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ESSENTIAL

VCE BUSINESS
MANAGEMENT
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GILLIAN SOMERS
JULIE CAIN
MEGAN JEFFERY

ISBN: 9781107665910
© Gillian Somers, Julie Cain, Megan Jeffery 2011
Cambridge University Press
Photocopying is restricted under law and this material must not be transferred to another party.

CAMBRIDGE UNIVERSITY PRESS
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© Gillian Somers, Julie Cain, Megan Jeffery 2011
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First published 2004
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National Library of Australia Cataloguing in Publication data
Somers, Gillian.
Essential VCE business management. Units 1 and 2 / Gillian Somers, Julie Cain, Megan
Jeffery.
3rd ed.
9781107665910 (pbk.)
Includes index.
For secondary school age.
Industrial management—Problems, exercises, etc.
Industrial management—Examinations, questions, etc.
Victorian Certificate of Education examination—Study guides.
Cain, Julie. Jeffery, Megan.
658.0076
ISBN 978-1-107-66591-0 Paperback
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www.cambridge.edu.au/GO
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ISBN: 9781107665910
© Gillian Somers, Julie Cain, Megan Jeffery 2011
Cambridge University Press
Photocopying is restricted under law and this material must not be transferred to another party.

CONTENTS
x

About the authors
Acknowledgements
Key knowledge table

xii

UNIT 1 SMALL BUSINESS MANAGEMENT

1

Area of study 1: Introducing business

1

CHAPTER 1 BUSINESS ORGANISATIONS
What is an organisation?
Importance and necessity of organisations
Common characteristics of organisations
Differences between organisations
Types of organisations
Objectives of different types of organisations
Chapter summary
Chapter summary questions
Extension question

1

xi

2
2
3
3
5
5
8
8
9

CHAPTER 2 SMALL BUSINESS IN AUSTRALIA
What is a small business?
What is a microbusiness?
How small business helps our economy
Key features of businesses
How to distinguish between small, medium and large businesses
Chapter summary
Chapter summary questions
Extension question

10

CHAPTER 3 BUSINESS ENVIRONMENTS
The dynamic environment of business
Stakeholders of a business
Chapter summary
Chapter summary questions
Extension question

24

Area of study 2: Small business decision making,
planning and evaluation

12
12
13
15
19
21
21
22

26
26
38
38
39

40

CHAPTER 4 MAJOR DECISION MAKING PRIOR TO STARTING A SMALL BUSINESS 40
Decision 1: Suited to operate a small business?
42
Decision 2: Type of business?
46
Decision 3: Developing a business concept
52

C O N TEN T S

iii

ISBN: 9781107665910
© Gillian Somers, Julie Cain, Megan Jeffery 2011
Cambridge University Press
Photocopying is restricted under law and this material must not be transferred to another party.

Decision 4: A new business from scratch or an existing business?
Decision 5: Form of ownership structure?
Decision 6: Location?
Decision 7: Layout of premises?
Chapter summary
Chapter summary questions
Extension questions

54

CHAPTER 5 BUSINESS SUPPORT SERVICES
Informal support and assistance
Formal support and assistance
Government support and assistance
Professional, trade and industry associations
Chapter summary
Chapter summary questions
Extension questions

70

CHAPTER 6 THE IMPORTANCE OF BUSINESS PLANNING
What is planning?
Steps in planning
Levels of business planning
The business plan
Chapter summary
Chapter summary questions
Extension question

88

CHAPTER 7 MAJOR PLANNING DECISIONS THROUGHOUT THE LIFE
OF A SMALL BUSINESS
Compliance with key legal and government regulations
Human and physical needs of a business
Financial planning
Planning a marketing strategy
Chapter summary
Chapter summary questions
Extension questions
CHAPTER 8 ONGOING EVALUATION OF SMALL BUSINESS
What is business failure?
Why businesses fail
Strategies used for ongoing business evaluation
Measuring effectiveness and efficiency through Key Performance Indicators
Chapter summary
Chapter summary questions
Extension questions

iv

ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2

ISBN: 9781107665910
© Gillian Somers, Julie Cain, Megan Jeffery 2011
Cambridge University Press
Photocopying is restricted under law and this material must not be transferred to another party.

58
62
64
67
68
69

72
76
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82
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85
86

90
90
91
92
101
101
102

104
106
118
119
121
124
124
125

126
129
129
130
131
138
138
139

Area of study 3: Day-to-day operations

140

CHAPTER 9 INTRODUCTORY ACCOUNTING FOR SMALL BUSINESS
Keeping source documents and other financial records
Taxation obligations and the implications for decisions on business structure
Simple financial reports for small business
Ethical and socially responsible management of accounting practices
Chapter summary
Chapter summary questions
Extension question

140

CHAPTER 10 MANAGEMENT OF STAFF IN SMALL BUSINESS
The importance of good management of staff
Types of recruitment methods and selection processes
Employment arrangements
Maintaining employees in the business
Separation of employees from the organisation
Overview of relevant legislation
Ethical and socially responsible management of employment practices
Chapter summary
Chapter summary questions
Extension question

160

CHAPTER 11 INFORMATION AND COMMUNICATION TECHNOLOGIES
IN SMALL BUSINESS
Strategies to select appropriate hardware and software to meet small business needs
Possible use of available technologies
Use of e-commerce
Implications of the use of available technologies and e-commerce
Ensuring the security of technology and information
Ethical and socially responsible management of ICT in small businesses
Chapter summary
Chapter summary questions
Extension questions
CHAPTER 12 LEGAL REQUIREMENTS OF SMALL BUSINESSES OFFERING
GOODS AND SERVICES
Overview of the various levels of government creating legislation
Legislation affecting small business
Legislative requirements created by common law
Ethical and socially responsible management of the legal requirements
Chapter summary
Chapter summary questions
Extension question

142
149
151
156
157
157
159

162
163
168
169
173
173
175
176
176
177

178
180
181
192
192
194
196
198
198
199

200
202
203
213
218
220
220
221

C O N TEN T S

v

ISBN: 9781107665910
© Gillian Somers, Julie Cain, Megan Jeffery 2011
Cambridge University Press
Photocopying is restricted under law and this material must not be transferred to another party.

UNIT 2 COMMUNICATION AND MANAGEMENT
Area of study 1: Communication in business
CHAPTER 13 COMMUNICATION IN BUSINESS
Communication and its relationship to business objectives and strategy
The communication process
Type and purpose of information to be communicated
Methods of communication
Chapter summary
Chapter summary questions
Extension question

222

CHAPTER 14 EFFECTIVENESS OF COMMUNICATION
Barriers to effective communication
Overcoming and reducing communication barriers
Chapter summary
Chapter summary questions
Extension question

246

Area of study 2: Managing the marketing function

vi

222

224
224
228
233
244
244
245

248
258
264
264
265

266

CHAPTER 15 MANAGING THE MARKETING FUNCTION
What is marketing?
Marketing practices
Why use the market-oriented approach?
The marketing concept
How does marketing relate to business objectives?
What does the marketing process involve?
Marketing strategies
What is a market and what are its attributes?
Consumer trends
Chapter summary
Chapter summary questions
Extension question

266

CHAPTER 16 MARKET RESEARCH
Why is market research needed?
What can be discovered through market research?
Systematic approach to market research
Chapter summary
Chapter summary questions
Extension question

284

ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2

ISBN: 9781107665910
© Gillian Somers, Julie Cain, Megan Jeffery 2011
Cambridge University Press
Photocopying is restricted under law and this material must not be transferred to another party.

268
269
270
271
273
274
274
274
281
282
282
283

286
286
287
294
294
295

CHAPTER 17 THE MARKETING PLAN AND EVALUATION OF PERFORMANCE
Elements of the marketing plan
Evaluation – was the marketing process effective?
Issues in marketing
Expansion strategies in marketing
Chapter summary
Chapter summary questions
Extension question

296

CHAPTER 18 THE MARKETING MIX AND RELATED MARKETING STRATEGIES
What is a product?
Developing the product
Why do some products succeed and others fail?
Product life cycle
What is the product mix?
The role of branding
What determines price?
Place
Promotion
Chapter summary
Chapter summary questions
Extension question

314

Area of study 3: Managing the public relations function
CHAPTER 19 MANAGING THE PUBLIC RELATIONS FUNCTION
What is public relations?
Public relations and its relationship to business objectives and business strategy
The significance of image
The concept of the ‘public’ and its characteristics
Public relations objectives
Public relations in planned business situations
Public relations and crisis management
Measuring the success of public relations strategies
Issues in public relations
Chapter summary
Chapter summary questions
Extension questions
Dictionary
Index

298
302
305
308
312
312
313

316
318
319
319
322
322
328
330
332
339
340
341

342
342
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349
349
350
356
359
360
363
363
364
366
379

C O N T EN T S

vii

ISBN: 9781107665910
© Gillian Somers, Julie Cain, Megan Jeffery 2011
Cambridge University Press
Photocopying is restricted under law and this material must not be transferred to another party.

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ISBN: 9781107665910
© Gillian Somers, Julie Cain, Megan Jeffery 2011
Cambridge University Press
Photocopying is restricted under law and this material must not be transferred to another party.

 You can log in to your Cambridge GO account anywhere you can access the internet using the email address and password with which you’re registered. Julie Cain. Go to the My Resources page on Cambridge GO and access all of your resources anywhere. anytime.au/GO 1.cambridge. Some material.Access your online resources today at www. including the PDF Textbook.edu. Activate Cambridge GO resources by entering the unique access code found in the front of this textbook.* * Technical specifications: You must be connected to the internet to activate your account.  Once you have activated your unique code on Cambridge GO. can be downloaded.cambridge. . Log in to your existing Cambridge GO user account OR Create a new user account by visiting: www. For more information or help contact us on 03 8671 1400 or enquiries@cambridge.au ix ISBN: 9781107665910 © Gillian Somers.edu. 2. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party.edu. Just log in to your account using the email address and password you registered with and you will find all of your resources. 3.au/GO/newuser  All of your Cambridge GO resources can be accessed through this account. To use the PDF Textbook you must have the latest version of Adobe Reader installed. it is not necessary to input your code again.

Julie Cain Thank you to Ken. Gillian has been actively involved in study design consultation and reviewing. She is a regular speaker at professional development for VCTA and COMVIEW and a presenter of student lectures in this subject area. I value the confidence you place in me and your support and feedback. auditing of coursework and assessing examinations for the VCAA since the early 1990s. Also thank you to Joe Somers for his advice and proofreading.ABOUT THE AUTHORS GILLIAN SOMERS Gillian Somers is VET Coordinator and Senior Business Management teacher at Trinity Grammar School. Melanie. She is also a regular contributor to the VCTA journal Compak and to ComNET. Emma and Matthew Cain for their continued support and assistance. Gillian Somers Thank you to my family – John. For many years she has been involved in auditing. reviewing and assessing for the VCAA. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. . Julie also presents student revision lectures and develops assessment materials in this subject area. Megan is a co-editor of the Business Management section of that journal. MEGAN JEFFERY Megan Jeffery is Senior Business Management teacher at Northcote High School. To my VCE students. To my VCE students for their feedback and advice. feedback and proofreading. advice. Gillian has been a regular contributor for the past 20 years to VCTA’s journal Compak and is a co-editor of the Business Management section of that journal. AUTHOR ACKNOWLEDGEMENTS Thank you to my husband Joe for his support. Claire and James for their support and encouragement. JULIE CAIN Julie Cain is an Assistant Principal and Senior Business Management teacher at Lalor Secondary College. Julie Cain. Megan Jeffery x ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. Megan has also presented at COMVIEW and is a regular contributor to the VCTA journal Compak. assessing and consultation for the VCAA. Kew. She is an experienced VCE Business Management assessor and has been involved in auditing.

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medium and large businesses s #ONTRIBUTIONOFSMALLBUSINESSTOTHEECONOMY 1 1 3 Introducing business Business ENVIRONMENTS s The internal and external (operating and macro) ENVIRONMENTSOFABUSINESS s "USINESSETHICSANDSOCIALLYRESPONSIBLEMANAGEMENT ANDITSIMPACTONVARIOUSSTAKEHOLDERS 1 2 4 Small business DECISIONMAKING. including for-profit and not-for-profit organisations 1 1 s /BJECTIVESOFDIFFERENTTYPESOFORGANISATIONS 2 Introducing business Small business in Australia s Distinctions between small.KEY KNOWLEDGE TABLE Unit Area of study Chapter number Chapter name Key knowledge 1 1 1 Small business management Introducing business Business organisations s Features of organisations.

planning and EVALUATION -AJORDECISION MAKINGPRIORTO starting a small business s -OTIVATIONBEHINDSTARTINGASMALLBUSINESS.

INCLUDING DESIREFORINDEPENDENCE.

including franchise operations – Location options: shopping centre. commencing a new business.TOMAKEAPROlTANDFULlLA MARKETNEED s -AJORDECISIONSATTHECOMMENCEMENTOFASMALLBUSINESS – "USINESSCONCEPTDEVELOPMENTANDINITIALMARKET research – )NNOVATIONANDENTREPRENEURSHIPASASOURCEOF BUSINESSOPPORTUNITY – Forms of business ownership and business structure – Purchasing an established business. retail shopping strips. online presence and home-based businesses and the factors that affect that choice 1 2 5 Small business DECISIONMAKING.

planning and EVALUATION 1 2 6 Small business DECISIONMAKING.

. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. Julie Cain. planning and EVALUATION xii Business support SERVICES s "USINESSANDSUPPORTSERVICES The importance of business planning s 3UGGESTEDACTIVITYFORAREAOFSTUDY – – – – – Legal Financial Technological #OMMUNITY BASED &ORMALANDINFORMALNETWORKS ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers.

Unit Area of study Chapter number Chapter name Key knowledge 1 2 7 -AJORPLANNING decisions throughout the life of a small business s !NOVERVIEWOFKEYLEGALANDGOVERNMENTREGULATIONS affecting the operation of a small business Small business DECISIONMAKING.

planning and EVALUATION s -AJORBUSINESSPLANNINGTHROUGHOUTTHELIFEOFASMALL business – (UMANANDPHYSICALRESOURCENEEDS – Financial planning and sources of finance – -ARKETINGSTRATEGY 1 2 8 Small business DECISIONMAKING.

planning and EVALUATION 1 3 9 $AY TO DAY operations /NGOING EVALUATIONOF small business s 3TRATEGIESUSEDTOUNDERTAKEONGOINGEVALUATIONOFA SMALLBUSINESS.

INCLUDINGKEYPERFORMANCEINDICATORS )NTRODUCTORY accounting for small business s 2EASONSFORKEEPINGSOURCEDOCUMENTS s 0RACTICESTHATCONTRIBUTETOETHICALANDSOCIALLY responsible management with respect to decision MAKING.

PLANNINGANDEVALUATION s %LEMENTSOFACASHBOOK s Taxation obligations and the implications for decisions on business structure s 0URPOSEOFTHE'OODSAND3ERVICES4AX'34 s Concepts used within simple financial reports. such as profit and loss statement. cash flow report or balance sheet s 0RICESETTING.

INCLUDINGCALCULATIONOFBREAK EVENPOINT s %THICALANDSOCIALLYRESPONSIBLEMANAGEMENTOF accounting practices 1 3 10 $AY TO DAY operations Management of staff in small business s 4YPESOFRECRUITMENTANDSELECTIONMETHODS s 2EASONSFOR.

ANDDISTINCTIONSBETWEEN.

including full-time. casual status s !NOVERVIEWOFRELEVANTLEGISLATION.EMPLOYMENT arrangements. part-time.

SUCHASOCCUPATIONAL HEALTHANDSAFETY/(3 ANDEQUALEMPLOYMENT OPPORTUNITIES%%/ s %THICALANDSOCIALLYRESPONSIBLEMANAGEMENTOF EMPLOYMENTPRACTICES 1 3 $AY TO DAY operations 11 Information and communication technologies in small business s Strategies to select appropriate hardware and software to meet small business needs s 0OSSIBLEUSEOFAVAILABLETECHNOLOGIES.

Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. . presentation software. internet.SUCHAS databases. podcasts. SMS and blogs or emerging technologies continued next page KE Y K N O W L E D G E TA BL E xiii ISBN: 9781107665910 © Gillian Somers. spreadsheets. Julie Cain.

Unit Area of study Chapter number Chapter name Key knowledge s Uses of e-commerce s )MPLICATIONSOFTHEUSEOFAVAILABLETECHNOLOGYAND e-commerce. such as benefits and costs to the small business s 2EASONSFOR.

ANDMETHODSOF.

ENSURINGTHESECURITYOF TECHNOLOGYANDINFORMATION s %THICALANDSOCIALLYRESPONSIBLEMANAGEMENTOF)#4IN small business 1 3 12 $AY TO DAY operations Legal REQUIREMENTS of small businesses offering goods ANDSERVICES s !NOVERVIEWOFTHEVARIOUSLEVELSOFGOVERNMENTCREATING the legislation s 4YPESOFLEGISLATIONCREATEDBYFEDERALGOVERNMENT.

that impact on small business s 4YPESOFLEGISLATIONCREATEDBYTHESTATEGOVERNMENT.SUCH as the Trade Practices Act 1974 (federal).

such as the Consumer Affairs Legislation Amendment Act 2010 (state). that impact on small business s 4YPESOFLEGISLATIONCREATEDBYLOCALGOVERNMENT.

that impact on small business s .SUCH as local laws affecting food handling.EGISLATIONCREATEDBYCOMMONLAW.

SUCHASCONTRACTAND negligence s %THICALANDSOCIALLYRESPONSIBLEMANAGEMENTOFTHELEGAL REQUIREMENTSOFSMALLBUSINESSES 2 1 13 Communication and management Communication in business Communication in business s #OMMUNICATIONANDITSRELATIONSHIPTOBUSINESSOBJECTIVES ANDSTRATEGY s 4YPEANDPURPOSEOFINFORMATIONTHATNEEDSTOBE communicated s #OMMUNICATIONMETHODS.

INCLUDINGVERBALWRITTENANDORAL ANDNON VERBALBODYLANGUAGE.

VISUAL.

TECHNOLOGY BASED s 4YPESOFAUDIENCES.

SUCHASEMPLOYEES.

SUPPLIERSAND customers s Appropriate methods of communication for different management situations 2 1 14 Communication in business %FFECTIVENESSOF communication s %FFECTIVENESSOFMETHODSOFCOMMUNICATION.

Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. . Julie Cain.INCLUDING consideration of barriers/actions that limit and/or enhance communication s #OMMUNICATIONBEHAVIOURSTHATARECONSIDEREDUNETHICAL or illegal xiv ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers.

Unit Area of study Chapter number Chapter name Key knowledge 2 2 15 Managing the MARKETING function s 4HEMARKETINGFUNCTIONANDITSRELATIONSHIPTOBUSINESS OBJECTIVESANDSTRATEGY 16 -ARKET research s -ARKETRESEARCHPROCESSES.

INCLUDINGINFORMATIONNEEDS.

DATA COLLECTIONTOOLSANDTECHNIQUES.

ANALYSISAND interpretation 17 4HEMARKETING plan and EVALUATIONOF performance s +EYELEMENTSOFAMARKETINGPLAN Managing the MARKETINGFUNCTION 2 2 Managing the MARKETINGFUNCTION 2 2 Managing the MARKETINGFUNCTION s -ARKETATTRIBUTES.

INCLUDINGMARKETDIMENSIONS.

SEGMENTS.

CONSUMERTRENDSANDBEHAVIOUR – %STABLISHINGOBJECTIVES – -ARKETDESCRIPTION – -ARKETINGMIXPRODUCT.

PRICE.

PLACEANDPROMOTION – %XPANSIONSTRATEGIES.

SUCHASEXPORTINGANDDIVERSIFYING – 2ELEVANTPERFORMANCEINDICATORSTOEVALUATEEFFECTIVE MARKETINGSTRATEGIES 2 2 18 Managing the MARKETINGFUNCTION 4HEMARKETING mix and related MARKETING strategies s 4HEMARKETINGMIXANDRELATEDSTRATEGIES – Product – Price – Place – Promotion s 0RODUCTLIFECYCLE s )SSUESINMARKETING.

INCLUDINGTHEROLEOFTECHNOLOGYINTHE global business context and in the context of ethical and SOCIALLYRESPONSIBLEMANAGEMENTANDLEGALREQUIREMENTS 2 3 Managing the public relations function 19 Managing the public relations function s The management of public relations and its relationship TOBUSINESSOBJECTIVESANDBUSINESSSTRATEGY s The significance of image s 4HECONCEPTOF@PUBLICSANDTHEIRRESPECTIVE characteristics s 0UBLICRELATIONSOBJECTIVESANDSTRATEGIESUSEDINARANGE of planned business situations for identified ‘publics’ s 0UBLICRELATIONSOBJECTIVESANDSTRATEGIESUSEDINARANGE of unplanned situations s 2ELEVANTPERFORMANCEINDICATORSTOEVALUATETHE performance of public relations strategies s )SSUESINPUBLICRELATIONS.

. Julie Cain.INCLUDINGTHEROLEOFTECHNOLOGYIN the global business context and in the context of ethical and SOCIALLYRESPONSIBLEMANAGEMENTANDLEGALREQUIREMENTS K E Y KN O W L E D G E TA B LE xv ISBN: 9781107665910 © Gillian Somers. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party.

Julie Cain. .1 BUSINESS ORGANISATIONS WHAT’S AHEAD What is it? Importance and necessity Objectives Organisation Types Common characteristics ISBN: 9781107665910 © Gillian Somers. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party.

cricket or football) or a church or charity group. Julie Cain. netball. including for-profit and not-for-profit organisations – the objectives of different types of organisations. . such as the Australian Red Cross. 1 ISBN: 9781107665910 © Gillian Somers. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. uncles and cousins). whether it is our immediate family (parents. aunts. By going to school or having a part-time job.KEY KNOWLEDGE Students will learn the following introducing them to business organisations: – the features of organisations. We may also be involved in social groups such as sports clubs (e. brothers and sisters) or our extended family (grandparents. basketball. we are involved in business organisations. AREA OF STUDY INTRODUCING BUSINESS 1 For most of our lives we are part of some form of organisation. In the simplest form. we are part of our family. swimming.g.

Organisations help to provide a continuity of knowledge between past and future generations. as they have now decided to study sports management at a university or TAFE. Organisations serve to manage complex social and technological change. During a person’s teenage years they may be a member of a sporting team. the result at the end of the season will be disappointment. Julie Cain. Membership of an organisation could initially come from an individual having an interest in some form of social organisation.What is an organisation? organisation two or more people who work together in a structured way to achieve a specific objective or set of objectives employer a person who hires another to work under their authority and control. 2 Describe your involvement with each organisation. This initial sporting interest may turn into a career opportunity. and wish to then work at managing a sporting complex for the YMCA or a local council. This is referred to as ‘using your network’ of contacts. If only one or two individual players work consistently during the season towards this objective. success is far more likely. in return for payment of a regular wage or salary An organisation is a formal or structured arrangement where two or more people work together to accomplish some specific purpose or set of objectives. Imagine a football or basketball team at the start of the season deciding that the Premiership Cup is theirs. 3 Describe how each organisation is important to you. In our everchanging world it is important for people to share. If the entire team works consistently towards this objective. where it is said that ‘Together Everyone Achieves More’ (TEAM). Being part of an organisation. Having people of varying ages and life experiences within an organisation allows for the passing down of valuable knowledge while also providing the future members and leaders of the group with a diverse range of opinions and experiences. such as netball or football. ACTIVITY 1. By being cohesive as a group.1 1 Compile a list of 10 organisations that you have been involved with over the past week. such as your school or sports club. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. Organisations are also an important source of employment and career direction. a common objective or purpose can be achieved. Figure 1. . Importance and necessity of organisations Organisations enable people to achieve things that they could not achieve as individuals.1 The champions 2 ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. The important elements of wisdom or hindsight can then be incorporated into the decision making or planning undertaken by the group. may create employment opportunities as it will provide a connection with prospective employers who may be past students of your school or members of your club. and not to individually carry the responsibility of responding to the pressures of both social and technological change. This highlights the importance of the team approach.

1 Size. in both the nature of their operations and the assistance they may require. . a cooperative or as a trust? A detailed description of these various forms of ownership is provided in chapter 4. the extent of their market share. In the same way. If the organisation is a business. The value (or size) of assets. Organisations can vary in size from a minimum of two employees to thousands of workers. does the organisation produce or sell goods or provide a service to customers and/or clients? 3 Form of legal ownership. Organisations within the same industry develop strategies to entice customers away from their competitors. This is measured in terms of how much monetary value it provides to the gross domestic product (GDP) of Australia. like revenue. CH AP T E R 1 BUSINESS ORGANISATIONS revenue what a business earns in the way of sales or fees assets items of monetary value owned by the business job a group of tasks performed by an employee market share the percentage of total sales in a market held by one brand or business competitor a business rival in the same market for products or services offered by an organisation gross domestic product (GDP) total value of output produced in a country in one year industry sector different types of organisations and enterprises producing goods and services in the same industry or business area 3 ISBN: 9781107665910 © Gillian Somers. 4 Extent of their market share. In a competitive marketplace. sæ Assets are what the organisation actually owns. Coca-Cola and Pepsi are seen in the soft drink industry as fierce rivals. and adopt a distinct form of structure. sæ The size of revenue or gross income of an organisation can vary from being a very small business generating income of thousands of dollars to a very large multinational corporation with revenue in the scale of billions of dollars. regulations and procedures. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. as a partnership. a shopping centre complex that the shopping centre owner leases out to tenants to generate income is a vital asset. 2 Nature of operations refers to whether the organisation has been established as a business enterprise or for social interaction. does it operate as a sole trader/proprietor. revenue and assets: sæ Number of employees or voluntary workers.1. the government has classified them into specific industries. which may be either formal or informal. They comprise two or more people. To assist in the understanding of these businesses. thereby capturing a larger share of the market. Differences between organisations Organisations can be differentiated by the following five factors. which is generally expressed as a goal or set of objectives that the organisation wishes to accomplish. which are listed in table 1. can vary enormously. always developing strategies to try to gain market share over the other. These are then grouped into 17 industry sectors. the car used to get from one job to the next is a vital asset to the business operation. for a small lawn mowing business. A formal structure will involve clear and carefully defined rules. which may vary as to number of employees or members.Common characteristics of organisations All organisations have a distinct purpose. Australia has a very large and diverse range of businesses operating in its economy. 5 Contribution to the economy. For instance. Similarly. that is. whereas a simple network of loose work relationships is regarded as an informal structure. a company. organisations are compared based on the percentage of the particular market they command. Julie Cain. The number of people employed at an organisation will affect the way it is structured and operated.

Table 1.1 The 17 main industry sectors s !CCOMMODATION.

CAFÏSANDRESTAURANTS s (EALTHANDCOMMUNITYSERVICES s !GRICULTURE.

FORESTRYANDlSHING s -ANUFACTURING s #OMMUNICATIONSERVICES s -INING s #ONSTRUCTION s 0ERSONALANDOTHERSERVICES s #ULTURALANDRECREATIONSERVICES s 0ROPERTYANDBUSINESSSERVICES s %DUCATION s 2ETAILTRADE s %LECTRICITY.

d Melbourne Water e Lend Lease f Linfox g Grocon h Wesfarmers i Visy j Qantas k DuluxGroup l The University of Melbourne m City of Melbourne n CSL o Telstra p RACV q Reserve Bank r Flight Centre s Murray Goulburn t 4 Rio Tinto ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers.GASANDWATERSUPPLY s 4RANSPORTANDSTORAGE s &INANCEANDINSURANCE s 7HOLESALETRADE s 'OVERNMENTADMINISTRATIONANDDEFENCE ACTIVITY 1.2 Identify the relevant industry sector for the organisations listed below. Julie Cain. .google.) Name of organisation Industry sector a NAB Finance and insurance b David Jones Retail trade c News Corp. The first two have been done for you.com.com.au and www.au are useful sites to assist you in completing this activity. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. (Hint: www.asx.

These objectives can be broadly categorised as financial and social objectives. the Australian Red Cross provides a free blood donation and transfusion service. the important objectives are to ensure that their organisation attracts CH AP T E R 1 BUSINESS ORGANISATIONS 5 ISBN: 9781107665910 © Gillian Somers. Others. For example. non-denominational community organisations. Objectives of different types of organisations mission statement a global statement that reflects an organisation’s reason for being or purpose and the way it will be managed vision statement a statement that outlines the aspirations of the organisation All organisations. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. The length of time that these lower-price fares could be sustained depended on what profit margin Virgin was seeking from its Australian operations. This classification of business organisations makes up the majority of enterprises in Australia. Financial objectives A commercial organisation is usually judged on its financial success: sæ Profit or surplus – this amount needs to be sufficient to provide owners and shareholders with a return on their investment (dividend). It is now conducting a similar pricing strategy with the introduction of its international route carrier. The focus of not-for-profit (NFP) organisations is providing a specific service to the community. The Salvation Army is an example that acts through their nationwide networks to meet the needs of their particular communities. Newscorp and Lend Lease are in this category. Other large welfare organisations are churchsponsored. . Julie Cain. For example. The most recent official figures provided by the Australian Bureau of Statistics to the Australian Productivity Commission’s research report (11 February 2010) identified that in 2007 there were 600 000 NFP organisations in Australia. market share and growth. if it is a profit-making organisation. For an NFP organisation. are independent. need to set objectives they wish to achieve in line with their mission statement or vision statement.Types of organisations The focus of for-profit organisations is profit attainment. in its initial bid to gain market share in the Australian domestic market. These organisations gain the majority of funds through donations from the Australian business community and the general public. For an NFP organisation. V Australia. of which 59 000 made economically significant contributions to Australia’s GDP and 8 per cent of employment. An increase in market share usually leads to an increase in profitability in the long term.2 The Salvation Army is a not-for-profit organisation Some NFP organisations are government businesses. whether they are for-profit or not-for-profit. Virgin Blue Airlines. Figure 1. sæ Product sales and market share – a business may want to increase its sales in the hope of making the business more profitable. Market share is the percentage of total product sales made by a business in a given market over a set period of time. was willing to offer cut-price fares. such as the Australian Red Cross. surplus must be sufficient to allow it to perform its social objectives. Wesfarmers.

Businesses decide whether their domestic market will provide sufficient growth potential or whether they need to ‘go global’ in their operations. . usually in small quantities. sæ To assist in improving employment prospects for disadvantaged groups in the community. as an ethical retailer. infrastructure physical resources of an area. Figure 1. one of the Asian region’s leading providers of integrated logistics services. utility services. where it offers. The Body Shop aims to maximise sustainable benefits to its supplier communities while also meeting customer expectations. transport. employment to former criminals and drug addicts in the hope of assisting them to turn their lives around. The actions of these organisations often go unnoticed by the general public. Toll Holdings Limited. or if it would be better to redirect the donations being offered to another NFP organisation that has the infrastructure and experience to best serve the needs of an individual or community. e. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. that benefit the entire community retailer business that sells products. sæ Growth – this relates to a combination of both market share and profit. The Body Shop has supported fair trade in the toiletries and cosmetics industry.3 The Body Shop strives to combine both financial and social goals. to households or individual consumers 6 Social objectives Social objectives are relevant for both for-profit and NFP organisations. on an annual basis. youth. and therefore they must decide whether they really are the best organisation to offer the needed assistance. Many organisations (for-profit and not-for-profit) are able to successfully combine both financial and social objectives. training and development and career paths for employees. Similarly. Julie Cain. but are not unappreciated by those in the community who are being helped. ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. natural ingredients are fostered directly with marginalised communities around the world. migrants. They relate to establishing objectives that are of benefit to employees and the wider community.sufficient donations. where trading relations to source high-quality. power. its vision is to present a model to industry that others can follow.g. It has established a Community Trade program. is an example of a business that has successfully combined these objectives. particularly if the new business area is one where the organisation has no prior knowledge or experience. sponsorship or support. It also contributes resources towards positive social and environmental change through its donations and sponsorship of community support programs. As the pioneer of fair trade in the toiletries and cosmetics industry. Another option for growing a business is to diversify into other areas of operation. sæ To produce environmentally friendly products and not produce or release any pollutants into the air or waterways. or those with criminal records. Examples of these objectives are: sæ To ensure ongoing employment. NFP organisations may be called upon to offer assistance in unfamiliar areas. and not lose their share to another NFP organisation.g. This involves moving away from its core business into other activities and can be a risky strategy. The Body Shop Australia. e. sæ To provide services to the community or be actively involved in supporting community projects. Since 1987. is involved in a supported employment program called Second Step. Another organisation.

com. 5 Identify two other for-profit organisations that assist not-for-profit organisations in achieving their objectives.4 Step into a new life with the Second Step employment program with further growth opportunities in the year ahead.au/community. Brisbane City Council and The MacKillop Foundation) have benefited from the services made available to them through First Step and St Vincents Hospital. Second Steppers – both First Step candidates and those who are recommended to us through our other partner programs (Whitelion. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. Melbourne City Mission. .3 Read the extract and answer the questions that follow. The pleasing statistic is that the majority of our Second Steppers are offered full-time positions at the end of their initial 12 months of supported placement.toll. 1 Identify whether Toll Holdings is a for-profit or not-for-profit organisation.html Questions Visit the website of Toll Holdings Limited (www.toll. Julie Cain.ACTIVITY 1.g. 3 Outline what the Second Step program is aiming to achieve.au) to assist in completing questions 1 to 4. 6 Describe the forms of assistance one of these organisations is providing. 2 The First Step program is referred to in the extract. Port Phillip Prison Youth Unit. C H A P TER 1 BUSINESS ORGANISATIONS 7 ISBN: 9781107665910 © Gillian Somers. McDonald’s Australia and Ronald McDonald House. e. Source: www. The program now offers 30 positions a year throughout Australia in a variety of supported and mentored employment positions. Outline what this program is aiming to achieve. To date Toll has helped over 240 people get their lives back on track and maintain satisfying and rewarding employment. We are also in discussion with a number of agencies both in Australia and in other countries to establish the program throughout the Toll Group globally and hope to report back Figure 1. Toll’s Second Step is a program started by Mr Paul Little AO who remains a passionate supporter. This is testimony to the success of the program. Our hope is that Toll’s leading role in these initiatives will encourage other corporates to be involved in supporting people dealing with what would otherwise be insurmountable problems.com. 4 Identify the two directions in which Toll Holdings would like the Second Step program to progress. Second Step The Second Step employment program continues to offer a supported employment opportunity with Toll for people whose employment prospects are limited as a result of a history of addiction or criminal offences.

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Julie Cain.iw˜iÊ̅iÊvœœÜˆ˜}ÊÌiÀ“ÃÊ>˜`Ê̅i˜ÊÕÃiÊi>V…ʈ˜Ê >ÊÃi˜Ìi˜ViÊ̜Ê`i“œ˜ÃÌÀ>ÌiÊޜÕÀÊ՘`iÀÃÌ>˜`ˆ˜}° a Organisation b "LiV̈Ûi c ÃÃiÌà d Ê>ÀŽiÌÊÅ>Ài e . Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. .iÛi˜Õi f œÌ‡vœÀ‡«ÀœwÌʜÀ}>˜ˆÃ>̈œ˜° 3 `i˜ÌˆvÞÊ̅iÊvi>ÌÕÀiÃÊ̅>ÌÊ>ÀiÊVœ““œ˜ÞÊÕÃi`ÊÌœÊ `ˆÃ̈˜}ՈÅÊ`ˆvviÀi˜ÌÊÌÞ«iÃʜvʜÀ}>˜ˆÃ>̈œ˜Ã° 4 Ý«>ˆ˜Ê̅iʈ“«œÀÌ>˜ViʜvÊV>ÃÈvވ˜}ʈ˜`ÕÃÌÀˆiÃÊ ˆ˜ÌœÊ`ˆÃ̈˜VÌʈ˜`ÕÃÌÀÞÊÃiV̜Àð 8 ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers.

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iÃVÀˆLiÊ̅iʈ“«œÀÌ>˜ViʜvÊÃiÌ̈˜}ÊÜVˆ>Ê œLiV̈Ûið Conclusion .

Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party.ˆÃVÕÃÃÊޜÕÀʜ«ˆ˜ˆœ˜Êœ˜Ê̅iÊÃÌ>Ìi“i˜Ì° C H A P TER 1 BUSINESS ORGANISATIONS 9 ISBN: 9781107665910 © Gillian Somers. . Julie Cain.

Julie Cain.2 SMALL BUSINESS IN AUSTRALIA WHAT’S AHEAD What is it? Distinction between small. . medium and large Small business Key features of a small business Contribution to the economy ISBN: 9781107665910 © Gillian Somers. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party.

Julie Cain. creating policies and improving the levels of assistance provided to small business. 11 ISBN: 9781107665910 © Gillian Somers. . Small businesses have been shown to have the ability to dynamically respond to changing economic conditions. medium and large businesses – the contribution of small business to the economy. This is a challenging and exciting business sector and its contribution to the Australian economy should not be underrated. AREA OF STUDY INTRODUCING BUSINESS 1 Over 95 per cent of all Australian private sector businesses are classified as small.KEY KNOWLEDGE Students will learn the following about small business in Australia: – the distinctions between small. Governments at both state and federal level recognise the importance of the small business sector by appointing ministerial portfolios. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party.

Julie Cain.g. if not all the operating capital of the business sæ the owners/managers are the main or principal decision makers. more than 67 per cent of all small businesses in Australia are home-based businesses – that is around 856 000 businesses. rental of premises. Figure 2.1 1 List five businesses that would fall into the category of ‘microbusiness’. Working from home can help the business owner and any employees achieve a balance between work and family commitments by allowing flexible working hours. It also has the advantage of cutting overheads.2 A home-based microbusiness ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers.What is a microbusiness? Microbusiness is a classification given to small businesses employing fewer than five employees. the business may employ up to 20 people (nonmanufacturing) and 100 people (manufacturing) microbusiness small business that has fewer than five employees 12 What is a small business? The Bedall Report 1990 and the Australian Bureau of Statistics define a business as small if: ACTIVITY 2. This category of small business now accounts for 80 per cent of all businesses in Australia. 3 Describe the advantages that technology has given to the home-based business operator. For numbers of people employed. A small business is one that employs up to: sæ 20 people in non-manufacturing industries sæ 100 people in manufacturing industries.1 A small business operator capital funds invested in a business. Figure 2. sæ it is independently owned and operated sæ it is closely controlled by owners/managers who contribute most. Two well-known Australian businesses that started their existence in a home or garage are Lonely Planet Publishing and Rip Curl. which form one of the main inputs for the production process small business an independently owned and operated business. According to the Australian Bureau of Statistics. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. 2 Identify three advantages and three disadvantages associated with home-based businesses. e. . under close control of its owner who has contributed the majority of the operating capital and is the main decision maker. the following statistics are commonly accepted.

Small businesses can also provide functional support to large organisations that use outsourcing. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. For example. medical. which provides gourmet coffee machines to workplaces with upwards of five to 10 employees. approximately 52 per cent of Australians now outsource some of their domestic and personal tasks. with 19 per cent eating at restaurants and 18 per cent purchasing take-away meals. Dial-an-Angel is an example of a business that has grown from a small family-run home help company to the only national agency that specialises in the provision of home and family care. property and business services. government departments would be involved in the direct recruitment of graduates from universities.g. e.g. This rapidly growing franchised business in 2010 had 140 franchises. reflecting our society’s need for greater service-oriented industries. Small personnel consultancies are now often used to conduct the initial stages of recruitment and selection of graduates. Many small businesses offer services or routine tasks to other companies and individuals. In addition. This sector is an important generator of jobs. promoting and developing entrepreneurs.3 An example of a small business that has grown ino a national one. C H A P T ER 2 SMALL BUSINESS IN AUSTRALIA 13 ISBN: 9781107665910 © Gillian Somers. followed by personal grooming and cleaning. A small business that has combined entrepreneurship with such an activity is Xpresso Delight. e. Julie Cain. legal advice Figure 2. legal advice service-oriented industry those businesses that provide a service to a client. This can involve the initial online application entrepreneur a person who is willing to combine an element of risk taking with their own knowledge and skills to make a profit outsourcing process of using another business to undertake some task or work process services non-material objects produced by people for the benefit of others. accounting. small businesses have stepped into the role of providing many of the former traditional government functions. and has set targets of 200 franchises by the end of 2011 and 250 franchises by the end of 2012. cultural. which account for 14 per cent. Small businesses can perform the role of nurturing. tourism. Taxation is paid by both businesses and employees.How small business helps our economy Small businesses represent 95 per cent of the total number of businesses in Australia. e. which then helps to fund the goods and services the government provides to the community.g. an organisation may outsource the non-core activity of providing coffee to their staff during the working day rather than employing a ‘tea person’. recreational. such as public health and education. Previously. . personal. health. community and retail. The most popular of these is meals. According to the March 2008 Sensis Consumer Report.

These same large businesses often rely on small businesses for their supplies of raw materials. they assume the risk themselves. may result in office or plant closure. This small business is based at its warehouse in Ferntree Gully. While many of the growth industries have a large associated risk. In the past decade. garbage collection may now be performed by a small business rather than by council employees. is the founder and Managing Director of Etiko. Vital growth industries. small business entrepreneurs are willing to accept the risk for the opportunity of greater financial benefit in the long term. are often entered into by small business operators.and large-scale organisations have been aggressively downsizing their operations. such as medical care and biomedical research. On a local level. As producers of sports balls. technology and skilled workers or any other required services or non-core activities. Etiko’s commitment to social justice goes beyond fighting child labour and sweatshops. but important when viewing it in terms of social responsibility. Julie Cain. a former high school teacher. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. This has provided an opportunity for salaried employees who have been retrenched to form their own businesses as consultants and contractors. component parts. This means that the sports and clothing products are made by people who earn a fair wage and have good working conditions. sweatshop free or from worker or farmer-owned cooperatives.downsizing occurs when an organisation reduces its operations. micro-credit and health care programs in countries around the world. Figure 2. and reduction in functional positions (jobs) process. an Australian-based brand committed to sourcing overseas products that are Fairtrade Certified. the 2009 Sustainability Victoria Greenleaf Award and a 2008 Telstra Business Award for Social Responsibility. as the purchase of its products also helps fund community development. As the small business owner often does not have a board of directors and shareholders to answer to.4 Etiko means ethical. many medium. from which it distributes its range of brightly coloured sneakers. The economic contribution they make is therefore less direct in dollar terms.2 Read the article and answer the questions that follow. ‘Etiko – it means ethical’ Nick Savaidis. sports balls and selected items of clothing to be sold at shops such as Oxfam and Friends of the Earth. ACTIVITY 2. followed by screening and testing of applications to create a shortlist to be submitted to the relevant government department. ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. Etiko has won many state and national business awards including the 2008 Banksia Environmental Foundation Award. . it was one of three enterprises in the world to receive the 14 International Labour Organisation accolade: ‘Without Child Labour’. Other small business operators have a passion for doing something to help society both locally and globally.

Questions Visit the Etiko website (www. 3 From which countries does Etiko source its products? 4 Describe the concept of a ‘micro-credit’ loan. .5 Key features of a small business C H A P T ER 2 SMALL BUSINESS IN AUSTRALIA 15 ISBN: 9781107665910 © Gillian Somers. 5 Discuss whether you believe that this small business is helping our economy. it becomes easier to distinguish between them. Julie Cain. Once these are understood.etiko. Provide two reasons why you believe this approach may not succeed.com. Key features of businesses To gain an understanding of the differences between businesses. 1 Why do you think Nick Savaidis started this business? 2 This business has adopted a socially responsible approach to its products and business operations.au) to help you answer the questions below. medium or large. it is useful to look at their key features. Key features of a business are: sæ size based on number of employees sæ legal structure sæ business activity sæ public or private sector. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. Size based on number of employees Public or private sector Small business Legal structure Business activity Figure 2. whether small. a b Provide two reasons why you believe this to be a sound approach.

By lunchtime they are ready to finish their day’s work. ACTIVITY 2. 16 ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. During weekdays. with customers crowding into the shop. start work at 4 a. To help manage the crowd. . the shop becomes hectic.Very small/micro Fewer than five employees Small Fewer than 20 employees – non-manufacturing industry Fewer than 100 employees – manufacturing industry Medium Between 20 and 199 employees Large More than 200 employees Figure 2.m. the shop is usually staffed by three shop assistants who only work Monday to Friday. To make sure that there is always a plentiful supply on the shelves. On the weekends. which means that the six part-time shop assistants. Case study FigureBusiness 2. David runs a very successful bakery in a small suburban shopping centre. David and his three qualified bakers. a number system is used.6 Classification of business by size The number of employees within a business forms the basis of the Australian Bureau of Statistics (ABS) classification of a business as being very small. The shop has become so successful due to the range and quality of the bread.3 Read the case study and answer the question that follows. small.7 Classification A of business by size. are able to provide quality customer service. Julie Cain. medium or large. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. assisted by three apprentices. who only work over the weekend. each day.

The first Australian store was opened in Melbourne in 1983 and since then more than 80 stores have opened across Australia. The sales showroom is located in the main street of the town and is very popular with both locals and tourists. public company. The residents’ laundry is done on a daily basis by the five laundry staff. Barry does not feel comfortable dealing directly with customers. At Wharton Lea they have 25 experienced nursing staff assisted by 50 aged-care assistants who help residents with all their needs. Because of the separate legal life created. Business C Wharton Lea offers three levels of accommodation – independent living. This means that there is no difference between the business and its owners. England. such as sole traders/ proprietors or partnerships. are a separate legal entity and are subject to the requirements of the Corporations Act 2001 (Commonwealth). chairs. Many organisations. All meals at Wharton Lea are prepared by the five catering staff according to the individual residents’ dietary requirements and are served to them in the dining room.Business B Barry runs a red gum furniture manufacturing business in country Victoria. Business D The Body Shop Australia is a fully Australianowned company that runs the Australian operation of the world-renowned Body Shop established by Dame Anita Roddick in Brighton. His business has grown to the stage where he now employs 19 other craftspeople in the factory to help him keep up with orders. Residents are required to pay a bond to enter the facility and then a weekly service fee. . Legal structure There are two main types of legal structure for businesses operating in the private sector: incorporated and unincorporated. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. Justify your choice of classification. Question Classify each of the businesses as small. hostel and nursing home facilities – to people who need extra care and assistance as they progress through their old age. See chapter 4 for detailed descriptions of these forms of legal ownership. it acts to limit an individual’s liability for any debts incurred by the incorporated body to the extent of their ownership (shareholding) in that body. with the owners having complete legal responsibility and liability for all the actions of the business. Julie Cain. Incorporated bodies can be set up as a private company. sideboards and bookshelves. such as tables. He makes large items of furniture. choose to be run as unincorporated businesses. with the off-cuts of wood being made into chopping boards and bowls. preferring to leave the sales negotiations to his five sales staff. medium or large. in 1976. C H A P T ER 2 SMALL BUSINESS IN AUSTRALIA debt a sum of money owed by one person (debtor) to another person (creditor) proprietor owner of a registered business name 17 ISBN: 9781107665910 © Gillian Somers. Organisations that are incorporated are officially registered as a company. trust or cooperative.

These three categories also link to the three stages involved in transforming natural resources into finished goods and services. cultural and recreational services. personal and other services ACTIVITY 2. secondary sector and tertiary sector. property and business services. The first one has been done for you. finance and insurance.Business activity Primary sector businesses that operate in industries that are concerned with agriculture. secondary. quaternary or quinary) for the businesses listed below. tertiary. however.1 Business activity sectors Private sector Unincorporated business s 3OLETRADER s 0ARTNERSHIP Incorporated business s s s s 0RIVATECOMPANIES 0UBLICCOMPANIES 4RUSTS #OOPERATIVES Figure 2. business services and education Quinary sector industry sector that represents accommodation. fishing and forestry. Table 2. tertiary.7 Types of private sector businesses Level of sector Types of business/service Primary Mining. restaurants and cafés. Name of business a YMCA b Wesfarmers c BHP Billiton d Telstra e Village Cinemas f McDonald’s Restaurants g Qantas h John West i ANZ Bank j CSL Limited k Billabong l Herald Sun Business activity sector Quinary ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. health and social assistance. finance. it is possible to classify these into three broad types of business activity: primary sector.1 outlines the business sectors. processing. Those industries concerned with land or sea Secondary Manufacturing. personal and household services 18 Businesses produce a vast range of different goods and services. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. Table 2.4 Identify the business activity sector (primary. Julie Cain. insurance. retailing and transport a Quaternary Information processing. fabrication of final product Tertiary Wholesaling. The third broad category. fishing and extraction of raw materials Secondary sector business activity that relates to manufacture and construction of goods Tertiary sector business activity that provides services for consumers and other business Quaternary sector industry sector that represents communications. . education b Quinary Hospitality. health and community services. is now commonly divided into two further subcategories: quaternary sector (informationbased) and quinary sector (household servicesbased). These ‘new age’ industry subsectors are significant contributors to the tertiary industry sector. agriculture. property. construction.

Previously.2 Distinguishing characteristics of small. The number of employees working at a business – while a very important form of determining the classification of a business – is only one of the distinguishing features used as a basis of classification. decision-making structures. predominance of industry sector. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. The Commonwealth Bank of Australia was once owned and operated by the federal government. Julie Cain. it is now possible to make distinctions between the various characteristics of businesses. state and local). privatisation the process of selling government-owned businesses to the private sector Table 2. procedures. utilities and public transport. medium and large businesses Having gained an understanding of the key features of businesses in the previous section. as well as government business enterprises. the government also owned and controlled many of the industries that provided infrastructure. . There are many other distinguishing characteristics: forms of legal ownership. geography or division continued next page C H A P TER 2 SMALL BUSINESS IN AUSTRALIA 19 ISBN: 9781107665910 © Gillian Somers. The public sector includes departments and agencies of all three levels of government (federal. This process is called privatisation. The majority of business activity is undertaken by this sector. education.Public and private sectors The Australian economy is divided into two main areas: public and private sectors. The private sector comprises businesses owned and controlled by individuals or groups of individuals. such as telecommunications. developed organisational chart based on function. but has been privatised. defence and law enforcement. products and/ or services offered and location of operations. with its ownership now controlled by individuals and institutional shareholders. products. The recent trend in Australia has been towards selling these government-operated businesses to the private sector. medium and large businesses Characteristics Small Medium Large Size – number of employees Microbusiness – fewer than five employees 20–199 employees More than 200 employees Sole trader/proprietor Partnership Company Partnership Company Cooperative Company Cooperative Trust Up to 20 employees for non-manufacturing Up to 100 employees for manufacturing Common forms of legal structure Trust Ownership Private – independently owned and operated Private and public (partners/shareholders) Private and public (partners/shareholders) Business structure Simple Formal or informal Formal – policies. business structure. Types of services these organisations provide are health. access to finance and capital. How to distinguish between small.

Characteristics Small Medium Large Decision making Owner/manager Management team Management team Finance/initial capital Owner/family Owner/family Shareholders Private investors Financial institutions Financial institutions Access to business capital Limited More access More easily obtained Product/service range Small Possibility of greater diversity in range of products/services Greater opportunity for large product range Possibility of diverse range of products/ services 20 Location One outlet Multiple outlets possible Possibility of global operations Sector Private Private and public Private and public Industry sector classification Primary Primary Primary Secondary Secondary Secondary Tertiary Tertiary Tertiary Quaternary Quaternary Quaternary Quinary Quinary Quinary ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. Julie Cain. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. .

product and service range and location of operations. sole traders and trusts. a Includes the departments of all three levels of government. cooperatives and trusts c Partnerships and sole traders d Partnerships. – size based on number of employees – legal structure – business activity – public or private sector. It provides a range of services and routine tasks to large organisations and even performs some traditional government functions. UÊ Employee numbers for small business are between one and 20 employees for non-manufacturing businesses and up to 100 employees for businesses involved in manufacturing. as well as government business enterprises. d Using another business or person to undertake some task or activity rather than doing it within the business. a Quaternary Private sector b Tertiary Downsizing c Secondary Primary industry d Primary.UÊ An understanding of organisations can be gained by examining them with reference to the following four characteristics: UÊ Businesses are defined as being small if they are independently owned and operated. partnerships and sole traders b Public companies. UÊ Small business assists our economy by providing jobs and career opportunities. provision of finance and capital. Privatisation 2 Which of the businesses below would form part of Microbusiness Entrepreneur a A large nursing home Secondary industry b A poultry farm Outsourcing c A newspaper publisher Public sector d A take-away hamburger shop. e The process of selling government-owned businesses to the private sector. 4 Which of the following classifications applies to a business enterprise with eight employees? a Large b Small c Micro d Medium. 1 In which industry sector would a farmer belong? 5 Match the terms to the correct definitions below. business structure. . decision-making processes. UÊ It is possible to distinguish a small business from either a medium or a large business on the basis of employee numbers. c A person who is willing to combine an element of risk taking with their own knowledge and skills to make a profit. C H A P T ER 2 SMALL BUSINESS IN AUSTRALIA 21 ISBN: 9781107665910 © Gillian Somers. and if they are closely controlled by their primary decision makers (owners/managers). form of legal structure/ownership. CHAPTER SUMMARY QUESTIONS the quaternary industry? 3 Which of the following groups consist of CHAPTER SUMMARY UÊ Approximately 97 per cent of businesses in Australia are classified as small and form an important part of our economic activity. Company unincorporated businesses? a Private companies. Julie Cain. b Consists of businesses that involve canning fish and fruit. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party.

g Consists of businesses that extract natural resources. quinary sector. Julie Cain. Body Identify reasons why these businesses are flourishing.g. i A business that consists of fewer than five employees. The following sample plan may provide you with some ideas on how to handle this task. . e. change in social or demographic factors. EXTENSION QUESTION Both the quaternary (information-based) and quinary (household services-based) business activity sectors are becoming very important contributors to Australia’s gross domestic product (GDP).f Includes businesses owned and controlled by individuals or groups of individuals. Discuss why you believe these tertiary subsectors are flourishing. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. gross domestic product. Sample plan Introduction Define the key terms: quaternary sector. 22 ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. h Reducing your business operations. j A business that operates as a separate legal entity. decline in other areas.

ISBN: 9781107665910 © Gillian Somers. . Julie Cain. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party.

Julie Cain. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party.3 BUSINESS ENVIRONMENTS WHAT’S AHEAD 1 External 2 Macro 3 Operating environment Internal 1 Macro environment 2 Operating environment External 3 Internal environment ISBN: 9781107665910 © Gillian Somers. .

.KEY KNOWLEDGE Students will learn the following about business environments: – the internal and external (operating and macro) environments of a business – business ethics and socially responsible management and its impact on various stakeholders. 25 ISBN: 9781107665910 © Gillian Somers. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. Julie Cain. medium or large – operate in a complex and rapidly changing business environment. AREA OF STUDY INTRODUCING BUSINESS 1 All businesses – small.

Stakeholders of a business In the internal environment of a business there are organisational stakeholders that can place pressure directly on the organisation. such as economic. . In reality. a small business. who is involved with an organisation and therefore has responsibilities towards it and an interest in its activities stakeholder individual or group that has a direct or vested interest in the activities of an organisation 26 The external environment refers to those conditions surrounding an organisation over which it has little or no control. This level of environment contains many of the stakeholders of the business. that can influence the operation and performance of a business. it cannot operate in isolation.The dynamic environment of businesses Internal environment For any business to be successful. such as an employee or customer. The internal environment refers to a range of pressures. It is important for businesses to take account of and respond to the pressures and forces from within its organisation. it must be able to respond quickly to changes or pressures that may come from either its external or internal environment. with various stakeholders’ interests often coming into conflict. social and environmental. lobby groups. such as shareholders/owners. global. this is not always the case. One of the keys to business success is to respond appropriately to these pressures. sæ The operating environment has a range of pressures. such as customers. Julie Cain. government/political. External environment macro environment broad operating conditions in which an organisation operates and over which it has no control operating environment the environment immediately external to an organisation with which it has close interaction when conducting its business activities organisational stakeholder a person. Pressures exerted from this macro level generally require the organisation to comply or respond. competitors. management. Business Shareholders Directors Management Suppliers Creditors/ banks Employees Community Trade unions Government Customers Competitors Figure 3. no matter what its size. trade unions. stakeholders at each level would want the business to achieve its aims or objectives. Within this environment. Whether a business operation is a microbusiness. a business needs to work out a way of satisfying these different interests. technological. employees. and therefore must be responsive to pressures from its business environment. financial institutions and regulatory bodies. These pressures can either create opportunities or be seen as a threat.1 Stakeholders of a business ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. legal. To be successful. it is recognised that there are two levels from which pressures or forces for change may arise: sæ The macro environment has a range of factors or pressures. Ideally. suppliers. medium business or large business. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. organisational structure and corporate culture.

The Australian Competition and Consumer Commission (ACCC) is responsible for administering the Act and for promoting the provision of good business practices for a fair and efficient marketplace.1 Stakeholders and their interests and issues Stakeholder Interests and issues (in particular relating to ethics and social responsibility) Shareholders s s s s s $IRECTORS s 4ODEVELOPANDDIRECTSTRATEGYANDMAJORBUSINESSDECISIONS s 4OENSURESTRICTADHERENCETOCORPORATEGOVERNANCE. either at a particular time of year.com. Table 3. You will notice that these are generally drawn from the internal and operating/task environments of the business. have now banned the use of plastic bags. contents. Lush cosmetics and Bunnings Hardware. describe its campaign for this year. Table 3. design. has always used paper bags. McDonald’s. such as Country Road. packaging and the form and manner in which this information is included with the goods when sold. For instance. such as cancer research.1 outlines some of the major stakeholders of a business and their most likely interests and issues.Two important issues that are of increasing concern to stakeholders are: sæ Is the business conducting its business operations in an ethical or fair manner? sæ Is the business acting in a socially responsible manner? Stakeholders want businesses to recognise the importance of these issues and incorporate them into their business objectives. such as Christmas.1 1 Name two businesses that are active in their social responsibility to the community. Telstra has established a foundation to provide assistance to a broad range of groups and activities. For instance.au). composition. packaging physical protection given to a product that can also form an important part of its image and appeal to the consumer Australian Competition and Consumer Commission (ACCC) government authority responsible for administering the Competition and Consumer Act 2010 and for promoting and educating in the provision of good business practices for a fair and efficient marketplace ethics a set of moral principles that an organisation needs to establish and follow 2 Describe the type of activity in which these businesses are involved. 3 Using The Body Shop website (www. Social responsibility involves an organisation working to improve its positive impact on society and to reduce any negative impact it may have. or for a special cause.thebodyshop. These ethics must extend to include the conduct of the entire operations of a business. ACTIVITY 3. construction. Other businesses. businesses are being encouraged to increase their commitment to reducing environmental problems associated with the disposal of plastic bags. The Competition and Consumer Act 2010 (Commonwealth) establishes guidelines for businesses relating to disclosure of information on product performance. during its 30 years trading in Australia. Businesses must be ethical in the types of products they manufacture and services they provide.

.SOCIALRESPONSIBILITYANDETHICAL ANDHONESTBEHAVIOUR s 4OGAINPERSONALPOWERANDSTATUSBYBEINGADIRECTOROFABUSINESS 0ROlTABILITYOFTHEBUSINESS 4ORECEIVEDIVIDENDS )NCREASEDSHAREPRICES %THICALBUSINESSOPERATIONS 3OCIALLYRESPONSIBLEBEHAVIOUR continued next page C H A P TER 3 BUSINESS ENVIRONMENTS 27 ISBN: 9781107665910 © Gillian Somers. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. Julie Cain.

calculated by multiplying the hourly rate by the number of hours worked for the period salary an agreed amount of money paid to employees for their labour during a year. it can be referred to as a salary or wages wage the monetary reward for labour.remuneration the amount a person is compensated (paid) for performing work tasks (job). expressed as an amount per annum quality the degree of excellence in a good or service and its ability to satisfy the customer creditor an individual or organisation that has extended credit to an organisation 28 Stakeholder Interests and issues (in particular relating to ethics and social responsibility) -ANAGEMENT s s s s 4OACHIEVEGOALSANDOBJECTIVES 4OSECURETHEIRPOSITIONWITHINTHEBUSINESSANDWORKONTHEIRCAREERDEVELOPMENT 4ORECEIVEAFAIRremuneration PACKAGEPAY 4OCONDUCTTHEIRBUSINESSACTIVITIESINANETHICALMANNER %MPLOYEES s s s s s 4ORECEIVEAFAIRwage ORsalary 4OWORKINANON DISCRIMINATORY. paid on a weekly basis. it can take the form of cash and/ or fringe benefits.

ETHICALANDSAFEWORKPLACE 4OHAVETHEOPPORTUNITYOFCAREERADVANCEMENT 4OGAINJOBSATISFACTION 4OFEELSECUREINTHELONG TERMSURVIVALOFTHEIRJOB 4RADEUNIONS s 4ONEGOTIATEFAIRWAGES.

WORKINGCONDITIONS.

WORKINGHOURSANDOTHERRELATED WORKISSUES s 4OBEREPRESENTEDINTHEWORKPLACE s 4OBEINVOLVEDINTHEDECISIONMAKINGWITHMANAGEMENTOVERISSUESRELATING TOEMPLOYEES #USTOMERS s 4OOBTAINHIGHqualityGOODSANDSERVICESFROMANETHICALANDSOCIALLYRESPONSIBLE ORGANISATIONATANATTRACTIVEPRICE s 4ORECEIVEHIGHLEVELSOFCUSTOMERSERVICEPRE ANDPOST SALE s 4OESTABLISHALONG TERMRELATIONSHIPWITHTHEBUSINESS 3UPPLIERS s 4OENSURETHEBUSINESSWITHWHOMTHEYAREDEALINGISPROlTABLEANDCAPABLEOF PAYINGITSDEBTS s 4OBEPAIDPROMPTLYBYTHEIRCUSTOMERS s 4OBEINVOLVEDWITHANORGANISATIONTHATISETHICALINITSOPERATIONS s 4OBEABLETOESTABLISHANDGUARANTEEALONG TERM.

PREFERRED SUPPLIERRELATIONSHIP CreditorsBANKS s 4OBEPAIDLOANREPAYMENTSPUNCTUALLY.

Julie Cain.BOTHPRINCIPALANDINTEREST s 4OBEREPAIDLOANSINFULL s 4OENSUREALLBANKINGINTERESTSOFTHEBUSINESSARESECUREDBYTHATBANK #OMMUNITY s 4OBENElTFROMTHEEMPLOYMENTOPPORTUNITIESCREATEDBYTHEBUSINESS s &ORTHEBUSINESSTOPARTICIPATEINTHEIRCOMMUNITY s 4OENSURETHATTHEBUSINESSISARESPONSIBLECORPORATECITIZEN 'OVERNMENT s s s s #OMPETITORS s 4OENSURETHEYGAINTHECOMPETITIVEEDGEOVERTHEBUSINESS s 4ODIFFERENTIATETHEIRPRODUCTORSERVICESFROMTHEIRCOMPETITORS s 4OCOMPAREANDEVALUATETHEIRPERFORMANCEAGAINSTOTHERBUSINESSES 4ORECEIVETAXATIONREVENUEFROMPROlTABLEBUSINESSES 4OPROVIDEINCENTIVESFORBUSINESSESTORELOCATETOBENElTACOMMUNITY 4OCONTROLBUSINESSOPERATIONSTHROUGHLAWSSUCHASENVIRONMENTPROTECTION 4OPROVIDEESTABLISHMENTANDOPERATIONALASSISTANCETOBUSINESSES ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. .

the less people are paid. Fashion labels show off their ethical colours in national campaign by Clare Kermond A family-owned knitting business in inner Melbourne has become the latest label to sign up to a national campaign promoting ethically produced fashion.3 Read the article and answer the questions that follow. a 40-year-old business in Brunswick. 2 Describe one way that Otto and Spike is being ethical in its business operations. ECA’s communications co-ordinator.’ Tom Clarke.2 1 Identify the individuals or groups that would be regarded as the stakeholders of your school. ECA’s national co-ordinator. 3 Identify two ways in which signing up to the national campaign to promote ethically produced fashion will benefit this business. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. ‘The further down the supply chain you are.ACTIVITY 3. often earning just $6 an hour. C H A P TER 3 BUSINESS ENVIRONMENTS 29 ISBN: 9781107665910 © Gillian Somers. Emer Diviney. Source: The Age. Julie Cain. said. Clothing is an industry widely supplied by home workers.1. 7 May 2010 Questions 1 Outline four stakeholders of Otto and Spike and describe the vested interest they have in the business venture. Accredited labels can then use the ECA trademark as part of their marketing campaign. Otto and Spike.) a b c d Local fruit shop Hairdresser Dress boutique Shoe shop. The accreditation process included tracking all the subcontractors involved in producing garments for a label. said accredited brands were better placed to capture a slice of the growing market for sustainable and ethical fashion. checking that everyone is working under award conditions and wages. 2 Describe what their interest would be in the school. (Hint: refer to table 3. joins big names such as Lisa Ho and Ginger & Smart in being accredited by Ethical Clothing Australia. 3 Identify and describe the stakeholders that you believe would have a particular interest in the operations of the following small businesses. . ACTIVITY 3.

which creates free international trade and movement of capital between nations The pattern of growth and decline in the Australian economy is usually cyclical: a period of accelerating growth. the Commonwealth Bank and Telstra were both initially government-owned. Julie Cain. Should a business decide to operate globally (globalisation). and have now been fully privatised with the majority shareholding being in the hands of individuals.4 1 From the following list of businesses: Macro environment refers to the range of factors that can influence the operation and performance of a business over which the business itself has no control. the United States. from boom conditions to recession. Australia has a history of being politically stable with no sign of change in the immediate future. . Justify your answers. In a time of downturn or recession. new car manufacturers and housing construction may be adversely affected.External macro environment ACTIVITY 3. and the reverse globalisation removal of economic boundaries. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. The level of impact on a business by these changes in economic pattern is linked to the type of business. the United Kingdom and Japan. then a boom. and then recovery and growth. However. it needs to anticipate major political changes in the countries in which ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. Economic forces business or economic cycle regular swings in economic activity. Australia’s economy is influenced by the economic cycles of other trading nations such as China. A change in government resulting from an election can lead to many business opportunities as the new government endeavours to implement its election policies. then a sharp downturn (recession). The former federal Liberal–National government policies favoured privatisation. when people have less money to spend due to unemployment. Social/cultural Legal Global Economic Macro Technological Environmental Government/political Figure 3. i Designer clothing boutique ii Supermarket iii Car dealership iv Chemist v Real estate agent vi Builder vii Winery viii Restaurant. 2 Which phase of the economic cycle reflects Australia’s current position? a Downturn b Upturn c Boom d Recession. Justify your answers.2 Macro environments 30 a Identify which ones are most likely to be affected by a downturn in the economy. Government and political forces Federal and state governments can have an impact on the operations of businesses. businesses dealing with liquidated and discounted stock may enjoy growth because people are looking for a bargain. which then created additional opportunities for organisations to fully or partially acquire former government business enterprises (GBEs). b Identify which ones are most likely to be affected by an upturn or period of accelerated growth in the economy. This pattern is referred to as the business or economic cycle. For example.

as this may affect the value of that country’s money or its attitude towards certain industries trading in their country. Legal forces Like individual citizens. business names. improve quality. . The imposition of the Goods and Services Tax (GST) in July 2000 has created additional workload for businesses. usually monetary. fair trading. businesses must comply with state and federal legislation and common law in the operation of their businesses. Successful civil actions will result in damages.it operates.) legislation Act of parliament (statute) common law law that has been made by the courts Figure 3. equal employment opportunity. workers compensation. Businesses are required to pay corporate taxes. market its products and services. (See chapter 7 for more information on these legal requirements. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. Penalties can range from fines to imprisonment of company directors or owners for criminal offences. unfair dismissal. a negative impact would be felt by businesses. packaging. if the tax rate were to drop. Similarly. It can assist a business to communicate with its customers. laws are in place to guide. restaurants and shops need to abide by the local regulations relating to eating outdoors and positioning of tables and chairs on the footpath. anti-discrimination. and has made them responsible for collecting tax on behalf of the government. design and manufacturing 31 ISBN: 9781107665910 © Gillian Somers. C H A P TER 3 BUSINESS ENVIRONMENTS consumer a person or group who purchases or uses a product unfair dismissal dismissal of staff that does not follow agreed legal procedures. For instance. workplace relations.2 million Australian small businesses are turning to internet banking for a range of useful functions such as paying employees or conducting overseas foreign exchange transactions. occupational health and safety. it often involves the use of computers and can relate to information. it would be very short-sighted of an organisation not to be responsive to the advantages offered by technology and to incorporate its use into its production and information-processing procedures. being imposed. There is a wide variety of laws and regulations that cover such areas as business licensing. If the tax rate were to increase. Businesses also need to comply with by-laws and regulations established by the local municipal councils in the area in which their business is operating. In Australia. this would also have major implications. Technological forces In an era commonly referred to as the ‘ICT age’. Technology has become a key feature in assisting businesses to be innovative and competitive. labelling and consumer law. weights and measures. Julie Cain. Non-compliance with these laws and regulations can result in the business being prosecuted. cafés. and deliver goods and services more quickly. employees may seek to be compensated or reinstated technology practical application of science to achieve a commercial or industrial objective. protect and control both business operators and consumers. environmental protection. Research conducted by the Market Intelligence Strategy Centre found that more than 1.3 Local councils regulate the placement of outdoor furniture and displays for cafés. communication. lower costs.

. At first the company used a printed promotional menu but that required customers order by phone or in person at the chain’s outlets. some on street front.insideretailing.’ he says.’ explains eCater chief Peter Knock. ‘No mistakes. Customers receive their tax invoice immediately and can reorder quickly from their account.’ says Knock. ordering online is a better option. we get invaluable feedback on the product quality and store service provided. ‘Stores now have very little admin and do not need to worry about who answers the phone anymore. using third party provider ecater. 21 January 2011 Pie Face has boosted sales for catering by adopting a third party online ordering system. Pie Face operates a combination of company-owned and franchise stores. some in malls. ‘With the system fully managed externally. no administration and no chasing up payments. Pie Face was able to seamlessly integrate its brand and the eCater system. On the eCater solution. nor does it have to allocate additional capital for software development or upgrades.’ says Knock. Pie Face has seen its average transaction value for catering orders rise to $159 (compared to $9 instore) and sales are up three-fold on a year ago and continue to grow. airports. Then they moved to an online ordering system.com. each store can individualise and control its opening and closing times.ACTIVITY 3. menu items and pricing. ‘It’s now a key marketing platform and crucial component of their successful franchise offering.5 Read the article and answer the questions that follow. Pie Face does not need to employ or redeploy staff. who is now targeting 5 per cent of the chain’s sales to be via online in 2011. In a recent website redesign. ‘Customers will always compare options anyway and we believed this convenience 32 would help promote loyalty.com.’ says Homschek. delivery or pickup notice. Julie Cain. payments and banking. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. The Sydney-based franchised retailer of gourmet pies now has nearly 50 stores and has been named by BRW as one of the fastest growing companies in Australia. The eCater system allows Pie Face to retain its unique branding while being listed on the powerful Marketplace.au.’ Homschek says the company has found that most customers prefer using the eCater online system for reasons of convenience and the ability to manage numerous department and division orders. item order timing. ‘Importantly. delivery fees and delivery radius.au/ ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers.’ says Pie Face cofounder Wayne Homschek. kiosks and store within store concepts across four states and some CBD stores trade 24/7. ‘Certainly. Pie chain finds online ordering the perfect recipe by Inside Retailing Online. a former investment banker. As a result of implementing the online system.’ ‘The solution is painless for us to operate and provides a great source of system and procedure for all our company and franchise stores. A key part of Pie Face’s growth was expanding its offer of home take-out and corporate catering solutions – fulfilling bulk orders for pies for business meetings or domestic parties. Source: www. along with other providers – a situation no different to the competition faced in food courts and on the high street.

au) and answer the following questions. there has been a rapid increase in the need for childcare facilities and other household support services such as C H A P TER 3 BUSINESS ENVIRONMENTS 33 ISBN: 9781107665910 © Gillian Somers.dicksmithfoods. .au) to assist in answering the questions. 1 What are the motto and mission statement of this business? 2 How many products are currently in the Dick Smith Food range? 3 What percentage of the products typically purchased at a supermarket are either imported from overseas or owned by overseas companies? 4 Identify which famous Australian pie brand returned to Australian ownership and which company was responsible for purchasing it back from its American owners. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. it has no domestic economic boundaries merge two or more businesses join together to form one united business Businesses must be aware of and respond to the way our society is changing. sole parents sæ changing attitude to work and the desire for balance between work and family role sæ higher education levels and career expectations of both males and females sæ different expectations of the younger generation sæ the ageing workforce sæ increasing level of diversity in the workplace. gender. ethnicity. smaller. For example. Some businesses have found it desirable to merge with or take over another business to gain an advantage over their competitors. 4 Why would Pie Face have decided to use a third party internet provider? 5 What performance indicator could Pie Face use to measure the success of this use of technology to aid its business? Global forces The emergence of the global economy means that businesses cannot ignore foreign competition. Small business in particular has been quick to respond to opportunities created by these changing social expectations. For instance: sæ changing career expectations of women sæ increase in female work participation rates sæ changing dimension of families: dual income. 1 How did the idea for Pie Face come about? 2 What products does the business sell? 3 Describe the benefits that Pie Face receives from conducting an online ordering system. 5 Identify five food brands that were previously Australian-owned and have been sold to foreign companies. Julie Cain.Questions Visit the Pie Face website (www.g.com.6 Go to the website of Dick Smith Foods (www. e. which have acted as pressures. 6 How much money has Dick Smith Foods donated to assist the community and charities? Why has Dick Smith Foods had to lower this figure in recent years? Social and cultural forces global economy the economy of the world. Other businesses have made the deliberate decision to remain Australian-based in their operations and marketplace. ACTIVITY 3. Dick Smith Foods has proudly adopted this stance and is fiercely loyal to supporting products that are: sæ produced by Australian-owned businesses sæ grown and/or made in Australia sæ made by Australian companies that operate in a highly ethical manner.com.pieface. religion sæ greater social responsibility expected of organisations.

Customers are now more discerning and educated in their consumer choices. . whether to purchase REV or Skinny Milk over regular milk due to lower fat content and added nutrients.5 External operating environment ACTIVITY 3. In the area of packaging. Describe what health considerations were important for each type. It is therefore important that organisations adopt the ‘customer comes first’ philosophy. Julie Cain. 2 Identify two product types for which environmental impact would be a factor in your choice of product. As part of your discussion. This attitude is already widely adopted in retailing. businesses may introduce biodegradable or recyclable packaging materials. and are predominantly owned and operated as small businesses. External operating environment Businesses face pressures and uncertainties from their operating environment. With regard to food. when buying laundry detergent do you look for products that are ‘clean. ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. when buying milk. With consumers being more educated and aware of the environmental impact of the products they purchase.home cleaning. healthy prepared meals and home catering. pool cleaning and pet care. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. Customers Regardless of the size of a business. car manufacturers must include emission control mechanisms. Customers Competitors Trade unions Operating environment Suppliers Regulatory bodies Financial institutions Lobby/pressure groups Figure 3. green and safe for the environment’? 3 Identify three products where your choice is determined solely by price.g. 4 Discuss the comment ‘Personal service is more important than price’. identify under what circumstances price would be the deciding factor to purchase a product at one outlet rather than another outlet with personal attention and superior customer service. customers are vital to its profitability and ongoing success. The factors within this environment directly interact with the business and its operations.g. they are now seeking environmentally friendly products and packaging. 34 1 Identify two product types for which health would be a factor in your choice of product. e. this has meant changes in the ingredients involved or the way they manufacture products. For example. For businesses.4 Example of recycled packaging materials Environment Businesses are under increasing pressure to take care of our environment. e.7 Figure 3. These household support services are one of the fastest growing industry sectors in our economy. maintenance and gardening.

Whether or not a product is Australian-made can be another common factor in consumer choice. on a daily basis. Customers often make a product selection based on whether or not it has the Heart Foundation’s Tick of approval. Buy 10 cups of coffee and then receive a free regular-sized drink.consumers are looking for products that are low in fat and salt. Coles at this stage is still offering customers petrol discount vouchers. in your local shopping centre the large supermarket will be keeping a watchful eye on the products offered and prices being charged by the fruit shop. CH AP TE R 3 BUSINESS ENVIRONMENTS 35 ISBN: 9781107665910 © Gillian Somers. ACTIVITY 3. Competitors. Figure 3. extended a current product line or changed its pricing strategies.8 1 Identify three examples of inducements or incentives currently being offered by businesses. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party.6 Supermarkets offer customers incentives to save money when buying petrol. which must be prepared to respond. .g. 3 Evaluate whether these inducements or incentives are really worth much in monetary terms. incentives and loyalty schemes. For example. e. Will this now change? In many smaller shopping areas where Coles and Woolworths do not operate. Another strategy used by businesses to gain a competitive edge is by offering inducements. Competitors Organisations should constantly monitor their competitors’ products or services. and that contain no additives or preservatives. Woolworths introduced an ‘Everyday Rewards’ card. It is important to notice whether a competitor has introduced a new product. 2 Explain why businesses see the need to offer these inducements or incentives. This card is stamped when a customer purchases a cup of coffee. Gloria Jean’s offers the ‘Frequent Sippers’ card. local traders are offering a similar petrol discounting scheme. Julie Cain. For instance. butcher and baker. All such changes will impact on competing businesses. watch what their business rivals are doing.

