1428304466 2010 business studies notes

7/21/2019 1428304466 2010 Business Studies Notes

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Topic SummaryTopic 1 – Nature of Business

1. THE IMPORTANCE O B!SINESS

• Business: Organised efort o individuals to produce and sell, or a prot, to satisy theneeds and wants o the community

1.1 T"e function of #usiness in creatin$ an% a%%in$ &a'ue

• Business must add value to combine inputs/raw materials to produce outputs(good/services)

• roduct: !n item, good or service sold or ofered or sale by a business"

• roduction: those activities underta#en by the business that combine the resources tocreate products which satisy customers needs and wants

• $nputs: resources (nance, labour, e%uipment) that a rm uses to produce outputs (&"g"$nputs' sugar, water, can" Output' coca cola sot drin#)

• $ntermediate product: One which is produced by a business and is used as an input byanother business (raw materials)

• inal product/service: he sum o total values made by all business activities and

resources"

• *alue adding: +here inputs are transormed into intermediate or nished products through

the various stages o production• *alue added: iference between inputs and outputs

• *alue o production: otal value added by a producer

• *alue chain: -et o lin#ed activities that add value to a product or service" (&"g" rawmaterials to a nished goods and service)

Value of production= $15000

1.( Socia' ) economics ro'es

Economic ro'e* .oncerned with the nancial impact that the activities o business mayhave on various groups in the business environment"

a) +ealtho Owners paying taes to government and provide 01- or consumerso -atiscing behaviour, mar#et share, growth1 diversicationo rot2 revenue (rom sales) 3 epenses

b) &mploymento 45 million !ustralia6s employedo 7abour 2 income (reward)o 8etrenchment: ismissal o employee as there is no wor# to 9ustiy paying them"

Reasons' ownsied(staf numbers reduced); closed a division; outsourced a unctiono 8edundancy: +hen a particular 9ob is no longer re%uired (due to technological changes,

a merger or ta#eover)

c) &ntrepreneurship/$nnovationo $nnovation: Occurs when something already established is improved upono 81 and innovation is crucial in competitive mar#ets to improve/create new productso &ntrepreneur: -omeone who starts, operates and assumes the ris# o a business

venture in the hope o ma#ing a proto $nvention: he development o something new

• Socia' ro'e* ocused primarily on the impact o business in the community"a) <uality o lieo 81 =*& contributiono .onvenience or busy liestyles 3 re'prepared meals, subscription *

b) .hoiceo &ncourages prices, %uality and innovation to target competitorso Businesses have a prime unction and a mission statement(underlines purpose o rm)

1.+ I%enti,cation of re'e&ant sta-e"o'%ers• -ta#eholder: !ny group or individual who has an interest or is afected by the

activities/operation o a business"

Businesspro%uction

!ctivitiescombining

Outputs(-ales/ nished

products)>?@ 555

Inputs(8aw materials/

intermediateproducts)



lanning: he process o ormulating

ob9ectives and determining how to

achieve them"

o &stablish ob9ectiveso evelop plans to achieve these

ob9ectives

Organising: he structuring o a business

and preparing o all plans ready or

implementation and leading towards

business ob9ectives"

o .o'ordinate resourceso elegate tas#s

o Canage inormationo Canage ow o unds

7eading: +hen the senior manager

pro9ects a vision or the business and

motivates the employees to achieve

these ob9ectives"

o Cotivate employeeso irect and guide employees to

achieve ecellenceo $nspire others to achieve the

ob9ective

.ontrolling: he process o measuring the

businesses perormance against its plan

to corrective action i necessary

o &valuate perormanceo Conitor progresso $mplement corrective action so as to

achieve ob9ectives

(.+ T"e inter%epen%ence of #usiness an% its en&ironment

• $nterdependence: relying on other people or businesses to help produce something &"g"ood 3 processed' delivered' sold

• he business environment: he surrounding conditions in which the business

operates(internal and eternal)

