Unit 3: Area of Study 1 - Business Foundations Flashcards
Sole Trader
A business that is owned and run by 1 person
Characteristics of a Sole Trader
- Has Unlimited Liability
- Must register their business name with ASIC if the business name is different to the owner’s name
Advantages of a Sole Trader (List 2)
- Simple and inexpensive to set up
- Owner has complete control
- No disputes with partners
- Minimal government regulation
- Owner keeps all the Net Profits
Disadvantages of a Sole Trader (List 2)
- Unlimited Liability
- More difficult to gain finance
- The owner has the burden of managing the entire business
- The owner is required to perform many different tasks
Example of a Sole Trader
White Corner Fish and Chips
Partnership
A business that is owned by between 2 and 20 people
Characteristics of a Partnership
- Has Unlimited Liability
- A Partnership Agreement can be formed to avoid disputes
Advantages of a Partnership (List 2)
- Simple and inexpensive to set up
- Workload can be shared among partners
- Debt is shared amongst partners
- It may be easier to take time off or take holidays
- Different skills and expertise are brought into the business
- Easier to raise Capital
Disadvantages of a Partnership (List 2)
- Unlimited liability
- Difficult to transfer ownership
- Other partners have to suffer for debts
- Need to share the profit among partners
Private-Limited Company
A business that is owned by between 1 and 50 Shareholders. The Shareholders need to be invited by the owners to buy shares in the business and need to seek permission to trade shares by the owners
Characteristics of a Private-Limited Company (List 2)
- Owned by 1 to 50 Private Shareholders
- Has Limited Liability
- Has ‘Proprietary Limited or ‘Pty ltd’ after its name
Advantages of a Private-Limited Company (List 2)
- Limited Liability
- Pay company tax rate
- Life of the company can live longer than the directors
- Can be easier to attract more Capital
Disadvantages of a Private-Limited Company (List 1)
- More complex and expensive to establish
- More reporting requirements to the Government
- Shares cannot be traded freely
Example of a Private-Limited Company
Koch Industries
Public-Listed Company
A Company where the shares of the business can be purchased or sold on an open market such as the Australian Securities Exchange (ASX)
Characteristics of a Public-Listed Company (List 2)
- Has Limited Liability
- Shares can be purchased by the public
- Has an unlimited amount of Shareholders
Advantages of a Public-Listed Company (List 2)
- Limited Liability
- Easier to raise Capital by selling more shares
- Life of the company can live longer than the Directors
- Pay company tax rate
Disadvantages of a Public-Listed Company (List 2)
- Highly complex and time consuming to establish
- High establishment costs
- More accountability and compliance
- Possible loss of control of the business
Example of a Public-Listed Company
QANTAS
Social Enterprise
A business that exists primarily to fulfil a vision that benefits the community or a social need rather than the Shareholders
Characteristics of a Social Enterprise (List 2)
- Are commercially viable businesses that make a profit
- Some Social Enterprises rely heavily on grants and funding support whilst others are self-funding
- Profits go towards a social cause
Advantages of a Social Enterprise (List 1)
- Meeting a social need can encourage community support which can increase profits
- There is improved morale within the business as Employees value the work they are doing
Disadvantages of a Social Enterprise (List 1)
- It is difficult to obtain finance to begin the business
- It is difficult to focus on financial and social objectives
Example of a Social Enterprise
STREAT
Government Business Enterprise (GBE)
A business that is owned and operated by the Government
Characteristics of a Government Business Enterprise (List 2)
- Involved in commercial activities
- Aims to make a profit along with carrying out Government Policies
- Aims to increase their value and returns for Shareholders (the Government) like other businesses
- Normally controlled by a Board of Directors
Advantages of a Government Business Enterprise (List 1)
- May invest in areas that the Private Sector may hesitate to invest in
- Provides healthy competition to Private Sectors
Disadvantages of a Government Business Enterprise (List 1)
- Strategic Directors can change with changing Governments
- There can be political interference
- The business may not be as productive as Private Sector businesses
Example of a Government Business Enterprise
Australia Post
Business Objectives
Are goals that the business aims to achieve in the future. Objectives give the business and Employees a sense of purpose and direction
Examples of Business Objectives
- To make a Profit
- To increase Market Share
- To fulfil a Market Need
- To fulfil a Social Need
- To meet Shareholder Expectations
To Make a Profit
- Profit is the amount of money remaining after Expenses have been deducted from Revenue
- A business can make a Profit by increasing their Revenue or Minimising their Expenses
To Increase Market Share
- Market Share is the proportion of the total sales the business has in an industry for a particular Good or Service, expressed as a percentage
- To increase Market Share, a business takes Market Share away from another business
To Fulfil a Market Need
- A Market is a specific group of businesses that have similar characteristics to each other
- Market Research can help find what the needs of different consumer groups are, which the business can aim to satisfy that need
To Fulfil a Social Need
Social Needs are focused on the community and how the business can look to improve the lives of others
To Meet Shareholder Expectations
- Shareholders are those that own part of the Business
- Shareholders expect to make a return on their investment through Capital Gains and Dividends
Corporate Social Responsibility (CSR)
Is the continuing commitment of a business to go above and beyond their legal obligations to operate in an Economically, Socially and Environmentally Sustainable manner
Examples of Corporate Social Responsibility (List 2)
