AOS1: Business Foundations

Business Definition

lawful commercial activities that are done to generate a profit. A business can also be referred to as an enterprise, agency, entity or firm which provides a good and/or service.

Sole Trader Definition

Where an individual will operate the business by themselves and are legally responsible for all aspects of the business. This is a simple structure in which the owner has all the decision-making power

Sole Trader Advantages

-easy to set up and operate

-full control over assets and decision making

-fewer reporting requirements

-low set up costs

Sole Trader Disadvantages

-unlimited liability, personal assets can be used to pay off business debts

-cant claim company tax rate of 30%

Partnership definition

involves a number of people (2 to 20) who own a business together. These types of business structures are governed by the Partnership Act 1958.

Partnership advantages

-Easy and low cost to set up

-Share decision making (can be positive or negative. Depends which way you argue it)

Partnership disadvantages

Private Limited company definition

This is an incorporated business structure where the business is its own legal entity and ownership is divided up in to shares. All private limited companies must have a minimum of 1 shareholder and can have up to a maximum of 50 shareholders.

uExamples are generally small firms such as accountants and legal firms.

Private company advantages

private company disadvantages

public listed company

A company whose members (shareholders) own the company and the directors run it. The company is listed on the stock exchange and the public can trade shares in it. Must have a minimum of 1 shareholder and there is no maximum limited.

public listed company advantages

public listed company disadvantages

social enterprise definition

A business which generates revenue but has a primary objective to improve the community by reinvesting profits made.

Led by economic, social, cultural or environmental missions consistent with public/community benefit

Fully self funded. No reliance on grants, donations or loans.

Over 50% of profits are reinvested.

Can be incorporated in Australia

Government business enterprise definition

This is a company owned by the government (not a government department) that aims to fulfill a specific outlined purpose and make a profit at the same time.

Australia Post

VicRoads

Defence Housing Australia

NBN Co Limited

business objectives definition

Business Objectives are the goals a business intends to achieve.

Business objectives must be clear, specific and measurable in order to provide the business with direction.

Objectives can be either short, medium or long term.

There are four main business objectives.

Objective: Make a Profit

Profit is essential for any business to survive and grow.

Profit is the amount of left after expenses (cost of running the business) are deducted from revenue (amount of money a business makes from its normal business activities).

Profits usually get shared amongst the owners, but they can be reinvested in the business as well to help it grow and develop. (e.g. hiring more employees or developing new products.)

Objective: increase market share

Market share is a business’s percentage of total sales within an industry.

A business will want to increase market share in order to become more competitive in their industry.

Increased sales usually means an increase in profits. However, this is not always true as a sale increase could be a result of a much cheaper product/service.

This may cause short term

Strategies Include

Producing profits with new technology

Increasing customer loyalty to encourage repeat sales from customers

Hiring skilled employees that produce goods and services of desired quality

Implementing advertising which attracts more customers and sales

Offering lower prices to generate more sales

Objective: Meet Shareholder Expectations

Shareholders are people who have invested a sum of their own money into a business by purchasing shares.

They expect a return on their investment. This can in the form of a dividend or an increase in the price of their shares.

A business that makes profit consistently is more likely to reinvest, grow and and increase its share price as well pay dividends.

Only private limited companies and public listed companies need to meet shareholder expectations.

Objective: Improve efficiency

Efficiency is how productively a business uses its resource when producing a good or service.

All business want to get the most of their resources, aiming to maximise the use of their time, money, effort, employees and materials.

By improving efficiency production costs can be minimized, levels of waste may decline and the time take to produce goods/services can be reduced.

Objective: fulfil a market need

Market need is a product/service that meets the desires of a group of customers with similar needs.

By fulfilling a market need business can attract more customers and generate more revenue

If a business can fulfil a market need then they can develop a loyal customer bases and generate consistent income which will help make a profit.

An example of fulfilling a market need is Qantas as customers need to fast transportation between long destinations.

Objective: fulfil a social need

This business objective only applies as a main objective to social enterprises along with making a profit.

Businesses fulfil a social need by improving the community and environment through it’s activities.

Community issues include – homelessness, poverty and drug and alcohol abuse.

Environmental issues include – waste, pollution and extinction of native species.

Business that fulfil a social need also find that it assists in making a profit as it generates a greater customer base/market share which leads to more revenue and profit.

stakeholders definition

Stakeholders are individuals, groups or organisations who have a vested interest in the performance and activities of a business.

Business will have both internal and external stakeholders

Internal stakeholders – individuals, groups or organisations who are employed by or have a financial share in the business.