• $nternal /micro environment: hose things over which the business has some degree o

control"

• &ternal/macro environment: hose things over which the business has very littlecontrol"

+. THE B!SINESS 3IE C4C3E

• Business lie cycle: 8eers to the stages o growth which a business can eperience over

the course o its eistence

+.1 P"ases of t"e cyc'e+.( C"a''en$es presente% at eac" #usiness cyc'e

8enewal

-teady -tate

&stablishment 0rowth Caturity ost'Caturityecline

.essation



Sa'es 5

Esta#'is"ment 2ro6t"

a) Esta#'is"ment 7Start up8 b) 2ro6t"

!haracterised y%

• -carce buyers

• Eigh production costs

• 7imited production capacity

• echnical problems

•

.ustomer resistance• &penditure greater than revenue

• $nvesting heavily to build sales

• Fegative prot margin until growth

begins

!haracterised y%

• Fumber o employees

• Car#et awareness

• $ntroduction o new products

• $mproved product %uality

•

$mproved distribution• Feed or cash caused by epansion

• Eigh investment re%uirements

• -ales volumes and prot margins

• inance more readily available as

business establishes proven creditrating

!hallen#es

• -etting oundation or uture growth

• Car#eting strategy ocus on correcting

product problems, establishingcompetitive advantage, developing

product awareness• Gnderta#ing inepensive promotional

strategies

• inancial strategy ocuses on identiying

sources o unds which are diDcult toobtain

• &stablishing a customer base large

enough to sustain uture viability

• eveloping a positive relationship with

customers and accurately orecastingtheir needs

• Euman resource strategy ocuses on

planning and recruiting

!hallen#es

• .onstantly average level o sales

• 0rowing through mergers and

ta#eovers

• iversiying business activities

• Car#eting concerned with introducing

new products and deleting old, slow'

selling ones to satisy mar#et niches

• mar#et share by mass'mar#eting

techni%ues

• !de%uate cash ow maintenance to

continue epansion

• inancial strategies ocusing on

investing

• Organising credit policy

• orecasting sales and ependiture

• &stablishing specialist departments and

outsourcing unctions

• $mplementing human resource

strategies in compiling 9ob analyses

and descriptions

• Euman resources training and

developing people in business

• reventing rapid epansion so control

o business direction isn6t lost



Rene6a'

Stea%y state

ec'ine

Maturity Post0Maturity

Cessation



2ro6t" p"ase0 mer$ers ) ta-eo&ers• Cerger: he 9oining together o two or more companies to orm one business"

• a#eover: Occurs when one business ta#es control o another business by purchasing a

controlling interest in it"

• *ertical $ntegration: Occurs when a business epands at diferent but related levels in

the production and mar#eting o a product"

• Eoriontal integration: Occurs when a business ta#es over or merges with another rm

which ma#es and sells similar products"

• iversication/ conglomerate integration: Occurs when a business ta#es over or mergeswith a business in a completely unrelated industry"

0olden wheat

arm

ine urniture

actory

c) Maturity d) Post Maturity

!haracterised y%

• 7evelling of in sales

• .ompete more or mar#et share as more

competitors enter mar#et

• ocus on productive eDciency to

maintain prot margins

• rop in investment re%uirements

• ricing competition becomes more

severe

!haracterised y%8enewal

• $ntroduction o new products

• Few ac%uisitions via ta#eover or merger-teady state

-ales continue to be protable

ecline and cessation

• 7oss o mar#et

• rots all

• roducts become obsolete

!hallen#es

• Caintaining prots at pre'eisting levels

• Car#eting concentrates on maintaining

customer and brand loyalty throughetensive advertising

• $nvestment in new and better %uality

products and research and development

• roduction strategy concentrates on

eDciency, %uality o service to protectprot margin

• Euman resources strategy ocuses on

incentive schemes to eDciency

• .hannelling nances into advertising

and promotion

• $mproving eDciency to #eep costs down

• Canagement needs redene the

business6 ob9ectives and vision

• $ntroduce a wor# team approach,

devolving responsibility to employees toavoid complacency

• $ntroduce %uality programs such as total

%uality management or %uality circles

• rogram o downsiing and selling of

non' core business activities

!hallen#es

• -ales, cash ows and prots

• -ee# out and eploit previously unmet

demand in new mar#ets

• Gnderta#e urther diversication and

integration

• -ell of any unprotable non'core'

