Interdependence of business functions
1.1 Identifying Business Functions- Relationship to the value chain
The Key functions of a business are:
• Operations- involves organising the production of goods and services
• Employment Relations- responsible for organising the business's human resources - the people who work in the business.
• Marketing- the link between the business and its customers.
• Accounting and Finance - responsible for providing the financial resources necessary to run the business.
The business functions are interdependent and work together to achieve the objectives of the business.
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The different aspects of the value chain fit into the different functions.
The value chain starts with the delivery of raw materials (inputs), and moves through a series of activities involves in marketing and producing a good or service, through to the delivery of the product to the final customer. Each stage or link of the value chain, adds value to the product.
1.2 Coordinating Business Functions
The different functions of the business are interdependent.
1.2.1 Planning and Controlling
1.2.1.1Planning
Planning is the role of management that decides where a business is heading in the future and how It Is getting there.
Planning Is Important because when all managers and employees know where the business is going and what they have to do to get there, they begin to work together.
Mission statement: sets out the reason for the existence of a business and the direction of the business in the long tenn.
1.2.1.2 Controlling
controlling is measuring how well the business is meeting its objectives.
Controlling is important because it checks on the activities of the business to make sure that they are going as planned. If things are not going as expected then changes can be made before it is too late.
The Control Process:
o Measuring actual performance
o Comparing actual performance against targets
o Correcting any variations from the targets
1.2.2 Functional and market structures
Functional structure: employees tend to be specialists in their own areas of operations, marketing, accounting and finance, and employment relations.
Product structure: has employees organised around specific products. These employees are specialists in their own fields of operations, marketing, accounting and finance or employment relations; however, they work together in their division.
The strategic business unit (SBU): a more sophisticated fonn of divisional structure. They are independent parts of the business that deal with certain products or groups of similar products.
Network structure: the entire focus of the structure is on satisfying client needs or meeting the requirements of specific projects. Each functional area is a centre of specialisation.
1.2.3 Divisions of labour, span of control, chain of command
Subordinates are people working under the control or orders of another.
Division of Labour separates the parts of a job to a different person. The advantage is that more can be produced with the same number of people.
The chain of command is the line of authority from the top of the business to the bottom. It sets out who has the responsibility for various parts of the business, and for different groups of employees.
Span of control is the number of people reporting to each manager.
1.3 Interrelationships between Business Functions
The different business functions are there to support the main goals of the business. They are dependent on each other and it is very important to understand the interrelationship between them. Each function can have its own plan to achieve the business's objectives. The way one function might decide to achieve its goals could affect the whole business, so considerate cross-functional coordination is required.
2 Operations- manufacturing/services
2.1 Role of Operations
Operations is the function of business that transforms raw materials and component parts into finished products - goods and services that represent value to the customer.
The operations function of a business relates to both goods and services. Inputs consist of raw mater1als, components, human resources, finance, machinery and buildings.
Operations in a service business
Generally, service products require fewer materials than manufactured products. Eg; educational, medical and transportation services.
Operations and Marketing
There is a very close interdependence between the role of marketing and the role of operations. The role of marketing is to act as a link between a business and its customers. It Is the role of marketing to find out (through market research) the needs of customers and then develop products that meet these needs.
It is the role of operations to provide the products that were identified and
developed by the marketing people. There are a number of aspects to this role:
• To provide quality products all the time
• To produce products competitively
2.2 Organising Operations
Organising Is the management functions concerned with choosing what tasks are to be done, who is to do them, how the tasks are to be grouped, who is to report to whom, and where decisions are to be made.
The operations manager has to make decisions on two levels. The first level involves strategic decisions. These are the decisions that have a long-term effect. The time period is typically 3-5 years or longer.
Four key decisions provide the long term strategic directions for planning:
• Capacity - refers to how much of the product can be manufactured in a particular time period
• Location - refers to where the transformation process is located.
• Process- refers to how the product will be manufactured and relates to such things as the type of machinery used and the sequence in the manufacturing process.
• Layout - refers to the arrangement of the production facilities such as
where conveyor belts and machinery will be placed.
Other strategic decisions are concerned with:
• Human resources - deciding on the number of people that will be required to do the tasks and the level and types of skills the people will need.
• Product- decisions have to be made on which products will be manufactured and how they will be designed.
