Generic brand – products with no brand name

Packaging Definition Physical appearance of the good. Often the first mage of product that consumers will see

- Must be effective and positive - Aims to protect and maintain the quality of the product foil wraps for food and medicine - Could reveal benefits of using product or features of it nutritional info / design / style

To achieve market objectives

- Protect the product during shipment and storage to maintain its functional role - Communicate to its target market - Attract attention to help sales communicate brand identity

Labelling Definition Presentation of information on a product or its package

- Use labels to promote other products or encourage proper use of products greater satisf. - Provide info about ingredients, operating procedures, shelf life, country of origin - All labels must be truthful aimed at protecting consumer from deceptive claims

o Number of laws and reg. specifying info that must be included in labels on products CASE STUDY Scheduling features

- Route frequency / time of departure and arrival / number of stops - City flyer express service means there are flights every 30 min in peak periods - The bigger A380s allow Qantas to offer increased passage services and flights leaving every 15

Comfort based features - Lounges / inflight meals and drinks / inflight entertainment / seat width - Overhauled the food menu inspired by chef Neil Perry - Total entertainment inflight system has been installed on the international fleet in seat

personal phones, video games and 16 audio channels BRANDING (name and kangaroo symbol ‘spirit of Australia) + Qantas frequent flyer scheme

- Accumulate points mainly through flying with Qantas or its partners has direct Mrkt. Opp.

PRICE AND PRICING METHODS

Price Refers to the amount of money a business charges for the purchase of its products - Often one of the most influential considerations for a customer before purchasing - Price charged by business must reflect position and branding of it within marketplace - Brand that is well established in terms of reliability and value may sell for higher

Pricing methods Cost based pricing Method derived from cost of producing or purchasing a product and then adding a mark-up

- Mark up – predetermined amount that a business adds to cost of a product - Drawbacks – difficulty in accurately determining an appropriate mark-up percent

Market based pricing

Setting prices according to interaction levels between supply and demand – what market will pay - Supply – quantity of product business’ are willing to offer for sale at particular price - Demand – quantity of product consumers are willing to purchase at particular price

o Demand greater than supply = shortage – price goes up o Supply greater than demand = surplus – price will fall

Competition based pricing

Price covers the costs and is comparable to the competitors price - Used when there is high degree of competition - Business choose below competitors, equal to competitors – established by;

o Price leader – major business in industry who pricing influences competitors

Pricing strategies/tactics Skimming Business sets a relatively high price at first and then lowers the price over time. allows business to

recover its development strategies before increased competition forces low prices - Pricing at what the market will bear

Penetration pricing Setting a price lower than competitors to gain market share. - successful if there is little brand loyalty and customers are sensitive to price moves - Will increase sales/ market share / economies of scale

Loss leader Products sold at a low price (at cost or below) to stimulate other, more profitable sales - Gain customers who will also purchase other products in the range offered by business - Compensating for loss on initial product

Price points Customers think of a retail price as one of a number of possible competitive prices - Is psychological – refers to cut offs in mind of customer

Price and quality interaction Definition Goods and services that are expensive are perceived by consumers to be of higher quality than

cheaper equivalents - Consumers are willing to pay more for a good or service because of perceived quality benefits - Consumers will seek higher quality expertise and skill they can afford

CASE STUDY Regulated by the INTERNATIONAL AIR TRANSPORT ASSOCIATION - Cost plus margin / market - Price penetration – for Jetstar / Loss leading – first launched Jetstar in 2004 ($19 melb-syd)

PROMOTION

Methods used by a business to inform, persuade and remind its target market about its products

Elements of the promotion mix Definition Seeks to generate interest in and awareness of a particular product or brand Advertising Form of communication intended to persuade an audience to purchase or take action upon products

- Name of product and how it could benefit the consumer - Persuade a target market to purchase - Forms include; television, radio, billboards, newspapers, online

Personal selling and relationship marketing

Attempt by the sales representative to persuade customers to buy the product/service through their depth of knowledge and positive personal characteristics

- Component in establishing a positive long term relationship with the customer to encourage repeat sales

Sales promotion Short term attempts to influence customers to buy more of a product or use it faster

- Price reductions - Cash refunds on purchases - Free gifts or 2 for 1 deals

Below the line promotion

Non media communication or advertising - Giving out food samples in supermarkets – allows consumers to try the product

Public relations planned and sustained effort to establish/maintain goodwill and mutual understanding between an organisation and the public

Publicity promotional activities designed to promote a business by obtaining media coverage not paid for - More credible as the message comes from a 3rd party

The communication process Opinion leaders Certain individuals in the community are highly respected and often seek to use these people to

promote their products - Consumers will create a link between the leaders image and the reputation of the product

Word of mouth Consumers relating to others their reaction to the use of a product their degree of satisfaction - Likely to place more eight on word of mouth than biased images from the company

CASE STUDY Advertising - Uses advertising agencies to create media advertisements for TV, radio, brochures, posters - Reshot famous ‘I still call Australia home’ commercial in 2004 – debut in opening ceremony of

the Olympics in Athens – cost $10 million to produce Sales promotions

- 2 for 1 deals for tickets / Jetstar $49 tickets

PLACE/DISTRIBUTION

Place Concerned with the process of distributing the product from where it is made to the consumer Distribution prcss. Allowing the customers access to the product when they want it

The distribution channel Definition Links the point of manufacturing to the final customer Producer consumer Good is produced by an individual/organisation and is then passed directly to consumer

- No intermediary used

Producer retailer consumer

Producer may need to include a retailer in the distribution channel - Intermediary accesses the goods from producer and sells to customers

Producer wholesaler retailer consumer

Has an additional intermediary (wholesaler) - Take responsibility for distributing the product from the producer to the retailers

Channel choice Definition Influences the type of customers the product attracts, the perception of the product and the ease of

access for the consumer Market coverage Number of outlets a firm choses for its product, can cover in 3 ways; Intensive distribution

- Saturate market with product - Shop at local outlets and able to buy product – milk and coca cola

Selective distribution

- Moderate proportion of outlets stocked with products within geographical area - Customer prepared to travel and seek out specific retailer that stocks – clothing , laptops

Exclusive distribution

- Use of one 1 retail outlet for a product in a large geographical area - Goods that are purchased are less frequent (niche) - Specialised/luxury or prestige products – Gucci , tiffany and co

Physical distribution issues Transport - Standardisation of packaging to ensure containers are fully loaded and minimising unit of cost

- Adoption of pallets / automated ‘roll on and off’ conveyor belt tech to trucks (no labour) Warehousing - Coles/woollies have major distribution centres, totally sealed no lights or windows

- Automated and run by computers - Few people work in centres – distribute large amounts of product

Inventory - Barcoding and intricate online stock management systems - Allow business to better manage distribution networks - Ensures supply is available as needed

CASE STUDY Direct sales via retail outlets - Qantas travel centres called Qantas holiday

Internet - Leisure travel booked via website – represents 70% of domestic bookings 35% international

Travel agents - American express, community travel, flight centre, Harvey world travel

PEOPLE, PROCESSES AND PHYSICAL EVIDENCE

People - Right to support companies product detailed product knowledge/attend cust. Concerns - Excellent customer service – seeks to maintain high levels of customer satisfaction

Process - Customers total experience of buying the product searching info to benefits of product - Focussed on delivering to the expectations of the customer

Physical evidence/ packaging

- All visual elements of a business presentation of store and employees etc. - Physical appearance of products labelling and packaging needs to communicate high qual.

E-MARKETING

Definition A broad form of marketing as it involves directly liaising with and communicate with customers - Allows a business with online operations to reach a global audience - Use of multifaceted approach to marketing - Must be creative to attract the interest of customers while fulfilling technical aspects of the

sight user friendly and suitable for intended audience secure payment Web pages Allows the access of information (text, graphics, video) through web browser Social media Online advertising using (Facebook, YouTube, twitter etc.) to deliver targeted commercial messages

Advantages - Inexpensive - Easy to use and monitor - Effective method to gain exposure – constantly building relationships with customers

Disadvantages - Marketer has no control of what online consumers write about the product - Difficult to measure the reach of exposure

CASE STUDY Website – customers can; - book flights – find out about details

- See latest product innovation – wireless inflight entertainment – Q bag tags

GLOBAL MARKETING

Global branding Definition Symbol or logo widely recognised in most countries. Brands support positioning of product (quality)

- People often accept or reject products according to brand - Can be variations in marketing mix around the world slight changes suit local culture - More cost effective to focus on the brand rather than particular product

Standardisation and differentiation Standardised prod. Meets the individuals needs of all global customers

- Is most cost effective approach to global marketing Differentiated pro. Where the original product has been adapted to meet needs of culturally diverse customers

- Better meets the needs of customers increase market share

Approaches to branding and standardisation Ethnocentric Business markets and brands goods the same as it does domestically Polycentric Customises the marketing mix to meet the specific needs of each foreign market Geocentric Analyses needs of customers worldwide and adopts a standardised marketing mix for all markets Mixed Standardise some elements of mix

- Allow local personnel to customise or differentiate in things such as the 4 P’s

Global pricing and competitive positioning Issues to consider - Currencies fluctuate

- Different countries have different tariff systems - Legislation regulation and taxation varies different way of payment and exportation - Pricing policies of competitors need to be considered

Ethnocentric price Try to set a common price for products across entire world Cost based pricing - Cost of product + margin formula

- Setting premium and discount prices depending on competition - Skimming and penetration

Competitive positioning

- Depends on competition on all different markets selling in - Local or domestic currencies currency fluctuations present exchange risks

Hedging Entering into a contact to buy or sell foreign currency at a fixed rate at some future date Transfer pricing - Varying the price of goods – can make profit appear or be transferred from 1 country to other Counter trade Where currency is not freely traded

- Global businesses use local currencies to purchase local goods that are then sold for foreign currency

- Counter trade is used when countries have little foreign exchange or when currency changes may reduce revenue or profits

Sales price Depends on competitive positioning in local markets - Premium or low volume price strategy - Premium or discount prices - Price skimming or price penetration strategies

CASE STUDY Uses the same brand and logo globally (flying kangaroo) - Represents safety, reliability, engineering excellence and customer service

Standardisation - Allows Qantas to gain economies of scale from a global marketing mix - One word explorer fare, around the world fares. Reciprocal frequent flyer programmes

Customisation - Adjusts its marketing mix to suit a particular global market

FINANCE TOPIC 3

PART I – ROLE OF FINANCIAL MANAGEMENT

STRATEGIC ROLE OF FINANCIAL MANAGEMENT

Financial management

The planning, organising and controlling of the financial or monetary resources to achieve the goals, objectives and plans of the business

Strategy Long term, broad aims affecting all key business areas Strategic plan Encompasses all strategies a business will use to achieve long-term goals Strategic plan Business achieves goals & objectives, only accomplished if finance management effectively

OBJECTIVES OF FINANCIAL MANAGEMENT

Profitability Measured by deducting expenses from revenue in the trading period net profit from income - Reported in the company’s income statement or profit and loss statement - Maximise cash flow and profit of business

Gross profit – profit made on the sale of goods after paying the expenses of purchasing Net profit – final amount of revenue

- EBIT – earnings before interest and tax o Kore precise measure of profitability o Measures profit made directly from operations of business

Liquidity Refers to the cash-flow position of the business - Whether the business can pay debts when they fall due - Ratio of cash received and paid - An objective = keep the business financially stable ensure there are more CA then CL

Debtors – expected to pay their accounts within a short time - Accounts receivable is liquid asset

Inventory – take some time to sell and convert to cash – less liquid Non-current assets – least liquid takes time to advertise/negotiate sale of these to convert to cash