Regulatory bodies All three levels of government – federal. they ultimately will have to close down their assembling plants until the industrial dispute is settled. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. Community groups can also have an impact on a business. loan arrangements. which generally occurs due to a strike at one of the component part manufacturers. For example. Owners/ shareholders Management Internal environment Corporate culture Employees Organisational structure Figure 3. acting on behalf of workers to negotiate with management on issues such as wages. Individual businesses have to respond to and interact with the Australian Taxation Office (ATO). labour and capital. non-action) that causes brand value loss overnight. Trade unions Trade unions represent workers’ rights. Businesses must ensure a steady and reliable flow of needed inputs at the lowest possible cost. energy. Pressure can come from the following areas. For instance. it can take action 36 (or rather. occupational health and safety authorities. to act in negotiation with both trade unions and the various levels of government. such as the Australian Chamber of Commerce and Industry. state and local – place pressure on businesses in the conduct of their operations.Suppliers supplier supplies the inputs (resources) required for the production process collective bargaining agreement an agreement where collectively the employees have negotiated with an employer the conditions of employment relating to their pay and working conditions lobby group a group that aims to influence organisations or governments in their decision-making process deregulation involves removing government regulation from an industry in pursuit of greater efficiency and creating an improved competitive environment internal environment activities.7 Internal environment ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. Nike sales were adversely affected when it was accused of using child labour in its manufacturing operations. . Employers also have representative bodies. If there is a problem with supply. credit facilities and electronic banking. services. others may lobby for safer working conditions for employees. Internal environment All businesses must respond to pressures and forces from within their organisation (internal environment). and local councils. long-term relationship with selected suppliers. Holden and Toyota. the Cancer Council has been instrumental in ensuring that workplaces implement non-smoking and SunSmart policies to protect the health of employees. working hours and other aspects of employment. businesses need to keep up to date with interest rates. If a community does not like the way a business is operating. Lobby/pressure groups Special interest or lobby groups can attempt to influence the actions of organisations. To ensure they do not incur excessive costs. equipment. These companies are heavily reliant upon component parts for the assembling of their cars. It is therefore essential to establish a guaranteed stable. working conditions. While many of these groups focus on environmental issues. the Australian Securities and Investment Commission (ASIC). functions and pressures that occur within an organisation over which it has control A supplier is any provider of inputs into your business’s operations. Inputs can take the form of raw materials. Australia has three car manufacturing companies: Ford. The union may become a party to a collective bargaining agreement or work within the broader industrial relations framework. the Australian Competition and Consumer Commission (ACCC). Financial institutions Deregulation of the banking and finance industry has allowed for a more competitive financial environment. Julie Cain.

the risk-taking culture of the Virgin Group is derived directly from the founder and owner. equal employment opportunities.Owners/shareholders In small to medium-sized organisations. the owners/partners or shareholders have direct influence in the running of the business venture. Small businesses usually have very little formal organisational structure. This places pressure on organisations to provide these policies. leading and controlling the work of subordinates to achieve organisational goals. Pressure can result if the management team plans a different direction for the business than the original owner. Richard Branson. It can reflect the personality of the original owner of the business. procedures and work practices. This lack of structure can cause pressure. Management Organisational structure In a small business. not realistic. however. they must ensure that they at least comply with all relevant workplace relations guidelines with regard to pay and conditions for staff. . getting work done through other people corporate culture the shared values and beliefs of an organisation. For instance. organising. Julie Cain. beliefs and expectations of management and employees. career development and a healthy and safe work environment. which can influence the actions and decision-making style of managers and employees 37 ISBN: 9781107665910 © Gillian Somers. management is generally undertaken by the owner. it will need to form a management team who will work together to establish the strategic direction and objectives of the business. Employees Employees seek to work in a non-discriminatory and ethical workplace that provides workplace flexibility. For a small business operator to satisfy all these needs is Corporate culture Corporate culture evolves over time and reflects the shared values. particularly when the business is growing in size and needs more formality in its organisation. When a business expands in size. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. C H A P TER 3 BUSINESS ENVIRONMENTS management the process of planning. His high-risk-taking personality has taken him from being a small business record-shop operator to a highly successful global business entrepreneur.

CHAPTER SUMMARY s¬ !LL¬BUSINESSES.

¬REGARDLESS¬OF¬SIZE.

¬OPERATE¬IN¬A¬ COMPLEX¬AND¬RAPIDLY¬CHANGING¬ENVIRONMENT¬ 3UCCESS¬COMES¬WHEN¬A¬BUSINESS¬IS¬ABLE¬TO¬ RESPOND¬QUICKLY¬TO¬THESE¬PRESSURES¬OF¬CHANGE s¬ 0RESSURES¬COME¬FROM¬BOTH¬THE¬EXTERNAL¬AND¬ INTERNAL¬ENVIRONMENTS¬OF¬THE¬BUSINESS s¬ 4HE¬EXTERNAL¬ENVIRONMENT¬COMPRISES¬TWO¬LEVELS¬ THE¬MACRO¬AND¬THE¬OPERATING¬ENVIRONMENTS s¬ 4HE¬MACRO¬ENVIRONMENT¬EXERTS¬PRESSURES¬THAT¬ GENERALLY¬REQUIRE¬THE¬ORGANISATION¬TO¬COMPLY¬OR¬ RESPOND¬4HESE¬INCLUDE¬ECONOMIC.

¬GOVERNMENT¬ AND¬POLITICAL.

¬LEGAL.

¬TECHNOLOGICAL.

¬GLOBAL.

¬SOCIAL¬ AND¬ENVIRONMENTAL¬PRESSURES s¬ 3TAKEHOLDERS¬ARE¬THOSE¬INDIVIDUALS¬OR¬GROUPS¬ WITH¬A¬VESTED¬INTEREST¬IN¬THE¬BUSINESS¬AND¬HAVE¬ INmUENCE¬OVER¬THE¬OPERATION¬OF¬THE¬BUSINESS¬ /FTEN¬STAKEHOLDERS¬COME¬FROM¬THE¬INTERNAL¬ OR¬OPERATING¬ENVIRONMENT¬OF¬THE¬BUSINESS¬ 3TAKEHOLDERS¬CAN¬BE¬SHAREHOLDERSOWNERS.

¬
DIRECTORS

¬MANAGEMENT

¬EMPLOYEES

¬TRADE¬
UNIONS

¬CUSTOMERS

¬SUPPLIERS

¬CREDITORSBANKS

¬
COMMUNITY

¬GOVERNMENT¬AND¬COMPETITORS s¬ "USINESSES¬MUST¬BE¬AWARE¬OF¬THE¬IMPACT¬THEIR¬ BUSINESS¬ACTIVITY¬HAS¬ON¬VARIOUS¬STAKEHOLDERS¬¬ )N¬PARTICULAR.

¬THEY¬MUST¬CONDUCT¬THEIR¬BUSINESS¬¬ IN¬AN¬ETHICAL¬AND¬SOCIALLY¬RESPONSIBLE¬MANNER s¬ 4HE¬OPERATING¬ENVIRONMENT¬EXERTS¬PRESSURES¬THAT¬ THE¬ORGANISATION¬WILL¬RESPOND¬TO.

¬BUT¬MAY¬ALSO¬ HAVE¬INmUENCE¬OVER¬4HESE¬INCLUDE¬PRESSURES¬ FROM¬CUSTOMERS.

¬COMPETITORS.

¬SUPPLIERS.

¬TRADE¬ UNIONS.

¬LOBBY¬GROUPS.

¬lNANCIAL¬INSTITUTIONS¬AND¬ REGULATORY¬BODIES s¬ 4HE¬INTERNAL¬ENVIRONMENT¬OF¬AN¬ORGANISATION¬ ALSO¬EXERTS¬PRESSURE¬ON¬THE¬ORGANISATION¬4HESE¬ PRESSURES¬COME¬FROM¬ITS¬SHAREHOLDERSOWNERS.

¬ MANAGEMENT.

¬EMPLOYEES.

Julie Cain. competitors and employees c Unions. suppliers and financial institutions d Shareholders. b Outline two ways technology has threatened the survival of a business. . legal and political factors b Customers. technology and ecological environment. OF¬A¬BUSINESS¬%XPLAIN¬HOW¬A¬BUSINESS¬TAKES¬THE¬ INTERESTS¬OF¬ITS¬STAKEHOLDERS¬INTO¬ACCOUNT¬WHEN¬ MAKING¬DECISIONS 38 ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. Provide examples. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party.¬ORGANISATIONAL¬ STRUCTURE¬AND¬ITS¬CORPORATE¬CULTURE 1 )DENTIFY¬THE¬THREE¬INmUENCES¬OR¬PRESSURES¬FROM¬ CHAPTER SUMMARY QUESTIONS THE¬MACRO¬ENVIRONMENT¬OF¬A¬BUSINESS a Economic. 2 /RGANISATIONS¬DO¬NOT¬OPERATE¬IN¬ISOLATION¬AS¬THEY¬ INTERACT¬WITH¬THEIR¬EXTERNAL¬ENVIRONMENT¬)DENTIFY¬ AND¬DESCRIBE¬FOUR¬FACTORS¬OR¬PRESSURES¬THAT¬CAN¬ AFFECT¬AN¬ORGANISATION 3 )DENTIFY¬WHAT¬IS¬MEANT¬BY¬THE¬TERM¬@STAKEHOLDERS¬ 4 $ISCUSS¬THE¬LIKELY¬EFFECTS¬ON¬FOUR¬STAKEHOLDERS¬¬ OF¬A¬MERGER¬BETWEEN¬TWO¬MAJOR¬RETAIL¬STORES 5 /NE¬IMPORTANT¬ETHICAL¬ISSUE¬FACED¬BY¬ BUSINESSES¬RELATES¬TO¬WHETHER¬THE¬BUSINESS¬ SHOULD¬DOWNSIZE¬ITS¬LABOUR¬FORCE¬IN¬AN¬EFFORT¬¬ TO¬INCREASE¬ITS¬PROlT¬0ROVIDE¬TWO¬ARGUMENTS¬ FOR¬AND¬AGAINST¬THIS¬PROPOSITION 6 4ECHNOLOGY¬IS¬A¬VERY¬POWERFUL¬FORCE¬IN¬BUSINESSES a Outline two opportunities offered by technology and provide examples.

EXTENSION QUESTION 4HE¬!USTRALIAN¬#OMPETITION¬AND¬#ONSUMER¬ #OMMISSION¬!### ¬PLAYS¬AN¬IMPORTANT¬ROLE¬IN¬ REGULATING¬BUSINESS¬ACTIVITIES¬0ROVIDE¬A¬BRIEF¬ OUTLINE¬OF¬THE¬ROLE¬IT¬PLAYS.

. Julie Cain. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party.¬AND¬WHO¬IT¬SEEKS¬TO¬ PROTECT¬(INT¬VISIT¬THE¬!###¬WEBSITE¬AT¬¬ WWWACCCGOVAU C H A P TER 3 BUSINESS ENVIRONMENTS 39 ISBN: 9781107665910 © Gillian Somers.

. an existing business or franchise? Business viability? ISBN: 9781107665910 © Gillian Somers.4 MAJOR DECISION TO STARTING A SMALL WHAT’S AHEAD Form of ownership or legal structure? Suitability of person to operate a small business? Location and layout? Preliminary decisions to make before establishing a small business Type of business? A new business from scratch. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. Julie Cain.

commencing a new business. experience. To succeed. retail shopping strip. skill levels. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. PLANNING AND EVALUATION KEY KNOWLEDGE Students will learn the following about small business decision making. knowledge and personal traits). This involves asking: Is this business right for me? the business concept (type of business) the form of ownership (legal structure) whether to purchase an existing business. planning and evaluation: – business concept development and initial market research – innovation and entrepreneurship as a source of business opportunity AREA OF STUDY MAKING PRIOR BUSINESS 2 – forms of business ownership and business structure – purchasing an established business. This chapter focuses on the key decisions made prior to starting a small business. Effective decision making is an integral component of a successful business operation. good decision making is vital from day one of business inception and continues right throughout the life of the business. online presence and home-based businesses and the factors that affect that choice. including franchise operations – location options: shopping centre. or start a completely new business from scratch where to locate the business how to layout the business. . decision making a multistep approach whereby a selection is made between a range of different alternatives 41 ISBN: 9781107665910 © Gillian Somers. Small business management largely involves making decisions about all aspects of that business. a franchise operation.SMALL BUSINESS DECISION MAKING. Julie Cain. Decisions must be made about: sæ the potential business operator’s personal suitability to operate a small business and sæ sæ sæ sæ sæ work for themselves (personality type.

Communication skills are an asset to any small business owner. others will be generic business skills.Decision 1: Suited to operate a small business? The first steps involve evaluation of: 1 the reasons why the potential business operator is going into business. and their own boss sæ become wealthy sæ be recognised as a success for self-worth sæ have flexible working hours and conditions sæ overcome unemployment sæ follow family tradition sæ fill an identified gap in the market not currently being met (a market need). a swimming school operator requires knowledge about how people learn to swim and a hairdresser requires skills and trade qualifications in cutting and colouring sæ planning and organisational skills – required to manage workflow. interests. Some skills will be specific to the type of business. . Julie Cain. Motivation behind starting a small business People decide to enter self-employment for varied reasons. Some of these skills are: sæ communication skills – essential when dealing with people the business comes into contact with. suppliers. knowledge and qualifications.1 Effective communication skills are vital to business success. Figure 4. status) sæ if the business venture can and will realistically satisfy these objectives sæ if they will be able to access things that are important to them. For example. Personal skills and qualities for small business success A small business owner will need to possess numerous skills. 42 All of these reasons are valid. to keep up to date with paperwork and organise workspace sæ accounting and financial skills – necessary to monitor the financial position of the business sæ marketing and promotional skills – required to promote the business and its products to potential customers ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. wealth. manage time effectively.) sæ technical skills and appropriate qualifications – necessary to successfully complete the tasks within the business. (See chapters 13 and 14 for more information on communication skills. including to: sæ be independent. a lawyer requires legal skills. a potential operator must assess whether or not they are entering into small business ownership for the right reasons. lifestyle. customers. professional advisers and government agencies. abilities and personality of the business operator to gauge suitability for business ownership 3 objectives of the business. They must evaluate: sæ their personal objectives sæ what things are important to them (family. however. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. then assessment of whether these are valid 2 the skills. including staff.

Skill Why is this skill necessary in small business? Self-evaluation – positives Communication To deal effectively with all aspects of the business. . including selling. which you need to acquire. and how you could acquire those you are lacking. Figure 4.sæ administrative skills – required in establishing effective and efficient procedures within the business so processes run smoothly sæ analytical skills – ability to analyse or study the nature of a given situation or set of circumstances sæ computer skills – knowledge of relevant software packages sæ negotiation skills – doing deals with clients/customers. Place this information in a table (such as the one below) in your workbook. government agencies. Consider which of these you think you already have. The first skill is completed for you. suppliers. Julie Cain. suppliers s I am good at communicating with my peers on a one-to-one basis Self-evaluation – negatives Strategy for developing expertise in this area s I need help when s TAFE course communicating s Read book on with large body language groups s Ask a friend for s I do not read the assistance body language s I write very clearly of other people s I speak two well languages Technical skills body language a form of non-verbal communication that includes messages and communication conveyed by facial expressions and other gestures Analytical skills Financial management skills Leadership skills CHAPT E R 4 MAJOR DECISION MAKING PRIOR TO STARTING A SMALL BUSINESS 43 ISBN: 9781107665910 © Gillian Somers. staff.1 Skills audit Refer to the list of personal skills and qualities above. ACTIVITY 4. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party.2 A small business owner must possess marketing skills. or anyone with whom the business comes into contact sæ leadership skills – the owner of the business will be required to lead effectively both staff and the business as a whole.

44 2 Belief Successful people have a single-minded belief that they are going to succeed. I realized it’s not ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers.’ Of course it’s hard not to get down by the challenges business can throw your way. 3 Vision Successful people have vision. only results. you tend to give up. Julie Cain. He now runs the Photon Group. this means being able to think of new ideas and different ways of approaching things. Reynolds points out: ‘We are what we constantly visualise about ourselves. but they have the big picture firmly in mind. However. entrepreneur Siimon Reynolds spoke about the four traits for entrepreneurial success. your beliefs determine your reality. you’ll only make a half-hearted effort anyway. The four traits for entrepreneurial success This week. If you don’t have this belief. but remember that there’s always another route to get to where you want to go. He says: ‘To be great. These include: sæ preparedness to take risks sæ ability to think outside the square.2 Read the article and answer the questions that follow.’ I guess that was the message that stuck out most for me (and I’ve heard this exact talk before at another networking event!). 4 Action Successful people have a preparedness to take action. If you think business is going to be tough. Most people sit on the sofa and wonder why they aren’t successful. to see opportunities that others cannot sæ confidence sæ self-belief and enthusiasm sæ ability to work independently without requiring guidance sæ ability to accept responsibility sæ ability to set goals sæ flexibility and ability to change direction when required sæ determination to see things through sæ capacity to work hard sæ ambition to achieve long-term goals sæ ability to adapt to change readily and learn from mistakes sæ being a practical ‘doer’ rather than someone who theorises. Successful people don’t have failures. here is a summary of what he identifies as the four essential traits. ACTIVITY 4. then business is going to be tough. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. Talking at a networking function for small business owners run by the City of Sydney and Clearly Business. your actions must be great.’ In other words. Reynolds gained prominence in the advertising world when he became a creative director at a major advertising firm at 21. Reynolds says: ‘When you take it personally. They might not know every single step of how to get there just yet. . Reynolds adds that [it] is not just about taking action. He then went on to found a series of media related companies and other businesses including an anti-ageing clinic. the bizarre thing is that most people don’t. But they just learn from the experience and get on with trying an alternative path to success.There are also certain recognised personal qualities that are advantageous when operating a small business. 1 Persistence Successful people don’t take failure personally – and they fail many times. They have a clear idea of where they want to go.

Source: Valerie Khoo. And so is Siimon. CHAPT E R 4 MAJOR DECISION MAKING PRIOR TO STARTING A SMALL BUSINESS 45 ISBN: 9781107665910 © Gillian Somers. in Reynolds’s view.3 Read the descriptions of the qualities and skills of these small business owners and answer the questions that follow. Her partner is currently unemployed. Maria is a professional dancer who is nearing retirement age. You have to be prepared to take ‘great actions’. She has extensive experience appearing in numerous stage and television shows. Questions 1 List and briefly explain the four essential traits for a small business owner. Thu is sports mad. Change the path you are on. in five years’ time. . She is very quiet and lacks confidence. not to take failure personally? 4 ‘Your beliefs determine your reality. Thu feels that her selling skills and technical expertise in fitting sports shoes is better than anyone’s in this industry. She has good computer skills. 3 4 Phyllis has just left school at the end of Year 11. only results’.’ What is meant by this statement? 5 What is a vision? Why is it important for a small business operator? How is a vision related to planning? 6 Discuss and explain the importance of ‘impactful action’. For eight years she has worked in a chain of stores that sells sporting shoes. It’s not about how many things you get done. The Sydney Morning Herald March 27. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. but loves children. Julie Cain. Ahmed’s friends say that he is a very determined person who wants to be a millionaire before he is 30. His wife is an accountant. My (slightly work-obsessed) friend once heard her husband telling her: ‘I think you confuse activity with achievement. ‘successful people don’t have failures. ACTIVITY 4.’ He was right. 1 2 Ahmed is a qualified chef who has worked in a Lebanese restaurant for five years. 3 Why is it important. She is extremely shy about speaking to groups of people. She wants to set up her own computer repair business. It’s about how impactful they are. He has a temper and often loses his cool with customers and fellow staff members alike. You never know – it may take your business to new heights. 2008 just about crossing off items on my ‘to do’ list. Try a new way of doing things. but has recently become very disillusioned after being passed over for promotion in favour of the store owner’s daughter. 2 Explain what Reynolds means by the statement. is confident and spends her days surfing the internet. but is noted in the industry as an excellent dancer. She failed English in her last year at school. He is highly regarded in the industry and is thinking of opening his own restaurant.

ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. An idea for a small business might eventuate in one of several ways. being the first Australian who 2 Personal inspiration – many successful 46 make observations about things that could introduced McDonald’s or the first to stock small business operators come up with an a popular brand such as Nike would be original idea. and ‘It would be a good idea if someone …’ For instance. A potential small business extremely profitable! More recently. or are not done at all. For example. as well as using other sources such a conversation. . the idea operator is well advised to look around and behind Boost Juice came from overseas. 5 Which of these people do you believe has: a the least chance of success in running their own business at this time? Why? b the best chance of business success at this time? Why? Decision 2: Type of business? The next decision to be made is about the type of business to enter into. and innovations that have not yet arrived in Listen for comments such as ‘What we need Australia. 1 Listen to family and friends – a business be done better. A visit to an internet business operator access to many new ideas chat room might be another source of ideas. Julie Cain. It is a good idea to keep as publications. 3 Research new ideas and concepts on the idea often can come up in the course of internet.Questions 1 What skills does Ahmed possess that could help his new restaurant succeed? What personal qualities could hinder his chances of success? 2 Do you believe that Maria should start her own dance school? What skills does she have that would help her? What is her major drawback? 3 What skills do you believe Phyllis should try to acquire before she starts her own computer repair business? Where do you suggest she acquire these skills? 4 What action do you believe Thu should take? Justify your answer. The first person to import a new around here is …’. A successful business entrepreneur a person who is willing to combine an element of risk taking with their own knowledge and skills to make a profit entrepreneur is able to see an opportunity that others cannot. noticing an instance when someone is unable to obtain a specific product or service at the exact time it is required is often the first step. Often the simplest ideas and observations can prompt the most successful small businesses. your eyes and ears open to other people’s 4 Looking overseas can give the small comments and ideas. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. ‘I wish I could get …’ idea from overseas profits very handsomely.

gov. Julie Cain. films. For more information on intellectual property. Innovation can come from scientific research. innovation leading to increased productivity is the basic source of increasing wealth creation. e. A potential small business operator must look for innovative opportunities. or (in the case of plants) as a plant breeder’s right. Types of intellectual property include: sæ patent – granted for exclusive exploitation of any device. Protecting intellectual property Once an innovation has been developed. in art.g. a trademark. 6 Other sources of ideas include trade magazines. Innovation is a source of whole new industries as well as individual new businesses. such as colour. The idea must be registered also. visit the IP Australia website (www.au). A potential operator must look for what is known as a gap in the market. . substance. computer programs. A gap is something not currently being catered for sufficiently or effectively. a variation on an existing product that improves it. trademark or an original design 47 ISBN: 9781107665910 © Gillian Somers. sounds. This involves registering an idea as a patent.g. letters. inventive or useful sæ trademark – a right granted for exclusive exploitation of numbers. can be an invention. an aspect of packaging or combination of these sæ design – features of shape. circuit layout. A business must aim to develop new and improved products and services using methods and processes that are more efficient and effective. logo. method or process that is new.5 New inventions and innovations are often a good starting point. it must be protected from others copying or stealing it. shape. and registration must be made in every country where you intend to trade.ipaustralia. e. trade secret. home delivery. improving the current work practices. In fact. words. These can be sourced on the internet or through personal research. Innovation and entrepreneurship Innovation is often the impetus for a new business venture. This means protecting your intellectual property. or a different way of taking a product to the market. songs. a pattern or ornamentation that make a product unique sæ copyright – original expression of ideas (not the ideas themselves). confidential information. a secret recipe. market research and competitors. procedures and products intellectual property the property of mind or intellect. articles and photos sæ trade secrets/confidentiality – intended to stop employees from releasing your ideas to others. Customers/clients will not frequent a new business unless it is offering something new. in a new way or a combination of these. changes in the ways things are done and improvements in technology. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. literature. design or features. better or different! This is known as innovation. configuration.g. differently. An innovation can be a whole new product. phrases. a design. e. Successful small businesses always do something better. smells. CH A P T E R 4 MAJOR DECISION MAKING PRIOR TO STARTING A SMALL BUSINESS gap in the market an opportunity for a business to enter into an area of the market not currently being serviced innovation introduction of new things or methods. picture.

its branding. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. ‘We created a simplicity and innocence for the character right from the start. says ‘… we wanted to do things differently from the start’. send it back and we’ll drink it’. For example. who manages the Nudie website and has worked with Nudie since its inception. the Nudie method of doing business with its customers was innovative. Or people would drop their drawers and flash at us. ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers.’ Make it personal A key part of Nudie’s success is the personal service its customers have come to expect. Killips said. Nudie Juice Fabulous fruit juice company Nudie has a reputation as one of the most innovative businesses around. Despite the amusement factor of these stories. he says. rather than follow convention. I’d take the time to stack the shelves. This also meant we had prime positions in many retailers’ fridges’. These little things built great relationships with retailers. of course. 48 Figure 4.’ he says. Nudie purple line drawing of a creature who appears on every Nudie bottle.ACTIVITY 4. A prostitute even stopped a van to ask where the brothel was because she wanted to work there. It was a strategy that paid off.’ ‘In the early days. ‘Webman Nudie’ Martin Killips. While such cheek won’t suit every business. A gentle tweak The first innovation for the company was. which is a distinctive. I wouldn’t just drop off a box of Nudies.3 Fresh fruit is important for fruit juice company.’ Killips says. ‘People also developed a real relationship with the Nudie character’. particularly with the brand. the company wasn’t afraid of taking risks. I would take care to remember our customers’ favourite Nudie flavours and pop an extra Nudie in for the person responsible for making the order.4 Read the article and answer the questions that follow. It meant they wanted us to succeed and they also gave us preferential treatment …’ says Killips … [As] no other juice company offered such personalised. ‘The name tweaks its nose at the establishment in a gentle way. Japanese tourists would scream and shriek and take photos. which generated lots of publicity for us. ‘We were warned that purple-coloured vans wouldn’t work with food. For example. exceptional service. ‘We really tried to do things in a unique way. Be cheeky The company also made sure to include original labelling on its products. but our vans have been incredibly important to the business. . bottles have a disclaimer that reads ‘if you’re not satisfied with this product. From the start. ‘In the early days. Julie Cain. it’s an approach from which many businesses can learn. they all helped develop the reputation of the company.

yahoo. . the new product may be potentially harmful to children or disrupt family life. to ensure Nudie was first to market in every major Australian market before major players could enter the market and try to cut Nudie out. 4 What evidence is there that a culture of innovation exists at this particular business? 5 Give two examples of intellectual property that this business would be advised to take out. ‘When we started there was just nothing like it in the juice market’. Because Nudie approaches every aspect of its business with fresh eyes. c List and describe examples of how this business was. a When was this business started and by whom? b Describe how the owner/founder of this business was inspired to start it.au. Describe what it sells. A new idea may not be socially acceptable. a b c d Branding Use of distinctive purple vans Labelling Personal service. Recent opportunities for Australian small business There are always opportunities for the potential small business operator.com. A business operator should keep an ear to the ground! CHAPT E R 4 MAJOR DECISION MAKING PRIOR TO STARTING A SMALL BUSINESS 49 ISBN: 9781107665910 © Gillian Somers. and still is. it’s been able to stay ahead of its game. innovative. 6 Go to www. fashions and trends are all indicators of what may change consumers’ purchasing habits. 2 List and describe the innovations of this business discussed in the article under each of the following headings.fastflowers. Businesses should operate within the boundaries of what is acceptable to the wider community. The trick is to locate them. demonstrating that an innovation can catapult a business to the position of market leader. Questions 1 Name the business that is the subject of this article. Julie Cain.au and answer the following questions. For example. When contemplating an idea for a new business.First to market Killips says Nudie founder Tim Pethick also recognised early on that he needed to create a national distribution platform for the product quickly. the issue of social responsibility must also be considered. Killips says. Source: Small business information from ‘Kochie’s Business Builders’ http://smallbusiness. 3 Describe how each of these innovations was or could have been advantageous to the business in the marketplace. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. Changes in lifestyles.com.

who happened to be looking for an Australian distributor. now has more than 300 retail stockists and another 200 interior designers as active customers across the country. He decided to focus on the top end of the ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. whose company Jasmine Hall wholesales home textiles and fashion. build a relationship of trust – just as a journalist might do with a source. empire lines and stitches per inch. ‘Ultimately.’ It was a huge learning curve for Hall as he mastered skills from sales to inventory management. named after Hall’s daughter. ‘A good friend there who had some experience in retailing kept saying to me “do textiles” because they are easy to ship and store. From one customer in 2004. While Hall loved the challenge of meeting prospective customers and showing them new things.’ Hall’s friend put him in touch with the Shades of India factory in Delhi. a country that had become a second home during his years of reporting from the sub-continent. 50 ‘My first order was for four red silk cushion covers which arrived by courier – and I was in business!’ he says.5 Read the article and answer the questions that follow. Jasmine Hall’s decorative cushions.’ says Hall. are now sold at top boutiques such as Orson & Blake in Sydney and Hermon & Hermon in Melbourne.ACTIVITY 4. However he was able to apply many of the skills he had learnt as a journalist. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. Hall realised he had become more of a manager than a journalist. and India has such an amazing diversity of textiles to offer. business is about being able to deal with people. While working in Singapore as the bureau chief for international news agency Bloomberg. high value. clothing and fashion accessories. Julie Cain. and set up a business importing from India. low volume. I couldn’t tell the difference between silk and cotton. He decided to move back to Sydney. bed linen. Spinning a new kind of yarn by Neena Bhandari Few business editors would contemplate becoming an entrepreneur. ‘When I started out. but now I can hold my own in a conversation about weft and warp. but six years ago Mike Hall stepped out of a 20-year career as a journalist to launch a design-led textile business catering to the high end of the market. responsible for a team of 60 reporters and editors. But the transition from journalist to textile salesman wasn’t easy. sales agents in every state and a warehouse and showroom in Mona Vale. . He made a list of about 300 different products and landed in Mumbai. he soon realised it was easier to make appointments as a journalist rather than a salesman. The company. Hall is budgeting on sales of more than $1 million for next year. It also has two permanent employees.

5 Describe the competitive advantage that this company has over other textile companies. 6 Has this business been a success? Give evidence for your answer. Now they earn a steady income and can send their kids to school and build a home. 2 Outline the previous work experience of this small business operator. Hall could see the social and economic benefits of labour intensive manufacturing.’ Having spent years reporting from India and Africa. Julie Cain. Describe what it sells. Did any of this experience assist him with the business start-up and operation? 3 Describe the market that this business aims to sell to. ‘I spent three days with him in India and although he was a billionaire with a private jet. There are real social benefits from trade. He had this philosophy of extreme customer service – nothing is too much trouble. 4 Explain how Mike Hall came up with the idea for this business.market and now works with designers in India to develop new ranges using traditional skills and techniques. Hall says good quality products and customer service help give his business an edge in what is a very competitive market. now the mayor of New York.’ Source: The Age 11 November 2010 Questions 1 Name the business that is the subject of this article. . ‘I wanted to work with contemporary products that had a story to tell and I was inspired by the idea of skilled artisans and designers combining to push the boundaries of handcrafted textiles. Hall launched his own bed linen and accessories brand. ‘Our bedcovers. inspired by water. CHAPT E R 4 MAJOR DECISION MAKING PRIOR TO STARTING A SMALL BUSINESS 51 ISBN: 9781107665910 © Gillian Somers. he would always take the time to thank customers for their business. 7 Describe an issue relating to the corporate social responsibility that Jasmine Hall could use in order to create a competitive advantage in the marketplace. Customer service is something he says he learned from Bloomberg founder Mike Bloomberg. Secret River. The contemporary products are designed to appeal globally. are handquilted in village centres outside Delhi by women who might otherwise have been landless labourers. for example. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party.’ Recently.

. Is this business viable? Initial market research is performed to determine whether or not the business is potentially viable. ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. services offered and the personnel operating the business sæ an overview of why the business will succeed sæ profiles of the key people involved. In other words. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. It should look for answers to the following questions: sæ Is it attractive to customers? sæ Does it provide value? sæ Does it do what it is meant to do? sæ Who are the competition and what are the potential areas of competitive advantage? Answers to the above questions can be obtained by talking to potential customers. once completed. both direct and indirect. The initial market research should look at your products from the perspective of potential customers. with a list of their strengths and weaknesses sæ location and site layout sæ a brief analysis of the proposed operation. market reports and industry analysis. should contain the following information: sæ a description of the business idea. Further information on the market or industry can be gained through previous research. you should be able to gauge the following information: sæ Is there a real market? Is there potential for growth? sæ How much are customers willing to pay? sæ Who is the competition and how do you compete against them? sæ What are the barriers to market entry? sæ What resources are required for market entry? What should be in a feasibility study? A feasibility study. the process of commercialisation can commence. This will include market research. products sold. using surveys. including background. interviews. customer lists and questionnaires. the products fully developed and the intellectual property legally protected. will the business survive and be profitable? This is known as a feasibility study. From the information collected. Julie Cain. focus groups. skills.Decision 3: Developing a business concept market research systematic approach used to assist in making decisions about consumers and the marketplace viable capable of developing and growing feasibility study initial research that is required to determine whether the business is potentially viable 52 Once an idea for a business has been arrived at. personal qualities and qualifications sæ a description of the market – who and where the customers are and expected sales sæ identification of the competition. Even the best business ideas are useless when there are insufficient customers or clients willing and able to pay for the goods and services being offered.

the answer is ‘maybe’. But there are still many hurdles to overcome. who’s been running the studies. and they must be allowed to urinate naturally to ensure the signal is intact. The hope is that once these have been isolated from the rest of the urine. 2008. As old urine doesn’t work. ineffective in some parts of the country. . not surprisingly there’s usually a public outcry. but far less effectively. 3 What type of intellectual property needs to be applied here? 4 What still needs to occur before this idea/innovation becomes a business opportunity? 5 Would this be a socially responsible product? Give reasons for your answer. but when it does work it leads to an unpleasant death. chemists at a company called the Chemistry Centre. Julie Cain. be a humane alternative? According to a recent article in New Scientist. to kill wallabies. CHAPT E R 4 MAJOR DECISION MAKING PRIOR TO STARTING A SMALL BUSINESS 53 ISBN: 9781107665910 © Gillian Somers. a behavioural ecologist at Curtin University in Perth. It’s a fiddly business and dingo urine fetches at least $350 per litre. says Michael Parsons. Shooting kangaroos invariably causes a public outcry both here and overseas. rather than a general aversion to smelly urine. Also. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. also in Perth. creating a ‘super’ dingo urine repellent. One thing is certain: Australia needs some new ways to control its native animals. or damage crops and saplings. ‘Three-month-old urine is far more foul to us. Source: New Scientist Blogs on the Environment. At last. or sodium fluoroacetate. the repellent compounds might stay fresher for longer. So far. Since then. That adds to the expense of an already pricey commodity. but we got no response from the kangaroos’. So when farmers and conservationists have them shot or poisoned. including wild Bennett’s wallaby. Parsons told me. are reverse engineering dingo urine to identify the key compounds. in any case. and not a predator of kangaroo or wallaby – also deterred the animals. so good. Parsons has to treat the urine like a precious medical resource. a total of 212 days of trials have found the same effect in a variety of locations and species. a natural predator of kangaroos and wallabies. but in some parts of the country they are also pests that threaten rare plant species. Urine from coyote – American natives. June 16. a use for dingo urine Kangaroo and wallabies are much-loved Australian icons. but also because human urine and old dingo urine fails to deter the animals. only urine from purebred captive animals will do. as does using the poison ‘1080’. considered a major pest of Tasmanian forest plantations. Could urine from dingoes. It might even be possible to concentrate them. Questions 1 What have scientists discovered is the effect that dingo urine has on other native animals such as kangaroo? 2 Explain how this discovery has potential to become an innovative business idea. That’s in part because of the nature of their reaction. It is. Parsons thinks the animals are showing a classic flight response. express shipping it across the country packed with liquid nitrogen.6 Read the article and answer the questions that follow.ACTIVITY 4. In the first 16-day trial. To tackle those issues. semi-wild Western grey kangaroo and red kangaroo were far less likely to feed from troughs within 12 metres of dingo urine than troughs further away.

skills. Julie Cain. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party.4 Setting up a new business Buying an existing business If the new business operator decides that they would rather purchase an existing business as a going concern. The disadvantages to the business owner of starting from scratch can be: sæ there is a far greater degree of uncertainty with no previous sales history or figures to refer to sæ more work initially sæ it will take longer to establish a client/ customer base and. Extra considerations when establishing a business from scratch can include: sæ locating and obtaining suitable premises sæ registration of the new business name and the need to ascertain relevant licensing and codes of practice requirements sæ establishing relations with reliable suppliers sæ employing staff. ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. goals and personal requirements. Each option has distinct advantages and disadvantages. allows the franchisee to use the business name. . abilities. reflects the value of the firm’s reputation and trading contacts 54 The next decision to be made is whether to: sæ start a completely new business from scratch sæ purchase an existing business sæ buy a franchise. their talents. The potential small business operator must decide which best suits them. the following costs will be incurred: sæ premises. therefore.Decision 4: A new business from scratch or an existing business? franchise a business that is based upon the purchase of a franchise licence from the franchisor. cash flow sæ greater time and energy is required to establish a good name and reputation Figure 4. Starting from scratch This is usually the best option if there is a completely new idea or concept currently not available in the market that the business operator wishes to develop. The advantages to the business owner of starting from scratch can be: sæ complete control over the concept and form of the business sæ it will be their business with their personal stamp on it sæ the price of the business will not include the added cost of goodwill sæ more freedom to implement their own ideas and be their own boss sæ to avoid buying into the mistakes of others sæ complete autonomy in the running of the business and in its establishment decisions. logo and products goodwill the difference in value between the price that a business is sold for and its net asset value. sæ greater difficulty in obtaining finance with an unproven venture sæ a suitable location will need to be sourced and the business resourced from scratch sæ potential for unexpected competition sæ more scope for error as the new business owner will need to make many more decisions. plant and equipment sæ inventories of unsold stock purchased at valuation price (SAV) sæ customer accounts sæ contractual and legal rights such as patents sæ employees sæ goodwill (this is the cost of purchasing the reputation and good name of the business built up by the previous owner).

be bad will if a business has a poor reputation. including taxation. ‰ Physically check that the business has all ‰ Make sure that the business’s previous of the fixtures and fittings. Disadvantages of buying an existing business can include: sæ danger that the purchaser may be ‘buying a lemon’ (someone else’s failure) sæ goodwill can easily be overvalued – business is difficult to gauge sæ goodwill can. Julie Cain. by a consultant and/or the bank. receipts and wages.Advantages of buying an existing business can include: sæ it is a much simpler process. as things like registration of the business name and staffing have already been done sæ it is usually easier to obtain finance due to easy access to business financial records sæ the total cost is agreed upon initially and unlikely to blow out sæ the business will become operational and generate cash flow more quickly sæ business operating procedures and practices will already be in place sæ existing suppliers. in fact. competing business. stock in working order that you are paying ‰ Check on the seller’s right to open a for. . Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. Checklist for buying an established business ‰ Have an expert do an assessment of the ‰ Have an independent assessment of the business in order to ascertain if the busi- financial viability of the business done ness goodwill is fairly priced. ‰ Check the premises. Have these items valued. ‰ Check all financial records. equipment and financial performance has been verified. ‰ Check all of the leases and legal contracts BUYER BEWARE! you will be subject to. CHAPT E R 4 MAJOR DECISION MAKING PRIOR TO STARTING A SMALL BUSINESS 55 ISBN: 9781107665910 © Gillian Somers. Take care – many businesses that change hands in this way fail. staff and client base. Figure 4.5 Buying a business already established by someone else has advantages and disadvantages.

The franchisee will be given an exclusive right to operate the franchise in a specified trading area and agree to pay set fees that may include: sæ an initial. 28% of Australian franchisors are operating internationally. advice. any time you order a Big Mac from any McDonald’s store you know exactly the form and quality of what you are buying. up-front fee sæ a percentage of sales income each month sæ a regular advertising and marketing fee.Buying a franchise The third option is to buy into a franchise operation.6 Some well-known franchises Facts about franchising 1 2 3 4 5 6 56 Since 2008. even though it is likely that each McDonald’s store will have a different franchisee owner. A franchisee signs a legal document known as a franchise agreement that outlines the rights and responsibilities of both franchisor and franchisee. in effect. products and operating systems. What is franchising? Franchising involves a franchisee paying another business (franchisor) for the right to use that business’s trade name. paying for the right to replicate another business in its entirety. . 10 In 2010. 14% were female sole owners. Despite this. 70 000 franchises continue to operate in Australia. so that the quality of their product remains consistent from location to location. Figure 4. 91% of franchises operating in Australia are home grown A quarter of franchisors have made operational changes in response to environmental concerns. The franchisee is. The retail trade industry continues to dominate franchising with 26% of franchisors and 24% of franchise units involved in retailing. 7 Source: Franchising Australia 2010 ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. there has been a 2% decline in the number of franchises in Australia. suppliers and reputation. Franchises contribute $128 billion to the Australian economy. but in return will provide assistance. Julie Cain. 8 Mobile (30%) and home-based (30%) franchises are also popular. 32% of franchisees were male sole owners. with New Zealand the most popular destination. 9 There has been a major shift towards casual employment in franchises. including adoption of green products and services and environmentally-friendly packaging. A franchisor retains a significant level of control over its franchisees’ operations in order to safeguard their trademark. For example. The franchisor will then exercise a degree of control over the running of the business. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party.

au). Julie Cain. As well as an initial purchase fee. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. a Up to $20 000 b $20 000 to $50 000 c $50 000 to $100 000 d $100 000 to $250 000 e $500 000 and above. com. goals and objectives? d Name the most recent winners of: i franchisor of the year ii franchisee of the year iii emerging franchise system of the year iv media campaign of the year v franchise woman of the year. b What services does this organisation offer? c What are its aims. sæ the franchise is judged by the performance of other franchisees. a franchise owner performs the role of a manager rather than an owner. Disadvantages of buying into a franchise business can include: sæ far less independence.e. economies of scale) sæ established procedures sæ staff training is provided sæ buyer awareness of the brand name is already established sæ easier access to finance sæ guarantee of an exclusive territory limits competition sæ the franchise business should be immediately competitive.franchise. 3 List three websites that offer advice and assistance to someone considering the purchase of a franchise. Poor service provided by someone else will affect all. 5 Go to www. 2 List five pertinent facts about each business enterprise you have chosen. CHAPT E R 4 MAJOR DECISION MAKING PRIOR TO STARTING A SMALL BUSINESS 57 ISBN: 9781107665910 © Gillian Somers. ACTIVITY 4. sæ the franchise owner will not be able to implement their own ideas.7 1 Go to the website directory of the Franchise Council of Australia (www. They implement the ideas of the franchisor. 4 Compile a list of 20 franchises that operate in Australia. the franchise owner will also be expected to pay a monthly service fee and a percentage of takings. with many key decisions made by the franchisor sæ established suppliers and the advantages of bulk buying (i. sæ excessive costs and fees.franchisebusiness.org. a Name this organisation. .Advantages and disadvantages of a franchise Advantages of buying into a franchise business can include: sæ significantly reduced risk of business failure sæ to avoid making the franchisor’s initial mistakes and benefit from the training provided sæ the system has been tested and usually succeeds sæ expert assistance and advice are provided sæ less responsibility for decision making. Find a franchise for sale in each of the following price brackets. In effect.au.

Each partner is jointly liable for all debts incurred by the business. a new partnership must be formed. Usually sole trader operations are one-person operations. There are four main structures and several other less common options. These limited partners are usually passive investors and not involved in the day-to-day running of the business. The sole trader has rights to all profits and capital. A sole trader must also declare all of the business income as their own for tax purposes. advantages and disadvantages of different business ownership structures. The owner makes all of the decisions and runs the business autonomously. ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. It is generally accepted that a person should only enter into a business partnership with people whom they completely trust. The Partnership Act 1963 regulates partnership dealings. since a business partner may be liable for their partner’s debts. In other words. meaning they have unlimited liability. they provide financial input into the business but do not actively participate in the business operations partnership agreement formally outlines the duties and responsibilities of the parties to a partnership 58 The next decision is the form of proprietorship to adopt. Sole trader This is the simplest form of business ownership involving a single owner operating a business either in their own name or under a registered business name. placing these at risk. where liability of one or more of the partners is limited. often run from home. including procedures for distributing assets when the business is wound up. There are two types of partnerships: sæ general partnership when all partners are deemed to be equally responsible for the management of the business. See table 4. sæ limited partnership.1 on page 60 for features. including individual roles and what each partner brings to the partnership sæ division of profits and remuneration sæ contribution of capital from each partner sæ responsibilities of each partner within the business and who has authority to do things such as access bank accounts sæ how disagreements will be resolved sæ provision for admitting new partners sæ termination clauses. Common details included in a partnership agreement are: sæ partner details sæ commencement date and duration of the partnership sæ description of the business and the nature of the partnership. A partnership does not have an ongoing life: if one partner leaves. Julie Cain. all partners are equally liable for debts incurred. these business owners are fully liable (to the extent of their personal assets) if the business fails partnership a legal form of business organisation where two or more people (partners) work together passive investors often referred to as ‘silent partners’. Each one has distinct advantages and disadvantages. Each has unlimited liability for debts and obligations.Decision 5: Form of ownership structure? proprietorship the ownership of an unincorporated business sole trader individual owner of a registered business name unlimited liability applicable to sole traders and partnerships. This is the cheapest form of business structure to establish. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. . It may consist of between two and 20 people (often from the same family). Most partnerships are based on a formal legal agreement known as a partnership agreement. This is known as unlimited liability. Their liability is limited in proportion to the amount contributed. Partnerships A partnership is a business that combines the expertise and resources of two or more people. there is no perpetuity. The big drawback of this form of business ownership is that the sole trader is personally and totally responsible for all the actions and debts of the business and is liable to meet those obligations from their personal assets. If a partnership agreement is not entered into.

s Hugo has recently been made redundant in his employment as a security guard. s James will contribute 10 per cent of the capital. it has perpetual succession shareholder part-owner of a company limited liability shareholders are only personally liable to the level of their original investment in an organisation 59 ISBN: 9781107665910 © Gillian Somers. James and Jemma are four siblings who have decided to go into a business partnership. CHAPT E R 4 MAJOR DECISION MAKING PRIOR TO STARTING A SMALL BUSINESS redundant an employee is redundant when there is no longer sufficient work for the worker to perform company separate legal entity (incorporated body) that is subject to the requirements of the Corporations Act 2001 (Commonwealth). Claire. Setting up a company can be both expensive and complex. Justify your answers. They are formed according to legislation and registered with the Australian Security and Investments Commission (ASIC). Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party.8 Read the scenario and answer the questions that follow. owned by shareholders whose liability is limited to the extent of their shareholding in the company. otherwise known as incorporation. Jemma and James have decided that it would be wise to draw up a partnership agreement before they commence the business. s Claire will contribute 15 per cent of the capital. Questions 1 Summarise what each partner will bring to the new business in terms of: a capital b labour and time c expertise and skills. sæ There are two forms of company: private and public. She currently works part-time in marketing and has many business contacts that will be useful to the new business. Hugo. She will not work in the business and intends to continue her career as a neurosurgeon. He is intending to resign from his He will contribute 25 per cent of the capital and intends to work full-time in the new business. sæ Company directors are appointed by shareholders to manage and control the company. The contribution of each will be as follows: s Jemma will contribute 50 per cent of the capital required to start the business. sæ A company structure offers the protection of limited liability. registered officers and its owners. separate from their owners. She is intending to work part-time in the new business. 2 Suggest what would be included in the agreement in each of the following categories. Claire. Julie Cain. sæ The owners of a company are referred to as shareholders. Hugo. sæ Companies have their own independent legal entity. Company Another option is to form a company. it can sue and be sued in its own right and is run by directors. They have decided to open an event management business. a Amount of capital each partner brings b How profits will be distributed c The roles and responsibilities of each partner in the business d How disputes will be handled e Salaries and remuneration. .ACTIVITY 4. whereby liability of the shareholders is limited to the value of their shareholding. current employment and work full-time in the business. sæ A company pays tax on its earnings as a separate entity.

Table 4. advantages and disadvantages of different business ownership structures registered business name (RBN) trading name under which a person (sole trader) or partnership conducts its business or trade. Roxy Café. Larger companies are usually public companies. sæ Public companies are legally obliged to publicly report on their activities.g. with shares being sold privately. e.private company a company where the shareholding is limited (small). sæ Shares can only be traded with the permission of the other shareholders. Julie Cain. sæ These have an unlimited number of shareholders. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. sæ A company initially issues a prospectus inviting the public to purchase its shares. which must be given before the transaction takes place. has the words ‘Proprietary Limited’ at the end of the company name prospectus an invitation to the public and potential investors to purchase shares in a particular company Private company Public (listed) company sæ A private company is restricted to a maximum of 50 shareholders. sæ Private companies have the letters ‘Pty Ltd’ after their names. often run as a family business. sæ Public companies can be recognised by the word ‘Limited’ (Ltd) after their name. sæ Shares are freely traded on the stock exchange. knowledge. showing that they offer limited liability to their shareholders. skills and experience 60 Disadvantages threatened by one partner leaving s Potential for disputes and personality clashes ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers.1 Features. sæ Private companies are often family companies. meaning ‘Proprietary Limited’. name requires renewal every three years Australian Business Number (ABN) nine-digit identifier of a company Business structure Features Advantages Sole trader s One owner who operates the business under their own name or a registered business name (RBN) s Simple and inexpensive s Unlimited liability to establish s Harder to get finance s Owner has total control s Reliant on own over business knowledge and skills s Australian Business Number (ABN) Partnership s Simple to wind up s Minimal government regulation s Business owned by two s Inexpensive and simple s Unlimited liability to 20 partners to set up s Liability for debts incurred by others s Partnership agreement s Risk is shared to establish conditions s Minimal government s Business could be s Partners jointly liable for business debts regulation s Workload may be shared s Offers broader access to capital. .

These may also be incorporated. who issue Certificate of Incorporation Public company (Limited or Ltd) s Unlimited number of shareholders s Shares can be bought and sold on stock exchange s ABN s High complexity and establishment costs s Extra access to capital s More government through selling extra scrutiny. They are complex both to establish and wind up. Julie Cain. CHAPT E R 4 MAJOR DECISION MAKING PRIOR TO STARTING A SMALL BUSINESS Australian Company Number (ACN) nine-digit number to be used on a company’s common seal and all public documents involving the company accountability the extent to which a worker is held answerable to supervisors or managers for their work actions or performance trust fund or property held or administered (by a trustee) for the benefit of others 61 ISBN: 9781107665910 © Gillian Somers. who have equal ownership. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. The advantages are that they are cheap to register. These are often established for tax and other financial purposes. . and simple to establish and operate. Its profits are distributed equally to the members. or removal of one of who issue Certificate of the directors Incorporation s ACN Other ownership structures Other business ownership structures are recognised in Australia: sæ Trusts are created to hold property or conduct business on behalf of beneficiaries and are managed by a trustee.Business structure Features Advantages Private company (Pty Ltd) s Shareholders (owners) s Limited liability are legally separate s Extra capital can be from the business obtained by issuing more shares s Between one and 50 shareholders who s Separate legal appoint directors to run existence the company s Existence is not s ABN threatened with death or removal of one of s Operates under the directors registered company name and Australian Company Number (ACN) Disadvantages s High degree of complexity in establishment s Higher establishment costs s Higher degree of government control and reporting requirements s Additional compliance costs s Registered with ASIC. control shares and compliance s Separate legal requirements existence s Limited liability s Existence is not threatened with death s Registered with ASIC. sæ An association is a not-for-profit organisation such as a club or society. s Need for more accountability and paperwork sæ A cooperative is an organisation put together by people with common interests.

education levels. Decision 6: Location? One of the most critical initial decisions the potential small business operator must make is locating the business. Other factors may include the distance they are prepared to commute. 62 sæ Personal factors – the business operator’s personal situation is important. Location can make or break a business. You must evaluate the site with your target market in mind. Julie Cain. are allowed in the area? sæ Site accessibility and visibility – are the required number of customers able to locate and access the business? ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. Factors that need to be considered are: sæ size of the business sæ people involved sæ type of business sæ taxation and other financial issues sæ finance sæ start-up costs sæ degree of risk sæ personal preference. – economic and social trends – assessment of changes occurring such as demographic shifts in the area. interests. as well as suppliers who provide the essential raw materials. younger people moving into the area. How will the business fit with these trends? – complementary businesses – is there a business that complements the new business in the area? For example. sæ Area profile – the area under consideration must be analysed for its ability to provide access to a sufficient number of paying customers (proximity to customer base). a pharmacy would be well positioned next to a doctor’s surgery. Qualitative factors are those that deal with the psychological and emotional aspects of location. such as proximity to public transport or consideration for the welfare of workers. Different business types have different location requirements. ethnicity. Business location provides a link between the business and its customers/clients. This will give an indication if there are sufficient potential customers in the area. and so on. Quantitative factors are those that can be numerically calculated. changes in the birth rate. . – levels of support offered in the area by traders’ associations – level of services and amenities in the area. such as the cost of purchasing or renting premises. incomes. or a newsagency next to a large office complex. products and labour. Factors to consider when selecting a location Selecting a location for a business will generally depend on two types of factors: quantitative and qualitative.Which structure is the best? Different businesses are suited to different structures. if any. For instance. Points to consider include: – demographics of the area – assessment of the population in regard to its age patterns. such as banking and child care – level of competition in the area – reputation of the area – is it an area well known for a type of business? Will it attract people? – zoning regulations – what developments. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. A good location will establish a balance between these factors.g. a desire to live and work in a certain locality or to stay close to family nearby often determines location. A business owner must decide which structure best suits them. e.

Therefore. Wholesalers require less visibility but more space. the higher the costs associated with a location. Some businesses rely on impulse buying. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party.sæ Suitability of the buildings – the actual buildings must meet the physical requirements of the business. For example. others rely on customers planning their visits. building design and floor space. Easy vehicular access will also be required for deliveries and dispatch of large quantities. while not restricted in their location. If they drive. Public transport users will be attracted by proximity to a train station or bus stop. the operator may need to compromise on-site location to accommodate this. Factors to consider in location of a business sæ Retailers usually require a position that maximises visibility and therefore sales. therefore visibility and traffic flow is not usually a consideration. internet access. sæ Proximity to other large businesses with ‘pulling power’ – certain businesses will attract customers into an area. sæ Online businesses. must ensure they have access to fast and reliable electronic communication.e. They usually look for areas with high traffic. Consider required storage space. sæ Accessibility to transport – consideration must be given to how suppliers and customers will be travelling to the business. Having one or more ‘customer magnets’ nearby is a huge asset to a business. sæ Accessibility to labour and attracting enough of the best type of employees is another major consideration. Julie Cain. visibility and amount of passing trade. with easy access to transport routes. Generally. sæ Pending planning proposals can be checked at the local council. Many can be run from home. Any future development could have significant effect (positive or negative). Different types of retailers have different needs. Customers usually do not come directly to them and they do not rely on impulse buying. wholesaler businesses that purchase in bulk from producers and sell smaller quantities to retailers The best location for a business is dependent on the type of business. sæ Costs – the budget of a start-up business is usually limited. easy access and client parking will be required. i. Different businesses have different location needs sæ sæ sæ sæ sæ shopping centres/malls (large and small) industrial parks of varying types isolated sites online presence home-based. If clients call in. sæ Wholesalers require large amounts of floor space for storage. Possible choices are: sæ retail shopping strips. both suburban and CBD (sometimes referred to as ‘High Street’ locations) CHAPT E R 4 MAJOR DECISION MAKING PRIOR TO STARTING A SMALL BUSINESS 63 ISBN: 9781107665910 © Gillian Somers. Easy access to transport routes is important. . sæ Service businesses require mainly office space. level of accessibility to services. people will travel to a certain shopping centre in order to visit a supermarket or a variety store such as Target or Big W. Usually. parking facilities will be required. the higher the pedestrian and vehicular traffic flow. the cost of premises will increase in relation to the size and quality of the premises. sæ Manufacturers require large amounts of floor space.

9 Match each of the following small businesses with the location description that best suits it. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. Is the amount of space sufficient? Is there potential for growth or expansion? Are the entrances inviting? Does it meet legal requirements (e. supermarkets always place pet care items near the pet food). is another important planning decision.g. The first step is to prepare a floor plan. disabled access)? sæ Is the interior appropriate? If not how much will it cost to redecorate? sæ Is the lighting appropriate? Decision 7: Layout of premises? The layout of the business. or its physical set-up.ACTIVITY 4. Consider the needs of each particular business to justify your selection.g. The best layout is dependent on business type. Business a Supermarket i Location options Converted house on a quiet street b Florist ii Large space with major road frontage c Fast food outlet iii Small farm d Coffee shop iv Among several office towers e Hardware store v Large space. plenty of parking f vi Large shopping centre g Childcare facility vii Next to a hotel h Newsagency viii Next to a swimming pool Toy shop i Gymnasium j Hot bread shop ix x Suburban shopping centre k Pharmacy xi Next to a doctor’s surgery l xii Outside a supermarket m Domestic cleaning business xiii Home office n Retail jewellery store xiv Victoria Market Used car yard o Wholesale fishmonger xv Outside a large secondary college p Bottle shop xvi Foyer of a maternity hospital q Animal boarding kennel xvii Access to fast and reliable internet connection r xviii CBD E-commerce business Factors to consider when choosing a building Factors to consider in layout design sæ sæ sæ sæ sæ Fixtures and fittings – taking into account the image of the business and the environment required to make the right impression sæ Placement of fixtures and fittings should attempt to maximise traffic flow and optimise their use sæ Placement of stock/merchandise should ensure that clients/customers see what the business wants them to see sæ Efficient traffic flow sæ Knowledge of your customers’ buying habits – plan your layout accordingly sæ Opportunity to display merchandise attractively sæ Ability to display complementary items together (e. . Julie Cain. 64 Shop next to a train station ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers.

Figure 4. that is. s Place basics at the back of the store so people have to walk past other merchandise to get to them. s Customers will either come into the store with a definite purchase in mind (destination traffic). merchandise the stock of goods in a store or business ACTIVITY 4. so place merchandise appropriately.7 Layout is an important decision when starting a small business CH A P T E R 4 MAJOR DECISION MAKING PRIOR TO STARTING A SMALL BUSINESS 65 ISBN: 9781107665910 © Gillian Somers. goods with a high profit margin. supermarkets generally put milk in the back right-hand corner for this reason! s Place items likely to appeal to children at lower shelf levels. Therefore place specials. a Childcare centre b Private hospital c Computer store d Fast food outlet e Designer jewellery store f Large reception centre g Motor mechanic h Coffee shop i Swim school j Tattoo parlour k Ice-cream parlour l Bookshop. or they will intend to browse (shopping traffic). this will make them feel at ease. s Locate impulse and convenience items in the highest traffic areas. s Shopping traffic will tend to move to the right after entering the store and circulate anticlockwise. For example. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. Julie Cain. and will tend to circulate clockwise.Hints for layout of retail operations s Allowing plenty of space for circulation is key to an effective retail operation. .10 Explain the critical factors that must be considered when deciding on layout for the following businesses. s Next to the cash register is a good place for potential impulse purchase items. It is important that customers feel free to move through your store both freely and fluidly. items with low profit margins and impulse items here. s Maximise customer exposure to your displays of stock (merchandise). be more inclined to linger and therefore spend. s Place sale items at the front of the store on what is known as an ‘obstacle rack’. s Play music appropriate to customer demographics. s Destination traffic tends to move to the left of the store.

.8 Layout of Imelda’s Shoe Emporium Questions 1 Identify two potential occupational health and safety risks that are created by the use of this layout. suggest and justify more appropriate positions for: a b c d the register the specials bin the storeroom children’s shoes. 5 Design a more appropriate layout for Imelda’s Shoe Emporium. s The sales of men’s shoes are down. 66 ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. s The registers are regularly crowded and there have been numerous complaints about poor customer service.11 Read the scenario and answer the questions that follow. s Several handbags and accessories on display have been damaged. 3 Give possible reasons for each of the above trends and events. Julie Cain. Seats Specials bin Register Seats Women’s shoes Men’s shoes Staff toilets and lunch areas Handbags and accessories Children’s shoes s Customers complain about the smell when trying on shoes. Storeroom Imelda’s Shoe Emporium is a shoe shop located in a strip shopping centre in the suburb of Snorbins. 2 Identify and explain three problems with the positioning of the register. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party.ACTIVITY 4. 4 Using the ‘Hints for layout of retail operations’ above as a guide. s Shop stealing has increased. Lately the business has noted the following trends and events: s The specials are not selling. s Several accidents have occurred with people colliding into each other. Figure 4.

need for space. – Innovation must be protected by intellectual property. cash flow commences sooner – Disadvantages: pay extra for goodwill. Julie Cain. UÊ Location – different businesses have different location requirements depending on available funds. looking overseas. marketing and promotional skills. including communication skills. Decisions and self-analysis must be made prior to the commencement of a small business. including a feasibility study conducted to ascertain if the business can be financially viable. – Possible sources of ideas are family and friends. – Buy a franchise – Advantages: less risk. negotiation skills. UÊ Purchase a new or existing business – Establish a new business – Advantages: owner is autonomous and has control over the business and its development. including risk taking. technical skills. maximising traffic flows and avoiding bottlenecks. established clients. staff. location of stock in optimal positions. computer skills. innovation. – Disadvantages: greater uncertainty and risk. and access to suppliers.– Am I suited to run a small business? – What are my motivations for commencing in business? What are my personal goals and will the business help in achieving these? – A self-appraisal of: – personal skills. cost of fees associated with franchising. access to financial records. ability to recognise opportunities. UÊ Develop a concept – Initial market research. ability to set and achieve goals. research. UÊ Type of business – An entrepreneur sees opportunities that others do not. including: – Purchase an existing business – Advantages: simpler process. visibility requirements. more work building business up from scratch. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. UÊ Ownership structure – Sole trader – Partnership – Company – private or public – Each has its own advantages and disadvantages. suppliers. personal inspiration. – Innovation and entrepreneurship are important. owner avoids buying into the mistakes of others CHAPT E R 4 MAJOR DECISION MAKING PRIOR TO STARTING A SMALL BUSINESS 67 ISBN: 9781107665910 © Gillian Somers. accounting and financial skills. ability to work independently. UÊ Layout of the business – need to consider desired environment. decision making. greater scope for error. leadership skills – personal qualities. . and so on. planning and organisational skills. administrative skills. CHAPTER SUMMARY UÊ All small business operators need to become effective decision makers. may be buying the mistakes of previous operator. longer to become profitable. greater recognition and assistance – Disadvantages: less autonomy.

7 List five business opportunities that have come about in the past 25 years as a result of each of the following factors. . Julie Cain. 9 Discuss the advantages and disadvantages of buying into a franchise. construct a paragraph that includes each of them. 5 In your workbook. demonstrate how each could be utilised effectively by a small business operator. 68 ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers.1 What is decision making? What does it involve? 2 List the seven types of decisions that must be CHAPTER SUMMARY QUESTIONS made before commencing in small business. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. 4 Define each of the following terms. b Invention of the mobile phone a The invention of a new piece of c Mass migration from Asian countries to equipment parents in the paid workforce Australia b A logo for a new business d Climate change c Distinctive packaging e Increased awareness and concern about d A secret recipe e A catchy saying. a Increased number of families with both suggest which type of intellectual property protection will apply. Then. levels of obesity in the community. Means of entering business Features of this option Advantages of this option Disadvantages of this option Starting a new business from scratch Purchasing an existing business Purchasing a franchise 6 For each of the following innovations. Use an example to illustrate your answer. draw up and complete the following table. a Unlimited liability b Partnership agreement c Proprietorship d Franchising e Goodwill. 3 Explain the types of skills that are desirable for a business operator to possess. 8 Explain what is meant by the term ‘a gap in the market’. using these terms accurately. Using an example for each skill.

a Orica Ltd b Linfox Pty Ltd c Rocky Potter Magician d Kanellopoulos and Manousopoulos Educational Consultants. Show the names of each business and its location. For example. 5 Design and justify an appropriate layout for one of the following businesses. Julie Cain. the better of the two locations. and acronyms stand for? Discuss the relevance of each to a small business operator. e. b Discuss why it is you believe there has been such huge growth in the franchise sector in recent years. the better layout and why. Then select four businesses from the map and analyse each of their locations. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. what is good about their location and what are its drawbacks? What advice would you give each of these businesses about selecting a better location? requirements for each of the following business types. c Write a brief evaluation of which business has. a ACN b ASIC c ABN d Ltd e Pty Ltd. d Draw a diagram showing the layout of the two businesses.g. in your opinion. two pharmacies or two newsagencies. UÊ A jeweller UÊ A sports store UÊ A gymnasium UÊ A toy shop. in your opinion. . b Describe the location of each. 11 Explain why it is vital for business partners to have complete trust in one another.10 Identify the form of business ownership of each of the following businesses. a Explain what a franchise operation is. a Retailers b Wholesalers c Manufacturers d Service industries. 4 Australia currently has more franchise operations per head of population than any other nation in the world. 3 Select two businesses of the same type that you know reasonably well. CH A P T E R 4 MAJOR DECISION MAKING PRIOR TO STARTING A SMALL BUSINESS 69 ISBN: 9781107665910 © Gillian Somers. EXTENSION QUESTIONS 2 Discuss and describe the location 12 What do each of the following abbreviations c Is this apparent optimism in franchising justified in your opinion? In your answer consider: – advantages of entering into a franchise rather than a stand-alone business operation – disadvantages and pitfalls of franchising – whether franchise operations are always more successful. 1 Construct a map of your local shopping centre. e Write an evaluation of which business has. a Write a brief description of each business.

Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party.5 BUSINESS SUPPORT SERVICES WHAT’S AHEAD Internal environment Factors within the organisation Impact on External environment Factors outside the organisation affecting it Small business enterprise Formal assistance – Government support – Legal support – Financial assistance – Other professional advisers and consultants Informal assistance – Networking – Other small business owners – Financial assistance – Previous owner External support services ISBN: 9781107665910 © Gillian Somers. Julie Cain. .

It is therefore vital that small business operators. Victoria. Studies have shown that successful small businesses tend to utilise the available support services more than those that fail.g. as this will translate into a healthy economy. are aware of. A healthy economy is built on the success of small business. has more than 482 000 small businesses. PLANNING AND EVALUATION 2 support services services (paid or unpaid) used by businesses to assist them in their decision making. offer a wide range of services and assistance at little or no cost. it is in the interest of government to optimise the chances of small business success. e. Potential and existing small business operators in Australia have at their disposal a wide range of support services providing expert advice and assistance. and know how and where to access the numerous support services available to them. Australian governments. in particular. with a total capitalised worth of more than 4. Effective utilisation of these support services gives a small business greater chance of success. In recent years the range and availability of these services has expanded. Obviously. AREA OF STUDY SMALL BUSINESS DECISION MAKING. There are several places where a small business operator can access informal advice and assistance.1 million people. This translates into 95 per cent of the state’s business and 43 per cent of Victoria’s state product.93 million small businesses employing more than 5. planning and evaluation: – – – – – legal services financial services technological services community-based services formal and informal networks. Julie Cain.3 trillion dollars (source: Australian Council of Small Business Organisations). if they wish to optimise their chances of long-term success. Australia-wide there are more than 1. .KEY KNOWLEDGE Students will learn the following about small business decision making. for instance. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. legal or financial advice or daily operational activities state product a measurement of the value of production by businesses in a state in a given period of time 71 ISBN: 9781107665910 © Gillian Somers.

may result in a better deal. for example.) ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. as well as any others.edu. friendship. clients/customers. Business breakfast clubs.vic.edu. Networks facilitate the exchange of ideas and advice and support between like-minded individuals. Networks also offer an opportunity to establish contact with owners of complementary businesses who may assist the business and further enhance their chances of success.au UÊ www. Julie Cain.au UÊ www. it provides an opportunity to learn about the business’s operations. They can demonstrate established systems operating in the business.au UÊ www. such as suppliers. support and assistance for minimal cost. ‘Old Boy’ and ‘Old Girl’ networks from particular schools.mhsoba. and other important contacts. UÊ www. church. Competitors are a valuable information source. A network can be an informal friendship group or a more formalised grouping such as a service club like Rotary.Informal support and assistance network an interconnected system of people or businesses complementary business a business whose activities complement those of another business transition period a period of time when the previous business owner works with the new owner to introduce them to business operations.vic.1 Access the website of at least one of these prominent schools. It is wise for a new business owner to negotiate a period during which they operate the business alongside the previous owners before takeover occurs (known as a transition period). A network can offer invaluable advice. Write a response to each of the questions that follow.trinity. such as tastes and buying habits. More importantly.macrob. are extremely important in the business world. What advantages does membership of these groups offer you? (Include sporting. such as operating in the same geographic area or being from the same industry. school. Connections with a particular school can open doors in business that may otherwise remain closed.au Questions 1 List some of the activities organised by this group for past students of this particular school. Previous owners can help identify appropriate suppliers and advise on potential sources of support.edu.ggs.edu. where business operators gather at breakfast meetings.edu. 2 What advantages would membership of this group offer both socially and professionally? 3 How could the contacts offered by membership of this group help you in business? 4 List all of the networks of which you are currently a member. hence the term ‘keeping an eye on the ACTIVITY 5. A contact with a supplier of raw materials or component parts.au UÊ www. are another important and growing network. as well as supply important information about clients.vic.vic. suppliers and other business contacts competitor a business rival in the same market for products or services offered by an organisation 72 Networking involves the exchange of ideas and support among groups.vic. . This allows for introduction to regular clientele.au UÊ www.fintona. for instance. The previous owners of a business are also potentially valuable sources of information and assistance.kew. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. or an employment agency may offer access to staff. Find the past students’ association link. Networks can form among business operators with something in common. interest groups.asn.

This is known as industrial espionage. Keeping a close eye on the opposition allows a small business operator to identify those areas of the market that are currently inadequately catered for (market gaps). types of customer service.e.competition’. a lot can be learnt by simply watching the competition and taking note of important details such as pricing strategies. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. special offers. While a small business’s budget would probably not run to this. Business a Chemist Appropriate complementary business i Limousine hire b Architect ii General practitioner c Florist iii Beautician d Bridal shop iv Gymnasium e Nightclub v Car dealership f vi Hospital g Insurance agent vii Coffee shop h Hairdresser viii Builder Health food shop C H A P T ER 5 BUSINESS SUPPORT SERVICES 73 ISBN: 9781107665910 © Gillian Somers.1 Industrial espionage ACTIVITY 5. It also indicates the standards of customer service the consumer is accustomed to and likely to expect. . and even the layout of their premises. Large organisations have been known to employ spies to gain information about what their competitors are doing.2 Match each of the following businesses with an appropriate complementary business that would be desirable to have within the immediate vicinity. industrial espionage gaining valuable information on a competitor’s activities (i. Julie Cain. spying) Figure 5.

’ He says when working with overseas clients. a site that collates information including articles. Doctor to entrepreneur One Tasmanian entrepreneur is Byron Teu. the lifestyle is unbeatable.ACTIVITY 5. It also has attractions such as lower-cost housing and a generally lower cost of living compared to the mainland. Tasmania is an ideal test market for start-up businesses. ‘I started developing the business in medical school … but it wasn’t until January this year that I decided to focus full-time on Sentralize. was among the first in the world to be listed on iTunes. For example the business created willitend. The business sets up websites around a particular theme.’ The business continues to develop games and applications for iPhones and iPads and with clients overseas and all around Australia.com. a puzzle game called Culture. ‘They see Australians as a novelty and Tasmania and Tasmanians as even more of a novelty. There are also business incubators such as Technopark and In-tellinc to help nurture fledgling enterprises.com. The University of Tasmania PhD candidate says: ‘we were inspired to develop the business with the arrival of the iTunes app store. Teu was training to become a general practitioner before he decided to take a break from medicine to focus his attention on his business.’ ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. ‘We want to keep growing in Austra- The Tasmanian state government has an enviable grants program to support early stage businesses. These sites scour the web for content related to the theme and aggregate online information about the topic. organising information on a country-by-country basis. He is a co-founder of Secret Lab.3 Read the article and answer the questions that follow. being from Tasmania gives the business an advantage. 74 Going out to the world lia and increase our presence on the mainland. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. important benefits for cashstrapped entrepreneurs.’ he says. Plus. . Ideas and grants Paris Buttfield-Addison is another successful Tasmanian entrepreneur. It was successful enough for Secret Lab to continue to develop online games. the founder of Sentralize. which funds the cost of business advice. As a microcosm of the mainland. which helps businesses commercialise inventions and an export markets assistance scheme. Start-ups blossom in Tassie by Alexandra Cain Tasmania is shaping up to be the start-up capital of Australia. as any Taswegian will argue. Intriguingly. the Tasmanian Innovations Program. one of our games. Buttfield-Addison says he has no plans to leave Tasmania.com. Julie Cain. social media posts and videos pertaining to all the major wars being fought at the moment. which develops online games and applications sold around the world. for example the Enterprise Growth Program.

but says that despite the much appreciated funding from AusIndustry and CERA. Koennecke says he’s committed to staying in Tasmania. Julie Cain. 3 Describe two new Tasmanian-based small businesses. . including sacrificing his salary. And don’t expect your first prototype to be perfect – the idea is to just get something out there. Koennecke has been able to secure a number of different grants over the life of the business. CEO of Vision Instruments. 2 List and briefly describe the advantages of starting up a small business in Tasmania. 17 November 2010 Questions 1 Describe the trend regarding the location of new small businesses that is identified in the above article. a hard ask when. He’s also just received a $104 000 Commercialisation Australia grant to finish the product. You also need to multiply your most conservative cost estimate by three.’ Source: The Age. Another issue is the requirement of many grants programs to match the grant dollar-fordollar. He estimates he has contributed $600 000. Include a description of the products and owners for each. Koennecke’s advice to other entrepreneurs is to ‘expect everything to take three times as long as you think it will. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. to product development so far. but he also eventually wants to export to other markets including India and the US. There really is no reason not to do research and development in Tasmania. Koennecke’s story is a little different to that of Teu’s and Buttfield-Addison’s in that he has been in the process of developing a commercial-ready camera for the past 10 years and expects to have the first production cameras ready within the next two months.Tassie veteran A veteran Tasmanian entrepreneur is Greg Koennecke. His initial focus is developing the product for use in the Australian Indigenous community. which is developing a portable retina eye camera that will be used to screen for eye disease in the developing world. ‘You can do anything here and you’re only an overnight delivery away from Sydney and Melbourne.’ Staying put Like Teu and Buttfield-Addison. a $180 000 commercialisation-ready grant and $230 000 in support from the University of Melbourne’s Centre for Eye Research Australia (CERA). It’s a great lifestyle with just enough technical expertise and services to support small technology development start-ups. most of your personal funds have already been spent developing the product. 4 Using the internet: aÊ ˆ`i˜ÌˆvÞÊ>˜`Ê`iÃVÀˆLiÊ܅>ÌÊ>ÊLÕȘiÃÃʈ˜VÕL>̜ÀʈÃÉ`œià bÊ `ˆÃVÕÃÃÊ̅iÊ>`Û>˜Ì>}iÃʜvÊṎˆÃˆ˜}Ê>ÊLÕȘiÃÃʈ˜VÕL>̜ÀÊvœÀÊ>ʘiÜÊÓ>ÊLÕȘiÃð C H A P T ER 5 BUSINESS SUPPORT SERVICES 75 ISBN: 9781107665910 © Gillian Somers. like Koennecke. lack of funding has held up the project. including a $50 000 Commercialising Emerging Technologies grant.

acceptance. establishment and implementation of contracts like employment agreements.Formal support and assistance All small business operators can expect to pay for professional advice from specialists. the capacity to contract. which provide lists of recommended lawyers that their members deal with sæ Law Institute of Victoria – the peak professional body for the legal profession. the intention to enter into legal relations. Financial assistance and advice A successful small business will require an accountant to provide initial financial assistance during the establishment phase. local government by-laws. In light of the fact that ignorance is not accepted as an excuse for breaking any law. e. go to www. and to give specialist legal advice. a banker. asn. To find a lawyer or get a referral.asn. and others such as marketing and computer experts. as are the services of an insurance broker. consideration.liv. WorkCover.au. therefore a business operator should select a legal professional carefully. For more information on law and the services available to students. and permits. appropriate legal advice is essential for any small business. consumer protection and company law sæ establishment and compliance with industry licensing requirements. An accountant’s expertise will be required: sæ to give an accurate valuation of a business intended for purchase. employment. and business transactions sæ securing trademarks and patents sæ interpretation of legislation and how it will affect the business. legality of purpose.g. Legal assistance and advice contract a legally binding agreement that incorporates the following elements: offer. . go to www.liv. monthly cash flow summaries and budgets for auditing ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. Julie Cain. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. as well as regular and ongoing services throughout the life of the business. give advice and provide representation on legal issues.au/directory/. Where to find a lawyer The cost of hiring a lawyer is significant. A good accountant and solicitor are essential. A lawyer assists with: sæ advice on purchase or establishment of a business and acts on your behalf during this process sæ selection of the best business structure sæ establishment of a debt recovery system and debt collection sæ negotiation and advice over a franchising agreement sæ negotiation of and drawing up of a lease for premises and/or equipment or their purchase sæ negotiation. Possible sources include: sæ word of mouth sæ Yellow Pages sæ professional and business associations. registrations and approvals sæ preparation of a partnership agreement sæ dealing with creditors sæ dealing with takeovers and acquisitions sæ representing the business in court during legal matters sæ selling the business. conveyancing when purchasing property. A lawyer will be required to prepare legal documents such as contracts. including goodwill sæ to evaluate the feasibility of a business idea sæ when undertaking negotiations regarding leases and contracts sæ to plan a business’s financial recording system sæ to prepare loan applications sæ to prepare quarterly financial statements. consent and certainty of terms franchising agreement a franchise agreement is a legal document that outlines the rights and responsibilities of the franchisor and the franchisee 76 Every small business will require the services of a lawyer to negotiate on its behalf.