• Quality- decisions need to be made on the level of quality that will be required.
2.2.1 Purchasing and supply chain management
The whole value chain must focus on the customer's needs. Once customer requirement are specified, the managers in a business must get the right inputs in terms of quality, quantity, time and cost. There are several aspects to managing the buying function. The first is to locate the possible suppliers of the inputs the business needs and analyse each in terms of the quality of the goods they supply, the reliability of supply, the price and so on. The next aspect is to analyse ordering, handling and storage procedures.
Supply Chains: are the links between suppliers of materials and services to a business's production process.
2.2.2 Rostering and scheduling
Scheduling decisions allocate the available staff and resources to jobs, activities, tasks or customers through time.
Rostering is concerned with allocating people in the business to tasks
Scheduling is concerned with the timing of the use of resources in the operations process.
Production scheduling is concerned with the same thing:
• When particular production activities will take place
• How long each operation will take
• When physical and human resources will be used
• When delivery will be made to the customer.
2.2.3 Task design, plant/office layout, warehousing
2.2.3.1 Task design
Task design decisions determine the type of operations process a business will use. Task design is the way an overall task, such as making a car, is broken up into manageable bits. In other words, it is the way value is added to the raw materials and components. Each way in which value is added is called a process.
2.2.3.2 Plant/office layout
Product layout: outlines the path the raw materials and components take as they are transformed by a series of operations from raw materials to a finished product.
Functional layout: an arrangement where equipment that serves a similar function is placed together and processing that requires use of that equipment is taken to it.
2.2.3.3 Warehousing
It is usually not possible to forecast the demand for finished products accurately, and most manufacturing business require warehousing in order to store raw materials and/or finished products 'just-in-case'. Unless a business has some products available, they could miss out on sales. Warehousing is a 'buffer' between customer demand and operations.
2.2.4 Technology, robotics, CAD/CAM (computer aided design and computer aided manufacture)
Application of technology is a major source of competitive advantage. It can improve methods in the production process, how information can be used and creates new goods and services. Computer Integrated Manufacturing (CIM) - a manufacturing business can use this to increase the speed of new product development. The technologies of computer-aided design (CAD) and computer aided manufacturing (CAM) are usually the basis for OM.
2.2.4.1 CAD (Computer Aided Design)
CAD enables designers and engineers to develop new product designs in almost half the time needed for more traditional methods. Also, computer analysis can be used to evaluate the consequences of alternative design by performing the engineering calculations and drawing the graphics for each alternative design. Importantly these design changes can be tested In hours rather than months.
2.2.4.2 CAM (Computer Aided Manufacturing)
CAM relies on computers to guide and control the machines in the production process. Computer programs direct machines to cut patterns, shape parts and assemble products, as well as a variety of other complicated tasks. CAM provides the flexibility to efficiency make products that are Individually tailored to the needs of customers.
2.2.4.3 Robotics
They have become Increasingly common In the manufacturing process. An industrial robot is a mechanism that has a moveable arm-like projection.
2.3 Control including inventory control and quality management
Control is concerned with measuring actual performance in the operations function and comparing it with planned performance.
2.3.1 Cost Control
Cost control plays an important part in the operating system. Cost centres are individual parts of a business. Managers are responsible for all associated costs of each cost centre.
DIRECT COsTS: are directly related to the output of a good or service. Labour, materials and power costs are examples of direct costs. As production increases, these costs will increase.
INDIRECT COsTS: are largely unaffected by the size of production. Indirect costs include insurance expenses, office staff salaries, and rent. While indirect costs cannot be controlled by all cost-centres, top management should identify where all the responsibility lies and hold all managers accountable for costs under their control.
2.3.2 Inventory control
Inventory, or stock refers to such things as raw materials, components, work-in progress (partly finished products}, and finished goods.
Two of the most common inventory controls are:
• Materials Requirement Planning (MRP) is a computerised inventory control system that links all the raw materials and component parts in the finished product.
• Just-in-time Inventory Systems (JIT): JIT is a system where raw materials and component parts are kept to an absolute minimum. Raw materials and components anive at the factory just before they are needed for production. Finished products are produced just in time to be sold.
2.3.3 Quality Management
Quality operates In stages. The second and third stages Incorporate the stages before them:
• Quality control -based on proactive Inspection. A problem that may ar1se
is that it is often difficult to check every item. Also, the cost of the waste and reworking of poor quality can be very expensive.