Efficiency Refers to the cost of producing the goods and services that the business sells - Reduces costs and increases profitability - Expense ratio, such as total expenses divided by total sales

o Lower the result the more efficient business is - Another measure ability to collect accounts receivable

o Turnover ratio - Shorter the average time, more efficient the business is in collecting its accounts receivable

Solvency Ability of the business to pay both short-term and long-term liabilities as they fall due - Measure of whether a business is financially stable - Mixture of debt and equity finance - Gearing how much debt finance business has acquired to fund its operations compared to

its use of equity Growth Involves taking risks rapid growth often increases costs

- Businesses which grow often fail they cannot plan their cash flow CASE STUDY Lego

Created a strategy/action plan for organic growth - Prioritised productivity instead of growth and reduced expenses to increase profits - Closing warehouses, reducing employee number

Return on investment

Unless business is profitable enough to make money for owner/shareholders investors withdraw - Aims to maximise the investors return on their investment

Short term and long term

Short term relating to maximising profits on market share or liquidity Long term growth, profitability and efficiency

PART II – INFLUENCES OF FINANCIAL MANAGEMENT

INTERNAL SORCE OF FINANCE

Definition Recorded under equity in the balance sheet reinvested profits and capital contributed by owners when the business began

Retained profit Owner only takes part of this as their reward - Reinvests profits back into business - Internal equity owners capital contribution + retained profits

Owners’ equity Funds contributed by owners to establish and build the business - Can be done by investors who become owner/shareholder + private shares

EXTERNAL SOURCES OF FINANCE

Definition Funds provided by sources outside the business include banks, other financial institutions, government, suppliers or financial intermediaries

DEBT FINANCE – short term Definition Short term debt repayable within 12 months

Long term repayment longer than 12 months Overdraft Gives business flexibility to borrow money from a bank at short notice through its cheque account

- Allows a business to have a negative value in its account - Receives cash from sales, money is deposited into the back account reduces overdraft - High daily interest rate - Carry a financial risk business must repay interest regardless of level profits that loan made

Commercial bill Written order for a loan amount that is guaranteed by the business’ bank - Money is borrowed from other companies that have surplus funds - Will be repaid to a particular person or business on a certain day in the future 90 days - Used to finance expenses payments to suppliers of materials/wholesale goods

Factoring Can be used to improve cash flow, using the unpaid invoices of a business as security - The cash sale of a business’s accounts receivable to a factoring company

o Takes over management and collection of the unpaid accounts under terms agreed with the business

- Pay the seller the value of accounts receivable, less a commission or fee o Fee charged will vary with the size of credit sales

DEBT FINANCE – long term Mortgage Are loans used to fund the purchase of property, such as land, factory sites, offices and a building

- Property asset becomes the security for the repayment of the loan - Monthly repayments - Typically very long term; some being repaid over 30 years

Debentures Used to buy buildings and equipment and are for a fixed amount, for a fixed time and at a fixed interest rate

- Companies are invited to invest in these businesses by lending large amounts of money o Business that has lent money becomes a debenture holder o The funds are invested with the business as secured loans with the security of the

buildings or equipment Unsecured notes

Notes usually issued by finance companies to gain funds - Not secured and do not provide any claim on the assets of the business

o Called bonds - Borrower must pay a specified amount of interest and repay the entire amount - Interest is often higher than for debentures

Leasing Lease non-current assets, such as a company car, delivery vehicles, equip and office or factory space

- Reduces the cost of acquiring these assets as the business does not have to outlay the full value of the asset in one transaction

- Obligation to pay another business and therefore a lease is a type of debt finance Term loan Term of repayment longer than 12 months 5-10 years longer CASE STUDY mostly debt both long and short term (borrowed funds)

- 2017 its debt portfolio totalled $5.2 billion. - taken advantage of low interest rates and a higher credit rating saving it $ in interest payments

EQUITY FINANCE Ordinary shares Are the basic form of equity capital

- Preference shares receive dividends before ordinary shareholders - If the business is liquidated the preference shareholders will receive payment from the scale

of assets o followed by debentures holders o then ordinary shareholders and unsecured creditors

New issues Prospectus issued by a stockbroker and shares are made available on the securities exchange - each shareholder or owner contributes to the business through the money they pay

o receive dividend, as their proportion of the company’s profits Right issue Existing shareholders may be offered additional shares in proportion to their current holdings of that

company’s shares Placements Offer of additional shares to specific institutions and specific investors

- does this without a formal prospectus - through share placements company can raise up to 15% of its current capital base

Share purchase plans

Allow existing companies to issue a maximum of $5000 in new shares to each existing shareholder without issuing a prospectus

- offered at a below-current-share price - permission is required from ASIC process is relatively inexpensive - benefits both the company and the investor

Private equity The business has gone outside to seek funds and therefore is classified as external equity finance - if business does not wish to increase its level of debt it can invite other people to become

part-owners by selling them shares in the business - relates back to private companies shares were not sold through ASX

Advantage – cost of the finance can be postponed as shareholders will not need to be paid immed. Disadvantage – ownership becomes spread among more people

- original owners have less control as they now own a smaller share of the business CASE STUDY Qantas’ last equity raising was in 2009 when it raised $500 million in an issue of new shares to combat

the effects of the GFC

FINANCIAL INSTITUTIONS

Intermediary Conduct markets in which investors and enterprises come together with confidence to create prosperity through the sharing of risks and rewards

Banks Largest provider of funds Retail banking

- deposit taking and cheque account and credit card services - usually conducted in a bank’s branch network - target market is household consumers

Wholesale banking - very large transaction services

o arranging domestic and overseas borrowing for businesses Investment banks

Smaller than commercial banks specialise in the provision of services to corporate clients Investment management

- covers both raising and lending of funds through unit trusts - management of investment funds’ portfolios

corporate financial advice - advising companies on takeovers, merges and raising capital in general - assist in the capital-raising process will underwrite a company’s capital raising

money market dealings

- assisting companies in their borrowing and/or lending on the short term money market - dealings with foreign exchange markets

they; - trade in money, securities and financial futures - arrange long-term finance for company expansion - advise clients on foreign exchange cover and merges

Finance companies

Provide different types of secured and unsecured loans to business - they are active in lease finance and lending for equipment purchases - compete with commercial banks but their role is small in comparison

Secured loans Require an asset (such as property) that is security for the loan - if business fails to repay a secured loan asset is forfeited to the lending institution

Unsecured loans

Do not require an asset to act as security - these loans are advertised to businesses they arrange

o commercial bills, leasing finance and debentures Superannuation funds

Savings taken out of the employee’s wage or salary is referred to as superannuation - next largest group of financial institutions - major holders of shares and government securities and are also active in property financing - receive long term funds - able to invest in the long term

Life insurance companies

Non-bank financial intermediaries who provide cover & lump sum payment If death occurs - policy holders pay regular premiums

o insurer guarantees to pay designated beneficiary a sum of money upon death - provide equity and loans to corporate sector by receipts of insurance premiums reserves

Unit trusts Formed under a trust deed trustee controls and manages the trust - offered to the public for investment - money from the sale is pooled and invested by the trustee - 4 main types of unit trusts are property trust, equity trusts, mortgage trusts, fixed interest

Australian securities exchange About Primary stock exchange group in Australia is the market where shares are bought and sold

- Market operator / clearing house / payments system facilitator - Overseas compliance with operation rules - Promotes standard of cooperative governance

Services include - Shares and exchange option - Exchange traded funds and interest rate securities - Listed investment companies

Primary market - Deal with new issue of debt instruments by borrower of funds - Selling of shares for the formation of a new company - Issue of new shares by the company to raise initial capital

Secondary market

- Purchase and sale of existing securities - Selling of shares from one investor to another (second hand) - Acts as an intermediary for the general public (real estate agent)

INFLUENCE OF GOVERNMENT

About - Those relating to the monetary o Interest rates if low business will borrow for expansion

- Fiscal policy government budgets - Legislation and various roles of government bodies who are responsible for

monitoring/administration ASIC – Australian Securities and Investment Commission

About An independent body that administers the Australian Securities Act 2001 & Corporations Act 2001 - Ensures that Australia’s financial markets are fair and transparent

o Supported by confident and informed investors and consumers - Assist in reducing fraud and unfair practises in financial markets + financial products

Are required under the Act to;

Is a major deterrent to companies engaging in illegal financial activities - Maintain, facilitate and improve the performance of the financial system and entities in it - Promote confident and informed participation by investors and consumers in the system

- Administer the law effectively with minimal procedural requirements - Make information about companies and other bodies available to the public - Helps with the liquidation and deregistration of companies

COMPANY TAXATION About Any business over $25 million turnover company tax is 30% of net profit / Under $25m 25%

- Incentive for businesses to retain profits and use the funds to grow their business - Additional benefits for new people thinking of going into business themselves - Makes Australia more attractive for foreign investment

o Creates new jobs

GLOBAL MARKET INFLUENCES

About Globalisation has provided the opportunity to rapidly move funds in and out of Australia - Access funds from international financial institutions and financial markets - Ability to invest their funds internationally

ECONOMIC OUTLOOK About Banks undertake this international borrowing and then lend funds to Australian businesses

- Is important in this borrowing and investment process - Global financial crisis

o Increased interest rates and affected the price of shares and other assets o Market became more volatile

AVAILABILITY OF FUNDS About Australia is seen as a low-risk country for investment relatively good rates of return

- Attracted high levels of foreign investment direct investment - Increase in the activities of global businesses - Aus became part of the global investment and business network (esp. Sydney)

CURRENCY FLUCTUATION AND INTEREST RATES About Changes in interest rates can increase the cost of these funds

- Impacts the willingness of businesses domestically and overseas to invest in business activity - Impacts ability of domestic and overseas customers to purchase g/s

Peak Economic Condition Trough

↑ Employment ↓

↑ Consumer confidence ↓

↑ Consumer spending ↓

↑ Economic activity ↓

↓ Government spending ↑

↑ Interest rates ↓

INFLUENCE OF GOVERNMENT AND GLOBAL MARKET ON FINANCIAL MANAGEMENT

Government Global market - Legislation influences decisions made on finance - If do not comply with regulations ASIC can

pursue - Tax regulations

- Global economic outlook effects demand of exports - Overseas interest rate effect those who borrow from - Availability of funds whether businesses can access

money needed to expand CASE STUDY 2009 GFC caused rapid revenue declines especially in international markets leading to an 88% fall in net profit.

- Air travel (internationally) was the ultimate discretionary item and when it came to belt tightening it was the first place to start.