2 Go to www. especially the Australian Taxation Office. In your opinion. charteredaccountants.ato.2 Australian banks ACTIVITY 5.com.au). the business operator should check that they have: sæ appropriate qualifications sæ good communication skills sæ experience with clients in the relevant industry sector sæ experience with small business issues. They are responsible for processing loans and supervising business bank accounts.  <Ê­>˜â°Vœ“°>Õ® >̈œ˜>Ê >˜ŽÊ­˜>L°Vœ“°>Õ® 7iÃÌ«>VÊ­ÜiÃÌ«>V°Vœ“°>Õ® /…iÊ i˜`ˆ}œÊ>˜`Ê`i>ˆ`iÊ >˜ŽÊ ­Li˜`ˆ}œL>˜Ž°Vœ“°>Õ®° For each: aÊ }œÊ̜Ê̅iÊLÕȘiÃÃÊL>˜Žˆ˜}ÊÃiV̈œ˜ bÊ ˆ`i˜ÌˆvÞÊ̅iÊÃiÀۈViÃʜvviÀi`ÊLÞÊi>V…ÊL>˜ŽÊvœÀ\ i insurance ii franchising iii establishment of a business iv local business bankers v banking services. Certified Practising Accountant) sæ reasonable fees and charges and what these cover. All businesses require banking services and facilities.au) or the Institute of Chartered Accountants in Australia (www.g.commbank. aÊ  bÊ /*"cÊ Ài`ˆÌÊV>À` dÊ >˜ŽÊviià eÊ Ài`ˆÌœÀ fÊ .sæ sæ sæ sæ sæ for taxation for financial planning to recommend appropriate computer software for advice on superannuation to identify and understand cause of changes in business performance sæ during liaison with government departments.gov. Where to find financial advice Sources for locating a good accountant include: sæ word of mouth sæ Yellow Pages sæ professional and business associations sæ business referral centres sæ Certified Practising Accountants (www. Figure 5.au/help/glossary and find the definitions of each of the following business banking terms. They also: sæ give advice on the feasibility of a business expansion sæ give investment advice sæ act as a source of finance sæ provide EFTPOS facilities. The Australian Taxation Office (ATO) is also an excellent source of information regarding taxation matters (www. cpaaustralia.com. Bank managers are a valuable source of advice and assistance. Before using an accountant.com.4 1 Select two of the following banks and visit their websites.au). especially taxation sæ professional registration (e. which bank offers the best service to a small business operator? Justify your view.

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Julie Cain. .ˆÀiVÌÊ`iLˆÌ° C H A P T ER 5 BUSINESS SUPPORT SERVICES 77 ISBN: 9781107665910 © Gillian Somers. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party.

and advertisements. usually with the name and address of an organisation Additional support required will depend on the business type. sæ Information management and technology consultants are experts who will help select technology. outdoor dining and footpath trading – these must be clarified before entering into business. sæ by-laws covering matters such as parking restrictions. it is therefore in their interest to try to promote a healthy small business sector in order to optimise economic performance. . work for themselves and act as an agent to the person or business seeking insurance. and provide ongoing backup and assistance with all technology-related areas of the business. state and local government all provide resources and assistance to small business operators. Governments are usually judged by the voter on their economic performance. Brokers. Figure 5. An agent works for one insurance company and will try to sell only that company’s products. business cards. train staff.3 A small business owner will need to consult with a team of specialist advisers and professionals. sæ Graphic designers and printers – a business may choose to employ these experts to design and produce logos. They will negotiate insurance policies with different insurers on behalf of a client. For example. software and hardware. A business must locate in the appropriate zone. sæ Insurance agents and brokers are experts who will give advice on risk management and appropriate insurance. They also sell insurance. pamphlets. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. This usually includes facilitating networks of small business operators. any exceptions will be rare. letterheads. Local government should be contacted for information in regard to: sæ planning and zoning regulations – different local government areas have different planning and zoning laws. 78 Government support and assistance Federal. hygiene and food handling regulations – a business operator can expect that health inspectors employed by local government will regularly check that they are meeting the required standards in this regard. sæ health. Most local governments oversee programs designed to assist and support small businesses. sæ Marketing and advertising consultants give specialised marketing and advertising advice for a fee. Before entering small business. extensions or renovations. Planning laws will also affect any building.Other professional advisers and consultants letterheads stationery printed or engraved. an area zoned ‘Residential’ can only have residential buildings within it. ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. set up systems. on the other hand. Julie Cain. Local government assistance Local government is an important source of information for small business because it has responsibility for regulating many of the actions of small businesses. the business operator should ascertain the assistance available.

Table 5. Access to all government information.au (Commonwealth Government) www. Both provide online information for small business.gov. continued next page C H A P T ER 5 BUSINESS SUPPORT SERVICES 79 ISBN: 9781107665910 © Gillian Somers. as it is to their benefit for the business to succeed.State and federal government assistance Federal and state governments provide a lot of assistance to small business owners. including start-up and operation.business. Julie Cain. . The Victorian Government provides small businesses with assistance. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. Customs. Any new government initiatives will appear on this site. Information on business assistance. Figure 5. business questions.1 Information available through government websites Government organisation or area of interest Website address Content Business Victoria www. OH&S. programs and services at Victorian business centres located in both regional and metropolitan areas. taxation.gov. Table 5. Access to a small business counselling service and Business Referral Service. superannuation. importing and exporting. services and transactions. links to Victorian Government Business. and government forms required by small business.au Provides information on a wide range of topics in relation to small business. business start-up. Make this the first site that you visit. employing people. Comprehensive information and numerous links to other relevant sites.1 summarises some of these sites.gov.business. and so on.4 The Small Business Information Centre at 121 Exhibition St Melbourne. business. Online resources Both federal and state governments have an extensive array of services for small business operators.au Provides information on all aspects of small business. such as ABN.vic.

abs.gov.sbc. Julie Cain. .scamwatch.gov.ausindustry. dispute mediation. The Department of Innovation.gov.au Provides export and investment services to Australian companies.gov.ato.au Provides information on licences and codes of practice affecting particular types of business Australian Taxation Office www.au Good source of business data. Covers promotion of small business.au Specific resources for e-business Scamwatch www.gov.bli. Austrade www. encouragement of government awareness of small business needs.vic.jsp Applying for a patent online Australian Bureau of Statistics www. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party.net.au/ ols/ecentre/content/olsHome.80 Government organisation or area of interest Website address Content Office of Small Business Commissioner www. statistics and advice on use of this information Business Licence Information Service www.digitalbusiness. Science and Research www.gov. Industry. informed decision making.gov.au Government website giving taxation information for individuals and businesses of all sizes e-business www.au Victorian Government website dedicated to providing a competitive and fair operating environment for small business.au Advice on and awareness of frauds targeting small businesses ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. dealing with complaints.au Legal issues for small business Patents https://pericles.gov.ipaustralia.innovation.

Then. locate two business incubators that operate in Victoria. Business incubators A business incubator is an organisation that Using the internet. working in groups of three to five. office/secretarial services. C H A P T ER 5 BUSINESS SUPPORT SERVICES business incubator an organisation that supports new business by making available premises. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. This encourages networking and the exchange of ideas. The role of these centres is to: sæ administer government programs and initiatives. use either the Yellow Pages or the Business Victoria website (www. Headings that may be used in the booklet or pamphlet include: UÊ iÌ̈˜}ÊÃÌ>ÀÌi` UÊ œ“ˆ˜}ÊÕ«Ê܈̅Ê>ÊLÕȘiÃÃʈ`i> UÊ i}>Ê>`ۈVi UÊ ˆ˜>˜Vˆ>Ê>`ۈVi UÊ œÛiÀ˜“i˜ÌÊ>ÃÈÃÌ>˜ViÊ>˜`Ê>`ۈVi UÊ ÕȘiÃÃÊÃÌÀÕVÌÕÀiÊ>˜`ÊÀi}ˆÃÌÀ>̈œ˜° start-up commencement of business operations appropriate literature sæ refer to appropriate advice and assistance ACTIVITY 5. Each one acts as a small business advisory service providing advice. advice and other support at minimal cost until the business is established mentor an experienced. consultancy and training at minimal cost. Julie Cain.business.au). organise and distribute local business and economic growth programs sæ provide business information on start-up sæ provide referrals to specialists as required from databases of professional advisers sæ provide workshops and seminars on business topics sæ provide access to the Business Channel and the business licence information service and Locate and contact your nearest business centre office. produce a booklet or pamphlet advertising Victorian business centres and the services they offer small business operators. The nearest business centre can be located by contacting Business Victoria through their website or by calling 13 2215. which promote and support business networks and provide mentoring services. advice. Before you contact a centre.gov. make sure that you work out exactly what information you require from the contact. Networks and mentoring until that business is established. skilled and trustworthy person whose role is to guide another 81 ISBN: 9781107665910 © Gillian Somers. The incubator Local and state governments also facilitate numerous local business groups and make mentoring arrangements. For each business incubator. To do this. There is a range of programs provided by governments. and practical guidebooks for small business. training seminars and videos. . secretarial services.5 There is a network of more than 100 local business centres spread Australia-wide.Business centres ACTIVITY 5. A business incubator allows the new business operator to interact with others in similar circumstances. manager also acts as a mentor. vic. Research has shown that business incubators lessen the likelihood of business collapse.6 and formal courses of study sæ run workshops and seminars. These help small business operators by allowing them to share the experiences of others. list: UÊ Ì…iʏœV>̈œ˜ UÊ Ì…iÊÃiÀۈViÃʜvviÀi` UÊ Ê̅iʘ>“iʜvÊ̅ÀiiÊLÕȘiÃÃiÃʜ«iÀ>̈˜}ʜÕÌÊ œvÊ̅iʈ˜VÕL>̜À° supports new businesses by making available business premises.

These associations cover specific types of industry. the Law Institute is made up of lawyers. Membership of the relevant industry association allows the business operator to keep up to date with training.Professional. Membership also allows the business to be part of a network. For a complete list of these general industry bodies. For example. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. as well as general industry news and information. Individual research Figure 5. Economic development units These development units are run by local governments and aim to improve basic business opportunities in their local government area. They run projects and initiatives aimed at local businesses. trade and industry associations industry association representative body for a particular industry group professional association representative body for a particular professional group A business operator should seriously consider joining a specific industry association or professional association. Most publish a newsletter. Other networks Other formal and informal networks exist to help the small business owner.5 General industry bodies 82 This might include visits to trade shows. Publications Individual industries will most likely publish a journal that will provide business operators with useful advice. General industry bodies These groups are broad-based bodies of members from different industries providing general information and assistance. such as libraries. . Similarly. VACC (Victorian Automobile Chamber of Commerce) and VECCI (Victorian Employers’ Chamber of Commerce and Industry). Other useful publications could include magazines such as Business Review Weekly and My Business and newspapers (business section). which can be accessed via the local government website. the state chambers of commerce. support and advisory services. conferences and visits to other resource centres. ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers.com. Julie Cain. such as seminars and workshops.agd. go to the Australian Government Directory at www. trades or professions. Examples of these groups include: AI Group (Australian Industry Group). Local traders’ associations Businesses operating in a certain geographical area often form networks to offer mutual support and to provide a forum for discussion of local business issues. This will be available through trade associations. which represents more than 10 000 Australian businesses. They also lobby governments on issues in their mutual interest.au. the Master Builders Association represents and assists builders. Local business awards and access to information about government grants are another common feature.g. e.

au) sæ Yahoo (http://smallbusiness.com.vic. Julie Cain.org.flyingsolo.abn.org. Figure 5.com.ACTIVITY 5.au) sæ Small Business centre (http://finance.au) sæ Australian Institute of Export (www. sæ An online community for the solo business operator (www. government websites 2 Feasibility of a business venture 3 Taking out a business loan 4 Preparation of a tax return and GST 5 Up-to-date industry news 6 Advice on footpath trading 7 Help with a marketing campaign 8 Information regarding the demographics of the local area 9 Licensing information 10 How to register a business name 11 Advice on industry standards 12 An industry code of ethics Other useful websites of non-government providers A plethora of information is available online.becsmallbiz.dynamicbusiness. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. .) Issue Potential source of information 1 Legal advice Lawyer. (The first one has been done for you.au) sæ Advice on employment law and wages (www.com.iquantum.au).com.vecci.au/employment-workplace) sæ Australian Businesswomen’s Network (www.au) sæ Victorian Employers Chamber of Commerce and Industry (www.ninemsn.copyright. C H A P T ER 5 BUSINESS SUPPORT SERVICES 83 ISBN: 9781107665910 © Gillian Somers.au) sæ Dynamic Business magazine (www.aiex.au) sæ The Business Enterprise Centre (www. Law Institute of Victoria.mybusiness.7 Where would a small business operator go to find information on the following issues? In your responses consider both formal and informal sources of assistance.gov.com.com.au) sæ Australian Copyright Council (www.com.yahoo.au) sæ Advice for small business (www.au/ small-business) sæ My Business magazine (www.com.org.6 Local traders’ associations are an important source of support for small business.

Your membership and input into the Association will make a difference. . It is essential that we have a unified approach and united voice in all issues which impact on Altona businesses. and be truly representative of the whole community.au/association.visitaltona. the Association will define and review its role to keep businesses involved in the decisionmaking process to allow for maximum growth and expansion. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. It is important to remember that the local community is the bread and butter of most businesses throughout the area and as it develops. Source: www. Marketing Altona as the destination on Port Phillip Bay for shopping. Julie Cain. 84 To achieve our aims.html ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers.com. it is important that we have on board as many of the traders and interested parties as possible. business and tourism is the priority for the Association. in particular for the Altona area.The Altona Village Traders Association The Altona Village Traders Association has established itself as the peak business and tourism body in the Hobsons Bay Municipality.

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.iۈÃiÊ>ʏˆÃÌʜvÊvœÕÀʵÕiÃ̈œ˜ÃÊÊ ÞœÕÊܜՏ`Ê>ÎÊi>V…ÊœvÊ̅iÃiÊ«ÀœviÃȜ˜>ÃÊLivœÀiÊ ÞœÕÊi˜}>}iÊ̅i“ÊvœÀÊޜÕÀÊLÕȘiÃÃ°Ê Ý«>ˆ˜Ê܅ÞÊ ÞœÕÊLiˆiÛiÊi>V…ÊœvÊ̅iÃiÊvœÕÀʵÕiÃ̈œ˜ÃÊÊ ˆÃʈ“«œÀÌ>˜Ì° 10 7…Þʓˆ}…ÌÊ>ÊÓ>ÊLÕȘiÃÃʜ«iÀ>̜ÀʏœœŽˆ˜}Ê ÌœÊLÕÞʈ˜ÃÕÀ>˜ViÊÃ>ÛiÊ̈“iÊLÞÊ>««Àœ>V…ˆ˜}Ê>˜Ê ˆ˜ÃÕÀ>˜ViÊLÀœŽiÀÊÀ>̅iÀÊ̅>˜Ê>˜Êˆ˜ÃÕÀ>˜ViÊ>}i˜Ì¶ C H A P T ER 5 BUSINESS SUPPORT SERVICES 85 ISBN: 9781107665910 © Gillian Somers. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. Julie Cain.

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. Julie Cain. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party.iÃVÀˆLiÊ܅>ÌʈÃʜvviÀi`Ê̜ÊÓ>ÊLÕȘiÃÃÊ Õ˜`iÀÊi>V…ÊœvÊ̅iʅi>`ˆ˜}Ã\ –Ê –Ê –Ê Networking ˆ˜>˜Vˆ>Ê}À>˜Ìà -Õ««œÀÌÊ>˜`Ê>`ۈVi° a ̅iÊ}œ>ÃɓˆÃȜ˜ÊœvÊ̅ˆÃʜÀ}>˜ˆÃ>̈œ˜ b >ÊLÀˆivʅˆÃ̜ÀÞʜvÊ̅iʜÀ}>˜ˆÃ>̈œ˜ c “i“LiÀň«Ê˜Õ“LiÀà d ÃiÀۈViÃÊ̅ˆÃʜÀ}>˜ˆÃ>̈œ˜ÊœvviÀÃÊ̜ÊÊ ˆÌÃʓi“LiÀð 86 ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers.

ISBN: 9781107665910 © Gillian Somers. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. . Julie Cain.

Julie Cain. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party.6 THE IMPORTANCE OF BUSINESS PLANNING WHAT’S AHEAD Planning at commencement of business Financial plan Marketing plan Operational plan Business plan Business success Strategic planning Tactical planning Operational planning Ongoing planning ISBN: 9781107665910 © Gillian Somers. .

packing your school bag the night before and working out a timetable for getting there on time. on the other hand. If. This plan might include setting the alarm clock. Failure to plan will see the chances of success in the business world lessen considerably. PLANNING AND EVALUATION 2 order to achieve our objectives. planning and evaluation: – different types of business planning – the business plan. If you wish to get to school on time. There is an old saying: ‘businesses do not plan to fail. Julie Cain. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. they simply fail to plan’. . A business must plan to achieve business objectives right from inception. the achievement of your objective is left entirely to chance. As individuals we all need to plan our lives in AREA OF STUDY SMALL BUSINESS DECISION MAKING. In other words. or achieve a desired objective.KEY KNOWLEDGE Students will learn the following about small business decision making. Businesses are no different! They must also plan to achieve their objectives. it is most commonly those business operators who rush headlong into a business venture without taking the time to plan who do not succeed. Planning involves working out how to do something or get somewhere. checking bus timetables. you usually devise a plan designed to achieve this aim. you don’t plan a way of getting to school on time. 89 ISBN: 9781107665910 © Gillian Somers.

Think of a plan as being like a street directory. Planning should occur both before the establishment of that business and on an ongoing basis for the life of the business.plan an outline (formal/ informal) of an approach to be taken procedures series of interrelated steps to implement policy A business should be built up with a specific strategy and direction in mind. therefore. both in the long and short term. Like a street directory. Steps in planning There are many planning models that a business can use to limit the risks involved in decision making. To attempt navigation through an unfamiliar area without consulting a street directory is hardly effective. objectives) sæ how these will be achieved sæ who will manage this process sæ the time frame for achieving targets/ objectives. It is a primary management task. making decisions ‘on the run’ sæ improve the chances of a successful loan application sæ compare anticipated results with actual performance sæ minimise costs and maximise productivity (efficiency) sæ specify objectives and increase chances of these being achieved. however. a business plan maximises the chances of getting to the desired destination (the business objectives) without wasting time and other valuable resources. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. . Planning is. but most include: 1 forecasting – looking ahead and trying to anticipate future conditions and events 2 setting aims and objectives 3 devising strategies to implement aims and objectives 4 developing policies and procedures for achieving aims and objectives 5 prioritising tasks that need to be performed 6 developing budgets by arranging finances to achieve aims/objectives. Figure 6. Julie Cain. Businesses are not successful by accident. i. What is planning? Planning involves working out: sæ what is to be achieved (targets. A business must know what it is trying to achieve. one of the key functions within business. and devise a plan for how it is going to do this.1 Planning for business success 90 ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. Planning is a vital component of a successful business operation. it is possible to assess all of the route options and select the best one. All businesses should plan in order to: sæ predetermine feasibility and profitability sæ reduce chances of errors of judgement sæ anticipate probable trouble areas sæ avoid ad hoc decision making. By consulting a street directory.e.

Tactical planning (one to two years) Tactical planning covers the short to medium term and usually involves planning tactics or steps within the overall business strategy. Operational planning sæ Day to day. the tactical planning would involve working out just what is superior customer service and the training program required to implement this strategy. Figure 6. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. the business strategy could be to provide a superior product and customer service. Put simply. weekly. . up to one year sæ Adds up to achievement of tactical and strategic plans Figure 6. tactical planning sets out the tactics that make strategy happen. For example. Julie Cain. where the objective is to increase your market share. For example. A strategic plan looks at how that business intends to compete and survive in the marketplace in the long term.4 Levels of business planning CH A P TER 6 THE IMPORTANCE OF BUSINESS PLANNING 91 ISBN: 9781107665910 © Gillian Somers. monthly. if a business strategy is to provide superior customer service. sæ 1 to 2 years sæ Each tactical plan is a step towards achievement of strategic plan Strategic planning (two to five years) This is long-term planning over a period of two to five years and is concerned with the whole business and its long-term direction. medium and long term if they are to be successful.2 Football coach in the process of planning business strategy the long-term plan of action adopted by an organisation to achieve its goals and objectives tactics activities or courses of action taken by a business to achieve business objectives Strategic plan sæ Whole business planning sæ Long term (2 to 5 years) sæ Involves setting long-term whole business goals Figure 6.3 Players striving for success Levels of business planning Tactical plan Businesses must make plans for the short.

A detailed business plan helps to keep a small business operator focused on the primary objectives of the business and avoid making decisions on the run. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. who and when). What specifically do you wish to achieve at the end of the process? 3 Devise plans under the following headings: venue.ACTIVITY 6. Julie Cain. Components of a business plan While there are other formats that are acceptable. firstly. it is important to spend time preparing and developing a good business plan. including business strategies to be implemented 7 an operational plan 8 a financial plan 9 appendices. Include procedures and processes that must be followed. activities. sæ Help keep a business on track and focused on achieving its objectives. . Its purpose is. A business plan contains: 1 a cover page 2 an executive summary 3 a mission statement and a statement of the overall objectives of the business 4 a business profile 5 an outline of products sold 6 a marketing plan. 1 Your task is to plan a major event such as a family wedding or a 21st birthday party to be held in 12 months’ time. the direction it intends to take and how it intends to get there. Banks. Set out where a business is headed and show how it intends to get there. 2 Devise a list of aims and objectives (what. A business plan should be reviewed annually to keep the business on track to achieving set objectives. the following is a suggested format that could be used when drawing up a business plan. The functions of the business plan are: sæ Define and establish the objectives and direction of a business. 5 Explain how you will know whether or not you have achieved your objectives. to assess the feasibility of the proposed business and to assist raising funds and. secondly. 4 Devise an operational plan for the person in charge of one of the tactical plans to follow on the night. ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. sæ Assist with obtaining finance and backing for a business. formal procedures. sæ Enable the business operator to realistically estimate and deal with potential costs at the outset. This document sets out the details of a business.1 Complete this task in groups of two to four as directed by your teacher. Report back to the class in either written or verbal form. catering. This will reduce the likelihood of cost blow-outs. financial institutions and investors will seldom grant finance or invest in a new business venture without seeing a detailed business plan. how. In effect it is the strategic plan. sæ Provide an opportunity for a business operator to realistically assess their strengths and weaknesses. guests. drinks. to show how the stated objectives of the business will be achieved – to provide a formal direction for business ideas. The business plan business plan the formalised planning a business undertakes on a periodical basis 92 In order to optimise chances of business success.

consistently serving the highest quality coffee and providing outstanding personalised service in a vibrant store atmosphere. 3 Mission statement The mission statement and/or vision statement demonstrates both what the business has to offer the market and the overall business aspirations. the executive summary should highlight the proposed strategies that will be used to succeed. For instance. Clear presentation and structure are vital. Mission: Gloria Jean’s Coffees is committed to building a unified family. including values and aspirations.1 Some examples of mission statements Company Mission/Vision Gloria Jean’s Coffees Vision: To be the most loved and respected coffee company in the world. . through efficient processing of livestock and a commitment to service.cassino. This section is extremely important in ‘selling’ the business to others. Source: www.1 Cover page Placed at the beginning of the plan. they will simply read the executive summary to gauge if it is worth reading further. It usually contains some of the following: sæ a statement about the intended market and types of customers the business intends to cater for sæ a reference to the types of products to be sold sæ a reference to the location of the business market and the area it intends to serve sæ clarification of the philosophy of the business. meet the challenge of the future and achieve excellence in quality service. building and changing lives. it should state the name of the proposed business and the names of the people who prepared the business plan. We believe in people. Also referred to as the ‘front end’. A mission statement should also convey the intended business image. which follows the cover page. Our partnerships are based on integrity and trust. executive summary an overview or summary of the key points of the business plan mission statement a global statement that reflects an organisation’s reason for being or purpose and the way it will be managed Table 6. if a bank manager is deciding about whether to finance the business. it is usually written last and contains a summary of the key points to follow. of those things the business views as important. our values are simple: We demonstrate a commitment to excellence and innovation in everything we do. 2 Executive summary The first section read should be the executive summary. Julie Cain.au continued next page CH A P TER 6 THE IMPORTANCE OF BUSINESS PLANNING 93 ISBN: 9781107665910 © Gillian Somers.gloriajeanscoffees. It should be no more than one page in length. If the executive summary fails to impress. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. it is unlikely people will bother reading any further. as it helps persuade people that what follows in the body of the plan is worthwhile.com. The purpose of the executive summary is to enable anyone reading the document to make a quick appraisal of the proposal. Mission: To grow with our customers and enhance their product.com. Values: At Gloria Jean’s Coffees. An overview of what is in each section to follow. We foster a culture of joy and passion throughout our company. Source: www.au Northern Co-Operative Meat Company Ltd Vision: Through teamwork and partnership.

write an appropriate mission statement for two of the following fictitious businesses. business. philosophy). Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. 4 Business profile 5 Products and services This section contains a brief outline of the This contains a description of the products and services to be offered by the business. Every business must have a competitive advantage if it is to succeed in the marketplace.botanicahair. potential threats to the business and how these will be countered. We believe caring for the beauty of your hair is as important as caring for the beauty of your face and body.au Taco Bill’s Vision: To be a household name in Australia.au ACTIVITY 6. sæ a brief description of possible future opportunities and developments. qualifications and skills of the key personnel involved in the business sæ a brief description of the main activities to be undertaken and products offered sæ the unique features of the business making it different and/or better from its competitors sæ the date the business was established. including: sæ diagrams and plans explaining new products in detail sæ a description of the competitive advantage of the business. a better location and a better reputation or superior customer service.Company Mission/Vision Botanica Hair Botanica Hair is a newly established salon conveniently located in the Paris end of the CBD. Source: www. analyse their key elements based on the four points (customers. Our mission is to provide our clientele with a truly unforgettable hair experience. and an analysis of barriers to entry into the market.tacobill. Source: www. products. obtain the mission statements of three different Australian businesses. Julie Cain. Think Mexican – Think TACO BILL! Mission: To continue serving great Mexican food and providing an outstanding experience. 2 Working in pairs.2 1 Using the internet. .com. including: sæ a statement of the objectives of the business sæ a brief rationale for why the business is competitive advantage a point of difference or superiority held over one’s competitors being established and how it will succeed sæ a list of the business principals and directors sæ an outline of the business structure sæ the business location sæ an outline of the experience. For each of these statements. 94 ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers.com. a b c d e f g An art gallery in the western suburbs of Melbourne named Nickart A florist in South Yarra named Bloomers A racehorse stud in country Victoria named Cowl Park A chain of bakeries operating Australia-wide called Learmonths An exclusive health farm in country Victoria named Tranquil Lodge An advertising agency named Touché A childcare facility operating in St Albans named Snorbkids. location. This might be lower costs. meaning the factors that will give the business an advantage over competitors.

the particular industry in which the business will be operating and how the business will operate within that market. containing an analysis of the market. including elements such as age. e. changing tastes and trends sæ an industry analysis or evaluation of the characteristics of the particular industry category the business is entering into. External to the business. (This is known as a SWOT analysis. intended marketing strategy. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party.gov.au/research-reports/industry-atlas-of-victoria and click on the Chapter 2 – Businesses in Victoria PDF Answer the following questions: 1 What percentage of businesses are located in Victoria? 2 What percentage of Victorian small business are located in non-metropolitan Melbourne? 3 What percentage of Victorian businesses are classified as non-employing? 4 Which five industries have the largest numbers of small businesses? 5 Explore Figure 2. size of the market.g. This details how the business intends to sell and deliver its product to customers/clients. marketing plan the plan that sets out the marketing objectives and strategy to be undertaken by a business SWOT analysis an assessment of the internal strengths and weaknesses and the external opportunities and threats for an organisation in a given situation ACTIVITY 6. A typical industry analysis would include the: – size of the industry and its parts/segments – number of businesses in the market – number of people employed in the industry – average size of businesses in the industry – average operating hours – average profits and earnings – relevant legal structures – industry trends. the future opportunities and threats and how these might be overcome should also be included. Julie Cain. after-sales backup. sæ current market trends should be stated sæ sæ sæ sæ sæ sæ and analysed. 2009) (on page 21) to ascertain how many of these businesses are in the following categories: a Construction b Retail c ICT C H A P TER 6 THE IMPORTANCE OF BUSINESS PLANNING 95 ISBN: 9781107665910 © Gillian Somers.) the pricing structure and how this was decided a description of how the business intends to promote itself and its products. including customer demographics.vic. lifestyle. Do people want something different or new? How do we know this? Are there young families in an area? How might this affect your business? Are people’s tastes or habits changing? a profile of the business’s customers. by industry. including marketing and public relations strategies methods of sales and distribution to be employed. including what changes are occurring in the market. .6 Marketing plan The marketing plan is usually one of the larger sections in a business plan. home delivery. income level. tastes and values an analysis of the internal strengths and weaknesses of the business and how these can be exploited and overcome.3 Business analysis: Research activity Go to http://www.13 (Number of Victorian businesses with turnover under $1 million. This is required to understand the minimum standards of entry and to ascertain what the business’s competitive edge might be. mail order.dbi. It may include: sæ a description of the market in which the business will be operating. which involves an analysis of how the business expects to gain and maintain a competitive edge. internet sales.

REGULATORY STRATEGY The regulatory strategy should specify exactly how the business intends to comply with all laws and regulations affecting it and its activities. Melbourne. PRODUCTION PROCESS The production process undertaken by the business to produce its products and dispose of waste should be described. 8 Describe where most of the small businesses in Melbourne tend to be located.com. . Julie Cain.au/ and describe the services offered by this business. including: sæ location and local government zoning restrictions sæ occupational health and safety sæ sæ sæ sæ sæ sæ employee relations laws laws relating to protection of the environment storage and handling of dangerous goods consumer protection laws labelling requirements licensing and registration requirements. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. 7 Identify the percentage of Victorian small business that falls into the less than $1 million turnover category. 9 Explore Figure 2.ibisworld.20 (Number of businesses with turnover over $10 million by SLA.6 Identify the industry sector that predominates in rural Victoria. 10 Go to http://www. Offer tea and coffee Client pays and makes new appointment Final appraisal Hair is blow dried by stylist Customer seated within 10 minutes Staff member appraises client’s hair Client’s hair is washed at basin Hair is styled and cut by stylist Figure 6. Why would a person contemplating starting a new business use Ibis’ services? 7 Operational plan This section provides detailed information about the people and processes that the business will utilise to achieve its objectives. 2009). Where is the general location for most of the large businesses in Melbourne? Provide reasons for this pattern. The steps of the production process may be outlined using a flow chart as shown below. Greet client on arrival.5 The production process for a hairdresser 96 ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. The operational plan should include the following.

Quality control ensures that the service a client receives tomorrow is of the same quality as a client received yesterday. UÊ UÊ UÊ UÊ UÊ >Žˆ˜}Ê>ÊV>Ži …>˜}ˆ˜}Ê>ÊÌÞÀi -iÀۈ˜}Ê>ÊVÕÃ̜“iÀ œÀÀœÜˆ˜}Ê>ÊLœœŽÊvÀœ“Ê̅iʏˆLÀ>ÀÞ 7ÀˆÌˆ˜}Ê>˜ÊiÃÃ>Þ° QUALITY ASSURANCE SYSTEMS The quality assurance systems are the processes and procedures put into place to ensure that standards of product and service quality remain both consistent and high.ACTIVITY 6. Certification bodies undergo ‘accreditation’ by a national accreditation body to show that they CH A P TER 6 THE IMPORTANCE OF BUSINESS PLANNING best practice a form of benchmarking where organisations compare themselves with the best in their industry or operating area 97 ISBN: 9781107665910 © Gillian Somers. Julie Cain. The business is then entitled to advertise this and it is also entitled to use the logo of the certification body in its marketing and advertising materials.7 ‘25% improvement in customer service. When the business can show that it meets all of these requirements. 250% improvement in customer retention’ Figure 6. SAI Global. In short. such as those used by many clothing manufacturers. the most widely known of the internationally recognised quality management standards. .6 Goods and services should be checked for quality before being sold The International Organization for Standardization (ISO) is responsible for developing the ISO 9000 family of quality management standards. quality control process of checking the quality of goods and services Figure 6.4 Design a flow chart demonstrating the production process for one of the following tasks. it must also show that it follows certain procedures and processes. the business must show that it meets set standards in how it does things. an outside agency or organisation (known as a ‘certification body’) is brought in to check the way a company conducts its business with a view to specified quality controls and processes established by the certification body. is a locally based organisation that carries out certification and assists businesses in meeting best practice. As the marketplace becomes more competitive. quality assurance systems are becoming increasingly vital. There are three basic quality systems that may be implemented: sæ Quality control – when goods and services are physically checked before they are sold. which is associated with Standards Australia. sæ Certification of quality management systems – in essence. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. it becomes ‘certified’. Examples of this are inspections or random checks.

More than 100 of ISO’s members are from developing countries. sales and opportunities. ISO’s work programme ranges from standards for medical devices. ACTIVITY 6. such as agriculture and construction. money and resources. No matter what the size or strength of that economy. to transport. An increasing amount of the work is carried out electronically. The costs of developing standards are mainly borne by the ISO members that manage the specific standards development projects and the business organisations that provide experts to participate in this work. In addition. ISO standards are voluntary. ISO does not regulate or legislate. countries may decide to adopt ISO standards as regulations or refer to them in legislation. ISO standards may become a market requirement. each participating member in ISO has one vote. A business that has accreditation has an advantage over one that does not. ISO began operations on 23 February 1947. Furthermore. with a Central Secretariat in Geneva. through mechanical engineering. .5 Read the extract and answer the questions that follow. ISO ISO (International Organization for Standardization) is the world’s largest developer and publisher of International Standards. that coordinates the system. Source: www. including 210 ISO technical committees. As a nongovernmental organisation. the environment. large corporations and overseas customers.org/iso/mediakit/ media-kit_isoinonepage. Every full member of ISO has the right to take part in the development of any standard which it judges to be important to its country’s economy. safety.customer satisfaction degree to which customer expectations have been met are competent to carry out certification. The time it takes to develop and publish an ISO standard is down from an average of 4. multinationals. ISO has more than 18 000 International Standards in its current portfolio. gaining a recognised quality certification such as the ISO 9000 is extremely helpful when trying to do business with government. The process of obtaining certification of a quality management system requires investment in time. At the end of 2009. An average of seven ISO technical meetings takes place every working day somewhere in the world. ISO is a network of the national standards institutes of some 163 countries. and to standards for good practice and for services.htm manufacturing and distribution. traditional activities. as it is immediately recognisable as having achieved certain standards of quality. the ISO standardsdevelopment system comprised 3238 technical bodies in the ISO system.iso. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. which saves time and costs. but will generally pay off with increased customer satisfaction. Julie Cain. However. 98 ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. ISO launches the development of new standards in response to the sectors that express a clearly established need for them. information and communication technologies. Switzerland.7 years in 2009.2 years in 2001 to 2.

People are put into teams.6 Developing a production/operations process checklist You are the owner of a café situated in a busy shopping centre. the following must occur: Ê ÕÃ̜“iÀÃʓÕÃÌÊLiÊÃi>Ìi`Ê܈̅ˆ˜ÊÌܜʓˆ˜ÕÌiÃʜvÊi˜ÌiÀˆ˜}Ê̅iÊÀiÃÌ>ÕÀ>˜ÌÊ>˜`Ê̅iˆÀʜÀ`iÀÃÊÌ>Ži˜Ê ܈̅ˆ˜ÊÃiÛi˜Ê“ˆ˜ÕÌið œÀÀiVÌÊvœÀ“ÃʜvÊ>``ÀiÃÃÊ>˜`ÊÀiëiVÌÊvœÀÊ̅iÊVÕÃ̜“iÀÃʓÕÃÌÊLiʜLÃiÀÛi`° Þ}ˆi˜iÊÃÌ>˜`>À`ÃʓÕÃÌÊLiʓiÌ° Ê ÕÃ̜“iÀÃʓÕÃÌÊLiÊ>Îi`ʈvÊ̅iÀiʈÃÊ>˜Þ̅ˆ˜}ÊiÃiÊ̅iÞÊÀiµÕˆÀiÊ>Ìʏi>ÃÌÊÌ܈ViÊ>vÌiÀÊ̅iˆÀʓi>Ãʅ>ÛiÊ Lii˜ÊÃiÀÛi`° Ê ÕÃ̜“iÀÃʓÕÃÌʘœÌʅ>ÛiÊ̜ÊÜ>ˆÌʏœ˜}iÀÊ̅>˜Ê£äʓˆ˜ÕÌiÃÊvœÀʓi>ÃÊ̜ÊLiÊÃiÀÛi`Ê>vÌiÀʜÀ`iÀÃÊ>ÀiÊÌ>Ži˜° For Polly to do her job to your satisfaction. Julie Cain. List 10 important facts about the ISO. You have just employed two new staff: Manuel. who has been employed as a waiter.iso. 3 Explain how meeting ISO standards might be compulsory for businesses in one country. 4 Go to the ISO website (www. the following must occur: Þ}ˆi˜iÊÃÌ>˜`>À`ÃʓÕÃÌÊLiʓiÌ° ->˜`܈V…Êwˆ˜}ÃʓÕÃÌÊLiÊVœ˜ÃˆÃÌi˜ÌÊ>˜`ʜvÊ>ʅˆ}…ÊÃÌ>˜`>À`° *ÀiÃi˜Ì>̈œ˜ÊÃÌ>˜`>À`ÃʓÕÃÌÊLiʓiÌ° In view of the above requirements. through training or employing someone with a specific qualification (recruitment). but not in another. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. With everyone making small incremental improvements. and Polly. CH A P TER 6 THE IMPORTANCE OF BUSINESS PLANNING 99 ISBN: 9781107665910 © Gillian Somers. the total quality standards of the business and what it does will improve overall. . ANALYSIS OF PEOPLE The analysis of the people involved in the business is referred to as a ‘personnel skills audit’ and involves detailed analysis of the skills: sæ required within the business sæ already possessed by people within the business sæ that will need to be acquired. It is worth noting the strong reputation Japanese-produced goods have for high quality in light of their TQM practices. UÊ UÊ UÊ UÊ UÊ UÊ UÊ UÊ For Manuel to do his job to the standard required. 5 Use the internet to find the names of 10 Australian businesses that have ISO 9000 accreditation. often called ‘quality circles’. ACTIVITY 6. Each of these groups is expected to look for possible improvements in its own area on a continual basis.Questions 1 What is the ISO? When was it established? Where is its headquarters located? 2 Explain briefly what the ISO does.org). who is to work as a sandwich hand responsible for making all the sandwiches. Your job is to prepare a checklist for each of the employees to use so they can check that they are meeting the standards that you expect of them while carrying out their jobs. devise a list of steps that: 1 Manuel should take when serving a customer in order to meet your expectations 2 Polly should follow when making a sandwich in order to meet the required standards. sæ Total Quality Management (TQM) is a system that requires every person in a business to take responsibility for quality. You can also use this checklist to monitor the operations system.

8 Financial plan The financial plan is crucial. 100 ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. ACTIVITY 6. Its purpose is to provide a statement of the financial feasibility and potential viability of the business. value of assets and sources of finance sæ income and expenditure projections for the first five years of the business. including funds available. . For example: sæ brochures prepared for the business sæ any patents or trademarks taken out or acquired on behalf of the business sæ the résumés of the key personnel sæ any market research relevant to the business sæ any articles. press releases or publicity material featuring the business or key personnel. sæ estimated profits and losses based on income and expenditure projections sæ a forecast of expected cash flow for five years sæ a break-even analysis. a b c d e f g h i Ice-cream manufacturer Toy shop Business tutoring VCE students Turkey farm Snow-ski shop Shop selling university and secondary textbooks Restaurant Business selling rainwater tanks School uniform manufacturer. Julie Cain. a b c d Small clothing retail outlet Plumbing business Courier business Gardening business. 2 List all of the capital items (equipment and buildings) that would be required to establish each of the following businesses. 9 Appendices Any extra material that might strengthen the case for a potential business should be included as an appendix to the business plan. This section of the business plan will be scrutinised carefully by anyone contemplating investing in the business. The typical plan would include: sæ an analysis of the current financial position of the business.7 1 During which months would you expect cash inflow to be at its highest and lowest points for each of the following businesses? Give reasons for your answers. 3 Explain why it is not uncommon for a new business operation to expect to make a loss for the first few months of operation. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. These are estimates based on market research of the anticipated costs and takings expected for this period.

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CH A P TER 6 THE IMPORTANCE OF BUSINESS PLANNING

101

ISBN: 9781107665910
© Gillian Somers, Julie Cain, Megan Jeffery 2011
Cambridge University Press
Photocopying is restricted under law and this material must not be transferred to another party.

8 Imagine that you are a loans officer in a bank

9 During the postwar period from 1946 to the

and it is your responsibility to assess the
loan application of a potential small business
operator.

late 1970s, Japanese-produced goods had a
reputation for poor quality.

a Explain the features you would look for in

any business plan before you would consider
lending money to that business.

a Is this still true today? Give examples to

demonstrate.
b What factors may have contributed to this

change in perception? Explain your answer.

b Devise a list of 10 features that must be

EXTENSION
QUESTION

contained in any business plan.

Design and prepare a booklet or Microsoft
PowerPoint presentation entitled ‘How to write an
effective business plan’. In this booklet:
1 Explain the reasons for preparing a
business plan.
2 List and explain the essential sections of a

business plan.
3 Give advice on business plan preparation.
4 Suggest helpful websites and links.

102

ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2

ISBN: 9781107665910
© Gillian Somers, Julie Cain, Megan Jeffery 2011
Cambridge University Press
Photocopying is restricted under law and this material must not be transferred to another party.

ISBN: 9781107665910
© Gillian Somers, Julie Cain, Megan Jeffery 2011
Cambridge University Press
Photocopying is restricted under law and this material must not be transferred to another party.

7

MAJOR PLANNING
THE LIFE OF A SMALL

WHAT’S AHEAD

Legal and
government regulations
Marketing

Planning continues
throughout the life
of a small business

Financial

Human and
physical needs

ISBN: 9781107665910
© Gillian Somers, Julie Cain, Megan Jeffery 2011
Cambridge University Press
Photocopying is restricted under law and this material must not be transferred to another party.

SMALL BUSINESS DECISION MAKING,
PLANNING AND EVALUATION
KEY KNOWLEDGE

Students will learn the following about small business decision making,
planning and evaluation:
– an overview of key legal and government regulations affecting the
operation of a small business
– major business planning throughout the life of a small business
– human and physical resource needs
– financial planning and sources of finance
– marketing strategy.

AREA OF STUDY

DECISIONS THROUGHOUT
BUSINESS

2

The task of business planning continues throughout the life of a business. An operator must look
ahead and plan to:
sæ comply with legal and government regulations
sæ meet human and physical needs
sæ predict and meet future financial requirements
sæ anticipate and react to changes in the marketplace and market itself accordingly.
Every small business must review and plan regularly.

105
ISBN: 9781107665910
© Gillian Somers, Julie Cain, Megan Jeffery 2011
Cambridge University Press
Photocopying is restricted under law and this material must not be transferred to another party.

compliance
when a business
meets government and
industry regulations
and standards
corporate citizenship
acceptance by an
organisation of its
responsibility to
stakeholders for its
actions and decisions
social responsibility
ethical or social
responsibility where
a government,
organisation or
individual has a duty
to society at large; is
about improving the
quality of relations with
key stakeholders
by-laws
local government laws/
regulations relating
to activities within a
municipality

Compliance with
key legal and
government
regulations

to buy a domain name for the business’s website.
This can be done by visiting the website of the
Australian Domain Name Administrator (www.
auda.org.au).

Legal compliance must be considered both
before starting a business and throughout
the life of a business. Like individual citizens,
businesses are subject to a plethora of laws
and other government-imposed restrictions
that impact on their activities. The privilege of
citizenship means that we as individuals are
subject to the laws imposed by government. In
the same way, the business sector is also subject
to laws and standards of expected behaviour.
This concept of corporate citizenship and
its consequent social obligations have
increasingly become the focus of media
attention in recent years.
A business is subject to numerous and
changing legal, ethical and social responsibility
requirements. Failure to take account of these
may mean legal prosecution, professional
deregistration and/or forcible closure of the
business. It is vital that a small business operator
complies with the relevant laws, regulations,
licensing requirements and codes of behaviour
of Australian business regulation.

Local governments’ by-laws affect the operation
of small business in their local areas. These vary
according to the local government.

Business registration
The Business Names Act 1962 requires the
registration of the names of all businesses that
conduct business in Victoria under a business
name. Consumer Affairs Victoria holds a registry
of business names. The operator is obliged to
display a sign showing the business name.
Any trademarks that the business wishes to
have exclusive use of must also be registered as
intellectual property. This gives legal protection
from others using your brand and business name.
Once a company has been established, it must
be registered with ASIC. It may also be advisable

106

Local government by-laws

Building and planning controls
Every small business operator will need to
approach their local council to ensure that their
chosen location and premises are appropriately
zoned. Each local government has a planning
scheme administered by its planning department.
Different areas are designated for different types
of use. For instance, large parts of any local
government area will be zoned for ‘residential
use’ only. This designates the area for residential
dwellings with very few exceptions, e.g. home
offices and a few mixed businesses.
Other areas are zoned ‘light industrial’, ‘heavy
industrial’, ‘retail’ and ‘commercial’. The purpose
of this system is to ensure that like businesses are
restricted to similar areas. No one, for instance,
would like to discover that the vacant block of land
next to their house has been sold to a developer
building a four-storey office block, or even a
supermarket. The system of zoning prevents this
from occurring. Council planning approval must
also be obtained for all plumbing and building
work. The operation of a home office may also
require council planning permission.

Other by-laws affecting small
business
Businesses must also be aware of other local
by-laws, including:
sæ parking restrictions
sæ times of operation
sæ health regulations covering hygiene and
food handling
sæ activities such as outdoor dining.

ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2

ISBN: 9781107665910
© Gillian Somers, Julie Cain, Megan Jeffery 2011
Cambridge University Press
Photocopying is restricted under law and this material must not be transferred to another party.

Figure 7.1 Zoning protects property from inappropriate development.

ACTIVITY 7.1
The following extract is adapted from the website of Brimbank City Council. Read the extract and
answer the questions that follow.

Environmental Health Services, 5 October 2010,
Revision 1
Guidelines
Environmental Health Services
Operating a business providing
hairdressing procedures
Before you can begin operating a business
providing hairdressing procedures:
s Consult with the Brimbank City Council
Environmental Health Services, once
you have selected a site, to discuss
your proposal.
s It is your responsibility to ensure that any
relevant applications through the Planning
or Building departments have been obtained.
s Please note, approval granted under the
Health & Well Being Act 2008 [sic] does not
take effect until all relevant Planning and
Building permits have been issued.

To apply for registration:
s Submit detailed plans of the interior layout
of your proposed premises.
s Obtain council approval for your plans
s Once works are completed, contact your
Environmental Health Officer to arrange a
final inspection.
s Submit an application for registration to
Brimbank

City

Council

Environmental

Health Services with the applicable fee.
1.0 General requirements
Equipment, furniture, fittings, floors and walls
should be purpose built or purchased specifically for the task to be performed. They should
be durable, safe and suitable for cleaning
and maintenance, and constructed of sealed,

CH AP T E R 7 MAJOR PLANNING DECISIONS THROUGHOUT THE LIFE OF A SMALL BUSINESS

107

ISBN: 9781107665910
© Gillian Somers, Julie Cain, Megan Jeffery 2011
Cambridge University Press
Photocopying is restricted under law and this material must not be transferred to another party.

Applicators used for dispensing must not be re-dipped into the original container and must be discarded after each client. . ointments and similar substances must not be returned to the original container and must not be used on any other client. The cleaning area should be designed to ensure movement of instruments/equipment in a one-way direction from dirty to clean to sterile areas.0 Dispensing To avoid contamination. 8.au 5. towels and clothing must be stored in a clean environment to reduce contamination. leakproof receptacle. cream. should not be permitted in procedure areas. 108 ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers.gov.0 Hand basins A hand basin with hot and cold running water supplied through a single outlet. other than guide dogs for the hearingor sight-impaired client. 3. It should also have sufficient bench space for good working practices. Soiled linen.nonporous material. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. paper strips or clean linen are recommended and must be changed between clients. 2. 7.0 Equipment sink Separate sinks with hot and cold running water supplied through a single outlet (hot water not less than 70°C) should be located in the cleaning area for instrument and equipment washing. towels and protective clothing should be placed in a washable. 4. There should be adequate lighting and ventilation throughout the premises … The premises should be planned to provide separate function-specific client and cleaning/sterilising areas.brimbank.0 Linen Paper towel.0 Mobile hairdressing s Mobile hairdressers must register their principle [sic] place of business (for example. plus liquid soap or detergent and disposable paper towels should be installed in the immediate procedure room. They must comply with these guidelines. such as papers and powdered pigments. 5.1 Disposal of waste All bins used for waste must be lined with a plastic bag that can be sealed for disposal.0 Animals Animals. the operator must ensure any make-up. All clean linen. fluid.3 Disposal of general waste All general waste. Single use applicators are recommended. should be placed into a plastic bag-lined washable bin with a close-fitting lid marked ‘general waste’. and laundered using hot water (70–80ºC) and detergent. 6.vic. thus maintaining the cleanliness of equipment and personal hygiene standards … Source: www. ointment or similar substance is removed from its original container/tube (including self-dispensing pumps) using a clean disposable applicator. Leftover creams. their residence) with local government. Julie Cain.

All workplaces must have an OHS policy devised with input from all within the business. Julie Cain. and may close down the business until these are removed. Workplace inspectors may be called in to assess risks and hazards. Each state government has its own laws and appropriate workers compensation authority to oversee them. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party.Questions 1 Name the local government area that enforces the above by-law on businesses within its boundaries. and laws are designed to ensure that employers are obliged to provide this. 2 Describe the types of businesses that would be subject to this by-law and expected to abide by it. CHAP T E R 7 MAJOR PLANNING DECISIONS THROUGHOUT THE LIFE OF A SMALL BUSINESS 109 ISBN: 9781107665910 © Gillian Somers. Areas for possible consideration include: sæ handling of asbestos sæ toxic substances such as carcinogens sæ HIV and hepatitis B sæ overuse syndrome (repetitive strain injuries) sæ chemicals sæ noise sæ machinery sæ manual handling. 6 Describe how you think this local government by-law might be enforced. management and owners in the development of an OHS policy sæ to communicate the OHS policy and its relevant processes and procedures to all within the business sæ to provide training in all relevant OHS procedures and processes sæ to regularly monitor compliance and review the policy. 3 List the steps that must be undertaken by a small business owner in order to register a new business of this type in this particular local government area. and standards and codes relevant to their particular industry. In other words. (Who is it designed to protect and from what? Explain. In Victoria the Occupational Health and Safety Act 2004 obliges all employers to provide a safe workplace by proactively working to reduce all physical. Occupational health and safety (OHS) laws aim to prevent accidents in the workplace by involving everyone within the business. how would the local government ensure that the by-law is being adhered to? 7 What is likely to happen to businesses that are found to be in breach of this by-law? Occupational health and safety laws In Australia it is accepted that employees have the right to a safe workplace. An employer’s OHS obligations are: sæ a commitment to a safe workplace covering all workplace activities sæ to involve all workers. . chemical and behavioural hazards as far as is practicable.) 5 Describe in detail three requirements that must be met by a small business owner in order to comply with this by-law. The small business operator therefore must obtain information on OHS legislation. 4 Describe the purpose of this by-law.

‘This was a young man at the start of his life. whose death could easily have been prevented if his workplace had stopped to consider his safety. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. 110 ‘Tragically. Gary Reid trading as Advanced Cartons was convicted under two sections of the Occupational Health and Safety Act 2004 and fined $60 000. imported from China. ‘Young workers may lack the experience. This action exposed the machine’s unguarded feed rollers.’ he said. ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. Julie Cain. guards and an interlocking system were installed on the machine at a cost of around $6000. managers and supervisors to recognise their added responsibilities when employing young people. was described by Magistrate Sarah Dawes as ‘the sudden. Charges Mr Reid was convicted on two counts under the OHS Act 2004: one under section 21(1) & (2) (a) and one under section 21(1) & (2) (e). training and supervision for workers using the machine. In addition. ‘Following his death. Mr and Mrs Reid were placed on good behaviour undertakings which require them to complete a managers’ safety training course. The court heard that Mr and Mrs Reid failed to conduct a risk assessment on the machine. ‘This is a wake-up call for employers. and supervision practices reflect this. so workers could complete a specialist job. Cheryl Reid trading as Advanced Cartons faced one charge under the Act and was not convicted. Mr Forsyth said young workers had the highest rate of injury in the state when compared to other age groups. Death of 18-year-old a wake-up call for employers 9 December 2010 A husband and wife manufacturing partnership were sentenced today following the death of an 18 year-old worker at a Thomastown cardboard packaging factory in February 2009. knowledge or skills to understand the risks involved in the work they are doing. this is the price that could have saved this young man’s life. Mr Forsyth said all Victorian employers needed to take a careful look at how they train and supervise young workers. who was dragged into an exposed roller on a machine that printed and stacked cardboard. ‘They are more likely to follow instructions without questioning them. Last year more than 2500 young Victorian workers were injured badly enough on the job to make a workers compensation claim. and make sure their risk assessment. The man was dragged into the rotating feed rollers by his clothing. there was inadequate information. unexpected and agonising loss of a son and brother’. Sometimes they struggle to speak up about safety even if they see that something at work isn’t safe. He was fined $60 000 and ordered to pay costs of $5000.’ he said. training.ACTIVITY 7.2 Read the article and answer the questions that follow.’ WorkSafe’s Executive Director for Health and Safety Ian Forsyth said. The death of the Mill Park man. The court heard the conveyor arm of the printing and stacking machine had been raised at a 90 degree angle. and died from his injuries the following day. . which would have identified the risks to workers.

. These cover procedures for: – resolving disputes in the workplace – setting minimum wages and conditions. Currently. disability or even death in the workplace. Employment laws All businesses are subject to laws and regulations affecting their employment of staff. this is at a rate of 9 per cent of the employee’s income. Julie Cain. 5 What changes have been introduced into the business as a result of this incident? 6 Explain who you believe is at fault in this case. Its purpose is to provide an income for employees and/or their families in the event of injury. Fair Work Australia oversees and enforces: sæ the safety net of minimum wages and employment conditions sæ enterprise bargaining sæ industrial action CHAP T E R 7 MAJOR PLANNING DECISIONS THROUGHOUT THE LIFE OF A SMALL BUSINESS superannuation a pension or lump sum payment made to workers on retirement. sæ Workers compensation is an insurance scheme employers pay into on behalf of their employees. the money comes from employers’ contributions made during the working life of the employee workers compensation payment made to employees who are injured at their workplace employee relations the relationship between employees (or their representatives) and employers (or their representatives). Minimum standards for wages and conditions are known as awards and are established by an independent tribunal (a type of industrial court) called Fair Work Australia. which group of employees is at most risk of being injured at work? Why do you think this is the case? 4 Describe what has occurred and how the law was breached. It acts like an industrial court to resolve disputes and to establish minimum wages and conditions. sæ Since 1992 all Australian employers must pay superannuation contributions on behalf of their employers to a regulated superannuation provider. Fair Work Australia is the national workplace relations tribunal. She was not convicted but was ordered to pay costs of $5000. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. Was the penalty imposed adequate in your view? Give reasons for your answer. The purpose of this is to guarantee all workers superannuation income for their retirement. 7 Describe how this prosecution and the publicity surrounding it might affect the business in terms of its reputation and sales.Source: WorkSafe Victoria Mrs Reid faced one count under section 21(1) & (2) (a). Both Mr and Mrs Reid were placed on a good behaviour undertaking requiring them to undergo a managers’ safety training course. Questions 1 Name and describe the type of the business that has been prosecuted. sæ Both state and federal governments enforce employee relations laws that regulate the relationship between employers and employees. including wages and conditions of employment based on optimum working relationships award an agreement that sets out minimum terms and conditions of employment relating to an industry Fair Work Australia the national independent workplace relations authority with power to carry out a range of functions relating to establishment of workplace conditions. dispute resolution and other workplace matters 111 ISBN: 9781107665910 © Gillian Somers. Each Australian state has a comprehensive no-fault compensation scheme that pays benefits to injured workers. Employers are legally bound to pay premiums. Where is it located? 2 Under which Act of parliament has this business been prosecuted? What penalties have been imposed on the owners as a result? 3 According to the article. encompassing all aspects of their working lives. which vary according to the level of risk in a workplace.

religion. or a trade union. c List the 10 National Employment Standards that apply to all employees covered by the national workplace relations system. in particular. Using the website. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party.gov. ACTIVITY 7. The Equal Opportunity Commission may fine employers if they perpetrate or allow discrimination based on an employee’s personal characteristics to occur in their workplace. pregnancy. a second-year apprentice hairdresser. a Andrew. Employers are also liable for the actions of their employees in this regard. answer the following questions. 4 Why would the federal government establish this type of website? sæ Anti-discrimination laws aim to protect employees from discrimination on the grounds of race. which is enforceable for a stipulated period. employees and the employers. 3 Go to ‘Complaints’ then ‘Fair Work Inspectors’. These agreements may be negotiated by a group of employees with their employer.fairwork. a What are the National Employment Standards (NES)? Who is affected by them? b Explain how the NES are designed to protect employees. d What penalties does an employer face for only providing an enterprise agreement to their employees with entitlements less than the NES? Equal opportunity. Summarise the role and powers of a Fair Work Inspector. . ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. antidiscrimination and sexual harassment legislation There are numerous pieces of federal and state legislation that regulate behaviour of employers towards employees. aims to ensure that employees are judged by their employers on their merits. Employee relations laws at federal and state level are constantly under review and subject to change. Equal opportunity legislation. and then sign a legal agreement known as an enterprise agreement. Use this to calculate the minimum pay rate for each of the following employees. an 18-year-old third-year apprentice chef c Bruce. sexual preference. as well as employees towards each other. Since 1991. a Grade 2 food and beverage attendant working in a restaurant b Eleni.au. which takes place between an employer and its employees (or representative) at a particular workplace enterprise agreement the formal agreement that results from the enterprise bargaining process sæ dispute resolution sæ termination of employment sæ other workplace matters. Julie Cain. ethnic background. disability or any other personal characteristic.3 Go to the Fair Work Ombudsman website at www. Australian employers and their employees have been encouraged to engage in enterprise bargaining.enterprise bargaining direct negotiation of working conditions and remuneration. 1 Go to ‘Employment’ then ‘National Employment Standards’ and answer the following questions. This is a website provided by the government for both employers and employees to check their entitlements and obligations. This is a system where employees and employers negotiate pay and working conditions at each individual worksite. gender. Legislation relates to three main areas: 112 2 Go to ‘Resources’ then ‘Pay Rates Calculator’. It is therefore vital that the small business operator keeps abreast of these.

4 What is an environmental audit? Name two recent environmental audits conducted by the EPA. for example. Environment protection laws Environment protection laws are enacted by governments at all levels to protect the environment.epa. Areas that are covered include: sæ noise sæ waste discharge sæ use of toxic substances sæ emission into the environment. The Environmental Protection Authority (EPA) is the Victorian body charged with enforcing environmental laws.gov. 3 Explain how a polluter can be reported to the EPA.4 Visit the website of Environmental Protection Authority Victoria at www. Briefly outline two recent prosecutions launched by the EPA against small businesses in Victoria. such as women and people of a non-Anglo ethnic background. State government laws regulate trading hours Different types of businesses will have different trading hours allowed.au and answer the following questions. The Equal Opportunity for Women in the Workplace Act 1999. An operator is required to become acquainted with the relevant environmental legislation and ensure that the business meets expected standards. 7 Were these penalties justified in your view? Explain what you would have done if you were the judge in each case and justify your views.vic. CHAP T E R 7 MAJOR PLANNING DECISIONS THROUGHOUT THE LIFE OF A SMALL BUSINESS 113 ISBN: 9781107665910 © Gillian Somers. The type of business and locality are issues considered when trading hours are determined. sæ Federal sexual harassment legislation outlaws unwanted or uninvited sexual behaviour that is offensive.sæ Affirmative action laws aim to improve the chances for career advancement for groups that have traditionally been disadvantaged. 2 List 10 facts about EPA Victoria. requires businesses employing more than 100 people to report on the progress made in appointing women to non-traditional work areas. There are clearly specified procedures for investigating a sexual harassment claim that must be followed by employers. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. 5 What is a Pollution Abatement Notice? When is one of these issued? What are the penalties for ignoring a Pollution Abatement Notice? 6 Click on ‘News Centre’ and then ‘EPA Media Releases’. . It is important for a small business to keep up with changes to public holidays and the trading hours allowed by laws on these days. For each one: a name the business b describe the damage it inflicted on the environment c outline the penalties imposed. 1 Briefly describe the role of the EPA. A business will be prosecuted if it fails to meet the environmental standards defined in a particular law. embarrassing or humiliating in the workplace either by employers to workers or between workers. Julie Cain. ACTIVITY 7.

Ask each what their policy is in regard to refunds and exchanges. A business may be prosecuted if found to store dangerous substances or goods in an inappropriate manner. as well as restrictive trade practices. . Julie Cain.consumer. 3 How does the policy of each business compare with their legal obligations in regard to refunds and exchanges? ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. 2 Examine the labelling on three household cleaning products. i ‘Refunds on Unworn Items Only’ ii ‘No Refund on Sale Items’.Storage of dangerous goods and chemicals This is regulated to protect employees and the community at large. ACTIVITY 7.5 1 Examine the labelling of at least four food items.g. 2 Working in pairs. a A packet of biscuits b A tube of toothpaste. Deceptive or misleading advertising is also illegal. Goods sold must: sæ correspond with their description sæ be of ‘merchantable quality’ sæ be suited to the purpose for which they are sold sæ be consistent from a sample to the full quantity.6 1 Go to the website of Consumer Affairs Victoria at www. Do you think these would be a legal requirement for food labels? What information do you deduce must be displayed on food labels? Give reasons for your answer. The federal Competition and Consumer Act 2010 aims to encourage fair trading practices. e. Each state has a Sale of Goods Act outlining the rights and duties of buyers and sellers. b Does a refund have to be a cash refund or will a credit note suffice? c Describe the circumstances where a customer is not legally entitled to a refund. Consumer protection laws advertising informing potential buyers about a product cooling-off period a period of time where a purchaser (in some cases) is permitted to change their mind about a purchase 114 Numerous pieces of legislation have been enacted by both state and federal governments with the intention of protecting consumers from unscrupulous business practices. A small business operator will need to be aware of laws relating to: sæ weights and measures sæ packaging requirements – stipulating minimum packaging standards for products sæ labelling – certain types of information must be stated on the packaging of designated products. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. that is any behaviour that prevents another business from operating freely in the market. Victorian traders are also subject to the conditions of the Fair Trading Act 1999. Go to ‘Shopping and trading’ and answer the following questions relating to returns and refunds. Describe three factors that they all have in common in regard to their labelling.au. It prohibits any misleading or deceptive conduct in trade. a Describe the circumstances under which a trader is legally obliged to provide a refund at a customer’s request. What factors do the three labels have in common? Why do you think these things have to be on this type of label? 3 What information do you look for on each of the following items? Give reasons for your answer. ACTIVITY 7. visit three small businesses. d Is it legal to hang up a sign saying ‘No Refund’ in Victoria? e Are the following signs legal in Victoria? Explain your answer.vic. food products must state ingredients in order of volume sæ cooling-off periods – customers sometimes have a period of time during which they are entitled to change their mind about a purchase sæ pricing sæ mailing regulations sæ refunds and exchanges.gov.

In Victoria this is called WorkCover. plus any GST and employee income tax owed. A business owner can obtain reduced premiums if they take action to reduce their level of risk. a retail business that is located in an area with high rates of burglary or is broken into on more than one occasion may have to pay higher insurance premiums. sæ All businesses must also pay tax on their income. A business operator will need to contact the Australian Taxation Office (ATO) in regard to the following: sæ A business carrying out an enterprise in Australia must obtain an Australian Business Number (ABN). The information must only be used for the purpose specified. Personal information is any information about an identifiable individual. Similarly. This is known as ‘risk management’. sæ A business activity statement (BAS) must be submitted periodically to advise the ATO and remit tax due on income earned during that period. Taxation There is an old saying: ‘there are only two things that are certain in this life: death and taxation’. It is a legal requirement for businesses in Australia. Two types of insurance are compulsory and must be purchased by all businesses: sæ workers compensation – insurance taken out on behalf of employees to protect them financially against disability or sickness that is work-related. It protects all passengers and pedestrians from injury and death in the event of a motor vehicle accident. In return. sæ Business partnerships and companies also require their own tax file number (TFN). A business must pay tax. This is known as ‘conducting a risk assessment’. Compliance with the Act means that the businesses concerned must always inform people that such information is being collected. For example. the insurer guarantees to financially compensate the client for accidental losses incurred. Insurance policies must be changed and updated as the business grows and diversifies. Premiums increase according to the amount of risk and the cost of replacement or amount of financial protection offered. Every business requires some form of insurance. . CHAP T E R 7 MAJOR PLANNING DECISIONS THROUGHOUT THE LIFE OF A SMALL BUSINESS risk assessment conducted by an insurance company to assess the level of risk for which insurance cover is sought premium periodic payment made to an insurance company 115 ISBN: 9781107665910 © Gillian Somers. such as names and addresses. income and marital status. both private and business. For example. the small business operator should be fully aware of the risks involved in running the business and take out insurance accordingly. be open to scrutiny by the individuals concerned and only be used for a reasonable purpose. Using an insurance broker to assess the business’s insurance requirements is advisable prior to arranging the insurance policies. and collect income tax from the wages of their employees. Before commencement. An insurance policy is a legal contract designed to give financial protection in the event of disaster. sæ Fringe benefits tax (FBT) and capital gains tax (CGT) may also apply.Privacy Insurance The federal Privacy Act 1988 regulates how a business may handle and use the personal information of people. installing fireproof doors. sæ A business with employees may also be subject to state government payroll tax. smoke alarms and extinguishers reduces fire risk. sæ Businesses are required to collect Goods and Services Tax (GST) from their sales. it costs more to insure against fire in a bushfire-prone area. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. An insurance policy works by the insured (client) paying a sum of money (premium) to an insurer (usually an insurance company). Julie Cain. sæ motor vehicle third-party – this type of insurance is compulsory for all motor vehicles.

Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. Table 7. distributors or suppliers to warn consumers about any possible harmful effects of a product or its misuse 116 Insurance type Description Burglary Protects against forced entry. . Julie Cain. such as a client.Figure 7. such as flood Public liability Covers for claims made against the business by a third party. This is protection against being sued Partnership Covers the life of each business partner Product liability Protects against damage or injury to clients/customers caused by faulty or defective products sold by the business Machinery Protects against losses incurred by machine breakdown Personal disability Offers income protection to the business owners in the event of sickness or injury Theft of cash and/or goods in transit Protects against theft of goods and/or cash during transportation to or from the business Loss of profits Covers loss of income after an event such as fire or flood and while rebuilding is taking place ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. Third-party property insurance covers damage to other vehicles Fire and property Covers against damage to property in the event of fire and other natural disasters. Each business will therefore have different insurance requirements. theft and damage Motor vehicle Protects against vehicle theft and damage to the vehicle in an accident. death or personal loss. the common law or statutory duty of manufacturers.1 Insurance coverage for small business product liability the responsibility of a manufacturer or distributor for harm or injury that results from a defective product. for injury.2 Some businesses have higher levels of risk than others.

ACTIVITY 7. and breaches are not subject to law. good practice. These give permission to carry out a specified activity. Often a particular qualification is required in order to practise. They may be known as any of the following: code of ethics.8 Using the BLIS website at www. devise a role-play scenario for an insurance broker trying to sell insurance to the following businesses. vic. Australian consumers have become much more aware of the ethical and social responsibility issues covered by industry codes of conduct. Julie Cain. such as footpath trading or storage of dangerous goods. For example. Permits are usually available from local government for a fee. Similarly. skilled tradespeople and/or professionals such as accountants need to be licensed with the appropriate authority. permit or approval from a government authority or professional association to operate. Some businesses require a variety of licences. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. compile a list of the licensing requirements for each of the following businesses. they are usually enforced by the authority also responsible for licensing. a b c d Childcare centre Gymnasium Restaurant Builder. A business will need to gain approval for building alterations. A breach of an industry code of practice can result in a business losing its licence to trade. For example. code of conduct. standards.ACTIVITY 7. 3 Real estate agent 4 Builder 5 Beautician. . Licences grant the right to perform a specified activity or role. For example. permits and approvals Most businesses require some type of licence. licence a permit or approval to operate Codes of practice Codes of practice are sets of guidelines established by external bodies to regulate the standards of behaviour and conduct within an industry. While they are not legally enforceable. rules or specifications. other types of business may need to have registration or a licence from a specified body or organisation. CHAP T E R 7 MAJOR PLANNING DECISIONS THROUGHOUT THE LIFE OF A SMALL BUSINESS code of conduct guidelines to regulate standards of behaviour and conduct either within an organisation or within an industry self-regulation a group or industry regulates its own conduct and behaviour 117 ISBN: 9781107665910 © Gillian Somers.business. professional conduct. Approvals relate to local government building regulations and zoning laws. Often an industry code of practice is used by an industry as a form of self-regulation. 1 Tattooist 2 Café Business licences. A licence is issued for a specified period of time and must be reapplied for once this period has elapsed. Breaches of these are often reported in the media and can potentially create a poor business image.gov. 2 Devise a poster or booklet outlining the different types of insurance a small business might require.7 1 Working in groups.au/blis. a restaurant might require the following: sæ food premises registration for preparing and selling meals sæ liquor licensing for selling alcohol sæ APRA copyright licensing for playing music sæ local council permits for footpath seating. a medical practitioner must be registered with the Health Insurance Commission to treat patients under the Australian system of Medicare.

This may involve establishing and maintaining a relationship with an employment agency that supplies temporary workers. Correct provision of physical resources is essential if a business is to provide quality products in an efficient manner. As a business expands it will require greater amounts of resources.g. It also requires the development of policies and procedures to: sæ employ staff with appropriate skills and qualifications sæ train staff sæ motivate staff sæ deal with seasonal variations in employment requirements. This may involve contracts with service providers and or establishing maintenance procedures. employing more staff. equipment. must also be budgeted for. vehicles or IT equipment and software.Human and physical needs of a business resources inputs used in production: land. Figure 7. Workforce planning is carried out to attract and maintain a constant supply of workers to keep the business operating. Different businesses have differing resource requirements. therefore ongoing costs of maintaining resources and sourcing new ones must be taken into account. petrol and replacement parts such as tyres. 118 ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers.g. natural resources. . and therefore remain competitive. will involve more than the initial cost of purchase. such as servicing. sæ replacement of resources when they reach the end of their life cycle. Also. Julie Cain. Planning to meet physical and human resource requirements of a business continues throughout the life of the business. These will also change throughout the life of the business as a business expands into new markets or diversifies its product range. entrepreneurial skills. during busy periods sæ monitor staff turnover and assess reasons for staff leaving. buildings and labour sæ negotiation of leasing or purchase arrangements sæ maintaining supplies and a relationship with suppliers sæ making arrangements for servicing and maintenance of equipment and other capital items. at some future stage the van will need to be replaced. for example. capital and technology workforce planning planning undertaken to forecast the supply of and demand for workers Planning must occur on an ongoing basis to ensure that the future human and physical resource requirements of the business are met. Meeting the physical and human resource requirements of a business is an ongoing cycle involving: sæ sourcing and either purchasing or leasing the required resources. such as raw materials. e. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. Ongoing operating costs. which in turn will increase the business operating costs.3 All businesses must plan to purchase equipment and maintain it on an ongoing basis. e. This involves forecasting the likely future demand for employees and taking steps to ensure that this demand is met. often as casuals. A delivery van. labour.

legal costs. or from family or friends. Businesses have to consider a number of factors when deciding between alternative sources of finance: sæ purpose of the finance – is it for the day-today running of the business or for the purchase of assets such as equipment? sæ amount required – if it is just for the short term. such as the global economy.4 Workforce planning and training are extremely important. must be undertaken. such as rises in the price of inputs or meeting plans for business expansion or diversification. An owner must plan to meet the initial establishment costs (both start-up and purchase of large capital items such as vehicles or machinery) as well as the costs of keeping the business operating day to day (operating costs). CHAP T E R 7 MAJOR PLANNING DECISIONS THROUGHOUT THE LIFE OF A SMALL BUSINESS start-up costs costs or expenses associated with establishing a new business. capital and ongoing costs: sæ owner’s/shareholder’s equity – money contributed by the business owners sæ reserves – profits that are invested back into the business sæ borrowed or invested funds – from lending institutions. may include registration of a company name. an overdraft might be sufficient sæ time period the money is needed – for example. affect the availability of money. Effective financial management is essential for the successful daily running of a business and its long-term prosperity. Raising finance There are three sources of finance available to business operators that can be used to meet start-up costs. Financial planning Initial and ongoing financial planning is important. . In addition. The need for business finance Business failure can often be attributed to the lack of financial planning and control. buying fixtures and fittings and major assets such as buildings owner’s/shareholder’s equity money contributed by the business owners venture capitalist an investor who provides capital to startup ventures or helps a business to expand its operations 119 ISBN: 9781107665910 © Gillian Somers. Julie Cain. is the money needed for a large purchase such as new business premises? sæ costs associated with the loan – the interest rate on the loan as well as the recurring administrative costs have to be considered sæ financial situation of the business – a business with a poor cash flow might find it difficult to borrow money as it represents a higher risk to the lender sæ external factors – factors beyond the control of the business. planning to meet future anticipated costs. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. other investors such as a ‘Business Angel’ or venture capitalists.Figure 7.

Commercial bill: Arrangement where money is made available for a short period at end of which loan must be repaid (30 up to 180 days). To cover financing shortfalls day to day. Credit cards: From banks. Usually for seasonal funding needs. Loan is repaid once customer pays. Bank overdraft: Interest calculated daily on amount owed.2 Types of small business finance Loan period Definition/description Source/types Short-term finance (working capital) – up to three years Money needed to fund the day-to-day operation of the business. Long-term finance – in excess of 10 years 120 Used to fund the purchase of assets such as the business itself. Personal loan: Loan in the name of the business owner rather than the business itself. Term loan: Loan over an agreed period of time where principal and interest are paid off in monthly instalments. Taken out with a bank. Generally higher interest rate (more expensive). credit unions. Trade credit: Buying of goods and services that do not require immediate payment. buildings. Leasing: Loan financier purchases the equipment and then leases it back to the business in return for regular repayments. Can then be considered as equity or a loan to the business. business expansion and development of new products. Debtor finance: Where a finance company provides a cash advance to a business against sales made but not yet paid for by customers. land. ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. Term loans: Loan over an agreed period of time where principal and interest are paid off in monthly instalments. . Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. Often involves an offer for borrower to purchase the equipment for an agreed residual value at end of a specified time. Medium-term finance – three to 10 years Mainly used to finance equipment purchases. Used to structure repayments to correspond with income produced by what has been purchased with the money. Usually smaller amounts. Julie Cain. Used to structure repayments to correspond with income produced by what has been purchased with the money. From trade suppliers. Repaid in short term.Table 7. plant or machinery that will contribute to profit over the years.

The small business operator must determine and specify: sæ business objectives sæ who their customers are (market segment) sæ what their customers want (needs and wants) sæ why customers will buy from them and not from the competition (competitive advantage). including: sæ discussions with others in the same industry and potential customers and suppliers sæ employing a market research company to conduct research sæ the internet sæ trade and industry association research sæ Australian Bureau of Statistics research (much of this is free). Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party.) sæ competitors: Who are they and what are their strengths and weaknesses? Marketing plan After market research has been done. .) A marketing plan details how customers/clients will be attracted to the business and how they will be maintained over time. Market research The first step in marketing a business is to conduct market research. Market research should aim to define the: sæ products: What benefits do they bring to the consumer? What features are valued by consumers? What is the product’s life cycle? What is the potential for substitute products to come on the market? (Refer to chapter 18. This will include goals and marketing strategies. (Refer to chapters 17 and 18.) The marketing plan must be reviewed and reevaluated regularly to: sæ follow up and react to changing trends in the market sæ keep up to date with the latest market research statistics. CHAP T E R 7 MAJOR PLANNING DECISIONS THROUGHOUT THE LIFE OF A SMALL BUSINESS 121 ISBN: 9781107665910 © Gillian Somers. This plan must be reviewed and reassessed regularly in light of changes in the market.) sæ target market: What group of consumers is likely to buy the product and what is their demographic? (Refer to chapter 18. Julie Cain. This is the process of gathering information about the market through a number of measures.Planning a marketing strategy A small business owner must plan initial and ongoing strategies to market the business and its products or services. the business operator needs to draw up a marketing plan for the business. (These are described in greater detail in chapters 15 to 18.