- Reducing the business’s carbon footprint
- Making donations of time or money to charities
- Giving non-profit business’ proceeds
- Ethical marketing
- Waste management
Stakeholders
An individual or group who have a vested interest in the operations of the business
Examples of Stakeholders
- Owners
- Shareholders
- Directors
- Management
- Employees
- Customers
- Suppliers
- Competitors
- Government
- Community
Stakeholders: Owners
Want the business to make a Profit and conduct itself in a Socially Responsibly manner
Stakeholders: Shareholders
Want the business that they have invested in to make Profit as this affects the value of their Shares and the amount of Dividends they receive
Stakeholders: Directors
Has the expectation to be well rewarded with both money and share options
Stakeholders: Managment
Expect to be involved in decision-making and to be rewarded fairly
Stakeholders: Employees
Expect fair pay, good working conditions and ongoing employment
Stakeholders: Customers
Expect good quality Products and/or Services at fair prices
Stakeholders: Suppliers
Expect strong relationships with the business and to be paid on time
Stakeholders: Competitors
Expect healthy and fair competition
Stakeholders: Government
Expect businesses to help the economy and the community by providing local employment and to pay their taxes
Stakeholders: Community
Expect businesses to give back to the community, provide employment for local residents and to minimise their impact on the environment
Potential Conflict Between Employees and Shareholders
Employees require safe working conditions and reasonable wages, but this will reduce the business’s Profit and Dividends to Shareholders
Potential Conflict Between Management and Suppliers
Management wishes to keep down costs to improve Profits, but Suppliers that provide ethical materials require higher prices to cover their costs
Potential Conflict Between Management and Customers
Management could attempt to maintain their Profits and a high Dividend to satisfy Shareholders by raising the prices of products. This will upset Customers who expect reasonably priced products
Potential Conflict Between Suppliers and Members of the Community
Suppliers expect to be paid fairly and on time, but they might reduce costs by using unethical materials, which can upset members of the community
Potential Conflict Between Management and Members of the Community
Management might decide to cut costs by neglecting maintenance, which could possibly put members of the community in danger
Areas of Management Responsibility
- Operations
- Finance
- Human resources
- Sales and Marketing
- Technology support
Areas of Management Responsibility: Operations
- Are the areas of the business that produces the Goods and/or Services
- By having a good quality product and/or Service, it improves the business’s competitiveness and meets objectives around Sales, Profit and Market Share
Areas of Management Responsibility: Finance
- Is the area of the business that is responsible for managing the money and budgets of the business
- It is important that the business is able to manage its finances well, so that business objectives such as Profit can be achieved
Areas of Management Responsibility: Human Resources
- Is the part of the business that manages the relationship between the Employees and the business
- Having skilled Employees that are motivated and performing at a high level, the business is then able to achieve their objectives
Areas of Management Responsibility: Sales and Marketing
- Is the area of the business that is responsible for promoting the business and its products, and to sell them to potential Customers
- This area is important to achieve Business Objectives such as Profit, Sales and Market Share
Areas of Management Responsibility: Technology Support
- Is the area of the business that is responsible for implementing and maintaining the business’s technologies
- Technology can improve productivity, communication and many other areas of the business
Management Styles
Is the behaviour and attitudes of the Manager when making decisions and communicating with Employees
Types of Management Styles
- Autocratic
- Persuasive
- Consultative
- Participative
- Laissez-Faire
Autocratic Management Style
Is where the Manager tells the Employees what decisions have been made
Characteristics of the Autocratic Management Style (List 2)
- Management makes decisions without Employee input
- Uses One-way communication
- Provides clear and direct communication to Employees
Advantages of the Autocratic Management Style (List 2)
- Fast decisions are made
- Clear directions are given to the Employees
- Employees are clear of their role in the business
Control is centralised at top management level,
so time is used efficiently and problems are dealt
with quickly, because there is no discussion or
consultation
Weaknesses of the Autocratic Management Style (List 2)
- Ideas are not encouraged, which can result in low staff morale
- Employee development lacks due to them having no role in decision-making
- There can be poor relationships between Management and Employees
- Smaller pool of ideas
- An ‘us and them’ mentality may develop because of the lack of employee input
- When no responsibility is given to lower level staff, Job Satisfaction decreases. This impacts on issues such as Absenteeism and Staff Turnover
When the Autocratic Management Style is Most Appropriate
- When time is lacking and decisions need to be made quickly
- When Employees lack experience and knowledge
- Simple tasks need to be performed
Persuasive Management Style
Is where the Manager makes all of the decisions and tries to convince the Employees to complete the tasks their way
Characteristics of the Persuasive Management Style
The Manager makes all the decisions without Employee input
- Uses One-Way Communication
- Employees are given more information to understand why a decision has been made
Strengths of the Persuasive Management Style (List 2)
- Fast decisions are made
- The Manager can gain support by providing more information to the Employees
- Employees can feel more valued
- The instructions and explanations remain clear and
constant.