• Quality assurance - based on certification that the process is error free.
This involves putting into place procedures and processes to avoid faults or errors before they happen.
• Total Quality Management - based on continuous improvement. One of the ways of achieving total quality management is through 'quality circles'. Quality circles are small groups of workers who meet regularly to identify, analyse and solve problems in their work areas.
2.4 Records management
Records management is focused on the efficient collection, storage and retrieval of Information.
A management Information system (MIS) Is a system that provides management with needed information on a regular basis.
3 Employment relations
3.1 The Role of Employment Relations
Employment Relations is the function that deals with the relationship between the employer and the employees in a business.
The functions and activities of employment relations are of Increasing Importance in businesses because it is recognised that human resource management has an Impact on businesses:
• Survival
• Growth
• Profitability
• Flexibility
• Competitiveness
3.2 The Human Resource Cycle
The functions of employment relations are the acquisition, development, motivation, maintenance and separation of a business's employees.
The business's objectives determine the demand for human resources and the human resource department must find the right number of people with the right skills.
3.2.1 Acquisition
A key role of employment relations is to make sure the business has enough employees, with the right skills and experience, to be as competitive and as profitable as it can. The Acquisition process involves three key stages:
• Identifying Future Staffing Needs: planning the future human resource needs of the business involves 2 main activities:
• Forecasting the future demand for workers
• Analysing the jobs in the business and the skills, knowledge and abilities that are needed.
• Recruiting Potential Job Candidates: this means building up a pool of
potential job candidates can be from internal or external sources.
• Selecting the best Possible Person: selection is identifying the best possible person for the job
3.2.2 Development
An employee who develops skills and abilities becomes a more valuable resource. Human resources are the key to a distinct competitive advantage and in an Increasingly competitive environment those resources need to be able to use new technology that will allow the business to be flexible and innovative.
Training of employees can:
• Improve labour productivity
• Improve the quality of production
• Improve the ability of the business to cope with change.
On-the-job training: provides hands on experience and is relatively less expensive. Eg: traineeship
Off-the-job training: allows for a number of people to be trained at once, includes lectures.
3.2.3 Maintenance
One of the major functions of employment relations management, after recruitment and selection of human resources, Is keeping valued employees. By keeping high performing employees, the business not only keeps its competitiveness but also can Increase productivity and reduce absenteeism, turnover and disputes.
3.2.3.1 Monetary/non-monetary benefits
• Monetary beneflt- eg: pay rise
• Non-monetary benefit - social and intrinsic rewards.
Financial rewards can be performance based such as commissions or bonuses, or share ownership schemes or general pay Increases. Fr1nge benefits can range from provision of free or cheap goods and services, company-maintained vehicles, medical insurance, superannuation contributions to private school education costs for employees children and club memberships.
Paying attention to employees and motivating them increases productivity.
Performance appraisal: is formally looking at the performance of each employee and measuring that performance against a set of targets or objectives.
3.2.4 Separation
Voluntary:
• Retirement
• Resignations
Involuntary:
• Redundancy: the employee Is no longer needed
• Retrenched: they job the employee was doing is no longer needed
• Dismissal
3.3 Rights and Responsibilities
3.3.1 Labour Contract
3.3.1.1 The Employment Conb"act
Employer Rights and Responsibilities:
• Duty of care
• Payment of income
• Provision of work
• Right of summary dismissal
Employee Rights and Responsibilities:
• Duty to obey lawful orders
• Duty to use care and skill
• Duty of good faith
3.3.1.2 1996 Workplace Relations Act
Under this legislation, employment contracts between employers and individual workers are called Australian workplace agreements. Collective agreements are made under certified agreements and can involve unions or be made directly with the employers and employees.
Both Australian workplace and certified agreements have to meet minimum conditions. At present the Australian Industrial Relations Commission (AIRC) acts as a 'watchdog' over the agreements, ensuring that workers will not be disadvantaged in comparison with the relevant award.
3.3.2 Equal employment opportunity and anti-discrimination
There are different forms of equal employment opportunity legislation in Australia:
• Racial Discrimination Act 1975
• Sex Discrimination Act 1984
• Affirmative Action (Equal Employment Opportunity for Women) Act 1986
3.3.2.1 Afflrmatlve Action
The Affirmative Action Act requires employers to develop programs that promote equal opportunity for women, rather than simply reduce discrimination.