11 July 2008 ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. if someone’s likely to purchase $1500 worth of make-up. (Yes. The nanny agency looks good for providing some relevant valueadded services to clients. Julie Cain. A friend of mine recently engaged the services of a nanny recruiting agency. And it didn’t cost the upmarket beauty salon a cent. When you think about it. Think of a business that complements your products or services – but doesn’t compete with you. Make the most of your cross-promotion activities Have you considered all of your crosspromotional opportunities? There may be other businesses you may be able to work with where you cross-promote each other’s services. either it was very good make- 122 up or all that sleep deprivation and baby spew were really taking a toll!) However.ACTIVITY 7. Posted by Valerie Khoo. they sent her a bag of goodies which included a gift voucher for a $50 make-up session at an upmarket beauty salon. She also purchased $1500 worth of make-up and skincare at the end of her session. she is now returning to work and needs a nanny to look after her child. who is often dealing with mums who are returning to work – many of whom would welcome a complimentary makeover after months of sleep deprivation and baby spew. it goes to show what some smart marketing and good cross-promotion can do. I think that the beauty salon knows that months of no sleep and baby spew are a potent combination when it comes to helping return-to-workmothers part with their not-yet-earned cash! Source: Sydney Morning Herald. It was a smart gesture on the part of the nanny agency. the salon is likely to give that customer a free make-up session anyway! All they did was find a complementary business – the nanny agency – and offer them free gift vouchers for their clients.9 Read the article and answer the questions that follow. So my friend rocked up to her makeover and walked out looking like a million dollars. But somehow. Upon signing up with an agency. there’s a risk that my friend may not have bought anything at all. . And the beauty salon gets a significant amount of business from it. After having her baby. Sure. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party.

explain a cross-promotional strategy that could be undertaken to market and benefit both businesses. Describe the characteristics of this target market. 2 Identify and explain the incidence of cross-promotion discussed in this article. a b c d Screamers Child Care Centre Pty Ltd and Little Tackers Hair Stylist Jemma’s Dog Training School and Hugo’s Pet Shop JJs Sportz Store and Claire’s Swim School A builder and a plumber. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. 3 Identify the target market of the beauty salon in the article.Questions 1 Explain what the marketing strategy of cross-promotion is. Julie Cain. . 6 For each of the following small business pairs. What benefits did the customer receive? 5 Was this a successful marketing strategy in your view? Discuss. CHAP T E R 7 MAJOR PLANNING DECISIONS THROUGHOUT THE LIFE OF A SMALL BUSINESS 123 ISBN: 9781107665910 © Gillian Somers. 4 Describe the need of the customer/client that was being satisfied by the beauty salon in this case.

occupational health and safety. codes of practice s¬ HUMAN¬AND¬PHYSICAL¬RESOURCE¬NEEDS. local government by-laws. insurance. consumer protection. employment laws. environmental laws. A business must plan for: UÊ compliance with legal and government regulations. such as business registration. taxation. equal opportunity.CHAPTER SUMMARY Planning continues throughout the life of all small businesses.

¬WHICH¬ CAN¬INCLUDE¬SOURCING¬AND¬LEASINGPURCHASE¬OF¬ EQUIPMENT.

¬RAW¬MATERIALS.

¬AND¬SO¬ON.

¬TO¬MEET¬ ONGOING¬REQUIREMENTS.

3 Explain where the Registry of Victorian Businesses is located. LEASES¬AND¬PURCHASE¬OF¬PREMISES¬MAINTAINING¬ RELATIONSHIP¬WITH¬RELIABLE¬SUPPLIERS¬SERVICING¬ AND¬MAINTENANCE¬OF¬EQUIPMENT¬REPLACEMENT¬ OF¬RESOURCES¬WHEN¬REQUIRED¬WORKFORCE¬PLANNING¬ CONDUCTED¬TO¬ATTRACT¬AND¬MAINTAIN¬A¬SUPPLY¬OF¬ WORKERS¬AND¬INVOLVING¬FORECASTING¬AND¬PLANNING¬ TO¬MEET¬FUTURE¬REQUIREMENTS s¬ lNANCIAL¬NEEDS¬TO¬MEET¬BOTH¬ONGOING¬AND¬INITIAL¬ COSTS¬AND¬THE¬NEED¬FOR¬RAISING¬lNANCE s¬ MARKETING¬STRATEGY¬TO¬ATTRACT. Suggest reasons why a business is required to submit a list of possible business names rather than simply one when applying for business registration. 2 List the main areas of legal compliance with which small business operators must be acquainted.¬INCLUDING¬SEASONAL¬ VARIATIONS¬AND¬EXPANSION¬NEGOTIATION¬OF¬ 1 Define the following terms and explain how CHAPTER SUMMARY QUESTIONS each relates to the issue of small business legal compliance. a By-law b Social responsibility c Occupational health and safety d Business registration e Workers compensation f Insurance premium g Risk assessment h GST i Code of conduct j Licence.

¬MAINTAIN¬AND¬ GROW¬A¬CUSTOMERCLIENT¬BASE¬ALSO¬INVOLVES¬ MARKET¬RESEARCH¬TO¬DElNE¬PRODUCTS.

Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. while a wholesale butcher might be better in a light industrial area. a retail butcher’s shop would be Local government zone c Obtaining an ABN d Finding out their legal obligations in regard to consumer rights.¬TARGET¬ MARKET¬AND¬MAIN¬COMPETITORS best placed in a commercial retail area. light industrial. heavy industrial. For example. Business a Bookshop b Oil refinery c Supermarket d Office complex e Home office f 124 Warehouse g Block of units h Gymnasium i School. commercial retail). . ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. 5 To which organisation would an employer go for advice on the following? a Resolution of an employee’s sexual harassment claim b Obtaining a licence to discharge waste into the environment 4 Classify each of the following businesses into the local government zone you think would be the most appropriate (residential. Julie Cain.

b Looking at the results of your risk with each of the following: a A printer and computer b A new business premises c A delivery van. Consider factors such as equipment. a Real estate (Real Estate Institute of Victoria) b School teachers (Victorian Institute of Teaching) CHAP T E R 7 MAJOR PLANNING DECISIONS THROUGHOUT THE LIFE OF A SMALL BUSINESS 125 ISBN: 9781107665910 © Gillian Somers. training of staff. should be included in the code of practice for each of the following industries or professions. locate the actual code of ethics for one of these groups. Discuss any differences and similarities between what you suggested as appropriate standards and what is actually stipulated. b They are sold an underweight product. 9 Identify and explain the most appropriate types of finance needed. Australian business has to the general community. a Purchasing a new cash register b Purchasing a block of land for the purposes of building a business warehouse c Covering the wage bill for the following week d Developing a new product. e. 8 List and explain the ongoing costs associated your school.g. dangerous nature of materials used and the inherent danger in the tasks being completed.6 List the occupational health and safety risks that may exist in each of the following businesses. Then. c They buy a product with incorrect labelling. 7 Explain the legal redress a consumer might have in the following situations. machinery. Use examples to support your arguments. by referring to the websites of the appropriate industry group. a Ski school b Factory c Butcher’s shop. what types of insurance would you recommend the school purchase? 3 Design a code of practice for students in c Is there any evidence that the school has 4 Discuss the social obligations you believe attempted to lessen the level of risk. a They purchased a product different from the sample displayed in the store. 1 Conduct a risk assessment of your school. . Julie Cain. c Pharmacists (The Pharmacy Guild) d Car dealers (Motor Car Traders Association). is there any fire-fighting equipment? 2 Make a list of the items that you believe EXTENSION QUESTIONS a List the risks that exist. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. assessment. d They change their mind two days after making a mail-order purchase. 10 10 What is marketing? Explain why it is important for a small business to establish a marketing plan that is regularly reviewed and updated.

8 ONGOING EVALUATION OF SMALL BUSINESS WHAT’S AHEAD Business success Key Performance Indicators Degree of achievement of business judged by level of efficiency and effectiveness of objectives Business failure ISBN: 9781107665910 © Gillian Somers. Julie Cain. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. .

including key performance indicators – practices that contribute to ethical and socially responsible management with respect to decision making. It is a startling fact that in Australia between Given these statistics and with the inten- 60 per cent and 70 per cent of all new tion of not becoming a business failure. planning and evaluation. are caused by financial failure. many AREA OF STUDY SMALL BUSINESS DECISION MAKING. While a mance against its stated objectives and targets significant proportion of these are due to non- sæ regularly evaluate the performance of the financial causes. planning and evaluation: – strategies used to undertake ongoing evaluation of small business. That adds up to approximately 40 000 sæ consider the methods to be employed in Australian small businesses ceasing to operate ongoing evaluation of the business’s perfor- each year (or more than 100 per day). Julie Cain. PLANNING AND EVALUATION 2 business using Key Performance Indicators.KEY KNOWLEDGE Students will learn the following about small business decision making. to embarking on any small business venture a It is estimated that 90 per cent of these failures potential business owner should: will occur within three years of a business sæ reflect upon these figures opening. and 95 per cent within the first five sæ pre-plan years. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. 127 ISBN: 9781107665910 © Gillian Somers. prior businesses will cease to exist within a few years. such as owners retiring. .

there was a 26. Most of the fall was in businesses employing between one and four people. But despite the GFC happening in the middle of the survey period. in 2008–09. an attrition rate of 26. Business failures varied across the states. the figures for small business told a different tale. or 20 000. It is the first period since the ABS began collecting the data in 2003 that the number of businesses fell.1 Read the article and answer the questions that follow. Queensland had 117 000 fewer businesses.6 per cent. occurred in 2008–09. Just how badly. while the failure rates remained between 14 and 16 per cent. Full hit of GFC on Australian business revealed by Chalpat Sonti 128 The global financial crisis left a wake of destruction through the world economy. a drop of 27.ACTIVITY 8.4 per cent to 13. with more than 80 per cent. while Victoria lost 133 000. Australian Bureau of Statistics data shows in the two years from June 2007 – encompassing the boom and subsequent bust – more than 638 000 Australian businesses shut up shop.4 per cent more start-ups in 2008–09 was the lowest level in the six years. The 14. of its trading enterprises. or well.7 per cent … However.9 per cent of all new businesses in the period. about 57 000 businesses with an ABN and registered for GST. about 20 700. there was a surprising decrease in attrition rates – from 15. In NSW. Julie Cain. meaning the total number of businesses fell about 23 000 to 2. new official figures.7 per cent. and Australia was not immune. The number of businesses with up to 20 employees fell 24 931 nationally in the period. were forced to the wall over the two years surveyed. Nationwide. ‘Small business is the economy’s canary. . In the four years to 2007. of the fall occurring during the worst of the financial crisis. Most of the net loss. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. a key leading indicator.4 per cent failure rate in the two years. 22 October 2010 ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers.’ Mr Ryan said. or 25. with rates slightly higher in the boom states of WA and Queensland. Source: WA Today. About 615 000 businesses started up in the period. the number of new businesses increased at a greater rate. That is an attrition rate of 26.1 per cent – between the 2007–08 and 2008–09 financial years.05 million. including 10 100 new businesses. businesses survived the global financial crisis and other economic turmoil of the past two years is evident from In WA. there were 185 000 fewer businesses in 2009 than two years earlier. But federal shadow parliamentary secretary for small business Scott Ryan said the national drop in small business numbers was worrying on other future fronts.

1 A business prepares to close its doors. 4 Were small businesses less or more likely to fail than large businesses? Give figures to support your conclusion. . Bankruptcy Bankruptcy is a legal process imposed by the courts that occurs when a business closes its doors because it cannot or will not pay its debts. the business owner’s assets are sold and the proceeds are distributed to creditors (the people/organisations to whom money is owed). incompetence or poor management practice in general. Figure 8. It is estimated that up to 90 per cent of all business failures are associated with managerial inexperience. It is vital that small business operators are aware of the importance of their own role in determining business success. If the sale of assets is insufficient to meet outstanding debts. 5 Explain what is meant by the following statement: ‘Small business is the economy’s canary. Explain why you think this is so. such as creditors or employee entitlements.Questions 1 How many Australian small businesses closed between June 2007 and June 2009? How many of these employed less than five people? 2 What percentage was the failure rate for business during this period: a nationally? b in New South Wales? c in Western Australia? d in Queensland? e in Victoria? 3 Explain what was surprising about these figures in light of the economic conditions. CH A P TER 8 ONGOING EVALUATION OF SMALL BUSINESS 129 ISBN: 9781107665910 © Gillian Somers. What is business failure? Why businesses fail Business failure takes one of two forms: bankruptcy or insolvency. Numerous studies have been conducted to identify the primary reason for small business failure. creditors have to accept partial payment (e. 60 cents in the dollar). A common finding is that most businesses fail as a result of internal business factors that are directly under the control of management. Small business owners must be able to evaluate both their personal performance and the performance of the business on an ongoing and regular basis. a key leading indicator’. When bankruptcy occurs. bankruptcy legal process that requires a business owner’s assets to be sold to discharge debts owed to creditors insolvency a business that closes due to inability to meet financial commitments and sells its business assets to repay outstanding debts Insolvency Insolvency occurs when a business closes itself down because it cannot meet its financial commitments and/or is unable to trade profitably. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. Julie Cain.g. Its assets are then sold to pay the outstanding financial commitments of the business.

An efficient business is able to keep costs down and will be better able to compete on price. By making the most efficient use of available resources. Cash flow refers to money coming into and flowing out of the business. ‘doing the right things’ productivity a measure of the functioning and efficiency of a production system efficiency the way an organisation uses its available resources to achieve its goals and objectives. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. Figure 8. .2 Staff are often a business’s most valuable resource. and so on sæ Raw materials – inputs to the production process sæ Component parts – manufactured parts that go into production of goods and services sæ Time – a non-renewable resource sæ Expertise and knowledge – valuable Figure 8. Key Performance Indicators may be utilised as tools of performance measurement. a business will produce maximum output for minimal costs of production. 130 resources to any business. ‘doing things right’ working capital net current assets of the business.3 Example of capital assets A business must establish measures by which its use of resources as a ratio to output can be assessed on a regular basis. machinery. Minimising resource use reduces production costs. Optimal efficiency in the use of resources translates into improved productivity. Julie Cain. Business efficiency All resources are a business cost. There are seven basic categories of resources used by any business to produce goods and/or services: sæ Cash and funds – money readily available to buy other resources. ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers.effective the degree to which an organisation achieves its stated goals and objectives. Strategies used for ongoing business evaluation Good business management involves making the most effective and efficient use of the resources available to the business. including property. It is the role of management to create the environment in which a business operates at its most efficient level. sæ Working capital – the amount of cash reserves (liquidity) a business holds to meet short-term commitments sæ People/labour – workers in the business sæ Capital assets – tangible property that cannot easily be converted into cash and that is usually held for a long period. This is known as efficiency. the day-to-day finance required for operating a business liquidity ability of a business to meet its short-term liabilities (debts) They must be able to correct problems as they arise rather than allowing problems and/or worrying trends to grow into major headaches. To do this.

an industry standard 2 Plan how these objectives will be achieved.g. All businesses set themselves specific objectives to be achieved in a specified period of time. e. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. raw materials. For example. If resources are being utilised effectively. labour. or to adopt socially responsible practices. a computer would be classified as a capital item. time or information (some come under more than one category). CH A P TER 8 ONGOING EVALUATION OF SMALL BUSINESS 131 ISBN: 9781107665910 © Gillian Somers. The steps in developing KPIs are: 1 Establish organisational objectives. they are being used to achieve the organisation’s objectives. capital. They should then evaluate themselves according to how well those objectives have been achieved within the time frame.ACTIVITY 8.2 Classify each of the following resources as: cash. KPIs are quantifiable measurements of performance and must be consistent with the business objectives. A benchmark might be set at a previous performance level or the performance of a competitor.4 Making a profit is one aspect of a business’s objectives. 1 A receptionist 2 A milking machine on a dairy farm 3 $10 000 in the business’s bank account Figure 8. Measuring effectiveness and efficiency through Key Performance Indicators All businesses should develop appropriate Key Performance Indicators (KPIs). These are tools of measurement that are used to evaluate effectiveness in achieving stated objectives and efficiency in the use of resources – in other words. Julie Cain. 3 Develop KPIs to measure progress and level of success in achievement of these objectives. KPIs are comparative tools by which the business’s performance can be measured against a set standard or benchmark. Examples are to increase staff morale. Key Performance Indicators (KPIs) criteria or measures used to evaluate performance of an organisation in terms of effectiveness and efficiency benchmark a standard against which a business will make comparisons. the things that tell a business how well it is performing. improve environmental performance. Business objectives may be: sæ financial objectives – objectives that are directly related to the monetary aspect of the business (profit and cost levels are examples) sæ non-financial objectives – objectives not directly related to the monetary aspect of the business. both financial and non-financial. Business effectiveness Another measure of business success is effectiveness in achieving stated business objectives. 4 Having a staff member who is a worldrenowned expert in the business’s field 5 Flour for a bakery 6 Water for a swimming school 7 A spare 30 minutes 8 Results of your latest market research done by a staff member with a PhD in marketing 9 A cash register 10 A delivery van. . There are two types of KPI: financial and non-financial performance. A KPI must be measurable over time and relate directly to core business activities.

and deferred revenues. (How much is still being paid off) Liabilities An obligation that legally binds an individual or company to settle a debt. (What is left over after all the expenses are taken out) Net profit after tax Net profit after tax has been deducted. rate of return on investments. Every small business must prepare income statements and balance sheets in order to ascertain and assess their performance against financial indicators. Examples are accounts payable. a car and other property. wages. A liability is recorded on the balance sheet. Examples of these are profitability. (What you own that is worth something) Gearing The percentage of company assets that are financed by borrowing compared to the proportion financed by owner’s equity. also known as cash asset ratio or cash ratio.1 Key financial measures and indicators inventory the holding or storage of raw materials. working capital levels. . rate of return on assets. accounts receivable. Julie Cain. Current liabilities are debts payable within one year. Table 8. sales revenue and rate of return on shareholders’ investments. (Profit after government taxes have been paid) ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers.Financial performance indicators rate of return measure of the return (%) a shareholder/ owner receives on their initial investment These are measures that are often closely linked with efficiency. inventory.1 outlines some of the key financial measures that may be used as KPIs. component parts. taxes. while long-term liabilities are debts payable over a longer period. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. especially that which could be converted to cash. Table 8. real estate. office equipment. (What you still need to pay later) Liquidity ratio A measure of extent to which a corporation or other entity can quickly turn assets into cash and cover short-term liabilities. Examples are cash. work in progress and finished goods liabilities what a business owes to an external party or entity 132 Key financial measure Indicator Assets Any item of economic value owned by an individual or corporation. (How much cash you can raise quickly) Profit The positive gain after subtracting all expenses from amount taken. securities. accrued expenses.

net earnings or bottom line. . bank accounts. the better. (How efficiently you use your assets and resources) Return on total assets (ROTA) Measures how effectively a company uses its assets. the higher the ROI. (What money is made after all expenses) net profit gross profit less expenses and overheads of running the business Gross profit Revenue minus all costs directly related to making the revenue. marketing and other expenses. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. (How much money you collect) Net sales Gross sales revenue minus returns and discounts.e.Key financial measure Indicator Net profit Calculated by subtracting total expenses from total revenue. (What you get back from your assets) Revenue Total amount of money received for goods sold or services sold over a certain time. net assets total assets less current liabilities. shown in an income statement as sales revenue. Net income can be calculated by subtracting expenses from revenue. (How much of the business you own outright) current assets short-term assets that are likely to be converted into cash before the end of the financial year. raw materials. labour. Calculated before any expenses are subtracted.g. working capital Operating profit margin A measure that indicates how effective a company is at controlling the costs and expenses associated with their normal business operations. Also called net worth or net assets. selling. i. (How much it is costing you to make money) Owner equity Total assets minus total liabilities of an individual or company. Julie Cain. Costs can include manufacturing expenses. showing what has been earned (or lost) in a given period of time (usually one year). Calculated by income before interest and tax divided by fixed assets + current assets. Also referred to as net income. stock and debtors Return on investment (ROI) Measures how effectively the business uses its capital to generate profit. e. (The real value of what you have sold) Profitability ratio Measurement of the level of profit compared to variables such as sales turnover and net assets CH A P TER 8 ONGOING EVALUATION OF SMALL BUSINESS profitability ratio measurement of the level of profit compared to variables such as sales turnover and net assets 133 ISBN: 9781107665910 © Gillian Somers.

It may also be in response to laws passed by governments designed to protect the environment. Non-financial KPIs can include: sæ level of staff satisfaction. research and development. adoption of programs to employ disadvantaged groups (such as Esprit and their work with homeless youth or Ford Australia’s commitment to assisting unemployed youth). Triple bottom line reporting The Corporations Act 2001 requires all Australian companies to produce financial reports. for example. a business is obliged to be aware of its effects on the environment and society. sæ levels of social responsibility. For example. for the effects of its products and activities.Non-financial performance indicators staff turnover number of employees leaving an organisation in a given period of time social responsibility ethical or social responsibility where a government. and so on sæ environmental impact of the business activities on water. The Australian community is increasingly demanding good corporate citizenship. numbers of new ‘greener’ products and levels of environmental reputation. land. or simply because consumers express a preference for dealing with an environmentally responsible business. both individual and corporate citizens. This will subsequently affect profits. They can affect the financial performance of the organisation. as well be concerned for its financial performance. . Businesses are increasingly in the public spotlight for their performance in the area of social responsibility. will reveal numerous products that market themselves as ‘clean’ or ‘environmentally responsible’. not just to its owners/ shareholders. which can be measured quantitatively by rate of staff absenteeism and staff turnover. This may be reflecting the business’s own philosophy. use of resources. Measures of levels of social responsibility could be business involvement in sponsorship of worthy causes. Similarly. and so on. or simply the reputation of the business in the local community. is about improving the quality of relations with key stakeholders triple bottom line reporting reporting on financial. or qualitatively by attitudinal survey results. Julie Cain. sæ levels of environmental impact. It is becoming common for businesses to set themselves objectives in relation to their environmental impact. organisation or individual has a duty to society at large. The use of TBL is increasing worldwide as businesses recognise that reputation and image ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. biodiversity. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. A business that engages in TBL reporting is showing that it is willing to be accountable to all stakeholders for environmental and social performance and not just its financial performance. Quality of product labelling and the provision of information to consumers about potentially toxic components and products is another measure of environmental responsibility. resulting in staff absenteeism or staff turnover. human health. to take greater responsibility for environmental and social issues. Low morale will adversely affect worker productivity as commitment to work and motivation will be reduced. TBL is based on the belief that a business has a responsibility to all its stakeholders. wages and working conditions. a KPI may be the level of staff morale. TBL is reporting on: sæ financial performance sæ the social outcomes of the business activities. businesses such as The Body Shop base their entire marketing campaigns on being environmentally and socially responsible. KPIs of this type might include measures of emission levels. social and environmental performance 134 These are areas of business performance expressed in non-monetary terms. A glance at the supermarket shelves. sales and other financial KPIs. Consequently. the concept of triple bottom line reporting (TBL) has emerged. In addition to this and as a consequence of a growing sense in the community of a need for everyone. such as job creation.

What looks like beautiful floral arrangements from a short distance are actually chocolate. online gift retailer Edible Blooms was born … Her idea puts both longevity and edibility into flowers.3 Suggest a KPI that would be appropriate for each of the following businesses to adopt. gift and hampers. ACTIVITY 8. with a hard-earned deposit for her first home in the bank. ‘I just love the business too much. Baker has taken the business from her original base in Queensland to Victoria. Benchmarking benchmarking comparing the performance of a business to industry standards or the market leaders in the industry A business can measure its performance by benchmarking.’ she says.are affected by performance in all three areas. A business that adopts TBL might choose to implement some of the following: sæ awareness of and willingness to act to reduce carbon footprint sæ setting up an ethically invested staff superannuation scheme sæ reducing the use of resources such as water sæ using GreenPower sæ recycling sæ supporting community activities sæ developing green products. Kelly Baker made her choice. House buying went on the back burner and using her life savings. It needed start-up money but the banks weren’t receptive. Baker says her initial decision to draw on her house deposit has been so rewarding she has never contemplated an exit plan. But after talking it through with her family and friends and with her sister Abbey eager to come on board. It’s a visual quirky take on the traditional florist offering. CH A P TER 8 ONGOING EVALUATION OF SMALL BUSINESS 135 ISBN: 9781107665910 © Gillian Somers. Kelly Baker faced one of the biggest decisions of her life. Fruits of success in a blooming good idea by Denise McNabb At 27. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. Julie Cain. She had spotted an innovative idea for gift giving on an overseas trip and it was germinating in her marketing head as an enterprising business prospect. New South Wales. Five years on since her investment decision. This may involve comparing its performance to industry standards or the market leaders in the industry. 1 A childcare centre wanting to measure customer satisfaction 2 A shoe store wanting to measure its financial performance 3 A dairy farm wanting to measure productivity 4 A café wanting to measure the quality of customer service 5 A factory wanting to measure its level of environmental responsibility. Sights are now set on the United Kingdom then possibly Asia. ACTIVITY 8. .4 Read the article and answer the questions that follow. fruit and cookie-laden bouquets. South Australia and New Zealand.

But she welcomes the competition. Being a business where time management is crucial. 136 ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. Baker says in an online business you have to invest the money in good systems. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. Source: The Age. . Baker says it can receive 10 000 hits a day – and many more on Valentine’s Day. Though she won’t reveal figures because the company is private. opened in November 2008 by her first employee Sarah Bruce. 6 October 2010 Figure 8. She says growth is also strong in New Zealand … Baker frowns on the discounting being done by rivals who have set up similar businesses after she was first to market. also picked up the web-voted People’s Choice Award for Best Corporate Gift Service across the Tasman. If there’s one sound piece of advice she would like to give anyone going out on their own is to start with saved money and remain cash-flow positive as she has done from day one. The New Zealand affiliate. But Edible Blooms has not been all smooth sailing.Her punt paid off in November 2009 when Edible Blooms was named MYOB Small Business of the Year at the Telstra Business Awards. She has special bouquets for occasions like Christmas and for those who like bubbly or beer with their sweet or fruity treats. using thousands of foiled chocolates and tonnes of fruit. No debt has enabled her to grow apace. but also into upgrading to a technology where every facet of the business is integrated. From her ‘dashboard’ she can watch sales as they are happening in any of her online stores from any location. She’s sunk thousands of dollars not only into the website. She started small with just nine fresh fruit blooms in the online store. The company is considered one of Australia’s fastest growing online enterprises and more than 70 per cent of its business comes through the internet. With this technology she says can grow revenue four-fold without spending any more on infrastructure. There are now more than 120 different types of bouquets. By keeping staff numbers tight (there are now 25 in Australia) and outsourcing accounts and IT she says she can pay her staff well and that keeps them happy and loyal. Julie Cain.5 A large punt on her future has paid off for Edible Blooms founder Kelly Baker. in the early days crashing computer systems was nerve-wracking. The job also consumed her life for its first two-and-a-half years. Baker says revenue last year was 40 per cent higher than the previous year with revenue for the whole five years averaging a 40 per cent increase each year. says Baker.

such as number of outlets or distribution of customers b Awards and recognition c Number of sales d Number of website hits e Staff morale and staff retention f Level of debt. Table 8.Questions 1 Name and describe the business that is the subject of this article.e. Comparing where the business procedures and performance of different aspects of the can and has to improve tactics adopted by leading performers in business with better comparable fields performing businesses and adopting their successful practice Comparing performance against industry standards CH A P TER 8 ONGOING EVALUATION OF SMALL BUSINESS 137 ISBN: 9781107665910 © Gillian Somers. 2 Identify and describe how each of the following could be used as an indicator of business success. 4 List and describe three key performance indicators that are mentioned in the article and are used to measure the success of this business. In your answer describe how each can demonstrate an aspect of a business’s success. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party.2 Common Key Performance Indicators Performance indicator Classification Description Profits Financial What is left after If the business is Financial records expenses are deducted making any money. Identify and describe why it was an innovative business idea. . 3 Describe how well the business in the article is performing according to each of the above indicators of business success. a Physical expansion. Julie Cain. from business revenue financial viability Cash flow Financial How much money is coming into the business and passing through it If the business is selling its products Sales figures If sales are growing Bank records Percentage of total sales in a market How sales figures compare to competitors’ figures Sales figures Good corporate citizenship Whether or not the business is meeting legal and social expectations and standards regarding the environment Emission levels Market share Level of social responsibility Benchmarking Financial Non-financial Financial and non-financial What it demonstrates Tools used to assess this indicator Takings ABS statistics EPA audit results Relationship with local community Wastage rates of raw materials Demonstrates areas Comparing processes. i.

– Insolvency – when a business closes itself down due to an inability to trade profitably. If a business is unable to repay its creditors. 7 Explain triple bottom line reporting. Julie Cain. environmental and social impacts. Justify your responses. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. Use an example to illustrate your explanation. 4 Distinguish and explain the difference between business effectiveness and efficiency. – Non-financial objectives relate to factors such as staff morale. 6 For each of the following examples of small business. Why is the use of TBL increasing worldwide? ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. its assets are seized and sold. 3 Define the following terms and then use each in a sentence to demonstrate your understanding. a A butcher in a suburban shopping strip b A childcare centre c A fitness centre d A catering business. s¬ 4HE¬PRIMARY¬REASON¬FOR¬BUSINESS¬FAILURE¬IS¬POOR¬ MANAGEMENT¬)T¬IS¬IMPORTANT¬THAT¬A¬BUSINESS¬IS¬ ABLE¬TO¬EVALUATE¬ITS¬PERFORMANCE¬ON¬AN¬ONGOING¬ BASIS¬AND¬CORRECT¬PROBLEMS¬AS¬THEY¬ARISE INVOLVES¬MAKING¬THE¬MOST¬EFFECTIVE¬AND¬EFlCIENT¬ USE¬OF¬THESE¬RESOURCES s¬ "USINESS¬EFFECTIVENESS¬IS¬A¬MEASURE¬OF¬BUSINESS¬ SUCCESS¬IN¬THE¬ACHIEVEMENT¬OF¬STATED¬OBJECTIVES – Financial objectives relate to monetary aspects of the business. . s¬ 4HERE¬IS¬A¬WIDE¬RANGE¬OF¬+0)S¬AVAILABLE¬FOR¬ BUSINESSES¬TO¬MEASURE¬EFFECTIVENESS¬AND¬ EFlCIENCY s¬ +EY¬0ERFORMANCE¬)NDICATORS¬ARE¬MEASUREMENT¬ TOOLS¬USED¬TO¬EVALUATE¬PERFORMANCE s¬ "USINESS¬PERFORMANCE¬CAN¬BE¬MEASURED¬FOR¬ EFlCIENCY¬AND¬EFFECTIVENESS¬%FlCIENCY¬MEASURES¬ EVALUATE¬USE¬OF¬RESOURCES¬IN¬THE¬PRODUCTION¬OF¬ GOODS¬AND¬SERVICES¬'OOD¬BUSINESS¬MANAGEMENT¬ CHAPTER SUMMARY QUESTIONS 1 List and define the two forms of business failure. list three financial and three non-financial KPIs that might be used as measures of business success. 2 Identify the six basic categories of resources used to produce goods and services.CHAPTER SUMMARY s¬ !¬LARGE¬PERCENTAGE¬OF¬!USTRALIAN¬SMALL¬ BUSINESSES¬WILL¬NOT¬EXIST¬WITHIN¬lVE¬YEARS¬OF¬ COMMENCEMENT¬!¬SIGNIlCANT¬PROPORTION¬OF¬THIS¬ IS¬DUE¬TO¬lNANCIAL¬FAILURE¬OF¬THE¬BUSINESS s¬ "USINESS¬OWNERS¬MUST¬BE¬PREPARED¬TO¬PRE PLAN¬ AND¬MEASURE¬THEIR¬PERFORMANCE¬AGAINST¬+EY¬ 0ERFORMANCE¬)NDICATORS¬+0)  s¬ 4YPES¬OF¬lNANCIAL¬FAILURE – Bankruptcy – a legal process imposed by courts. Proceeds are distributed among creditors. Demonstrate these using a concept/mind map. 5 Explain the importance of objective-setting for 138 small business. a Benchmarking b Key Performance Indicator c Social responsibility d Financial indicator.

Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party.1 and enter these KPIs accordingly. Julie Cain. e Design and construct an information chart similar to table 8. where it is located and who its customers are. UÊ financial KPIs UÊ non-financial KPIs UÊ how each of these is used to measure business success levels UÊ why a business must engage in ongoing evaluation. d Describe at least five KPIs that you would use in order to evaluate the success of the business. explain the different types of evaluation tools available to the small business operator to judge their degree of business success and their application. b Describe why you patronise that business rather than one of its competitors. c Imagine that you are the owner of this of business performance to the small business operator. Explain your choices. business. Justify your selection. Then complete the following tasks. .1 Think of a small business you are in regular 2 Discuss the importance of ongoing evaluation a Write a paragraph describing the business. CH A P T E R 8 ONGOING EVALUATION OF SMALL BUSINESS 139 ISBN: 9781107665910 © Gillian Somers. In your answer also discuss: EXTENSION QUESTIONS contact with (this could be anything from a fast-food restaurant chain to a clothing retailer. or even your school). In your answer. Include what the business sells. List five objectives you would set for the business over the next 12 months.

. Julie Cain. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party.9 INTRODUCTORY ACCOUNTING FOR SMALL WHAT’S AHEAD Reasons Types Source documents Price setting Accounting for small business Cash book Cash control Evaluation Taxation obligations Simple financial reports Cash flow Profit and loss statements Taxation types Impact on structure Balance sheet ISBN: 9781107665910 © Gillian Somers.

Evaluation allows a small business owner or manager to plan for the future and ensure that the business stays financially viable. AREA OF STUDY BUSINESS 3 record keeping keeping accurate records of all matters related to business activities 141 ISBN: 9781107665910 © Gillian Somers. Julie Cain. When starting out in business. such as profit and loss statement. Some of the most vital aspects of business operations are financial management. . The operation and continued success of any organisation encompasses many tasks and practices. record keeping and the ability to evaluate financial performance. It is therefore essential that the manager and/or owner of the business has the necessary skills to carry out these duties. including calculation of break-even point – ethical and socially responsible management of accounting practices. where this can be obtained and what is required to manage the business’s financial arrangements. Good financial management is critical to the ongoing success of any business. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. cash flow report or balance sheet – price setting.DAY-TO-DAY OPERATIONS KEY KNOWLEDGE Students will learn the following about day-to-day operations: – reasons for keeping source documents – elements of a cash book – taxation obligations and the implications for decisions on business structure – purpose of the Goods and Services Tax (GST) – concepts used within simple financial reports. an individual needs to find out how much funding is needed.

sæ future trends and potential problems not detected or solved in time sæ inability to keep up to date with government legislation and taxation obligations that require businesses to pay income and company tax and to collect the Goods and Services Tax (GST) revenue on behalf of the federal government. According to the St George Bank. Effective financial management allows the owner and/or manager to confirm whether the business is profitable and to explore further opportunities to boost profitability. Failure to keep accurate financial records will mean that the business owner will not be able to determine whether the business is operating successfully. Inability to control business finances can lead to a number of problems. The major financial causes of business failure include: sæ inadequate record keeping and control over finance. some of the key factors crucial to effective financial management are: sæ using reputable accounting software that automates critical financial reports (such as profit and loss statement and balance sheet) to make sure that taxation reporting is completed sæ keeping on top of accounting and bookkeeping tasks sæ sending bills promptly and following up outstanding invoices swiftly sæ having a workable budget that includes regularly updated cash flow projections sæ having strategies to manage cash flow before it becomes critical sæ taking into account the time. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. Julie Cain. Information on financial matters can be gained from a number of sources. cost of wages and materials and other elements involved in delivering the product or service. . Owner/manager Government bodies Competitors Business Prospective owners and investors Employees Financial institutions Figure 9.Keeping source documents and other financial records financial management managing the financial activities relating to the operation of a business All businesses need to ensure that they have accurate records.1 Stakeholders in the business 142 ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers.

the customer purchases the DVD player. as a result of the phone call. it is almost impossible for a business to track the financial data or prove expenditure.g. a customer telephones an electrical retailer with an enquiry about the price and features of a DVD player. These records include: sæ cash book sæ cash control sæ inventory (stock) control sæ taxation sæ preparation of financial records. Regardless of the bookkeeping or accounting system used. Cash transactions Once a business starts operation it enters into transactions. there are a number of basic steps a small business owner can take to prevent failure. inventory the holding or storage of raw materials. Examples of transactions include revenue from the sale of a good or service. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. e. financial information about the viability of an organisation. then a transaction has taken place. the type of evidence required will vary. If. its date. The evidence (the source document) should contain at least the following information: sæ transaction date sæ type of transaction and document sæ financial (or monetary) value of the transaction sæ names of those involved. including receipts and payments evidence information that identifies the type of transaction. regardless of size. e. including employee wages. e. . and a description of the goods or services required. and documents that provide evidence of these financial transactions. the customer or supplier. which must be correctly recorded. cash payments. A cash book sets out all of the cash transactions of a business. Between businesses. keep records of financial transactions such as sales. payment of wages source document a document that provides evidence of a transaction cash book one of the simplest forms of financial record keeping.g. or are interested in. payment of rent and the registering of a business name. this type of basic information must be kept. sets out all the cash transactions of a business.g. There are a number of stakeholders who may need. parties and financial value (if any) Figure 9. If these source documents are not kept. These transactions are contractual arrangements. Elements of a cash book A cash book is one of the simplest forms of financial record keeping.2 Transactions such as the payment of wages are contractual obligations CHAPT ER 9 INTRODUCTORY ACCOUNTING FOR SMALL BUSINESS 143 ISBN: 9781107665910 © Gillian Somers. including receipts and payments. therefore. work in progress and finished goods transactions contractual arrangements undertaken by a business. Reasons for keeping source documents While it is a fact that many small businesses fail as the result of poor or inadequate financial record keeping and management. this is not a transaction. for a business to maintain accurate financial records. for example. Using a simple accounting or bookkeeping system will allow a business to quickly track the financial position. If. stock loss for taxation purposes. payments of expenses and credit sales. Julie Cain. A source document is one that provides evidence of a transaction. A number of financial areas are important and should be monitored by a small business. component parts. A business needs to ensure that it keeps evidence of all transactions.It is vital. It is important that all businesses.

ACTIVITY 9. 5 A phone bill is paid by an advertising agency using an American Express card. RECEIPT A receipt is a record of cash transactions and money received by the business. or a summary can be accessed from the register. Use the receipt shown below as a guide. Common examples of direct credit include gym membership fees. PAY-IN BOOK OR SLIP When cash is deposited into the bank. The slip provides evidence of cash banked by the business. A cash transaction is recorded by the business. ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. Port Melbourne VIC 3207. Julie Cain. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. Kingston VIC 3364. Cash receipts A cash receipt is a source document and provides evidence for the business. 2 A manufacturer purchases raw materials.1 Determine whether the following events are transactions. Kingston Sporting Store. Cash sale for hire of formal suit ($95). Peters Formal Hire. CASH REGISTER ROLL OR REGISTER SUMMARY Most retail stores use electronic cash registers.ACTIVITY 9. actual cash does not change hands. businesses are increasingly allowing customers to directly credit the bank account of the business through the use of EFTPOS (Electronic Funds Transfer at Point of Sale). While direct credit is still recognised as a cash transaction.3 Cash receipt for the sale of goods 144 With advances in technology. 99 High Street. 3 A supplier distributes a catalogue of plumbing parts to a hardware store. Kew VIC 3101. 4 A customer returns a faulty CD player. 88 Williams Road.2 Complete three receipts using the following information. a pay-in book or slip is completed. Instead. Cash sale for supply of three cricket bats at $45 each. 1 A customer places their name on a mailing list. Stevens Christmas Trees. the money is transferred into the bank account of the business by the customer’s financial institution. 1 10/9/11. Give reasons for your answers. 122 Station Avenue. 2 17/11/11. often on a cash register roll. 3 15/2/12. . Sale of one Christmas tree ($37) and Christmas decorations ($23). insurance and lease payments by customers. It is a sound practice to bank cash daily to ensure that the records balance with the cash received or paid out by the business. DIRECT CREDIT AND EFTPOS TRANSACTIONS Figure 9. Cash source documents include: sæ receipts sæ cash register roll or summary sæ pay-in book sæ cheques received sæ EFTPOS records sæ credit card transaction records.

many businesses now offer credit card facilities. CREDIT CARD TRANSACTIONS While these transactions do not involve cash. EFTPOS or credit transaction. ® Registered to BPAY Pty Ltd ABN 69 079 137 518 Figure 9.4 This logo on a bill means that you can use the BPAY option. A cheque is simply an ‘IOU’ to the person or business to whom the cheque has been made out. 4 A customer paid $57 cash by cheque for a gas bill. bank statement and the petty cash book. credit card or debit account. A cheque has a number of features. removing the need for laborious manual checks of their records. 1 A customer paid $35 for groceries in the supermarket. Cheques are now used less frequently. customers are using electronic methods of payment such as BPAY through internet and phone banking rather than paying cash directly to the business. with the business also paying a fee for the use of these facilities.Increasingly. Julie Cain.3 Classify each of the following as a cash sale. relating to that account cheque an instruction to the bank to pay money from your account to the person named on the cheque (drawee) cheque butt form of evidence to support writing of the cheque and payment of an account 145 ISBN: 9781107665910 © Gillian Somers. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. with the customer later making a payment to the credit card provider cash payment items purchased and paid for in cash bank statement a periodical statement where the bank itemises the transactions. including: sæ date sæ amount (in words and numbers) sæ drawer (who wrote the cheque) sæ payee (the person to whom the cheque is made) sæ authorised signature/s sæ bank’s name and where the account is held. A cheque butt provides the business with a record of the cheque issued. transaction. ACTIVITY 9. credits. This evidence is usually in the form of a cheque butt. debits. CHAPT E R 9 INTRODUCTORY ACCOUNTING FOR SMALL BUSINESS credit card facility enabling customers to enter into transactions where cash payment is not required at the time of purchase. The bank involved then transfers this amount out of the account of the business. Credit card sales are generally recorded as cash sales transactions by the business. government and bank charges. . Some credit cards available on the market are American Express. 2 An insurance payment was made by BPAY. savings. 5 A customer paid for an eBay purchase using the online PayPal system (an electronic transfer of funds system). Cash payments Source or primary evidence documents are also required as evidence for all cash payments made by a business. Over 20 000 billers now accept BPAY as a payment option from a cheque.g. Services such as BPAY also help businesses by providing a complete list of transactions at the end of each day. Failure to check may mean that cash flow is not accurate or the business records are not up to date. paying it into the account of the person owed the money. e. as businesses and individuals are using electronic transactions and direct debit payments. The financial institution or credit card provider reimburses the business for the sale. The growth in the use of EFTPOS and internet banking means that small businesses need to check that these electronic transactions are in the business records and bank accounts. Visa and MasterCard. Cheques Businesses often make payments by cheque (there are some exceptions – see explanation of petty cash in this chapter). This type of evidence is discussed later in this chapter. a feature of internet and phone banking. 3 A customer purchased a lounge suite on six months interest-free terms on their Myer store card.

146 ACTIVITY 9. It also allows the business owner to calculate the cash balance during a specified period of time. this voucher provides evidence of the expenditure. Periodic payments 3 Paid $6. details of the transaction.55 for a taxi fare reimbursement. 2 Paid $16. . receipt and cheque numbers and columns for different types of payments and receipts.4 Complete the cheque details and cheque butt for the two payments below. lease payments. Use the cheque and cheque butt shown above as a guide. A cash book can vary according to the business. ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. 4 Paid $28. 1 A cheque was written on 31/3/12 to EL Gas for $67. Julie Cain.85.5 Draw up the petty cash vouchers for the following transactions on 5 January 2012. tea. The cash book can be kept manually as a multicolumn cash book. The petty cash system allows small amounts of cash to be kept on hand for these expenses. insurance instalments and electricity bills and many other transactions and regular payments can be made by direct payment. These primary records are then used to complete the cash book. Petty cash petty cash a small amount of cash held to pay for items such as stamps. The business has authorised the bank to withdraw the amount from its bank account. on a spreadsheet program such as Microsoft Excel or on a computerised accounting package such as MYOB (Mind Your Own Business) or QuickBooks.75 for tea and coffee for staff amenities. 2 A cheque was written on 2/4/12 to John Jones Appliance Repairs for $74.6 Petty cash voucher Businesses usually need to make small payments that do not require a cheque or a direct debit or electronic payment. coffee and tram fares.A261 3/11/2011 $43.25 Figure 9. A petty cash voucher should be completed when petty cash is required. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. The cash book allows a business to determine the cash coming in (receipts) and going out (payments) for the business. 1 Paid $2. which is then recorded in the petty cash book.70 for tram fare reimbursement. Examples include stamps. Businesses now have periodic payments (direct debits or payments) made by the bank or other financial institution on behalf of the business. Some essential information must be included: the date.50 for repairs to a DVD player.5 Cheque and cheque butt ACTIVITY 9. tea and coffee Figure 9.50 for postage stamps. Use the example shown above as a guide. Cash book All source documents for payments must be kept by the business as evidence of transactions. For instance.

Ch. sæ In some businesses. no. Use the example shown above as a guide. paid advertising fees $297. 3 5/8/11. no. . Ch. that petty cash is controlled and bank statements are checked. no. 5 11/8/11. 667. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. Ch. Cash flow is tracking the cash or money coming into and going out of the business. The petty cash tin should be locked and kept in a secure place. Rec. The same employee should not be handling all aspects of the cash. Ch. no.6 Complete the cash book for JJ’s Administrative Services for the month of August 2011. banking and writing cheques are completed by different people. Cash should not be reimbursed without a receipt and a petty cash voucher. paid wages $649. CHAPT ER 9 INTRODUCTORY ACCOUNTING FOR SMALL BUSINESS cash flow the movement of cash into (income and capital) and out of (purchases and expenses) a business 147 ISBN: 9781107665910 © Gillian Somers. no. It is essential for a business to have a record of and to control all cash transactions. fees received $1845. This could have serious implications for a small business. no. 671. paid the lease payment on the laptop computer $230. the duties of handling cash.7 Example of a cash book for Bob’s Pet Grooming Service ACTIVITY 9. Cash control For a business to be financially successful. for security reasons. paid rent on office $1230. preferably daily. 124. Being able to interpret and understand what is occurring in the cash transactions of the business is critical. 4 10/8/11. Reconciliation involves ensuring that all cheques have been presented to the bank. 01 1/8/11. 2 3/8/11. sæ Cash registers should be used to hold cash. received commission $825. 123. with no cash being kept on counters or in places where it can be seen easily. 125. Rec. no. no. Cheques should require at least two signatories as a precaution against theft and fraud. sæ Correct procedures should be in place for petty cash. Ch. making sure all transactions are recorded. 9 25/8/11. Rec.Figure 9. 125. If a business does not keep up to date with the financial information. sæ Cash should be banked regularly. received fees $950. For security reasons. 668. 10 29/8/11. sæ Bank statements and cash books should be checked regularly and reconciled. 670. 8 21/8/11. Julie Cain. then it is likely that incorrect information may be included. no. it must keep control over cash and cash flow. paid for stationery $73. 669. Rec. no. banking should not be done at the same time or by the same person and should be taken to the bank by different routes. Rec. Controls can take a number of forms. Cash should be kept in an inconspicuous container or bag. 6 13/8/11. 7 17/8/11. 122. received fees $820. fees received $957.

ACTIVITY 9. but Sally has not had time to check them properly. There are a number of differences between cash and profit sæ Profit is a ‘paper amount’ after the financial reports have been completed. Figure 9. sæ An organisation may have very high levels of cash in the business. the wear and tear on an asset such as a motor vehicle) are taken into account when determining profit. yet its profit figure is poor. Expenses include items such as electricity. wages. however. Julie Cain. Expenses such as goodwill and depreciation (e. ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. it is not necessarily profit. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. for example. While cash is critical. however. they are not cash amounts. She has been trying to keep her records manually in a cash book. it does not mean the business is able to meet its cash obligations. sæ Cash is the amount of money a business has on hand. when an asset is ‘written off’ during the time it is used by a business. This seemed to be working. Question Advise Sally as to what she could do to ensure that she can gain control over her financial records. she can’t account for $120 of petty cash expenses. . sæ If cash levels are insufficient. Another supplier has sent a reminder notice regarding late payment. but take a different route each time. however.7 Read the scenario and answer the question that follows. sæ Profit is determined by the record keeping of the business – it is not a cash amount. She wrote three cheques for suppliers and has received a phone call from one of them telling her that the bank refused to cash the cheque as her account was overdrawn. although she may have used some of it to buy coffees and dinner during the last month. The difference between profit and cash profit the surplus remaining after costs are deducted from sales revenue overdraft a short-term.8 Be sure to bank cash daily. sæ A business can have an excellent profit figure. it may mean that an organisation has to draw on its overdraft (a line of credit available from the bank or financial institution). Her bank statements are sent every three months.g. flexible loan facility giving a business the right to borrow up to an agreed amount as and when needed by the business depreciation depreciation is an expense. advertising and car expenses. a car may be depreciated by 20 per cent per year over five years 148 Profit is the difference between income earned by the business and the expenses incurred while earning that income. Sally Williams has been successfully running her business ‘Sensational Dog Grooming’ for the past six months.

designed to raise revenue.gov.gov. There is a range of taxes that can affect an organisation.5%. are subject to state and federal taxation.ato. All businesses. the rate of tax increases as income increases. All employers are required to register for and pay this tax when the total wages bill exceeds a certain amount. imposed by governments on businesses and individuals Payroll tax Payroll tax is a state tax that is levied on wages paid. small. fortnight or month. Wages can include salaries. allowances. Julie Cain. Note: current tax rates and information about tax obligations can be obtained from the Australian Taxation Office (ATO) website at www.9 Planning and good record keeping can help avoid cash flow problems.au CHAPT E R 9 INTRODUCTORY ACCOUNTING FOR SMALL BUSINESS 149 ISBN: 9781107665910 © Gillian Somers. medium and large. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. taxation a levy. and the implications Australia that is.ato. Table 9. Forms of taxation include: sæ payroll tax sæ Goods and Services Tax sæ income tax sæ company tax sæ fringe benefits tax.1 Taxation rates on income. Source: www. The system is PAYG (Pay As You Go) for decisions on and tax is normally paid during the financial business structure year each week. 2010–11 Taxable income Tax on this income $0–$6000 Nil $6001–$37 000 15c for each $1 over $6000 $37 001–$80 000 $4650 plus 30c for each $1 over $37 000 $80 001–$180 000 $17 550 plus 37c for each $1 over $80 000 $180 001 and over $54 550 plus 45c for each $1 over $180 000 *The above rates do not include the Medicare levy of 1.au. .Taxation obligations Income tax has a progressive income tax system. commissions and bonuses. Figure 9.

Therefore. Use table 9.50 3 A take-away meal costing $75. motor vehicles. . Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. While there are many reasons why a particular business structure is used. The type of business structure adopted has particular taxation implications for the owner/s. in Australia. For example. ACTIVITY 9. 2 James earned $5950 from his part-time job. company car. such as cheap loans. These are set out in table 9.50. Fringe benefits tax fringe benefits tax (FBT) a tax on the value of company-provided benefits for employees in lieu of income.1 to determine the amount. This tax is collected by the seller or retailer and is submitted to the ATO. taxation considerations may be one influencing factor. further information can be obtained from the ATO website (www. such as medical. It was introduced by the federal government and has been in place since 1 July 2000. The GST has been set at 10 per cent on all goods and services.gov. FBT is paid on fringe benefits to employees.00 2 A movie ticket costing $14. Calculate all items at a 10 per cent and a 15 per cent GST rate. ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. The basic premise of this tax was to broaden the tax base. excluding fresh produce and some services.8 Calculate the tax paid by each of the following individuals.5 per cent on any benefits other than income received by employees. The general rate of tax is 30 per cent and is calculated on the difference between company income and deductions. an additional 10 per cent tax of $68. e. if a company has a taxable income of $30 000. 3 Petra earned $103 000 during the last financial year.50 would be payable.au). e. 1 A DVD costing $15. 1 Tom earned $27 880 during the last financial year. Source documents such as an invoice are important for a business to ensure that there is evidence of any GST collected and to gain credit for GST that may have been paid by the business. The purpose of the Goods Implications of taxation obligations on business and Services Tax (GST) structure The Goods and Services Tax (GST) in Australia is a value added tax (VAT) on the supply of goods and services in Australia. if a digital camera costs $685. the rate of tax is 10 per cent 150 A fringe benefits tax (FBT) is levied at a rate of 46. not the individual.95. The total selling price (GST inclusive) of the camera is therefore $753.00 4 A new pair of runners costing $135.g. Company tax All organisations that are registered companies must pay company tax.g. medical benefits Goods and Services Tax (GST) a value added tax on all goods and services. and meals and entertainment.ato. cars. which was heavily biased towards the provision of services.ACTIVITY 9. Taxation is a complex area and business owners should seek advice from an accountant or solicitor before deciding on a business structure. entertainment fringe benefits benefits received by employees in addition to their normal wage or salary. All businesses registered for GST must complete a business activity statement (BAS) form and lodge the GST collected with the ATO. company tax of $9000 is payable. FBT is paid by the organisation.9 Calculate the GST on the following items. Julie Cain. The GST collection and rules are complex.2.

e. sæ Balance sheet – an accounting report that sets out the assets. To complete a financial report. yet stakeholders need to regularly monitor and evaluate its performance. the life of the business is divided into a number of accounting periods. liabilities and the proprietorship of a business as at a given date. . patents cash are not the same thing and a business needs to ensure that it has sufficient cash to cover its own expenses. These accounting reports provide organisations with information about profit or loss. the owner and the company are treated separately and both are entities. rates of return on investment and the value of assets and liabilities.Table 9. sæ Cash flow report – a cash flow report allows a business to track and report on cash coming in and out of the business. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. The owner will then pay income tax on the amount received. but no physical form. If the owner takes money out of the business. CHAPT E R 9 INTRODUCTORY ACCOUNTING FOR SMALL BUSINESS 151 ISBN: 9781107665910 © Gillian Somers. Simple financial reports for small business Business managers and owners need to keep financial records to ensure their own records are accurate and that their obligations can be met.2 Business structure and taxation implications Business structure Taxation type Possible implications Sole trader Income tax The owner and the business are not separate. The main reports generated by small businesses include: sæ Profit and loss statement – an accounting report that outlines the revenue less the expenses for an accounting period. goodwill. Company Company tax In a company. It provides a business with an overview of whether it has made a profit for the accounting period. six or 12 months. A business is assumed to have a continuous life. copyright. As discussed earlier in the chapter. Reports are usually prepared on a regular basis. every three. The primary records and transactions are used in the preparation of financial reports. A number of financial or accounting reports can be completed. Balance sheets can include tangible assets such as cars and furniture and intangible assets such as goodwill. it is treated as a salary or wage. This money is then treated as income tax and each partner will pay income tax according to the income earned. The company pays tax on every dollar of profit earned. Julie Cain. Partnership Income tax The income or profit earned by the partnership will be distributed between the partners according to the partnership agreement.g. profit and assets items of monetary value owned by the business intangible assets assets that have a monetary value to the business. Any income or profit obtained by the business will be taxed at the individual business owner’s personal taxation rate.

.10 Flow of records into the financial reports Figure 9. Cash flow report Primary records – receipts.12 Example of profit and loss statement and balance sheet for Mel’s Hardware and Equipment Hire Store ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers.11 Example of cash book and cash flow report for Mel’s Hardware and Equipment Hire Store 152 Figure 9. debtors and liabilities Balance sheet Figure 9. cheque butts. bank. Julie Cain. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party.Primary records and their use in financial reports Primary records and source documents flow into the financial reports of the business. direct debits and credits Cash book Profit and loss statement Records such as credit transactions.

Additional information: s The opening balance in the bank statement for 3 May is $976. she does not check the bank statement. Profit is calculated in the profit and loss statement and can give an indication of overall performance. The café is a small concern and all transactions are cash. Phoebe completes the cash book for the café. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. There are a number of ratios or pieces of information that a business can use. it is necessary to break down the information so it can be interpreted and analysed. is studying accounting. If a small business owner does not have the ability to understand the financial reports.00. If sales drop. profit normally drops as well. however. Figure 9. It is vital that this information is timely to ensure that the business is viable and able to meet its commitments.10 Read the scenario and answer the question that follows. CHAPT E R 9 INTRODUCTORY ACCOUNTING FOR SMALL BUSINESS 153 ISBN: 9781107665910 © Gillian Somers.13 Lorne Grove Café cash book for the month of May 2011 Question Using the above information. Kate. Phoebe has asked her to check the business records.ACTIVITY 9. Evaluation of financial performance Any small business owner and manager needs to be able to understand what the financial information and financial reports are indicating about business performance. These include: sæ cash and profit figures – both are important and the two concepts are not the same thing. . sæ sales analysis – it is important for a business to be able to calculate its sales turnover and sales figures. To analyse the performance of the business. complete a cash flow report. Cash is necessary so that the business has enough cash to pay its expenses and commitments. The cash book will have to be updated using information from the bank statement. it is important that the business has a close relationship with a bookkeeper or an accountant. A number of cheques have been written and dishonoured by the bank due to insufficient funds and the business has been charged for these. Julie Cain. s The bank statement also included account keeping fees for May of $23 and also during the month a direct payment for a lease of $128. Phoebe provided Kate with the following information from the cash book and the bank. Ian and Phoebe own the Lorne Grove Café. A friend. Sales figures can be examined as dollar figures or as a percentage increase or decrease.

400 affected.50) equals $7. sæ debtor’s turnover ratio – businesses must make sure that all money owed by debtors is chased up. A business.00 will be sold for $7.owner’s equity the amount of money or capital invested in the business debtor customer who has bought goods or services on credit terms and owes the business money debtor’s turnover amount of time taken for a debtor to pay their account Year one – $98. Price-setting methods include the following: Recommended retail price Figure 9. Many business owners enjoy the challenges and the satisfaction of developing new niches and goods and services. If this money is not collected. ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers.50 ($5. the cash flow of the business is adversely 154 Wholesalers and suppliers will often set a recommended retail price (RRP) for a product. for example. The method chosen should be one that suits the business.000 Year four – $121. While a business does not have to follow this.50). The lower the ratio the better. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. may decide to add 50 per cent to the cost price of every product. it is usually a good starting point. Debtor’s turnover is calculated by dividing the credit sales (non-cash sales) for the period by the average level of debtors.500 Year two – $103. equity (capital). but difficult to measure. Return on owner’s investment can be calculated Percentage mark-up by dividing net profit by average owner’s This means that a mark-up is added to the cost price of an item. sæ non-financial analysis – this is also important. Non-financial information could include: – independence and the chance to be your own boss – better lifestyle and the opportunity to work hours that suit – development of products and services.300 It is important for a business to ensure that it has correctly priced its products and services and it has taken into account all of the costs and expenses involved in producing (if a manufacturer) and selling a product. An item that cost the business $5.14 Sales figures for BB Coffee Makers sæ return on owner’s investment – a way of evaluating business performance is to compare the net profit of the business to the funds invested by the owner. Price-setting strategies Year three – $109. Trying to sell below the recommended price may mean that all costs and expenses involved in selling the product are not covered.00 plus 50 per cent ($2. Julie Cain. as it means debtors are paying in the time required. . There are a number of different ways for a small business to develop prices.

in the number of items sold or produced. If a $200 profit is to be made. Competition and competitors’ prices A close competitor may mean that a business has to adjust some of its pricing methods to ensure that it gains and retains customers. . 2 Suggest a possible strategy or idea that might allow Mel and Nat to enjoy business success without increasing their hours.11 Read the scenario and answer the questions that follow. The report should be written for Nat and Mel. e.15 Financial performance Questions 1 Using the information in the above table.00 a bunch. Mel is concerned that the business may have reached its peak and is looking at ways to expand the business further. Nat Bain and Mel Kane have been operating Expert Health and Beauty Services for the past five years. a florist selling roses has a fixed cost of $2000 with a variable cost of $5. Some new businesses will start with a number of ‘specials’ to try to establish themselves and to gain market share against other businesses. Their accountant. Selling these roses at $10. Julie Cain.1 Year Four $109 000 $21 000 4 5% 7% 10% 12% 40 hours 42 hours 50 hours 55 hours Figure 9. These are costs that do not change regardless of the amount of a product or service produced or provided. Matt. the business makes neither a loss nor a profit at this level of sales fixed costs costs that in the short term do not vary with output 155 ISBN: 9781107665910 © Gillian Somers.g. The business has been expanding and has a well-established clientele and strong reputation. CHAPT E R 9 INTRODUCTORY ACCOUNTING FOR SMALL BUSINESS break-even point the level of sales at which total revenue is equal to total expenses. Data Sales/Revenue Profit Debitors turnover (ratio) Return on Owner’s Investment (%) Non financial number of hours worked per week by Nat & Mel Year One $38 000 $9 000 3 Year Two $52 000 $12 000 3. 400 bunches of roses must be sold to reach break-even point. the florist will need to sell 440 bunches of roses. rent on premises. Break-even point can be calculated using a formula: break-even point (in units) = Break-even point Break-even analysis is used by a business to make sure that selling prices enable the business to make the desired level of profit. To do this a business needs to look at its fixed costs. has given them the following information.2 Year Three $98 000 $19 000 3. An example of a variable cost might be the materials associated with making the actual product.00 per bunch. who are not accountants.ACTIVITY 9. It also needs to examine variable costs. Break-even point is the point where revenue (income) is equal to expenses. These are costs that vary with a change fixed costs selling price less variable costs For example. comment on the business’s performance over the past four years. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party.

They wish to make $500 profit per week. superannuation contributions and holiday pay also need to be accounted for. If a small business is one of the few suppliers of a service or product. Too often the newspapers and media run stories of businesses that have gone into liquidation and employees have lost their entitlements. Sam would like to sell these and make a 15 per cent profit. while it may be able to charge a higher or premium price. Calculate how many pizzas they will need to sell each week.12 Calculate the prices for the following situations using one of the above price-setting strategies.95. 4 Aiden has decided to establish a coffee shop in a shopping centre. Ethical practices may extend to choosing suppliers who are known to follow socially responsible and ethical business practices. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. Ethical pricing may also mean that a business chooses not to exceed the recommended retail price. Aiden would like to undercut the competitor by 5 per cent.70 per dinner. . If the business employs staff.00 per pizza. 1 The wholesale price for ready-made dinners is $6. Sometimes the ethical and socially responsible decisions may be more costly in terms of financial concerns in the short term. Legislation such as the Trade Practices Act 1974 outlines penalties for illegal pricing. it may still wish to charge a ‘reasonable’ price. 3 The wholesaler has decided that the retail price of CDs should be $18. They have calculated the fixed costs for the restaurant to be $2500 per week and variable costs are $4. He has a major competitor who sells coffee and cake for $5. Some small business owners may try to reduce their taxation obligations by not officially recognising some of the revenue earned by the business. the correct wages and conditions must be provided and other obligations such as 156 long-service leave entitlements. Ethical practices also extend to the pricing of goods and services.ACTIVITY 9. ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers.50. Small businesses need to ensure that they meet the taxation obligations and expenses required for the employment of staff. Ethical and socially responsible management of accounting practices It is important that a small business keeps correct accounting records to ensure that it only claims expenses it is entitled to. This has implications for the economy as a whole. 2 Georgia and Blake have opened a pizza restaurant. as it may mean that taxation revenue for the government is less and essential services are not available to the community. Avoiding tax is a serious criminal offence. but enhance the reputation of the business in the long term. Julie Cain.

s¬ !¬NUMBER¬OF¬DIFFERENT¬STAKEHOLDERS¬IN¬THE¬ BUSINESS.

¬SUCH¬AS¬lNANCIAL¬INSTITUTIONS.

¬ CREDITORS.

¬EMPLOYEES¬AND¬OWNERMANAGERS.

¬ RELY¬ON¬lNANCIAL¬RECORDS¬TO¬DETERMINE¬THE¬ BUSINESSS¬PROGRESS s¬ !¬TRANSACTION¬IS¬A¬CONTRACTUAL¬AGREEMENT¬ BETWEEN¬THE¬BUSINESS¬AND¬ANOTHER¬ENTITY¬ !LL¬TRANSACTIONS¬MUST¬BE¬RECORDED¬IN¬THE¬ BUSINESS¬RECORDS s¬ !¬BUSINESS¬NEEDS¬TO¬KEEP¬EVIDENCE¬OF¬ALL¬ TRANSACTIONS s¬ #ASH¬SOURCE¬DOCUMENTS¬INCLUDE¬RECEIPTS.

¬ CASH¬REGISTER¬ROLL¬OR¬SUMMARY.

¬PAY IN¬BOOK.

¬ CHEQUES¬RECEIVED.

¬%&40/3¬RECORDS¬AND¬ CREDIT¬CARD¬TRANSACTIONS s¬ #HEQUES¬ARE¬AN¬ORDER¬BY¬THE¬DRAWER¬PERSON¬ WRITING¬THE¬CHEQUE ¬TO¬THE¬BANK¬DRAWEE ¬TO¬ TRANSFER¬FUNDS¬TO¬ANOTHER¬ACCOUNT¬OR¬PERSON¬ THE¬PAYEE ¬#HEQUES¬ARE¬USUALLY¬USED¬BY¬A¬ BUSINESS¬TO¬MAKE¬PAYMENTS s¬ 0ETTY¬CASH¬IS¬USED¬WHEN¬A¬BUSINESS¬NEEDS¬ TO¬MAKE¬SMALL¬PAYMENTS¬SUCH¬AS¬TRAM¬ FARES.

¬POSTAGE¬STAMPS¬AND¬TEA¬AND¬COFFEE¬ !¬PETTY¬CASH¬BOOK¬RECORDS¬ALL¬PETTY¬CASH¬ TRANSACTIONS 1 $ElNE¬THE¬FOLLOWING¬TERMS¬AND¬THEN¬USE¬ s¬ /RGANISATIONS¬MUST¬ENSURE¬THAT¬TAXATION¬ OBLIGATIONS¬ARE¬MET¬-ANY¬SMALL¬BUSINESSES¬ PROVIDE¬GOODS¬OR¬SERVICES¬AND¬'34¬OF¬¬ PER¬CENT¬MUST¬BE¬COLLECTED¬AND¬PASSED¬ON¬TO¬ THE¬!4/¬!USTRALIAN¬4AXATION¬/FlCE ¬/THER¬ TAXATION¬OBLIGATIONS¬INCLUDE¬COMPANY¬TAX.

¬ INCOME¬TAX¬AND¬PAYROLL¬TAX s¬ &INANCIAL¬REPORTS¬COMPLETED¬BY¬A¬SMALL¬ BUSINESS¬INCLUDE¬BALANCE¬SHEET.

¬PROlT¬AND¬ LOSS¬STATEMENT¬AND¬CASH¬mOW¬REPORT s¬ "USINESSES¬NEED¬TO¬BE¬ABLE¬TO¬USE¬AND¬ INTERPRET¬THE¬INFORMATION¬IN¬THESE¬lNANCIAL¬ REPORTS¬TO¬ASSESS¬PERFORMANCE¬AND¬PLAN¬FOR¬ THE¬FUTURE s¬ 0RICE¬SETTING¬IS¬AN¬IMPORTANT¬AREA¬FOR¬A¬ BUSINESS¬0RICES¬CAN¬BE¬SET¬IN¬A¬NUMBER¬OF¬ DIFFERENT¬WAYS.

¬INCLUDING¬BREAK EVEN¬POINT.

c Purchased inventory 2 7HAT¬IS¬A¬TRANSACTION¬7HY¬SHOULD¬AN¬ ORGANISATION¬ACCURATELY¬RECORD¬THIS¬ INFORMATION CHAPTER SUMMARY QUESTIONS EACH¬IN¬A¬SENTENCE¬TO¬DEMONSTRATE¬YOUR¬ UNDERSTANDING s¬ "USINESSES¬MUST¬TAKE¬STEPS¬TO¬ENSURE¬THAT¬ALL¬ CASH¬IS¬SECURED CHAPTER SUMMARY s¬ !¬LACK¬OF¬lNANCIAL¬CONTROLS¬AND¬INADEQUATE¬ RECORD¬KEEPING¬ARE¬AMONG¬THE¬MAJOR¬REASONS¬ FOR¬BUSINESS¬FAILURE d Paid phone rental e Received bank interest f Sold stock. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. Julie Cain.¬ PERCENTAGE¬MARK UP¬AND¬RECOMMENDED¬ RETAIL¬PRICE s¬ 3MALL¬BUSINESSES¬ALSO¬NEED¬TO¬ENSURE¬THAT¬ THEIR¬lNANCIAL¬AND¬BOOKKEEPING¬PRACTICES¬ ARE¬ETHICAL¬IN¬TERMS¬OF¬HONEST¬AND¬CORRECT¬ lNANCIAL¬INFORMATION 3 #LASSIFY¬EACH¬OF¬THE¬FOLLOWING¬TRANSACTIONS¬ a Transaction AS¬EITHER¬A¬RECEIPT¬OR¬A¬PAYMENT¬7HAT¬ SOURCE¬EVIDENCE¬OR¬PRIMARY¬RECORDS¬WOULD¬A¬ BUSINESS¬REQUIRE¬FOR¬THESE¬TRANSACTIONS b Bank statement a Paid internet and phone bill to Optus c Cash flow b Paid six months of insurance to RACV d Expense. CHAPT E R 9 INTRODUCTORY ACCOUNTING FOR SMALL BUSINESS 157 ISBN: 9781107665910 © Gillian Somers. .

4 #ALCULATE¬THE¬BREAK EVEN¬POINT¬FOR¬3OlES¬ #ELLARS¬&IXED¬COSTS¬ARE¬¬PER¬WEEK.

i 27/6. hire fees $819. f 15/6. no. h 23/6. sales $812. no. e 12/6. 1115. B018. no. 7 5SING¬THE¬INFORMATION¬FROM¬QUESTION¬. Ch. B019. Rec. paid phone bill $234. sales $735.¬ VARIABLE¬COSTS¬ARE¬¬PER¬BOTTLE¬OF¬WINE¬ AND¬THE¬SELLING¬PRICE¬IS¬¬PER¬BOTTLE 5 /UTLINE¬THREE¬REASONS¬WHY¬IT¬IS¬IMPORTANT¬ TO¬HAVE¬CONTROL¬OVER¬THE¬CASH¬OF¬AN¬ ORGANISATION¬3UGGEST¬TWO¬SECURITY¬FEATURES¬ OR¬PRACTICES¬THAT¬WOULD¬ASSIST¬IN¬THE¬ MANAGEMENT¬OF¬CASH 8 5SE¬THE¬FOLLOWING¬INFORMATION¬TO¬COMPLETE¬A¬ PROlT¬AND¬LOSS¬STATEMENT¬FOR¬THE¬YEAR¬ENDING¬ *UNE¬¬FOR¬!MANDAS¬&ASHION¬"OUTIQUE¬ $ETERMINE¬WHICH¬TRANSACTIONS¬ARE¬REVENUE¬ AND¬WHICH¬ARE¬EXPENSES 9 7HY¬IS¬IT¬IMPORTANT¬TO¬EVALUATE¬THE¬lNANCIAL¬ POSITION¬OF¬A¬BUSINESS¬USING¬THE¬lNANCIAL¬ RECORDS¬AND¬REPORTS¬0ROVIDE¬AT¬LEAST¬FOUR¬ REASONS¬IN¬YOUR¬RESPONSE 6 #OMPLETE¬A¬CASH¬BOOK¬FOR¬3URESHS¬3KI¬ 3ALES¬AND¬(IRE¬FOR¬THE¬MONTH¬OF¬*UNE¬¬ 4HIS¬EXERCISE¬MAY¬BE¬COMPLETED¬ON¬A¬ SPREADSHEET a 2/6. 1116. 1117. no. paid insurance $139. Ch. B015. no. B016. no. no. b 3/6. no. Rec. Rec. no. c 5/6. sales $950. 1118. Rec. B017. bank interest. sales $923. d 10/6. paid wages $650. g 21/6. j 28/6. paid wages $450. Ch. Rec. received $170. Ch.

¬ COMPLETE¬A¬CASH¬mOW¬REPORT¬4HE¬BANK¬ BALANCE¬AT¬THE¬BEGINNING¬OF¬*UNE¬IS¬¬ AND¬THERE¬WERE¬BANK¬CHARGES¬OF¬ 158 Figure 9.16 Revenue and expenses 10 5SING¬INFORMATION¬FROM¬THE¬!USTRALIAN¬ 10 4AXATION¬/FlCE¬WEBSITE¬WWWATOGOVAU .

. Julie Cain.¬ CREATE¬A¬POSTER¬OR¬PAMPHLET¬OUTLINING¬THE¬ TAXATION¬OBLIGATIONS¬OF¬A¬SMALL¬BUSINESS ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party.

His accountant then uses the computerised records to complete tax returns. After the introduction of the GST. He does not employ anyone and his business records are relatively simple. EXTENSION QUESTION Read the following summary of an interview with Marty. He keeps detailed paper records of cheques. which he forwarded on to the Taxation Office. Before this he had private customers paying 22 per cent sales tax. bookkeeping has become simpler. a Melbourne-based sole trader dealing in the sale and repair of new and used woodwind and brass instruments. all customers pay the same amount of tax (GST at 10 per cent).Marty established his business in 1996 and has seen a growth of around 25 per cent every year since he started. sales and expenses. While some prices have increased due to the GST. 1 /UTLINE¬THE¬TYPES¬OF¬lNANCIAL¬RECORDS¬-ARTY¬ WOULD¬NEED¬TO¬KEEP¬FOR¬HIS¬BUSINESS¬"E¬SPECIlC¬ IN¬YOUR¬RESPONSE 2 (OW¬HAS¬THE¬INTRODUCTION¬OF¬THE¬'34¬BENElTED¬ THE¬BOOKKEEPING¬PROCESS¬OF¬THE¬BUSINESS 3 5SING¬THE¬!USTRALIAN¬4AXATION¬/FlCE¬WEBSITE¬ WWWATOGOVAU . The introduction of the GST has actually simplified Marty’s record keeping. Schools were exempt from sales tax and so he had to keep two sets of books. These are then given to a bookkeeper once a month to be transcribed into MYOB. receipts.

Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. Julie Cain. .¬OUTLINE¬THE¬OTHER¬TAXES¬A¬SMALL¬ BUSINESS¬WOULD¬BE¬LIABLE¬FOR 4 7HY¬COULD¬IT¬BE¬MORE¬COST EFFECTIVE¬FOR¬A¬SMALL¬ BUSINESS¬OWNER¬TO¬EMPLOY¬A¬BOOKKEEPER¬PART TIME¬TO¬COMPLETE¬THE¬lNANCIAL¬RECORDS 5 .IST¬lVE¬PIECES¬OF¬ADVICE¬YOU¬BELIEVE¬A¬SMALL¬ BUSINESS¬OWNER¬NEEDS¬TO¬SUCCESSFULLY¬MANAGE¬ THE¬lNANCIAL¬RECORDS¬OF¬THE¬BUSINESS CHAPT E R 9 INTRODUCTORY ACCOUNTING FOR SMALL BUSINESS 159 ISBN: 9781107665910 © Gillian Somers.

. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party.10 MANAGEMENT OF STAFF IN SMALL BUSINESS WHAT’S AHEAD Maintaining and managing staff Legislation Job analysis and planning Management of staff Employing staff Employment arrangements Recruitment and selection of staff Ethical and socially responsible employment practices Methods Interview process ISBN: 9781107665910 © Gillian Somers. Julie Cain.

part-time. If the business has a positive relationship with its employees. Staffing of a business. Julie Cain. casual status – an overview of relevant legislation such as occupational health and safety (OH&S) and equal employment opportunities (EEO) – ethical and socially responsible management of employment practices. and distinctions between. medium or large business. small. therefore. they will assist in the growth and success of the organisation. Employees are one of the most important assets of a business and play a major role in its success or failure. It is important. The factors to be considered and many of the procedures and legislative requirements are similar regardless of the size of the organisation. that the most suitable staff are chosen. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. AREA OF STUDY DAY-TO-DAY OPERATIONS 3 employee a person working for another person or a business for wages or a salary. . whether it be a micro. employment arrangements including full-time. enters into an employment contract and is under the control and direction of the employer 161 ISBN: 9781107665910 © Gillian Somers. is important for the day-to-day management of business operations.KEY KNOWLEDGE Students will learn the following about day-to-day operations: – types of recruitment and selection methods – reasons for.

A small business must therefore ensure that decisions regarding staffing are the correct ones. However.Figure 10.1 The right people are central to business success. Julie Cain. ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. for many small to medium organisations. preferring to work longer hours and manage with the support of family and friends. there comes a time when it becomes necessary to employ staff. The importance of good management of staff The Business Enterprise Centre (BEC) argues that choosing and keeping the right people is central to the successful functioning of any business. adheres to the legislative requirements. It is important that efficient and trustworthy employees are retained by the business. as the owner or manager simply cannot complete all of the tasks required. One study by Tim Bartrim of the BEC found that small businesses in Australia are generally less likely to adopt ‘formal’ human resource management (HRM) practices. medium and large organisations have similar views regarding human resources. . Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. many small businesses will outsource some functions or decide to remain a microbusiness. Costs associated with advertising. Many small business owners may be reluctant to employ a person. managers in small firms are less likely to receive training in employee relations and are unlikely to develop formal strategies. The replacement cost associated with hiring the wrong person can be huge. While management in small. Instead. and values the employees. If a business or organisation clearly defines what is required. Losing good staff may also mean the loss of customers. For a microbusiness or small business. It then becomes vital that the ‘right’ person is employed. It is critical for all small businesses to employ staff who are able to assist in the success of the business. believing these employees would not have the same commitment to the business as the owner/s would. including recruitment and selection procedures. then the employment of staff should benefit all and allow the business to continue to expand and prosper. the decision to employ staff is a major one. 162 and performance evaluation practices. written occupational health and safety (OH&S) guidelines. checking with referees and induction costs and time can all add up to become an expensive and timeconsuming exercise. interviews. Their advice is to treat staff as human beings and this will usually translate into a profitable and efficient use of employees’ skills and time. Many are reluctant to employ anyone.