Weaknesses of the Persuasive Management Style (List 2)
- No Employee input
- Possibility for poor job satisfaction
- Attitudes and trust remain negative
- Employees can become frustrated as their ideas are not heard
- Communication is poor and limited
When the Persuasive Management Style is Most Appropriate
- When time is important and decisions need to be made quickly
- When Employees lack experience and knowledge
- Simple tasks need to be performed
Consultative Management Style
Is where the Manager consults the Employees and seeks feedback before making decisions
Characteristics of the Consultative Management Style (List 2)
- Uses Two-Way Communication
- Manager makes the final decisions
- Discussions are encouraged
Strengths of the Consultative Management Style (List 2)
- Employees often take more interest as they are more involved
- Improved job satisfaction
- Improves confidence in Employees
- Asking for suggestions from employees allows for a greater variety of ideas and should improve the
quality of management decisions - When decisions are discussed and fine-tuned before implementation, tasks are completed more
efficiently and with better results
Weaknesses of the Consultative Management Style (List 2)
- More time-consuming
- Some ideas will be overlooked, which can cause conflict and/or resentment
- Employees may not have the experience or knowledge to contribute
- Some issues to be decided on are simply not suitable for a widespread consultation process. If the process is not consistent with each decision made, staff can become uncertain and confused about their role
When the Consultative Management Style is Most Appropriate
- When there is time available for gathering feedback
- When employees have experience and knowledge that the Manager can use to make a more informed decision
- More complex tasks need to be performed
Participative Management Style
Is where the Manager unites with their Employees and make decisions together
Characteristics of the Participative Management Style (List 2)
- Uses Two-Way Communication
- Employees are able to make decisions
- Information is shared among Employees
Strengths of the Participative Management Style (List 2)
- High level of trust
- Larger pool of ideas
- Strong relationships between the Manager and the Employee
- High motivation
- Employees are more receptive to change
- Employees develop more skills and experience
Weaknesses of the Participative Management Style (List 2)
- Time-consuming
- Conflicts can arise due to disagreements on the best decision
- There is more time spent on forming decisions and less time completing work
- The role of the Manager may be undermined
- Not all Employees may not want to contribute
When the Participative Management Style is Most Appropriate
- When there is enough time to discuss decisions
- There are experienced and knowledgeable Employees
- When problem-solving is required or more complex tasks need to be performed
Laisse-Faire Management Style
Is where the Manager gives the Employees total responsibility and control of operations
Characteristics of the Laissez-Faire Management Style (List 2)
- Uses Two-Way Communication
- Employees are empowered to make decisions
- The Manager is only involved is asked or to set certain parameters
Strengths of the Laissez-Faire Management Style (List 2)
- Employees feel a sense of ownership
- There is a high level of motivation for Employees
- There is encouragement for creativity
- Communication is completely open
- Teamwork is often encouraged
Weaknesses of the Laissez-Faire Management Style (List 2)
- Could lead to a total loss of control by Management
- Could lead to a possible misuse of resources
- Can cause conflict among workers
- The overall Business Objectives could become lost
When the Laissez-Faire Management Style is Most Appropriate
- Can be appropriate when decisions need to be made fast or where time is not an issue
- There are highly skilled Employees that can be trusted to take control
- The task involves high creativity
Management Skills
The abilities that Managers use to achieve Business Objectives
Types of Management Skills
- Communicating
- Delegating
- Planning
- Leading
- Decision-Making
- Interpersonal
Management Skill: Communicating
Is the exchanging of information between people and then listen for feedback. This can be verbal or non-verbal
Advantages of Communicating (List 1)
- Managers use the communicating skill when explaining a vision, outlining possible changes to the business, or simply to let Staff know what is expected of them
- A manager may also need to answer questions from Staff when introducing a new policy, or listen to feedback from other Stakeholders. Communication is fundamental to almost everything that occurs in a business
Disadvantages of Communication (List 2)
- Communication skills can lead to conflict as Employees may use communication to agree or disagree with each other and with Management. This can lead to resentment and tension, with the possible outcome of tasks not being completed
- Sometimes the positive relationships that are formed as a result of communication become a distraction and can also reduce productivity
- Communication can be time consuming and, at times, there can be too much of it, resulting in information overload