related activities or assets

• &limination o all products not returning

a direct prot

• .onduct mar#et research analysis to

determine customers6 wants andidentiy and changes

• !dvertise in new mar#et arras

• $dentiy new mar#et niches

•hase out promotion o product

• !dopt lower pricing to attract sales

• reparation to cease operations

• $ssue new shares to raise nance to

assist with 81

• &plore possibility o eporting

• $mplement an organisational

development program to realign theob9ectives, vision statement andorganisational structure so it ts in withthe new environment



+.+ 9o'untary ) in&o'untary cessation8easons or business ailure

• $ll'conceived business idea

• ailure to meet customers needs

• roducing a product which ew people want

• Fot preparing a business plan

• $gnorance o eisting competition

• 7ac# o management s#ills

• &ain reasons for usiness failure%o 7ac# o suDcient money/Gndercapitalisation: +ithout suDcient capital the business

will not be able to purchase stoc#s and materials resulting in loss o sales andprots

o 7ac# o management epertise: !s the environment changes, the rm doesn6t

prepare a business plan or modiy their eisting one" HBusinesses don6t plan to ail,they ail to plan"6

0olden crust

ba#ery-lice o lie ba#ery

op'line

Ba#ery

Buy'rite

supermar#et

Cessation* +hen abusiness ceases to eistas a business entity

9o'untary* .easing to operate

the business o your own accord

In&o'untary* Occurs when the

owner is orced to cease trading

by the creditors o the businessublic company

O8rivate

company

-ole traderO8

artnership

9o'untary a%ministration* Occurs when an independentadministrator is appointed tooperate business to trade out

Ban-ruptcy:declaration that aperson or business isunable to pay his or 3i:ui%ation* rocess o

converting businesses6 assets

*oluntar $nvoluntar $nvoluntar*oluntar



• Gndercapitalisation: +hen there is a lac# o suDcient unds to operate a businessnormally"

• .reditors: hose people or businesses who are owned money

• 8ealisation: the process o converting the assets o a business into cash

. T4PES O B!SINESS ENTIT4 .1 C'assi,cation of #usiness

a) 7egal

-tructure

Fo o

owne

rs

7iability !dvantages isadvantages

1. -ole rader'

Business

owned and

operated by

one person

4 Gnlimite

d

• 7ow cost entry

• -implest orm

• .omplete .ontrol

• 7ess costly to operate

• artner disputes do not

occur

• rots belong to owner

• ersonal (unlimited

liability) business debts

• Business dies when owner

dies

• Cust carry all losses

• Burden o management

• Cust perorm wide variety

o tas#s• iDculty in raising nance

or epansion(.

artnership'

legal business

structure

owned and

operated by ?'

?5 people with

the aim o

ma#ing a

prot

?'?5 Gnlimite

d

• 7ow start'up costs

• 7ess costly to operate than

a company

• -hare responsibility and

wor#load

• ool unds and talent

• Cinimal government

regulation

• Fo taes on business

prots, only on personal

income

• ersonal unlimited liability

• 7iable, or all debts, even

beore the partnership

has begun

• ossibility o disputes

• iDculty in nding a

suitable partner

• ivided loyalty and

authority

+. .ompany

Private: (ty

7td) .ompany

owned by it6s

selected

shareholders

Public: (7td)

.ompany

owned by its

shareholders

publicly on the

stoc#echange

?' @5 7imited • &asier to attract public

nance

• 7imited liability' separate

legal entity

• .an transer ownership

easily

• &n9oys a long lie'perpetual

succession

• &perienced management'

board o directors

• 0reater spread o ris#

• .ost o ormation

• ouble taation' company

and personal

• ersonal liability or

business debts i

directors #new at the

time the business was

unable to pay loans

• Cust publish a yearly

annual report o audited

accounts

• ublic disclosure' reportingo certain inormation

• Becomes too large

resulting in ineDciencies.