Questions 1 Develop a brief job description for the office assistant position. abilities. Job analysis and determining staffing needs Once an organisation has determined how many employees it requires so it can operate more effectively and efficiently. 2 List the skills and qualifications the new employee should possess. CHAP TER 1 0 MANAGEMENT OF STAFF IN SMALL BUSINESS 163 ISBN: 9781107665910 © Gillian Somers. and a number of issues and concerns need to be addressed. Julie Cain. As part of this process a business should carry out a job analysis. which allows the business to determine what tasks a new employee will need to perform and what skills they will need to carry out these tasks.1 Read the scenario and answer the questions that follow. including prior sales experience. therefore requiring them to become multiskilled. need to employ another person to manage the office while they are onsite. The stages or steps involved in employing staff include the following. including its location on the organisational chart job specification detailed listing of the personal skills and characteristics required to perform a particular job ACTIVITY 10. communication skills and perhaps a formal qualification in training or information technology. A small business owner or manager may simply draw up a checklist of ‘essential’ and ‘desirable’ skills for a position. In some smaller businesses one employee may in fact need to perform a range of tasks.Types of recruitment methods and selection processes Employing staff is an important decision for a small business. excellent computer skills. A job analysis provides information needed to develop both the job description and job specification. The company has won a new contract to install security systems in a chain of youth hostels. job analysis a systematic process of gathering information relating to a job being performed job description a written description of a job’s title. The two owners. answer phone enquiries and to make sure all financial records are up to date. A job specification is a statement of the skills. working conditions and other requirements for a particular job. The main considerations are that the actual position and requirements have been investigated before the position is advertised. . Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. for example. duties and responsibilities. A job description is usually a statement of duties. managing accounts of regular clients. education and previous experience required by a person to complete a particular job. Thai and Huang. might include duties such as selling to the public. organising repairs and perhaps training customers to use the product. Thompson Electronics is a small business that employs one person. A job description for a computer salesperson. it will be necessary to determine what type of employees are needed. The computer salesperson would require a number of skills and abilities.

or on the internet on a job search website. as well as in newspapers. the process of finding suitable applicants for a job.1 Internal versus external recruitment Types of recruitment and selection processes Advantages of internal recruitment Advantages of external recruitment s -ORALEMAYBEINCREASED. sæ advertisements – placed in major or local newspapers. it may be of benefit in the long term as the most suitable and qualified person can be found.2 Advertise positions on the internet. you will often see a recruitment notice in the window of a small business. personal contacts and ‘word of mouth’ – managers can seek out people who they already know and believe Figure 10. then the business should gain an employee with the a business can recruit staff. This is often and newsletters.sæ noticeboards – a job vacancy notice may be displayed on an internal noticeboard inviting existing employees to apply for a position. Externally. used by small businesses. Most small businesses If the job needs are clear and the correct the best qualified pool will need to recruit from outside the organisation of applicants rather than internally. There are a number of ways method of recruitment has been used. sæ previous applicants – if an organisation has advertised positions in the past. sæ networking. Although this may be expensive. sæ employment agencies – used if the manager/owner believes they do not have the expertise or time to recruit effectively. Table 10. Specialist magazines or websites may also lead to suitable applicants. it may have details of previous applicants who possess Recruitment means attempting to find a pool of recruitment the skills and experience for the new job. These include: required skills and attributes (also known as the ‘selection criteria’) for a job. magazines would be suitable for the job.

ASEMPLOYEESHAVEA CHANCEOFPROMOTION s -OREPOTENTIALEMPLOYEESAREAVAILABLE s )NDIVIDUALSSKILLSANDTALENTSAREALREADYKNOWN s /FFERSACAREERPATHFOREMPLOYEES s #OSTSOFRECRUITINGSTAFFAREUSUALLYREDUCED s 4RAININGCOSTSMAYBEREDUCEDASTHECANDIDATES ALREADYHAVETHENECESSARYSKILLS s -AYBEAGOODWAYTOINTRODUCENEWIDEASAND PRACTICESINTOANORGANISATION s %MPLOYEESAREALREADYPARTOFTHEORGANISATION ANDKNOWWHATISEXPECTED Disadvantages of internal recruitment Disadvantages of external recruitment s 0OORATTITUDESANDWORKHABITSMAYCONTINUE s #OSTSOFRECRUITINGMAYBEHIGHER s 4RAININGCOSTSMAYINCREASE s -ORALEAMONGEXISTINGSTAFFMAYBELOWERED s 4HEREMAYBEALIMITEDNUMBEROFAPPLICANTS s /UTSIDEEMPLOYEESMAYNOTlTINWITHTHE ORGANISATION s 0ERSONMAYPROVEUNSUITABLEFORTHEROLE 164 ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. . Julie Cain. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party.

However. sæ Applications were not screened properly. it is usually better to have a number of people involved in the selection process as one individual’s opinion may be clouded by bias or preconceived ideas. he or she will usually conduct the interview and make the final selection of the employee. There are usually four steps: 1 Screen the applicants and short-list the most suitable ones. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. Stage 2: Interview short-listed applicants Figure 10. Otherwise. It is important.ACTIVITY 10. including: sæ The panel was not clear about the actual job. . If the business consists of only one person. Those involved in the short-listing process should be the members of the selection panel. Although it may be difficult in some smaller businesses. CHAP TER 1 0 MANAGEMENT OF STAFF IN SMALL BUSINESS selection process undertaken by an organisation to decide whether to make a job offer to a candidate short-listing working through the applicants and making sure that the only ones interviewed are those who meet the selection criteria selection criteria predetermined criteria created to assist interviewers in selecting the best applicant for a job interview a formal meeting enabling one or more persons to question and evaluate another person. sæ The questions asked were not suitable or were asked in an inappropriate manner. This may occur for a number of reasons. much time and money is wasted in interviewing too many applicants or interviewing unsuitable candidates. a selection device used to gather information about a job applicant 165 ISBN: 9781107665910 © Gillian Somers. 2 Design a job advertisement for the position of office assistant for inclusion in a newspaper. 1 Outline the methods that Thai and Huang could use to find a person for the position.3 The right employee has skills to match the business’s needs. background checks were not carried out and referees were not contacted.1. that the interview panel is well prepared as interviews can sometimes go wrong. race or religion of a candidate. 2 Interview the short-listed applicants. 3 Complete background checks. 4 Advise all applicants on the outcome of the interview process. and some larger organisations incorporate testing as part of the process. Methods of selecting staff Staff selection involves choosing the most suitable person for the job from the pool of applicants. as they are not deemed relevant to a candidate’s ability to complete a job. There are a number of Acts of parliament and legislation that also affect the types of questions that can be asked of an applicant. Julie Cain. Equal opportunity and anti-discrimination legislation makes it illegal to ask questions relating to the sex (gender). Interviews are an important part of the selection process. therefore.2 Refer back to the job description developed for Thompson Electronics in activity 10. marital status. a small business will usually rely on the interview as the means of selection. Stage 1: Screen and short-list applicants Short-listing means to work through the applicants and make sure that the only ones interviewed are those who meet the selection criteria.

for example. when a decision will be made. read the applications and short-listed candidates. STEP 2 Questions have been developed in terms of the selection criteria and in accordance with legislation such as equal opportunities. STEP 7 The most suitable person should be chosen and informed. STEP 5 At the completion of the interview the applicant should walk away with all relevant information and be clear about the next stage. the panel should discuss their notes and impressions. Applicants can be ranked against the selection criteria. Open–ended questions and ‘what if’ scenarios may be used. Julie Cain. Figure 10. . STEP 4 The person being interviewed is put at ease and the panel asks questions to draw out information from the applicants. STEP 3 A suitable location has been chosen and there are no interruptions or distractions. STEP 6 Once the interview is over. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party.4 Requirements for a successful interview 166 ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers.STEP 1 The interview panel has met together before the interviews.

PowerPoint. compile a list of those questions that were ‘good’ or appropriate.5 Successful job interview ACTIVITY 10. Send a résumé to Sharni and Kelsey c/.3 In groups of three or four. with each group presenting their good and bad interviews.4 Read the following job advertisement for an administrative assistant at Anderson’s Osteopathy Clinic and answer the questions that follow. 2 As a class.ACTIVITY 10. 1 Role-play the interviews. design six questions you would ask at an interview for the administrative assistant position. supplies and keeping the consulting rooms clean and well stocked will also be a key role. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. develop a set of six ‘good’ and six ‘bad’ interview questions for the position of customer service officer. The successful applicant will be responsible for answering phones. MYOB and email s Working knowledge of a range of software packages. Ordering stationery. A person is required for a busy osteopathy clinic in the eastern suburbs. 2 Why is it important to plan before an interview? 3 Why should selection criteria be used as a guide for questions? CHAP TER 1 0 MANAGEMENT OF STAFF IN SMALL BUSINESS 167 ISBN: 9781107665910 © Gillian Somers.Anderson’s Osteopathy Clinic PO Box 977 Warrandyte VIC 3113 Closing date: 12 July 2012 skills Questions 1 Using the advertisement and any other relevant information. taking bookings and providing written information about the practice and treatments available. greeting patients. Publisher and Excel s An eye for detail s Sound organisational skills s Experience working in a health industry environment preferred. including Microsoft Word. Julie Cain. . The successful applicant will have the following skills and qualifications: s Excellent communication and interpersonal s Knowledge of databases. 3 What were the characteristics of these ‘good’ questions? Figure 10.

employment arrangements There are a number of different types of employment arrangements. This could provide a small business with a suitable applicant without the time and expense of going through the recruitment process from scratch. Sometimes the appointment is subject to a medical check-up. 168 Stage 4: The job offer Once a suitable applicant has been chosen. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. 38 hours a week. in fact. There have been examples of applicants lying about their experience or backgrounds. . A business needs to ensure that it has decided on what type of employment arrangements are required for the business to use staff efficiently.6 Background checks are vital for choosing the right candidate for a job. such as personality and IQ tests. part of the selection process reference check investigation that looks into a job candidate’s background. that person should be contacted.Stage 3: Perform background and reference checks referee a person who can be contacted to comment on the skills and qualities of a potential employee. For one employee it may mean they work two or three days ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. Full-time positions are usually permanent and employees have entitlements such as sick leave. the reference check may be an important factor in making the final selection. One large organisation. Applicants have been known to exaggerate or falsify their résumé. and distinctions between. The nature of the part-time arrangement is agreed between the employer and employee. e. contact can be made with previous employers to verify work details or tertiary institutions to check qualifications contract of employment a legally binding agreement between an employee and employer that sets out the terms and conditions of the job full-time position employees are employed usually for five days a week. Unsuccessful applications may be kept on file for a future job or if the successful applicant does not take up the position.g. These include the following: sæ A full-time position is usually a five-day. This process may also be useful as it can go beyond the information covered on a résumé or in an interview. Unsuccessful applicants should also be notified of the outcome of their interview. A reference check may be as simple as making a few phone calls to check with a previous employer or a named referee. of normal working hours Figure 10. If the choice between candidates is a difficult one. It should then be followed up with a formal letter and a contract of employment supplied. these positions are normally permanent Even if the business is small. Employment arrangements Once a job candidate has been offered a position. for example. employed a convicted armed robber in their mail room (where sensitive mail and cheques were processed). Reasons for. 38-hour week position. their salary and conditions will be established. it should always make time to check the referees and background of potential employees. Another organisation employed a person in a senior position on the strength of their financial management. been bankrupted twice. This is initially by phone and should be done as soon as possible. this is often done by letter. only to find out a few months later that the person had falsified tertiary qualifications and had. Part-time work an employee works a fraction. Julie Cain. Some organisations also test applicants.5. or it may simply be a test on filing or word processing for an office administration role. 0. holiday leave and long-service leave. sæ Part-time work is a growing type of employment arrangement. This may take a number of forms.

. often want parttime work rather than a full-time position. There is little job security for casual workers. In a small business. Usually these positions are permanent and employees have pro rata entitlements to holidays. including dress codes. Induction of staff Once a person has accepted a job offer. Casual employees provide an organisation with a great deal of flexibility. This form of employment allows for flexibility. and policies and procedures. and its culture sæ a mentor or ‘buddy’ system – an experienced employee or supervisor is paired up with the new employee to help them learn the job processes and procedures sæ on-the-job training – a new employee may be given a training program and the appropriate skills in the workplace. sæ Many sectors of the economy.m. Part-time and casual positions offer more flexibility for the business. sick leave and long-service leave. do not attract any leave entitlements induction the process of introducing new workers to their place of work. at Christmas) may need extra staff. the way the business operates. Many women with small children. it is important that some form of induction program is in place. Full-time employees maintain continuity of a job and service and allow the owner or manager some opportunity to leave the business for a holiday secure in the knowledge that an employee is able to keep the business running. as it has reliable employees who know the operation of the business and is also able to reduce the costs and expenses of wages. for another they may only work between 10 a. such as the retail sector.g. The business will also benefit. these employees do not receive sick leave or paid holidays. Maintaining employees in the business It is recommended that newly appointed staff receive induction training to help them settle into their new role. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. corporate culture. there is usually a person overseeing the induction program. While the rate of pay is usually higher for casuals. Reasons for employment arrangements A small business manager or owner needs to determine the type of employment arrangements that suit its particular circumstances. each day. Julie Cain. the more quickly a new employee will settle into the business. The better the early induction is. occupational health and safety policies and procedures. their job role. This helps to boost staff morale. CHAP TER 1 0 MANAGEMENT OF STAFF IN SMALL BUSINESS casual employees employed on a shortterm or irregular basis. supervisors. particularly if there is a possibility of flexible hours. In a larger business. as it makes employees feel that their contributions are valued. the induction program may be far less formal and could take the form of: sæ a formal training program – a number of new employees may attend training days and receive information on the role. their colleagues. The main purpose of induction is to ensure that the new employee understands the business.per week. have a large number of casual employees. and 3 p. To make sure that an employee fits into the organisation. Part-time work may suit the business and also employees. management and corporate culture training the process of providing an employee with the knowledge of specific skills needed to do a job 169 ISBN: 9781107665910 © Gillian Somers.m. and how to use the technology and software programs required for the business. as it may increase or reduce the number of employees working at different times of the year to suit changes in business conditions. its history. for example. Casual employment also suits a small business that at certain times of the year (e. as some people do not want full-time work and it may allow the business more flexibility. it is imperative that the organisation makes the employee feel valued. Businesses with high staff retention also tend to offer training for both personal and professional development.

Keeping them motivated and retained in a competitive job market is crucial to the ongoing health and success of your business.5 Read the article and answer the questions that follow. Not only does high staff turnover result in a significant direct cost to your business. the new employee is likely to leave within the first three months. on staff birthdays s complimentary items such as parking. gym membership or cinema/sporting tickets s subsidised staff cafeterias 170 working hours. . and ideally. financial but they should be substantial enough Benefits Benefits should complement remuneration and salary rather than be used as a substitute for good pay. boost the productivity and morale of your workforce as well as to motivate and retain your valued employees.g. ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers.A follow-up interview or some type of formal contact should also be completed a few months after the employee has started. Julie Cain. ACTIVITY 10. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. event tickets or spa treatments to reward effort. Incentives to motivate your staff and reflect the effort and time involved in accomplishing the objective/s. Incentives can include: s offering top performing staff profit-sharing opportunities or shares in your company s praising and recognising staff for their effort and achievements s expressing genuine thanks for a job well done s offering promotions. personalised Christmas and birthday gifts. study leave or childcare assistance s staff discounts on company products/services s complimentary staff massages or yoga classes s yearly offsite team-building experiences s high-quality. s work–life balance benefits such as flexible Staff benefits and incentives Staff incentives can be financial or non- Implementing effective and meaningful staff benefits and incentives can help you to attract high-quality staff. It may also assist in development of the next lot of training or future induction programs. If the induction process is not undertaken or is inadequate. working from home. Some simple non-financial benefits and perks to consider include: s additional leave days. Offering incentives can also be a useful means of retaining staff. Motivating and retaining your staff One of the keys to growing any successful business is retaining quality employees. e. team and company successes s offering non-financial bonuses such as weekends away. they should be personalised to individual staff members to ensure that they are genuinely beneficial and meaningful. This provides another opportunity for the employee to be supported and gives the new employee a chance to discuss what information is required. inconsistent and non-cohesive work culture. but it can also have a negative ongoing effect by fostering an unstable. salary increases or lump-sum bonuses based on performance s celebrating individual.

Appraisals Setting clear. Offering a structured staff development program and ongoing opportunities for personal and professional growth will ensure increased skill-levels. Performance objectives provide staff with focus and motivation as well as a sense of accomplishment and morale when objectives are met or exceeded.htm Questions 1 Why is it important for small businesses to attract and keep skilled and motivated employees? 2 Identify two staff benefits and two incentives small business owners could implement. and identify any particular strengths that can should be a two-way process. Some of the ways that you can motivate and retain staff through development opportunities Communication in any successful business include: s one-on-one mentoring such as weekly mentoring sessions with more senior staff members s structured performance management s opportunities for increased responsibility and more challenging roles based on performance s new or additional work tasks based on employees’ interests s formal training and skills development s subsidising further study s regular reviews of staff development aims. their work efforts will be more focused and effective. It’s important to clearly communicate your business objectives and your employees’ role in achieving them.au/factsheet/11919-motivating-and-retaining-your-staff.Staff development Communication Many employees identify opportunities for professional development in the workplace as a key contributor to their satisfaction levels at work. If your staff have a clear understanding of how their individual contribution fits into the big picture of your business.com. They also enable you be leveraged or weaknesses that need to be addressed. capabilities and expertise of the staff and will also promote high staff retention and ultimately the success and growth of the business in the long term. Source: Adapted from www. 3 Discuss how these could be used to improve productivity and business performance. when they feel that their employers listen to Communication and appraisals to measure the performance of your staff Successful communication and consultation between you and your staff is critical to your business’s success. CHAP TER 1 0 MANAGEMENT OF STAFF IN SMALL BUSINESS 171 ISBN: 9781107665910 © Gillian Somers. .smallbusinesshq. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. but your staff can also be a valuable source of ideas for improvement and growth. Not only do employees experience a greater degree of job satisfaction and morale and value their opinion. You should also encourage your staff to express their own views and suggestions and provide feedback on processes and management. Julie Cain. measurable performance objectives for your staff and reviewing them at regular intervals is a crucial factor in promoting and retaining high-quality staff.

Training programs Many businesses also ensure that staff are kept up to date with changes in the job requirements. While this is an added cost. Her work colleague Yasmin has told her that she must do it. is not sure where the stationery supplies are kept. there are many benefits from a relevant and effective training program.7 A good induction program is very important for retaining employees. These include: sæ improved skill levels of employees sæ greater potential for improved productivity sæ more motivated workplace. Julie Cain. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. 2 Design a checklist or pamphlet for a new student starting in VCE at your school.8 Having the right employees in the right positions is important. c There are new training programs starting over the next three months. but she is not sure about the procedure to follow.Figure 10.6 1 How could the following situations be handled in the workplace? a A new employee. 172 ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. ACTIVITY 10. Figure 10. . as employees may have a more varied and interesting job and better promotion opportunities. It is part of his job to order supplies. b Mariette is not sure whether a task is part of her job. Abdul. Megan would like to attend. Training programs should be in place and should attempt to identify any gaps in employee skills or knowledge. as staff feel valued sæ reduction in staff turnover.

Julie Cain.Separation of employees from the organisation There are occasions when employees separate from the business. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. with both employer and employees being represented on the committee. Figure 10.9 Separation of employees from the organisation CHAP TER 1 0 MANAGEMENT OF STAFF IN SMALL BUSINESS retirement voluntary termination where an employee decides to leave the paid workforce voluntary separation occurs when an employee has made a decision to withdraw from the workplace dismissal termination of an employment contract due to incompetence or indiscipline retrenchment the expression used to describe what occurs to an employee whose employment is terminated by reason of his or her job becoming redundant involuntary separation occurs when an employee is retrenched or dismissed from an organisation exit interview an interview to find out why an employee is leaving Occupational Health and Safety Act 2004 framework for providing a safe and healthy work environment 173 ISBN: 9781107665910 © Gillian Somers. Overview of relevant legislation termination ending of the employment relationship Business owners and managers need to comply with a range of legislation covering areas such as occupational health and safety requirements. The Act also sets out the methods to resolve health and safety issues. These include cooperation with employers in the area of occupational health and safety (OH&S) and to not wilfully place themselves or other employees at risk. Other employer obligations include keeping checks on the health and safety of employees and on conditions in the workplace. If an employee resigns. This may arise due to the position no longer being available or because the employee’s performance is unsatisfactory. resignation voluntary termination that occurs when an employee leaves the workplace. If trends or patterns emerge. It is important that employers are aware of their obligations to provide a safe and healthy workplace. equal opportunity. An OH&S representative can inspect the workplace and a health and safety committee should be established. Penalties for breaches of the Occupational Health and Safety Act 2004 have been increased. This includes maintaining equipment. Employees also have a number of obligations. taxation obligations. superannuation and conditions. The Victorian Government amended the Act to increase the penalties for workplace accidents and directors and owners can now be given both gaol sentences and fines. sæ Resignation and retirement are both voluntary separations as the employee has made a decision to withdraw from the workforce or to gain another position or may have decided to pursue further education or training. as workplace safety is a high priority. Penalties for a breach of these obligations can be substantial. as well as employee wages. leave. providing facilities for employees and providing relevant information and training. . it is often good practice to conduct an exit interview with the employee to find out why they are leaving. Employees may leave voluntarily or may be subject to an involuntary termination due to dismissal or retrenchment. the business can try to take steps to stop this from occurring in the future. usually to go to another job Occupational health and safety The Victorian Occupational Health and Safety Act 2004 outlines the employer’s responsibility to provide a safe workplace for employees. If a large number of employees are leaving. sæ Dismissal and retrenchment are involuntary separations from the organisation. then a business should try to establish why this is happening.

features. 4 Sam lifted a heavy package from a truck by himself and hurt his back. Katie did not wear the correct clothing and she had not been given any training. . She had to collect some cleaning chemicals for a process. religion. physical to this legislation. The role of management in small business is particularly important. 2 Katie started work at a chemical manufacturing company. impairment/disability. may be legally responsible for discrimination and harassment that occurs in the workplace or in connection with a person’s employment unless it can be shown that ‘all reasonable steps’ have been taken to reduce this liability. Under state and federal legislation. The business provides ear protection. however. Julie Cain. mean that employers must actively implement precautionary measures to minimise the risk of discrimination and harassment occurring. marital status. She has had problems with her back and neck. Her computer sits on a table near a window. 3 Sally works as a receptionist in an office. it is illegal to discriminate on the basis of gender. He had access to a lifting machine. The working relationship between management and their employees tends ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. race or nationality 174 Under federal and state equal employment opportunity (EEO) legislation and antidiscrimination legislation.7 Study the following scenarios and determine whether the organisation is at fault in terms of occupational health and safety regulations. regardless of their size. race. pregnancy. He works with cutting equipment. an employer. sex. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. 1 Frank has suffered a hearing loss. Rather. Equal employment opportunities equal employment opportunity (EEO) providing people with a fair and equitable opportunity to succeed without any form of discrimination based on age. particularly when questioning and forming opinions on the suitability of an applicant.10 Employers must provide a safe and healthy workplace.ACTIVITY 10. Give reasons for your answers. lawful sexual activity. This is not defined in the legislation because what is reasonable for a large corporation may not be reasonable for a small business. parental status and industrial activity. All staff were trained in its use. Businesses must take all reasonable steps to make sure that their workplace provides for equal employment opportunities. age. It does. they are worked out on a case-by-case basis. but Frank did not wear them. It is important that all businesses ensure that their selection and recruitment policies adhere Figure 10.

such as equal employment opportunity legislation. have a written policy on equal opportunity and harassment. This may include allowing staff to have time to work with local communities. Generic models of policies on areas such as harassment can be adapted. It also means that managers need to demonstrate effective leadership by setting an example with their own behaviour and promoting a climate of mutual respect in the workplace. particularly sexual harassment. Ethical employment practices can include the following: sæ Clear role and job descriptions allow employees to complete the job they were recruited to do. It is recommended that small businesses. sæ Employees are paid the correct amount. This puts them in a good position to take direct action if they observe or are otherwise alerted to harassment or discrimination. This would mean the best applicant is selected for the job. Julie Cain. sæ Policies relating to bullying. promotion and separation from the organisation are all fully documented and adhered to. While many small businesses may find it difficult to recruit and retain staff. Policies need to be in place and known by all employees. . Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. Ethical and socially responsible management of employment practices Employees are extremely important for the smooth operation of a business. Ethical and socially responsible recruitment practices will usually protect a business and ensure positive employee relationships. unmanageable tasks. sæ All relevant legislation. while also ensuring that no discrimination or bias occurred during the selection process. not be imposed upon to complete additional. harassment. Small businesses that are seen as socially responsible will often find that they attract staff due to their reputation and also staff will tend to be more loyal and motivated. is followed. based on their competency. loyal and well-motivated employees are an asset for any business. CHAP TER 1 0 MANAGEMENT OF STAFF IN SMALL BUSINESS 175 ISBN: 9781107665910 © Gillian Somers. particularly those nearing 20 employees.to be close and management is usually aware of what is going on in the business. Small businesses should also try to incorporate socially responsible practices into their management of staff. which will then result in a lower level of staff turnover. sponsor what the staff perceive as worthwhile causes and invest superannuation funds into ‘green’ or socially responsible investment companies. sæ Flexibility of work practices and hours will often allow employees to manage to balance their home and work life. and conditions adhere to agreements and awards that are relevant to the industry or workplace.

1 Define the following terms and then use a Induction b Résumé c Job analysis d Motivation. UÊ Legislative requirements an employer must adhere to include: UÊ Staff can be recruited through noticeboards. UÊ There are two ways an employee can separate from an organisation: UÊ The four parts of the staff selection process are: – – – – screening and short-listing applicants interviewing completing background checks advising all applicants of the outcome for a position. networking and previous applicants. – occupational health and safety legislation – equal employment opportunity legislation. These include full-time permanent. 5 List two advantages and two disadvantages of external recruitment. – voluntary separation by resignation or retirement – involuntary separation through dismissal or retrenchment. and casual. 4 List two advantages and two disadvantages of internal recruitment. UÊ Small businesses should try to adhere to socially responsible and ethical practices when managing staff. . Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. CHAPTER SUMMARY QUESTIONS UÊ It is important that new employees are inducted into the business. UÊ There are a number of employment arrangements.CHAPTER SUMMARY UÊ It can be a costly exercise for a small business if the wrong person is employed. the use of a each in a sentence to demonstrate your understanding. 8 Why is it important to conduct an exit interview when an employee leaves an organisation? How can this information be used for future staffing needs? ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. they may leave the organisation. This may involve a formal training program or a mentor or buddy system. UÊ A job description is a statement of the duties. 2 Why is it important for an organisation to be clear about a job description and the job requirements before advertising a position? 3 Describe the methods that can be used to recruit a new employee. Julie Cain. UÊ Employees can be recruited from external and internal sources. It allows the business to determine what skills are needed for a position. UÊ The interview process should include questions (both open and closed) that are based on the selection criteria. employment agencies. 6 Why is it important for an employee to be interviewed by a number of people rather than just one? 7 Outline why it is important for a small business to adhere to legislative requirements relating to the management of staff. advertising. part-time permanent. working conditions and other requirements of a particular job. UÊ The first part of the employment cycle is a job analysis. 176 panel of interviewers where possible. and background and reference checks. employment cycle The entire process from human resource planning to termination of the employment contract UÊ If employees are not inducted correctly. therefore it is important that steps are taken to employ the right person for the position.

Wanda took the position. The person would be responsible for ordering supplies. had expanded enough to employ a person to coordinate the 20 staff who work across three salons. Three weeks later. develop a series of questions that could be used in a job interview. Reference checks were not done.9 Obtain a job description and selection criteria for a position. 3 Outline any other possible tests or procedures that could have been carried out as part of the selection process. she left the job. Using the job description and selection criteria.com. staff rosters and client appointments. she found it difficult coping with the position. the other two were interviewed. UÊ typing skills 2 Compile six questions that could be asked in UÊ good communication skills the job interview. Exquisite Hair Styles.au. CHAP TER 1 0 MANAGEMENT OF STAFF IN SMALL BUSINESS 177 ISBN: 9781107665910 © Gillian Somers. Cassie decided not to re-advertise the position and gave it to her cousin Sarah. arrived the first day and was not clear about what the job entailed. Even though Sarah was enthusiastic. These may be obtained by contacting an agency about a job vacancy or investigating a website such as www.seek. she felt it was a bit awkward to retrench her. The job description outlined the following skills: manager and receptionist. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. The interviews were carried out by Kristy. even though she did not have any recent relevant experience. the senior stylist. Lauren decided to advertise the job and three people applied. Cassie was disappointed with her performance. Cassie got a job description for a receptionist from one of her friends. One was not suitable. UÊ basic computer skills. 4 Describe some of the problems or issues that arose during the selection process. Julie Cain. . however. UÊ good phone manner 1 Update the job description for the salon EXTENSION QUESTION Cassie and Lauren decided that their business. and after the interviews it was decided that Wanda would be offered the position. 5 Outline an appropriate induction policy that Exquisite Hair Styles could introduce.

Julie Cain.11 INFORMATION AND TECHNOLOGIES IN WHAT’S AHEAD Ethical and socially responsible management of ICT ICT in small business Implications of the use of technology and e-commerce Strategies to select Software Security of information Costs and benefits Hardware Use of ICT ISBN: 9781107665910 © Gillian Somers. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. .

presentation software. Technological advances have occurred at a rapid rate. SMS and blogs or emerging technologies – uses of e-commerce – implications of the use of available technology and e-commerce. . 179 ISBN: 9781107665910 © Gillian Somers. such as databases. The growing power of personal computers and laptops. podcasts. AREA OF STUDY COMMUNICATION SMALL BUSINESS 3 wireless internet. Computers and technology have become an important aspect of business life and daily operations. the development of specialist software. iPods and iPhones and the growth of e-commerce have led to a growing reliance on information and communication technologies (ICT) in all facets of life. internet. spreadsheets. such as benefits and costs to the small business – reasons for. It took 13 years for television to reach the level of penetration in homes and offices achieved by the personal computer in just four years. ensuring the security of technology and information – ethical and socially responsible management of ICT in small business. the new batch of mobile phones. increased access to the internet. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. Julie Cain.DAY-TO-DAY OPERATIONS KEY KNOWLEDGE Students will learn the following about day-to-day operations: – strategies to select appropriate hardware and software to meet small business needs – possible use of available technologies. and methods of.

the business needs to be clear about what the software is required to do sæ system specification – what hardware is required? Does the computer need to be networked with others? What other devices are required? Figure 11. free upgrades. operators of similar businesses. In addition 50. the purpose and the reasons for the investment in this type of ICT sæ software specification – there are many types of software packages and programs available. and publications of consumer or industry associations sæ leasing rather than purchasing hardware.3 per cent of small to medium businesses had internet access and 95. To ensure that the best and most suitable technology is chosen. According to the Australian Bureau of Statistics (ABS) (see www. . Businesses are expected to increasingly adopt more advanced broadband applications that have traditionally been restricted to larger companies. sæ purchasing a software program that allows for a free trial period.1 Mobile phones are an ever-present ICT in business. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party.Strategies to select appropriate hardware and software to meet small business needs World Wide Web (WWW) communications system that allows access to information through a computer with a modem Small businesses need to use ICT as part of their day-to-day business operations. the manager or owner must establish strategies to select suitable and viable hardware and software. articles on the internet. 92. it is important to divide the technology into its components. When examining the use of technology.gov.5 per cent of small businesses used the World Wide Web (WWW) to make orders and 28. abs. even for the smallest business. In 2007–08. Information technology is now essential and not an option. such as retailers of computers.6 per cent received orders via the internet. Strategies may include: sæ gathering information from a range of sources. the percentage of small to medium businesses using ICT has increased. Leasing agreements may cover repairs and allow a small business to regularly upgrade hardware and software. 180 ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers.4 per cent used broadband in their business activities. Julie Cain. technical support or free training. The areas that should be investigated include: sæ identification of the application.au).

laptop computers also allow employees to work from a range of locations. . Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. laptops. Computer hardware Businesses have increased access to technologies and ICT has become less expensive.Possible use of available technologies The range of information and communication technologies is daunting for many business owners and it is important that a business is clear about what it is going to use ICT for. Businesses are now able to lease or purchase technology and incorporate it into day-to-day operations. The ‘office’ is now portable. 2 Choose one type of technology and design a poster outlining the benefits of using this technology in a small business.1 1 In a small group.2 New technologies in business CH APT E R 11 INFORMATION AND COMMUNICATION TECHNOLOGIES IN SMALL BUSINESS 181 ISBN: 9781107665910 © Gillian Somers. b How have these types of technology changed in the last five years? c Describe how a small to medium business could use these technologies. Computers. storage devices Computers have become smaller and at the same time much more powerful. The amount of information that can be stored on devices such as USB memory sticks (flash drives). list four different types of technology available for businesses. external hard drives and CDs/ DVDs has also changed the way businesses can store. ACTIVITY 11. Julie Cain. transport and exchange data. mobile phones are smaller and have many more applications. a How have these technologies changed? For example. Increasingly. New hardware includes many of the devices described below. Computers within the office or business can be networked to printers and the internet. Figure 11.

GPS (global positioning systems) and wireless handheld devices such as BlackBerry (a smart-phone with video. they also allow small businesses to easily contact customers and gather and store information. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. iPhones. wireless handheld devices and PDAs (Personal Digital Assistants) are also used to manage and store information in an electronic form. iPads. clients.3 Multifunction devices help save time. means that employees and owners have instant access to communication in any place. and presenting information to. manipulated and further enhanced. Personal computerised diaries. Meetings. Interactive whiteboards and electronic whiteboards Electronic whiteboards may be used by businesses to develop ideas. plans and as a brainstorming activity. A GPS may be a vital tool for employees and owners who spend a great deal of time visiting clients and customers. faxes. Mobile phones have become smaller and have many more features. The interactive whiteboard further enhances the features of the electronic whiteboard by allowing the data and information to be changed. Many printers are now also multifunction devices that are a fax. Scanners. PDAs. customers and employees. access to the internet. Printers and photocopiers can now produce high-quality brochures and catalogues. scanned in and then printed. Data projectors Presentations by businesses have become increasingly important as a means of communicating with. printers and photocopiers Printers and photocopiers have added features that allow small businesses to customise and produce documents in ways they were not able to in the past. Julie Cain.Modems and wireless networks Many businesses now have wireless networks so that the internet can be accessed by computers from a number of locations within their premises without the need for cables. Further developments in broadband have also meant that businesses can access the internet and emails via a USB device or internet card outside the office. email and the ability to download and store materials. The ability to save the information to the computer and then to print off the screen or the saved file allows for great freedom of operations. including cameras. photocopier and scanner all in one. . software and services to connect to the internet). While these are used by people in their daily lives. information and pictures can be 182 Figure 11. Mobile phones and similar devices The increasing use of mobile phones. These advances have allowed businesses to reduce their costs and save time. appointments and dates can all be stored quickly and conveniently.

The data is presented in reports or queries. Spreadsheets such as Microsoft Excel also have other functions that can be useful for a business. One wellknown database application is Microsoft Access. a florist tracking types of flowers ordered) to use a computerised database instead. Word processing Nearly everyone uses a word processing package of some sort in the course of their employment. A pictorial representation of financial information can often make it easier for non-accountants to understand. leisure and education.Software packages to meet business needs The purchase. It is a structure that contains information. computerisation is essential. generally in a computer and managed by a database management system. set-up and training costs for some software packages that are required in a modern business can be high. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. such as ‘What would happen if prices were increased by 5 per cent’? This would allow the business (based on researched assumptions) to determine whether profit levels would increase and by how much. for example. such as totals. It can be set up with formulas to allow for the automatic calculation of figures. Information in a database can be reorganised and presented in a number of ways. The information from spreadsheets can also be transformed into pie charts and graphs. Word processing packages have allowed small businesses to complete their own documents and records as required. Spreadsheets Spreadsheets are another widespread business application.g. It allows businesses that may usually keep records in paper form (e. Julie Cain.4 Example of a customer database using Microsoft Access CH APT E R 11 INFORMATION AND COMMUNICATION TECHNOLOGIES IN SMALL BUSINESS 183 ISBN: 9781107665910 © Gillian Somers. Databases A database is described as a comprehensive collection of related data organised for convenient access. allows a business to quickly calculate and change data on a range of questions or scenarios. The ‘What If’ function. which is usually stored and presented in rows or columns. reducing the likelihood of human error. however. The use of averages. similar to a spreadsheet. . Surname First name Title Street number Street name Suburb Anderson Greg Mr 100 High Street Kew Brown Toni Ms 33 Weston Road Collins Trevor Mr 99 Davies Melinda Mrs Knight Kelvin Townsend Andrea State Post Code Customer Victoria 3101 And Watsonia Victoria 3087 Bro Carie Court Somers Victoria 3194 Col 338 Dorking Road Box Hill Victoria 3129 Dav Mr 56 Ester Circuit Eltham Victoria 3095 Kni Mrs 9 Ratray Road Montmorencey Victoria 3094 Tow Figure 11. minimum and maximum values and ‘What If’ scenarios can assist in the calculation of pricing strategies and business planning. A spreadsheet allows a small business to keep its financial records electronically. the time saved makes it cost-effective. For the vast majority of small businesses.

It is now assumed that all businesses have a website. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. Other specialist software useful in business includes Computer Aided Design (CAD) software. tables. PowerPoint allows a visual representation to accompany an oral presentation. real estate agents and law firms. medical practices. data. DESKTOP PUBLISHING Specialist business software There are a number of different specialist software packages available for small businesses to use. 98 per cent of Australian businesses had internet access with broadband as the main type of connection in 2008–09 (see www. . software packages for small businesses are MYOB (Mind Your Own Business) and QuickBooks.gov. there are specialist programs for hotels. Information. Nearly all households and businesses – large and small – have access to the internet and it is very much a way of life.au). movies and pictures can also be added to these presentations. Julie Cain.Presentation software Desktop publishing packages allow businesses to develop posters. According to an Australian Bureau of Statistics (ABS) report on information technology use. Accounting packages in particular have been through a rapid development phase and offer many new functions. The continual development of multimedia software and graphic manipulation of data and images has allowed businesses to produce increasingly sophisticated brochures and products. pamphlets and brochures that can be used for displays and advertising of the business’s products and services. The internet is a worldwide network of computers providing access to information and business opportunities. Two popular accounting Figure 11. MICROSOFT POWERPOINT The internet Microsoft PowerPoint is a useful software package that allows a business to easily present information to employees or prospective clients.5 Example of a PowerPoint presentation 184 ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. For example.abs. It allows customers to quickly check the products and services of a business without leaving home. Many accountants now require their small business clients to submit their financial records in a computerised format. A number of industry-specific packages have been developed.

Often. it is a good idea to use a specialist company. While there are many web page designers and specialists. 2 Dong Joon would like to keep his financial records in a computerised form. therefore. because of competing demands on small business owners and lack of expertise. as it is often the first contact with the business. A good website has the following attributes: sæ good design with interesting and relevant content sæ easy to move between pages and navigate the whole site sæ provides contact details such as email address. 1 Ellie wants to keep a record of all of her customers. phone and fax numbers sæ a section for frequently asked questions with the answers sæ simple graphics. It is now common for customers to visit a business website before phoning or visiting personally. eye-catching and informative. as complex graphics take a long time to load and visitors may not be patient enough to wait sæ good grammar and correct spelling sæ any links included are working sæ accurate and up-to-date contact and product information. Web pages Many businesses. there are also software programs available for a business to use to set up its own web page.2 Recommend a software package for each of the following situations. There are also ongoing costs involved in keeping the site interesting and up to date. Julie Cain. which is similar to renting space. . Describe two benefits of using that particular application. These include obtaining a domain name – assuming the name wanted is available – to protect the name of the website and the ability to use it. in the case of a website. it is renting hard drive space on a server. Web pages that provide information on products and services. links to other useful sites and are interactive are more likely to be visited more than once. or through a search engine. have a web page for customers and potential customers to access. 4 Antonio has to submit GST receipts from his hairdressing business. regardless of size. Businesses wishing to establish their own website can use specialist software programs. It is essential. that every business has a web page that is interesting. CH APT E R 11 INFORMATION AND COMMUNICATION TECHNOLOGIES IN SMALL BUSINESS web page a page on the World Wide Web that allows the public to examine information about a company and its range of products 185 ISBN: 9781107665910 © Gillian Somers. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. 3 Laura wants to design letterheads and flyers for her newly established business. usually at a cost of $75 to $200 an hour. 5 Tom is a cabinet maker who designs his own kitchens and furniture. A great deal of money has been thrown at developing web pages for no justifiable reason other than ‘everyone else is doing it’. A server is a computer that is connected to the internet. Jana would like to keep records of all customer names and addresses and has chosen a database package to keep these records. visible to anyone online who types in the specific website address (URL) or finds the address through a business’s marketing. For example. A second factor is ‘hosting’. what graphics could be used and what information should be included on the web page. a web designer may be hired. Examining other websites can provide a method of market research: it provides information on what might appeal to consumers. Alternatively. There are a number of steps that must be followed to successfully set up a website. 6 Matt would like to design furniture for clients.ACTIVITY 11.

s (OME s 7HATWEDO s #ONTACTUS Welcome to Bentley Interiors 7EAREASMALLBUSINESSTHATHASBEENOPERATING IN$IAMOND#REEKNOWSINCE7ETRAVELFAR ANDWIDEANDAREHAPPYTOGOANYWHEREOURSERVICES ARE REQUIRED 7E SET VERY HIGH STANDARDS ANDTAKEPRIDEINOFFERINGTHETYPEOFSERVICEAND QUALITYTHATWEWOULDEXPECTOURSELVES /UR RETAIL STORE OFFERS OVER   FABRIC SAMPLES.

WITHOCCASIONALFURNITUREANDAVARIETY OFGIFTS 186 ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. . Julie Cain. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party.

ACTIVITY 11.3 Read the scenario and answer the question that follows. $APHNEAND2UBYHAVEASMALLBUSINESSCALLED 3EW 7HAT.

SPECIALISING IN UNIQUE !USTRALIANA PATCHWORK QUILT DESIGNS AND UNUSUAL ANTIQUE FABRICS 4HE BUSINESS HAS GROWN STEADILY OVER THEPASTTHREEYEARSANDTHECOMPANYHASSTARTED TOGETCUSTOMERENQUIRIESFROMAROUND!USTRALIA AND!MERICA4HEPARTNERSFEELTHATTHETIMEIS NOWRIGHTTOHAVEAWEBSITESOTHATTHEPOTENTIAL CUSTOMERS OUTSIDE 6ICTORIA CAN BE REACHED 4HE PAIR BELIEVES THAT THE SITE SHOULD INCLUDE INFORMATIONABOUTTHEBUSINESS.

CONTACTDETAILS.

Podcasts Figure 11. Make up contact details. ACATALOGUEANDASECTIONFORCUSTOMERFEEDBACK ANDSUGGESTIONS Question Design a website for Sew What using the good design principles discussed above. Julie Cain. addresses. From a business standpoint. Ideas for a podcast may include interviewing clients and customers and asking questions about the service or quality of products that were provided. Another way businesses can gain advertising and. it can be a very powerful way to produce content that will make a website interactive. including: sæ small cost and quick set-up sæ easy way to gain an audience CH APT E R 11 INFORMATION AND COMMUNICATION TECHNOLOGIES IN SMALL BUSINESS podcast an audio file (usually an MP3 file) placed on a website that allows people to subscribe and automatically download any new content recordings 187 ISBN: 9781107665910 © Gillian Somers. Hosts will interview guests or simply decide to talk about a subject that they feel is of interest to someone. market share is to use podcasts. therefore much of the material on the World Wide Web is not checked or regulated. phone and fax numbers and quilt designs. . Most podcasts are formatted like radio shows. ultimately. A podcast is little more than an audio file (usually an MP3 file) placed on a website that allows people to subscribe and automatically download any new content recordings. There are a number of benefits for a business in creating podcasts. This design can be completed on paper or as an actual website using web design software.6 Most people self-publish on the internet. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party.

SMS SMS. Other emerging technologies The rapid rate of change in technology has provided many opportunities for all types of businesses. There are a number of benefits for a business using SMS. others function as more of a personal diary. Twitter is simple and once a business or person has signed up it can be used immediately. Using a ‘human voice’ the business allows customers to relate to the business as people and adds an extra connection and relationship with the public. with regular commentaries. with regular commentaries. so the potential number of people that can be reached is unlimited. Blogs A blog (short for ‘web log’) is a website. Twitter feeds are set to public. or text messaging. or other material such as graphics or video. A blog allows a business to set up a forum for customers to ask questions and place their experiences on the blog for others to read. It is like a blog. The opportunity for readers to leave comments in an interactive format is an important part of many blogs. Facebook is a social networking website where people can connect with friends. The increased use of social networking such as Facebook and Twitter can also be used by businesses to develop a customer base. uses SMS technology to provide a virtual tour of any listed property for any mobile phone user anywhere in the world. It allows consumers and customers to respond quickly and easily. Most blogs are text-based. One real estate agent. 188 Many blogs provide commentary or news on a particular subject. This is a small cost to the potential purchaser and provides another means of gaining information about a property. only smaller. Twitter is a ‘microblog’. or other material such as graphics or video Facebook a social networking website where people can connect to friends and their friends. easy and cost-effective. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. however. businesses can use this as a way of connecting with others and to market their products Twitter a ‘microblog’ where users can make comments up to 140 characters instantly sæ business is in the media sæ business has control over what is in the podcast and all content. Users have 140 characters to communicate a message. images and links to other blogs. concise and of interest. for example. ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. . usually maintained by an individual or a business. descriptions of events.SMS a communications protocol that allows the interchange of short text messages between mobile telephone devices blog a web log or website. It is instantaneous. Julie Cain. By default. Twitter is another means to communicate with an audience or group of people. descriptions of events. Many businesses are now taking up this technology as a means of expanding their business base. so it has to be short. is a new way to gain access to customers. there have been developments that will allow blogs to also include video. A typical blog combines text. including the fact that one message can be simply and simultaneously sent to many customers and contacts. Businesses can use this as a way of connecting with others and marketing their products. usually maintained by an individual or a business.

The 10 next social media trends BY"RAD(OWARTH.ACTIVITY 11.4 Read the article and answer the questions that follow.

/CTOBER 3OCIAL MEDIA STILL DOMINATES HEADLINES AS THE GETPEOPLETOTHESITE4HENTHEYWOULDARRIVE.

NEW DIRECTION FOR BUSINESS MARKETING.

BUT IT MAYBEENTERACOMPETITION.

ANDTHENDISAPPEAR SEEMSMANYBUSINESSESARERESISTINGTHECALL! 7ITH &ACEBOOK.

YOU HAVE AN OPPORTUNITY FOR RECENTSURVEYBY/PTUSFOUNDTHATONLYOF AN ONGOING ENGAGEMENT.

BECAUSE TO ENTER A SMALLBUSINESSESUSEDSOCIALMEDIATOPROMOTE COMPETITIONTHEYHAVETOhLIKEvTHEPAGE THEIR BUSINESS.

WHILE  HAD NO NEAR TERM PLANSTOSTART Shopping goes social. online )TSANUNDERSTANDABLERESPONSE*USTASTHEY 3O YOUVE GOT THOUSANDS OF FANS LIKING YOUR BEGINTOUNDERSTANDTHECONCEPTSOFSOCIALMEDIA &ACEBOOKPAGEnWHYNOTSELLTHEMSOMETHING MARKETING.

SOMETHING NEW COMES ALONG AND CHANGESEVERYTHING"USINESSESTHATHAVEBARELY COMETOGRIPSWITHBLOGGINGAND&ACEBOOKMUST ALSONOWCONTENDWITH4WITTER.

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0HIL/FFER.

THE MAINREASONSMALLBUSINESSOWNERSGAVEFORNOT GETTINGINTOSOCIALMEDIAWASTHATITWASAFAD 3ECONDWASTHATITWOULDSOMEHOWNEGATIVELY HURTTHEIRBRANDBYGIVINGAVOICETODETRACTORS ANDTHATTHEYWERESIMPLYTOOBUSY "ELOWAREOFTHELATESTTRENDSTOHITTHE SOCIALMEDIALANDSCAPE RIP micro-sites 7ITH MORE THAN  MILLION ACTIVE USERS.

&ACEBOOKISHAVINGASIGNIlCANTIMPACTONTHE RESTOFTHEWEB.

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WHICH LETS A USER KEEP TRACK OF THEIR SHOPPING HISTORY AND THEN SHARE IT WITH OTHERS 3OCIAL MEDIA RESEARCHER 2OSS $AWSON EXPECTS STRONG GROWTH FROM SOCIAL SHOPPINGSERVICES Making use of what’s out there 4HEREISAHUGEAMOUNTOFINFORMATIONALREADY INSOCIALTOOLSABOUTWOULD BECUSTOMERSnWHY NOTUSEIT !LTHOUGH PERHAPS NOT STRICTLY AN EXAMPLE OFSOCIALMEDIA.

THEENERGYCOMPANY/RIGINHAS BEHAVIOUR -AJOR BRANDS HAVE NOTICED.

WITH BEENUSING'OOGLE%ARTHFORMORETHANAYEAR A PROLIFERATION OF FAN PAGES SPRINGING UP FOR TO HELP POTENTIAL CLIENTS lND OUT IF THEIR ROOF IS SUITABLE FOR MOUNTING SOLAR PANELS /RIGINS EVERYTHING !CCORDING TO THE HEAD OF DIGITAL AT PUBLIC HEADOFRESIDENTIALSOLAR$OMINIC$RENENSAYS RELATIONS lRM %DELMAN !USTRALIA.

-ATTHEW THETOOLISUSEDTOBRINGUPANAERIALPHOTOGRAPH 'AIN.

THE RESULT HAS BEEN THE DEATH OF THE OF A CALLERS RESIDENCE.

WHICH CAN BE USED TO SO CALLED MICRO SITES ONCE LAUNCHED BY BRANDS DETERMINE THE CHARACTERISTICS OF THEIR ROOF TO SUPPORT SPECIlC CAMPAIGNS @)NCREASINGLY 0REVIOUSLY/RIGINHADTOSENDATECHNICIANOUT THAT IS MOVING ONTO &ACEBOOK.

'AIN SAYS TOEVERYHOME.

ORHAVECUSTOMERSTAKEPHOTOS @7ITHAMICROSITEYOUHADTOGENERATEMEDIATO OFTHEIRROOFANDEMAILTHEMIN CH APT E R 11 INFORMATION AND COMMUNICATION TECHNOLOGIES IN SMALL BUSINESS 189 ISBN: 9781107665910 © Gillian Somers. Julie Cain. . Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party.

Mixing it with the business The rise of the mini-blog -ANY COMMERCIAL SOFTWARE SUPPLIERS ARE NOW BUILDING SOCIAL TOOLS AND FUNCTIONALITY DIRECTLY INTO ENTERPRISE APPLICATIONS 4HE CHARGE WAS LED BY 3ALESFORCECOM.

WHICH IN *UNE THIS YEAR INTRODUCED 4WITTER AND &ACEBOOK LIKE FUNCTIONALITY INTO ITS SOFTWARE )TS #HATTER SOFTWARE ENABLES USERS TO FOLLOW WHAT OTHER PEOPLE ARE DOING.

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190

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MAKING SURE THAT THE PEOPLE WHO ARE CHATTING
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AREALPERSON

ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2

ISBN: 9781107665910
© Gillian Somers, Julie Cain, Megan Jeffery 2011
Cambridge University Press
Photocopying is restricted under law and this material must not be transferred to another party.

Managing your reputation,
and career
There have already been many stories of
people getting reprimanded or even fired over
an inappropriate tweet or Facebook update.
Anyone in the recruitment industry will know,
however, that social media – particularly
LinkedIn – is an essential tool for both
researching candidates and finding new ones.

Listening in
Customers are out there talking about brands
using social media. Even if you don’t want to
join the conversation, it is a good idea to know
what’s being said. Sydney-based company
BuzzNumbers
(www.buzznumbershq.com)
provide social media monitoring services to
listen in online and deliver an understanding of
what people are saying.

Chief executive Nick Holmes a Court
describes it as like ‘the new customer research’,
but saves actually asking people what they
think. He says companies are increasingly
demanding to know more than just whether
that chatter is positive or negative, and want to
know more about what aspect of the business
is being discussed and what can be done as
a result.
Source: adapted from
www.smartcompany.com.au/internet/the10-next-social-media-trends-2.html

Questions
1 How can social networking tools such as Facebook, blogs and Twitter be used by small businesses
to increase exposure?
2 Why are businesses increasingly looking at ways to use these?
3 Much of the discussion in the article focuses on large organisations. How can a small business use
some of these social networking developments?
4 What are some of the limitations for small businesses attempting to use these?
5 How will these developments influence the way businesses use and manage their ICT
and advertising?

CHAPT E R 11 INFORMATION AND COMMUNICATION TECHNOLOGIES IN SMALL BUSINESS

191

ISBN: 9781107665910
© Gillian Somers, Julie Cain, Megan Jeffery 2011
Cambridge University Press
Photocopying is restricted under law and this material must not be transferred to another party.

e-commerce
conducting business
electronically

Use of e-commerce Implications of the
E-commerce can be defined as conducting use of available
business electronically. E-commerce describes
how businesses are using information gathered technologies and
electronically to improve their processes and
e-commerce
relationships with suppliers and consumers.
This potentially covers all business areas,
such as design, production, operations,
customer service, as well as buying and selling.
E-commerce strategies include conducting
online sales, marketing, customer service,
electronic payment of bills and operational
efficiencies. E-commerce can also include
activities such as taking on feedback to lead to
better business performance.

Businesses have little choice but to use ICT in
their day-to-day operations. While the majority
of businesses use technology, there are a
number of considerations that must be taken
into account. The costs and benefits involved
in the purchase, use and maintenance of
technology must be weighed up if a business
is going to make efficient use of this resource.
These costs and benefits are varied and may be
categorised under the headings of economic/
financial, legislative and management issues.
The use of ICT within the business also
has implications for employees and customers.
A small business may feel overwhelmed by
the rapid development of technology and
the need to continually update hardware and
software. Continued expenses associated with
buying, leasing and maintaining equipment
and software, and training of employees may
become a drain on the business unless they are
budgeted for. Continually integrating the latest
improvements in technology can become a fulltime job for an owner or manager of a small
business. In some circumstances the owner may
decide to use a consultant or contract a person
with ICT expertise to look after this part of the
business. Although this is expensive, it may
be the only option. Small businesses that fail
to keep up to date with technology may find
that customers are lost and that procedures and
policies within the business become outdated.

Figure 11.7 Staff need to be trained in the use of ICT.

192

ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2

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© Gillian Somers, Julie Cain, Megan Jeffery 2011
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Table 11.1 Costs and benefits to small business of using ICT
Benefits

Costs

Economic/financial
Once technology and equipment is purchased or
leased, it can be used continuously.

A large financial outlay is required if the technology is
purchased.

Investment in technology that is business-related
can be claimed as a tax deduction by the business.

ICT changes at a rapid rate. Many computers and other
equipment become outdated quickly.

If equipment is leased rather than purchased, it
can be upgraded at any time.

There may be ongoing costs involved in the
maintenance of computer hardware and software.

Tasks can usually be completed far more quickly
if the correct hardware and software have been
selected.

The range of computers and different features can
make decisions about purchasing equipment and
software difficult and confusing.

Legislative
The introduction of GST has meant that many
small businesses have to computerise information
in order to collect and pass on GST receipts to the
federal government.

Compliance with taxation laws, for example, means
businesses have had to upgrade their financial
management systems. This is costly in terms of time
and expenditure.

A number of Acts of parliament protect users of
ICT. Legislation covers areas such as privacy and
copyright.

Privacy and copyright legislation must be adhered to.

Management
Procedures can be improved and large amounts
of material and data can be processed quickly and
stored easily.

Employees and managers may be reluctant to change
their work practices to use new ICT.

Employees learn new skills and often become
multiskilled.

Some employees have skills that become obsolete or
outdated. Businesses may need to train their staff to
use new technology.

Procedures and the time taken to complete tasks
can usually be streamlined.

Technology support may be needed on a regular basis.

Equipment choices and upgrades will need to be
monitored and become part of the management role.
The need to protect computer systems from viruses
has become a pressing issue. Businesses must ensure
that they have up-to-date anti-virus software installed
on their systems.

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Computer viruses computer virus a computer program that can copy itself and infect a computer. ACTIVITY 11. such as digital cameras. it can also spread to other computers via a network or the internet spam unsolicited or ‘junk’ email Other than the need to develop and put in place policies for computer use.ICK3AVVIDES. copy files and invade computer systems. On a positive note. It may be necessary for organisations to have policies on their use in the workplace. have raised a number of privacy issues. Organisations have to install firewalls and antivirus and anti-spyware programs to protect their computer and email systems. making it more accessible for small businesses. Viruses can bring a small business’s computer systems – and therefore the business – to a standstill. The growing damage to computer systems due to computer viruses and spam (unsolicited emails) has been well documented. the volume is currently growing and can pose a serious threat to organisations. IT security threats to small business BY. It is important that the business has appropriate anti-virus software and has made employees aware of the issues. businesses also have to deal with other technological issues. The right to use and publish photos of individuals has become more of an issue due to increased use of technology. Many individuals have been bullied or identified on the internet and images published without their knowledge.5 Read the article and answer the questions that follow. While sometimes spam can be just annoying. there are a number of issues that must be addressed.Ensuring the security of technology and information While the use of ICT has become part of everyday life for all businesses and individuals. Privacy Increasingly sophisticated technologies. The cost of this technology is dropping. Often these viruses can attack the operating systems of the computer. Another significant issue is ensuring privacy of clients and customers. digital cameras allow many small businesses to take high-quality photos for use on their internet sites and in catalogues. Ensuring the security of data and confidential and sensitive information is vital for all businesses. regardless of size. Unsolicited emails can slow down a business’s legitimate emails and can take time to erase. Many viruses have been spread throughout the world attached to an email or in a file opened on a computer. iPhones and mobile phones.

*UNE 4HE )NTERNET AND )NFORMATION 4ECHNOLOGY HAVE CHANGED THE WAY PEOPLE.

BUSINESSES AND THE GOVERNMENT COMMUNICATE %VEN THE SMALLEST OF BUSINESSESNOWDEPENDONTHE)NTERNETTOOPERATE ANDCOMMUNICATEWITHCUSTOMERSANDHAVEACCESS TO AUTOMATED TOOLS AND TECHNOLOGY THAT WERE PREVIOUSLYONLYFEASIBLEFORLARGEORGANISATIONS 5NFORTUNATELY.

WITH THE UPSIDE COMES A DOWNSIDE )4 SECURITY THREATS )4 SECURITY 194 THREATS ARE ESPECIALLY CHALLENGING FOR SMALL BUSINESSES THAT DO NOT HAVE A DEDICATED )4 TEAM -ANY SMALL BUSINESS OWNERS MAKE THE MISTAKE OF THINKING @IT WONT HAPPEN TOMEOR@WHYWOULDANYONEBEINTERESTEDIN ATTACKINGMYBUSINESS 7HILE IT IS TRUE THAT LARGE BUSINESSES ARE HEAVILYTARGETEDBYCRIMINALS.

Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. Julie Cain. .SMALLBUSINESSES AND INDIVIDUALS ARE ATTACKED BECAUSE THE ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers.

ATTACKSAREEASIERANDCHEAPERTOCONDUCT.

AND OFTENSUCCESSFUL !TTACKERS WHO EXECUTE FRAUDULENT ACTIVITY ON SMALL BUSINESSES GENERALLY HAVE THE SAME GOAL IN MIND TO COMPROMISE ANDOR EXPLOIT "OTH CAN HAVE SERIOUS CONSEQUENCES FOR A SMALLBUSINESS)NTHESEINSTANCES.

THEGENERAL METHODOFATTACKISTOGETAPIECEOFMALICIOUS SOFTWARE MALWARE INSTALLED ON A COMPUTER 4HIS CAN HAPPEN IN AN AUTOMATED FASHION BY EXPLOITING VULNERABILITIES ON A COMPUTER OR BY SOCIAL ENGINEERING WHEREBY A USER IS TRICKED INTOOPENINGAlLE.

EMAILORVISITINGAMALICIOUS s "ACKUPlLESREGULARLY5SEEXTERNALDISKSOR TAPESTOBACKDATA s 4ESTBACKUPS s 5SE CAUTION WHEN OPENING EMAIL ATTACHMENTS FROM UNKNOWN OR NEW SOURCES AS THESEAREANEASYWAYTODISTRIBUTEMALWARE s $O NOT FOLLOW LINKS IN EMAILS FROM UNKNOWNORNEWSOURCES.INKSAREOFTENTO SITES THAT ARE CRAFTED TO INSTALL MALWARE ON COMPUTERS s 4AKEADVANTAGEOFFEATURESOFFEREDBYBANKS ANDOTHERONLINESERVICESSUCHAS/NE 4IME 0ASSWORD /40 TECHNOLOGY.

WHICH IS A

WEBSITE 7HEN A COMPUTER IS OPEN TO A MALICIOUS SOFTWARE PIECE IT CAN BE CONTROLLED BY
ANOTHER4HISCANCAUSEANUMBEROFPROBLEMS
SUCHASINCREASED)30CHARGES

ACOMPUTERTHAT
CONTINUALLY CRASHES AND THE LOSS OF IMPORTANT
DATA AND lLES !NOTHER IMPACT CAN BE IDENTITY
FRAUD OR THE THEFT OF PERSONAL DETAILS SUCH AS
BANKACCOUNTSANDLOGINS
3MALLBUSINESSESANDTHEIRSTAFFCANTAKEA
FEWSIMPLESTEPSTOHELPMINIMISETHESETHREATS
s 5SEAlREWALLONYOUR)NTERNETGATEWAY
s %NSUREAUTOMATICUPDATESARETURNEDONFOR
ALL YOUR COMPUTERS OPERATING SYSTEMS AND
APPLICATIONSTHATSUPPORTTHEM
s %NSURE BOTH ANTI VIRUS AND ANTI MALWARE
ANTI SPYWARE ARE ON COMPUTERS AND THAT
AUTOMATICUPDATESAREENABLED

SECOND FACTORAUTHENTICATIONSYSTEM3TRONG
AUTHENTICATION TECHNOLOGY COMBINES SOMETHINGAUSERHASnSUCHASADYNAMICNUMERIC
CODE GENERATED BY A PHYSICAL DEVICE n WITH
SOMETHINGTHEUSERKNOWSnSUCHASA5SER
)$ANDAPASSWORD
s 7HEN USING SITES

LOOK FOR VISUAL CUES TO
CHECKAWEBSITEISAUTHENTIC
s 2UNAWARENESSTRAININGFORALLSTAFF)TTAKES
ONLY ONE PERSON IN THE ORGANISATION TO BE
UNAWARE OF THE THREATS AND HOW TO PROTECT
THEMSELVES TO ALLOW MALWARE INTO YOUR
BUSINESS
Source: adapted from www.
openforum.com.au/content/
it-security-threats-small-business

Questions
1 Why is it important for small businesses to protect their computer systems?
2 Explain what is meant by malware.
3 Design a poster or pamphlet outlining advice for small business owners regarding protection of their
computer systems.

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ISBN: 9781107665910
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Cambridge University Press
Photocopying is restricted under law and this material must not be transferred to another party.

ACTIVITY 11.6
Read the scenario and answer the questions that follow.

-IKE IS AN EMPLOYEE AT ,EVI  3ONS 0ERSONAL
4RAINING

WHICH SETS UP TRAINING SESSIONS FOR
EMPLOYEESINORGANISATIONS(EISANAVIDUSER
OF THE BUSINESS COMPUTERS AND USES EMAIL AS
AMEANSOFCOMMUNICATINGWITHCLIENTS-IKE
ALSO MAINTAINS THE COMPANYS WEBSITE

WHICH
PROVIDES AN OUTLINE OF SERVICES AND PACKAGES
OFFEREDBY,EVI3ONSTOTHEIRCLIENTS
7HENCHECKINGHISEMAILS

-IKEOPENEDONE
SENTTOHIMBYWHATHETHOUGHTWASANEWCLIENT
4HE EMAIL ATTACHMENT INFECTED THE COMPUTER
SYSTEM-IKEWASUNAWAREOFTHEVIRUSWHENHE
DECIDED TO SEND WHAT HE THOUGHT WAS A FUNNY
EMAIL AND PHOTOS OF HIMSELF AT A PARTY ON THE
WEEKEND TO HIS FRIENDS 5NFORTUNATELY

HE ALSO

INADVERTENTLYSENTTHISEMAILTOALLOFHISWORK
COLLEAGUES ! NUMBER OF HIS COLLEAGUES WERE
OFFENDEDBYTHEEMAILANDHAVECOMPLAINEDTO
THEMANAGER

!LISON-IKEWASGIVENAWARNING ABOUTHISBEHAVIOUR )NANOTHERINSTANCE.

THREECUSTOMERSHAVE REPORTEDTO!LISONTHATTHEIRCHILDRENHADBEEN ADDEDTO-IKES&ACEBOOKPAGEANDTHATTHERE WERE A NUMBER OF PHOTOS SHOWING HIM IN HIS WORKUNIFORM.

WITHTHELOGOCLEARLYIDENTIlED.

It is important that businesses of all sizes develop and enforce policies relating to email use. Policies must be established and clearly communicated to all employees. . Julie Cain. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. allowing businesses to quickly keep in contact 196 with clients and suppliers. 2 Advise Levi & Sons Personal Training as to the types of policies it will need to introduce. SPRAYING GRAFlTI ON THE TRAIN CARRIAGES AT THE LOCALSTATION!LISONHASCONFRONTED-IKEAND THEPOLICEHAVEALSOBEENCONTACTED Questions 1 Outline some of the issues that the company needs to deal with. If an email is ambiguous. Often the ‘tone’ of the email is difficult for people to pick up on. the immediacy of email sometimes means that people do not think before they send. Ethical and socially responsible management of ICT in small businesses Small businesses need to develop policies and procedures to ensure that they are acting in an ethical and socially responsible manner when managing ICT in their business. Many argue that the informal email culture causes problems. Email and information technology usage in the workplace Email is an efficient way of communicating. Outlined below are a number of issues that need to be addressed. The increased use of the internet at work has also meant that organisations must have clear policies on acceptable use. it could lead to confusion or even offend as the reader is unclear about its intention. The use or overuse of email for private communications in work time may cause problems for the business. The increased popularity of Facebook and social networking has led to many employees spending work time on ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers.

unfortunately. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. it is necessary for businesses to protect their own files and also those of their customers. SMS and mobile phones have led to a new type of bullying. have to develop policies and methods to identify and overcome bullying. CH APT E R 11 INFORMATION AND COMMUNICATION TECHNOLOGIES IN SMALL BUSINESS 197 ISBN: 9781107665910 © Gillian Somers. A survey by LinkMe noted that there was little action against this type of bullying in the workplace and that 53 per cent of employees felt that they were left to deal with this with little support from managers. due to the more personal nature of the bullying. there is an increased risk of email scams. Identity fraud As consumers and businesses use technology more frequently. Cyber-bullying takes place when abuse involves electronic forms of communication and this may include email. it may be difficult for a business to identify and deal with. cyber-bullying has infiltrated the workplace and has caused problems. . The anonymity of the technology often means that the bullying is more serious and aggressive as the bully does not have to deal with the victim face to face. sæ Develop policies to ensure that monitoring and prevention of any cyber-bullying occurs. Company policies should be developed and clearly communicated to all employees. internet fraud and fraudulent business practices. sæ Develop practices to ensure identity fraud does not happen. Facebook. sæ Develop and manage clear policies on acceptable use of the internet and email. According to Catherine Twiss.the internet rather than their actual work. a journalist for the LinkMe job seeker website (www. At a national crime symposium focusing on identity theft. sæ Develop checking mechanisms to ensure that information is stored safely and with respect for the privacy of others. experts estimated that in 2010 one in five Australians had fallen victim to identity theft at a cost of $3 billion a year and warned that identity fraud is one of the fastest growing criminal industries. The most common type of fraud was identity fraud centred on credit and debit card fraud. These policies should be reinforced with communication and training for staff. It can usually only be detected if the victim is willing to report it. Some employees have been dismissed for inappropriate use of the internet and for sending inappropriate emails to other employees during work time and on company computers. Many small businesses may feel ill-equipped to deal with these issues and. Cyber-bullying Bullying and harassment have. Otherwise. Educating and training employees may also assist in preventing or reducing this type of harassment. while emails can be easily detected and traced. There is a range of strategies that can be put in place to ensure that ICT is used ethically and in a socially responsible manner: sæ Purchase computer equipment and software from an ethical supplier. organisations and employers argue that it is during work hours and company time. sæ Ensure information on web pages and in blogs is accurate. It may be seen as an invasion of privacy by some employees. therefore internet use should only be work-related. often been part of any school or workplace. linkme. Organisations.au). sæ Ensure that all software is licensed and not a pirated copy. internet and mobile phone. large or small. One issue that has become increasingly evident is identity fraud. A number of businesses have policies where they will check emails and internet use. This will protect the information of both the business and also its employees and clients. while it is costly. most employees resist managers being able to access their emails in the workplace.com. One difficulty is that. It is important that all businesses make sure that policies are in place to stop or deal with cyber-bullying. The improvements in technology and the ability to use email. however. not misleading or offensive to parties likely to access these forms of ICT. Julie Cain.

ICT changes at a rapid rate and computers become outdated quickly. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. how it relates to email usage. Evaluate this statement. equipment can be expensive and ongoing maintenance is required. some employees 1 Describe three computer software CHAPTER SUMMARY QUESTIONS applications that can be used in business. ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. – Computer viruses can have a harmful impact on organisations. UÊ Some of the costs associated with using technology relate to the following: a large financial outlay is often required. software specification and the system specification. investment can be claimed as a tax deduction. 4 Explain three benefits associated with using ICT in business. 5 Outline three ICT issues or implications for small and medium-sized organisations. – Increased use of the internet has implications for the workplace. – The use of some technologies may create issues regarding identity fraud and cyberbullying. 9 Outline some of the issues related to the continued use of technologies and the internet. 2 How could these applications described in question 1 be used in a restaurant? 3 Outline the necessary attributes for a successful website. the internet and social networking has become part of most people’s lives. UÊ There are a number of implications involved in the use of ICT. employees learn more skills and become multiskilled. regardless of size must invest in and use ICT if the business is to survive in the twenty-first century. 7 Design a poster outlining the dangers of identity fraud for individuals. 10 Read the scenario and answer the questions that follow.CHAPTER SUMMARY UÊ The majority of small and medium businesses use computers and have access to the internet. Businesses that fail to do so will simply cease to exist’. in particular. UÊ Technology has developed to include a vast array of hardware and software. 6 The use of email. UÊ Some of the benefits of using ICT include: efficient use of equipment once it is in the business. – A number of privacy issues have arisen due to the increased flow of information. . including the following: – Businesses may need new organisational policies to keep up to date with changing technology. UÊ ICT must be managed in an ethical and socially responsible manner. UÊ There are three areas that need to be analysed when using technology: identification of the application needed. identity fraud and cyber-bullying. decisions can be difficult due to a large number of choices and range of equipment. the introduction of the GST has meant that small businesses have had to computerise their records. tasks can usually be completed more quickly. 198 may be reluctant to change the way work is completed. UÊ The security of technology and information must be ensured and protected. Outline one way that this trend may have impacted on small businesses. 8 ‘All businesses. money needs to be spent on employee training. Julie Cain.

-IDWEST )NTERNATIONAL 3CHOOL IS SITUATED  KILOMETRESFROM3WAN(ILLINCOUNTRY6ICTORIA 4HESCHOOLWASESTABLISHEDTHREEYEARSAGO)T HASACAMPUSCATERINGFORSTUDENTSIN9EARS TO4HESCHOOLCURRENTLYHASANENROLMENTOF STUDENTS3IXTYPERCENTCOMEFROMTHELOCAL AREA.

THERESTFROMTHE!SIA 0ACIlCAREA 4HE 3CHOOL #OUNCIL APPOINTED A NEW PRINCIPALATTHESTARTOFTHEYEAR3HEISKEENTO INCREASEENROLMENTS.

ESPECIALLYOFINTERNATIONAL STUDENTS4HESCHOOLHASHIREDAN)4CONSULTANT TO DEVELOP A WEBSITE FOR THE SCHOOL 4HIS WAS DONE IN CONSULTATION WITH THE PRINCIPAL )N  DAYS.

THEWEBSITEWASCOMPLETEDANDLAUNCHED $URING THE lRST MONTH OF ITS EXISTENCE.

Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. your school’s EXTENSION QUESTIONS website or that of a small business in your area. b How could these issues have been overcome? c The principal has come to you for advice. This may be done as a sketch or as an actual website using a software application. Evaluate the website in terms of the following elements: a Ease of use b Presentation of information c Relevance of the information contained. ANUMBEROFISSUESHAVEARISEN s ! NUMBER OF STUDENTS HAVE SEEN THE WEBSITE AND COMPLAINED THAT THEIR PICTURE WAS USED WITHOUT THEIR PERMISSION 4HEY DID NOT REALISE THEPHOTOSHADBEENTAKENANDTHEIRPARENTSDID NOTSIGNCONSENTFORMS s 4HE WEBSITE CONTAINS INCORRECT INFORMATION THE PHONE NUMBER IS NOT RIGHT AND THE LOCAL PIZZASHOPISCOMPLAININGABOUTTHENUMBER OFPHONECALLSFORTHESCHOOLITHASRECEIVED 4HE EMAIL ADDRESS IS ALSO INCORRECT AND PROSPECTIVE PARENTS HAVE NOT BEEN ABLE TO CONTACTTHESCHOOL s ! #OMMERCE)4 TEACHER WHO WAS RECENTLY MADE REDUNDANT WAS UNHAPPY ABOUT THIS DECISION AND HAS MANAGED TO ACCESS THE WEBSITEANDCORRUPTITSOPERATION s 4HE WEBSITE IS DIFlCULT TO USE AND THERE ARE LONG DELAYS IN ACCESSING INFORMATION ABOUT THESCHOOL s !GROUPOFEX 6#%STUDENTSHASSETUPAFAKE WEBPAGEFORTHESCHOOL-ANYOFTHEPHOTOS WERETAKENAROUNDTHESCHOOLANDONWEEKENDS 3TUDENTS HAVE ALSO PUT TOGETHER THEIR OWNPROlLEOFTHESCHOOLANDTHETEACHERS! NUMBEROFPROSPECTIVESTUDENTSHAVESHOWN THEIR PARENTS AND THEY HAVE REPORTED IT TO THESCHOOL a Describe three issues related to the establishment of the website. Julie Cain. 2 Redesign the website. CH APT E R 11 INFORMATION AND COMMUNICATION TECHNOLOGIES IN SMALL BUSINESS 199 ISBN: 9781107665910 © Gillian Somers. making any necessary changes. . What steps need to be taken if the website is to be a success? 1 Access a company website.

12 LEGAL REQUIREMENTS OFFERING GOODS AND WHAT’S AHEAD Ethical management of legal requirements Legal requirements Legislation Commonwealth Parliament Victorian Parliament Local councils/ governments Competition and Consumer Act Fair Trading Act Food handling and safety Common law Negligence Contract law ISBN: 9781107665910 © Gillian Somers. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. Julie Cain. .

The main function of legislation is to set standards of acceptable behaviour. such as franchising requirements. that impact on small business AREA OF STUDY OF SMALL BUSINESSES SERVICES 3 – types of legislation created by local government. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. Julie Cain. Many areas of the law impact on daily business operations. 201 ISBN: 9781107665910 © Gillian Somers. such as the Trade Practices Act 1974 (federal). that impact on small business – legislation created by common law. Organisations must adhere to these laws and rules in all of their business dealings. such as contract and negligence – ethical and socially responsible management of the legal requirements of small businesses. such as the Consumer Affairs Legislation Amendment Act 2010 (state). These have been discussed in previous chapters and include the following: sæ legal requirements when registering a business sæ legislation covering employees. and to allow for the peaceful settlement of disputes. such as occupational health and safety and equal opportunity legislation sæ licensing requirements for small businesses sæ taxation laws and obligations sæ codes of conduct covering business arrangements. . Small businesses must ensure that steps are taken to reduce this possibility. reflect societal values. that impact on small business – types of legislation created by the state government. such as local laws affecting food handling. Organisations are operating in an environment where consumers and other groups are becoming increasingly willing to take legal action against businesses and individuals.DAY-TO-DAY OPERATIONS KEY KNOWLEDGE Students will learn the following about day-to-day operations: – an overview of the various levels of government creating the legislation – types of legislation created by federal government.