Management Skill: Delegation
Is the process where authority and responsibility is pass down from the Manager to an Employee to carry out specific activities
Advantages of Delegation (List 2)
- Delegation is an appropriate skill to use in order to manage time effectively as delegation frees up time for Managers to focus upon long term planning
- Delegation can provide job training and skill development opportunities for employees and increased job satisfaction
- Delegation can be used to build trust and a feeling of mutual understanding between the subordinate Employee and Manager
Disadvantages of Delegation (List 1)
- Delegation would not be suitable when it involves major strategic planning or high risk and high cost decisions as these are important jobs that is best left for Management
- Another weakness of delegating tasks is that the subordinate employee may misuse their new power
Management Skill: Planning
Is the ability to set out Business Objectives in detail and decide the methods or strategies to achieve them
Advantages of Planning (List 1)
- A Manager using the planning skill gives the business purpose and direction. Having clear objectives and strategies creates unity and encourages motivation, as Employees are likely to feel that they have a reason for working for the business
- Planning reduces risk and uncertainty, and should result in resources being used efficiently
Disadvantages of Planning (List 2)
- Planning can be expensive
- Planning can be time-consuming
- Opportunities can be lost while managers are planning and innovation or creativity can be hindered because everything needs to be planned
Management Skill: Leading
Is the ability of a Manager to influence and motivate their Employees towards the achievement of Business Objectives
Management Skill: Decision-Making
Is the ability to identify the options available and select the most appropriate course of action from a range of alternatives
Advantages of Decision-Making (List 1)
- A Manager using the Decision-Making skill may be able to make decisions quickly which is especially important if the business is facing an emergency or crisis
- Making decisions within a group of team has the potential to collect more ideas and knowledge, which can result in better decisions and more effective implementation
Disadvantages of Decision-Making (List 1)
- Group Decision-Making may not suit all situations and it can be very time consuming since consensus is needed
- In the case of an emergency or a crisis requiring immediate action, an individual may be required to make a hasty decision which may not be the best decision
Management Skill: Interpersonal Skills
Is the ability to deal with people and build positive relationships with Employees
Advantages of Interpersonal Skills (List 1)
- Interpersonal skills can be used to inspire and influence Employees whilst overcoming conflict, creating a workplace where people respect each other and work well together
- Ultimately, the use of interpersonal skills is likely to lead to greater Staff Morale and higher productivity
Disadvantages of Interpersonal Skills (List 2)
- It can take a long time for a Manager to learn and make use of Interpersonal Skills
- It is also possible some Managers will misuse their understanding of Interpersonal Skills and utilise them for their own gain, using these skills to manipulate other people
- Managers using Interpersonal Skills may be prone to making emotional decisions, rather than relying on factual information or logic
The Relationship Between Management Styles and Management Skills
The type of Management Style that a Manager selects will determine the range and degree of Skills they use. For example, an Autocratic Manager uses One-Way Communication and Centralised Decision-Making
Corporate Culture
Is the shared values, ideas, beliefs and expectations of the people within the business
Types of Corporate Culture
- Official Corporate Culture
- Real Corporate Culture
Official Corporate Culture
Is the values and beliefs the Company is trying to convey to the public. It can be seen in official documents such as policies or in slogans and logos
Real Corporate Culture
Is he unwritten or informal rules that the people within the business have. It can be seen in areas such as the way that Staff dress and, how the Employees treat each other and Customers
Elements of Corporate Culture
- Values
- Symbols
- Heroes
- Rituals
Elements of Corporate Culture: Values
Is the business’s shared beliefs
Elements of Corporate Culture: Symbols
Is the events or objects that are used to represent something the business believes to be important
Elements of Corporate Culture: Heroes
Refers to the business’s successful Employees who reflect its values and therefore act as an example for others
Elements of Corporate Culture: Rituals
Is the events, such as social gatherings that help develop a sense of belonging among Employees who work in small teams
How a Business can Develop Corporate Culture (List 2)
- Management can provide of Corporate Culture in action (leading by example)
- Communicating the desired values
- Training in line with the desired Culture
- Recognising and rewarding Employees that demonstrate the desired values