.ooperative'

is made up o

a group o

people who

9oin or a

particular

purpose

-mal

l

grou

p

7imited • !llows groups o people to

pool their assets and

wor# towards a common

goal"

• .ontrol o the business is

#ept in the hands o

those who use the

business

•

Organised on a democraticprincipal o one member,

one vote"

• Cay not provide incentives

or members to

contribute additional

capital

• Feed to consider an e%uity

redemption plan

• 7ong and costly process o

issuing shares through

security commission• atronage earnings

maintained rather than



• oes not pay on income

that it distributes as a

patronage dividends

• 7imited liability o the

owners

• erpetual eistence o the

cooperative

cash dividend

distribution

• -ome entrepreneurs don6t

invest because o

patronage dividends and

voting process

/. rust'

relationship in

which one

person (the

trustee) holds

property (the

trust property)

on behal o

another ( the

beneciary)Ty

pes* amily

and unit

7imited leible mean o

distributing income and

assets

Cay provide ta savings

because income can

spread among amily

members

• -ubstantial amounts o

money may have to be

given to beneciaries

• Eigh costs

• .omple taation laws

relating to trust"

• Cust see# advice rom an

accountant or solicitor

;. ranchise'

a licence to

operate an

individually

owned

business as i

it were part o

a chain o

outlets or

stores

ranchisor 3

an individual

or

organisation

granting a

ranchise

? 7imited ranchise

Opportunity to start with

limited nances

0uaranteed customer base

&stablished name

Canagement bac#' up

roven methods o

business

ranchisor

ast and selective product

distribution

!voids cost o construction

oes not have to operate

outlets

!greement ensures some

control

ranchise

• ranchisor retains great

deals o control

• 7imited scope or

individuality in business

operations

• isagreements over

conditions and terms o

contract

• $ too successul, ranchisor

may open own outlet

ranchisor

• Gnsuitable ranchisee

• isagreement over

conditions and terms o

contract

b) $ndustry

ertiary: $nvolves

perorming a service orother people" &"g"retailers, dentists,solicitors, ban#s 1museums"

-econdary: Businesses

which ta#e the output o rms in the primarysector (raw materials)and process it into anished or semi nishedproduct" &"g" $ron ore 1limestone turned intosteel to manuacturecars"

rimary: Businesses in

which production isdirectly associated withnatural resources &"g" !lltypes o arming, mining,shing, graing andorestry"

<uinary: $ncludes allservices that havebeen traditionallybeen ormed in thehome" &"g" hospitality,tourism, crat' basedactivities and childcare"

<uaternary: $ncludesservices that involve thetranser and processingo inormation and#nowledge" &"gtelecommunication,property, computing,nance and education"

'ndustrysector

(rivate sector )of all *rms yindustry

) of totalemployment

rimary 44I JI

-econdary

?4I ?5I

ertiary JKI LMI



• he primary sector accounts or only MI o total employment while the tertiary sectorcontains LJI o total employment because when a country becomes more economicallyadvanced there is a greater demand or services" .onsumers spend a small @ o theirincome on necessities li#e ood and housing and more on services"

• irm: !ny business such as a sole proprietorship, partnership or corporation"

• $ndustry: Business involved in similar types o production concerned with goods opposedto services"

c) -ie

• -mall, medium, large (<antas, +oolworths)d) ublic sector

• ublic Business enterprise: (0B&6s) government'owned and operated" ed, -tate andlocal &"g" -tate rail !uthority, !ustralia post and 0reat -outhern &nergy"