- Qantas responded by cutting flying capacity, deferring and cancelling orders for new planes, restructuring

- raising $500 million from investors and replacing Qantas with Jetstar on some routes

PART III – PROCESSES OF FINANCIAL MANAGEMENT

PLANNING AND IMPLEMENTING

Definition

The strategic role of financial management is to plan and implement processes to achieve the financial objectives of the business Purpose of having processes;

- Accurately control the financial functions - Have accurate records (legal requirement) - Monitor financial performance

FINANCIAL NEEDS Include - Budgeting / planning

- Raising finance - Valuing assets - Monitoring the financial policies/procedures

Determined by; - Size and phase of business cycle - Future plans for growth and development - Capacity to source finance - Management skills for assessing needs and planning

Business plan Sets out finance required, proposed sources and range of financial statements - Info needs to be shown that business can generate acceptable return

BUDGETS Budget Provide info in quantitative terms about requirements to achieve a particular purpose

- Allow the business to budget for; o Production o Employment of human resources o Raising appropriate funds from appropriate sources

Can show; - Cash required - Cost of expenditure - Estimate use and cost of materials

Must; - Reflect strategic planning decisions about how resources are used - Enable constant monitoring of objectives

Provide basis for; - Production planning - Price setting - Control of expenses

Factors to consider

- Past figures + trends - Potential market / market share - Proposed expansion/discontinuation - External environment

Types of budgets Operation budgets main activities of a business (sales, production, raw materials) Project budgets capital expenditure, purpose of asset purchase, asset life span Financial budget financial state of business budgeted income/balance/cash flow statement

RECORD SYSTEMS Definition Developing accounting systems and ways of recording the expenses and revenues of the business

and record keeping and financial accountability policies and procedures - Ensure date recorded & info provided is accurate, reliable, efficient and accessible - Management bases decisions on the info when needed

Double entry system

Important control aspect recording items twice - Entries can be seen to balance / check to find errors can be carried out quickly

FINANCIAL RISKS

Definition

Include theft of goods, non-payment of accounts receivable or possible interest rate increases - Unable to cover its financial obligations

o Debts through borrowing short term and long term Must consider;

- Amount of borrowings - interest rates - Time for repayments - required level of current assets needed

Minimise risks Amount of profit generated must be considered - Profit must be sufficient to cover debts - Increase profits to justify risk

FINANCIAL CONTROLS Definition Financial systems that allow the management of the business to monitor and control both finances

and operations make decisions about business operations and achieve objectives - Ensure plans of a business will be achieved in most efficient way

Common causes of finance issues

- Theft - Damage / lost assets in warehouses

- Fraud - Errors in record systems

Policies that promote control

- Clear authorisation and responsibility of tasks

- Separation of duties

Protection of assets - CCTV camera’s - Skimming of tills / security procedures

DEBT FINANCE Definition Short term credit cards/overdrafts

Long term mortgage / business loan - Funds readily available and interest payments are tax deductable - Greater level of risk associated with borrowing - Consideration given to impact of borrowing on future profitability and financial stability

Advantages Flexible can borrow funds for a matter of days (overdraft) or up to 10 years (mortgage) Convenient much easier to organise a bank loan than a share market float

- Loan terms can be negotiated to meet the business’ specific needs - Will not decease your ownership in the business

Disadvantages - Require interest and principal repayments over an extended period - Costs may vary if general interest rates rise - Repayments begin immediately must be met regardless of business financial position

EQUITY FINANCE Definition Internal sources of finance in the business

- Shareholder’s represent the highest proportion of total funds to finance operations - Internal retained profit, owners’ equity - External shareholders, venture capitalists - Need sufficient profits to be made so business can continue to operate - Safety net for unexpected downturns/changes in activities

Advantages - No repayments - No interest charges - Very little outside influence to the business maintain control of the business

Disadvantages - Profits are low = share price is effected - Higher costs than debt finance need to increase profit levels to maintain earnings - Proportion of the profits go to the new owners

Gearing The mix of debt and equity to fund the assets of a business - Should obtain no more than 60% of its finance from debt and 40% from equity - Business with 60% gearing is highly geared could become insolvent

CASE STUDY Lease finance - Qantas never owns assets MATCHING TERMS AND SOURCE OF FINANCE TO BUSINESS PURPOSE

About Identifying the options for short and long term debt finance is to match the length, or term of the loan with the economic lifetime of the asset it is used to purchase

- Inefficient to buy a short term asset with long term loan o This is called the matching principle short with short loan / long asset with long

- Current assets should be purchased with short term finance

- Noncurrent assets should be purchased with long term finance Matching principle

Refers to the accounting rule that revenue earned must be matched to the expenses incurred while earning that revenue

- Each asset should be matched with a sufficient loan time to match its expiry

MONITORING AND CONTROLLING

About - Actual against planned performance - Financial statements

o Cash flow statements o Balance sheets statement of financial position o Income/revenue/profit and loss statement financial position

- Achieve financial objectives liquidity, profitability, growth, solvency, efficiency - Taking corrective action

CASH FLOW STATEMENT About Shows only actual cash movements allow business to identify problems with cash flow

▪ May cause future liquidity and working capital problems - Highlight period – high cash outgoings - Periods of low cash receipts

o Enable business to predict when they will have lots or little cash o Able to plan strategies for dealing with these issues

- Forecasts cash position of business so it can plan for times in the future Cash receipts money coming into a business or account Cash payments money leaving the business or account Users Creditors / lenders of finance / owners / shareholders Shows ability of business too;

- Pay financial commitments when they fall due - Pay drawings to owners/shareholders dividends - Have sufficient funds for future expansion/change

Operating activ. Inflows (income from sales) and outflows (supplies/employees) relating to main business activity Investing activ. Inflows and outflows relating to purchase/sale of non-current assets Financing activ. Inflows (equity/debt) and outflows (debt repayments/dividends) relating to borrowing activities Strategies to improve cash flow

- Diversify product range to cater for all year sales - Employ casual staff in high income periods and put them on during low income periods

o Minimise full time staff - Stagger payments throughout year pay large payments on monthly basis - Use JIT inventory management to reduce cost of holding/purchasing stock

CASH FLOW STATEMENT - diagram

INCOME/REVENUE/PROFIT AND LOSS STATEMENT About Shows how much the business sold, how much it cost to make these sales and how much profit the

business made - Indicates level of profit/loss for a business in a particular period (12 months ending June30) - Shows level of sales, gross and net profit - Records operations of business that have led to it making profit or loss

COGS formula Money spent on purchases of raw materials/finished goods for resale - Opening stock + purchases - closing stock = cost of goods sold

Gross profit formula

Part of business’ profit that represents operating income minus COGS - Sales – COGS

Net profit formula

Difference between gross profit and expenses actual profit business makes after paying debt - Gross profit – expenses

Expenses Costs incurred in the process of acquiring/manufacturing the goods Shows; - Operating efficiency of the business

- If income is high enough to cover expenses - If mark-up on purchases is sufficient - Level of profit - If inventory turnover is appropriate

INCOME/REVENUE/PROFIT AND LOSS STATEMENT - diagram

BALANCE SHEET FORMULA Assets = Liabilities + Owners Equity L = A – OE OE = A – L About Overall report into the financial stability of the business and provides a snapshot of the financial

stability of it at particular time - Focusses on business assets, debts and owners worth - Both short term and long tern view of financial position

Able to identify; - What the business owns - What business owes in debt - What business is worth to owners / how much they have invested into it

Current items Used or needed to be paid within 12 months Noncurrent items Expected to last longer or that does not have to be fully paid in 12 months Asset Anything of value to a business tangible (car) intangible (goodwill) Liabilities Items that are owed and will need to be paid at some stage usually have interest Owners’ equity Net worth of the business Current assets Noncurrent assets Current liabilities Noncurrent liabilities Owners’ equity Cash in bank Accounts receivable

Vehicles / machine Buildings

Accounts payable Overdraft

Business loans Mortgage

Owners capital Drawings

BALANCE SHEET – diagram

FINANCIAL RATIOS

LIQUIDTY RATIO CURRENT RATIO WORKING CAPITAL RATIO FORMULA Current assets

Current liabilities About measure of how easily a business can meet its current liabilities from the current assets

- Availability of current assets to cover every dollar of current liabilities - Calculated using balance sheet

Acceptable ratio 2:1 2 current assets to 1 current liability - Should have twice as many assets than liabilities to be able to pay short term debt - Compare to industry average

Strategies to improve liquidity

Controlling current assets/receivables - Offers discounts for early payment - Penalising late payments imposing high interest rate for overdue accounts - JIT inventory system reduce amount of capital spent on stock

Control of current liabilities - Use trade credit to financial advantage interest free period - Hold payments to latest acceptable time - Use overdraft

Hold reserves of cash - Safety measure in event of disruption of cash flow

CASE STUDY decreased in 2017 to 0.44:1 from 0.49:1 in 2016

SOLVENCY GEARING DEBT AND EQUITY RATIO FORMULA Total liabilities

Owners’ equity (x100) About Identifies the amount of debt in the business

- Need to know the proportion of assets that are financed by debt through owner’s equity - Solvency is the total assets in the business and whether they can pay for total debts

Acceptable ratio 0.5:1 or less than 1:1 0.5 total liabilities to 1 owner’s equity - Above 1:1 = financial difficulty (highly geared

Strategies to improve solvency

Increasing sales revenue and profitability - Raising prices / increasing sales / reducing costs - More effective management of inventory (JIT)

Sales and lease back or leasing - Seller of asset leases back the same asset from purchaser - More efficient than buying equipment with a business loan

Restructuring debt - Company seeks to refinance debt to a lower rate

CASE STUDY decreased from 136% in 2016 to 125% in 2017

PROFITABILITY RATIOS GROSS PROFIT Gross profit

Sales (x100) About Indicates what percentage of each sales dollar is gross profit

- Helps determine if sales price is adequate

Acceptable level 50% or above NET PROFIT Net profit

Sales (x100) About Measures the percentage of each dollar of sales that is left over to pay tax and returns to lenders

and owners for the use of their capital Acceptable level 18% or above low is below 12% RETURN ON OWNERS EQUITY

Net profit Total equity

About Measures the net profit before tax, and compares it to the equity in the business - Will reflect its asset structure (nature of operations) and financial structure - Measure of owners reward for the risks involved in keeping the business operating

Acceptable level Above bank interest CASE STUDY decreased from 9.5% in 2016 to 8.7% in 2017. The rate of return on owner's equity decreased from

47% in 2016 to 40% in 2017. Both ratios show Qantas has improved profitability since 2014.

EFFICIENCY RATIOS About Knowing the proportional expenses to sales and developing strategies to lower these expenses adds

efficiency to the business EXPENSES RATIO Total expenses

Sales About Calculated by using income statement

- Measures how long it takes to ‘turn over’ its accounts receivable o How long it takes to collect money from creditors

- Aim is to reduce the expenses ratio to the lowest percentage possible Acceptable level Lowest percent possible ACC. RECEIVABLE TURNOVER RATIO

Credit sales Average debtors OR accounts receivable

= 365 divided by answer About Shows how efficiently a business collects its accounts receivable

- Quicker it collects more efficient it is in collecting debt - From income statement total sales figure used for sales (numerator) - For balance sheet accounts receivable figure used to measure denominator

Acceptable time Up to 30 days - Over 30 days – not efficient in collecting debt - Under 30 days – efficient in collecting debt

CASE STUDY Total revenue increased from 90% in 2016 to 91% in 2017. - The airline industry uses the revenue seat factor ratio (RSF) as a key indicator of efficiency.

- It measures the % of total passenger capacity actually utilised by paying passengers. - The RSF increased from 80% in 2016 to 81% in 2017.

COMPARATIVE RATIO ANALYSIS About Analysing ratios from different time periods and comparing them to previous time periods

- Business able to gain an idea of trends in profitability, return on OE and business worth - Can include budget figures predicted figures compared against actual - Compare business to differing standards

o Australian standards o International standards o Similar business’ in the industry averages (benchmark)

Time comparison Comparing information from current period with previous periods - Improving or declining trends / whether current period figure is acceptable

Industry average comparison

Average industry ratios and comparative analyses are available from; - Australian Stock Exchange

General business standards

Banks and lending bodies often use commonly accepted benchmark standards that apply to all bus. - Once industry averages are known, financial analysts can prepare a financial report

o Examine ratio date and use it to advise investors whether to purchase shares CASE STUDY Qantas

Performance over time and compared to competitors (Singapore Airlines and Air New Zealand). - Qantas is disadvantage as some competing airlines receive government subsidies, which

greatly reduce their costs.