3.3.2.2 Work and Family
Federal Government has also promoted equal employment opportunities by trying to remove discrimination against workers with family responsibilities. Many Australian businesses provide maternity and paternity leave, flexible work arrangements, part-time work and parental leave.
3.3.3 Occupational Health and Safety (OH&S)
NSW's Occupational Health and Safety Act 1983 sets out the rights and responsibilities of both employers and workers in relation to OH&S. Employers are to ensure the health safety and welfare of employees. Employees also have a responsibility for their won safety and the safety of other workers and customers.
The benefits of a safer and healthier work environment are increased productivity and lower costs.
4 Marketing
4.1 The Role of Marketing
4.1.1 What is Marketing?
Marketing is a total system of business activities designed to plan, price promote and distribute want-satisfying goods and services to markets in order to achieve the objective of the business.
Marketing has three different aspects:
• It is a philosophy that the business should be focused on satisfying the needs and wants of customers.
• It is a range of activities including market research, product
development, pricing, promotion and distribution of products.
• It is a business function that is responsible for marketing activities.
4.2 Identifying the Target Market
A business needs to select and study its target market - the segment of the market on which it will focus its business activities.
4.2.1 Describing a target market
The target market can be divided by looking at:
• Consumer Charactelistics- such as age, gender, income and educational levels
• Consumer Responses to Products - such as when they buy the goods and services, how they use the products and why they buy
4.2.2 Intermediate and final target markets
• Intermediate users are businesses that buy goods and services to use in their own business or to make other products.
• Final users are the customers who buy products for their own personal use or household use.
4.3 Overview of the Marketing Mix
The marketing mix connects the business with its customers. It refers to the combination of the four factors - product, price, promotion and place - which make up the core of a business's marketing strategy. A marketing mix must be designed to satisfy the wants of customers and achieve the marketing objectives of the business.
THE FOUR P's OF THE MARKETING MIX & THE MAIN TACTICS OF EACH ELEMENT
PRODUCT
*Exteruion
*Contraction
* Rejuv-enation
*Br
*Pack
* Wananties
PROMOTION
* Personal Selling
* Advertising
* Sales Promotion
*Public Relation
>I< Publicity
PRICE
* Market Penetration
* Market Skimming
* Meet The Competition
* Psychological Discounts
*Credit
PLACE
* Distnbution Channels
* Interuive Distnbution
* Selective Distnbution
* Exclusiv-e Distnbution
* Physical Distnbution
4.3.1 Product
Product refers to all the goods and services provided by the business. It also refers to intangible aspects of the product such as the image and reputation of the business and the quality of service and warranties.
Product Strategies in the Marketing Mix
• Extension -adding new products, or new variations of old products to the existing range of products
• Contraction- when a particular product is not selling well, many businesses will stop making the product.
• Rejuvenation -giving an older product a 'new life' by redesigning and/or repackaging the product.
4.3.2 Price
Price is the cost of the good or service to the consumer.
Pricing Strategies in the Marketing Mix:
• Penetration Pricing - where the business sets the price of the product below the price of competitors, making it more attractive.
• Market-skimming Pricing- if the product is one of a kind, a
relatively high price is set but the business in order to get as much profit as possible from each sale, knowing that customers don't have a substitute. When competitors enter the market, prices can be dropped to maintain sales.
• Meet the competition Pricing -used when business sets its prices
at around the same level as competitors.
• Psychological Pricing- involves pricing products at odd prices such as $49.75 rather than $50. It is believed that customers get the impression that the product is cheaper.
4.3.3 Promotion
Promotion involves all the activities that inform the market and persuade customers to buy the product.
Promotional Strategies in the Marketing Mix:
• Personal Selling -includes activities such as a sales person outlining a product's features or helping a customer choose a particular model.
• Advertising- on TV, billboards, radio, newspapers etc. Probably the most effective way of communicating with the largest number of people in a variety of geographical areas.
• Sales Promotion -includes contests, coupons, free samples, exhibitions etc
• Publicity - mentions of products in magazines, when a product wins a prize or when a celebrity is seen wearing or using a particular brand of product.
4.3.4 Place
Place Involves the storage, distribution and delivery of the product to the customer.