•

rovide community services such as health, education, roads and welare• rivatisation: he process o transerring the ownership o government business to the

private sector" &"g" -ome 0B&6se) rivate sector

• rivate business enterprise: Businesses owned and operated by private individuals or

groups o individuals (NNI o businesses privately owned) &"g" -ole trader opening abusiness such as the local corner store to large companies operating around the world"

• .orporatisation: he transormation o state' owned enterprises into commercialentities, sub9ect to commercial legal re%uirements and government structures, whileretaining state ownership

) $nternational

• $nternational business: one in which produces its products in only one country and

eports to overseas mar#ets" &"g" Forth !merica and !sia eportsg) ransnational

• ransnational business: ! large business with a home base in one country operatingpartially or wholly owned businesses in other countries" &"g" Cc'onald6s, .oca'cola

.( Re'ations"ip of 'e$a' structure to particu'ar circumstances

• -electing the right legal structure depends on a number o actors" Cay change

throughout the lie cycle o the business" &"g" becoming a listed company on the -toc#&change in order to raise nance or epansion

• +actors%o -ie o businesso Ownership structureo inances neededo rocess o privatisation

.+ actors in<uencin$ c"oice of 'e$a' structurea) -ie

• Car#et loat: 8aising o capital in a company through the sale o shares to the public (to

epand business)

• ! prospectus is issued, the business is listed on the stoc# &change and shares areofered or sale

,usiness life cycle phase &ost appropriate le#al structure&stablishment -ole trader or partnership

0rowth artnership, private company, cooperativeCaturity

' 8enewal

' ecline

ublic company (depending on rate o growth)ublic company.ould revert bac# to sole trader or partnership



b) Ownership

• or the owner to retain ownership and control o the business they must hold @5I o

shares sold (Core shares, more ownership)c) inance

• *enture .apital: Coney that is invested in small and sometimes struggling businessesthat have the potential to become very successul

• -eed .apital: he venture capital used in the initial stages o determining the viability o an idea

• the world over a period o time, usually one yeard) rivatisation

• &"g 4NN56s' <antas, .ommonwealth ban# and elstra

• rivately owned business enterprises are more eDcient and protable than 0B&6-

• here are appro @555 government'owned businesses employing about 4KI o the

wor# orce and producing nearly ?I o !ustralia 0

/. SMA330 MEI!M ENTERPRISES 7SME=S8 IN A!STRA3IA/.1 e,nition of SME

/.( Num#er of SME=S

• $t6s diDcult to provide an accurate gure or the number o small'medium business as it issuch a dynamic, changing sector o the !ustralian economy" Eowever, !B- researchindicates there are appro 4" million small and ?,555 medium businesses in !ustralia,

representing more than N@I o private sector businesses• N?I o all small businesses are in the service sector, including construction (?4I) property

and business services (?5I) and retail (4JI)



/.+ Contri#ution of sma'' #usiness sector to t"e economy

• -mall businesses play a crucial role in the !ustralian economy" !lthough the individualeforts o each small business may appear insignicant, their total impact is enormous

a) .ontribution to gross domestic product (0)

• !B- estimates small businesses contributed M5I o !ustralia 0 appro >?M5 billion &"g"

octors, lawyers, technical rms, corner &"t"cb) .ontribution to employment

• !ccounts or @5I o all private sector business employment (appro "M million people) andhave greatly contributed to solving unemployment problems

c) .ontribution to the Balance o ayments (BO)

• BO: a record o a country6s trade and nancial transactions with the rest o the world overa period o time, usually one year

• he number o small !ustralian eporters is growing aster than large eporterscontributing to BO' especially in agribusiness, manuacturing and proessional services"

• -mall businesses are more adaptable and eible, ma#ing them more responsive to theneeds o overseas mar#ets

d) .ontribution to invention and innovation

• Cain source o most inventions and innovations in !ustralia

• 8esulted in improved eDciency and increased productivity

• 7evel o innovation among small businesses is much higher than employees o largebusinesses