Solvency debt to equity ratio 96% to 85% Profitability

net profit ratio 0.6% to 1.2% return on equity ratio 1.6% to 3.2%

Efficiency

expense ratio 101% to 99% revenue seat factor 80% to 79%

Liquidity current ratio 77% to 82% To source funds, Qantas uses a combination of cash, equity, debt and lease finance.

- In 2013, due to profit warnings, Qantas' credit rating fell, identifying them as a riskier borrower, and increasing their borrowing costs.

- Previously, external influences - terrorist attacks (2002), significant rises in fuel prices (2006) and the GFC (2009)

o Have majorly reduced Qantas' profitability. o In recent years, the success of Jetstar, cost savings and derivatives have allowed

Qantas to increase its profitability. - With the present current ratio, Qantas seems unable to pay its short-term debts - Qantas operates on a negative working capital, low liquidity ratios are common. - Qantas holds very little cash reserves, and repays long-term debt using advance customer

payments, so to minimise interest costs.

LIMITATIONS OF FINANCIAL REPORTS

NORMALISING EARNINGS About Process of averaging the earnings of a business over a number of years to remove distortions

created by inflations and exceptional circumstances - Earnings adjusted to take into account cyclical up/downswings in the economy - Smooth out events like economic cycles and big changes in the businesses - Provide more realised assessment of performance - Make easier to compare profitability figures from year to year / against other businesses

CAPITALISING EXPENSES About Technique that turns expenses into assets and may not represent the true financial condition of bus.

- Capitalised expenses are included as assets in the balance sheet (wrong) - Expenses capitalised are not deducted from gross profit inflates business earnings

- Does not accurately represent true financial condition of a business - Understates expenses and overstates profits and assets

VALUING ASSETS

About Value of asset is written as its historical cost (original cost when it was bought) - This is different to its market value - Balance sheet does not truly represent the worth of the business’ assets due to this

o This is due to appreciation and depreciation of assets (cars/land etc.) o Business also could have paid too much when it was bought o Asset could be old or unsellable on balance sheet value is still as new

Limitation of financial statement

- Cannot record all types of intangible assets on balance sheet o Patents / trademarks / goodwill

- Assets are difficult to value intangible value to the business

TIMING ISSUES About Companies listed on the Australian Stock Exchange are required to publish half yearly reports

- Existing and potential shareholders have limited appreciation of the true state of the company’s finances

Accrual accounting method

Measures the performance and position of a company by recognising economic events regardless of when cash transactions occur

- When accountant records revenue, they should also record at the same time any expenses that were directly related to that revenue

- Expenses incurred must be recorded on income statement – matching principle DEBT REPAYMENTS

About Compare levels of gearing with similar businesses/industry averages to gain a better understanding of whether there is reason for concern

- Reported in the balance sheet as historic cost (amount borrowed) - Doesn’t present the actual repayments

o Recorded as expenses in the revenue statement - Gearing ratio used

Financial reports do not have the capacity to disclose information such as; - How long business recovering from debt - Adequacy of provisions / methods business has for recovery from debt - Have debt repayments been led over until another accounting period - Things are due at different times doesn’t give indication when payments are due

NOTES TO THE FINANCIAL STATEMENTS About Provide additional information and details about items included in the balance/income statements

- Methods of recording transactions, pension plan details, intercompany loan debts - Contain info that may be useful to stakeholders to explain the financial statement meaning - Info about how figures in the statements were calculated/procedures used (in footnotes)

CASE STUDY - Special circumstances may distort the analysis of Qantas’ results. o For example in 2011 natural disasters and major events like cyclone Yasi in north

Queensland, the Christ church earthquake and Japanese Tsunami adversely affected Qantas’ profitability

- Qantas’ financial reports don’t give a full picture of their debt as it does not disclose when these debts have to be repaid.

- long term assets are depreciated over time but the value of these assets may not always reflect their true market value

ETHICAL ISSUES RELATED TO FINANCIAL REPORTS

Ethical principles include;

- Disclosure to stakeholders (investors and general public) about all information that they need to understand about accounts and financial conditions of business

o Reported in the notes - Best practise in developing financial reports

- The institute of Chartered Accountants in Australia oversees and sets accounting standards that must be followed in preparing financial reports

AUDITED ACCOUNTS About Independent check of accuracy of financial reports and accounting procedures

- Examine financial affairs independently checks numbers and adds up Assist guarding against;

- unnecessary waste / inefficient use of resources / misuse of funds / fraud and theft Internal audit Conducted internally by employee to check accounting procedures and accuracy of records Mngmt. audits Review of strategic plan and determine if changes should be made across all aspects of business External audits Required by Corporations Act 2001 financial reports investigated by independent and specialised

audit accounts to guarantee authenticity

RECORD KEEPING About - temptation to receive payment in cash and not record the transaction

will not show up on revenue statement reduced profit = lower tax burden REPORTING PRACTISES

About Stakeholders entitles to access financial information - shareholders are legally entitled to receive financial reports annually, even if small

businesses and shareholders are family Pretend profit is lower than it is

To defraud Australian Tax Office legal/unethical - wants to raise additional capital – understating profit makes it difficult to persuade sources

of finance to lend Decide to sell Purchaser would want to see financial reports for number of years prior to sale

- understating profit and overstating value of assets = not appealing to buyer

PART IV – FINANCIAL MANAGEMENT STRATEGIES

CASH FLOW MANAGEMENT

Cash Flow Statements About earned revenue through sales

- Managing the payment of bills and other outgoings and still making a profit. - Require a thorough knowledge of when payments are due and how to pay them with

maximum advantage to the business. Are important because

keep track of cash flows in and out of the business - allows the business to plan for slow periods when there will be cash short falls - Enables the business to budget for a certain period (month, year etc.)

Distribution of payments

- throughout the month, year, or another period o large expenses do no occur at the same time + cash shortfalls do not occur

- More equal cash flow each month rather than large outflows in particular months - Cash flow projection – identifying periods of shortfall + surplus

Discounts for early payments

- Offering creditors a discount for early payments - Most effective – targeted at creditors who owe largest amounts - Beneficial = creditors – save money

Factoring - Selling of AR for discounted price to finance/specialist factoring comp - Business saves on costs involved in following up on unpaid accounts + debt collection

Distribution of payments About - strategies to pay bills at the latest possible time in order to maximise the interest earned on

savings held in the bank - Operate on credit, stretching the statement due date could provide significant financial

gains when a whole year is taken into consideration. Other strategies - budget cash/use surpluses from strong cash inflow periods to pay in cash short fall

- pre-pay expenses – pay with surplus cash in good cash flow periods

WORKING CAPITAL MANAGEMENT

Working capital funds available for the short-term financial commitments of a business

Net-working cap. represents funds needed for the day-to day operations of a business to provide profits & provide

cash for short-term liquidity

- Requirement varies for each business

o industry, business type, prices (stock) more $ may be needed to pay for assets

Control of current assets Cash - Ensures the bus. can pay its debts, repay loans, pay accounts

- take adv. of investment opportunities - Try to keep cash balances @ minimum + hold remarkable securities as reserves of liquidity

guard against sudden shortages Receivables (debtors)

- Sums of $ owed to business from cust to whom it has supplied g/s - ensure timing maintains adequate cash resources

Procedures to manage: Stipulating reasonable period Policies for collected bad debts Following up on accounts not paid when due

- Disadvantage of tight credit control policy o Customer may choose to buy from other firms

Inventories - Levels carefully monitored so excess/insufficient stock levels do not occur - Insufficient inventory = loss of cust loss sales - Must ensure individual turnover sufficient to generate cash to pay for purchase + suppliers

Control of current liabilities Cash - Sums of $ owed by business to other business’ from whom it has purchased g/s

- Control provides – discounts, interest free credit periods + extended payment terms - Consignment financing – goods supplied for particular period of time & payment not

required until good is sold - Accounts paid on due date to avoid extra charges

Loans - costs must be investigated + monitored to minimise - Control – investigating all sources of funds - Positive, ongoing relationship w/ financial institutions ensure that most appropriate short

term loan is used to meet short term commitment Overdrafts - Banks require regular payments to be made on overdrafts + may change feeds

- Interest payable for overdraft usually less than loan Strategies for managing working capital

Leasing - Hiring of assets from another person/comp. who has purchased asset - Tax deductable - Can increase no. of assets by leasing revenue and profits increased

Sale and Lease Back

- Selling of an owned asset to a lessor and leasing asset back through fixed payment for specified number of years

- Increase liquidity – cash obtained from sale then used as working capital CASE STUDY At Qantas, working capital management involves leasing aircrafts and plants rather than owning

them, so to free cash, as well as selling and leasing back terminals. - Qantas is one of few airlines in world to own its own terminals and has been considering

selling and leasing back some of these assets. - In 2016 Qantas sold airport terminal 3 for $185m and leased it back

PROFITABILITY MANAGEMENT

Cost controls Fixed costs - do not change when activity level changes

- Must be paid regardless of what happens in business o E.g.) salaries, depreciation, insurance, lease

Variable costs - Change proportionally with level of operating activity in a business o E.g.) materials & labour used in production of particular item

- Demand, seasonal, economic conditions, availability Cost centres - Particular areas/departments/section of a business to which costs can be directly attributed

- Direct costs – allocated to a particular product (variable costs) - Indirect costs–shared by multiple product depreciation of equipment

Expense minimisation

- Profits weakened if expense is high – consume valuable resources within business - Savings substantial if people that critical look at costs & eliminate waste & unnecessary

spending CASE STUDY Cost controls

Qantas has cut its cost by over $7 billion in the last 14 years reducing its overall cost base by between 20-25%. Qantas has had to move decisively in response to the massive drop in profitability in 2014 and cut costs by $894 million in 2015, $557 million in 2016 and $470 million in 2017

Revenue controls Marketing objectives

- Sale objectives – pitched at level of sales that will cover costs (fixed, variable) and result in profit

- Cost-volume profit analysis – determine level of rev. sufficient for business to cover costs to break even & predict effect on profit changes in level of activity, prices/costs

o Clear focus on important cust. base where most of rev. depends on before diversifying/extending range

- Research carried out identify potential effect of sales-mix change before decision made CASE STUDY Revenue Controls

- Partnership with emirates, american airlines and china eastern expanding their international network

- End of capacity war with Virgin Australia in the domestic market - Fuel surcharges in response to rapid increase in price of fuel

CASE STUDY - Setting clear financial objectives, and analysing sales figures regularly.

- Having more economy class seats in response to reduced demand for premium seats during the GFC.