Place Strategies in the Marketing mix:
• Intensive Distribution -where the product Is available at every possible outlet. Eg: buy a can of soft drink at supermarkets, newsagents, almost everywhere.
• Selective Distribution - used when a manufacture wants to widely distribute its product but does not want to use an intensive distribution. Eg: certain brands of hair shampoo can only be purchased at hairdressers not supermarkets.
• Exclusive Distribution -this limits the supply of products to particular stores or outlets. Usually the products are very expensive and trying to achieve an elite image.
4.3.5 Putting the Marketing Mix Together
The right combination of marketing mix strategies needs to be selected, depending on many factors:
• The business's mission, objectives & resources
• Marketing objectives and strategies
• The characteristics of the target market
• The influence of external and internal factors
• The strategies of competitors
5 Accounting and finance
5.1 The Role of Accounting and Finance
Accounting is the process of identifying, measuring, recording and communicating financial information. Accounting information is important to internal users and external users of the information to judge the performance of the business.
5.2 Sources and Uses of Funds
There are two main sources of funds: debt and equity
• Debt is the money borrowed from financial institutions or other businesses.
• Equity is made up of money obtained from the owners of the business,
and money generated from the business's operations (called retained profits).
5.2.1 Short term finance
Short-term finance is money, which is used for periods of up to one year.
• Bank Overdrafts- an overdraft can be used when it is needed and interest is only charged on the amount used.
• Trade Credit- the supplier of goods or services provides this type of
credit for 30, 60 or 90 days, interest is not charged if it is paid by the date due.
• Factoring - a factoring company will advance the business the money that debtors owe it and then collect the money on behalf of the business.
5.2.2 Medium term finance
For periods of over one year.
• Loans
• Leasing -an agreement between the person who owns the asset (lessor) and the person who uses the asset (lessee)
5.2.3 Long term finance
Debt Finance:
• Long term Loans
• Debentures- only available to incorporated businesses. Interest rates are fixed and repayment occurs at a particular point in time rather then being spread out over the term of the loan. Debentures are 'raised' by the company needing the finance and can usually be traded on the financial markets.
Equity Finance: (has no restrictions on how the money is used}
• Sole Traders/Proprietorships - that supplied by the owner and the retained profits
• Partnerships - money supplied by the owner and retained profits
• Limited Companies - owners, shares, retained profits
5.3 Preparation of Elementary Financial Statements
The key financial statements are:
• A balance sheet- which shows the financial position at a point in time
• A revenue statement - which measures financial performance over a period of time
• A cash flow statement - which shows the sources and uses of cash during a per1od of time
5.4 Key Uses of Financial Statements
5.4.1 Key Uses of Balance Sheets
Balance sheets are prepared mainly for the owner of the business. Its purpose is to indicate the financial strength of the business and the relative liquidity of the assets.
A balance sheet can be used as an indicator of:
• A business's financial size because it identifies all assets controlled by the business
• The financial structure of the business because it identifies the sources,
types and time patterns of finance, including the proportion of debt to equity. The business's assets show the way in which funds have been used.
• A business's solvency by comparing assets and liabilities
5.4.2 Key uses of revenue statements
They are normally for internal use, although banks might want to see them before lending money. The key use of the revenue statement is to determine the profitability of the business.
5.4.3 Key uses of cash flow statements
The main purpose of cash flow statement is to provide information about a business's cash receipts and cash payments during an accounting period. Therefore the main purposes of the cash flow statement are:
• To show that there is enough cash to pay the bills so that the business remains liquid
• To give managers information which will assist in budgeting for
investments in new projects
• To give creditors Information about the ability of the company to meet Its debt payments
• To give information which allows shareholders, creditors and potential investors to evaluate management decisions
• To show the relationship between a company's reported profit and its cash position
5.5 Budgets as Planning Tools
Budgets are the financial plans for the future of the business.
Types of budgets
Financial budgets identify the funds that will be needed in the future and the sources of those funds.
• Revenue budgets predict future sales
• Expense Budgets show what's spent in each part of the business
• Profit budgets combine revenue and expense budgets
Operating budgets forecast future revenue and expenses
• Cash budgets are forecasts of how much cash the business will have on hand and how much it will need to meet its expenses
• Capital Expenditure Budgets forecast investment.