Overview of the various levels of government creating legislation The Australian legal system has three levels of law making. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. and state governments have also delegated (given) the power to make some regulations and laws to local government. such as the police. Other powers are concurrent (shared) by the Commonwealth and state parliaments. Once it has been debated and passed. When parliament wishes to pass a law. Appropriate bodies.g. it becomes a law. . Many of these laws impact on small businesses. Three different areas of authority or jurisdiction are: sæ Commonwealth Parliament sæ state parliament sæ local government. stamp duty. e. once proclaimed. Section 51 of the Constitution sets out the areas of responsibility of the Commonwealth (see table 12. Julie Cain. Table 12.1). payroll tax Health Emergency services Public transport Car registrations Road traffic laws Local government (local council) Pet registrations Recycling and collection of rubbish Planning permits Local road maintenance 202 ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. The three levels of government in Australia have their own powers and jurisdiction. The power of the federal parliament is established in the Australian Constitution. it introduces a Bill (either at the state or federal level) and this goes through a series of stages. tribunals or the courts. it then becomes an Act and.1 The jurisdiction and powers of each level of government Level of government Examples of laws made Commonwealth (federal) Parliament Laws that affect all of Australia: Immigration matters Health Quarantine Indigenous peoples policy Defence Currency Foreign policy Income tax and company tax Tertiary education State (Victorian) parliament State education Roads Some taxation. can then enforce these laws.

he left the house.1 Read the following scenario. and phoned the Austin Hospital to check on the progress of his sick aunt. Later that night. he paid his car registration. in preparation for his annual tax return. Legislation created by the Commonwealth Government that impacts on small business Competition and Consumer Act 2010 One of the main areas of law affecting business is the Commonwealth Competition and Consumer Act 2010. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party.m. He got up at 7. John got off the train in the city and caught a tram to Melbourne University where he is studying Commerce/Law. After a day of lectures.m.m. At 8. the police were called to the house in the next street as the 18-year-old resident who drove a Commodore had his car impounded for hoon driving. John woke up at 7 a.m. For each incident or event in bold. He contacted the ranger. When John returned home. On the EastLink tollway. train.30 a.30 a. Laws are from all three levels of government and therefore it is vital that small business owners understand their legal obligations. He purchased a ticket and paid cash. John returned home with his friend Elsa. the recycling truck came down the road. The Act covers areas such as entering into a contract CHAPTER 12 LEGAL REQUIREMENTS OF SMALL BUSINESSES OFFERING GOODS AND SERVICES 203 ISBN: 9781107665910 © Gillian Somers.m. to the sound of the garbage truck collecting the rubbish from the bins in his street. Elsa was pulled over for a random breath and drug test. he found his dog Oscar had escaped from the backyard. . Once he was on the train. Regular contact with their solicitor may help prevent many issues and problems before they arise. which was due that day. Julie Cain. His car was caught in a traffic jam caused by the grader grading the dirt road. Using internet banking.05 a.40 a. The Act is designed to stop and prohibit certain behaviours by businesses.ACTIVITY 12. John got out his laptop and started to read the Tax Pack Legislation affecting small business There are a number of laws that impact on small businesses and this can be confusing for the owner/s. At 7. list the level of government John has come into contact with during his day. John went to the local station to catch the 8. paid a $65 fine and collected his dog from the pound.

It is essential that small businesses are aware of the legislative requirements that affect their business. other legislation covers general areas.or advertising that is misleading or deceptive. Canberra 204 ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. quality or performance of products. Julie Cain. Examples of illegal practices include: sæ a ‘half-truth’ in advertising sæ suggesting a product has an association that it does not have sæ stating a product is made in one country when it is made in another sæ using a logo. If a business misrepresents its products. contracts and sale of goods. .1 Parliament House. Consumer protection provisions of trade practices law include the following: FALSE AND MISLEADING REPRESENTATIONS Making false and misleading claims about products and what they can do is illegal. such as negligence. Small businesses must ensure that their advertising follows the Act.g. Apart from many regulations that are particular to a specific industry or business. but a good test is how the average person would interpret it. e. the courts decide whether a particular advertisement or promotion is likely to be misleading or deceptive. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. Figure 12. A small business owner must keep up to date with legislation. price. Ultimately. business name or packaging that is similar to a well-known brand sæ overly optimistic claims about a product sæ false or misleading labels or misleading statements about the characteristics of a product sæ offering gifts and prizes with no intention of supplying them sæ bait advertising. Leaving out information about a product or claiming it does things the business knows it cannot is deemed to be misleading. which is advertising a good when there are only a few available sæ referral selling – a technique that persuades consumers to enter into a contract on the basis that they will gain a benefit. it is likely to be in breach of the Act. if they can convince friends or relatives to take up the offer. There are also other practices prohibited by legislation as these practices can stop consumers and other businesses from receiving fair and competitive services and products.

indicates that if the goods are not fit for purpose or faulty. 5 A breakfast cereal manufacturer claimed the product had no artificial flavouring or preservatives. 9 Two builders decided to over-quote so that a third company would get a contract. 8 Juanita bought a new pair of shoes for her Year 11 Formal. CHAPTER 12 LEGAL REQUIREMENTS OF SMALL BUSINESSES OFFERING GOODS AND SERVICES price fixing two or more businesses decide to work together to fix a price and therefore stop competition. Examples of anti-competitive behaviour include market sharing (‘slicing’ up the market between businesses) so that there is no real competition. 4 An appliance store advertised 55-inch LED colour televisions for $999. WARRANTIES The Commonwealth Competition and Consumer Act 2010 also regulates the provision of refunds and warranties. but the shoes were manufactured in Indonesia and packed in Australia. . Julie Cain. The bread was sold at less than cost price and therefore it was considered in breach of competition regulations. These types of practices adversely affect consumers and are usually within markets where substitutable products are sold. this is illegal under the Act. PRICE FIXING If two or more businesses decide to work together to fix a price and therefore stop competition. ANTI-COMPETITIVE PRACTICES Any businesses that try to make agreements to lessen competition in their area or industry are in breach of the legislation. 7 A company claimed that it had sent magazines to a pensioner (who had not subscribed) and demanded payment for a three-year subscription. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. but one made in Cuba. 1 Joe purchased an Appell computer. 3 A company selling hamburgers called itself MacDougall’s and offered a Large Mac meal deal. this practice is illegal under the Competition and Consumer Act 2010 warranty legal requirement. businesses cannot tell consumers they are not entitled to refunds or that their warranty overrides the law. he realised it was not an Apple computer. 2 Toby paid to have his roof repainted. repair or replacement of the item they have purchased. Consumers are automatically covered by warranty protection under the legislation. A number of petrol station chains were also fined a substantial amount for colluding to artificially keep petrol prices high.2 Determine whether the consumer has a case against the business in each of the following scenarios. she decided she didn’t like them and wanted her money back. two supermarkets decided to reduce the price of bread to ensure that a smaller local independent supermarket could not compete. The practice of price fixing means that consumers are not receiving the best price possible. then the consumer is entitled to have the product repaired collusive tendering occurs when two or three businesses plan which one will put in the lowest quote or tender to ensure that jobs or contracts are shared and there is no real competition 205 ISBN: 9781107665910 © Gillian Somers. when in fact it did. compensation. If statutory warranties are breached or ignored. and bid rigging (collusive tendering).ACTIVITY 12. 6 A company selling leather shoes claimed the product was Australian made. The businesses decided that they would take it in turns to do this for the next few contracts that came up. consumers are entitled to a refund. When she got home. Collusive tendering occurs when two or three businesses plan which one will put in the lowest quote or tender to ensure that jobs or contracts are shared and there is no real competition. These arrangements can be informal or formal and any arrangements may be seen as illegal. The painting company told him that if he could convince another six neighbours and friends to have their roof repainted he would receive a 10 per cent commission. It had one television in stock. When he got home. These petrol stations were contacting each other to determine the price charged for petrol. In a recent case. Under the law. The other LED televisions started at $2400.

fair trading and consumer protection laws. Two recent cases involved unsolicited scam letters enclosing colourful travel brochures and scratch cards. It is illegal to enter an agreement (known as a primary boycott) that has the effect of excluding a person or class of persons from a particular market. which may lead to consumers being unfairly treated and paying higher prices than in industries that are more competitive. Some of the main promotions have included EverMas Tourism Group. It promotes competition and fair trade in the marketplace to benefit consumers. One of the cards is always a winner with over $100 000 on offer. The scam involves fake scratch cards. ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. which targeted the eastern states and territories. The Australian Competition and Consumer Commission (ACCC) is an independent statutory 206 authority. Julie Cain. The ACCC has the power to investigate and prosecute illegal and restrictive practices. In a second case. a recommendation. The recommended price is not the only price for which the product can be sold. Sellers of CDs and stationery. It works because the letters look real and the brochures are professional looking. the Competition and Consumer Act 2010 may have been breached. Suppliers cannot force a seller to sell at that particular price. RESALE PRICE MAINTENANCE A recommended retail price is just that. and Euphoria Travelling Group. It was formed in 1995 to administer the Trade Practices Act 1974 and other Acts. Having a large market share places that business in a powerful position. Competitors are prohibited from getting together and restricting the flow of goods or services to another person. business and the community. Anyone phoning up to claim their prize is asked to pay for various fees and charges. . such as greeting cards and calendars. the ACCC started proceedings against 6G Pty Ltd and Global One Mobile Entertainment Ltd for misleading representations. Advertisements promoted subscription services such as mobile ringtones and mobile phone games. Its primary responsibility is to ensure that individuals and businesses comply with the Commonwealth’s competition. which targeted Western Australia. often show a recommended retail price on the product but may choose to sell the item for less. There is no actual prize and the scammers collect personal details that they can use for identity fraud. MISUSE OF MARKET POWER A business that has a substantial market share must be careful not to use its position to damage a business or drive a competitor out of business.BOYCOTTS boycott an agreement that has the effect of excluding a person or class of persons from a particular market If two or more businesses decide to stop another business from gaining access to goods or services. The companies promoted these as a one-off payment when they were actually promoting access to a subscription service. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party.

Who wins Packer’s network games? Last week James Packer spent $250 million buying shares in the Ten Network. Why does the ACCC investigate these types of breaches? CH A PT E R 12 LEGAL REQUIREMENTS OF SMALL BUSINESSES OFFERING GOODS AND SERVICES 207 ISBN: 9781107665910 © Gillian Somers. Cutting news and current affairs services narrows the flow of comment and information as many people rely on free-to-air television for their information.accc. Packer’s 18% stake in Ten makes him the largest shareholder. There are a number of reasons why it could be involved. Abolishing One HD and replacing it with an off-shoot of Foxtel leads to less competition as it removes a competitor. It is also likely that Ten’s expensive news and current affairs programs will be cut and revamped. including the possible closure of Ten’s sporting channel One HD and its replacement with a free-to-air version of Sky News. It is the right time for Packer jnr to get back into freeto-air television.au) and examine two recent cases. 2 Discuss the implications that this case may have for television in Australia and competition.ACTIVITY 12. . entitles him to seats on the board of directors and gives him the power to overhaul the network. As analysts have pointed out. 3 Go to the ACCC website (www. 25 October 2010 Questions 1 Write a summary of the main arguments.3 Read the article and answer the questions that follow. The concern is that it might pose restrictions to the real choices available to audiences.gov. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. Source: The Age. The ACCC has said that it will examine the investment to see if it raises competition concerns. Julie Cain. which is part of the pay-TV network owned by Foxtel (owned by Packer and Murdoch’s News Ltd and Telstra).

each state and territory’s consumer agency.consumer. Individuals who are found to have breached the Act may be disqualified from being a director of a company or from otherwise being involved in its management. The role of Consumer Affairs Victoria (www. including the Victorian Parliament. state and territory consumer laws.1 million for a corporation and $220 000 for an individual. Legislation created by the Victorian Government that impacts on small business Fair Trading Act 1999 and Consumer Affairs Victoria All state parliaments. For consumer protection breaches. is to be enforced and administered by the ACCC. and can order compliance programs and corrective advertising. traders.au) is to: sæ provide information and advice to consumers. In addition to fines and penalties. Recent changes made to consumer law Resulting from a recommendation from the Productivity Commission’s Review of Australia’s Consumer Policy Framework. impose injunctions or damages orders on companies or individuals. the federal government has enacted the Australian Consumer Law (ACL). landlords and the government on consumer and tenancy issues ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. the Australian Securities and Investment Commission (ASIC). Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. tenants. enforcement powers and consumer redress. pass laws relating to business behaviour and practices. Any transaction undertaken prior to 1 January 2011 will still be covered by the legislation that was in force prior to this new Act.vic.gov. a court can vary contracts.Penalties for breaches of the Competition and Consumer Act 2010 (formerly the Trade Practices Act 1974) Breaches of the trade practices provisions of the Competition and Consumer Act 2010 could result in civil penalties being imposed on corporations which will be calculated as the greater of: sæ $10 million sæ three times the value of the gain obtained from the breach. or sæ if the gain from the breach cannot be ascertained. 10 per cent of the annual turnover of the company for the 12-month period prior to the breach. Julie Cain. 208 and in respect of legal services. The ACL. It is important that small businesses are clear about their obligations and do not undertake any misleading advertising or illegal practices. One area that is important to small business is the area of consumer law and the Fair Trading Act 1999. the maximum fines are $1. The ACL includes: sæ a new national unfair contract terms law covering standard form contracts sæ a new national law guaranteeing consumer rights when buying goods and services (replacing existing laws on conditions and warranties) sæ a new national product safety law and enforcement system sæ a new national law for unsolicited consumer agreements (replacing existing state and territory laws on door-to-door sales and other direct marketing) sæ simple national rules for lay-by agreements sæ new penalties. . Consumer Affairs Victoria oversees business practices and ensures that laws are followed and that businesses act ethically. a single national consumer law. The Competition and Consumer Act 2010 effectively replaces provisions in 20 national. which commenced on 1 January 2011.

they usually do so as a sign of goodwill. A refund would be in order if the goods are faulty (even when the fault only becomes obvious after use). are unfit for their purpose. refund a refund is when a consumer can receive their money back after returning a good. Simply putting the company’s ABN or web address is not sufficient. While many businesses will offer to repair or exchange products. bought goods that they knew were faulty or have lost a receipt or proof of purchase. Requirements for business under the Fair Trading Act 1999 The Fair Trading Act 1999 has a number of requirements for business.sæ educate consumers and traders on their rights and responsibilities and changes to the law sæ seek to reduce disputes between consumers and traders and tenants and landlords sæ ensure compliance with consumer laws sæ promote product safety sæ regulate the consumer environment through licensing and registration. letter. Julie Cain. they are still treated in the same manner regarding refunds. While businesses do not have to give such refunds. Although a business does not have to give a refund. There are different types of refunds that can be given.2 Parliament House. the name of the owner/s. REFUNDS A customer has a right to ask for a refund in certain circumstances. or come with an extra promise about refunds. including situations where a customer: sæ changes their mind or the product is not suitable. Victoria CH A PT E R 12 LEGAL REQUIREMENTS OF SMALL BUSINESSES OFFERING GOODS AND SERVICES 209 ISBN: 9781107665910 © Gillian Somers. the address of the business (not just a post office box) and the business’s registration number or business licence on every business card. has found the same item on sale in another shop. businesses must include the name of the business. Small businesses must also adhere to the following legal rights and obligations under the Act. If goods are on sale. in this instance many businesses will as a way to keep goodwill with their customers and to enhance their reputation. don’t match the description or sample shown. For example. a customer can insist on a refund. receipt and invoice issued in connection with the business. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. it may be faulty or unfit for purpose Figure 12. If a customer simply changes their mind. the business is not required to give a refund. Sometimes a business can refuse to give a refund. . sæ wants a refund or wishes to exchange or return gifts they have been given.

She wore it out for dinner and noticed that all of the threads in the material had started to break and the fabric stretched. when he got them home he discovered the shorts inside were not the same as the size described on the packaging. they did not offer exchanges or refunds. sæ The website should display clear information about the types of payments that will be accepted or the payment provider (e. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. The store refused to give a refund because she had worn it. The jacket cost $450. only to be told that. as a factory outlet. Julie Cain. simple language. sæ Information to customers about affordable and effective dispute resolution arrangements should be included. Australian Company Number (ACN). The store owner refused. Although they were labelled as seconds. Is she entitled to a refund? 2 Mrs Walters purchased a dress for her daughter Sylvie but discovered the next day that her daughter had also gone to the sale and purchased an identical one. . street address and phone/ fax numbers. credit card company). After the third wear. since there was nothing wrong with the dress.g. it is important for them to be clear on their duties and obligations to their customers. sæ Clear and comprehensive information should also be included for customers. She was naturally upset and took them back to the outlet store as she believed she was entitled to a refund. As he was in a hurry. Consumers have a right to a refund under certain circumstances. pointing out that. so a clear refund or exchange policy needs to be published. Give reasons for your answers. She approached the store. This includes details about secure payments or encrypted information. Rose used them on her bed. it was so misshapen that she could no longer wear it. Sam took the shorts back and asked to exchange them. Do you think she should be able to get a refund? ONLINE BUSINESSES As more businesses are establishing online shopping and ordering. On finding the store had run out of these particular shorts. Rose could not see any fault with the sheets. The next day. sæ Clear consent or approval from customers should be gained before charging for a service or product. However. but after the sheets were washed they shrank and would not even fit a single bed. Online customers are entitled to the same levels of legal protection as customers of other existing forms of business. they were not prepared to give her a refund or credit. This includes the registered business name. The sheets had been drastically reduced from $220 to $45. sæ A business must state contract terms in clear.ACTIVITY 12. Guidelines have been established for e-commerce on the internet to protect consumers.4 Read the following scenarios and decide whether or not the customer is entitled to a refund. The guidelines include the following: sæ Customers are entitled to at least the same level of legal protection as customers of other existing forms of business. sæ A business should clearly display the identity and location of the business on its internet site. 210 The outlet refused. he demanded a full refund. Is Sam entitled to a refund? 4 Rose and her sister bought some double bed sheet sets from the factory outlet of a well-known manufacturer. Sam only read the sizing on the shorts packaging before purchasing. since they were clearance items. South Yarra. 1 Maria bought a new designer jacket from a high fashion boutique store in Chapel Street. ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. Is Mrs Walters entitled to a refund? 3 Sam purchased a pair of shorts at a clearance sale during his lunch hour.

Food handling and regulations According to the Victorian Health Department (www. Choose one and determine whether it has covered the points discussed above. Guarantees can be either written or verbal and send a message that the business is confident about what it sells. Local councils will continue to monitor food businesses. When there has been repeated non-compliance by a food premises. billboards sæ planning and building permits sæ hours of operation sæ land and business zoning. WARRANTIES AND GUARANTEES If a business provides a guarantee policy.health. CHAPTER 12 LEGAL REQUIREMENTS OF SMALL BUSINESSES OFFERING GOODS AND SERVICES 211 ISBN: 9781107665910 © Gillian Somers. e. Legislation created by local government that impacts on small business Local governments (municipal councils and shires) are responsible for a number of laws and regulations relating to small businesses. Figure 12. These include areas such as: sæ food handling and safety sæ advertising. There are obligations that businesses must meet when setting out warranties and guarantees. councils may choose to charge the premises additional fees for follow-up inspections. in order to recover the increased costs councils incur in repeatedly attending the same premises. local councils enforce the regulations and inspect premises. all food business owners are legally responsible under the Food Act 1984 to ensure that the food sold to customers is safe to eat. This means that the business owner/proprietor is responsible for food safety in the business. While these laws are state legislation. Victorian food laws also require the business to comply with the Food Standards Code.ACTIVITY 12. are fit for the purpose for which they are sold and are of a quality that means they can be used. This includes a range of less serious infringements. While the focus of warranties and guarantees is on retailers of goods and services.gov. This means that the business must ensure that its products and services are suitable. manufacturers also need to ensure that the products they supply and design are suitable for use.vic. it can be seen as a powerful marketing tool.3 Local governments regulate how food is handled and prepared. . are not faulty and will perform satisfactorily. Changes came into force in 2011.au). Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. Julie Cain.5 Visit at least three online sales websites. Councils will also have the authority to focus enforcement efforts on food premises that pose a greater risk to public health because of non-compliance with the Food Act 1984. and also needs to ensure that all staff who prepare food are fully trained in safe food handling.g. Councils will be able to issue on-the-spot fines for certain food safety or hygiene offences.

s Make sure food is thoroughly cooked and the centre of the cooked food has reached 75°C before being stored in a fridge.Health regulations for food handling and safety Store and display food safely s Keep raw foods and ready-to-eat foods separate to avoid cross-contamination. s Never store food in areas containing chemicals. food storage containers. foil or plastic film. a Susie has long hair and forgot to bring a hair tie before going to work at the pizza shop. cool rooms. s Follow the business Food Safety Program. s Avoid keeping high-risk food in the temperature danger zone. to protect from dust. s Cover food with tight-fitting lids. s Store food in clean. She is working in the kitchen at the local hotel. pantries and food storerooms. insects and cross-contamination. Source: Safe food storage and display in food businesses. and hot food hot at 60°C or hotter. prepare a brochure outlining the responsibilities of small food businesses. 2 Read the following scenarios and determine which breaches of food handling and safety you believe have occurred. s Store food in areas specially designed for food storage. Wash and sanitise them before use. s Be trained in safe food handling. such as refrigerators.6 1 Using the information above. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. freezer or bain-marie.4 More people are now willing to sue businesses for damages or compensation. 212 ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. Keep chilled foods cold at 5°C or colder. cleaning equipment. non-toxic. s Remove and avoid using foods past their ‘use-by’ dates. s Follow the advice given by the Food Safety Supervisor. s Make sure food storage containers have not been used to store things other than food. Figure 12. b Breanna had acrylic nails put on during her lunch break from the sandwich shop. don’t store food in opened cans. c Brittany had three flesh-coloured bandaids on after her dog scratched her. Julie Cain. Department of Human Services ACTIVITY 12. spoiled foods or foods in damaged containers or packaging. clothing or personal belongings. . Make sure food displayed on counters is wrapped or covered.

then it would be expected that all other students who did the same thing would also be given a detention. this is then regarded as a statement of law that can be used in future cases obiter dictum Latin for ‘things said by the way’. In the judgment given at the end of the case. sets out the reasons for the decision. the judge sometimes makes a statement that is not part of the decision but is still a matter that was considered and may influence future decisions. sæ the ratio decidendi (‘reasons for the decision’). when the courts make decisions that establish a legal principle. This would be the obiter dictum or a statement used in future decisions about the punishment for chewing gum. such as cleaning the desks after school. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. courts are actually making laws. These may include rules for attendance. An example of precedent can be found in school rules. the judge sometimes makes a statement that is not part of the decision Business organisations Sale of Goods Act (Victorian) Civil Claims List (Victorian) Figure 12. sæ the obiter dictum (‘things said by the way’). As part of the decision a teacher may state that a student who chews gum and receives a detention three times will be given an extra punishment. the original decision for punishment established a precedent. There are three parts to precedent law: sæ the decision or judgment.Legislative requirements created by common law The main purpose of the courts is to settle disputes. These decisions are then binding on similar future cases that come before the courts. Competition and Consumer Act (Federal) Courts precedent court-made decision that is binding on similar cases ratio decidendi the binding part of the decision. submission of work and uniform. This is the binding part of the decision. This is known as common law. Julie Cain. There are times. . In this way. when making decisions on a case before them. precedent or court-made law. in the judgment given at the end of the case.5 Laws and institutions affecting businesses offering goods and services CHAPTER 12 LEGAL REQUIREMENTS OF SMALL BUSINESSES OFFERING GOODS AND SERVICES 213 ISBN: 9781107665910 © Gillian Somers. This is then regarded as a statement of law that can be used in future cases. The decision made by the court is recorded in the law report. In this case. If there was a case where a student was given a detention for continually chewing gum in class. however. it sets out the reasons for the decision.

Tom did not attend the detention. She warned all students about the consequences for lateness to school and the failure to attend a detention. consent and certainty of terms contract law the law relating to contracts. ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. Punctuality ensures the smooth working of the school for students and teachers’. In contract law. 2 Describe the ratio decidendi of the decision to suspend Tom. . the intention to enter into legal relations. legality of purpose. Offer and acceptance The owner and manager of Body. b Patrick was given an after-school detention by Mrs Franklin. Mrs Franklin. Jake Campbell. which are legally enforceable agreements made between two or more people who have full legal capacity 214 Contract law A contract is a legally binding agreement between two or more individuals or organisations. The whole year level was told about the consequences of lateness and failure to follow instructions. people are invited into the shop to view the products for sale. acceptance.e. Mrs Franklin stated ‘a school cannot function without a recognised set of clear rules. both parties are bound by the contract. contract a legally binding agreement that incorporates the following elements: offer. Tom did not attend this. He did not let anyone at school know. the retailer has accepted the offer. Questions 1 Outline the decisions made by Mrs Franklin. Tom completed the suspension. A person making an offer must be clear about the actual offer and be bound by that offer. a number of elements must be satisfied: sæ offer made sæ acceptance of the offer sæ consideration given sæ legality of purpose (is the activity legal?) sæ capacity to enter into a contract sæ intention to create legal relation. When the item is taken and processed on the cash register. Julie Cain. 3 What is the obiter dictum related to this decision? 4 Applying the precedent. Mind and Soul. there must be an acceptance of the offer by the person to whom the offer is made. Mrs Franklin then decided to suspend Tom for one day and organised a meeting with his parents. what would the decision be in the following cases? a Erin is late to school five days in a row. An offer is the starting point of a contract. in exchange for cash) and the customer retains the product. This means the customer has received a gain or benefit (i. If there is a clear intention to create legal relations. His coordinator. as he had to go to work that night.7 Read the scenario and answer the questions that follow. His displays are an ‘invitation to treat’. For the contract to be binding. that is. the capacity to contract. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. An offer will occur when a person selects an item and brings it to the counter for payment. Actual payment of the item will constitute consideration. The courts have developed principles that explain whether a contract is legally binding and enforceable. Tom was late to school for the twelfth day in a row. The next day he was called up to the office and given an after-school detention.ACTIVITY 12. gave him a lunchtime detention. consideration. for a contract to be legally binding. operates a health food store in the inner suburbs of Melbourne. c Amy failed to attend the detention she was given.

sæ say that the consumer can purchase the DVD player for $235. Give reasons for your answers. When buying an item at an auction. CHAPTER 12 LEGAL REQUIREMENTS OF SMALL BUSINESSES OFFERING GOODS AND SERVICES 215 ISBN: 9781107665910 © Gillian Somers. He promised to pay for the car on delivery. it is an invitation to treat. Consideration Consideration is something of value or benefit that passes between the purchaser and the person accepting the offer (the seller). Usually money is the consideration. Tricking or bullying a person does not The law of contract has derived from the courts and there are some rights given to a person if the seller was engaged in certain types of conduct such as fraud. After three weeks. Intention There must be an intention to enter into a contract. Contacting a retailer for a brochure or catalogue is not an offer. which are clauses exempting the parties from liability in certain circumstances. If the consumer agrees to pay the $235 for the DVD player and hands over the cash and it is accepted by the retailer. have clauses in their contracts exempting them from liability for loss or damage to clothes. is a legally binding contract as it EXEMPTION CLAUSES benefits the young person in the apprenticeship. If a minor enters into a contract for the purchase of shares or land. she decided she didn’t like the long hours. 4 Ella sold a stolen television set to Greg. constitute a legal contract. e. 3 Andy gave Archie his new mobile phone because Archie had threatened to send his friends around to Andy’s house to assault him that night. the consideration might be in the form of a promise or an exchange of another item or service. purchased a car for $5400. it is not a legally binding contract and as such cannot be enforced through the courts. a 17-year-old IT student at TAFE. aged 16. purchased a computer package. 6 A computer software company sent Freda three software packages in the mail. for example. Dry cleaners. Freda did not order them. is not a legally binding contract. . for example.g.If a person sees a DVD player for sale for $249 and makes an offer to buy it for $225 in cash. An apprenticeship. ACTIVITY 12. However. it would be considered RIGHTS UNDER A CONTRACT invalid. 2 Sam. 5 Edward. Money paid to a person to assault another person. the retailer could: sæ accept the offer of $225 sæ not accept the offer (the transaction and therefore the contract does not take place) Legality of purpose If the contract was for an illegal activity. Some contracts also have exemption clauses. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. started a hairdressing apprenticeship. He changed his mind a week later. the contract is valid and binding. and the Sale of Goods (Vienna Convention) Act 1987. the offer is accepted when the auctioneer’s hammer has fallen. for example.8 Determine whether the following actions constitute legal contracts. Julie Cain. Contracts can also be binding for education or employment arrangements. cash is exchanged for an item or a service. The computer company is now threatening legal action. A person under the age of 18 (a minor) is not bound by a contract unless it is considered to be for a necessity such as food and clothing. There are additional rights under the Victorian Goods Act 1958. If a person does not have the mental capacity to enter into a contract. 1 Sarah. the contract can be broken because these items are not considered necessities. who later refused to pay. 19.

the courts had seen issues such as manufacturer’s liability as a contractual issue. Stevenson (1932) and Grant v.6 Donoghue v.9 1 Jane parked her car in a city car park. Until the famous British Donoghue v. the concept of negligence has been extended to many forms of damage and includes more than manufacturers and suppliers of goods. negligence is carelessly causing reasonably foreseeable injury or loss to other people and their property. damages are usually awarded to the injured party ACTIVITY 12. 216 ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. When she came back two hours later. In recent times. She took the jacket back. Stevenson case of 1932. Torts develop through the decisions of the courts. She noticed a large red stain on the elbow. . she found that her car had been broken into and her GPS stolen.Similarly. Is the dry cleaner liable under contract law? Tort of negligence A tort is a civil wrong. is the insurance company liable for flood damage? 3 Sue picked up her new suede jacket from the dry cleaners. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. If a customer has signed the contract but has not read the clause. This placed the consumer in a difficult position if he or she wanted to sue a manufacturer because of the issues involved in mass production. tort civil wrong tort of negligence a tort is a civil wrong where the act or omission of one party affects the rights of another party. The dry cleaner offered to dry clean it again. Julie Cain. Australian Knitting Mills (1936) are cases that established the law of negligence. Her ticket set out all of the conditions and stated that the car park took no responsibility for loss and damage. Notices setting out these conditions must be prominently displayed. the concept of modern negligence had not been developed. Is the car park liable? 2 In a contract for house insurance there is a clause that exempts the insurance company from covering flood damage. but would not pay for a new jacket. One area of law that has become more prominent is the tort of negligence. car park proprietors take no liability for any loss or damage caused to cars while parked in their car parks. Negligence consists of three elements: sæ duty of care – was there a duty of care involved in the case? sæ breach of duty sæ did damage or injury occur as a result of the action or actions? Figure 12. Prior to this.

Stevenson and George v. mutilating his arm. Use the precedent cases discussed in this chapter. The bottle was made of opaque glass.Duty of care The plaintiff (the person/s bringing the action) must establish that the defendant (the person defending the action) owed a duty of care. Stevenson and decided that the manufacturer was negligent. so she was unable to see the contents. had a hot tip on a new company just listed on the stock exchange. Grant sued the manufacturer for negligence. Her teacher left the room for 15 minutes.g. The question arose as to whether the manufacturer owed a duty of care. Yoon Ah and another student were throwing pens at the ceiling fan. The seller told him that a famous gun-maker made the gun and guaranteed its safety. When she tipped the last of the ginger beer into a glass she noticed the decomposed remains of a snail. Donoghue v. causing permanent damage. When one of the sons used the gun it exploded. She received damages. She sued the manufacturer of the ginger beer. sulphite. In the British case Langridge v. His wife used it and suffered a scalp disorder and some of her hair fell out. Relevant cases may include Grant v. in the material. The company went bankrupt six months later. 3 Yoon Ah was a Year 9 student. Tony sued Harold for negligence. The general formula of a duty of care has developed very slowly over time and a number of decisions led to the formation of these principles. The tort of negligence has expanded further to cover advice as well as products. 1 Josie purchased a moisturiser from a chemist. 2 Harold. Levy (1837). Skivington (1869). as the court decided that the seller knew that the product was negligently made. a young woman drank a bottle of ginger beer purchased by a friend. In the well-known case of Donoghue v. The court decided the manufacturer owed a duty of care to the consumer and the woman was awarded damages (monetary compensation). a builder. The young woman became ill and suffered shock. CHAPTER 12 LEGAL REQUIREMENTS OF SMALL BUSINESSES OFFERING GOODS AND SERVICES 217 ISBN: 9781107665910 © Gillian Somers. a father bought a gun for himself and his three sons. She was in a classroom on Friday afternoon with the rest of her class. the defendant is defending or challenging the legal action ACTIVITY 12. She sued the school. . The 1936 case of Grant v. Australian Knitting Mills established the law of negligence in Australia. breach of contract or negligence defendant a person who has been taken to court by another. She sued the manufacturer of the moisturiser for damages. Skivington. a man bought hair wash from a seller/ manufacturer for his wife. The pen broke and a fragment hit Eun Ju in the eye. as there had been a type of fraud when the seller sold a gun that he knew was faulty. The manufacturer of the underwear had left a chemical.10 Determine whether the manufacturer would be liable for damages in each of the following scenarios. On Harold’s advice. e. Tony purchased $5000 in shares. Australian Knitting Mills. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. the court decided that the seller should pay damages for the injury. In the British case George v. Josie’s face broke out in a rash. alleging they were careless in the manufacturing process. The court looked at the case of Donoghue v. Grant suffered from a rash and dermatitis after wearing underwear he had purchased. plaintiff a person who begins civil law action against another. The son was not a party to the original contract and could not make a claim under contract law. Stevenson (1932). The jar contained traces of bleach. Julie Cain. However.

These ethical and moral obligations cover a range of areas and include the following: sæ Ensure that goods and services provided are fit for the purpose they are sold for. While using a hammer. In another case. any injury to the plaintiff’s eye would be devastating. sæ Deliberately misleading customers. The court found that the managers at the cricket ground could not foresee a person outside the ground being hit. It is necessary to determine the extent of the damages and how the person suffered physically. 218 Ethical and socially responsible management of the legal requirements Small businesses have a number of ethical responsibilities as well as legal obligations. Consequently. ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. the plaintiff must show that he or she suffered some damage as a result of a breach of duty. While there are legal penalties. the court determines what a ‘reasonable person’ would do in the circumstances and whether the injury was foreseeable. a splinter flew into his good eye. The case is usually decided on a basis of common sense and foreseeability. 3 A car was smashed by earth-moving equipment when it was parked in a suburban street. sæ Being socially responsible in terms of providing goods and services may mean that a business looks carefully at the sources of its products and the type of information it provides to customers about the goods and services it sells. Bolton v. Some practices adopted to reduce competition can be unethical. emotionally or financially. That is. 2 A visitor to an art gallery was hit by a painting that fell off the wall. sæ Attempting to manipulate the market to block out competition is illegal. there is also a moral obligation to ensure that all business practices are ethical. Knowingly selling faulty items is unethical. only had one good eye. sæ Legislation from all levels of government must be adhered to. then it is up to the court to establish whether the conduct of the defendant breaches that duty.11 Is a duty of care owed in the following circumstances? 1 A person was hit by a football while riding their bike on the road near the local football ground. 4 A cabinet-making business did not provide safety equipment. Smithy was hit in the face by a piece of timber that came off a lathe. The court found that the council should have realised that. a person was struck by a cricket ball while walking past a cricket ground. Safety goggles were not provided. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. a fitter and turner. leaving him blind. ACTIVITY 12. The ball had travelled nearly 70 metres before going over a fence and then another 20 metres before hitting the plaintiff. Julie Cain. In the case of Paris v. not supplying full details and trying to avoid legal responsibilities by not providing warranties and refunds is also unethical. Stone (1951). In order to be successful. .Breach of duty Damages If it is established that a duty of care is owed. the employer was found to be negligent. while there was only a slight chance of injury. Stepney Borough Council (1951) the plaintiff.

CHAPTER 12 LEGAL REQUIREMENTS OF SMALL BUSINESSES OFFERING GOODS AND SERVICES 219 ISBN: 9781107665910 © Gillian Somers. Julie Cain. . Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party.

1 Outline the three levels of government. food handling and safety. UÊ Local councils and local governments deal with areas such as permits. UÊ The tort of negligence is designed to protect people from harm or injury by another party. 4 Define the following concepts: a The decision b The ratio decidendi 6 Is a contract with a 16-year-old person legal? Justify your answer. UÊ State laws relating to businesses include those relating to consumer law. CHAPTER SUMMARY QUESTIONS UÊ The courts can make law through precedent or common law. 7 Explain the rights consumers have under a contract. state and local. UÊ To prove a successful case under the tort of negligence. Stevenson? 9 Why has the tort of negligence expanded to cover advice as well as physical injury? c The obiter dictum. UÊ Each of these levels has its own jurisdiction and law-making powers.CHAPTER SUMMARY UÊ There are three main levels of government in Australia: federal (Commonwealth). 8 How has the tort of negligence developed since the case of Donoghue v. 2 Why was the Trade Practices Act 1974 established? 3 Outline why governments expect businesses to provide returns policies and warranties. 220 ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. UÊ There are three main law-making bodies in Australia. three factors must be present: – duty of care – breach of duty – damage or injury as a result of the action or actions. 5 Give an example of the jurisdiction of each level of government. Issues covered in this area of law include consumer rights. refunds. which covers unfair and unlawful behaviour. warranties and guarantees. UÊ Legal contracts consist of a number of the following components: – offer made – acceptance of the offer – consideration given – egality of purpose (is the activity legal?) – capacity to enter into a contract – intention to create legal relation. as decisions made in court cases establish legal principles for future cases. UÊ There are three parts to a decision by the courts: – the judgment (the decision reached) – the ratio decidendi (the reasons for the decision) – the obiter dictum (things said by the way or in addition to the judgment). UÊ The Australian Consumer Law came into force on 1 January 2011. UÊ Federal legislation relating to businesses includes laws such as the Competition and Consumer Act 2010. the parliaments. the courts and subordinate authorities (delegated legislation). creating a national enforcement regime giving the same rights and protections to consumers wherever they live in Australia. . Julie Cain.

. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. CHAPTER 12 LEGAL REQUIREMENTS OF SMALL BUSINESSES OFFERING GOODS AND SERVICES 221 ISBN: 9781107665910 © Gillian Somers.EXTENSION QUESTION Design a concept map outlining the main legal obligations of a small business in one of the following areas: UÊ Contract law UÊ Tort of negligence UÊ Product liability. Julie Cain.

Julie Cain. . Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party.13 COMMUNICATION IN BUSINESS WHAT’S AHEAD Message is transmitted by the sender Receiver decodes the message Feedback given by receiver to sender to show message is understood ISBN: 9781107665910 © Gillian Somers.

Many of the problems that arise result from poor and/or inappropriate communication. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. including verbal (written and oral) and non-verbal (body language. Good business practice has at its core strong and effective communication channels. . and for successful results to come from this. technology-based) – types of audiences. visual. business involves human interaction. By its very nature. suppliers and customers – appropriate methods of communication for different management situations.KEY KNOWLEDGE Students learn the following about communication in business: – communication and its relationship to business objectives and strategy – type and purpose of information that needs to be communicated – communication methods. processes. AREA OF STUDY COMMUNICATION IN BUSINESS 1 Effective communication channels and skills are essential in small business. strategies and skills. Julie Cain. 223 ISBN: 9781107665910 © Gillian Somers. such as employees. effective communication channels and methods must be in place.

The report was not finished and both Dot and Joe lost their jobs as a result. Internal stakeholders. Then suggest how both the sender and receiver could have improved the process. For these to become a reality. such as staff and management. Ineffective or poor communication is when a message is either not received or is incorrectly decoded (an inaccurate message is conveyed). He came home with two peaches. communication a process of creating and exchanging information between people that produces the required response or understanding decode understand a message one-way communication information is passed by the sender to receiver with no feedback 224 The communication process Communication is essentially a sender conveying messages to a receiver in a form that the receiver can understand and therefore act on in the desired manner. customers and the general public. Julie Cain. The note got lost in his overfull in-tray. and was never read by him. External stakeholders.e. It can be broken down into three steps: 1 An individual or group (sender) sends or transmits a message to another (receiver) in an encoded form. he did not know what to do. 1 James was asked by Claire to go out and buy two pizzas. need to know what the objectives of the business are so they can participate effectively in the development and enactment of strategy that will achieve them. 4 Dot sent Joe a note asking him to finish a report before he went home that night. which he had not emptied. When a small fire did break out. Effective communication occurs when the intended receiver of a message obtains and interprets the message in the manner intended by the sender. 3 A client phoned with a large and complex order. make judgements about a business based on its vision. 3 The receiver gives feedback to the sender to show that they have received and understood the message in the manner intended by the sender (feedback).Communication and its relationship to business objectives and strategy A small business must have clearly specified objectives. ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. such as words. The business operator needs to effectively communicate reasons behind strategies and have staff working as a team implementing these. The wrong quantities and stock were dispatched. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. The functions of marketing and public relations are both centred on assisting organisations and individuals to communicate a positive message of themselves and their products to external stakeholders. mission and objectives. i. identify why the communication was ineffective. ACTIVITY 13. Darko could not read this as he cannot read English. such as suppliers. 2 The receiver is exposed to the message in its encoded form and decodes it. Awareness of business objectives is necessary to motivate and win the cooperation of internal stakeholders. . One-way communication occurs when information is passed by the sender to the receiver with no feedback. they must be clearly communicated to the business stakeholders. understands its meaning (message received). 2 All the employees of a chemical company were given a brochure explaining what to do if a fire broke out.1 For each of the following scenarios. actions or a facial expression (transmission).

Explain why it is an example of poor communication. How do you suggest the message could be made more effective? (Hint: look up the word ‘ambiguous’ in a dictionary. unambiguous and easily understood sæ waits for feedback from the receiver to assess if the message has been decoded accurately sæ rephrases or changes the method of communication if the message was not received accurately sæ listens to the receiver sæ is alert to signs that a message was misunderstood sæ is aware that messages might be communicated unintentionally through mediums such as body language. NO RUBBISH DUMPING OFFENDERS WILL BE PROSECUTED.2 Consider the following text found on a public sign. Effective communication is usually two-way communication. situation and intended message sæ ensures the message is clear. ACTIVITY 13.) CH A P TER 1 3 COMMUNICATION IN BUSINESS 225 ISBN: 9781107665910 © Gillian Somers. Many people recommend the KISS principle: ‘Keep It Short and Simple’. two-way communication communication that is open and encourages discussion and feedback Figure 13. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. Julie Cain.1 An effective communicator must also be a good listener. .Effective communication An effective communicator: sæ builds trust and positive relationships sæ recognises that communication is an interactive process that involves listening as well as transmission sæ works out the exact message they intend to send sæ assesses the audience/receiver and frames the method and style of communication to be accessible to the receiver sæ chooses the most effective method of communication for the receiver.

‘five’ to a Japanese person and is a rude gesture to a Greek person. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. attitudes. This is because of the different cultural perceptions and backgrounds of the people involved. Cultural differences All communication that we receive is filtered through our personal cultural assumptions and experiences before we construct a mental image 226 ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. . whereas in most Western cultures it is. in Pakistan it is not considered rude to stare at someone. Different people will have different interpretations of the same message according to their personal perception. Similarly. education levels. such as moods. ‘one’ to an Italian person. For instance. Factors such as age. questions and other verbal or written responses of the message.Table 13. who then decodes it. The same message may have an entirely different meaning to two people. s May take the form of facial expressions. how it is decoded will depend on the context of the message s Method of communication? s Decoding is affected by context factors such as age. can affect the decoding of a message. a ‘thumbs up’ gesture implies ‘good’ to a Westerner. culture and mood of receiver s Decoding is affected by accompanying non-verbal factors such as body language and dress colour Step 4 Feedback is given to confirm intended meaning of how the message has been received Factors that affect how a message is decoded How a message is decoded can and will vary from person to person.1 Effective communication processes Step 1 s Clear definition of the purpose of the message Produce the message s Identification of expected response Step 2 s Written? Put the message into the most appropriate form to achieve the desired result s Oral? Step 3 s Same message may have different meanings for different people Send the message to the receiver. gestures. cultural background and even short-term factors. education. Julie Cain.

. can be ignored or confused if the receiver is not in a receptive mood or state of mind or doesn’t want to listen. Indonesia or Hong Kong (use your whole hand) To point at someone using your index finger Is very rude in the Middle East and Far East cultures To make a ‘V’ sign using fingers Is extremely rude in several cultures Japanese people smile when confused or angry Smiling Asian people often smile when embarrassed Other cultures reserve smiles for close friends or family Is obscene in Brazil and Germany To form a circle using fingers Means money in Japan Means zero or worthless in France Is acceptable in Australia Passing an item with one hand Is rude and disrespectful in many Asian cultures (use two hands) Bowing Shows respect for rank in Japan Body language The body language that accompanies a message also affects message interpretation. Language used and its accessibility to the receiver The language used to deliver the message should be appropriate to the listener in tone. Latin America. Mood and state of mind of the receiver A message.2 Cultural differences in decoding Gesture/action Touching others Different interpretations Hindus do not touch with their left hand Asian and Afro-American people consider it insulting to touch someone on the head Islamic cultures forbid touching the opposite gender in public Speaking in a loud voice Shows strength in Arabic cultures Indicates confidence and authority to a German person Is impolite in Thailand Shows loss of control to a Japanese person Beckoning someone using your index finger Is obscene in the Middle East. Julie Cain. Spain. CH A P TER 1 3 COMMUNICATION IN BUSINESS 227 ISBN: 9781107665910 © Gillian Somers. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. For example. As explained later in this chapter. Portugal. lost or ignored if delivered in an environment that is not favourable to listening. no matter how well and concisely it is delivered. Environment in which a message is delivered Messages can also be confused. the body language accompanying a message can change its meaning entirely.Table 13. very important information might be missed or misunderstood if the message is delivered in a noisy or crowded environment. Far East.

if English is not the first language of the listener the communication might need to be in short. c I don’t agree. . It is vital to continually review both internal and external communication processes and channels.3 1 List four different types of communication that your teacher has used during this lesson. Most commonly. 3 List and describe five different ways that you could send each of the following messages. Type and purpose of information to be communicated Every business must communicate to a variety of groups and people in different ways. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. providing feedback about performance and dissemination of information. Downward communication This flows from a higher to a lower level in an organisation. Internal business communications usually take one of three patterns. memos. In businesses with a hierarchical structure. ACTIVITY 13. Figure 13.2 Internal business communication occurs between employees 228 ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers.sentence structure and complexity. delegation of tasks. Internal communication channels and patterns A communication channel is the means by which a message is sent. In each case. Julie Cain. Which of these were effective? Give reasons for your answer. a I’m hungry. Physiological barriers such as hearing or sight disability may also affect the capacity to communicate effectively. For example. b I don’t understand. this is a common type of information flow.g. emails a the message that they were attempting to convey to you b how effective this message was in your view. simple sentences. Internal business communication Interaction and therefore internal business communication will occur within a business between the following internal stakeholder groups: sæ employees sæ management sæ owners/shareholders sæ local trade union representatives. It includes informing and counselling of employees. e. 2 List six different incidents where you have received communications from a business in the past week. it involves a superior (boss) giving instructions to employees (subordinates) under their control. note: internal business communication forms of communication used within a business.

Julie Cain. for example. Businesses must deal effectively with a wide variety of external groups and individuals. Examples include: sæ informal staff chats over coffee sæ emails between staff sæ phone calls sæ sharing of information between departmental heads and/or work colleagues. when assisting the business accountant in preparing a tax return or interacting with marketing or public relations advisers sæ contractors – when detailing tasks to be completed and negotiating contract conditions sæ government departments – such as the Australian Taxation Office sæ wholesalers – when negotiating prices for products sæ retailers – when negotiating and placing an order. such as a work group in an organisation. such as: sæ suppliers – involving activities such as ordering of materials and components sæ business customers – demonstrating and selling products sæ professional advisers – for example.3 A successful business operator communicates effectively with their external environment. Lateral communication Lateral communication involves interaction between people at the same level of the organisation.Upward communication This occurs within a business when information flows from a lower to higher level in the organisational hierarchy. Business communication to the wider community This is a vital area of communication. Figure 13. It is a particularly important type of communication when people are working in groups or teams. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. It is also vital when marketing the business and its products and developing a positive public image for the business with the general community (public relations). Business-to-business communications These communications encompass day-to-day interactions with other businesses. . lateral communication communication between people or departments on the same level within an organisation external business communication external business communication includes businessto-business communication and also business-to-thewider-community communication External business communication External business communication can fall into two categories: 1 Business-to-business communications (B2B) 2 Business-to-the-wider-community communications (B2WC). customers and government agencies such as taxation authorities. when dealing with suppliers. Communication with external stakeholders is important. such as: sæ customers/clients sæ lobby groups CH A P TER 1 3 COMMUNICATION IN BUSINESS 229 ISBN: 9781107665910 © Gillian Somers. such as: sæ employees participating in democratic decision making sæ employees participating in performance appraisals sæ suggestion boxes sæ information sharing and feedback sæ staff meetings.

Formal communication is usually expressed in writing and approved by a person with authority. 4 Bob and Bill discuss the weekend’s football result over a coffee. or through selectively giving out information sæ negotiate sæ give emotional satisfaction. While the grapevine is very effective in reaching ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. in the corridor and praises him for a job well done. He then tries to get the supplier to reduce the price. receipts. The grapevine bypasses formal communications channels but spreads information in random and uncontrollable ways. 2 Voula stops her employee.formal communication messages sent using official communication channels semi-formal communication communication using a formal setting but not controlled by the organisation informal communication messages sent through informal channels rather than formal networks. ACTIVITY 13. The purpose of business communication may be to: sæ pass on information. Semi-formal communication occurs during meetings or seminars where opinions and ideas are sought and discussion takes place. or simply ‘office gossip’ or the ‘rumour mill’. Management has total control over its formal communication system. and informal communication channels. Not only is it important to communicate effectively with paying customers and clients while doing actual business transactions. They are often used in business for problem solving. Informal channels Informal communication occurs through unintentionally established channels and is the unofficial communication occurring both within an organisation. often referred to as the ‘rumour mill’ or office gossip’. referred to as the ‘grapevine’ grapevine informal communication channels. Many are later converted to written form. Often it is referred to as the grapevine. brochures. as well as between it and its external environment. He asks that Nick read this before the next staff meeting. 1 Sam rings a supplier to enquire about the price of equipment. Other employees see this. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. 5 Claire puts up a sign outside her shop saying ‘20% off Everything. Semi-formal channels These usually involve messages being sent in a formal setting but not entirely under management control. usually to help with decision making sæ persuade sæ motivate sæ entertain/amuse sæ control others through instructions and guidelines. making plans or developing new ideas. Chris. Examples include reports. management has no control over these channels sæ media sæ the community in general. . 3 Mick sends an email to Nick containing information about a recent market research survey. memorandums. invoices. Formal channels Formal channels are the official channels used by a business to send important messages. such as formal minutes taken at a meeting. Julie Cain. it is also important for any business to communicate a positive image to the community in general. signage and logos. minutes of meetings. such as praise for a job well done sæ seek/gain information sæ monitor and evaluate sæ learn/instruct sæ reflect sæ influence.4 Briefly explain the purpose of each of the following instances of business communication. semi-formal. Today Only!’ 230 Formal and informal channels of business communication Business communication can be further categorised into formal. and become a part of the formal channels. announcements on noticeboards. financial records.

The ‘grapevine’ is the informal communication network found in every organisation.5 Read the article and answer the questions that follow. ACTIVITY 13. the informal avenue of rumours grows. Figure 13. it can also be wildly inaccurate and potentially destructive.people. Since battlefronts moved frequently. and messages were composed in a hurry. people will ‘fill the gaps’ in their information via unofficial channels.4 Management has little to no control over informal communication channels. s ‘Wedge-drivers’ – aggressive. If left unchecked. In order to reduce the negative effect of the grapevine. army telegraph wires were strung loosely from tree to tree across battlefields. invented in 1844) because the telephone wasn’t invented until 1876. If formal communication channels are not effective. Some people say that up to 70% of the information employees receive is via the grapevine. Emails have now joined the grapevine communication channels. unfriendly and damaging. Soon. This is its greatest attribute. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. these channels can cause problems as people can become obsessed with the rumours circulating in their workplace and lose focus on the job at hand. Information via the grapevine invariably moves much faster than through formal communication channels. CH A P TER 1 3 COMMUNICATION IN BUSINESS 231 ISBN: 9781107665910 © Gillian Somers. making it even faster. The term can be traced back to the United States Civil War in the 1860s. Instead. They split groups and dissolve allegiances. it is best to keep people up to date with clear. s ‘Home-stretchers’ – anticipating final decisions or announcements. the resulting communication tended to be garbled and confusing. How to deal with rumours on the grapevine by Kim Harrison If managers and supervisors don’t attend to the communication needs of their staff. There are four types of grapevine rumours: s Wish fulfilment – identifying the wishes and hopes of employees. somewhat like wires used to support grapevines. s ‘Bogey rumours’ – exaggerating employees’ fears and concerns. The wires were used to carry telegraph messages created in Morse code (the electronic alphabet. Since the lines often were strung hastily during battle. there is a vacuum of information. Much of the information passed via the grapevine is unverified. any rumour was said to have been heard ‘on the grapevine’. unambiguous and accurate information. frequently putting a destructive slant on organisational happenings when employees are uncertain. Management has no control over informal channels. . Julie Cain.

not in ‘management-speak’. damaged corporate reputations and caused share prices to fall. Thus the grapevine can contribute to a more inclusive workplace. it has the effect of putting them on a relatively equal footing. US research showed that a reasonably effective approach to minimising rumours is to provide structuring to uncertainty or merely to ignore the rumour and allow it to be overtaken by events. they can pick up relevant rumours. Research shows that grapevine information tends to be about 80% accurate. and staff will be informed as soon as there is progress information available … Preventative measures should include keeping staff regularly. Julie Cain. Source: www. The grapevine can play an important part in the ‘management by walking around’ approach. PR staff could prepare messages on the issues for management and supervisors to communicate in response. and then pass it on in a process of partial or selective recall. rumours can reduce employee productivity. Sometimes external stakeholders also need to receive timely messages to prevent a harmful rumour from spreading outside the organisation. The messages should be tailored to specific audiences and need to be couched in the everyday language of the workplace.They tend to fill the gap during times of ambiguity. However. Since many rumours start from someone’s account of an actual event. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. Their credibility will suffer massively if they try this. fully and honestly informed of planned changes through a range of tailored formal and informal communication avenues such as emails and face-to-face 232 meetings at various levels. Management should avoid playing word games with the truth or parts of the truth in order to minimise bad news. It is rare to find people at different levels discussing rumours or gossiping with each other. This information would not have become available if the manager had stayed in their office all day. although rumours are relatively difficult to grapple with. External rumours are known to have hit sales. It is helpful even to say that information is incomplete or discussions are in progress. Plans can be activated to prevent and reduce rumours. This can allow feedback to take place and adjustments made before final decisions are made. The appropriate manager should confirm true rumours or true parts of rumours to staff as soon as possible. False rumours should be refuted by an authoritative source. When managers move around the office without a particular objective.com ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. tarnish personal reputations and interfere with organisational communication. grapevine information often contains big errors as people put their own interpretation onto an event or information they have seen. The important thing is to maintain a good communication flow using several alternative avenues to convey the same message. When two people share a rumour or gossip. Rumours obviously abound during restructuring and retrenchment processes – when employees are nervous about their jobs they waste time talking about the rumours and their work rate falls. Managers can sometimes purposely send messages through the grapevine to test the likely reaction to a possible management decision. there are strong elements of truth in many rumours. . How to minimise destructive rumours … Although not always harmful.cuttingedgepr.

7 Discuss the strategies that can be used to reduce the number of office rumours and to minimise their negative effects in the workplace. Methods of communication An effective business operator not only needs to possess strong communication skills. Communication Non-verbal communication Body language Visual imagery Verbal communication Oral Written Figure 13.5 Communication method classifications CH A P TER 1 3 COMMUNICATION IN BUSINESS 233 ISBN: 9781107665910 © Gillian Somers. A business owner must recognise this and be able to implement the method that is likely to be the most effective in any given situation. .Questions 1 What percentage of workplace information is estimated to be conveyed via unofficial channels? What percentage of this is estimated to be accurate? 2 Explain the origins of the term ‘grapevine’. 5 Why do managers rarely hear rumours directly from their employees? 6 Explain how a manager can use the office grapevine to their advantage. they must be able to select which method of communication is appropriate in a given situation. Julie Cain. 3 Identify and briefly explain the four different categories of grapevine information. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. Each method has inherent strengths and weaknesses. 4 Explain why rumours become less accurate as time goes on.

. Figure 13.6 Using an appropriate business letter format. usually to employees. It can also be inflexible and not easily adapted to suit an individual situation or receiver. brochures.6 A standard business letter format 234 ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. The two categories of verbal communication are written and oral. Julie Cain. It can be formal or informal and may be handwritten. and is easily disseminated and tracked. usually to employees This is communication that involves the use of language or actual words. both formal and informal. It creates a permanent record of exactly what information is exchanged. construct a business letter for two of the following scenarios. manuals. Written communication Written communication involves the use of written language and is usually accessed visually. or a business and an individual. emails. However. exchanged either between two or more businesses. and is a quick and easy way of disseminating information directly to the people who need to be informed or provoked into action. ACTIVITY 13. notices. memos. a brief note sent within an organisation. A business letter is a type of formal business communication. Written communication includes letters. 1 A letter from a catering business promoting the business to potential clients 2 A letter from a retail business to one of its wholesalers to persuade them to offer a discount 3 A letter from a childcare centre to the local council enquiring about health regulations 4 A letter to a client who has made a complaint.Verbal communication verbal communication use of language (oral or written) to communicate memo a form of formal communication. typed or electronically sent. written communication is timeconsuming to prepare and receive feedback on. invoices. A memo (short for memorandum) is a form of formal communication. media releases and documents. A business letter should follow a commonly accepted format. It is a brief note sent within an organisation. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. Its purpose can be: sæ to provoke action sæ to complain sæ to enquire sæ to gain agreement sæ a public relations exercise sæ a business promotion sæ to offer thanks or sympathy sæ to confirm an agreement. Written business communication methods can take many forms.

1 A business owner requesting a meeting with a staff member 2 An employee requesting information about an account from the business manager 3 An instruction to all staff reminding them to wear uniform 4 A reminder to staff of an extraordinary staff meeting sæ a section for comments sæ the sender’s phone and fax numbers (in case a response is required or there is an error in transmission). Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. Julie Cain.7 Using the suggested memo format outlined above. Email has the advantage of being instant and has the ability to reach a large number of people simultaneously. construct two memos from the following options. It also saves paper! Additionally.7 Memo format ACTIVITY 13. Most businesses have access to a fax machine.8 Fax machines are used to send written and visual information. Email (electronic mail) has evolved to become one of the most prevalent forms of written business communication. It also allows quick transmission of documents that require a signature. A fax cover sheet should contain: sæ the business logo and letterhead at the top sæ the name of the intended receiver and their position sæ the fax number of the receiver sæ the date sæ the number of pages contained (coversheet plus attachments) Figure 13. Faxes (facsimile messages) are commonly used to send written information electronically. Formal and informal communication in most organisations is largely conducted by email. the sender is 5 A note to make staff aware of a change in trading hours. CH A P TER 1 3 COMMUNICATION IN BUSINESS 235 ISBN: 9781107665910 © Gillian Somers. .Figure 13. Most businesses have a branded cover sheet that is sent with the fax.

3 Answer all questions to avoid multiple emails on a single topic. 2 Quick responses within four hours. An email policy should contain the following: sæ a commercial objective in order to ensure that all emails are composed in an effective and professional manner that is good for the business image. 4 Limit abbreviations. jokes).com.au Figure 13. Julie Cain. etiquette rules for the use of email. 8 Do not request read or delivery receipts. 9 Never discuss confidential information by email. 7 Do not overuse ‘urgent’ and ‘important’ flags. It is important that an email policy is established in order to regulate the use of email within the business.email policy guidelines regulating the use of email within the business able to receive notification when a message has been read. specifications about time limits for responses as well as procedures for dealing with emails.g. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. Source: www. guidelines for personal emailing and what can and cannot be forwarded (e. Ten examples of good email etiquette 1 Be clear and concise. 6 Only use ‘Reply to all’ when the information is relevant to all. . It should also specify whether staff emails will be monitored or not.emailmanagement. 5 Do not contribute to corporate spam by using the cc field extensively. This should include restrictions on the use of emails. Included should be directions in terms of style and format. This should include a list of email risks and disclaimers. sæ a legal objective that protects you as an employer from legal action as a result of employee use of the email. emoticons and capitals. 10 Write subject headings that are relevant.9 Email policy regulates the use of email within a business 236 ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. sæ a productivity objective that aims to improve productivity by avoiding misunderstandings and time wasting caused by use of the email system.

cynical or rude. Extension: Obtain a copy of your school email policy. Ms Rowe said.news.com. . Ms Rowe believes poor grammar and haste is the main cause of misinterpreted emails. Julie Cain. The report found almost half of all workers rely on email as their primary method for business communications. CH A P TER 1 3 COMMUNICATION IN BUSINESS 237 ISBN: 9781107665910 © Gillian Somers. 6 List and explain the tips given by Patsy Rowe in regard to the use of emails.8 Read the article and answer the questions that follow.au/business/ business-smarts/email-etiquette-vital-foroffice/story-e6frfma0-1111114872737 ©2007 AAP Questions 1 What is meant by the opening words ‘Stop. Source: www. ‘When you write in full sentences it is very difficult to be misunderstood. it is an amazing communication tool. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. Email etiquette key to workplace harmony by Darren Osborne / AAP Stop. ‘Avoid depending on it as your primary method of communication. The report also reveals that 40 per cent of workers have sent or received an email that appeared to be offhand. ‘Email is brilliant. and 38 per cent have sent or received an email that conveyed anger or was emotional in nature.ACTIVITY 13. (Your school planner would be a good place to start looking. Ms Rowe believes workers can avoid email mishaps by taking the time to craft their reply and not relying on email as their sole method of communication. More than half of those surveyed for the report admitted to sending an email that was misunderstood. after the release of a new report that found two-thirds of Australian workers admit to being trigger-happy emailers. consider and then deliver’? 2 What is a ‘trigger-happy’ emailer? 3 What does Patsy Rowe believe is the main cause of misinterpreted emails? 4 Which gender is more likely to misinterpret an email and why? 5 Explain the danger of including new people in an email conversation. ‘Sometimes there is a new person added into an email. Another email faux pas is copying people into email conversations that include information not intended for a wider audience. But is it the best way to respond to a query?’ Ms Rowe said. consider and then deliver if you want to prevent embarrassing yourself at work with email. with women 11 per cent more likely to use it than men. but if you start writing in staccato sentences without punctuation …’ The report revealed men (48 per cent) were more likely to misread the meaning of an email than women (38 per cent). That’s the message from etiquette expert and author Patsy Rowe. Ms Rowe said.) Explain the conditions that are placed on your use of email at school. Stop and select the best method of communication (for the situation)’. and I may not have wanted that person to see the history of the email’.

Other oral communication methods include: sæ lectures sæ phone calls sæ telemarketing sæ speeches. The problem with reliance on oral communication is that it leaves no permanent record of what was actually discussed. 238 Customer service is increasingly important to businesses in Australia and communication skills are integral to good customer relations. Its advantages are that it allows instant feedback and can be easily adapted for different receivers. While a large component of a meeting is oral. . listening to and assessing their needs. ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers.media release an item of news prepared for and distributed to the media Manuals are publications that provide information on the policies and procedures of the business. unless it is recorded in some form. Julie Cain. with customers on price. They are usually held for a specific purpose. held for a specific purpose. and so on. Figure 13. An agenda must be prepared and distributed outlining the matters to be dealt with at the meeting. communication associated with it can be written. suppliers over price of materials. many businesses train staff in customer service techniques that teach them to communicate in a manner beneficial to the organisation. Media releases are used by businesses to disseminate information via the media. greeting a client/customer.10 Interviews are face-to-face meetings between two or more people. Important skills extend to knowing how to answer a telephone well. communicating the venue and time of the meeting. Meetings are held in every workplace. Minutes of the meeting will be taken and distributed to each attendee for clarification that the minutes are a true and accurate record of the discussions.11 Communication skills are vital for effective customer service. In addition. Figure 13. Interviews are face-to-face meetings between two individuals or an individual and a panel. such as inviting people to the meeting. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. Other forms of written communication include: sæ newsletters sæ minutes and agendas of meetings sæ notices sæ receipts and invoices sæ tenders and submissions. Oral communication Oral communication involves the use of the spoken word. As a consequence. negotiation skills are essential to a small business operator as they must negotiate with employees over wages and conditions. such as: sæ to select the best candidate for a job sæ a performance appraisal sæ disciplinary reasons sæ counselling.

The first movies existing knowledge base. s Do not use jargon. graphics and logos. For instance. how we say it (38 per cent) and our body language (55 per cent). Body and facial gestures are the closest thing to a universal language humans can have. Listeners must be able to link the content and relevance of a message to their Non-verbal communication Non-verbal communication is any form of communication that does not rely on words to convey a message. Julie Cain. s Take care with seating arrangements so that everyone is included. The thumbs-up signal means ‘yes’ in some cultures. Body language How do we know when a person is happy? We do not wait for them to say so. but it is an extremely offensive gesture in others. colour. Expression must match the words and tone used. Gestures communicate a great deal. Usually it involves the use of visuals. The tone of voice used should support rather than undermine the words you are speaking. The trouble with non-verbal communication methods is that people often have very little control over the message being conveyed. . s Try to vary and modulate the tone and volume of the voice. Not everyone will understand these. For instance. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. A speaker must know what they are talking about. A shrug of the shoulder almost always means ‘I don’t know/understand’. so that your body language supports the message being conveyed. pictures and displays. were all silent films in which actors conveyed messages entirely via hand gestures and other body signals. In all cultures. as this builds essential credibility. It is estimated that the impact we make on others depends on what we say (7 per cent). a nod of the head means ‘yes’ and a shake means ‘no’. slang or other inappropriate forms of language. drumming fingers or yawning. saying something like ‘Great!’ has a totally different meaning when said in a sarcastic tone rather than in an enthusiastic one. We believe what we see rather than what we hear and read. we ascertain it from their smile and other gestures. This gives you credibility. dress and appearance. It is therefore vital to be aware of your body language when dealing with others. s Know your material. don’t use complex terminology when communicating to primary school children. crossing of the arms is seen as a defensive gesture.Tips for effective oral communication s Always establish eye contact with the audience. Facial expression can also completely alter a message or even send one in itself. and use names in conversation. CH A P TER 1 3 COMMUNICATION IN BUSINESS non-verbal communication any form of communication that does not rely on words (spoken or written) to convey a message body language a form of non-verbal communication that includes messages and communication conveyed by facial expressions and other gestures 239 ISBN: 9781107665910 © Gillian Somers. s Be a good listener and show interest in what others have to say. A person speaking monotonously in the same tone distracts the listener from the message. s Modify the level of language according to the audience. Open palms are said to invite sharing and confiding. s Never display boredom by doing things such as looking at a watch. People are often unaware that non-verbal communication is taking place. Non-verbal communication comprises signals or messages via body language. Other gestures have an entirely different meaning in different cultures. For example. s Try to make your message interesting. s Try to remember the names of the people being spoken to. Most communication is non-verbal.

3 Zones of personal space Zone Distance Reasons Public zone 3 or more metres We try to keep this distance from strangers in order to feel safe Social zone 1. 1 Working in pairs. devise and perform a role play of the following situations. we start to feel a connection with people and are able to converse Personal zone 0. 2 Identify how each of the following messages might be conveyed using body language.’ e ‘I really value your business.’ 3 Working in pairs. we stake out territory and guard our space. a ‘Hurry up!’ b ‘I am pleased to meet you. a A customer who is unable to speak English comes into a shop and wants to make a purchase. c A client comes into a business to make a complaint.5 to 1. a Raised eyebrows b To turn your back on someone c Rolling of the eyes d Refusal to make eye contact e A raised middle finger f A smile g A forced smile. This is an important consideration when engaging in sales.5 to 3 metres Within this zone.5 metres A good distance for a direct personal conversation with someone else Intimate zone Less than 0. d An employee is being reprimanded by their employer for inappropriate behaviour. The distance that we like to keep from others in a given situation is very important.’ f ‘I want a better deal.9 ACTIVITY 13.5 metres Can touch someone in an intimate way and easily monitor their body language Entry into this zone can be used in order to threaten or intimidate (an invasion of personal space) 240 ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. Table 13. e A customer with really bad body odour comes into a shop. Dress How we dress also plays a role in determining messages sent to others. Personal space How far we want to be from someone depends on ‘zones of personal space’. Inappropriate dress can lead other people to form opinions about us that are extremely difficult to alter. attempt to convey using body language the messages in question 2. Personal space is vital. Julie Cain. Humans have a need for personal space. as opposed to the words they actually spoke. 2 Assess how the body language of these people demonstrated what they were actually feeling.ACTIVITY 13. b A sales assistant who really wants to leave to meet someone within the next five minutes is serving a customer.’ c ‘That was excellent!’ d ‘Go over there now.10 1 Explain what each of the following gestures signals to you. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. .

Each group is to report their findings back to the class.13 Examples of well-recognised symbols C H A P T ER 1 3 COMMUNICATION IN BUSINESS 241 ISBN: 9781107665910 © Gillian Somers. look at the photographs above. draw the logos of the following businesses.11 1 Working in small groups. ACTIVITY 13. usually with the name and address of an organisation logo graphical representation signifying a business ACTIVITY 13. Graphics such as letterheads and logos communicate much about the business they represent. people make judgements about the way others appear. 2 Discuss and come to group conclusions about each of the following questions. 1 From your memory. a ANZ Bank b Nike c Rip Curl d Australia Post e McDonald’s f Qantas g Bakers Delight h Toyota i Target j Channels Ten. Julie Cain. Nine and Seven k The Australian Broadcasting Corporation. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. 2 Comment on what it might mean that you can or cannot recall all the logos. letterhead stationery printed or engraved.12 For better or worse. . a A teacher b An accountant c A delivery driver d A police officer e A customer service officer. Figure 13.12 Figure 13.Symbols Symbols are an important communication tool of business. who would be most likely to succeed at a job interview for the following positions? Give reasons for your answers. a Who would make the most reliable employee? Why? b Who would be the hardest working? Why? c Who would be the friendliest? Why? 3 Of the people in the photographs.

(For example. .14 Business signage is one example of combination communication. phone number and email address Several forms of business communication contain both verbal and graphical features. Keep contact details (telephone. email. this may send a message that your business is wasteful. Julie Cain. an undertaker’s business card should not use bright colours or have an ultra-modern feel!) s Select a font size and type that is easy to read. but not too thick either. colour and design. qualifications and contact details of a person within that business – business address – hours of operation – a logo and graphic design – web address and email address. s Select colours and design appropriate to the type of business and the image it wants to project. such as text. s Make sure the information is accurate. or even that you overcharge! s Make them a practical size so they can slip into a wallet (90 mm x 50 mm is standard). pictures. names and addresses) up to date. s You want your business card to stand out. pamphlets and signage are forms of external communication that utilise both language and symbol communications. Tips for business card design s Select good quality paper – not so thin it looks cheap. Figure 13. sæ Business cards are small cards distributed to clients in order to promote the business. 242 s Do not go overboard. both in the form of a symbol or logo and in the actual written content. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. includes information such as name of business and person. sæ Brochures. fax.Combination communication business card small card distributed to clients in order to promote the business. position held. but not for the wrong reasons. mobile. sæ Stationery and letterheads also convey a message about the business. ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. address. They contain the following information: – name of the business and business type – name.

5 Anthony emails his staff. telling them that there is a staff meeting in 15 minutes. ACTIVITY 13.) c Rank the five cards from best to worst.14 1 Collect five different business cards and complete the following for each one. (Take into account colour. design an appropriate business card for two of the following small businesses.15 Figure 13. use of colour. 6 A childcare centre announces a fee increase by telling the children to inform their parents when they get home. C H A P T ER 1 3 COMMUNICATION IN BUSINESS 243 ISBN: 9781107665910 © Gillian Somers. Then suggest a more effective method for each. a Name the business and business type. . 3 Stacey emails all of her employees. telling them to read their emails. ACTIVITY 13. Give reasons for your opinions. Julie Cain. design. font and graphics for each card. graphics and type of language used. 1 A ballet school named Hoofer’s 2 A used car dealership named Enzo’s 3 A catering firm specialising in Middle Eastern foods called Zafer Delights 4 A lawyer who specialises in criminal cases 5 A graphic design business named Cool Looks 6 A gourmet ice-cream manufacturer named Phil’s Delights 7 A nightclub manager 8 A catering firm that specialises in vegetarian foods. 4 Aiden leaves a complaint about poor service on Frankie’s answering machine. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. 2 Redesign one of the business cards to improve its effectiveness. 1 Van reprimands Sally for poor work performance by publishing an article in the company newsletter. b Discuss the image projected of that business by the card.13 Using the design tips and content suggestions above.15 Business cards are distributed to clients in order to promote the business. 2 Cheyne gives Jack a complicated list of instructions over the phone. When planning the design.ACTIVITY 13. take into account the image the business would wish to project. Suggest why each of the following communication methods was inappropriate and likely to be ineffective.

2 The receiver is exposed to the message and decodes it.g. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. can be upwards. Julie Cain. UÊ Factors affecting how a message is decoded by the receiver: – Cultural differences – Body language accompanying the message – The mood and state of mind of the receiver – The environment in which the message is delivered – The language used. and so on – Combination – involves both verbal and non-verbal. and so on – Oral (spoken) – meetings. – External stakeholders such as the general public and customers make judgements about a business based on its objectives. 5 Classify each of the following situations as: i formal/semi-formal/informal ii lateral/downwards/upwards ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. gestures. fax. 3 The receiver gives feedback. pamphlets. interviews. business cards. 2 Suggest an effective method of communication for each of the following: b Decoding a Training staff to use a new piece of technology c The KISS principle b Dealing with a customer enquiry d Communication channels c Reprimanding a staff member for rudeness to clients a Non-verbal communication e Body language f Logo g External business communication h Media release 244 – Formal channels of communication – official channels under control of management i Memo j Interview k Invasion of space l Oral communication. 3 Distinguish between verbal and non-verbal communication. memos.g. and so on – Non-verbal – body language. e. lateral or downward UÊ Business objectives and strategies must be clearly communicated to stakeholders. CHAPTER SUMMARY QUESTIONS UÊ Types/purpose and audiences of business communication: 1 Define the following terms in relation to business communication. discussion at a seminar – Informal channels – unofficial (the grapevine) where management has no control. 4 Discuss the importance of good communication skills and processes for small business.CHAPTER SUMMARY UÊ Success in business is dependent on effective communication. e. – External communication – businessto-business or business-to-the-widercommunity communication – Internal stakeholders such as employees and management must be aware of the objectives if they are to work towards their achievement. d Dealing with an irate customer. UÊ The communication process involves three steps: 1 The sender gives out the message to a receiver in an encoded form. . UÊ A business manager must be able to select the most appropriate methods of communication to suit the circumstances they face. email. – Internal communication – among internal stakeholders. signs. brochures. Many problems arising in small business are the result of poor communication. UÊ Methods of communication: – Verbal involving use of words: – Written – letters. Use examples to illustrate your answer. – Semi-formal channels – communication in a formal setting but not under direct management control.

Explain how you would communicate this new dress code to the staff. b Warning of a slippery floor d Announcing redundancies e Projecting an image of luxury f Ordering a complex list of supplies quickly. 7 Explain the image projected by your school to an outsider. EXTENSION QUESTION Read the scenario and answer the questions that follow. In recent days. Justify your responses. Consider the following when preparing your answer: UÊ the school uniform UÊ the front office reception area UÊ the dress code UÊ the use of graphics. use in order to complete each of these communication tasks. Provide reasons for your response. d Kaz orders some stationery over the phone e Carlo attends a job interview at a new company f Hung and Riza discuss the football results at the water dispenser g A staff meeting h A parent–teacher evening at your school i A newspaper advertisement j A customer rings to make a complaint k A customer writes a letter of complaint. CH A P TER 1 3 COMMUNICATION IN BUSINESS 245 ISBN: 9781107665910 © Gillian Somers. 1 Classify each communication task as either internal or external business communication.m. 3 Could the new lease agreement be negotiated over the telephone. such as logo and letterhead UÊ colour.iii verbal/non-verbal. Julie Cain. For example. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party.) 4 Design a dress code that would be appropriate for the staff of this business. Coco has had to perform each of the following communication tasks: s communicate the results of performance appraisals to three of her staff s order a new computer for her office s complete 14 tax returns for clients s design a new business card s negotiate a new lease agreement with the landlord s discipline a staff member who is continually late s conduct interviews for a new receptionist s inform staff about a new dress code. a staff newsletter is formal. a An employer issues a new policy to employees in written form a Announcing a new product b A client is greeted by the receptionist c Explaining to an employee why they did not get a promotion c Mick sends Nick an email asking if he wants to have coffee at 11 a. 6 Discuss the most appropriate means of communication for each of the following. in your opinion? Why or why not? (Hint: think about the importance of body language when engaging in negotiation. . 2 Suggest the best methods Coco could Coco Groves is the owner of a small accountancy firm named Groves Accounts operating in the suburb of Snorbins. downward and verbal. Justify your opinion.

Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. .14 EFFECTIVENESS OF COMMUNICATION WHAT’S AHEAD Filtering Interruptions and noise Physical environment Selective perception Barriers to effective communication Cultural differences Emotions Language Incorrect choice of medium ISBN: 9781107665910 © Gillian Somers. Julie Cain.

employees. effectively. . Effective communication must occur if business plans are to come to fruition and objectives are to be achieved. or why messages are not correctly received or understood by the receiver 247 ISBN: 9781107665910 © Gillian Somers. suppliers. AREA OF STUDY COMMUNICATION IN BUSINESS 1 interpersonal communication sharing information and understanding between two people or a small group organisational communication use of systems to share information and understanding with large groups of people barriers to effective communication the reasons why communication fails. It can also occur if the receiver fails to decode or receive the message. Much time is spent engaging in active communication with co-managers. Julie Cain. A manager will be involved in both: sæ interpersonal communication.KEY KNOWLEDGE Students will learn the following about the effectiveness of communication in business: – effectiveness of methods of communication. It is important that this is carried out effectively in order to keep the business running efficiently. The manager who is able to both anticipate and recognise barriers to effective communication and who actively takes steps to eliminate them is well on the way to communicating effectively. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. involving sharing information and understanding between two people or a small group sæ organisational communication. This can occur if a communicator sends an incorrect message or uses an incorrect medium. Activities that involve communication with others take up a large part of a manager’s day. customers and other stakeholders. including consideration of barriers/actions that limit and/or enhance communication – communication behaviours that are considered unethical or illegal. and therefore successfully. Miscommunication is often the cause of business difficulties. where systems are used to share information and understanding with large groups of people.

Filtering often occurs during upward communication. such as a personal assistant. How much filtering occurs in an organisation can depend on how strongly it upholds and 248 Figure 14. The receiver also projects their interests and perspective when decoding a message. a student tells a teacher what they feel the teacher would want to hear. if two people are at a football match supporting opposing teams. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. Julie Cain. background and other personal characteristics. For example. or gives their parents an answer they know will be accepted.2 Organisational communication Barriers to effective communication Anything that interrupts or interferes with effective communication taking place is a barrier to communication. They will both decode the same message in different ways. . Selective perception This occurs when the receiver sees and hears communications selectively.3 Non-verbal communication adheres to the corporate cultural values of honesty and openness. experience. Filtering Filtering is the deliberate manipulation of a message to make it appear more favourable to the receiver by deleting undesirable pieces of information. with the information continuing to be filtered as it passes through various levels. The complexity of the organisational structure within a business can also play a part.Figure 14. they will most probably view an umpiring decision in very different ways! ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. This affects what we view as important in a message. For example. Therefore the important aspects of a message to a sender may differ entirely from that of the receiver. A barrier can: sæ totally prevent communication occurring sæ filter all or part of the message sæ distort the message. motivations. depending on their needs.1 Interpersonal communication Figure 14. We all have an individual filter system that affects how we perceive information. especially if they are received via an intermediary. Messages received by a manager are often filtered. This may involve leaving out the parts that may not be well received.

he responds that he filled and dispatched the order within an hour of reading the relevant email. what you are doing is waiting until they are in the best mood to give the most favourable response. fear or even joy can all cloud our perception of a message and impede our ability to hear it. A person’s response to a message will differ according to their mood or state of mind. hostility. Emotions Figure 14. your parents or a teacher. In the meantime. and made an official complaint about the length of time it took for his order to be sent. . He immediately fills and dispatches the order. Kate then rings Nick and tells him that there must have been a glitch in the email system at his end. In effect. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. Nick places an order via email. a message from someone that you respect will be treated more seriously. Nick has phoned the business owner/manager. When Wayne is asked about this.g. you often wait to ‘catch someone at the right moment’ before telling or asking for something. C H A P TER 1 4 EFFECTIVENESS OF COMMUNICATION 249 ISBN: 9781107665910 © Gillian Somers. 3 How might this situation have played out differently if he had not omitted this information? 4 In your view. Emotions such as anger. For instance. Julie Cain. 5 Describe an instance where you have filtered information you gave to an employer. Two weeks later. Our view or opinion of the sender of a message will also affect how we receive it (e. For example. if we dislike or fear the sender).ACTIVITY 14.4 Different perception – moderate confusion How a receiver is feeling at the time of receiving a message will influence how it will be interpreted. Questions 1 What information has Wayne decided to omit here? 2 Describe why he has decided to omit this information. but accidentally sends it to his trash folder before reading it. was it worth filtering this information? Give reasons for your answer. Wayne receives the email.1 Read the scenario and answer the questions that follow. Kate. Wayne comes across the email and reads it.

For instance. printers and the internet. the use of security screens in banks. Figure 14.5 Effective communication channels are vital to business success. actually suffer from a fear of technology (technophobia). Julie Cain. fax machines. the printer jams.Technological breakdown Interruptions and noise Society is increasingly dependent on various forms of technology. These may hinder a message being received or passed on. The use of colour in a workplace has been shown to affect communication. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. is felt by many (customers and bank staff) to create a barrier to open communication and interaction. . a breakdown may occur because not all pages of a fax print out. mobile phones. Our dependence is so great that if a breakdown occurs with one of these forms. the mobile phone drops out of range. A simple telephone call during a meeting can interrupt and hinder the message that was being communicated. as certain colour schemes send a distinct message in themselves. For instance. while there to protect the bank’s employees. 250 ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. such as telephones. Some people. particularly if they are confidential in nature. Work environments such as openplan offices or noisy factories can make it difficult to conduct conversations. Physical environment This can extend to how welcoming or uninviting the design of the working environment may be. it is difficult to complete everyday business tasks. photocopiers. often older workers. or the internet connection goes down and there is no access to email. These people can become resistant to both the introduction and the use of technology in the workplace.

.1 Colours and what they communicate Colour Associated with Red Energy Danger Power Passion Determination Action Confidence Increased metabolism. Julie Cain.Table 14. respiration and blood pressure Highly visible Prosperity and joy War Pink Femininity Tranquillity Calming Romance and love Orange Joy Sunshine Enthusiasm Encouragement Stimulation Heat Yellow Warming Demanding attention Encourages socialisation Cheerfulness Vitality Hunger Stimulation Can be disturbing if overused Light-hearted Superficial Spontaneity Brown Solid Reliable Conventional Approachability continued next page C H A P TER 1 4 EFFECTIVENESS OF COMMUNICATION 251 ISBN: 9781107665910 © Gillian Somers. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party.

Colour Associated with Green Nature Growth Fertility Restful Harmony Calming Safety. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. truth Loyalty Wisdom Confidence Intelligence Slows metabolism and depresses appetite Masculinity Purple Royalty Wealth Power Nobility Luxury Magic and mystery Uplifting White Light Goodness Purity Virginity Cleanliness Reverence Peace Innocence 252 ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. Julie Cain. money Healing. health Blue Depth Inspiration Stability Trust. .

suggest reasons for the following uses of colour. Hungry Jacks and KFC b Medical staff wearing white c Corporate suits are predominantly black. grey or navy blue d It is suggested that blue be worn to a job interview e The use of the colour green in stores such as The Body Shop f Undertakers never wear yellow g Very few schools have red uniforms h Classrooms are often painted blue or green i Prisons are often painted pink j Asian brides often wear red. .Colour Associated with Black Power Elegance Formality Death Evil Fear Strength Authority Wealth Mystery ACTIVITY 14. 2 What colours would be best to use in the following situations and why? a On packaging for environmentally friendly products b When trying to create an impression of wealth and luxury c When designing uniforms for a childcare agency d When designing the colour scheme for a new hospital. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. staff uniforms and packaging of fast-food chains such as McDonald’s.1. C H A P TER 1 4 EFFECTIVENESS OF COMMUNICATION 253 ISBN: 9781107665910 © Gillian Somers. Julie Cain. a Use of red and yellow in the stores.2 1 Referring to table 14. 3 What would be wrong with the message conveyed by each of the following? a A nurse wearing a black uniform b A fast-food employee’s uniform that is blue c A politician in a bright yellow or orange suit d A store detective dressed in red e A psychologist’s office painted in black.

sæ Pompous language – language is always ‘growing’. Then provide a better alternative method of communication for each. it is confusing and the message gets lost. 254 Language Words can mean different things to different people. 1 Conducting a job interview by email 2 Sending confidential material via the office fax machine 3 Commiserating with a colleague about his failure to gain a promotion during a PowerPoint presentation at a staff meeting 4 Reprimanding a staff member for poor performance while she is dealing with a client 5 Negotiating a deal with a supplier over the phone. which in fact means ‘Spitting prohibited’. For example. sæ Jargon – using technical language is common in communication. education and cultural background are common variables that influence the language people use and their definition of words.3 Suggest what is wrong with each of the following. A ‘fog index’ is used to measure the brevity and clarity of communication. It is important to always consider the audience/reader to determine whether the use of jargon is appropriate.Incorrect choice of medium Communication is often hindered by incorrect choice of medium. This type of message needs to be contained in a formal verbal (written) communication. The following are some common problems with use of language. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. ACTIVITY 14. presentation or report. Oral instructions are not appropriate when detail is required. trams and trains in Melbourne used to have a sign warning ‘Expectorating prohibited’. such as a letter. A document should be written in a concise manner and in a style appropriate to the reader. such as technical descriptions and figures. using a telephone would be inappropriate. Julie Cain. ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. . Wordiness is not only irritating to a receiver. Be careful not to use words that are outdated and not currently understood. Age. to send a message containing detailed information. sæ Unnecessary words – usually occurs with written communication where the person preparing a document believes that to write a large quantity of words indicates knowledge. For example.

. this tautology was noticed in a public bar: Figure 14. This will occur prior to the return of this documentation to our office by way of the envelope provided. For example. Julie Cain. a If there are any aspects pertaining to previous or current discussions on which you require further clarification or if there are further particulars that you require to be furnished. The first is done for you. we shall be glad to furnish such additional detail as may be required by means of the telephone. to say that a particular nail polish ‘dries fast and very quickly’ is to express a tautology. c High-quality learning environments are a necessary precondition for the facilitation and enhancement of the learning process in teenage children.6 An example of a tautologly C H A P TER 1 4 EFFECTIVENESS OF COMMUNICATION 255 ISBN: 9781107665910 © Gillian Somers.4 1 Rewrite each of the following terms as a single word. 2 Rewrite each of the following in plain English. at this point in time. Subsequent to which you are sæ Tautology – means expressing an idea or message twice using different words. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. It is sometimes used as a way of ‘padding’ a written document to gain length. e The new internet access solution will provisionally offer a more streamlined browsing. a a majority of – most b it is probable that c six in number d in a timely manner e to the fullest extent possible f subsequent to g in close proximity to h in the event that i an adequate number of j along the lines of k at such time as l required to fill out the form overleaf by using a black pen. For example. downloading and communicating experience for all organisational stakeholders.ACTIVITY 14. d It is hoped that within this learning environment structure we will be able to facilitate an efficient learning knowledge transfer via electronic means. b It is important that you read the relevant literature and glean the appropriate information.

sæ Tone of communication – must be considered. 9 The vote was completely and totally unanimous. sæ Active or passive voice – can both be used for effective communication. Either a formal or informal manner will be required. the ambiguous sign shown below was displayed in a laundromat. ‘Respond. Figure 14. 1 The dress cost me $100 dollars. Rewrite each of the following statements so that its meaning is plain. For example. in the afternoon?) 8 Necessary requirement. 10 She herself had written her autobiography of her own life in just two weeks. 13 To reiterate again. 11 Forward planning. .. sæ Ambiguity – occurs when a sentence has more than one meaning through inappropriate placement of a word or phrase.6 Outline why each of the following statements is a tautology.m. 3 Miners refuse to work after death 5 Queen Mary has bottom scraped 6 I saw her duck 7 Police help dog bite victim 8 Student tells teacher an unbelievable story. Then rewrite each as a ‘non-tautology’. Julie Cain.ACTIVITY 14. or. 7 2 a..m.7 An example of ambiguity 256 ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. 1 ‘Prostitutes appeal to Pope’ (a newspaper headline) 2 In my opinion. 6 They decided to return again for a second time to that old ancient house. s’il vous plaît. in the morning (as opposed to 2 a. 14 The reason is because . Aim to write or speak in a clear and concise manner. please’). Active voice tells the reader that something has happened. depending on the message. 12 Very unique. 4 Stolen painting found by tree 5 Close proximity.5 ACTIVITY 14. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. I think that … 3 What is your PIN number (the acronym stands for personal identification number)? 2 Kids can make nutritious snacks 4 Please RSVP (the acronym stands for the French Répondez.

2 Rewrite the following email using clearer language. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party.8 1 Each of the following sentences contains words that are unnecessary. Figure 14. it has been decided to give advance warning about the yearly annual review. 1 Toilet out of order please use floor below. 5 On a repair shop door: We can repair anything. Julie Cain. (Please knock hard on the door – the bell doesn’t work) ACTIVITY 14. a It has been decided that you will be compensated in the amount of $220 dollars for the period of time that you were wrongly incarcerated. 2 We exchange anything bring your wife along and get a bargain. 4 Please do not feed the animals. .ACTIVITY 14. Should you be aggrieved at a lack of service. please be assured that we will both say sorry and offer our most sincere apologies. b The students intend to engage in preparation with reference to the coming examinations. Rewrite each in simpler and clearer form.2 Checklists for preparing and writing a written document Checklist for preparing a written document Checklist for writing the document (Does it contain …?) s Purpose – is it clear? s Unnecessary words s Audience – has it been identified? s Vague.7 Rewrite each of the following statements so its meaning is plain. c Pursuant to your request.8 A formal letter that uses unnecessary language Table 14. If you have any suitable foods give it to the zoo keeper. d Customers who purchase our products may ask to request a money-back guarantee to ensure recompense should their purchase be found to be faulty or in a non-operating condition. 3 Ladies are requested not to have children in the bar. indefinite words s Document – what type has been selected? s Outdated language s What information do I need? s Jargon s Tautology s Ambiguity s Appropriate voice (active/passive) s Appropriate tone C H A P TER 1 4 EFFECTIVENESS OF COMMUNICATION 257 ISBN: 9781107665910 © Gillian Somers.

It is important to avoid making distracting actions or gestures. It is important to be a person not a position. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. sadness or even anger. It needs to be no more than ‘yes’ or ‘no’ or a non-verbal cue of a nod of the head as an acknowledgement. whereas when used in the right context they can be powerful communication tools. Being empathetic makes it easier when communicating. such as Japan. It is important that businesses have an awareness of other cultures’ manners. and accompanying emotions. Use feedback to alter a message if required so it is understood by the receiver. In Australia. a smile is seen as a form of acknowledgement and is widely used. the response given is feedback. business objectives are unlikely to be achieved. and incorporate this into how they communicate in a global business environment. asking closed questions that only require a simple ‘yes’ or ‘no’ response may not help clarify whether a person has understood the message. A message has not been communicated unless it is correctly decoded by its receiver. customs and values. body language. whereas in Germany it is usually reserved for friends. It is estimated that the average person speaks at about 150 words per minute. eyes. Julie Cain. whereas capacity to listen is rated at nearly 1000 words per minute. ‘Did you understand what I said?’. the use of feedback in the communication process helps to overcome this. . such as tone of voice. A receiver making eye contact. Listen with purpose. attitudes and expectations. sæ Become an active listener. languages. giving affirmative nods and appropriate facial expressions helps to focus attention. It is important to be able to communicate both verbally and non-verbally. upward and downward communication). Therefore not being fully engaged allows the opportunity for a person’s mind to wander. A key factor in good communication is to pay attention to what others have to say. Unless staff and managers can communicate effectively with their peers and between the levels of an organisation as well (lateral. sæ Be sensitive to the receiver’s values. needs. sæ Do not let status interfere with effective communication. 258 sæ Use feedback. By asking a simple question. ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. e. However. ‘Yes/No’. In other countries. Not doing this will mean that a message may be taken out of context. sæ Be aware of the context in which a message is delivered. The use of open-ended questions that require a person to make a more significant response may be more useful to gain feedback as to whether the message has been understood. Incorrect use of body language and gestures often innocently causes offence to both parties (sender and receiver). Methods of reducing communication barriers Being an effective communicator is an important skill in helping to ensure the success of a business.g. As many communication problems arise due to misunderstandings and inaccuracies. a smile is often used to hide embarrassment.Cultural differences closed questions questions that require a simple answer. displeasure. Something that illustrates cultural difference is the smile. ‘True/False’ open-ended questions questions that allow the respondent to provide a descriptive answer Communication has become more problematic as businesses have become more global in their operations. Overcoming and reducing communication barriers Overcoming and reducing communication barriers is crucial to the success of a business. Observe and consider the non-verbal elements of the message.

’ he said. A flight attendant who spoke to The Dominion Post but who did not want to be named. sæ Simplify language.’ C H A P TER 1 4 EFFECTIVENESS OF COMMUNICATION 259 ISBN: 9781107665910 © Gillian Somers. ‘The flight attendants look like drag queens off the Air New Zealand “pink” flight. Julie Cain.sæ Ensure that physical conditions are appropriate for messages to be heard or received. said the uniform resembled the look sported on the airline’s annual themed flight to Sydney’s Mardi Gras festival. Make sure that the non-verbal actions reinforce the words accompanying them. For instance. teachers need to modify the way they communicate with different year levels in a school. Airline spokesman Ed Sims said the uniform. Hosties hate new Air NZ uniforms by Sydney Morning Herald Thunderbirds are out and ‘drag queen’ Barbie is in.9 Read the article and answer the questions that follow. ACTIVITY 14. Communication should be discontinued until both sender and receiver are composed. Actors are often used as the ‘voice-over’ or media front for an organisation in its advertising. was ‘contemporary’. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. Actions are known to speak louder than words. sæ Use a professional to communicate a message to consumers and the public. Air New Zealand revealed last night its new ‘concept’ uniform design – complete with a candyfloss pink colour scheme – created by Kiwi fashion designer Trelise Cooper. sæ Watch non-verbal cues. sæ Constrain emotions. . ‘We have also been working closely with Trelise to ensure the uniform colour palette works in harmony with our soon to be unveiled new aircraft interiors. ‘I haven’t worn that colour since I was five. to be worn by more than 5000 staff. Cooper was chosen over 25 other New Zealand designers to come up with the new designs. They are judged to be able to put the correct tone to the message. Imagine how differently a teacher would have to speak with a Year 1 student compared to a VCE student when asking them to complete a classroom or homework exercise. Choose clear words and structure the message so that it is easily understood by the receiver. based on New Zealand themes that still allowed individual choice by addressing body type and personality preference. but she said the female cabin crew uniform was let down by its colour. The choice of colour and style needs to fit with the image the organisation is wishing to create.’ … The male flight attendants’ uniform and ground staff uniform was ‘very professional’. The wearing of uniforms in businesses is used to portray a professional environment. The uniform will be introduced in 2011 to coincide with the introduction of a new fleet of 777-300 aircraft.

3 Describe the new uniform adopted by Air New Zealand for use in 2011. What image is being projected by them. explain the message that is conveyed. Explain the rationale for the colours chosen as given by the company. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. 7 Discuss how important you believe colour is in promoting the image of a business. What do these designs tell you about the image the airline wishes to create and the types of clients each wishes to attract? a Qantas b Emirates Airlines c Virgin Australia d Jetstar. publisher of fashion magazine Lucire. 12 January 2010 Questions 1 Explain what the article is reporting in regard to Air New Zealand. Julie Cain.Jack Yan. according to the flight attendant interviewed? 6 Using what you have learnt in this chapter about the use of colour. . Include in your discussion examples of the uniforms used by other businesses and their effect on the image created by the business. but I’ve some doubts on whether pink conveys any national values.’ Source: Sydney Morning Herald. in your opinion. Describe the type of client (market segment) that is likely to be attracted to an airline using the colour pink in its uniforms. locate the uniform designs for each of the following airlines. by the use of pink in these uniforms (see table 14. 8 Using the internet. but questioned the colour choice. 4 When was pink used previously in Air New Zealand uniforms? 5 Explain how the new uniforms are controversial.1). said the patterns fitted with the heritage of Air New Zealand. ‘I know airlines find differentiation very important today. 260 ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. 2 Explain the role a staff uniform plays in promoting and communicating an image for a company such as Air New Zealand.

The community now expects that because a business makes profits through its use of resources such as labour and raw materials. – Irene Moss AO Commissioner C H A P TER 1 4 EFFECTIVENESS OF COMMUNICATION 261 ISBN: 9781107665910 © Gillian Somers. who are increasingly choosing to favour businesses that adopt ethical and socially responsible behaviours. Socially responsible and ethical behaviour is fast becoming an expectation. ethical conduct and accountability throughout the NSW public sector and in all areas of public administration. Our statement of business ethics Commissioner’s foreword This statement provides guidance for the private sector when doing business with the Independent Commission Against Corruption (ICAC). and through management modelling those behaviours. there is a responsibility for the business to act in the interests of all. such as those who do not understand the language used sæ be culturally inappropriate to potential customers/clients.10 Read the extract and answer the questions that follow. and therefore competitiveness. Expected standards of behaviour are communicated to staff via policies and guidelines. of a business. It will also alienate other businesses. It outlines the ICAC’s ethical standards and our expectation that goods and service providers and contractors will comply with these standards in all their dealings with us.The ethics of business communication Small businesses are under increasing pressure to adopt ethical and socially responsible behaviour and to be seen to be accountable to all stakeholder groups. . If a business gains a reputation for unethical behaviour. rather than simply focusing on the generation of profits for owners. We aim to promote integrity. A business that is seen to be open and honest in its communications with all stakeholder groups within both its internal and external environments will enjoy a significant advantage in attracting both customers and employees. Public statements and written disclosures are also important in publicising the ethical expectations held in an organisation. Illegal and/or unethical business communications will have a significant adverse effect on the reputation. such as suppliers. it stands to lose customers and will find it difficult to attract and retain good staff. this is no longer the case. It is important that a small business scrutinises all of its communications with a view to eliminating those that may: sæ offend community standards by exhibiting sexism or racism sæ exclude members of the community. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. ACTIVITY 14. The statement also outlines what goods and service providers and contractors can expect of the ICAC. The protection of the public interest and the prevention of breaches of public trust are among the ICAC’s primary concerns. It is important that a business communicates: sæ standards of ethical behaviour expected of those employed in the business sæ ethical and socially responsible activities that it engages in within the external environment. Julie Cain. While in the past most business operators were primarily concerned with meeting the expectations of their owners.

fair and consistent. What you can expect from us ICAC will ensure that all its policies. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. . reliability. Our staff is bound by the ICAC’s comprehensive Code of Conduct and Ethics when doing business with the private sector. Part of obtaining best value for money also includes ensuring all our business relationships are honest. procedures and practices related to tendering. compliance will not disadvantage you in any way. ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. 262 Why is compliance important? By complying with our statement of business ethics. Julie Cain. As all ICAC suppliers of goods and services are required to comply with this statement. you will be able to advance your business objectives and interests in a fair and ethical manner. the ICAC will balance all relevant factors including initial cost. and timeliness in determining true value for money. Our business dealings will be transparent and open to public scrutiny wherever possible … We require all private sector providers of goods and services to observe the following principles when doing business with the ICAC: s Comply with the ICAC’s procurement policies and procedures s Provide accurate and reliable advice and information when required s Declare actual or perceived conflicts of interest as soon as you become aware of the conflict s Act ethically. ethical. Demonstrated corrupt or unethical conduct could lead to: s Termination of contracts s Loss of future work s Loss of reputation s Investigation for corruption s Matters being referred for criminal investigation. including offering ICAC employees inducements or incentives designed to improperly influence the conduct of their duties s Refrain from discussing ICAC business or information in the media s Assist the ICAC to prevent unethical practices in our business relationships. fairly and honestly in all dealings with the Commission s Take all reasonable measures to prevent the disclosure of confidential ICAC information s Refrain from engaging in any form of collusive practice. all ICAC procurement activities are guided by the following core business principles: s All potential suppliers will be treated with impartiality and fairness and given equal access to information and opportunities to submit bids s All procurement activities and decisions will be fully and clearly documented to provide an effective audit trail and to allow for effective performance review of contracts s Energy efficient equipment. quality.Our key business principles What we ask of you The principle of best value for money is at the core of all the ICAC’s business relationships with private sector suppliers of goods and services. In addition. Rather. whole-of-life costs. products containing recycled materials and environmentally friendly products will be purchased wherever reasonably possible s Tenders will not be called unless ICAC has a firm intention to proceed to contract s The ICAC will not disclose confidential or proprietary information. Best value for money does not automatically mean the lowest price. contracting and the purchase of goods or services are consistent with best practice and the highest standards of ethical conduct.

Confidentiality All ICAC information should be treated as confidential unless otherwise indicated.nsw. travel or hospitality offered during the course of their work. The ICAC extends this requirement to all our business partners. Who is it aimed at? 2 What is this policy statement trying to achieve: a within the ICAC? b within outside organisations who are trying to win contracts with the ICAC? 3 Explain the basic commitments being made in this document by the ICAC in regard to: a who they choose to do business with b their own behaviour and ethical standards. benefits In general. benefits.au Conflicts of interest All ICAC staff are required to disclose any potential conflicts of interest. Source: Independent Commission Against Corruption (ICAC). Questions 1 Explain the purpose of the ICAC publishing this statement. the ICAC expects its staff to decline gifts. 4 Imagine that you are an IT consultant attempting to win a contract at the ICAC. contractors and suppliers. www. Contracting employees All contracted and sub-contracted employees are expected to comply with the ICAC statement of business ethics. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. .gov.Guidance notes Incentives. You should refrain from offering any such ‘incentives’ to ICAC staff – all such offers will be formally reported. Julie Cain. If you employ sub-contractors in your work for the ICAC you must make them aware of this statement.9 A business must communicate and demonstrate its standards of ethical behaviour C H A P TER 1 4 EFFECTIVENESS OF COMMUNICATION 263 ISBN: 9781107665910 © Gillian Somers. a What basic standards of ethical behaviour would you have to demonstrate to be considered for the contract? b What are the possible consequences of not meeting those standards? Figure 14.icac. gifts.

Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. as they tend to make judgements about a business and its reputation based on how they perceive the business to be acting in this regard. English to a group of workers with poor command of that language. UÊ Methods to overcome and reduce communication barriers are: – use of feedback – awareness of the receiver’s values. such as: – filtering – when the sender manipulates a message so it appears more favourable to the receiver – selective perception – when the receiver sees and hears communication selectively based on their own needs.g. This will then affect the reputation and success of the business. UÊ Miscommunication is the cause of many difficulties within a business. body language accompanying the message – minimising potential physical distractions – constraining emotions – simplifying language. expertise and background – emotions – the current emotional state of the sender or the receiver affects if and how a message is decoded – technological breakdown – interruptions and noise – inappropriate physical environment – incorrect choice of medium 1 Why would people in organisations deliberately – language used – cultural differences. full of jargon. Provide an example of each.CHAPTER SUMMARY UÊ It is important that business communication is effective. needs and attitudes – awareness of message context. so they can understand the reasoning behind actions and decisions and work towards achievement of business goals – external stakeholders. . a Submitting a tender for work on a scrap of paper b A business plan full of spelling and grammatical errors c Negotiating a contract over the telephone 264 6 Outline a situation where communication has not been effective due to the following reasons. tautology or ambiguity f Tone g Cultural differences. 3 What can the sender do to ensure that communication will be both received and understood as intended? 4 Why does filtering of information often occur in upward communication? 5 Explain what is wrong with the following communications. d Staff uniforms that are dowdy and out CHAPTER SUMMARY QUESTIONS withhold information from each other? 2 Describe five important barriers to of fashion e Reading a list of complex instructions in communication. They must communicate how they will achieve this to: – internal stakeholders. a Technological breakdown b Noise c Physical environment d Incorrect choice of medium e Use of language – pompous. motivations. ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. e. UÊ Ethics of communication – small businesses are under increasing pressure to be ethical and socially responsible. Business communication involves: – interpersonal communication between two people or a small group – organisational communication with a large group. UÊ Barriers to effective communication are anything that interrupts effective communication. Julie Cain.

Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. Use examples to support your point of view. c Personal information about staff is posted on the company website. EXTENSION QUESTION C H A P TER 1 4 EFFECTIVENESS OF COMMUNICATION 265 ISBN: 9781107665910 © Gillian Somers. . Sample plan Introduction Define the key terms/ideas: communication. customers will not return to your business. Julie Cain. incorrect deliveries may be made. skills.’ Discuss whether you believe this statement to be correct. Poor communication can become a barrier to success in business. a Staff are not informed that asbestos has been found in the office building. If communication with suppliers is poorly handled. b A staff member has been caught stealing and it is hushed up.) Body What types of communication are needed in business? How do they relate to business success? For example. business success. 8 Discuss the possible consequences for a small business of each of the following failures to act ethically.7 Explain the possible consequences of a business failing to act ethically in its communications with staff. ‘To be able to communicate effectively is said to be one of the most important skills that a person can possess. (The following sample plan may provide you with some ideas on how to handle this task. if communicating with customers is poorly conducted.

15 MANAGING THE MARKETING FUNCTION WHAT’S AHEAD Function of marketing Product orientation Marketing-oriented approach Marketing process Research Marketing strategies Market mix Evaluation Pareto Principle Target markets Marketing concept Positioning strategy ISBN: 9781107665910 © Gillian Somers. Julie Cain. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. .

Anytime we use the internet. We are surviving in a world where everyone wants our attention or money. Breakfast is the next big decision: will it be healthy muesli provided by Uncle Tobys or Carman’s and hopefully made of all-Australian products. In that short time there have been many examples of marketing. . we are also exposed to marketing – advertisements flash up on the screen or provide links to other websites. we as consumers are 267 ISBN: 9781107665910 © Gillian Somers. which is offering a special today on egg and bacon rolls. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party.KEY KNOWLEDGE Students will learn the following about managing the marketing function: – the marketing function and its relationship to business objectives and strategy – market attributes. In fact. Then comes a shower and deciding what type of shampoo to use: an expensive specialty brand or the generic brand bought by Mum. or maybe a couple of pieces of Helga’s bread spread with Vegemite or peanut butter? Alternatively. the decision might be to purchase AREA OF STUDY MANAGING THE MARKETING FUNCTION 2 breakfast on the way to school at McDonald’s. segments. A normal school day may start by waking in the morning to the sound of the radio playing an advertisement for a new teenage magazine. we are bombarded with thousands of marketing messages. As a result. Julie Cain. including market dimensions. consumer trends and behaviour. Subway or the school canteen. from the day we are born.

Hopefully. ACTIVITY 15. an AFL Grand Final. Other organisations owe their visibility to a dramatic leader. sæ ideas – involves determining the basic idea at the core of the product or service. the University of Melbourne’s ‘Dream Large’ campaign was designed to market the Melbourne Model of university education. factories. such as Richard Branson and Virgin Blue Airlines. Nigella Lawson and Jamie Oliver have their own marketing team who work to create their image and brand sæ places – cities. art gallery sæ events – attending the Olympic Games. this will lead to consumer loyalty to particular brands. accountants. . commodities. It involves the relationship whereby producers/providers and consumers create. or Janine Allis and Boost Juices. company headquarters and new residents sæ property – real estate agencies work for property owners or prospective purchasers wanting to sell or buy residential or commercial properties. car rental businesses. 3 Pick one of these advertisements and describe what changes you would make. management consultants sæ experiences – a visit to Sea World. For instance. solicitors. to parents. the Spring Racing Carnival. regions and whole countries can compete to attract tourists.1 1 Identify three advertisements you don’t like. Both obvious and subtle marketing influence most aspects of our lives. Marketers now need to find other ways of reaching the consumer. students and communities. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. states. a museum. It is produced and distributed. 2 Describe the elements of the advertisements that cause your reaction. offer and freely exchange products and services of value with each other. sæ information and knowledge – produced and marketed as a product by schools and universities. hotels. We are finding many marketing campaigns to be transparent and shallow. Marketing extends to: sæ goods – tangible items such as food. improve communication methods. such as The Body Shop and its involvement in social causes. It is important for organisations to re-establish contact and influence consumers if they want to be successful in marketing their product or service. To do this they will need to anticipate and judge emotional and behavioural triggers. Julie Cain. engineers. hairdressers. ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. clothing and housing sæ services – provided by airlines. Universal Studios.becoming increasingly savvy and often see through traditional marketing messages that are pushed onto us. What is marketing? marketing process that provides the link between producers or providers of goods and services. Melbourne Grand Prix or rock concerts sæ personalities – such as Kylie Minogue. Investment companies and banks are involved with marketing securities to institutional or individual investors. and consumers 268 Marketing is a process that provides the link between producers or providers of goods and services and consumers. sæ organisations – corporate identity can be created to gain a better image. doctors. and better understand the various life stages we as consumers will pass through. often at a price.

This approach commenced at the time of the Industrial Revolution and continued until the 1930s. 2 Sales orientation (1930s to 1960s). Marketing practices and approaches have evolved through the following four stages: 1 Production orientation – ‘if we can make it. The focus was on internal production issues. Marketing practices Marketing is very important to the success of any organisation. For instance. . (See chapter 16 for more information on market research. medium. ACTIVITY 15. They are directed in their approach by the marketing concept. This leads to marketing departments being very aggressive in their advertising and selling of products. with little attention to external factors. devoting production and marketing resources to satisfying them. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. it will sell’. during an election.Figure 15. often resulting from mass production. 3 Marketing department orientation (1970s to 1990s) occurs when all marketing activities are brought under the control of one department to achieve the short-term plans and goals of the business. such as what customers need or want. This requires market research and market analysis to indicate the present and future consumer demand. the flying kangaroo of Qantas represents a service business. large. 4 Market-oriented approach (1990s to present) occurs when all of the organisation’s efforts are aimed in a coordinated and integrated manner towards simultaneously satisfying its customers and achieving its own corporate objectives. not-for-profit or profit-oriented business.1 Business marketing involves communicating different types of message to a large audience. This orientation is based on the belief that consumers would prefer products that are widely available and inexpensive. such as labour costs and efficient use of production capacity. Most businesses these days would like to think they focus on consumer needs and wants. It is often used with products that buyers do not usually think of buying. This approach focused on persuading existing and potential customers to purchase the goods or services currently produced by the organisation. Not-for-profit organisations and political parties will also use this approach to raise funds. Julie Cain.and salesoriented marketing with the implementation of the marketing company orientation. product. a political party sells the virtue of its candidate and its political platform.2 Classify the images above into the forms of marketing area they represent. Many well-managed organisations have replaced production-.) C H A P TER 1 5 MANAGING THE MARKETING FUNCTION sales orientation the business focuses on persuading customers to purchase its goods and services market-oriented approach a business strategy that focuses on the needs and wants of consumers and develops products to meet them 269 ISBN: 9781107665910 © Gillian Somers. whether it is a small. such as insurance and encyclopaedias. For example.

ACTIVITY 15.g. it will sell’ production-based philosophy of marketing. It has become the most successful Australian wine exporter to the United States of America. Many companies use the market-oriented approach because: sæ it recognises the importance of all functional areas (e. Ford’s belief was based on the ‘if we can make it. It is a common misconception that Model Ts were only available in black. production) of an organisation working towards achievement of business objectives sæ it lowers the risk of a newly developed product or service failing in the market by virtue of effective market research having been undertaken prior to the manufacture of the product or provision of the service sæ it is customer-oriented as the product or service is viewed from the customer’s perspective. not based on the need for the product. video mobile phone). These colours were reintroduced in the late 1920s when better. faster-drying paints came out and production times would therefore not be negatively impacted. with over 15 million Model T Fords being produced during the period 1908–27. extended or removed from their product or service range. owner of the [yellow tail] brand. . This strategy proved very successful. sæ ongoing consumer research and feedback will provide valuable information to the manufacturer or service provider as to whether the product or service needs to be updated. The wine manufacturer also changed its product to be ‘sweeter’ to meet the palate of the Americans and ensured that the kangaroo featured prominently on the label to identify it as being Australian.3 Read the case study and answer the question that follows.g. 270 ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers.Why use the marketoriented approach? Figure 15. The company undertook market research which revealed that American customers wanted to know the type of grape from which the wine was made and a simple label written in English. marketing. This should lead to a longer product life and ultimately greater profits for the manufacturer or service provider. Consumers’ needs are being met with products or services they have indicated are appropriate. Question Identify another product (past or present) that has been manufactured and then sold. but on a manufacturer’s desire to sell the product and convince the public they need it (e. finance. Case study The Model T Ford motor car was first manufactured in 1908 and its low price allowed everyone earning a good salary to buy a car.2 Example of an Australian company that adopts the market-oriented approach An Australian company that adopted the market-oriented approach is Casella Wines. In fact green. red and blue had also been available up until 1915 but were removed from the range due to the longer drying times required for these pigmented paints. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. Julie Cain.

marketing concept the business focuses on satisfying the needs of the customer rather than on selling a product or service corporate objectives the long-term objectives of the organisation. the importance of their customers and the repeat business brought through the development of this customer service and satisfaction relationship become very powerful marketing tools. 2 A total or integrated effort is required by the organisation. This approach is based on four factors: 1 Customer satisfaction is important. The diagrams. For a small business owner.The marketing concept The marketing concept developed when the focus changed from selling a product or service to satisfying the needs of customers. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. they form the foundation for strategic planning Total organisation commitment Customer satisfaction ***INSERT AW 1507*** Marketing concept Objectives Key Performance Indicators Figure 15. 4 Key Performance Indicators that indicate whether objectives. the business must understand their customers and align their organisation’s performance. Julie Cain. . To be successful. It is also cost-effective to the business. on page 272 illustrate the traditional organisational chart and the organisational chart of a customer-oriented business. It is based on the belief that the best results are achieved through using an integrated approach to marketing. 3 Objectives are set. such as increased sales revenue. market share and profits/surplus have been achieved. which provide focus and direction for the organisation.3 Marketing concept and its four essential elements C H A P TER 1 5 MANAGING THE MARKETING FUNCTION 271 ISBN: 9781107665910 © Gillian Somers. Organisations that are larger and more complex in their organisational structure. policies and procedures will often design their organisational charts to represent the importance of the customer to their business. evaluation and reward systems so that corporate objectives are met. they must focus on the customer and adopt the philosophy ‘the customer comes first’. If businesses are to be fully committed to the marketing concept approach. as it does not require an expensive marketing campaign to get customers into the business.

Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. .5 An organisational chart based on the customer-oriented approach 272 ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers.Senior management Middle management Front–line management Customers Figure 15. Julie Cain.4 A traditional organisational chart Customers Front–line management Middle management Senior management Figure 15.

How does marketing relate to business objectives? departmental objectives and. finance and operations. a hierarchy of objectives is then established: corporate objectives. objectives. employer of choice 4 Divisional objectives – within a particular region – to maximise profits. It is recommended that all businesses should prepare a business plan. maximise profits. Julie Cain. increase market share. employer choice 5 Departmental objectives – marketing – increase market shares by xx%. increase market share.g. finally. ethical and environmental issues. divisional objectives. Small businesses also need to establish their business objectives. grow the business. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. hierarchy of objectives the aims and objectives of an organisation are placed in descending order of strategic importance 1 2 3 4 5 6 1 Mission statement – central purpose of the business 2 Aims – what does the business aim to achieve? 3 Corporate objectives – e. aims. . an individual employee’s targets. consideration for social. Marketing as a functional area (department) within that business needs to establish its objectives to fit in with the overall aims and mission of the business. This plan involves not only the setting of overall business objectives but also the objectives and plans to be executed by the functional areas of marketing. For an organisation to operative effectively as a cohesive business. In medium and larger organisations. grow the business.6 Hierarchy of objectives C H A P TER 1 5 MANAGING THE MARKETING FUNCTION 273 ISBN: 9781107665910 © Gillian Somers. consider social. increase % sales per customer Figure 15. plans and strategies. ethical and environmental issues. convert introductions into sales revenue. increase profit by xx% 6 Individual targets – marketing manager and subordinates – introduce more customers to the business. it needs to have established its mission statement.

While there are four steps identified as forming the process. When devising a marketing strategy. Can any improvements be made to ensure the business better meets the needs of customers? (See chapter 17 for more information on evaluation.) 4 Evaluation is then carried out to judge how well the first three steps of the process worked for the business. What is a market and what are its attributes? A market is a group of potential customers with similar needs who are willing to exchange something of value with sellers offering various need-satisfying goods or services. and price a product or service. place and promotion marketing mix the variables that are used when undertaking marketing strategies: product. what pricing policies will be adopted. As part of this mix. (See chapter 16 for more information on market research.) 3 The marketing mix is the tools at the disposal of the business. ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. distribute. (See chapter 18 for more information on marketing strategies. there are four factors that need to be considered: sæ Overall strength of the business – what is the core activity of the business and what is it good at? sæ Resources available – does the business have sufficient money.g. price. (See chapter 18 for more information on the marketing mix. people and facilities? sæ Competition – what are the competitors doing? sæ Objectives – what does the business want to achieve from this (e. Julie Cain. it indicates that the business already has a product or service in that market and wants to increase the percentage it holds. e. an increased market share)? If a business has decided to increase its market share. reducing the percentage being held by its competitors. how the product will be distributed. and the kind of advertising and promotion that will be used. society. Four basic types of markets are recognised: sæ Consumers – involves businesses selling mass consumer goods. a business must constantly review each step due to the dynamic and changing environment in which it operates. a business must never overlook the people who will sell the product and provide the vital ingredient of customer service. 1 Market research helps the business to identify its potential customers and defines their needs and wants.) 2 A marketing strategy is developed to enable the business to identify how it will ‘make its mark’ in the market. place and promotion market group of potential customers with similar needs who are willing to exchange something of value with sellers offering various needsatisfying goods or services 274 The marketing process is a continuous study of the market by a business to ensure that it is always meeting the needs of its customers.) Marketing strategies Strategies are seen as the ‘means to an end’ and involve the long-term plans that are needed to reach set targets. soft drinks. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. price. . promote. food and household products to consumers sæ Businesses – where the purchasers are other business personnel who are often well-trained and well-informed professional buyers sæ Global – businesses that decide to export their product sæ Not-for-profit and government markets – organisations that are formed to provide assistance to or infrastructure for. It also helps it to assess its ability to meet those needs. A longterm marketing strategy will ensure that all marketing efforts of the business will be coordinated and consistent. Decisions need to be made as to what products/services the business will offer. activities undertaken to ensure all marketing efforts of the business will be coordinated and consistent marketing mix the variables that are used when undertaking marketing strategies: product.g.What does the marketing process involve? marketing process continuous study of the market by a business to ensure it is always meeting the needs of its customers marketing strategy a set of ideas and actions that outline and guide decisions on how to create.

market segmentation is carried out in an effort to improve a business’s precision marketing. aggressive. cold or temperate s Gender s Education level s Family size s Family life cycle s Occupation s Nationality/race Psychographic Behavioural Where the market is divided according to: Where the market is divided according to: s Social class – upper. food. hotels and movies. Market segmentation As it is rare to be able to satisfy the needs and wants of everyone. comparison. gregarious. Consumer markets are typically segmented by the following four bases or dimensions. . functional.7 Discussing and carrying out market segmentation can help a business to succeed. extroverted.e. introverted s Lifestyle – achievers. clothes. psychological or social s Personality – compulsive. Not everyone likes the same drink.Price will be a consideration for these groups and many of these organisations actually buy using the tender process. middle. market segmentation an approach that is midway between mass marketing and individual marketing Figure 15.1 Forms of segmentation and their variables Geographic Demographic Where the customers live Where the market is divided according to: or work: s Region – world or country s Age s Size of city. socially aware. There are many characteristics that belong to or can be attributed to a market. service. physiological. Segmentation then allows management to concentrate its efforts on allocating its scarce resources more effectively in order to achieve financial objectives. economy. specialty s Purchasing frequency C H A P TER 1 5 MANAGING THE MARKETING FUNCTION 275 ISBN: 9781107665910 © Gillian Somers. number of residents s Income level s Suburban or rural s Climate – hot. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. lower middle s Needs – economic. i. Some of these characteristics are outlined in the following sections. optimist s Benefits sought – quality. speed s Loyalty status s Kind of shopping – convenience. ambitious. Julie Cain. Segmentation is an approach that is midway between mass marketing and individual marketing. Marketers try to identify and profile distinct groups of buyers who might prefer or require varying products and marketing mix. A market segment should ultimately be a relatively similar (homogeneous) group of customers who are likely to respond in similar ways. market segment relatively similar (homogeneous) group of customers who are likely to respond in similar ways Table 15. conservative.

4 Provide a customer profile for three of the following products/businesses. the Australian chocolate manufacturer Koko Black is a family-based company that commenced operations in 2003. It has identified its customer profile as people who like chocolate of premium taste and quality either for themselves to eat or to give as gifts. such as a fruit and vegetable shop or a butcher in a local strip shopping centre. The Pareto Principle Figure 15. Koko Black believes its customers are willing to pay a higher price and are looking for something different. Studies have found that approximately 80 per cent of business is actually generated by approximately 20 per cent of the customer base. 276 The Pareto Principle is often referred to as the 80/20 rule.Developing a customer profile customer profile range of variables that can be identified when defining a market to best suit a particular customer Pareto Principle referred to as the 80/20 rule (approximately 80 per cent of business is generated by approximately 20 per cent of the customer base) The greater the number of variables that can be identified when defining a market. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. ACTIVITY 15. It is currently being sold in its nine salons in the Melbourne metropolitan area and its online store. This technique is particularly relevant to fashion-related business (clothing stores). For a small business. The chocolate used as the base of its range of chocolates is sourced from Belgium and is produced at its own factory in Melbourne. Many businesses do this by offering discounts. For example. this would mean that approximately 20 per cent of their regular customers provide 80 per cent of their sales for the week. Dulux sees its customers as people who: UÊ >ÀiÊLՈ`ˆ˜}Ê>ʘiÜʅœ“i]ÊÀi˜œÛ>̈˜}ʜÀÊ `iVœÀ>̈˜} UÊ «>Viʈ“«œÀÌ>˜Viʜ˜ÊÕȘ}Ê>ÊÀi«ÕÌ>LiÊ>˜`Ê ÌÀÕÃÌi`ÊLÀ>˜` UÊ >ÀiÊ܈ˆ˜}Ê̜ʫ>ÞÊ>Ê«Ài“ˆÕ“Ê«ÀˆViÊvœÀÊ>Ê µÕ>ˆÌÞÊ«Àœ`ÕVÌ UÊ >ÀiʏœœŽˆ˜}ÊvœÀʈ˜˜œÛ>̈ÛiÊ«>ˆ˜Ìʈ`i>Ãʈ˜ÊLœÌ…Ê VœœÕÀÊÀ>˜}iÊ>˜`Êw˜ˆÃ…iÃÊ­ÌiÝÌÕÀiî° 1 Bunnings 2 The Age newspaper 3 The Herald Sun newspaper 4 Subway 5 Toyota Prius motor car 6 ABC1 television channel 7 Boost Juice 8 David Jones. For example. or by developing mailing lists and then offering listed customers the opportunity to pre-purchase new stock lines. It is therefore very important that businesses recognise this fact and make sure they work to acknowledge and reward customers’ loyalty. Presentation and packaging of the chocolates is seen as an important consideration to ensure the appeal of its chocolates. Its aim is to be the Australian leader in premium chocolate. . Julie Cain. the closer a business comes to developing the profile of its customers. ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers.8 Even chocolate makers must think about the profile of their customers when marketing their products.

people save brands or going to another store than (spend- on average $1 for every $100 spent over the ing in return for a) $50 voucher – they need to counter. ‘We advocate choice and loyalty cards are ways to use the loyalty card. expiry dates for redeem- 10th token is stamped. mation about shopping habits of customers and you’ll be rewarded.’ markets and based on the points awarded for Supermarket-centric loyalty programs. ping around. for the faithful consumer is questionable. consumer group Choice shows that across the ‘You’d save so much more buying cheaper scope of loyalty schemes on offer. use the data to build consumer profiles before executing targeting marketing campaigns. The coffee shop ing focusing solely on the reward as opposed down the road promises a freebie after the to the required spend. is invaluable.’ quantifying the effectiveness of these schemes she says. Julie Cain. fuel.’ he says. but research conducted by ‘You can now get shopping vouchers with loyalty cards.ACTIVITY 15. They gain critical infor- whether it be groceries.’ ‘The offer from FlyBuys is simple – just by The benefit to the provider of the programs undertaking your everyday shopping activity. Another set of data from Roy Morgan allow the individual to have choice and know reveals a shopper spends $156 a week in super- what the return is for their spend. are of greatest concern to accumulate enough points for a return Sydney Choice as they discourage flexibility in shop- to Melbourne flight. Just cites a number of concerns about the Airlines use them for flights or the odd structure of loyalty programs from the market- upgrade to business class. Hawkins says many households C H A P TER 1 5 MANAGING THE MARKETING FUNCTION 277 ISBN: 9781107665910 © Gillian Somers. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. These programs are a ubiquitous part of retailing behavior. ‘Spend $11 000 at Woolworths and $15 000 in Coles to earn enough points for a $50 voucher. He says that while it’s fair to say accruing but making sure they don’t shop around. it would take seven years to such as FlyBuys. use of credit card.’ she points at Coles is one of the more popular says. that weekly shop. however. ‘it’s in the name – it’s acquiring them ing’.5 Read the article and answer the questions that follow. promise of a handful of points for every $500 spent. FlyBuys general manager Phil Choice spokesperson Ingrid Just says the Hawkins dismisses comments made about the statistics reflect a mechanism that offers poor restrictions of the program as ‘totally mislead- rewards. they provide the best choice for the consumer. But area or that this postcode likes organic food. .’ she says. irrespective of whether different retailers. The price of loyalty The premise of loyalty programs is simple ‘They pool statistics that a greater propor- – offer an enticement to either acquire new tion of people are buying cigarettes in a certain customers or to retain existing buyers. the premise of the one way where marketers develop purchasing scheme is that points can be collected from 17 habits with one outlet. The local supermarket ing reward points and flight restrictions on entices shoppers through the door with the frequent flyer programs. While it takes 12 500 points to earn a $100 gift card.

5 The Australian Competition and Consumer Commission (ACCC) expressed concerns about loyalty schemes in the pharmaceutical industry. such as a sports drink target market requires a ‘narrowing-down’ niche market narrow segment that aims to provide products to buyers with specific desires and preferences being part of the generic marketplace. This requires the identification of their actual target market.g. sports drink) that it changes to the product market. has produced another specific product market. expensive cars). e. Identify another industry where you believe the ACCC may feel a greater level of disclosure is needed.e. Julie Cain.are able to get a $20 card within two to three months. Similarly. ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. To identify a specific product market when a consumer is looking for a particular item. The current desire by consumers for smaller cars that are more fuel-efficient. need to select which market segment they wish to pursue. 18 November–8 December 2010. But it’s not only the business-to-consumer market where incentives are proffered in exchange for repeat business. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. The Australian Competition and Consumer Commission has made disclosure of the schemes and their associated value a condition of authorisation for an industry code of conduct. 278 process from a broad or generic market to focus on the specific type of customer. once they have reviewed the forms of segmentation and their variables. It is when that potential customer narrows down their choice to an expensive car that Mercedes. the entire drink market is seen as satisfying people’s thirst. Niche marketing A niche market is a more narrowly defined group that is typically identified as not having its current needs met. 43 Questions 1 Describe the concept of a loyalty program. 2 What benefits does the provider gain by offering a loyalty program to its customers? 3 What types of benefits does the customer gain? Do you believe that the benefits gained by the customer equal those of the provider? Justify your opinion. For example. It is generally determined by dividing market segments into sub-segments or by defining a group seeking a distinctive mix of benefits. particularly in times of increasing fuel costs. The ideal niche market has the following attributes. it is therefore seen as It is when the consumer is specifically looking for a particular type of drink (e. Source: Business Review Weekly. the entire car market is seen as satisfying a potential customer’s need for private transport.g. BMW or Lexus may enter as players in a specific product market (i. target market the market at which a product or service is primarily aimed generic market a market where broadly similar needs of customers are met by sellers offering a variety and often diverse range of products Determining your target market Businesses. . A recent legal case resulted in generic drug manufacturers forfeiting the ability to keep loyalty programs with pharmacists secret. p. a particular type of drink. 4 Identify the types of concerns consumer advocate group Choice has in relation to loyalty programs.

For example.7 In the following consumer marketplaces. Consumers in this market are often willing to pay a slightly higher price for an exclusive product. it is recognised that the following five factors will influence their behaviour: C H A P TER 1 5 MANAGING THE MARKETING FUNCTION 279 ISBN: 9781107665910 © Gillian Somers. ACTIVITY 15. 1 Bread 2 Soft drinks 3 Cars 4 Newspapers (print media) 5 Television (electronic media). . The business should choose a market positioning strategy that is aligned to its strengths and core competencies so that it can gain a competitive advantage. If customers are individuals or household members. If this niche market is free from competitors. sæ The customers have a distinct set of needs. This involves a business differentiating its product or service from that of its competitors within that market segment.6 Imagine that it is your ambition to operate a small business. By determining its market position. Chocolatier Australia has positioned itself in the premium mass-produced chocolate market and as such sees its competitors as Lindt and Ferrero Rocher. a business can then focus its marketing strategies on that segment of the market rather than the broad (generic) market. ultimately.Positioning strategy Figure 15. From your planning. identify businesses or products that have positioned themselves to gain a competitive advantage within that large market. sæ The niche market is generally one that will allow for profit and market growth. sæ The company usually has no competitors. It is therefore important to understand influences on customer purchasing decisions. Julie Cain. and therefore don’t need to survive in the mass market dominated by larger businesses. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. As part of your initial planning. price and age of target market ACTIVITY 15. sæ The customers will often pay a premium to the company that satisfies these needs. Small and medium-sized businesses are well placed to meet the needs of a niche market. market positioning a product is placed within a market with regard to its image. think about the business concept or idea you wish to pursue. sæ The niche market permits a degree of specialisation in the product or service required. but not Cadbury or Whittakers. in the broad market for chocolate. the business will experience a rapid decline in sales and. Factors that influence consumer behaviour Businesses must know about their customers’ behaviour when trying to establish the relationship between their marketing and how the customer will respond. One major problem of only operating in a niche market with one product is that if consumer preferences change. identify four areas where you believe there is an opening for a niche product.9 Customers at a resort like this are often part of a niche market. profit. it can offer the small to medium business operator the chance to sell at higher prices and to gain higher profits.

jewellery or a piece of electronic equipment. married with dependent children. – – ACTIVITY 15. The introduction of telephone and internet banking has extended trading hours and assisted consumers to save time. Associates may come from family. socks and underwear. sæ Personal factors – these are differences due to our age. sæ Situational factors – it is important to know when. Many customers are perceived to be ‘time-poor’ or have time constraints imposed upon them. divorced with dependent children.g. food advertising and specials are often provided earlier in the week to try to improve sales in the earlier days of the week. – When: Is there a particular time of day. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. e. church or other community groups. where and how consumers make their purchases.sæ Cultural factors – inherent values and beliefs are developed through parental and environmental influences. sporting. occupation. How: This relates to behavioural issues such as the consumer’s preference to buy the product as a single item or in multiple packs. accordingly. during and after purchasing a product is a very difficult exercise. aÊ œ˜Ãˆ`iÀÊ̅iÊ̅œÕ}…ÌÊ«ÀœViÃÃÊ̅>ÌÊ i`ÊޜÕÊ̜Ê̅ˆÃÊ«ÕÀV…>Ãi°Ê`i˜ÌˆvÞÊ܅>ÌÊ v>V̜ÀÃʈ˜yÕi˜Vi`ÊޜÕÀÊ`iVˆÃˆœ˜]Êi°}°Ê VՏÌÕÀ>ÊœÀÊv>“ˆÞÊL>VŽ}ÀœÕ˜`]ÊÜVˆ>ÊV>ÃÃ]Ê «iÀܘ>ˆÌÞ]Ê>Ì̈ÌÕ`iÃÊ>˜`ÊÃiv‡ˆ“>}iʜÀÊ ÞœÕÀÊ«iiÀÊ}ÀœÕ«° bÊ œ˜Ãˆ`iÀʅœÜÊޜÕʓ>`iÊ̅iÊ«ÕÀV…>Ãi°Ê `i˜ÌˆvÞÊ̅iÊŜ«ÊœÀÊ«ÀœÛˆ`iÀÊޜÕÊV…œÃi]Ê Ì…iÊ̈“iʜvÊ`>ÞʜÀÊÜiiŽÊޜÕʓ>`iÊ̅iÊ «ÕÀV…>Ãi]ʓi̅œ`ʜvÊ«>ޓi˜Ì°Ê"Õ̏ˆ˜iÊ̅iÊ v>V̜ÀÃÊ̅>ÌÊޜÕÊLiˆiÛiʈ˜yÕi˜Vi`ÊޜÕÀÊ `iVˆÃˆœ˜Ê“>Žˆ˜}° 3 Copy and complete the following table relating to personal factors that influence consumer behaviour by inserting the relevant stage of life against the characteristics of that particular stage of life. sæ Social factors – people are influenced in their actions and beliefs by those with whom they associate. i܏Þʓ>ÀÀˆi`ÊVœÕ«i°ÊÊÊÊÊÊÊ ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. aÊ . newly married. lifestyle and personality. week or season? For instance. such as nationality.ïÀi`Ê>˜`Ê܈`œÜi` bÊ "`iÀÊVœÕ«iÊ܈̅Ê`i«i˜`i˜ÌÊV…ˆ`Ài˜ cÊ >ÀÀˆi`Ê܈̅ʫÀˆ“>ÀÞÊÃV…œœ‡>}iÊV…ˆ`Ài˜ dÊ 280 Where: This relates to where the actual buying decision is made and where the actual purchase occurs. religion or racial background or even the social grouping to which people belong. widowed). stage of life (single. It might have been new clothes. economic situation. sæ Psychological factors – this incorporates the notion of what is motivating a consumer to purchase this particular product or service. we are increasingly seeing seasonal products such as Easter eggs and Christmasrelated products entering our stores earlier and earlier in an attempt to extend the buying season. such as music. single parent. Trying to work out what is in a consumer’s mind before. yoghurt. Has the purchase been planned or is it one that occurred as a result of an impulsive decision based on various marketing techniques used to influence the decision.8 1 Identify two products you recently purchased that were influenced by: aÊ VՏÌÕÀ>Êv>V̜Àà bÊ ÃœVˆ>Êv>V̜Àð 2 Think about the last purchase you made for an outlay of more than $100. Studies have shown that family food purchases are made towards the end of the week. . peers. Julie Cain. lighting and placement of products. food and snack items.

buy cars. Cheques have become less popular and are being replaced by online payment or payment by phone.g. probably two incomes. may require special assistance. environmentally aware and socially concerned. This has also led to an consumer orders online with the goods being delivered to their designated address. Single and living at home e. C H A P TER 1 5 MANAGING THE MARKETING FUNCTION 281 ISBN: 9781107665910 © Gillian Somers. Many consumers have changed their preferred method of payment for goods and services. holidays and furniture Financial position improving. Some examples of these trends include the following: sæ One-stop shopping has increased in popularity. They engage in consumption behaviour that will support their diet. toys and educational items Substantial cut in income. fashion-oriented High disposable income.Stage of life Characteristics e. capitalising on our trend of being a ‘café society’. This trend has encouraged retailers to add related and unrelated items of merchandise to their core products. both medical and domestic Consumer trends services that will ultimately save them time Keeping up with current consumer trends is important to the financial success of a business. Consumers are also using online services to book airline tickets or holidays.g. boats and furniture Low disposable income. They are tired of the mass marketing approach and want to be listened to and be treated as special. particularly of goods and increase in internet purchasing where the in their busy lives. Julie Cain. sæ Consumers have now become 24/7 in their purchasing. Credit cards and use of EFTPOS have become acceptable as a replacement for cash. Minimal financial outgoings. buying televisions. . sæ Many consumers are now looking to be treated as individuals in their purchasing decisions. resistant to advertising. highest purchase rate. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. sæ The nostalgia factor is evident in consumers of different ages. Older consumers are reaching back towards long-gone simpler days to replace their growing anxiety about ageing and our stressful society. It is important that the marketing function therefore supports the business by understanding the current and changing consumer trends. nutritionally informed. sæ Consumers now are more health conscious. sæ Consumers have embraced e-commerce. but not quite teenagers – has formed a new market. fitness and ideal lifestyle. They look for retailers who can provide fast and convenient service at any time on any day. sæ The emergence of a new consumer group known as ‘tweens’ – no longer little kids. high average purchase of durables. banks now offer insurance and many retail businesses now include a coffee shop within their store. renting or home purchasing. For instance. while young consumers are adopting and updating or reinventing products from the past. holidays.

CHAPTER SUMMARY UÊ >ÀŽï˜}ʈÃʓœÀiÊ̅>˜ÊÕÃÌÊÃiˆ˜}Ê>Ê«Àœ`ÕVÌ\ʈÌʈÃÊ >˜Ê>V̈ۈÌÞÊ̅>Ìʈ˜yÕi˜ViÃÊ̅iʓ>œÀˆÌÞʜvÊ>V̈ۈ̈iÃÊ Õ˜`iÀÌ>Ži˜Êˆ˜Ê«iœ«i½ÃʏˆÛiðÊÌÊ>ˆ“ÃÊ̜ʅi«Ê Vœ˜ÃՓiÀÃʓ>Žiʈ˜vœÀ“i`Ê>˜`Ê>VVÕÀ>ÌiÊ`iVˆÃˆœ˜ÃÊ Ài>̈˜}Ê̜Ê̅iÊ«ÕÀV…>ÃiʜvÊ>Ê«Àœ`ÕVÌʜÀÊÕÃiʜvÊ>Ê ÃiÀۈVi° UÊ -i}“i˜Ì>̈œ˜ÊÀiµÕˆÀiÃʈ`i˜Ìˆvވ˜}ʓ>ÀŽiÌÊ Ãi}“i˜ÌÃÊL>Ãi`ʜ˜ÊLi…>ۈœÕÀ>]Ê}iœ}À>«…ˆV]Ê `i“œ}À>«…ˆVÊ>˜`Ê«ÃÞV…œ}À>«…ˆVÊÛ>Àˆ>LiðÊ"˜ViÊ Ì…iÊÃi}“i˜ÌʈÃÊ`iÌiÀ“ˆ˜i`]Ê>Ê`iVˆÃˆœ˜ÊV>˜ÊLiÊ “>`iÊ>ÃÊ̜Ê܅ˆV…ÊÃi}“i˜ÌʈÃʓœÀiÊv>ۜÕÀ>LiÊvœÀÊ >Ê«>À̈VՏ>ÀÊLÕȘiÃÃÊ̜ÊÌ>À}iÌ° UÊ >ÀŽï˜}ÊiÝÌi˜`ÃÊ̜Ê̅iÊvœœÜˆ˜}Êi˜ÌˆÌˆiÃ\Ê }œœ`Ã]ÊÃiÀۈViÃ]ÊiÝ«iÀˆi˜ViÃ]ÊiÛi˜ÌÃ]Ê«iœ«i]Ê «>ViÃ]Ê«Àœ«iÀÌÞ]ʜÀ}>˜ˆÃ>̈œ˜Ã]ʈ˜vœÀ“>̈œ˜ÊÊ >˜`ʈ`i>ð UÊ /…iʈ“«œÀÌ>˜ViʜvÊ̅iÊ*>Ài̜Ê*Àˆ˜Vˆ«iÊ­näÉÓä®Ê ÀՏiʘii`ÃÊ̜ÊLiÊÀiVœ}˜ˆÃi`]Ê܅iÀiLÞÊnäÊ«iÀÊVi˜ÌÊ œvÊÃ>iÃÊ>ÀiÊÃ>ˆ`Ê̜ÊLiÊ>ÌÌÀˆLÕÌi`Ê̜ʜ˜ÞÊÓäÊ«iÀÊ Vi˜ÌʜvÊVÕÃ̜“iÀð UÊ >ÀŽï˜}ʅ>ÃÊ>˜Êˆ“«œÀÌ>˜ÌÊÀi>̈œ˜Ã…ˆ«ÊÌœÊ VœÀ«œÀ>ÌiʜLiV̈ÛiÃ]Ê>˜`ʓ>ÀŽï˜}ÊÃÌÀ>Ìi}ˆiÃÊ>ÀiÊ ÃiÌÊ̜ʓiiÌÊ̅iÃiʜLiV̈Ûið UÊ ÕȘiÃÃiÃʘii`Ê̜ÊVœ˜Ãˆ`iÀʅœÜÊ̅iÃiʏœÞ>Ê VÕÃ̜“iÀÃÊV>˜ÊLiÊLiÃÌÊÃiÀÛi`Ê>˜`ÊÀiÜ>À`i`° UÊ >ÀŽï˜}ʅ>ÃÊiۜÛi`ÊvÀœ“ÊLiˆ˜}Ê«Àœ`ÕV̈œ˜‡ œÀˆi˜Ìi`Ê­ÃiÊ܅>ÌʈÃʓ>`i®Ê̜ÊLiˆ˜}ʓ>ÀŽi̇ œÀˆi˜Ìi`Ê­“>ŽiÊ܅>ÌÊ̅iÊVÕÃ̜“iÀÃÊÜ>˜Ì®° UÊ /…iʓ>ÀŽï˜}ÊVœ˜Vi«Ìʅ>ÃʘœÜÊ`iÛiœ«i`ÊÌœÊ ÃÕ««œÀÌÊ̅iÊV…>˜}iʈ˜ÊvœVÕÃÊvÀœ“ÊÃiˆ˜}Ê>Ê«Àœ`ÕVÌÊ œÀÊÃiÀۈViÊ̜Ê>VÌÕ>ÞÊÃ>̈Ãvވ˜}Ê̅iʘii`ÃÊ>˜`Ê ÀiVœ}˜ˆÃˆ˜}Ê̅iʈ“«œÀÌ>˜ViʜvÊVÕÃ̜“iÀð UÊ i̅œ`ÃÊ>ÀiÊÕÃi`Ê̜Ê`iÌiÀ“ˆ˜iÊ>˜`Ê՘`iÀÃÌ>˜`Ê VÕÃ̜“iÀýʘii`ÃÊ>˜`ÊÜ>˜ÌÃÊÜÊ̅>ÌÊ̅iÞÊV>˜ÊLiÊ “œÀiÊëiVˆwV>ÞÊÌ>À}iÌi`° UÊ -i}“i˜Ì>̈œ˜]ÊÌ>À}ï˜}Ê>˜`Ê«œÃˆÌˆœ˜ˆ˜}Ê>ÀiÊ ˆ“«œÀÌ>˜Ìʓ>ÀŽï˜}Ê«Àˆ˜Vˆ«iðÊÌʈÃʈ“«œÀÌ>˜ÌÊvœÀÊ >ÊLÕȘiÃÃÊ̜ÊLiÊ>LiÊ̜Ê`ˆvviÀi˜Ìˆ>ÌiÊLiÌÜii˜Ê VÕÃ̜“iÀýÊÛ>Àވ˜}ÊÌ>ÃÌiÃ]ʘii`ÃÊ>˜`ÊÜ>˜ÌÃÊ>˜`Ê Ì>À}iÌÊiˆÌ…iÀʈ˜`ˆÛˆ`Õ>Ã½ÊœÀÊ}ÀœÕ«Ã½Ê˜ii`ð 1 .

iw˜iÊ̅iÊvœœÜˆ˜}ÊÌiÀ“ÃÊ>˜`Ê̅i˜ÊÕÃiÊi>V…ʈ˜Ê CHAPTER SUMMARY QUESTIONS >ÊÃi˜Ìi˜ViÊ̜Ê`i“œ˜ÃÌÀ>ÌiÊޜÕÀÊ՘`iÀÃÌ>˜`ˆ˜}° a >ÀŽï˜} b -i}“i˜Ì>̈œ˜ c />À}ï˜} d ÕÃ̜“iÀÊ«Àœwi e *œÃˆÌˆœ˜ˆ˜} f ˆV…iʓ>ÀŽï˜} g Ê œ˜ÃՓiÀÊLÕވ˜}ÊLi…>ۈœÕÀ h i˜iÀˆVʓ>ÀŽiÌ° 2 `i˜ÌˆvÞÊ̅iÊÛ>Àˆ>LiÃÊ̅>ÌÊV>˜ÊLiÊÕÃi`ÊÌœÊ UÊ /…iÊ«œÃˆÌˆœ˜ˆ˜}ʜvÊ>Ê«Àœ`ÕVÌʈ˜Ê>Ê«>À̈VՏ>Àʓ>ÀŽiÌÊ ˜ii`ÃÊ̜ÊLiÊVœ˜Ãˆ`iÀi`ʈ˜Êˆ}…ÌʜvÊ̅iÊ«Àœ`ÕV̽ÃÊ >ÌÌÀˆLÕÌiÃ]ʅœÜʜvÌi˜ÊˆÌÊ܈ÊLiÊ«ÕÀV…>Ãi`Ê>˜`Ê Ü…ˆV…Ê«Àœ`ÕVÌÃÊ>ÀiʈÌÃÊVœ“«ï̜Àð UÊ ˜Êˆ“«œÀÌ>˜ÌÊVœ˜Ãˆ`iÀ>̈œ˜ÊˆÃÊ܅i̅iÀÊ̜ʓ>ÀŽiÌÊ ÌœÊ>ʓ>ÃÃʜÀʘˆV…iʓ>ÀŽiÌ° UÊ ÌʈÃÊ>ÃœÊˆ“«œÀÌ>˜ÌÊ̜Ê՘`iÀÃÌ>˜`Ê܅>Ìʈ˜yÕi˜ViÃÊ >ÊVœ˜ÃՓiÀ½ÃÊ«ÕÀV…>Ș}ÊLi…>ۈœÕÀÊ>˜`ÊÌœÊ `iÛiœ«Ê>ÊVÕÃ̜“iÀÊ«ÀœwiÊ܅i˜ÊÌÀވ˜}ÊÌœÊ iÃÌ>LˆÃ…ÊÀi>̈œ˜Ã…ˆ«Ê“>ÀŽï˜}ÊÃÌÀ>Ìi}ˆið UÊ œÀÊLÕȘiÃÃiÃÊ̜ʫÀœÃ«iÀ]Ê̅iÞʓÕÃÌÊLiÊ>Ü>ÀiÊÊ œvÊ̅iÊVÕÀÀi˜ÌÊVœ˜ÃՓiÀÊÌÀi˜`ÃÊ>˜`ʓ>ŽiÊÃÕÀiÊ Ì…iÞÊÌ>ŽiÊ̅iÃiʈ˜ÌœÊ>VVœÕ˜ÌÊ܅i˜Ê“>ÀŽï˜}ÊÊ Ì…iˆÀÊ«Àœ`ÕVÌð 3 .

iÃVÀˆLiÊ܅>ÌʈÃʓi>˜ÌÊLÞÊ̅iÊÌiÀ“ÊÊ ¼“>ÀŽï˜}ÊVœ˜Vi«Ì½° 4 Ý«>ˆ˜Ê̅iʓ>ˆ˜ÊÀi>ܘÃÊvœÀÊ̅iÊÜ>Þʈ˜Ê܅ˆV…Ê “>ÀŽï˜}ʅ>ÃÊiۜÛi`° 5 *ÀœÛˆ`iÊ̅ÀiiÊiÝ>“«iÃʜvÊ«ÀœLi“ÃÊ̅>Ìʓˆ}…ÌÊ ÀiÃՏÌÊvÀœ“Êv>ˆˆ˜}Ê̜ʏˆ˜ŽÊ“>ÀŽï˜}Ê`iVˆÃˆœ˜ÃÊ ÜˆÌ…ÊœÌ…iÀÊ`i«>À̓i˜ÌÃʈ˜Ê̅iÊLÕȘiÃð 6 -Ì>ÌiÊvœÕÀÊ«œÃÈLiʓ>ÀŽï˜}ʜLiV̈ÛiÃÊ>Ê LÕȘiÃÃʓˆ}…ÌÊÃiÌ° 7 .

Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party.iÃVÀˆLiÊ̅iÊ*>Ài̜Ê*Àˆ˜Vˆ«iÊ>˜`ÊiÝ«>ˆ˜ÊˆÌÃÊ ÀiiÛ>˜ViÊ̜ʓ>ÀŽï˜}° 8 ˆÃÌÊ̅iÊ`ˆvviÀi˜ÌÊÌÞ«iÃʜvʓ>ÀŽiÌð Ãi}“i˜ÌÊ>ʓ>ÀŽiÌ° 282 ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. Julie Cain. .

9 .

iÃVÀˆLiÊ̅iÊv>V̜ÀÃÊ̅>Ìʈ˜yÕi˜ViÊVœ˜ÃՓiÀÊ «ÕÀV…>Ș}ÊLi…>ۈœÕÀ° 1010 œÀÊ̅iÊvœœÜˆ˜}Ê«Àœ`ÕVÌÃ]ʈ`i˜ÌˆvÞÊ̅iÊ Vœ˜ÃՓiÀʓœÌˆÛiÊ­˜ii`®ÊޜÕÊܜՏ`ÊLiÊ Ã>̈Ãvވ˜}ÊLÞÊÃiˆ˜}Ê̅>ÌÊ«Àœ`ÕVÌ\ a "ÛiÀÃi>Ãʅœˆ`>Þ b *>Ó>ÊÌiiۈȜ˜ c ՘V…ÊœvÊyœÜiÀà d Vi‡VÀi>“ e *>ˆÀʜvÊëœÀÌÃÊŜið EXTENSION QUESTION ¼ˆviÊܜՏ`ÊLiÊÜʓÕV…Êȓ«iÀÊ܈̅œÕÌÊ “>ÀŽï˜}°½Ê.

ˆÃVÕÃÃÊ̅ˆÃÊÃÌ>Ìi“i˜Ì]ÊÕȘ}Ê iÝ>“«iÃÊ̜ʈÕÃÌÀ>ÌiÊޜÕÀÊ>À}Փi˜Ì C H A P TER 1 5 MANAGING THE MARKETING FUNCTION 283 ISBN: 9781107665910 © Gillian Somers. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. . Julie Cain.

Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party.16 MARKET RESEARCH WHAT’S AHEAD Market research WHY HOW s Reduce level of risk s Assess current situation s Predict future trends/changes Use a systematic approach: s Identify problem s Determine objectives s Design research s Identify types/ source of information s Determine data design collection s Collect and analyse data s Report on findings ISBN: 9781107665910 © Gillian Somers. Julie Cain. .

This analysis helps businesses make decisions relating to the marketplace and satisfy the needs of both potential and existing customers. Julie Cain.KEY KNOWLEDGE Students will learn the following about market research: – why market research is needed – what can be discovered through market research – market research processes – information needs – data-collection tools and techniques – analysis and interpretation. . AREA OF STUDY MANAGING THE MARKETING FUNCTION 2 Market research is a systematic procedure used to develop and analyse new and existing information. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. 285 ISBN: 9781107665910 © Gillian Somers.

In past times. Systematic means the adoption of a formal method or approach. It is therefore very important to determine whether the benefit gained from research will outweigh the cost involved in conducting the research. it has always undertaken and responded to information gained from its market research. From the days of opening its first Australian store at Yagoona in New South Wales in December 1971 to present times. Julie Cain. It is possible to find informal. keeping an eye on the competition and industry trends. In line with its vision ‘to be the best quick service restaurant in the world’. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. Should it be decided that there is an inadequate amount of current information available for a good decision to be made. A systematic and objective approach must be adopted to undertake effective market research. McDonald’s Australia has placed great emphasis on market research. In small businesses. service. funds for market research are normally limited. it also carries out specific market research using formal quantitative and qualitative research methods. . ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. It is unethical for a company to contact consumers under the pretence of undertaking research when the real purpose is to actually sell something. it has responded to customer needs by changing the menu it has on offer and extending its range of products and services to include the successful addition of McCafé and adopting the use of fair trade supplies. it may be necessary to arrange for additional market research to be undertaken. it gains feedback by speaking with customers to find out their impressions and expectations relating to key customer areas such as quality. For strategic planning purposes. cleanliness and value. often by a professional marketing consultant. advertisements and forms of packaging. low-cost alternatives of information gathering. Objectivity means that the research must be conducted in an impartial and unbiased manner. On a daily basis. such as using a process similar to the following steps. such as customer feedback surveys.Why is market research needed? market research systematic approach used to assist in making decisions about consumers and the marketplace marketing consultant a professional (specialist) who provides advice on marketing -related issues 286 Market research is needed to: sæ reduce the level of risk or uncertainty attached to introducing a new product or service sæ assess the current products. and determine whether changes need to be made sæ predict future changes or trends in a product or service. What can be discovered through market research? Market research can be used to find answers to questions about: sæ market size sæ consumer likes and dislikes sæ product positives and negatives sæ promotion effectiveness sæ packaging effectiveness sæ degree of threat from competitors sæ distribution – how customers like to get the product. A code of ethics has been adopted by the Market Research Society of Australia to protect research credibility in the eyes of the public. and making sure internal record keeping is accurate. Any business that does undertake market research must ensure that the information gained is used in an ethical manner and does not infringe on the privacy of the person giving the information.

could be changed to study what impact this has on the volume of product sales. Generally. such as price of a product. . using a particular product or service. intentions and behaviour. The information needed is dependent on the type of business being operated.1 Define the problem and establish the objectives Systematic approach to market research A systematic approach to market research constitutes the following six steps.1 A systematic approach to market research Step 1: Define the problem and establish the research objectives Problem definition is possibly the most important step of the process. sæ Causal research aims to find the cause and effect of certain actions. a business is then able to gather the relevant information to assist with decision making. Julie Cain. One variable. sæ Descriptive research incorporates such things as consumers’ attitudes. Step 2: Determine the research design There are three basic types of research design. Information can be gathered through observation of consumers’ behaviour. It can be related to the ‘image’ of the product or service being researched. 2 Determine the research design 3 Identify and assess information types and sources 4 Design data collection approaches. and gaining an impression and feeling about the product or service. sæ Exploratory research involves collecting information in an unstructured and informal manner. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. the marketing environment or a business’s competition. market research objectives relate to the potential demand for a product or service. forms and sample size 5 Collect and analyse data 6 Prepare and present final report Figure 16. intentions and behaviour causal research research that involves finding the cause and effect of certain actions 287 ISBN: 9781107665910 © Gillian Somers. By accurately defining the problem and establishing the objectives. C H A P TER 1 6 MARKET RESEARCH exploratory research collecting information in an unstructured and informal manner descriptive research research that incorporates consumers’ attitudes. This could mean reading a magazine or article.