- Improving marketing strategies, through the introduction of self-service kiosks and new advertising campaigns, so to attract more potential customers

GLOBAL FINANCIAL MANAGEMENT

Exchange rates - one currency must be converted to another - Transaction through: Foreign exchange (Forex/fx) market

▪ determines price of one currency relative to another - Foreign exchange rates – ratio of one currency to another, tells how much a unit of one

currency is worth in terms of another o Currency Appreciation – rises value of Aus. dollar in terms of foreign currencies;

▪ makes exports for expensive (bad), but prices for imports will fall (good) o Currency Depreciation–lowers price of Aus. dollar in terms of foreign currencies;

▪ each unit of foreign currency buys more Aus. dollars; ▪ exports cheaper (good) imports prices rise (bad)

CASE STUDY Qantas estimates that it generates about 38% f its revenue in other currency

Interest Rates - To relocates offshore/expand domestic production o raise finance to undertake activities

- Global bus option = borrow from Aus. financial institutions/markets overseas - Aus. interest rates usually above other countries

o borrow necessary finance from overseas source to gain adv. of lower interest rates - Risk = exchange rate movements - Adverse currency fluctuations could see adv. of cheaper overseas rates be eliminated

Methods of International Payment

Payment in Advance - Allows exporter to receive payment and then arrange goods to be sent - Exporter = no risk - Importers = high risk, no guarantee they will receive what they ordered

Letter of Credit - Document a buyer can request from bank than guarantees payment of goods will be

transferred to seller o promising to pay them a specified amount once conditions met

- Once bank made commitment, cannot withdraw - Only payment in advance less risk

Bills of Exchange - Document drawn up by exporter demanding payment from importer at specific time

1. Document against payment – importer collects goods after paying for them - draws up bill w/ bank, sends to importers bank w/ doc to collect goods, - importer bank hands over doc only after payment is made

2. Document against acceptance – importer may collect goods before payment - importer must sign only acceptance of goods + terms of bill exchange to receive doc to allow

to pay at later date Clean Payment

- Exporter ships good directly to importer before payment received - Importer does not send money until after received goods - shipped with invoice requesting payment - Risk = exporters; advantageous = importers

Hedging - Process of minimising the risk of currency fluctuations - Spot-exchange rate – value of one currency in another currency on a particular day - Helps reduce level of uncertainty involved with international transactions - Natural hedging, example include:

o Arranging for import payments + export receipts denominated in same foreign currency losses from movement of rates will be offset by gains from the other

CASE STUDY Qantas has hedges 86% of its fuel needs for 2018..

Derivatives - Simple financial instruments that may be used to lessen the exporting risks associated with currency fluctuations

- Forward Exchange Contract o Contract to exchange one currency for another in an agreed exchange rate on a

future day, usually after 30/90/180 days o Bank guarantees exporter, within the set time, a fixed rate of exchange for the

money generated from the sale of exported goods Options Contract

- Gives buyer (option holder) the right, but not the obligation, to buy/sell foreign currency at some time in the future

- Protected from unfavourable exchange rate fluctuations, yet maintain opportunity for gain should exchange rate movements be favourable

Swap Contract – popular - Currency swap – agreement to exchange currency in the spot market with an agreement to

reverse transaction in future - Involves spot sale of 1 currency together w/ a forward repurchase of the currency at a

specified time in the future - Used if needed to raise finance in currency issued by country where they are not well known

pay higher interest rate CASE STUDY Qantas uses derivatives like forward cover and options to hedge future fuel purchases,

HUMAN RESOURCES TOPIC 4

PART I – STRATEGIC ROLE OF HUMAN RESOURCE MANAGEMENT

STRATEGIC ROLE

The major strategic role of Human Resource Management (HRM) is to plan all aspects of human resource development and activities to enable the business to achieve its goals and objectives Employer exercises control over employees, has responsibility of payment of wages, holds power to dismiss

employees Employee Worker under employer’s control

Why are employees a business’ most important asset? - Creative jobs that are involved in the business cannot be replaced by technology - They are the face of the business - Drive profits / or sink the business

INTERDEPENANCE WITH OTHER KEY BUSINESS FUNCTIONS

Marketing - Hiring staff – training and development of staff - Performance management – reward systems etc.

Finance - Budgeting of training and development programs - Payment of wages / salaries and redundancy

Operations - Training and development of employees to be able to run machinery and other operations - Implementing reward systems

OUTSOURCING

The use of third-party specialist business to conduct key business functions Advantages - Cost efficiency reduces cost

- Higher quality service and skill specialist

Functions - access staff whose specialty is human resource management o better understanding of issues related to employment relations and can advise the

business on the most appropriate human resource strategies - Allows managers of the business to focus on the core business operations.

o focus of the business is on production and attending to the needs of its customers - can generate cost saving

o reduces the need for businesses to employ full time staff

Most commonly outsourced HR functions

1. recruitment 2. mediation 3. payroll

Using contractors An external provider of services to a business may be an individual or business

- Recommended for non-core functions - Major risks included

o cost overruns o loss of quality

Independent contractors

This exists where employment is not ongoing and an agreed fee is paid to an independent contractor for the service provided by the contractor, usually a fixed period.

o Builders, lawyers and electricians. - Contractors are not obliged to Pay as You Earn taxation,

yee ndent Contractor

of Employment r and continuous erm

e ated agreement / award conditions greed rate

yer responsible for PAYG tax and super deductions

nsible for own

Domestic subcontracting Global Subcontracting

- Using this has potential to improve the quality of productivity of a service without the resource scale normally required

- Contract for Service – a person is engaged as an independent contractor

- Contract of Service – normal employee Eg / auditing / accounting / compliance related management / training

- offshore contractors to ↓ costs - Process Outsourcing – dominant form of repetitive, easily

measured and documented work e.g.) recruitment, payroll, customer complaints

- Project Outsourcing – involves much greater use of intellectual property operate in longer time frame, more difficult to measure, quality not fully anticipated

- Carries risks , cultural difference impact on customer service,

Eg call centres / multi country pay roll Global outsourcing advantages Global outsourcing – disadvantages

- Expand capacity/flexibility - Improve quality - Access new networks

- Less integrated organisation - Hidden costs - Less face to face client contact - Loss of security and confidentiality of information

PART II – KEY INFLUENCES ON HUMAN RESOURCE MANAGEMENT

STAKEHOLDERS

Employer refers to the individual or organisation that pays others to work for its business - often the owners of the business - large businesses, the shareholders may appoint a group of managers to take on this

responsibility - Working conditions of their employees, including salaries and wages. - objectives include increased

o Profitability o Productivity o Efficiency

Employee refers to an individual who provides his or her skills to a business in return for a regular source of income

- It is the responsibility of employees to complete their tasks in a manner that is lawfully described by the employer.

- efforts they are rewarded with a wage or salary - Include employees in the decision-making process. - By providing employees with a greater role in the business, they work more efficiently and

with increased motivation. o better pay and working conditions o flexible working conditions

CASE STUDY Apple

Apple’s 2012 Annual Report - Employs 43,000 in the United States and 20,000 overseas - Outsourcing partners, such as Foxconn, employ 700,000 people to manufacture iPhones - Employees usually strive for higher wages, improved working conditions, job security etc.

Employee associations

Organisations that represent & assist employer groups; usually respondents to awards covering the

employees of their members, & covering employers in the same/related industry

- formulating policies and processed log of claims served on their members by unions role today;

- act on behalf of employer in collective bargaining sessions and before industrial tribunals,

courts, commissions and committees

o Provide advice (small business) on awards, unfair dismissals, discrimination issues

o Make submissions to safety net wage cases

o Negotiate agreements

For example;

- may function as professional bodies (Australian Medical Association)

- as marking bodies (Meat and Livestock Australia)

Unions An organisation that aims to protect and promote the interests of employees within the workplace

- assist employees with disputes in the workplace and act as a bargaining agent in wage

negotiations

- advise members on workplace rights, wage levels and occupational health and safety issues

- first point of contact between the union and its members within a workplace

- representatives deal with minor workplace disputes

CASE STUDY Apple

Apple Retail Workers Union (ARWU) Launched in 2001

- Represents interests of Apple Retail employees

- “Movement to empower worked to discuss working conditions and demand improvements

to compensation, training and promotion opportunities…”

- Held a ‘Day of Solidarity’ in 2012 at Apple stores all around the world Protests and strikes

Government organisations About The state and federal governments are involved in the industrial relations and HRM arena.

- All employees in Australia are under federal awards

Fair Work Act 2009 - carry out a range of functions relating to;

o minimum wages and employment conditions

o industrial action

o dispute resolution

- Individual states have their own industrial relations processes.

- In New South Wales, the Industrial Relations Commission (NSW) deals with state issues and

enforces the Industrial Relations Act 1996.

- Covers all employees of constitutional corporations in all states & most private employees

o 10 national employment standards, modern awards and compliance with FWA

Federal court - to determine disputes about existing rights + make decisions on matters

o handles cases relating to industrial actions + breaches of industrial laws

o interprets legislation

LEGAL INFLUENCES

The employment contract Contract A contract is a legally binding agreement between the employer and employee (written and oral)

3 parts of a contract - offer (employer - acceptance (employee - consideration (exchange something of value

Common law

contract

Common law refers to the decisions made by courts. - Made by Fair Work Australia and the Specialist Fair Work Divisions were created under the

Fair Work Act 2009 in the Federal Court and the Federal Magistrates Court. Around 36.5% of Australia's employees work under common law employment contracts.

- Provide significant flexibility - remuneration of executives, managers and other professionals in the workplace whose

incomes may well exceed average weekly earnings

Common law

contract

- employers

Duty of care - provide employee with safe and healthy workplace (e.g. minimising risk, providing training)

Fair pay - Pay agreed remuneration and reimburse if spend money in order to undertake work - Honesty and ethical behaviour

Provide work - Provide work to part-time and full-time employees. - If no work available, must give the option to take paid leave

Leave - Must provide leave as agreed in award or contract.

Workers compensation - insurance and a return-to-work program for those injured on the job

Dismissal - If not meeting conditions; not obeying lawful instructions; not exercising duties with

necessary safety standards Common law

contract

- Employees

Obey reasonable commands: - Employer’s reasonable, lawful commands must be followed (within the job description - Work with skill, competence and care at best of ability.

Duty of good faith and confidentiality: - Always act in best interests of employer, do not reveal confidential information or trade

secrets to outsiders. Disclosure

- disclose relevant information to employer such as market-related or health-related issues o E.g. if the worker has health problem that could lead to a workplace-related accident

this should be reported to the employers Minimum wage

rates

A minimum wage is an employee’s minimum rate of pay for hours worked.

- Fair Work Australia is responsible for ensuring that employers and employees cannot agree to a rate of pay that is less than the applicable minimum wage.

o Wage rates for adults, in some cases, at different rates according to experience and qualifications.

o wage rates for juniors, employees with a disability and employees training arrangements apply

Minimum

employment

standards

The National Employment Standards (NES) are set out in the Fair Work Act 2009 - standards of employment that apply to all employers and employees in the national

workplace system - safety net that cannot be altered to the disadvantage of the employee

The 10 minimum standards are; - maximum weekly hours of work

o (38 hours per week, plus reasonable additional hours) - requests for flexible working arrangements - parental leave and related entitlements

o up to 12 months unpaid leave for every employee, plus a right to request an additional 12 months unpaid leave

- annual leave o 4 weeks paid leave per year, personal/carer’s leave and compassionate leave

- community service leave o unpaid leave for voluntary emergency activities and leave for jury service

- long service leave / public holidays - notice of termination and redundancy pay - Provision of a Fair Work Information Statement.

CASE STUDY Qantas WH&S program increased safety awareness 80% reduction in employee injury since 2001

Awards Awards are legally binding documents that legally enforce minimum terms and conditions that apply to a business or industry

- terms that are specific to certain industries or occupations such as; o minimum wages o types of employment o work arrangements o superannuation o ordinary hours of work and dispute settlement procedures

Importance of awards - providing minimum enforceable wage rates and conditions - Modern awards are industry or occupation based

o private sector employers and employees who perform work that falls within their scope

Enterprise

agreements

collective agreement is negotiated between the employee and employer for a certain period of time ▪ 3 or 4 years trade unions usually help employee negotiate their agreement

- made between one or more employers and a group of employees or a trade union representing a group of employees

- made to suit the specific needs of particular enterprises and can offer employees above the minimum pay rates and employment conditions covered in awards

Before approving an enterprise agreement - Fair Work Australia applies a No Disadvantage Test (NDT) to the agreement - The agreement is compared to the relevant general award or an award designated by Fair

Work Australia - does not, or would not result, in a reduction in the overall terms and conditions of

employment of employees who are covered by the agreement

Fixed term

contract

used by businesses that require the use of labour for only a specific period of time

Full time Generally a 35 to 40 hour per week position which can be on a permanent ongoing basis or for a certain contract time period, such as 12 months.