• Over the past N years 81 has trebled in real terms

• Core than hal o the ma9or technological advanced o the ?5th century come rom smallbusinesses &"g" Bric# *eneer building techni%ues, sel'erecting crane, nanotechnology,bionic ear and two'stro#e engine

/. Success an% fai'ure of sma'' #usiness Success

• &ntrepreneurial abilities

• !ccess to inormation

• leibility

• ocus on mar#et Fiche (specialise/%uality service)

•

8eputation

ai'ure

• !ppro ?555 !ustralian small businesses ail each year (N5I per day)

• Gnincorporated 1 declared ban#rupt

• $ncorporated and either orced into li%uidation or voluntarily closes down

• ailed to plan

• $naccurate record #eeping

• 7ac# o managerial eperience

• $ncompetence

• $ncorrect mar#eting strategy

• 7ac# o nancial planning

/./ uture prospects of sma'' #usiness

• Eigh technology (hi'tech): new and innovative typed o businesses that depend onadvanced scientic and engineering #nowledge

o !ged services' Eome delivered meals, house cleaning, garden maintenance andhealth care demand because o ageing population

o -mall oDce Eome oDce (-OEO)' 8un rom home, services to support these

businesses such as accounting, personal computers, telecommunications acilitiesand oDce e%uipment

o ranchising' Pey ongoing trend &"g" Aim6s mowing, house cleaning, home and

gardening maintenance and catering" 4MI per yearo Outsourcing' he contracting out o part o business operations" &"g" 0raphic art,

design, publicity, business documentations

;. THE B!SINESS EN9IRONMENT AN ITS IMPACT ON B!SINESS;.1 Economic an% socia' factors

a) &conomic cycles



• &conomic/ business cycle: eriods o growth (boom) and recession (bust) that occurs as a

result o uctuations in the general level o economic activity"

• $nation: 0eneral increase o income o an individual and prices o product"

• 0: 0ross domestic product is the total value o all nished goods and services in aneconomy in one year"

b) .onsumer tastes

• Nic"e Mar-ets* brea#ing down o a mar#et into smaller segments so that particular

groups with certain characteristics are being targeted by a business &"g" teenagers,women over M5



c) .ultural and productive diversity

• Culticulturalism has provided business with;o iferent demand o products and serviceso Ceets needs and wants o various cultureso Car#et baseo

&stablish and epand new business• $n order to be successul rms need to modiy eisting products (adding and deleting)

• Cain inuences;o .ompetitorso .onsumer6s tastes and ashionso echnology

;.( Competiti&e situation

• -ustainable competitive advantage: the ability o a business to develop strategies to

ensure it has an Hedge6 over its competitors or a long period o time"

• rovides choices, range o %ualities, variety o prices competition can stimulate greater

eDciency in production and usually results in better %uality and service at a lower cost tothe business

• +actors relatin# to a usinesss competitive situation%o Fumber o competitorso &ase o entry into a mar#et or a new rmo he local and oreign competitiono Car#eting strategies employed by competitorso he substitutes available or your product

a) Fumber o competitors

• Car#et concentration: he number o competitors in a particular mar#et

b) &ase o entry

c) 7ocal and oreign competitors



3oca' competitors

• roduce a product and service in the same mar#et

• .hey all deal /ith the same variales includin#%o 7abour costso ransporto &conomyo

.ost o stoc#/materialsorei$n competitors

• Businesses located overseas or ofshore

• oreign goods are cheaper to buy than the locally produced mainly due to the lower

production costs overseas

• eregulation: he reduction or removal o the amount o restrictions that are in place

at a particular industry" rimarily done to improve competition"

• &nterprise bargaining: &ncourages wages to be determined between employer and

employee within each individual wor#place" his is part o the decentralised approacho determining rates o pay

d) Car#eting strategies

• Car#eting: 8eers to the total system o interacting activities designed to plan,promote and distribute products to present and potential customers"