External stakeholders - individuals, groups or organisations who are outside the business and are impacted by or interest in a business’s activities.

internal owners and shareholders

Owners are individuals who establish, invest and have a share in the business, often with the goal of making a profit.

In public listed and private limited companies, owners are known as shareholders.

internal managers

Managers are individuals who oversee and coordinate a business’ employees and lead its operations to achieve the business’s objectives.

There can numerous managers within large businesses who have different areas of responsibility:

Human Resource Manager – is responsible for managing the relationship between the business and its employees.

Operations Manager – is responsible for organizing the business’s production of goods and services from raw materials.

In smaller businesses there is usually one manager with diverse responsibilities.

internal employees

Employees are individuals who are hired by a business to complete work tasks and support the achievement of its objectives.

Employees play a crucial role in a business.

Employees enable achievement of multiple objectives are they produce goods/services, engage with customers and assist the overall operations of a business.

external customers

Customers are individuals or groups who interact with a business by purchasing and utilizing its goods and services.

Businesses that meet needs of their customers can gain greater interest.

Fulfilling customer expectations can lead to more customers purchasing from the business which can lead to more profit.

A business that has a strong and positive relationship with their customers will not only gain a potential competitive advantage but will also achieve success by meeting its business objectives.

external suppliers

Suppliers are individuals or groups that source raw materials, component parts and processed materials and sell them to a business for use in the production of its goods and services.

Business rely on suppliers to provide them the necessary materials for productions.

Maintaining a positive relationship with suppliers is crucial to maintain an efficient and effective production system

external general community

General community is the individuals and groups who are impacted by a business’s operations and decisions, often because they are located in close proximity to the business.

A business should seek to positively impact the general community, as they can strongly influence a business’s reputation and public perception, which may impact business performance.

stakeholder interests

stakeholder conflicts

autocratic style

Manager makes all the decisions and directs the employees on what to do.

There is no input from employees, and they are expected to follow the directions of the manager.

Manager retains centralised control (one individual has all the control and decision-making power)

Communication is one way and top down.

Motivates through threats and disciplinary action

autocratic advantages and disadvantages

persuasive style

Manager makes the decision and then explain the reasons behind the decision to the employees.

There is still no employee input in decision making just like the autocratic management style.

However, in comparison to autocratic there is more communication as the manager is explaining the reasons for the decision.

Communication is still top down/one way.

Enables manager to establish trust and credibility among employees as they feel considered.

Decision making is still centralised.

persuasive advantages and disadvantages

consultative definition

Manager seeks and considers input from employees on business decisions before making the final decision themselves.

Communication is two way between managers and employees which allows employee input.

Employees feel valued.

However, decision making is still centraliased.

consultative advantages and disadvantages

participative definition

Manager shares information with employees so that they can help in the decision making.

Encourages managers and employees to discuss information and problems together making communication two way.

Decision making is decentralised (shared).

participative advantages and disadvantages

Laissez-faire

Manager communicates business objectives to employees and given them the freedom to make decisions themselves.

Employees are essentially responsible for their own role.

Communication is two way as manager communicates goals and direction to employees and listens to their ideas.

Decision making is decentralised.

Allows manager to provide additional support to employees

Employees are more empowered as their have a higher level of responsibility and ownership

Laissez-faire advantages and disadvantages

when to use autocratic

Can be effective in a time of crisis, when compliance with rules or procedures is needed, or when speed is important.

Also effective when team members do not know each other well or when individuals lack skills and knowledge.

Examples could include: Training on safety policies, instructions on how to complete a job up to standard

when to use persuasive

Often appropriate in similar conditions to those suiting the autocratic style.

However, this is less direct, and used as a softer approach.

Examples could include: Explaining why workers should complete their tasks in a certain way, hoping this will be successful so they don’t have to use an autocratic style

when to use consultative

Most effective when a new operating procedure is to be introduced or some business change implemented.

It provides an opportunity for employees to have some input at the time of decision making.

Examples could include: gaining feedback on a new policy, discussing customer complaints and determining new training requirements, or moving to a 5 period day

when to use participative

Most effective when a business is operating in an environment undergoing rapid change.

Individual employees accept responsibility for, and can implement, changes.

This makes the business more responsive to change long-term.

Examples could include: long term change as you have more buy in, smaller decisions that impact on a team

when to use laissez-faire

Most effective for creative work or research, with employees who are highly talented or qualified and where minimal supervision and direction is required.

Examples could include: research tasks given to experienced employees

planning

is the process of determining a business’s objectives and establishing strategies to achieve these aims.