Casual Casual employees are commonly used in the hospitality and services industries where employees are hired on an hourly basis.

- rostering staff during peak times and not having to use these employees during quiet periods

Part time Get pro rata receive their entitlements at the same proportion of the full-time equivalent

Occupational health and safety / workers compensation Occupational

Health and Safety

Act 2000 (NSW)

establishes the rights and responsibilities of employers and employees in regard to safety in the workplace

- Businesses with more than 20 employees must have an occupational health and safety committee

- address any work-related health or safety concerns employees may have - Employee who engage in behaviours that put other employee at risk – breaching duties + can

be fined - WorkCover NSW inspectors

o inspect workplace / collect info o issue improvement/prohibition notices

- WorkCover NSW must be notified of death, serious injuries, dangerous work in workplace o Corporations may be fined up to $550 000 - $825 000 if repeat offenders (NSW)

Workers Compensation Act 1987 (NSW) and Workers Comp. and Workplace Injury Management Act 1998 (NSW)

Govern the process of employees gaining financial compensation for injuries sustained at work and their subsequent return to work.

- maintain the income of the injured employee and ensure that, once rehabilitated, the employee is able to return to work in some capacity

The workers compensation guidelines aim to: - prevent accidents / compensate injured employees - Rehabilitate workers to the extent that their injuries allow

CASE STUDY Apple

Some of Apple’s outsourcing partners have reportedly breached Chinese Labour laws - China Labour Watch reported that there were unpaid overtime wages, over 100 hours of

monthly mandatory overtime, illegally inadequate pre-work training, hiring discrimination etc. - Apple’s annual Supplier Progress Report (2012) found 106 cases of child labour

CASE STUDY Foxconn

employee was reportedly beaten to death by factory guards after losing a prototype for the iPhone - Breaches labour laws relating to working hours and conditions, discrimination, workplace

safety, and abusive management practices - Workers routinely receive insufficient overtime pay / Workplace accidents - Excessive overtime and problems with overtime compensation

Antidiscrimination and equal employment opportunity Discrimination when a policy/practice disadvantages a person/group because of a personal characteristic that is

irrelevant to the performance of work - Various anti-discrimination laws prohibit discrimination in the workplace on the grounds of

gender, ethnicity, sexual preference, religion or disability. o Human Rights and Equal Opportunity Commission Act 1986 (Cth)

▪ Enforces anti-discrimination legislation

Strategies to eliminate discrimination

- Writing + communicating policies to prevent discrimination + harassment (code of conduct)

- Training managers + staff in culturally diverse issues & ways to prevent/deal w/ discrimination

- Appointing grievance officer + grievance procedures

Equal employment opportunity

ensures the best person for the job is chosen, business gains person with skills + abilities most

appropriate to need

Affirmative action measures taken to eliminate direct & indirect discrimination, for implementing positive steps to

overcome the current + historical causes of lack of EEO for women

CASE STUDY women = senior position

2009 = 24.9% / 2017 = 35%

Women = Qantas board

2009 = 18.2% / 2017 = 30%

ECONOMIC

Economic cycle

About economic cycle, or business cycle, describes the fluctuations in the level of economic activity that are experienced over a period of time

- formed a regular pattern of economic growth, called expansion - followed by a slowdown in economic growth, called contraction - Often there are periods that are in between expansion and contraction

Structural change Change in nature + pattern of production of goods and services within an economy

o significant growth in level of services in an economy compared to other sectors

- Employment growing in property, business, retailing, trades, tourism, education, hospitality

etc. services

- recruitment, selection +remuneration becomes important industrial issues

- Manufacturing – fall in employment due to rapid technological change

Globalisation About Breaking down of the barriers, such as tariffs, that separate national economies (where the

production, distribution and consumption of goods and services occurs) from each other. - integration of the world’s economies into a single market where goods and services can be

traded with ease

The Australian economy

opened to competition from the rest of the world mainly through financial deregulation and reductions in tariff

- produce goods and services that can compete worldwide - Australian businesses doing business in other countries

Foreign owned business to establish their operations in Australia - To provide consumers with greater choice and lower prices. - Unable to compete with lower prices, some Australian-owned businesses have ceased

operations and, as a result, their employees have lost their jobs. - leads to retrenchments - it is important for a business to follow the correct procedures in ensuring that employees

receive their legal entitlements if they are retrenched

TECHNOLOGICAL

About New developments in information technology (IT) have led to an increasingly mobile workforce and changes to the way work is organised and carried out.

- allowed working from home or other locations and telecommuting

Types of technology

Teleconferencing, videoconferencing and online collaboration - led to the formation of virtual teams - Employees across the globe can communicate and collaborate rapidly and efficiently. - reported lower satisfaction levels with virtual meeting tools

Positive impacts impacts of technology on human resources include: - develop more efficient production technique - encourages the employee to deliver the product/service in new and improved ways - reduces the repetitive nature of labour intensive work - fosters teamwork

Negative impacts impacts of technology on human resources: - loss of employment as technology itself becomes the main tool of production - employee resistance to change - workforce feels their positions are less valued

ABS Show that the employment in the manufacturing industry is in decline CASE STUDY Apple

- High market growth of technological products has created more employment opportunities Sales, customer service, repairs + distribution

- Greater mobility of labour force due to global pool of applicants

SOCIAL

About - later-age marriage, fewer children and dual income families - Businesses have also restructured, with increased staff cuts (fewer employees), longer

opening hours, increased responsibilities of employees

- reworked employee requirements and have increased their casual staff numbers, especially school-aged employees

Career flexibility and job mobility

- Workers taking control of own careers - 14-16% employees considered job mobile - Creative + knowledge based fields - many workers seek part-time/casual flexible/home options - Only 44% of full-time employees have worked for their current employer for more than 5 yrs

Increased participation rates for women

Participation rate – percentage of a given group of individuals of working age who are employed/actively seeking work

- Participation rate females–25-54, ↑ changes to social expectation, ↑ edu, - aged 15 years and over in Australia increased from 48 per cent to 58 per cent.

Ageing of the workforce

growth in average age of pop., due to sustained low fertility, and increasing life expectancy - Likely to see a significant shortage of skill over next few years - Flexible working arrangements critical for utilising ageing workforce

Early retirement Participation in part-time work much higher Population shifts large proportion of the population lives in urban constantly changing centres located in the capital

cities - more than two-thirds of people lived in major cities (68 per cent)

Living standards Ranked second after Norway and was grouped in a new category called ‘Very High Human Development’ along with the top ten countries by HDI.

- Australia an attractive destination for working and immigration. - high levels of demand for consumer goods and stimulates the economy through

spending—with positive impacts for business CASE STUDY Apple

China’s One Child Policy has led to a greater proportion of males employed at Foxconn factories due to the lower number of female births in China

ETHICS AND CORPORATE SOCIAL RESPONSIBILITY

About Corporate social responsibility (CSR) is the decision-making and implementation process that guides all company activities.

- CSR involves a commitment to contribute to the economic, environmental and social sustainability of communities through the ongoing engagement of stakeholders

CSR is the deliberate inclusion of public interest in corporate decision making, and the honouring of a triple bottom line: people, planet, profit

CASE STUDIES - Woolworths created the ‘greenbag’ as a plastic bag alternative - AGL (an Australian energy company) operates the ‘energy for life’ community investment

program, which involves paying the winter energy bills for homeless shelters in NSW, Victoria and South Australia.

- McDonald’s gives back to the community is through the Ronald McDonald House charity. Ethical issues which may arise in employment rel.

- discrimination issues on the bases of age, gender, race, religion, disabilities, weight and attractiveness

- issues affecting the privacy of the employee, e.g. workplace surveillance, drug testing - occupational health and safety

Business actions for CSR

- investing in community projects - introducing occupational health and safety measures - adopting environmentally friendly practices

Strategies to promote CSR

- promote effective affirmative action and anti-discrimination programs within the workplace - develop initiatives that reduce the business’s impact upon the environment - engage in strategies that promote work–life balance and enhance workplace flexibility

PART III – PROCESSES OF HUMAN RESOURCE MANAGEMENT

ACQUISITION

About Process of attracting and recruiting the right staff for roles in a business Analysing the environment

About The internal environment – goals and culture

- Focus – cost containment, growth, downsizing, improved customer service/quality or other

goals

- demand for specific skills now & future, + help define types of staff good fit for culture

The external environment

- economic conditions, competition, technology, legal, political, social factors

Recruitment, selection and placement Recruitment process of locating and attracting right quantity and quality of staff to apply for employment

vacancies/anticipated vacancies at the right cost

Employee selection

gather info about each applicant and using info to choose most appropriate applicant

Effective recruitment + selection involves:

- Evaluating and hiring qualified applicants

o motivated and have values/goals aligned with business

- Fair, non-discriminatory and legally compliant selecting policy and process

- Realistic understanding of job description and responsibilities

- Using strategies useful for later selection and placement

o Tools to identify gaps in skill and recruiting strategically to fill gaps

Placement locating employee in position that best utilises their skills to meet business needs

DEVELOPMENT

About Process of developing and improving the skills, abilities and knowledge of staff, through induction, ongoing training and further professional development

- Effective programs ensure experienced and talented staff are retained

- Enhance employee motivation and commitment to business

Induction About planned to introduce new employee to job, co-workers, business and culture

- Need for support greatest when employee is new in a job

- Well-prepared induction programs

o gives employee positive attitude to job + business

o builds new employee confidence

o helps establish good working relationships with co-workers and supervisors

Training Aim long-term change in employee skills, knowledge, attitudes, behaviour to improve work performance

essential to;

- overcome business weaknesses and building on strengths

- maintaining staff commitment

- Focus on acquiring new skills and knowledge

- Remain competitive can be affected by extent of training it offers

Key features of an effective training program

1. Assess the needs and determine objectives – individual (skills, knowledge, attitudes

ST+LT),business (culture, goals, standards, service levels)

2. Consider internal and external influences attitudes to training, financial gov programs

3. Determine the process � content of training program – learning principles and methods

o Simulation, on/off site training participation, repetition, demonstration, feedback

4. Evaluate program � tests and surveys, performance appraisal, benchmarking, key indic.

Organisational development Flatter structures - benefit from employee ability to develop shared idea and solutions to problems

- Improve efficiency, effectiveness, response to customer needs

o Improved employee autonomy, efficiency have reduced promotional opportunity

Strategies to help motivate and retain staff

- Job enlargement – increasing breadth of tasks in a job

- Job rotation – moving staff from one task to another over a period of time, to multi-skill

employee

- Job sharing – two people share the same job

- Self-managing teams – roles + decisions determined by members

Mentoring and coaching About Used to motivate + develop staff with leadership potential

Mentoring focused on building a personal relationship that encompasses the life experience of both parties

Coaching focused on improving skills + performance + helping individuals manage specific work roles more

effectively

Mentoring Coaching Focus Individual life development, preparation for

future roles by building skills + capabilities, overcoming weaknesses, resolving specific issues

Role - guide, based on sharing - Personal relationship

- Specific to empe’s work function

Function advice that may assist in improving the way someone manages issues + situations

Share skills, knowledge, styles and techniques that are relevant to empe needs

Time Frame No time frame Specific time frame Structure Unstructured More structured Benefits - Individual – personal growth,

- Enhances moral - through improved teamwork, performance,

productivity

CASE STUDY Training and development at Qantas is about $275 million a year personal growth/reduce absent.