• .he type etent of mar2etin# depend on%o -ie o the mar#eto -ie o the businesso Fumber o competitorso Fature o product

e) -ubstitutes

• hose products and services that a consumer can purchase as a direct alternative &"g"avourite brand unavailable, consumer will buy a similar product

• &"g" (roducts' +ashing powders ace moisturises" Bread, *, soap, . players

• Services' Cechanics, ry cleaners, octors, hair dressers, caes

• roduct diferentiation: roducts that are the same or similar in nature are made toappear diferent and/ or better than those o their competitors" .an be achievedthrough pac#aging, %uality and brand

;.+ 2o&ernment

Re$u'ations* 8ules, laws or orders that businesses must ollowa) Business law relating to levels o government



b) 8egulatory bodies



;. Ot"er institutiona' in<uences

>. ETHICA3 AN SOCIA3 RESPONSIBI3ITIES O B!SINESS

• Business ethics: the application o moral standards to business behaviour

• .orporate code o conduct: a set o ethical standards or managers and employees to abide

by

• !ore values of a usiness%o -how respect or the law and perorm our roles accordinglyo .onduct ourselves with integrity and act in a air and honest mannero *alue people and show them respecto Gse the unds and assets o the company responsibility and in its best interestso !ccountable or our own actions and their conse%uences

• 3 main ethical issueso airness and honesty' Business must obey all laws and regulations and treat

customers and suppliers honestly and airly" irms must tell the truth and avoidmisleading or deceptive inormation

o .ommunications' !dvertising can create ethical dilemmas" $t is illegal to use alseadvertising" Gse words with a clear meaning in advertising and what you say

o +or#place relations' Gnder the .orporate code o conduct, employees have the

right to a sae and harassment ree wor#place, a air pay level and condentialityo inormation

o .onict o interest' +hen a person ta#es advantage o a situation or piece o

inormation using their own gain rather than the employee6s interest" .orruptionundermines the integrity o the wor#place and i let unchec#ed, it may inltrate



the wor#place culture" +hen corrupt practices such as bribes/payments/gits areeventually eposed, the businesses image will be severely damaged

Socia' responsi#i'ities of #usiness

• Businesses social responsibility: includes obligations to the community, above and beyondma#ing a prot, obeying laws or honouring contracts

• !wareness o a business6s management o the social, environmental, political and humanconse%uences o its actions

• wo goals: &panding the business and providing or the greater good o society

9ie6s of socia' responsi#i'itya) &conomic (traditional) model

• Based on the idea that society will gain the most benets i business is let to produce andmar#et products that are in demand

• !dopts traditional idea o business that they eist to ma#e and produce product, earn a

prot and provide employment

b) -ocio'economic (Fon'traditional model)

• *iew emphasises not only prot but also the impact o business decisions on the whole o

society

• 8easons or acceptance o model;o .orporate behaviouro ride o social sustainability record &"g" Body shop adhered to ten commandments

o corporate social responsibilityo &nlightened sel' interest: the belie that a business ultimately helps itsel when it

helps to solve societies problems

• -ustainability report/social audit: comprehensive report o what a business has done, and is

doing with regard to the social issues that efect it

• ,usiness must ans/er- Eow do businesses operations and practices afect society and the

environmentQ

• he Hthird bottom line6 assesses the social and ethical efects o the operations o public

and private businesses

>.1 Responsi#i'ities to s"are"o'%ers? mana$ers? emp'oyees an% societya) -hareholders



• Owners o a business

• Caimise shareholders return on the shareholders investment

• 7arge public companies must ma#e sure business is operated eDciency and efectively

• Cust report prot levels in an ethical manner

• Eold annual 0eneral meetings to give the shareholders the opportunity to as# %uestions othe board o directors