Strategic: involves the broadest scope of what a business aims to achieve. This will affect the general directions of the business.

It is considered to be long term and ranges from 2 – 5 years

Tactical: involves the long-term strategies a business intends to use to fulfil the strategic plan

It is considered to be medium term and ranges from 1 – 2 years

Operational: involves the short-term actions a business takes on a daily basis to achieve its tactical plan.

It is considered to be short term and is less than 1 year.

planning process

1.Define the objective

2.Analyse the Environment

3.Develop Alternative Strategies

4.Implement an Alternative

Monitor & Seek Feedback

leadership definition

the ability to influence and motivate people to work towards the achievement of common objectives.

Leaders actively listen to what employees say and welcome new ideas, remain calm in the face of conflict and stressful situations, and delegate tasks to employees who have the skills and capacity to handle them.

Good leadership should result in motivated staff and high productivity and high morale.

However, managers can be so busy leading that they have no time for contributing to productive activities, such as meeting with customers or making sales. This can cause disharmony amongst staff.

leadership qualities

Interpersonal: Interpersonal refers to having people and social skills such as communication, emotional intelligence (the ability to recognise and understand feelings) and so on in order to operate effectively in a social setting.

Informational: Informational refers to obtaining the required knowledge and being effective in the communication of this knowledge. For example, being able to communicate an appropriate answer to an employee if they have a question.

Decision-Making: Decision-Making is the ability to identify and evaluate possible available options in response to a situation, and choose the course of action that is the most appropriate and effective

leadership types

Transactional: A transactional leader provides staff with rewards in return for their compliance and acceptance of authority, e.g. pay rises and promotions if goals are met.

Transformational: A transformational leader inspires or enthuses staff with a vision to ensure they are committed to achieving the goals of the business.

communication definition

Communicating involves the ability to transfer information from a sender to a receiver, and to listen to feedback.

It can be non-verbal or verbal

The method of communication chosen will depend on the audience; that is, whether management is communicating with employees, suppliers or shareholders.

Communication is fundamental to almost everything that occurs in a business. Effective communication — clear, articulate and concise — helps maintain good relationships.

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.

delegating definition

The ability to transfer authority and responsibility from a manager to an employee to carry out specific activities.

The manager delegating the task remains accountable for the outcome of the delegated work, but allows the employee or employees to make their own decisions. Clear communication must be used when passing on instructions about what needs to be done.

Delegating can help with time management and allow employees to learn new skills, which can lead to increased motivation and experience.

However, appropriate support must be in place for this                                  to be successful, and managers needs to ensure that                             employees don’t misuse their new found power. 

decision-making definition

the ability to identify and select the most suitable options available and then choose a specific course of action from the alternatives.

Managers must be able to make decisions quickly and efficiently in order to ensure business objectives are achieved in a timely and cost efficient manner.

decision making process

interpersonal definition

The ability to deal or liaise with people and build positive relationships with staff.

A manager who is able to identify and recognise how other people see things and then make use of these views in a logical and understanding manner is most likely to be effective in achieving objectives.

Managers with high level interpersonal skills must have good communication skills and be able to resolve conflict.

autocratic and skills

persuasive and skills

consultative and skills

participative and skills

Laissez-Faire and skills

corporate culture definition

Corporate Culture is the shared values and beliefs of a business and its employees.

Each business develops its own particular way of doing things.

The style or character of a business is reflected in its culture.

official corporate culture

Involves the shared views and values that a business aims to achieve, often outlined in a written format.

Can be found in a businesses mission statements, vision statements and policies.

They generally reflect what a business intends to accomplish.

mission statement definition

written descriptions of a business’s objectives and its chosen approach to achieving them.

vision statement definition

written descriptions of the future standing that the business hopes to achieve.

policies definition

a set of guidelines that are used to come to decisions in a rationalised way.

real corporate culture

Involves the shared values and beliefs that develop organically within a business, and are practiced on a daily basis by its employees.

Real corporate culture is seen in management styles, rituals, celebration, etc.

official vs real corporate culture

importance of corporate culture

Research has shown that businesses with a healthy, well-developed culture are more likely to be successful because employees generally perceive the workplace to be more positive.

This there affects employee motivation and loyalty to the organistion.

how to develop corporate culture

Managers can develop positive corporate culture by introducing or building on the elements of a corporate culture. For example:

Management could establish regular social gatherings (Rituals)

Management could ensure staff are given sufficient training to be able to reflect the values of the business (Values, Symbols)

Management could celebrate and reward staff members for doing the right thing (Heroes)