- Apprenticeships, inductions / sponsored courses, day at Qantas centre of service excellence

Performance appraisal About Systematic process of analysing and evaluating employee performance strengths, weaknesses and

opportunities for development, generally against a set of criteria or standards

- Four objectives

o provide feedback from management to employee on performance

o act as measurement against which promotion + pay rises determined

o help business monitor employee selection

o identify employee training and development needs

Employee more likely to value performance appraisal if they are given a chance to discuss their

performance and to challenge their evaluation

MAINTENANCE

About Process of managing the needs of staff for health and safety, industrial relations and legal responsibilities incl. compensation and benefits, of all staff

- processes needed to retain staff and manage wellbeing at work - Involves looking after staff wellbeing, safety, health , managing communications - Effective communication - Flexible job roles

o Job sharing, multitasking, telecommunication, part time work, flexible work hours CASE STUDY Qantas and its unions have been fought in part over remuneration

- Aimed at keeping pay increase to about 3% per year - Keep in touch programs for maternity leave - Increase total period of parental leave (paid and unpaid) from 52 weeks to 104 weeks

Communication and workplace culture About - Effective workplace relationships depend on strength of business communication system

- team meetings, staff bulletins, newsletters, staff seminars, social functions

- Expectations that staff will attend to email @ home – source of workplace conflict

- Strategies focus on building trust + direct communication between people

o critical in preventing conflicts + escalating issues

Employee participation About - Employee trained to make decisions ‘on the spot’

- Value and effectiveness depends on the training, knowledge and skills of employee

Eg.

- suggestion boxes, regular team meetings/briefings to discuss customer feedback

Monetary rewards About Most common way of rewarding employees for work Usually take the form of salary and wages.

Other financial rewards include;

- bonuses - profit sharing - pay rises - Payment and time-off for work-related training activities.

Non monetary rewards Status rewards include choice of a car, office size and location, more flexible working hours, and increased

participation in decision-making Intrinsic rewards Those that go with the nature and content of the work. They include:

- interesting work or it could be the feeling of satisfaction that comes with doing a job well Why? Used to motivate employees to improve productivity, flexibility and morale. Rewards work best when

they are visible, flexible and individualised. - Most businesses use a combination of monetary and non-monetary benefits to reward

employees. This is sometimes known as a remuneration package. 

SEPERATION

About Involves the ending of the employment relationship. - This separation may come from either the employee or the employer. - It is the termination of the employment contract between the employee and the employer 

Voluntary separation

where the employee wishes to leave of his or her own free will - Retirement / resignation - voluntary redundancy

Involuntary separation

where an individual member of staff is asked to leave - involuntary redundancy/retrenchment / instant or summary dismissal - dismissal after warnings

Redundancy is where the employees existing job is no longer required by the firm, possibly due to changes in technology, a merger or a takeover

Unfair dismissal dismissed by employer & they believe the action is harsh, unreasonable or unjust

- employee able to claim unfair dismissal if:

o business has more than 15 employees (employed for more than 6 months)

o process of dismissal not carried out correctly

- to claim UD – informal conferences, telephone conferences or by formal hearing

Avoid risk

- hiring casuals + contractors / tightened employment contract + incl. job descriptions

- probation periods + measurable targets

CASE STUDY Qantas has been forced to downside its staff over recent years

- just downsized 5000 staff between 2014-16

- had to be managed carefully and in compliance with legislation

PART IV – STTRATEGIES IN HUMAN RESOURCE MANAGEMENT

LEADERSHIP STYLE

About Ways managers communicate with their employee to inspire and motivate them to work together to

achieve an organisation’s goals

AUTOCRATIC leadership, which is most often found in those organisations with a traditional bureaucratic or

pyramidal organisational structure

- responsible for telling their employees what they want done and how to accomplish the task - no role for employees to contribute

o For example, where there is a strict deadline for action, a manager might need to be autocratic.

- To be effective, managers must be able to influence staff, not just coordinate and direct their actions. However, they need not be excessively strong and dominant

DEMOCRATIC / PARTICIPATIVE

People-centred leadership tends to be democratic, with employees having a say in solving problems, making decisions and setting goals.

- involves the leader including one or more employees in the decision-making process - consulted about what to do and how to do it - involvement of staff in the decision-making process, the final decision making authority still

rests with the leader

LAISSEZ FAIRE/DELEGATIVE

unstructured leadership where a manager gives subordinates direct decision-making responsibilities - ‘Hands off’ leadership style because the leader provides little or no direction to the followers. - works best with highly skilled, experienced and educated employees who are self-motivated

Leadership Style Example Phrases When the style works best Directive - Emphasis on immediate compliance from empe

Do it the way I tell you I believe that people should do what I tell them

In a crisis, to kick start a turnaround or problem with empe

Visionary - Emphasis on long-term vision and leadership - Big picture, authoritative

I enjoy mobilising people towards the bigger picture

When changes require a new vision, or when a clear direction is needed

Affiliative - Emphasis on creation of harmony - Harmoniser

I believe in people before tasks – emotional bonding

To build buy-in or consensus or to get input from valuable empe

Participative/Democratic - Emphasis on group consensus and generating

new ideas

I believe in building support and commitment

To build buy-in or consensus, or to get input from valuable empe

Pacesetting - Emphasis on accomplishment of tasks to high

standards

I expect self-direction and excellence

To get quick results from a highly motivated and competent team

Coaching - Emphasis on the professional growth of empe - Developmental

I develop others for the future To help an empe improve performance or to develop long-term strengths

Leadership style and level of employee participation Moved to less hierarchical organisational structures and removed some middle management levels

- give employees at each level more say in the running of the business - Employees at all levels have been organised into teams. - direct communication with the highest level of management and information is transferred quickly in both

directions - extended responsibilities, even to the level of ordering production - all levels have been encouraged to work closely together in teams - Improved production and employee motivation are recorded, as well as improved quality of work. - Because employees are better informed and are listened to they tend to feel that they are a part of the business

and also feel ‘ownership’ of their contribution to its success.

CASE STUDY 1991 domestic aviation industry deregulated and in 1995 Qantas was privatised

- Had to change its leadership style and adopt democratic style employees make decisions

JOB DESIGN GENERAL OR SPECIFIC TASKS

Number, kind and variety of tasks that a worker is expected to carry out in the course of performing their job

- aims to reduce job dissatisfaction arising from repetitive and boring tasks - businesses try to raise productivity levels through greater satisfaction from a sense of personal achievement

Job satisfaction refers to extent to which employees are satisfied working in their current position within the business Job enrichment seeks to make use of employee’s talents and abilities within the workplace Specific tasks - scientific management approach by Fredrick Taylor

- identified that there was one best way of doing a job and that workers skills should be

matched to the job requirements

o based on specialisation and efficient processes that uses low-skilled, cheap labour

General tasks - (job enlargement – adding similar level responsibilities)

- greater variety of tasks to be performed by workers

- main objective to improve worker engagement, satisfaction and productivity

Core elements of a well-designed job

Effective job design often leads to increased productivity and efficiency within the workforce through increased job satisfaction. This can also be achieved through job rotation.

CASE STUDY Design all jobs baggage handlers / flying superjumbo A380 and retraining for new Dreamliner

RECRUITMENT

Recruitment is locating and attracting the right employees for vacant positions in the business Internal recruitment

About Employed from within the business promotion o By intranet posting, staff records, promotion lists, work of mouth, email

Advantages - Knowledge of business and culture - Known to business honest and trustworthy employee - Cheaper less training and development save on recruitment processes costs

Disadvantages - Jealousy in the workforce – conflict - Induction and training into the job - Not bringing any new ideas stale minded employees

Externa recruitment About Recruiting from outside the business through;

o Internet sites o Shop windows and internal store signs o Social media and recruitment agencies

- firms consider internal potential candidate first and then move to external recruitment

- Recruitment process needs to be managed very carefully and applicants given realistic job

preview during the process

Advantages - Gain knowledge and ideas - Wider applicate number - Specific skills saves money on training and development

Disadvantages - More expensive training - Cause conflict between new person and existing employees - Takes lots of time and effort

General skills About Basic skills that make you a good employee

o Confidence o Flexibility o Positive attitude

- Generally more service orientated = social and info skills increasingly important

- HR mgrs value skills – individual empe has capacity and willingness to learn

Specific skills About Skills and qualifications needed to perform job correctly

o Uni or TAFE degree - Business’ recruiting overseas/outsourcing to overcome skill gaps in business

CASE STUDY Qantas uses internal and external recruitment

- Alan Joyce CEO was internal appointment formally incharge of Jetstar

TRAINING AND DEVELOPMENT

Induction About new employees become familiar with their new workplace

- Induction programs help a new employee to get to know the physical environment in which they are working and also the personnel with whom they will be involved on a day-to-day basis.

Training About Aims to develop skills, knowledge and attitudes that lead to superior work performance

o Critical in Australia today labour market problems incl. shortage of skilled labour +

mismatch between what skills are needed + what is available

Development About enhancing the skills of the employee in line w/ the changing + future needs of the organisation

- Use systematic process to evaluate needs of business, supply of skills to economy, demand for

skills + changing nature of work & general pattern of employment

- shift to service-based economy, many traditional skills have become obsolete

o business need to consider the mix of skills they can develop internally

Business needs to consider

- invest in further in-house training and development

- retain expects who return on part time basis

- recruit staff for specific skills

- retain women through flexible working structures

- build networks/alliances with other firms with specialist skills or skills needed in the future

Ongoing training and development About Through training and development, employees’ existing skills can be enhanced and new skills

acquired. - Increased performance should result from training, which will benefit the whole business.

Formal training when an employee takes on a role similar to students within the organisation - shown how to apply themselves to the new operations of the business - later assessed on their level of understanding

Informal training When an employee is either shown or modelled the correct skills through the use of a coach or mentor, or learning the work on the job

CASE STUDY Ongoing training is critical due to the airline industry’s rapid technological change and global comp

- pilots do more than 48 000 hours of annual training in state of the art aircraft simulators

- employees undertake ‘exceptional service training’ in the Centre of Service Excellence

- uses online learning (Qantas College Online) to train its staff

o lead to nationally recognised qualifications

o online tutors are available via email to handle enquiries

PERFORMANCE MANAGEMENT

About Establishing a shared understanding about what is to be achieved at an organisation level. - align the objectives of the business with the employees’ agreed measures, skills, competency

requirements, development plans and the delivery of results

Performance management policy

Individual performance is reviewed regularly (usually once per year) against agreed objectives or performance standards.

- This is called a performance appraisal. - At the end of the appraisal, employee performance is evaluated and discussed, and reward (if

any) determined

Benefits of performance Mngmt.

- the employee has an improved understanding of how their role contributes to the success of the business

- identify any problems early, and assist the employee with improving their performance - ongoing and allows the employee to be continually aware of their own personal goals

Developmental Administrative Define establishing objectives such as reaching sales targets

that are consistent with achieving the organisations goals - achieved through year round periodic feedback +

shared discussion that is both empathetic and goal focused

Assesses the progress of the business in meeting its strategic goals and where necessary identifying the areas for improvement e.g.) establishing new goals or employee participation - collecting data to manage HRM more efficiently +

ensure individual + business goals aligned & strategic goals met

Benefit - Can plan to overcome gaps/weakness in performance

- Shows effectiveness of current selection process + whether staff recruited match cultural fit + skills of org

- Communicates expectations, helps build trust, promotes LT organisational development

- Identifies + documents poor performance, & links it with training + improvement strategies

- Comparison of contribution to organisation + performance against agreed standards

- Builds self-efficacy as contributions recognised – important in motivation and retention

- Identifies strengths + weaknesses, create opp. for T&D, coaching or mentoring

- Initiative recognised + rewarded - Empe focus aligned w/ organisational strategy

REWARDS

Monetary benefits About Motivated workers produce the best results because they essentially respond to the needs of the

business. - external/extrinsic rewards are the easily measured benefits that workers receive in exchange

for their efforts ▪ bonuses, car or telephone allowances and promotion

- Employees will often be highly motivated by the prospect of earning more money in exchange for hard work.