• !llow shareholders to sell their shares as they wish• ivide surplus assets upon the company6s closure

b) Canagers

• 0ive honest and accurate account o their management o the businesses resources

• op'level commitment and support

• .orporate policies that include reerences to ethical business practices

• ! code o conduct

• &tensive training and development

• &fective auditing programs

c) &mployees

• Cost valuable asset o any organisation

•

Feed a sae and psychologically rewarding wor# environment• rivacy

• &limination o discrimination on gender, marital status and pregnancy

• &limination o harassment, intimidation and bullying

• romoting e%uality and men and women

d) .onsumers

• One o the largest groups that business must satisy is its customers

• .onsumerism: .onsists o all those activities that protect the rights o consumers in theirdealings with business

• our basic rights;o -ae products' direction or proper use are provided and products are tested by the

manuacturer to ensure %ualityo

!ccurate product inormation and descriptionso ull disclosure o the terms o saleo +arranties and guarantees are honoured

e) -ociety

• 0ive bac# the community something o what they ta#e out in generating prots

• articipate in a range o community pro9ects and activities" &"g" BE 7imited -ponsors the Roung achievement !ustralia pro9ect which provides opportunities or secondary studentsto learn about business

>.( Reconci'in$ con<ictin$ interests of sta-e"o'%ers

• !ll -ta#eholders who interact with a business re%uire something diferent and all placecompeting demands upon a business

• -atisying one set o sta#eholders will probably result is others being dissatised

• -enior management must constantly access business actions to satisy as manyshareholders epectations as possible

• Businesses have a responsibility to ta#e into account the long'term ramicationsconcerning production processes, wor#place practices, employment programs, productdevelopment and design and business epansion

a) Between shareholders, society and uture environmentsb) Between shareholders and employees

Sta-e"o'%er

Con<ict Reso'ution



Owners vs"managers

• Canagers have responsibility to earn

prot or shareholders, butshareholders may not approve omethods used by management

• -peculators are motivated by a %uic#

return on their investment whileFon' speculative shareholders areconcerned with the long'terminvestment strategies

• Canagers may be more concerned

about their own ego thaneDciency/probability, placing themin conict with owners

• Canagers may eel that owners arenot providing ade%uate resources toallow the business to run eDciently

• riple bottom line: where shareholder

value increases through the careulmanagement o shareholder value"

• Owners and managers can use the!nnual 0eneral meeting (!0C) todiscuss relevant issues and come toan agreement

• -hareholders (owners) may decide not

to renew management contract oreven dismiss a manager theybelieve is not perorming ade%uately

Owners vs"employees

• -hareholders desire epense

minimisation and cost reductionwhile employees want higher wagesand improved wor#ing conditions

•Owners and managers may reduce

the sie o the wor#orce, placingburden on the remaining employees

• -ome businesses are their use o

permanent wor#ers leading to a losso 9ob security or employees

• &mployee share ac%uisition schemes2

opportunity or eligible employees tobuy shares at a reduced price

• raining and development strategies

or employees improves product%uality and

production costs as more s#ill 2eDciency and rises prot levelspleasing shareholders

• Fegotiation

• $ there is a breach o law resolutionmay occur through the court system

Owners vs"environment

• evelopment o environmentallyriendly business practices come ata cost to the business, which maylead to either prices and/orprots

ailure to develop environmentallyriendly practices can lead tolevels o pollution, landdegradation, depletion o non'renewable resources and/ oretinction o species

• !dopt environmentally soundpractices 2 share price becausethey were noticed by stoc# mar#etanalysts, created =*& publicity andcreated a =*& business image

•

irms introduce environmentallyriendly pac#aging/products and/orproduction methods

Owners vs"customers

• Owners wish to maimise protswhile customers wish high %ualityproducts or reasonable price (lowerprice)

• .ustomers want realistic/ truthul

inormation about the product whilerms wish to maimise sales

• 0overnments have introduceslegislation to ensure that advertisingis honest and not misleading

.ompetition between rms ensuresprice/%uality combinations providecustomers with choice

1428304466 2010 business studies notes

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