Advantages - Recognition of job well done - Motivation - extra pay/money - Helps to set goals achieve budget

Disadvantages - Can create jealousy among employees - Increase business cost - Feel they are undervalued depending on reward

CASE STUDY As a result of Qantas’ improved profitability paif a cash bonus to staff that had agreed to an 18 month wage freeze

- In 2017 they received bonus of $2500 for full time and $2000 for part time - Was the third bonus in 3 years accumulated to more than $220 million

Non-monetary benefits About Non-monetary rewards can be categorised as fringe benefits, status-related benefits and intrinsic

rewards - Associated with providing extra inducements without increasing the taxation component of

an employee’s income. - All such payments have been loosely termed ‘fringe benefits’.

Examples - entertainment allowance - company credit card - product discount plan - modifications to the job environment, such as moving an employee to a larger desk, a larger

office or an office with a view

- Higher levels of management will gain certain extras (for example an assistant, a company car with petrol card, a mobile phone or company credit card)

Advantages - Employee relations are improved - no jealousy - All employees tend to receive some benefits - Promotional benefits

Disadvantages - Expense to business

Individual or group performance pay Individual performance pay

process of linking part of an employee’s income to their performance at work - targets and demonstrates improved performance, they will be rewarded through increased

pay - recognition believes that employee motivation is derived through increased financial benefits

Benefits of performance pay

Often a key motivator for employees. Performance may improve as employees are encouraged to work more effectively

- attracted to work for the organisation as they may regard performance pay a measure of their successful work attributes

Group performance pay

Rewarding performance based on group achievement has a number of benefits: - encourages a greater sense of team work - employees become more motivated as they are working not only for themselves, but also for

others

GLOBAL

About A business may adopt a policy of hiring from the host country, hiring from the parent country, or hiring from other countries.

- Globalisation has significant increased competition faced by any business - Non-executive staff tend to be hired from the host country, while executive staff have

traditionally been hired from the parent country. - Trend to hire the most qualified staff from a range of sources. - International managers need to possess a range of skills and be aware of some key issues in

employing staff for overseas business

Models of staffing Ethnocentric emphasises parent-country staffing this better enables policies of the company to be carried out

- Favoured by Japanese companies. Polycentric Favours the use of host country staffing, as this allows for the advantage of local knowledge.

- Favoured by European companies

Geocentric emphasises hiring the best person for the position, which allows for greater flexibility - This model is becoming more popular

CASE STUDY Workforce is made up of 99 nationalities 51 languages - Uses polycentric and ethnocentric approach to staff tries to hire foreign staff to senior mg.

Cost restructure workforce includes

- High labour costs lowers competitiveness o outsourcing functions to low labour cost countries o establish subsidiaries offshore o Take advantage of opportunities to lower production costs & gain access new mrkt

CASE STUDY - BONDS

Bonds + Holeproof - relocate manufacturing to China (cheaper), as cost to keep 1800 jobs was not sustainable to

keep Aus. factories open

Skills About - Skill shortage seen as major impediment to improving productivity in workplace

o blamed on education system + on some employers who more intent on importing cheaper labour, outsourcing or recruiting overseas

Australia shortfall of 500 000 workers by end of decade + skill shortage is an issue issue - Short term initiatives used to overcome work shortage

o Temporary Work (Skilled) Visa (subclass 457) – allow skilled migrants to enter Aus

Supply About - China + India large populations have lots of workers keen to find well-paid jobs here

- Business attracted by lower labour costs but it needs to be fully explored - China = large labour supply, but much is aging + poorly qualified with low literacy levels;

o compounded with shortage of young workers

Global sourcing This can be achieved through

1. Global sourcing of raw materials 2. Global sourcing of the HR function such as call centres 3. Global sourcing of employees - reduction of costs/wage expense/labour shortages 4. Global sourcing of operations - outsourcing

WORKPLACE DISPUTE RESOLUTION PROCESS

A workplace dispute is a disagreement about an issue in the workplace, usually between the employer and employee Basic reasons for disputes

- Wages & salaries - Working conditions - Discrimination - Job security

Usual action taken by employees

- Strike - Support from trade union - Work to rule

Action taken by employers

- Initiate grievance procedures - Lockout – don’t let employees in

Resolution process About Fair work Australia describes dispute res. as the process whereby disputes are brought to an end Negotiation The first process were employers and employees meet to try and solve the dispute unions could be

involved in this process. - Cost saving / Quick resolution - Usually satisfies both parties once it is resolved

Mediation When a neutral third party listens to both sides of the argument and allow them to try and resolve the problem

- The mediation doesn’t give a resolution - Cost saving - Allows you to sort out issues yourself satisfies solution for both parties

Conciliation A more formal setting held in the industrial courts (Fair Work Commission Industrial Court NSW) - Round table setting with a conciliator appointed by FWC - Listens to both sides and makes decision that is NOT legally binding

Arbitration Formal court setting. Usually, parties are represented by a legal team. Judges make a decision which is legally binding for both parties, is a court order

- Any breeches – parties can be fired - A decision is made and dispute is ended

Common law action

Seek decision from the courts - It is a civil ease looking for compensation - Legally binding decision due to balance of probabilities

Grievance procedures

Stable procedure that are put in place that outline how a dispute will be solved - Formal practise that management and employees are aware of - Into awards and enterprise agreements

A grievance is a complaint made by an individual or group regarding a specific - Aspect of their employment conditions or the policy and practices of their employer. The

most common areas of dispute include:

o wage demands and other entitlements / working conditions

Communication systems

necessary to ensure that workplace grievances are handled quickly and to the satisfaction of all parties concerned

- The bargaining parties are required to follow this procedure in an attempt to deal with and resolve their grievances.

CASE STUDY 70% of Qantas’ workers are party to an EBA - Deals with 16 unions and is party to 33 awards and 44 union enterprise agreements

Engineers disputes In 2010 Qantas and its 16000 licensed engineers represented by the ALAEA began negotiations for a new EBA wanted 3% annual pay rises

- Used arbitration - Deal included pay freeze for 18 months after which they would gain 3% pay rises - Side deal 65 engineers who were forced to take redundancy in 2014 had the chance to

return to work

International pilot disputes - New agreement delivered pilots 4.5% pay increase from January 2012 - In January 2013 and 14 another 3% pay rise

Jetstar pilots - In march 2015 after more than 2 years of negotiations, pilots approved a new EVA

o Include 18 month wage freeze o 4 year agreement also provided 3% annual wage increase

PART V – EFFECTIVENESS OF HUMAN RESOURCE MANAGEMENT

CORPORATE CULTURE About The way the business creates an image within the business and externally. Helps to see how effective

HRM is (Perception on business) - Indicators that a workplace has poor corporate culture include

o high staff turnover o poor customer service o high levels of absenteeism o accidents / disputes and internal conflict

- Effective workplace relationships depend heavily on the quality of a business communication system + participation of employee in decision making

Features of a good workplace culture

- high quality personal relationships - creative perks especially health + training - flexible and family friendly practices - high levels of training and mentoring - culture of trust (transparency, impartiality, equality)

How to determine good corporate culture

- Are you being treated fairly and honestly by the employer - Is the work appreciated - Do you receive positive reinforcement - Do you feel like a part of a team

BENCHMARKING KEY VARIABLES

About Most businesses will have benchmarks that will indicate how their HRM is performing. Managers will have indicators such as accidents to give them an induction

Informal benchmarking

- networking through informal discussions with/ colleagues in other businesses - undertaking visits to other businesses - researching best practice online attending conferences

Performance b/m comparing the performance levels of a process/activity with other businesses Best practise benchmarking

- comparing performance levels w/ those of another best practice business in specific areas - using a structured process to gain skills + knowledge + to modify organisational change

HR audits HR audit used to systematically analyse + evaluate HR activities & their effectiveness Quantitative meas. Should be able to demonstrate the actual effect of indicators in economic terms Qualitative meas. Detailed feedback + research on key issues, which allow judgements to be made about change in

behaviour/quality of service provided

CHANGES IN STAFF TURNOVER

About Averages 12-15% per year, and fluctuates with the economic cycle w/ around half being voluntary turnover due to resignation/retirement

Key indicators - High staff turnover – ineffective / Low turnover - effective - satisfied staff

CASE STUDY Qantas’s average turnover is less than five per cent per year and their average length of service is ten years, even voluntary turnover of international flight attendants is less than one per cent per year Rates 5% in 2011 / 4.4% in 2016

ABSENTEEISM

About worker who neglects to turn up for work when they were scheduled to do so - High levels of absenteeism and/or lateness may indicate that workers are dissatisfied/that

there is conflict within the workplace High absenteeism Low absenteeism

- Discontented staff - Problems exist - Low motivation - Staff feel stress - poor/negative culture

- Satisfied workforce - High motivation - Strong teamwork - Good relationships between management and

employees

ACCIEDENTS

Facts 5.3% of Australia’s 12 million employee experience a work-related injury/illness each year - Safe Work Australian – 2010 – 132 000 workers’ compensation claims for serious work-related

injuries/illnesses involving one week or more off work, a permanent incapacity or fatality OHS indicators Lost Time Injury Frequency Rates (LTIFRs)

- lost-time injury results in fatality, permanent disability or time off one day/shift or most lost from work

Best practice business - have regular safety audits + comprehensive safety programs, build a culture of safety - provide careful induction + regular ongoing training for staff to ensure they are ware of safety

rules Indicators - High level of accidents - ineffective HRM

- Low level of accidents - effective HRM

CASE STUDY Total recordable injury frequency rate 2011 = 35.3 / 2017 = 24.7 Lost work case frequency rate 2011 = 9.6 / 2017 = 9.1

LEVELS OF DISPUTION

About Employer should be concerned if a no. of formal grievances are reported - indicator of poor quality relationships in the workplace and can be damaging if they attract

media attention + move through the legal system Work bans ban/boycott is a refusal to work overtime, handle a product, piece of equipment, process or even a

refusal to work with particular individuals Go slow Employee work at a slower rate than normal, causing cust. complaints, expensive backlog of work to

be caught up at a later date Indicators - High levels of disputes – ineffective / Low levels of disputes - effective

CASE STUDY The maintenance workers Dispute 2005-2006, which was caused by a management policy to outsource maintenance.

- Employees took overt industrial action to demonstrate their grievances after Qantas was unable to clarify the future of maintenance jobs.

- Included work to rule and a strike. - Disputes like this have caused a number of costs to the company

▪ loss of production, increased tension, and disruptions to some flights.

WORKER SATISFACTION

About Employee satisfaction key factor in employee commitment, job performance and staff turnover - surveys useful in helping employer measure + understand how staff feel about their work,

management + business culture - poor customer service/poor quality goods means the employees are dissatisfied

▪ ineffective HRM - Excellent customer service - employees have pride in the good/service they produce

▪ effective HRM Effective leadership

- when employee feel recognised and encouraged / where management is transparent - promotion is merit based - communication is honest & respectful

Employee value - family-friendly culture / adequate breaks - effective resourcing - rewards for effort + performance - leave option + workplace wellbeing strategies

employees who indicate emotional exhaustion w/ job , often less satisfied with work CASE STUDY Provided its employees with a range of rewards, training opportunities/flexible working conditions.

- Should monitor the frequency and severity of disputes to determine how effective they are in solving problems.

- Put in place effective grievance procedures to help resolve disputes more quickly.