1 Primary and secondary data sources Primary data sources Secondary data sources s 3URVEYSQUESTIONNAIRESnBOTHTELEPHONEANDMAIL s #OMPANYRECORDS s )NTERVIEWSnDOOR TO DOORORSHOPPINGCENTRE s &INANCIALSTATEMENTS s $IRECTOBSERVATIONnPERSONALORELECTRONIC s !NNUALREPORTS s 3MALLGROUPDISCUSSIONS. 2 Classify the following forms of data as being either primary or secondary. specifically to service the current research objectives. This information can come from internal records of the business or sources external to the business. ACTIVITY 16.Step 3: Identify and assess information types and sources primary data information gathered first-hand by the business secondary data information that has been previously collected There are two basic types of information available: primary and secondary data. sæ Secondary data refers to information that has been previously collected. a Questionnaire b Focus group c Internet search d Electoral roll e Textbook f Exit poll. Table 16. sæ Primary data refers to information that has been gathered by the business owners or market researchers themselves.1 1 Explain the basic difference between primary and secondary classification of data.

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It is also important to trial the use of a questionnaire to make sure that it actually gets the information required to meet previously determined objectives. There are several methods of conducting primary research. . It is regarded as a form of quantitative research. closed questions that aim to gather responses that can be summarised in figures Figure 16. A structured questionnaire lists questions and provides pre-described answers (similar to a multiple choice format). The group may be randomly selected to provide a broad range of opinions or interests. ‘1 to 10’. such as questionnaires.Step 4: Design datacollection approaches. While a questionnaire looks simple to create. e. Julie Cain. sample a proportion or subset of the total population being studied population entire group under study as defined by the research objectives questionnaire form of survey where questions are asked of respondents quantitative research market research based on structured. sæ A questionnaire is the standard form of survey used to gather data. It is therefore necessary to study a sample. Answers are given by ticking or placing an ‘X’ in a box. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. being a small proportion of the population of interest or target market.g.2 Various types of survey questions C H A P TER 1 6 MARKET RESEARCH 289 ISBN: 9781107665910 © Gillian Somers. observations and focus groups. forms and sample size For a market researcher to collect information first-hand from the entire population would be an impossible task. It is important not to provide any ambiguous or leading questions. Some questions will require rating the answer by indicating a number in a predetermined range. Unstructured questionnaires have open-ended questions. care must be taken in its design to gain objective information from the respondent.

increased number of TV sets and remote controls per household has led to a more complex TV environment. A session may last between one and two hours. Within this dynamic environment. Video on Demand or Replay TV. . Viewers are now faced with the possibility of using the TV screen as a medium for VCRs and DVDs. for personal viewing using products such as TiVO. This method involves removing all variables except for the one being tested.focus group between six and 12 participants gather together in an informal setting to give their opinion on a product or service qualitative research research based on in-depth. sæ Focus groups are a popular way of collecting qualitative research and consumerrelated information. blind taste tests remove variables such as brand. with the participants usually being paid a small fee. sæ Experiments can be conducted in the field or in a laboratory. or as 290 a personal computer offering on-line services and even more recently. Businesses also use video cameras to record shopper numbers. playing video games. This is the only way for Nielsen to guarantee clients that they have invested in an advanced. time spent in the store. and leave only the taste to be tested. Increasing numbers of channels. A facilitator. for accessing teletext. packaging and price. future-proof ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. The group size is usually between six and 12 participants and is conducted in an informal setting. Julie Cain. Case study Third Step: The Peoplemeters Neilsen Television Audience Measurement The peoplemeter measurement technology surpasses all previous measurement methods and dominates TAM methodologies worldwide. flexible and non intrusive design and development guidelines. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. has assisted enormously in determining consumer demographics and shopping habits. ACTIVITY 16. It is often videotaped for later review. watching TimeShifted Viewing. The introduction of electronic scanning of product codes at supermarkets or using other codes. Measuring TV audiences requires state-ofthe-art technology to ensure that precise and accurate data is collected easily and effectively from the TAM panel homes. rather than directly asking them for information. multiple broadcasting platforms. such as postcodes. For instance.2 Read the case study and answer the questions that follow. open-ended responses that focus on emotional or motivational aspects of consumer behaviour sæ Observation is a process that recognises and takes note of people’s actions and behaviour. Any peoplemeter proposed by Nielsen to their clients represents state-of-the-art hardware and software solutions based on reliable. aims to generate group interaction in order to stimulate immediate thinking on a topic. or observed through a glass partition by interested parties. the areas of the store that attracted foot traffic and interaction between customers and salespeople. often an experienced market researcher or even a psychologist. peoplemeters have proved themselves capable of measuring audiences with a degree of accuracy and detail which surpasses previous alternative measurement systems.

.agbnielsen. a Television stations b Advertising agencies c Consumer goods manufacturers d Community groups e Government agencies. comment on how you found this experience. 365 days a year. 3 Identify ways in which the following groups could use this data.asp Figure 16. Three Nielsen Corporate Support Centre divisions are dedicated to the development.electronic device capable to continue measuring TV audiences for decades to come. Source: www. Nielsen peoplemeters are installed on every TV set in the panel home. The Nielsen peoplemeters are in constant development based on many years of experience gained in a diverse range of local situations and meeting the challenges faced by ever changing and dynamic television environments around the globe. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. 24 hours a day. production and maintenance of Nielsen proprietary metering technology. C H A P TER 1 6 MARKET RESEARCH 291 ISBN: 9781107665910 © Gillian Somers.net/system/ peoplemeters. 4 Has your family ever had a peoplemeter installed? If so.3 Measuring what audiences watch on TV is a form of market research Questions 1 What service is Nielsen providing to its clients? 2 Identify the type of information that would be provided by the peoplemeters. Julie Cain. One meter in each home is then enabled to transmit all the stored data to a production centre by means of the household’s telephone line or a dedicated cellular (analogue and GSM) telephone line. Each meter is capable of accurately monitoring and storing individual panel member viewing on each TV set – every second.

frequencies. is used to tabulate and perform statistical tests. computer graphics are usually added. such as bar or line graphs and pie charts. Market research companies will often make an oral and visual presentation. with the necessary inclusion of the methodology used to collect the data. Graphs and charts. To enhance the information visually. Julie Cain. tested and analysed to form meaningful information. . or leaving a questionnaire for a person to complete in their own time. These findings must be communicated to the business owner. such as Statistical Package for Social Sciences 292 (SPSS). but also which member or members of the family are viewing the programs. Once collected. Computer software. Step 6: Prepare and present final report The last step in the market research process is to prepare and present the findings. which include means. are invaluable communication tools to show patterns or trends at a glance. Television viewing habits are electronically collected through attaching black monitoring boxes (peoplemeters) to televisions that track not only the programs being watched. ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers.4 A variety of market research methods Step 5: Collect and analyse data Often the data is collected by trained interviewers working for a market research company asking a series of questions. Many interviews are now conducted over the telephone with the interviewer reading set questions from the computer screen and entering responses directly into the computer. The standard style of report format is used. the raw data needs to be tabulated. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party.Figure 16. generally using a computer software presentation package. correlations and trend analysis.

they want to know if students have a preference for tea. They would also like to know how often they purchase soft drinks. and if there are any flavours not already being manufactured that the customer would be interested in buying. In addition. prepare a questionnaire (using a variety of question styles) to gain the data required in the scenario. Julie Cain. they are interested in what type of chips people buy.ACTIVITY 16. In particular. Scenario 1 Recently there has been a series of complaints about a particular school canteen. 3 If the findings of the groups within your class differ. In addition to gaining data on the complaints. fruit juice. discuss why this may have occurred. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. 2 Using your class as the sample group. water or sports drinks. milk (plain and flavoured). Scenario 3 A drink manufacturer has asked you to gain information about the soft drink preferences of Year 11 students. and if so. In particular. Scenario 2 A food manufacturer is interested in gaining information about potato chips. to the hours of operation and pricing. the manufacturer would like to find out if there is any particular new soft drink that students think would be popular with their age group. conduct the survey and present your findings to the class. which ones. fizzy drinks.3 Choose one of the following scenarios and answer the questions that follow. Questions 1 Working in groups of three to four. the price they are willing to pay for certain drinks and where they most often purchase the drinks. C H A P TER 1 6 MARKET RESEARCH 293 ISBN: 9781107665910 © Gillian Somers. what size packets they prefer. . The complaints range from choice of food on offer and how long it takes to be served. the canteen would like to collect additional information about the average amount of money students are willing to spend and whether they need to meet any particular dietary requirements. coffee.

3 Why is it important to use secondary data. 1 Define the following terms and then use each in CHAPTER SUMMARY QUESTIONS a sentence to demonstrate your understanding. shopping centre interviews. magazines. newspapers. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. UÊ The research process involves a number of steps. UÊ Market research aids the success of businesses. UÊ Secondary research is useful in establishing market size and trends. while expensive. Systematic approach steps include the following: UÊ Information can be obtained from two main sources: primary and secondary. forms and sample size. direct observation and small group discussions and experiments. but it does not guarantee it. – Design data-collection approaches. is effective in discovering up-to-date information for use by management. before spending money on expensive primary market research? 294 ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. 4 Identify three advantages primary data has over secondary data. – Collect and analyse data. Julie Cain. UÊ Common methods of obtaining primary data are telephone surveys. . – Identify and assess information types and sources. – Define the problem and establish research objectives. libraries. with consideration given to minimising any form of bias in the datagathering process. – Prepare and present the final report. government agencies and trade associations. UÊ The presentation of research findings using graphical representation aids both interpretation and analysis. mail surveys. with problem definition being one of the most difficult steps. 2 Identify three ways a café could use market research. UÊ Market researchers should strive to provide unbiased and honest results. UÊ Primary data research. door-to-door personal interviews. – Determine the research design. UÊ Market research needs to be undertaken in a systematic manner. UÊ Common methods of obtaining secondary data are company records. periodicals. but is not as useful for providing specific data about individual business products. if available. computerised databases. Yellow Pages and White Pages. a Primary data 5 Why is sampling necessary for consumer surveys? b Focus group 6 Explain three features of effective c Secondary data questionnaire design.CHAPTER SUMMARY UÊ Market research is undertaken to help businesses make informed decisions. d Closed questions e Quantitative research f Population g Sampling h Information.

We have clearly designed the best product on the market and consumers will be certain to buy it. CEO of ACE Television Company. C H A P TER 1 6 MARKET RESEARCH 295 ISBN: 9781107665910 © Gillian Somers. Julie Cain. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. 2 Explain the likely impact on ACE Television if the CEO continues with his current approach to the running of his business. . 1 Comment on whether you agree with this statement.’ – Richard Surrey.EXTENSION QUESTION ‘Market research is a waste of time and money.

17 THE MARKETING PLAN OF PERFORMANCE WHAT’S AHEAD Marketing plan Vital consideration s present situation s future direction s how to get there? s achievement (yes/no) Components Effectiveness of marketing process Expansion strategies s exporting s innovation s diversification s research and development ISBN: 9781107665910 © Gillian Somers. Julie Cain. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. .

price. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. . place and promotion) – expansion strategies such as exporting and diversifying – relevant performance indicators to evaluate effective marketing strategies. TO PLAN IS “ FAILING PLANNING TO FAIL – BENJAMIN FRANKLIN AREA OF STUDY AND EVALUATION 2 ” 297 ISBN: 9781107665910 © Gillian Somers.MANAGING THE MARKETING FUNCTION KEY KNOWLEDGE Students will learn the following about the marketing plan and the evaluation of performance: – the key elements of a marketing plan – establishing objectives – market description – marketing mix (product. Julie Cain.

Elements of the marketing plan A marketing plan is a written document that can stand alone as an individual plan or form part of the overall corporate business plan. it provides an idea of areas that a business may wish to appraise. there are essential elements or questions that should be included in the plan. Set out in table 17. Consideration needs to be given to the following questions: sæ What is our present situation? sæ Where do we want to go? sæ How do we get there from here? sæ Have we achieved what we set out to do? What is our present situation? This requires the business to undertake the following situation analysis: 1 Consult its mission statement. It can be written on an annual basis for a well-established product or to launch a brand-new product range. This statement indicates why the business currently exists and should continue to exist. opportunities and threats are recognised as being external to the business. sæ Opportunities may present themselves at any time and in a variety of different ways.OCATION s )NTERESTRATESnINCREASE s 0ROMOTION s )NTERESTRATESnDECREASE s 0RODUCTRANGE s 3UPPLIERSMERGINGORCLOSINGDOWN s 0RODUCTIONMETHODS s 3UPPLIERSPRICESINCREASING s 3TAFFATTITUDES s 3UPPLIERSDISTRIBUTION s #USTOMERSERVICE s 3UPPLIERSnNEWCOMPETITION s !DVERTISING s #HANGESTOCUSTOMERPREFERENCES s &AMILYBUSINESSNETWORK s $EMOGRAPHICCHANGES. with possibly a business priority being to focus on the customer. weaknesses. Regardless of the type of plan. sæ Threats are those things that may damage a business. sæ Weaknesses represent those things that are not done well by a business. Table 17. The mission statement should include a marketing focus.1 SWOT analysis chart 298 Business area – strengths/weaknesses Business area – opportunities/threats s #USTOMERBASE s #OMPETITIONnLOCAL s -ARKETSHARE s #OMPETITIONnIMPORTER s 2EPEATBUSINESS s 4ECHNOLOGYnNEW s 0RICING s 4ECHNOLOGYnOBSOLETE s $ISTRIBUTIONCHANNELS s #REDITAVAILABILITY s . While this list is not exhaustive. Strengths and weaknesses are internal to the business. Businesses should always be on the lookout for these. opportunities and threats) analysis. sæ Strengths will represent all the marketing aspects a business does better than its competition.1 is a list of possible areas that could be considered when conducting a SWOT analysis. 2 Conduct a SWOT (strengths.

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Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. Where do we want to go? A decision needs to be made as to the overall direction that is the most important to your business or brand. 4 Determine what customers want and who they are. a short-term business objective might include a business obtaining a market share of 30 per cent during 2012. an Australian shoe manufacturer who conducts a SWOT analysis (remembering that strengths and weaknesses relate to factors within the internal operations of the business. while opportunities and threats relate to factors external to the business) may discover the following findings. A business must aim its marketing strategies at combating its competitors’ strengths and taking advantage of their weaknesses. For example. However. which will involve specific tactical action plans for the product. comparisons will need to be made to assess the progress of the marketing strategies against the marketing plan. For pricing. evaluation methods and controls must be included in a marketing plan. it would be important to check periodically to ensure an increase of at least 1 per cent per month on a regular basis to feel confident that this target would be achieved. the pricing strategy adopted. the positioning strategy and the marketing mix. For example. The first objective relates to attraction. product extension and developing brand recognition. For example. its pricing. the second objective relates to retention. the distribution channels and the promotional activities chosen. and the business is now ready to put the plan into action. 5 Check if there are any gaps in the market (market niche) not currently being met. This involves setting your marketing objectives – short-term. Market research has been undertaken. This will assist in measuring how effectively the product is meeting the demands of the marketplace. This shoe manufacturer who currently has a substantial market share has found that a newly arrived competitor. their price levels and performance. This part of the plan incorporates identifying the target market. . mediumterm and long-term. During the period of a specific marketing campaign or a financial year. growth strategies related to products are product development. your attraction strategy might be to offer valueadded pricing on selected services to attract new customers. and/or spending 7 per cent of sales revenue on marketing. Aiming to attract new customers may require you to expand your store locations. who manufactures its shoes in China.For example. place (distribution) and promotion. poses a threat to their business because the cost of manufacturing would be lower in China. if an objective were to increase market share in 2012 to 30 per cent (from a base of 20 per cent in 2011). the existing business would have an established. Relevant performance indicators and tools need to be used to measure whether the previously set objectives have been achieved. 3 Gain information on competitors’ strengths and weaknesses. Julie Cain. CHA P T E R 17 THE MARKETING PLAN AND EVALUATION OF PERFORMANCE marketing objectives the objectives set by the marketing department to meet the overall business objectives up-selling trying to entice current customers to buy additional or more expensive items cross-selling where customers are offered and encouraged to purchase complementary items 299 ISBN: 9781107665910 © Gillian Somers. These could relate to either one or a combination of the following: sæ Attraction – to attract new customers that have similar characteristics to your existing profitable customers and keep them loyal sæ Retention – to maximise existing customer relationships through up-selling or cross-selling. Have we achieved what we set out to do? Budgets. loyal customer base and effective channels for distributing their products to shoe retailers. How do we get there from here? Establishment of the marketing plan and strategy is based upon the objectives set for the business.

The Penguin Parade – magical. environment and education projects to protect the Little Penguins. As Australia’s top advanced ecotourism provider. 2 Identify who you believe is the target market for this attraction. These include personalised one-on-one tours where you have little penguins all to yourself on a private.penguins. The Little Penguin is the world’s smallest (and cutest) penguin and the Penguin Parade is the best place to experience this completely natural phenomenon. All revenue generated from the Penguin Parade is re-invested into research.1 Read the article and answer the questions that follow. both domestically and from overseas. Oprah visited the Penguin Parade as part of her visit to Australia. Julie Cain. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. 4 In 2010. 300 ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. wild and unique! The Penguin Parade is Australia’s most popular wildlife attraction and home to the largest Little Penguin colony in the world. A range of advanced eco accredited viewing options are also available. . economically and environmentally sustainable practices. we are committed to socially.au/index. identifying its internal strengths and weaknesses and its external opportunities and threats. Comment on whether you believe this form of celebrity promotion will result in increased visitor numbers. Tiered seating provides 180 degree viewing of the Little Penguins as they emerge from the sea. php?option=com_content&view=article&i d=9&Itemid=34&mytabsmenu=1 Questions 1 Undertake a SWOT analysis of the Penguin Parade.1 The penguin parade Source: www. 3 Describe what you believe is the impact of this popular attraction on the tourist industry of Phillip Island.ACTIVITY 17. Every sunset.org. 5 Suggest two financial and two non-financial indicators that could be used to measure the success of the marketing strategies undertaken by Phillip Island Nature Parks. hundreds to over a thousand wild Little Penguins emerge from the sea and march across the beach to their sand dune burrows. secluded beach or front row seating at the Penguin Parade with your own ranger providing detailed explanations about their march from the sea and their burrowing. Figure 17.

1 Executive summary – one-page summary of the main points of the plan 2 Introduction and situation analysis – details the background of the business. and any other important characteristics 4 Objectives – outlines the business’s marketing objectives for the coming year or planning period 5 Strategies and tactics – this section will be the longest and most detailed part of the plan. product. current distribution methods. as well as a schedule of when this expenditure will occur 7 Audit and control procedures – involves describing the evaluation program that will be used during and after the planning period Figure 17. its relevant environments and competition. age. The template can then be adapted by the business to suit its particular requirements.business.vic.Set out below is an example of the format of a marketing plan.au). price.2 Example of marketing plan format CHA P T E R 17 THE MARKETING PLAN AND EVALUATION OF PERFORMANCE 301 ISBN: 9781107665910 © Gillian Somers. Julie Cain. It involves describing how each objective will be put into action using marketing mix strategies (e. . e.g. place and promotion) 6 Budget – itemises the cost associated with all strategic and operational decisions within the planning period. and the results of any existing market research 3 Target market and segments – describes what the business sees as its target market (based on demographics).g. gender. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. To assist a business in the preparation of this important plan.gov. the Australian Government has provided a marketing plan template on its business assistance website (www.

6 million. This form of control is called Management by Objectives.3 Both for-profit and not-for-profit organisations must undertake sales analysis. by which salespeople. . six-monthly or annual basis. as discussed here. public awareness and fundraising campaigns to raise its profile and to generate revenue in order to work to eliminate poverty and its causes. Managers will use a range of indicators to evaluate how well they have performed. World Vision would review and analyse their individual activities to determine which areas of their fundraising program were lower and the relationship to the marketing Figure 17. Julie Cain. Hopefully. It also allows for an opportunity to reflect on what improvements can be made to better meet the needs of customers. 16 and 18 for more information on the marketing process. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. and which customers bought the largest quantities. Comparisons could also be made with overall sales revenue from different planning periods.Evaluation – was the marketing process effective? It is now time to evaluate how well the marketing process was managed. The total revenue (income) raised by World Vision Australia during 2009 was $346. It is important that both for-profit and not-for-profit organisations undertake this form of analysis. profit will result from these activities. 302 ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. This figure is slightly lower than the 2007 figure of $356. Management should conduct an evaluation of the business on a monthly. Examples of these activities are: sæ child sponsorship sæ gift purchases made through the Smiles Gift catalogue sæ 40 Hour Famine sæ Teenage Affluenza – an internet film sæ donations sæ voluntary work. For example. World Vision Australia implements targeted marketing. (See chapters 15. marketing mix and evaluation. Further analysis can also be conducted into which products/services sold best. marketing strategies. Performance indicators Sales analysis Sales analysis involves comparing actual sales with sales objectives set at the commencement of the planning period.5 million. This is the final stage of the four steps of the marketing process: market research. at which locations. to ensure that sales targets have been achieved and expenses are kept under control.) Evaluation allows management to judge how well the first three parts of the process worked for the business. The business must also check that other goals established in both its business and marketing plans are achieved.

such as poor economic conditions during that period. Julie Cain. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. market research and sales administration for every dollar of sales revenue. This is a good measure of a brand’s success. sales promotion. . Ultimately. sales promotion and distribution of products. It confirms you have a committed customer base. Is it the product. CHA P T E R 17 THE MARKETING PLAN AND EVALUATION OF PERFORMANCE 303 ISBN: 9781107665910 © Gillian Somers. to be awarded ‘superbrand’ recognition is also an important indicator of brand success. Analysis of external factors. Similarly. sæ Brand awareness is to have a customer able to recognise a brand instantly and believe it offers quality and value. In 2008. the Qantas Frequent Flyers program expanded its loyalty program in an attempt to overcome negative feedback from customers who were experiencing difficulty obtaining a redemption seat on flights as well as the growing competition from other more flexible loyalty programs. Many businesses offer loyalty programs to both attract and reward their customers. Profitability analysis It is important for a business to analyse whether certain products or geographic areas are more profitable to the business than others. a decision needs to be made as to whether certain products are contributing to the overall profitability of the business. sæ The number of dissatisfied or lost customers indicates that some component of the marketing mix is not working.strategies adopted. price. sæ The number of repeat customers indicates that customers are willing to continue to either purchase or use the services of a business. advertising. Market share can be measured by looking at the business’s sales as a percentage of total market sales. the marketing expense-to-sales ratio needs to be examined to see whether there are more efficient ways to manage the salespeople. sæ Target market awareness indicates that the business has been able to reach the correct target audience for its product and is aware of the customers’ profile. which leads to the business gaining an increase in its market share – but does it actually mean an increase in financial return to the business? While marketing may see that they have done a good job and met their objective. place or promotion? It also indicates that the business has a problem with its goodwill. In addition. A dilemma occurs when a business’s marketing strategy is to decrease the price of its product. sæ The number of new customers attracted to the business and its products/services indicates that the product/service offered by the business is meeting the needs of the customer. Customer-based measures The following customer-based measures can be used to evaluate the marketing process. advertising. If the expense figure is too high. have they brought an increase in financial worth/revenue to the business and will this be sustainable in the long term? This price reduction strategy is often used by airlines as a short-term strategy when wishing to gain market share in the highly competitive marketplace. sæ Loyalty indicates that consumers value and are loyal to your product or service. An increase of members to your loyalty program and the use being made of the offers would indicate whether the program is successful. would also be considered as part of this analysis. Market-share analysis Market-share analysis provides a comparison of how well a business is performing in relation to its competitors. it will affect the margin being contributed by that product to the business’s overall profit. Marketing expense-to-sales analysis Businesses need to keep an eye on how much it is costing them in salespeople.

Byron Bay Cookie Company now supplies to many Australian cafés and gourmet food stores as well as David Jones. Always wanting to appeal to new customers.2 A business that has gone from strength to strength by recognising and meeting the needs of its customers is Byron Bay Cookie Company. Japan. Managing Director Richard Raffaelli believes that ‘the US will be a definite market for these cookies. ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. With hundreds of thousands of cookies baked weekly. .ACTIVITY 17. During Oprah Winfrey’s visit to Australia in 2010. which will appeal to customers intolerant of wheat and gluten. Byron Bay Cookie Company is often written about in food articles appearing in newspapers and gourmet food magazines. Byron Bay Cookies were among the gifts she showered on guests at a lavish Sydney party. a gourmet savoury collection was launched in 2004. as ours are taste indulgent compared to those of our competitors’. These glutenfree cookies. are based on the already famous original recipes and are available in four flavours. Byron Bay Cookie Company has now expanded into a company which supplies biscuits internationally. The favourite cookies when they commenced business were the white choc chunk and macadamia cookie and triple-choc fudge cookie which are still today the company’s top selling cookies. whose motto is ‘Cookies are our life’. Demand spread with local cafés wanting to be supplied their cookies. Byron Bay Cookie Company 20 years of baking cookies to meet the needs of their customers Figure 17. Read the article and answer the questions that follow. followed by larger retail venues. Qantas and Jetstar airlines.4 Byron Bay cookies From the baking and selling of their cookies at the local Byron Bay weekend market in 1990. Europe and USA. 304 After months of product development and testing. Julie Cain. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. they have expanded to supply stores in Singapore. Internationally. a range of gluten-free cookies was then added to their cookie selection.

are also able to use internet advertising. The internet. cultural. religious CHA P T E R 17 THE MARKETING PLAN AND EVALUATION OF PERFORMANCE 305 ISBN: 9781107665910 © Gillian Somers. however. the domestic market is regarded as being within the geographic boundaries of Australia. There is still. Small businesses in particular can use this global tool to market and sell their products and services. for both consumers and businesses. This form of advertising has the advantage of providing instant measurement of effectiveness. Businesses are also actively involved in e-commerce. particularly if they build recording mechanisms into their website to record number of visits (hits) and then how many are turned into actual sales. Advances in both communications and transport are providing opportunities for Australian companies to extend their marketing overseas. Julie Cain. Worldwide there are potential customers who have needs to be satisfied and money to spend. a major fear with some consumers that an unauthorised person will gain access to their personal or confidential information. by hacking into the system.Questions 1 Identify why Byron Bay Cookie Company has changed its product range. it needs to be aware of social. . Most people in Australia regard it as an important source of information. Should a business decide to market globally. has become a tool for locating and assessing product or supplier information and increasingly as a way to purchase and sell products or services. Role of technology The use of the internet is now deeply embedded into our culture. 2 What segment of the market is Byron Bay Cookie Company aiming to target? 3 What evaluative measures would be appropriate for Byron Bay Cookie Company to use to measure the success of its expanded product offerings and its exporting strategy? 4 Do you believe that the inclusion of Byron Bay Cookies in the gift packs from Oprah Winfrey will have any impact on the sales of the cookies. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. A survey conducted by the ARC Centre for Creative Innovation at Swinburne University (July 2008) showed that internet use was slicing into television viewing more deeply than the reading of newspapers. magazines or books. Larger businesses. this survey highlights the fact that consideration may need to be given to the promotional techniques they will use in future campaigns. either in Australia or in the United States? Provide reasons for your opinion. The highest proportion of internet users is among those aged 18–24 years (95 per cent) with the lowest among those over 64 years of age (30 per cent). It is imperative that businesses using this form of marketing ensure adequate security measures are in place. using their websites and email as further important elements in their marketing strategies. Issues in marketing Issues in marketing can range from the changing role of technology and our interaction with it to the social and moral responsibilities of marketers. Global or domestic business market For Australian-based companies. For marketers. concerned also with measuring the return on each marketing dollar they spend. A small business operator only needs a personal computer connected to the internet to operate on the global marketplace. Australian companies also need to be aware that an aggressive overseas competitor may see Australia as an expansion opportunity.

Legal and political differences are also very important because of trade barriers that could be in place or different legal requirements for product labelling and selling. Secondly. ‘all natural ingredients’ and ‘contains no MSG’. The Australian Competition and Consumer Commission (ACCC) is the body responsible for administering the Competition and Consumer Act 2010 (formerly the Trade Practices Act 1974). high in fat. The Australian Marketing Institute (AMI) is a professional group representing marketers that has developed a code of professional conduct 306 requiring businesses to respect the interests of the public while conducting their professional activities. ‘low in salt’. contents. e. It dumped on the Australian marketplace a concept that seemed to work in the United States. such as: sæ product testing sæ deceptive packaging sæ exaggeration in advertising sæ advertising to children sæ over-promising sæ product placement sæ sex in advertising sæ ambush marketing. construction. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. For instance. design. is backing the Better Buddies Framework.g. ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. All managers within an organisation must be concerned with social responsibility. Not all marketing or advertising is directly aimed at selling the particular product or service of a business. . but did not understand that turning up to compete is just not enough. Julie Cain. For example. Ethical and socially responsible marketing Businesses need to ensure that they are practising ethical and socially responsible marketing. Sometimes it is about positioning the business as a good corporate citizen and supporting other groups deemed as needing a link to a reputable and trusted brand name. There are some additional issues that give rise to ethical dilemmas for marketers. there are two industry-based regulators. Being more socially conscious can often lead to a positive customer response. salt or sugar.and language differences between countries. an antibullying program designed to protect children. which involves the organisation improving its positive impact on society and reducing any negative impact it may have. The concept behind the US-based Starbucks was that it sold the ‘coffee culture’ to the US marketplace. composition. the Alannah and Madeline Foundation. Social responsibility should mean businesses do not make products that may harm consumers in the long run. packaging and the form and manner in which this information is included with the goods sold. The infrastructure of the country to which a business intends to expand must be examined for reliability. The Australian Association of National Advertisers (AANA) has established a code of practice as a form of self-regulation for those involved in the advertising industry. which establishes guidelines relating to disclosure of information on performance. distribution of a product may be adversely affected if the transport system is unreliable. or food that is highly processed. In addition. One of the major reasons it failed in Australia is that it did not conduct sufficient market research into the Australian marketplace. together with NAB (National Australia Bank). Marketing is made easier when products can be tagged as ‘environmentally friendly’ or food products can be labelled ‘low fat’. Often businesses enter into licensing agreements or joint ventures with overseas businesses to help overcome these potential problems. alcohol. products such as cigarettes.

Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. Marksun represented on various websites that its ugg boots were made in Australia when the ugg boots were in fact made in China. On 1 January 2011 as part of Australian Consumer Law amendments the Trade Practices Act 1974 was renamed the Competition and Consumer Act 2010.au and conduct a search to find out the result of the Federal Court hearing.accc. Section 52 of the Act prohibits conduct by business that is misleading or deceptive. and s corrective notices. Source: www. .com. 2 Go to www.gov.uggbootsonsale.gov.com. Julie Cain.marksunboots.au. The matter was filed in the Federal Court’s fast track list and was listed for a scheduling conference in Perth on 2 February 2011 before Justice Gilmour. The ACCC alleges that Marksun’s conduct breached sections 52 and 53(eb) of the Trade Practices Act 1974* and sought: s declarations s injunctions s civil pecuniary penalties s costs. Marksun was an online seller of ugg boots and promoted its products on two websites: s www.ACTIVITY 17.au Questions 1 Outline what you believe would be the likely consequences of the above legal ruling of the Federal Court on Marksun Australia Pty Ltd. against Marksun Australia Pty Ltd. ACCC alleges ugg boot misrepresentations by online trader The Australian Competition and Consumer Commission has instituted legal proceedings in the Federal Court.3 Read the extract and answer the questions that follow. The ACCC alleges that from at least June 2010. Discuss whether you believe the decision of the Federal Court was an effective course of action in this case.au. or likely to mislead or deceive and section 53(eb) prohibits false or misleading representations about the place of origin of goods.accc. Perth. *The proceedings were filed in late 2010. CHAPT E R 17 THE MARKETING PLAN AND EVALUATION OF PERFORMANCE 307 ISBN: 9781107665910 © Gillian Somers. and s www.

intangible assets assets that have a monetary value to the business. understanding the quarantine regulations is essential. copyright. to the trademark owner it is an intangible asset in the form of goodwill. It is helpful to learn the language and also to gain an understanding of trade. e. such as a factory. as Japan is a mass importer of food products. freight and payment issues.g. and research and development. 308 ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. The overall purpose of the Competition and Consumer Act 2010 (Commonwealth) is to protect consumers against actions taken by producers and distributors of products and unfair competition. property Legal requirements Exporting There is a range of laws in place to protect consumers and to regulate marketing practices. Advertising standards for television and other forms of broadcasting are established by the Broadcasting Services Act 1992. has a population of approximately 126. While this export prospect may be exciting.8 million (with the majority of the population (64. . Exporting is an excellent method for businesses to use when wanting to expand their market. Expansion strategies in marketing Established businesses are often looking to improve their products. If a business believes that their trademark has been infringed. imagine you manufacture food products and are now contemplating exporting your products to Japan. three of these are exporting.3 per cent) in the 15–64 years age group) and insufficient land for agriculture. innovation and diversification. Trademarks allow the owner of the mark to build and maintain a brand – evident in Nike’s swoosh and the Qantas flying kangaroo.g. This is an exciting prospect for any Australian food manufacturer. There are a range of expansion strategies available. Research needs to be undertaken to understand both the marketplace and the culture of the country. but no physical form. extend their product range or expand their markets. Sometimes for a business the trademark is more valuable than other tangible assets. goodwill. e. While for consumers a trademark provides an indication of quality being associated with a particular product or service. This occurred in 2008 when Dimmeys department store in Melbourne sold football jumpers that the AFL argued infringed upon their protected trademark. Expansion strategies can result from market research or may need a marketing campaign to support them. Julie Cain. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. stocks. As your product is food. legal action is sure to follow. there are a few important steps that need to be taken before advancing too far down the exporting track. For instance. One area of law that is seen as an important ongoing issue for businesses is protecting their trademark. which actually has a monetary value. patents tangible assets assets that have a physical form.

Questions 1 Outline how Carolyn Creswell started out in business and why the name Carman’s Fine Foods was chosen. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. Use these sources and the information provided on the official website. www.com. 5 What was the first major expansion strategy undertaken by Carolyn? 6 What was the next major expansion strategy? 7 Describe the process she undertook to make this second strategy happen. CHA P T E R 17 THE MARKETING PLAN AND EVALUATION OF PERFORMANCE 309 ISBN: 9781107665910 © Gillian Somers. . 11 Identify ways in which Carman’s Fine Foods adopts a ‘personal approach’ in its marketing strategy. 2 Identify the range of products manufactured by Carman’s Fine Foods.ACTIVITY 17. improved the method of production or come up with an unusual approach to increase their appeal to the marketplace. which ones? 4 Describe the ways you believe eating habits have changed in recent years. In marketing. Julie Cain. the adoption or improvement in the use of technology or making sure it continues to highlight its point of difference from other products. 9 What considerations/changes were needed to make the product ‘export ready’? 10 In which countries are Carman’s Fine Foods products currently sold? Figure 17.carmansfinefoods. 3 Does Carman’s Fine Foods sponsor any groups? If so.5 Carman’s Fine Food Range Innovation and diversification For a business to be innovative. to help you answer the following questions.au. 8 How successful has this strategy been? Justify your answer. they have usually created a better product or service. changing the way it performs its business activities.4 Not-so-secret recipe – Carman’s Fine Foods Conduct a Google search on Carman’s Fine Foods. innovation can result from the business conducting market research.

plant-based beauty care range specifically designed for a contemporary lifestyle.natio. Julie Cain.) 310 ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. ‘birth’. plant-based origins of Natio’s range. It symbolises the pure and natural. .com.au/about-us Questions 1 Describe the ways that Natio is being innovative in its approach to providing skin care and cosmetic products to customers.ACTIVITY 17. Natio has evolved from an Australian family business that has been manufacturing skin care and cosmetics for national and international brands over four generations during the past 75 years. Source: adapted from www. In 1993. Max and Vivienne both retain hands-on positions within the company. The Natio range is continually developing with a very clear objective in mind – to deliver plantbased. At Natio we believe that no one should compromise when it comes to skin care and cosmetics. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. Natio Natio is Latin for ‘creation’. so we have produced a quality beauty care system that everyone can afford. Natio is one of the fastest growing beauty brands in Australian department stores and the top performing skincare and bridge make-up brand in Australian pharmacies. Natio’s founders enjoy the rewarding experience of self-discovery through yoga and meditation and wish to share this experience through the Natio products and philosophy.5 Read the extract and answer the questions that follow. ‘birthplace’ and the ancient name for the Goddess of Nature. We ensure that customers pay primarily for the product and not for expensive promotions and packaging. simple and gentle beauty treatments that are flexible and fit comfortably within today’s diverse lifestyles. 2 Provide examples of how Natio has diversified its product range (Hint: visit the Natio website. Max and Vivienne Ross launched Natio’s beauty care range and the colour range followed three years later. (Michael Edwards Cosmetics & Perfume Survey 2008) The uniqueness of Natio comes from being an easily accessible.

’ This statement is affirmed by the FG Falcon becoming the first Australian-built car to receive a 5-star safety rating from the Australasian New Car Assessment Program (ANCAP).Research and development In a market-oriented organisation. The research and development group at Dulux responded to this feedback from customers and developed a ceiling paint called ‘NeverMiss’. In 2008 Ford was able to exploit its marketing advantage both with the safety award by ANCAP and the comparative safety analysis with other vehicles which was provided at that time. a common problem people have when painting a room. . it is possibly not as significant in marketing terms. For instance. responding to the feedback of your customers can lead to research and development (R&D) of current products to find an improved product to offer to the marketplace. With consumers’ taste in chocolate changing. it has been greeted by the market with enthusiasm and has been judged by Cadbury to be an outstanding success. Julie Cain. undertook four years of research to perfect the flavour of their Cadbury Dream block. Cadbury. is knowing which parts have they actually painted and which parts need still to be painted.6 Dulux launched a new marketing campaign for a new product. and in particular a ceiling with white paint. research and development scientific research and technical development of new products and/or processes Figure 17. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. To get the market to know about this improved paint product meant that a new marketing campaign was launched with its major promotional activities being television advertising and in-store promotions. In the automotive industry. Ford Australia is an organisation that values and places its customers at the forefront. already a household name for block chocolate and a variety of chocolate bars. this paint is pink. In the development phase of the FG Falcon. When first applied. Now many more vehicles carry this safety award and while it is an important consideration for customers. Launched in 2001 as ‘real whiter chocolate. Ford Australia’s President Bill Osborne said in a 2008 media release: ‘We design our cars to deliver real-world safety benefits for our customers. wicked taste’. but dries to white. CHA P T E R 17 THE MARKETING PLAN AND EVALUATION OF PERFORMANCE 311 ISBN: 9781107665910 © Gillian Somers. Ford undertook 426 full vehiclerepresentative physical crash tests and more than 5000 state-of-the-art simulated crash tests.

Julie Cain. a Exporting b Innovation and diversification c Research and development. innovation. which should be conducted periodically – monthly. price. UÊ The marketing plan needs to consider the following questions: – Where is the business now? – Where is it going? – How will it get there? – Has it achieved what it set out to do? – What are the future opportunities? UÊ The usual format for a marketing plan is as follows: – executive summary – introduction and situational analysis – target market and segments – goals and objectives – strategies and tactics – budget CHAPTER SUMMARY QUESTIONS – audit and control procedures. SWOT analysis) very important to gain knowledge of the marketplace? e What does it mean to segment a market? 312 UÊ The final step in the marketing process is evaluation. 1 Imagine you are the marketing manager of a business. place and promotion? 2 What are some of the most effective ways of measuring whether the marketing process has been managed successfully? 3 Provide two examples of organisations that have used each of the following expansion strategies. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. f What is the importance of conducting market research? g What are the commonly used market research techniques? h How does a business put together all the information gained through market research to formulate appropriate marketing strategies relating to product. you are to provide answers to the following important questions. a Why is a marketing plan important to the overall strategic plan of a business? b Why is it necessary to set specific goals for your product or business? c Why is it important to have a clear understanding of your customers and competitors? d Why is undertaking an analysis of both internal and external factors (i. such as: – – – – – sales analysis market-share analysis market expense-to-sales analysis profitability analysis customer-based measures: number of new customers. diversification. target market awareness. Using either a Microsoft PowerPoint presentation or a written report. UÊ A range of indicators are used to evaluate performance. and research and development. ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. loyalty and brand awareness – ethical and socially responsible behaviour. You have been asked to come to a Year 11 Business Management class to explain and expand upon the importance of preparing a marketing plan and evaluating the marketing process. UÊ Marketing expansion strategies result from market research or using a marketing campaign to support business expansion.e.CHAPTER SUMMARY UÊ A marketing plan is an important document that can be either an individual document or part of an overall business plan. Briefly describe the marketing strategies they have used to support these initiatives. repeat customers. UÊ Types of strategies are: exporting. . six-monthly or annually – to ensure targets are met and expenses are controlled.

Your role is to: 2 Provide practical suggestions of how the school’s profile could be enhanced in the local community. Julie Cain. CHA P T E R 17 THE MARKETING PLAN AND EVALUATION OF PERFORMANCE 313 ISBN: 9781107665910 © Gillian Somers.1 Undertake the SWOT analysis of the school for incorporation into the marketing plan. Their solution is to increase the profile of the school by conducting a marketing campaign in the local area. EXTENSION QUESTION The principal and school council of your school are worried: enrolment numbers for the coming year are low. . It is anticipated that this will be presented to school council at its next meeting. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. A marketing plan needs to be written and they have asked for your assistance.

18 THE MARKETING MIX MARKETING STRATEGIES WHAT’S AHEAD Product Price Marketing plan Place Promotion ISBN: 9781107665910 © Gillian Somers. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. Julie Cain. .

which are seen as the ‘means to achieve an end’. Julie Cain. All elements of the marketing mix need to be used to achieve the desired outcomes. The marketing mix is comprised of four variables (sometimes called the four P’s of the marketing mix): sæ Product – what is being sold? sæ Price – for how much will the product be sold? AREA OF STUDY AND RELATED 2 sæ Place – where will the consumer get the product? sæ Promotion – how will potential customers be informed about the product? As businesses aim to provide customer satisfaction and business profitability. . result from the setting of marketing objectives. Marketing strategies. it is important that they understand which marketing strategies relate to each component of the marketing mix. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party.MANAGING THE MARKETING FUNCTION KEY KNOWLEDGE Students will learn the following about the marketing mix and related marketing strategies: – the marketing mix and related strategies – product – price – place – promotion – product life cycle – issues in marketing. 315 ISBN: 9781107665910 © Gillian Somers. including the role of technology. in the global business context and in the context of ethical and socially responsible management and legal requirements.

magazines Prominent display such as checkout counters. bread.g. household appliances.g. shoes. minerals and agricultural products) and manufactured materials and parts (e.g. organisations. furniture. such as buildings. umbrella during a rain storm. maintenance. computers and limited production allow for marketing to be specifically targeted Unsought goods (those goods not regularly purchased) e.g. e. one of the four P’s of the marketing mix consumer profile a statistical picture of the typical consumer of a product based on demographic data. equipment. paper and cleaning materials sæ services. food items Ones that allow for wide exposure of the product. research is undertaken used cars prior to purchasing the item) 316 Marketing strategies Broad range of strategies required to cater for varying purchasing styles. photographic Exclusive distribution rights equipment. new and price. gender. chocolate bar. newspapers. style. new cars (luxury). surveying. component parts) sæ capital items. persons.g. income.g. occupation What is a product? Business goods Product is the first component of the four P’s of the marketing mix. shopping bags Prominent display near checkout counters. their classification and impact on marketing strategies Product classification Groups Convenience goods (purchased Staples are items bought on a frequently and without much effort) regular basis. accounting and legal. brand and product quality are the main considerations rather than price) e. such as engineering. quality. These may include: sæ raw materials (e. can be either a good or a service. computers and office equipment sæ supplies. It can include physical goods. e. e. events. salespeople need to have good product knowledge and selling techniques Specialty goods (have unique characteristics or brand identification. . chewing gum. shampoo. places. e. age. such as paint.g. smoke detectors. information and ideas. The consumer profile will then have an effect on the form of marketing best suited to that category of product. encyclopaedias. experiences. properties. e.g. services. clothes. A product is anything that can be offered to a market to satisfy a need or want. prepaid and advise benefits of products/ funerals.g. ensuring that the appropriate marketing strategies can be applied. e.g. milk. Consumer and business goods and services can be classified on the basis of their characteristics relating to purchasing habits. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. e.product end result of production process. toothpaste. made based on suitability. petroleum products. colourful displays Emergency items are purchased when the need is urgent and price is not important. product display positioning Shopping goods (a comparison is e. financial planning services. television advertisements Impulse are items bought with no planning. life Marketing needs to be specific insurance. Julie Cain. Consumer goods Table 18.g.g. Business goods and services can also be classified according to their characteristics.1 Types of consumer goods. personal selling and direct marketing important for product promotion ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers.

Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. Figure 18.ACTIVITY 18. Explain why you have chosen this category. . 1 iPad 2 DVD player 3 Lawnmower 4 Perfume 5 Snowboard 6 Magnum ice-cream 7 Sports shoes 8 Health or car insurance.1 Consumer goods CHA P T E R 18 THE MARKETING MIX AND RELATED MARKETING STRATEGIES 317 ISBN: 9781107665910 © Gillian Somers. Julie Cain.1 Classify each of the following consumer products according to its type.

318 ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. Product ideas may also come from what are being seen as current consumer trends. Julie Cain. or how the current product could be modified. They need to consider changes in consumer tastes. such as the following: sæ emphasis on leading a healthy lifestyle and eating healthy products. i. purchasing premium quality red wine.Developing the product product development design and development of new or existing products Stage 1 Idea development Stage 2 Idea screening Stage 3 Idea evaluation Stage 4 Developing the product Stage 5 Commercialisation of the product It is very important for businesses to keep their product range appealing to the marketplace.e. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. e.3 Consumer trends take many forms. A business will then be able to find out what needs are not currently being met. There are five stages involved in product development – that is. an expensive car or stereo equipment sæ enjoying a change of lifestyle and undertaking a ‘sea change’ or ‘tree change’ Figure 18. in getting a new product developed and out to the market. A competitor’s product could be analysed to see how to improve on the concept. enhanced (innovated) or extended.2 Stages in the new-product development process Figure 18. . being alive and well sæ concern for environment or genetic modification of products sæ people’s desire to indulge or reward themselves by purchasing something decadent. Stage 1: Idea development Ideas can be generated from input from both staff and customers or by carrying out market research. new competitors and technology.g.

4 The product life cycle CHA P T E R 18 THE MARKETING MIX AND RELATED MARKETING STRATEGIES 319 ISBN: 9781107665910 © Gillian Somers. however. too expensive. identify three products you know of that have failed in the past five years. identifying target markets. Alterations may still be made to the final product. is that all products go through a life cycle. decline or extension Once developed. poor choice of marketing strategies. An awareness of this can help businesses gain an advantage over their competitors. changes in consumer tastes or a forecasting error. product life cycle the stages through which all products pass: launch (introduction). Commitment on the manufacturer’s part to continuously develop a unique and superior product is one key to success. and marketing strategies need to be determined. . Failure can occur due to the market segment being too small. as described here. What is known. maturity. e. Stage 4: Developing the product The actual product now needs to be produced and market-tested. Figure 18. Mini Cooper and Volkswagen Beetle cars. The success of the product is judged against the forecasts made during the idea evaluation stage.g. or become an extension of a current range.2 1 Using the internet to help you research.g. the product enters the marketplace through a product launch and its accompanying marketing campaign. Stage 2: Idea screening Business owners need to consider how attractive these ideas are to their business and how well they fit with the business objectives and profile. 2 Explain why you believe these products were not a success. working out the cost of producing the product and forecasting sales and profits. Product life cycle Business success would be guaranteed if it were possible to determine the exact time to launch a new product or update an existing product. Consideration should also be given to the current product range as to whether the new idea will totally change the range. poor marketing. e. growth. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. Stage 5: Commercialisation of the product ACTIVITY 18. The product life cycle is divided into four stages.sæ nostalgia for a carefree childhood and looking for products from a bygone era. depending on feedback from market testing. Stage 3: Idea evaluation Idea evaluation involves the testing of the concept with market analysis to determine demand and gain the reactions of customers. Julie Cain. Why do some products succeed and others fail? It would appear that there are a number of important factors that contribute to the success of a product.

profits are non-existent or very small. sales will be growing fast with profits rising. 2 Identify what stage in the product life cycle the following products have reached at the current time. Table 18. to then flatten out and start to fall over a period of time. after its product development and testing stages. and competition is scarce. e. Sales at this stage are low (increasing at a slow pace). Stage 4: Decline or extension The marketing strategies of a product need to change during the various stages of a product’s life cycle as customers’ attitudes to the product will change. Stage 3: Maturity or saturation The level of sales has stabilised and competition for the product is strong.Stage 1: Introduction This stage commences with the launch of the product into the marketplace. mature products either decline or are extended to lengthen their life cycle Stage 2: Growth Due to effective promotion of the product and acceptance by consumers. Interestingly. extension strategies may be introduced to extend the old product’s maturity stage. For example. At this point. The initial consumer demand for the product has been satisfied and the product as yet does not need to be replaced.g. . When the product becomes unprofitable or a new product is ready. 320 ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. maturity stage of product life cycle where sales peak (saturation point). competitors may have now entered the market. An extension strategy. the original product will be withdrawn from the market. Profit can start to decline. it is now becoming trendy due to its ‘retro’ appeal. Julie Cain. such as exporting. a DVD player b Electric car c Flat-screen television d Bottled water e CD f Digital camera g Four-wheel drive vehicle h Video phone i Video tape j Solar panel heating k Hybrid car. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. a re-launch that involves new packaging and advertising of the product.3 1 Provide three reasons why an understanding of the product life cycle is so important to business success. Prior to launching a brand-new product. In addition. the long-playing (LP) record player declined in the original product cycle. This stage involves a steady decline in sales as newer competitors’ products are more popular. the target market may need to change and there may be an increase in competition for the product. ACTIVITY 18.2 sets out the relationship between the marketing mix and the four phases of the product life cycle. may be adopted in the maturity stage as a way to boost sales.

colour range. e. new models. packaging Large number of outlets. trial periods Trade incentive/s to stock the product Growth Product improvements need to be planned to maintain appeal to customers If penetration pricing policy is Increased number of outlets a success. Julie Cain. prices may now be increased Reinforcement and persuasive advertising to encourage consumers to repeat purchase Sales promotions to encourage repeat purchases and establish and maintain brand loyalty Maturity or market saturation Decline Extension strategies Competitive pricing needed. also used when introducing a new product to the market persuasive advertising attempts to create an emotionally positive feeling about a product’s image to encourage consumers to buy it brand loyalty when consumers continue to purchase the same product. price reduction information Discount or lowering of pricing Importance of brand image. any sales that occur are replacement sales 321 ISBN: 9781107665910 © Gillian Somers. . even though rival products may exist market saturation occurs when most consumers already own the product and the market is not growing.g. with possibility of new and different types of outlets Sell off existing stock ready for withdrawal from product range and market Reduce number of No active promotion outlets to those that or advertising are profitable Possibly. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party.Table 18.2 Product life cycle relationship to the marketing mix Product life cycle phases Introduction Product Price Place Promotion New model or product Market penetration pricing Limited number of outlets. with possibility of expansion Informative advertising to (low) or skimming policy (high) make consumers aware of product. with advertising emphasising the difference between your product and that of your competitor CHA P T E R 18 THE MARKETING MIX AND RELATED MARKETING STRATEGIES market penetration a pricing strategy that aims to set low prices initially to gain high market share quickly informative advertising advertising that gives consumers factual information about a product rather than creating a product image penetration pricing a pricing strategy where the product’s price is set lower than a competitor’s price. its price and features Free samples.

A product line is a broad group of products intended for basically similar uses. and models offered within each product line. term. in an electrical retail store the product mix would include items such as washing machines. it creates and brings with it awareness. The business with the largest share of the market is known as the market leader (or brand leader).brand a powerful business asset that is essentially a maker’s mark. It is estimated that a successful brand is a powerful asset to a business and may account for between 50 per cent and 70 per cent of the total value of a business. referred to as ‘whitegoods’. Within that product category. dryers. Julie Cain. market leadership. colours. An example of one product line would be washing machines. high quality or being judged as value for money? Research firm The Leading Edge conducted a poll of 750 people. The role of branding A brand is the distinguishing name. creating either a positive or negative image in the mind of the consumer. For instance. Products are developed and advertised to make them appear different to others on the market (product differentiation). microwaves and dishwashers. The product mix is the full set of all products being sold by a company. its breadth can then be determined by the number of different brands that store is selling and the depth by the number of different models of that particular product. The mix has two main elements or dimensions: sæ breadth – measured by the number of product lines carried sæ depth – determined by the variety of sizes. and having reasonably similar physical characteristics. Some of the results are set out in activity 18.4. symbol or design that is used to identify one manufacturer’s product and differentiate it from another manufacturer’s product. desirability and power product mix a full set of all products being sold by a business product line a broad group of products that are intended for similar uses and have similar physical features product differentiation products are developed and advertised to make them appear different from others on the market brand leader the brand in the market with the highest market share What is the product mix? Many businesses offer more than one product for sale. Figure 18.5 Two of Australia’s most trusted brand names 322 ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. who were asked to rate 130 well-known brands on a trust scale of 1 to 10. What is it that makes a brand connect with the consumer? Is it emotion. . Branding is very influential in marketing. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party.

) 2 Choose five of the above brands and describe the features that you believe each of these brands possesses to make it ‘most trusted’. and the fact that in 2010 Cadbury Australia began making Fairtrade Certified Cadbury Dairy Milk milk chocolate – its biggest selling chocolate! 3 What do you believe makes a brand connect with the consumer? CHA P T E R 18 THE MARKETING MIX AND RELATED MARKETING STRATEGIES 323 ISBN: 9781107665910 © Gillian Somers.au/.au/australias-most-trusted-brands-2010 Questions 1 Out of the 21 companies (brands) listed above. For example. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party.readersdigest. identify which brands are Australian-owned and which brands are foreign-owned.ACTIVITY 18.com. Cadbury has been judged as best of the best based on its scandal-free reputation for its long years of operating in Australia.com. . (Hint: visit the website http://ausbuy.4 Other Category Winners 2010 CATEGORY WINNERS AIRLINES AUSSIE ICONS BANKS CARS CREDIT CARDS ELECTRONICS FOOD HAIR HOME APPLIANCE INSURANCE LAUNDRY MOBILE PHONES ORAL HYGIENE PAIN RELIEF HEALTH AND WELLBEING PET FOOD RETAILERS SKINCARE TELECOMMUNICATIONS VITAMINS & SUPPLEMENTS WHITEGOODS (equal winners) QANTAS VEGEMITE ING DIRECT TOYOTA VISA SONY CADBURY DOVE BREVILLE ING OMO NOKIA COLGATE PANADOL BAND-AID WHISKAS BUNNINGS DOVE VODAFONE BLACKMORES FISHER & PAYKEL WESTINGHOUSE Source: www. Julie Cain.

the company features an English sheepdog. The Dulux dog is seen as a powerful trademarked symbol of the Dulux brand for consumers. These manufacturers know the value of cashing in on their highly regarded brand. As part of their brand recognition.Why is brand important? brand stretching using an established brand name in order to introduce unrelated products A brand can convey a range of meanings: attributes. This practice is known as brand stretching and occurs where a central logo is used as an umbrella for a range of products.6 The importance of branding and brand recognition 324 ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. with its motto (created in the 1970s) ‘Worth doing. Julie Cain. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. Their growing non-car product lines underscore the power of their brands. BMW stands for high performance. such as Ferrari. Figure 18. worth Dulux’. sæ Values – this car says something about the manufacturer’s values. Research confirms that the inclusion of the Dulux dog in any promotional material increases the memorability and branding for the consumer. wellengineered. it is possible to analyse these brand meanings: sæ Attributes of the product – a BMW car suggests an expensive. sæ Culture – the brand may represent a certain culture. high-prestige automobile. low-volume car producers. sæ Benefits – both functional and social status. long-lasting. key chains or other trinkets. A BMW car will last for a long time and can make some people feel important and admired for having this product. safety and prestige. values. Taking the example of a luxury car such as a BMW. well-built. Porsche and Aston Martin. sæ Personality – BMW projects a certain personality: high status and interested in on-road performance. sæ Type of user – who would we expect to see behind the wheel of a BMW? The importance of branding is recognised by luxury car manufacturers. but also the harsh realities of the car business: selling baseball caps and luggage can be more profitable than selling cars. personality and type of user. BMW represents German cultural traits of organisation. culture. The brand Dulux. Another example of brand distinguishing a product is in the very large and competitive paint industry. selling branded clothing. . These branded goods provide a profitable product line for such premium. conveys the image of quality attached to any paint product from its range. benefits. efficiency and high quality.

which had painted its stores with blue and red on a yellow background. Cadbury wanted to gain sole right to this colour. . Over time. In January 2006. and its attempt to sue Darrel Lea was rejected by the Federal Court. You product placement a method used to gain prominence of a product in the consumer’s mind. Clark Rubber won an injunction against Oasis Foam and Rubber. television. This has become an increasingly contested issue. Cadbury was told that it does not ‘own’ the colour purple. some brand names have become accepted in our common language as the generic name for a type of product. culture. BP wanted to register the colour ‘green’ under the Trade Marks Act 1995 (Commonwealth). similar to the Clark Rubber colour scheme. values. with Red Bull winning a court case in 2002 against a soft-drink distributor whose can used the same red. In more recent times. 2 Create a list of at least 10 products where the brand name has become accepted as the ‘common name’ for the product. wherever those eyes might be. An advertiser wants its product to be in front of people’s eyes. 3 Identify three luxury brands where the business is ‘cashing in’ on the brand name to gain an additional revenue stream.5 1 Choose two different products and describe the range of meanings attached to those products in terms of: attributes.7 The importance of colour in marketing a brand CHA P T E R 18 THE MARKETING MIX AND RELATED MARKETING STRATEGIES 325 ISBN: 9781107665910 © Gillian Somers. while also maintaining its quality. ACTIVITY 18. It is possible to register a brand name to protect its use. Businesses also now want to monopolise the colour they use in their brand. Figure 18. which can then protect its brand. For example. plastic cling wrap is commonly referred to as ‘gladwrap’. Meanwhile. and a portable car fridge as an ‘esky’. Julie Cain. a felt-tip pen as a ‘texta’. Product placement has become very popular in television programs and movies. blue and silver combination with the same ‘diagonal thrust’ as the Red Bull can.g. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. movie. personality and types of user. internet may also want to count up how many times an individual product appears or is mentioned during a television show that the business has sponsored. benefits. This kind of product recognition is a marketing advantage.Businesses that adopt a brand ownership strategy must ensure the strategy adequately promotes the brand. e. Cadbury and Darrel Lea fought a five-year legal battle in Australia’s Federal Court over the right to use the colour purple in packaging and advertising. When you are next watching television or at the movies. take some time to actually count up how many products are strategically placed in the show itself to subconsciously catch the eye.

The choice of the right packaging The packaging of a product is very important and not to be overlooked. brand recognition and positions the product in the marketplace sæ differentiates the product from that of its competitors sæ protects the product – primary wrapper. For example. Often the trademark of the business is displayed on the label. secondary and transportation packaging sæ tamper-proofing sæ provides consumer information – ingredients. purple (luxury) with Cadbury chocolates. use-by date 326 Product placement is now also appearing in simulated aspects of the real world in computer software games and virtual reality environments. It offers opportunities to participate in activities such as games. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. deciding to stock branded products is a sound strategy as these products carry with them their own consumer recognition and brand loyalty. puzzles. Labels can be used to provide information about the product. squeezable containers. White Wings flour is now available in a screw-top plastic jar instead of a paper packet. red (warmth. while very important from a marketing sense. It aims to gain commitment from visitors to the website by building a virtual community around that brand of product. For instance. The brand attaches to the supermarket chain. the manufacturer or retailer. ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. live chat. including: sæ acts as an advertisement. such as ‘No Frills’. The internet has become part of the branding strategy of many organisations. blue (professionalism) with IBM computers. These savings are then supposedly passed on to the consumer by way of lower prices for the product. Packaging. For small business operators. ‘No Name’ or ‘Select’ brand. Heinz moved from selling glass bottles of tomato sauce to plastic. email. surveys and e-commerce. Some large supermarkets offer products that have generic brand names. consumers associate certain colours with certain feelings and products: white (purity) with milk. These brands are produced by a variety of unacknowledged manufacturers. The website for a business becomes a brand portal offering site visitors more than just straight product information. It has a multitude of purposes.generic brand a brand that attributes its identity to the retailer rather than the manufacturer label placed on a product to inform customer/ consumer with information such as manufacturer. attracting attention and new customers sæ builds image. Producers should also think about portion sizes when designing their packaging. packaged plainly and therefore more cheaply. This will cut down on the amount of marketing a business will need to undertake. They do not receive a lot of promotion. message boards. Not all households are large and therefore individual pre-packaged portions of items may lead to more sales. passion and sensuality) with Coca-Cola. The use of reusable packaging such as glass or recycled cardboard has helped overcome some of this criticism. ingredients. Labels can be part of the packaging of a product or attached directly to the product. rather than the various manufacturers of the product. Customers also choose products based on the convenience of the packaging. One of the most important considerations when designing packaging is colour. mainly due to environmental issues. McDonald’s and Intel are engaged in product placement activities within virtual worlds and this activity is expected to become more popular with brands as people spend more time in virtual environments. has also come under greater consumer scrutiny and criticism. Julie Cain. . manufacturer and country of origin.

The style and size of the font will be consistent across all brands.ACTIVITY 18. name of manufacturer. The new laws will ban colours. The final packet design is being trialled by government graphic whizzes to achieve maximum lack of effect for the brands. Exact standards will be released closer to the date.g. The only colour will come from those graphic photographs of what smoking can do to the human body. ACTIVITY 18. placement of logo or business name b Consumer information. Julie Cain.6 1 Choose four products and analyse their packaging based on the following criteria. 2 Do you believe that this strategy is effective? Justify your opinion. all cigarettes will be sold in plain packaging. 109 Questions 1 Describe what you believe was the purpose to be achieved by the Australian Government in its move to debrand cigarettes. logos. Source: The Gruen Transfer. 2 Identify which colours you associate with the following brands. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. Debranding In April 2010. p. e. . a Design – use of colour. The boxes will be the same colour.7 Read the extract and answer the questions that follow. Jon Casimir ABC Books. as will the position of the brand name. the Australian Government decreed that from 1 January 2012. a John West b Maggi c Weight Watchers d Twisties e Sara Lee f Lipton. The name will appear in a small font. brand images and any kind of text that would allow cigarettes to be distinguished from one another. ingredients. country of origin c Level of packaging – primary or secondary d Brand recognition e Environmental friendliness. CHA P T E R 18 THE MARKETING MIX AND RELATED MARKETING STRATEGIES 327 ISBN: 9781107665910 © Gillian Somers.

8 Factors that determine price 328 ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. A standard percentage mark-up (representing the desired profit margin) is then added to the unit cost to arrive at the sale price. it must ensure that it covers the base price for the product. Outlined below are various factors that must be considered when determining the price of a product or service. This requires the business to calculate its break-even point. It is the customer who will ultimately determine whether the business-set price is correct. Businesses often apply different pricing methods to their portfolio of products. Costs are normally calculated on a ‘cost-per-unit’ basis. then takes into account the range of price adjustment strategies available. 2 Competition-based methods It is normal for a customer to compare prices and quality between items being offered by a business and that of its competition. usually expressed as a percentage There are three main ways that the pricing of a product or service is determined. The price is the amount of money paid by customers for a product or service. While price is important. stage in product life cycle and competitive conditions within the market. This is referred to as establishing the going rate. To be competitive in the marketplace. it is therefore very important to price products in a similar price range to competitors. businesses Business objectives (profit) Costs Marketing strategies Legal constraints Price Competition Life cycle position of product Supply and demand Customer’s perception of value Figure 18. Price is the second component of the four P’s of the marketing mix. Julie Cain. When a business determines its pricing strategy. depending on costs of production. Pricing levels greatly influence the revenue and profit made by a business.What determines price? mark-up pricing determined by adding gross profit to the direct cost per unit. helping to determine its financial success or failure. . 1 Cost-based methods A business will want to recover the total costs (both fixed and variable) associated with actually getting the product to the point of being ready for the marketplace. Pricing a product for the market is dependent upon a range of factors. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. Correct pricing decisions are therefore some of the most important issues facing marketing managers.

it will have to adopt a price leadership strategy. The price is set lower than that of competitors or the normal price for such a product. sæ Adopting psychological pricing – used by manufacturers and retailers to make the price appear lower than it actually is. The market is usually small and not seen as having potential to grow in size. While the cost of producing perfume and cosmetics is not all that high. When the marketplace is oversupplied with a product. who hopefully will still remain when prices increase to the level of normal competitive pricing for that product. such as movie tickets. The aim is to create a long-term relationship with customers. and is skimming off the ‘cream’ of the market. a large proportion of the cost is actually associated with the packaging to make the product look exclusive. leisure travel and restaurant prices. shirt and tie. sæ Creating a loss leader – the price set on one product may be low in order to attract customers to buy other products in the range with a higher margin.g. and generally tend to be essential items such as milk. sæ Penetration pricing policy is used to get customers to try the product. The price charged is high relative to competitors. Julie Cain. Just think of the price comparison between strawberries. If a business wants to be the market leader.01. such as customer service and loyalty programs to entice customers. sæ Using complementary pricing – where the price is set low on one item and high on another item that would normally go together. Introducing a new product Introducing a new product may mean the business adopts one of the following strategies. are going to be expensive. the price will usually fall in the hope of attracting consumers to buy additional quantity. because of their image and quality. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. Established product/service A range of pricing strategies exist and the objective of the current marketing of the product/service will assist in determining which is most appropriate. For instance. . the price of fresh fruit and vegetables is highly dependent on the level of supply available at the wholesale market. Consumers also assume that some products. coat and scarf. similarly. suit. Demand is slightly more complicated in its relationship to price. mangoes and watermelon in summer and winter. Other forms of penetration pricing are introductory price discounts (‘two for the price of one’) and sampling. The price of $1999 appears far lower than $2001. CHA P T E R 18 THE MARKETING MIX AND RELATED MARKETING STRATEGIES 329 ISBN: 9781107665910 © Gillian Somers. e. bread and eggs. sæ Skimming pricing is used for products that are of high quality and have an ‘image’ attached to them. Other factors that affect pricing price leadership a business that through its dominant market position is able to set prices that other businesses adopt skimming pricing a strategy where high prices are set to ensure high profits before marketing advantage is lost psychological pricing pricing strategy whereby the price is set in accordance with the value the consumers place on the product Supply and demand Some products are very sensitive in their pricing to the level of supply of the product. These products are referred to as being price inelastic. This type of product has the additional consideration of seasonal factors affecting availability of supply.need also to focus on other aspects of the business. Products that have a large drop-off in demand due to a price increase are referred to as being price elastic. and generally tend to be non-essential items. Some products may have a price increase with little or no impact on the demand for the product. $0.99 instead of $1. thus setting the prices for other competitors in that industry. 3 Marketing strategy methods The pricing strategy will differ based on whether a business is introducing a new product or whether its product or service is already established in the marketplace.

Virgin Airlines. bread. having a substantial degree of market power. It is often those items that are considered to be staples. it allows them complete control of the marketing function. eggs and petrol. There are two main types of distribution channels: direct and indirect. such as milk. one of the four P’s of the marketing mix direct distribution channel a manufacturer sells the product directly to the customer Controls are periodically imposed to set maximum prices for certain products. Julie Cain. which prohibits product suppliers specifying a minimum price below which retailers must not resell or advertise their goods or services sæ misuse of market power. when launching their Australian operations. especially for services such as insurance and banking.3 Direct distribution to the customer 330 Advantages of direct distribution Disadvantages of direct distribution s Cuts out the profit margins of the ‘middle man’ (retail intermediary) s Manufacturer/producer needs to warehouse the stock. Direct distribution channel A direct distribution channel enables the manufacturer or producer to sell their product directly to the customer. 2 Comment on whether you think this was an appropriate strategy for that product. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. adding to storage costs s Pricing and marketing of the product/service is under the full control of the manufacturer/ producer s Product is not on display in a retail outlet for the consumer to browse and make comparisons to other products ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. such as: sæ price fixing. used a penetration pricing policy to try to win the travelling public away from the established airlines. It is very important that businesses place their product correctly so that it is accessible to the end user (consumer) when and where they want it. . at the right time. Place Place is the third component of the four P’s of the marketing mix. however. Place therefore involves making decisions to ensure that the right quantity of product is in the right location. JetStar and Tiger Airways. which is when suppliers formally arrange with competitor suppliers to fix the same price for a product sæ resale price maintenance. ACTIVITY 18. which is when a supplier.8 Choose two recently launched products. The internet has added to the popularity of this distribution channel.Government regulations place encompasses the distribution channels used to market products to customers. This method usually requires the business to invest in facilities and staff to sell their product. The government also regulates prices through the provisions of the Competition and Consumer Act 2010 and in some instances prohibits certain pricing practices. tries to eliminate or damage a competitor. Table 18. prevent a person entering the market or deter a competitor from undertaking competitive practices. Distribution channels are used to provide the link between the manufacturer and the customer. 1 Consider whether either the skimming or the penetration pricing strategy has been used for these products. For example.

Industrial products are more likely to be sold directly with fewer intermediaries than consumer goods.aussiefarmers. seven-days-a-week operation from its distribution centre in Sydney. which is a free home delivery service supplying directly to the consumer Australian grown and produced products such as milk. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. It sells products from more than 23 categories. com. bread. 3 Which major retail stores are now moving to adopt an online store? Why do you believe they are adopting this strategy? Figure 18. Having an efficient logistics operation can provide a business with a strong competitive advantage. who then sells it to the customer ACTIVITY 18. Julie Cain.au is Australia’s most popular online shopping department store. . Often businesses will have a combination of both direct and indirect channels.4 Indirect distribution to customer Advantages of indirect distribution Disadvantages of indirect distribution s Manufacturer/producer has passed on the cost of holding and storing stock to a retailer s Customers can view a wider range of items and make price comparisons s Manufacturer/producer is given more freedom to focus on producing a product rather than also having to concentrate on selling the product s Marketing decisions relating to price are now out of the control of the manufacturer/producer and are made by the retailer Indirect distribution channel Traditionally. 2 Visit the DealsDirect online department store website (www. the value of purchasing transactions is low and the market is fragmented and dispersed. It is a popular distribution channel for occasions when consumers want to purchase an assortment of items. cream. In recent times. DealsDirect.9 DealsDirect logo CHA P T E R 18 THE MARKETING MIX AND RELATED MARKETING STRATEGIES 331 ISBN: 9781107665910 © Gillian Somers.au). eggs.com. Logistics covers decisions relating to transportation. where products are stored and displayed. as they have their own retail outlet where they employ their own sales staff as well as placing the product for sale through distributors. an indirect distribution channel involves the use of a retail outlet. orange juice and spring water. cheese. warehousing and storage of goods.au) and describe how they undertake their distribution of products and promotion of their business.Table 18. It runs a 24-hour. bacon.dealsdirect.com. the concept of an online department store has evolved. Another innovation is Aussie Farmers Direct (www.9 1 What distribution channel issues or considerations would be important for the following businesses? a Car manufacturer b Clothing manufacturer c Furniture manufacturer d Paint manufacturer. indirect distribution channel a manufacturer sells their product to a retailer (intermediary).

Promotion promotion the use of advertising. An advertisement can be used to persuade consumers to buy a product and not a competitor’s. product use. Other examples of some promotional objectives include: sæ To raise consumer awareness of a new or existing product. so that a switch in preference is not made to the competition’s product. one of the four P’s of the marketing mix Promotion is the fourth component of the four P’s of the marketing mix. such as beauty or serenity sæ testimonial evidence – featuring a highly believable or likeable person endorsing the product sæ technical expertise – showing a company’s expertise in making the product sæ scientific evidence – presenting a survey or scientific evidence that the product is superior to competitors’ products. Promotional techniques Advertising advertising informing potential buyers about a product 332 Advertising is a powerful medium of mass communication that is designed to: sæ inform by giving information to potential customers about the technical details. ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. advertising is undertaken to remind consumers of the product’s presence and reinforce what the product has to offer to consumers. key features. sæ To correct misleading reports about a product or service or reassure the public after a crisis or accident relating to the product. Advertisements are often presented using a variety of styles: sæ personality – creating a character to represent the image of the product sæ slice of life – showing typical people using the product in an everyday setting sæ lifestyle – showing how a particular product fits in with a certain lifestyle sæ celebrity – famous spokesperson acting to promote either the product/service or the business sæ fantasy – creating a fantasy around the product or its use sæ mood or image – building an image around the product. It is important to use this form of advertising when introducing new products. Promotion involves the business communicating with its actual or potential customers. sæ To remind consumers of the existence of a particular product or service. For promotion to be effective. or range of products or services. sæ persuade by creating a distinct image or brand identity for the product. when there is really little difference between the products. Note the persuasive comments made in the advertisement ‘Pork as lean as skinless chicken?’ sæ remind and reinforce – when products are well established in the market. . branding. sæ To create and reinforce brand image or personality. sales promotion and public relations to inform and persuade consumers. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. Once the promotional objectives have been set. This refers to the combination of promotional techniques that will be used to sell the particular product or service. price and where the product may be purchased. Julie Cain. It is the role of the marketer to build up the image of quality and difference between the products in the mind of the consumer. sæ To promote distinctive features or superior quality of a product or service over those of its competitors. A short-term objective may be to promote an end-of-season sale. either shortterm or long-term objectives must be established. while a long-term objective may be to change the whole image of your business. it is time to decide what will be the appropriate promotional mix. Promotion is the element of the marketing mix that informs customers of an organisation’s product or service while also convincing them of that product’s ability to satisfy their individual needs or wants.

It lends itself best to simple messages delivered in 30-second time frames. sound and special effects to communicate the message. it would be a waste of money to advertise expensive pearls or French perfume in a computer magazine. . For example. movement. as it relies on a combination of visual. With the popularity of channel surfing using remote controls. For instance.Figure 18. Julie Cain. Set out below are the most common forms of media used by marketers. sæ Newspapers allow for large amounts of detailed information to be provided in advertisements. As radios are often in the background when working. sæ Radio has a wide reach and the ability to target market segments. as a full-page colour advertisement in The Australian would be approximately $49 000 including GST. it is then the role of the marketer to select the most appropriate media for the advertisement that will best target the particular market segment they want to attract.10 A reinforcement advertisement ACTIVITY 18. particularly those based on age. sæ Television is a very expensive medium that can provide high impact. They are ideal for marketing fashion items. which can vary greatly in size. studying or driving. sæ Magazines are appealing due to the high quality of their print and colour. Small businesses would be more attracted to placing a small advertisement in a local newspaper. food and CHA P T E R 18 THE MARKETING MIX AND RELATED MARKETING STRATEGIES 333 ISBN: 9781107665910 © Gillian Somers. in the Drive section of The Age newspaper you are likely to see advertisements similar to the one below. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. it means that our attention can in fact be at a low level. from full-page to very small. potential audiences can easily miss the advertisement. Products can be demonstrated as well.10 1 What image is RACV trying to portray with this advertisement? 2 Where is RACV aiming to position itself in the marketplace with this advertisement? 3 Create a chart and provide an example of an advertisement based on the use of each of the nine advertising styles listed above. it is possible to aim the marketing at particular market segments. Forms of advertising media After choosing the style of advertisement to be used. As newspapers generally run special-interest sections.

as it is still not widely accepted as a common way of making direct purchases. Lists of names and addresses can be purchased. Yellow Pages is available both in print and electronic format. . Businesses must ensure they use the medium effectively to provide information to customers. Costs can arise due to printing and postage fees. Julie Cain. ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. but it does mean there is less waste circulation. which have already undergone sorting based on various demographic or target segmenting characteristics. but is only appropriate for very simple or reminder messages. so extending the longevity of the advertisement’s time frame. Outdoor advertising occurs using a wide range of techniques – such as billboards.11 Mitsubishi’s Triton GL-R 4X4 compared to competitors 334 anything associated with glamour. The internet is regarded as the fastest developing advertising medium. backs of taxis and sides of buses. railway stations. low-cost medium used by small and medium -sized businesses. Direct mail is the most personal and selective of all advertising media.sæ sæ sæ sæ Figure 18. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. neon signs. It is still a popular. Magazines are usually read in a leisurely manner and passed on to multiple readers. It can reach a large percentage of the population. bus and tram shelters.

as all sales staff are located at one central call centre and do not need to be provided with transport. competitions. e. Table 18. . CHA P T E R 18 THE MARKETING MIX AND RELATED MARKETING STRATEGIES sales promotion use of incentives to encourage increased sales. Using the telephone.g. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. arranging both payment and delivery details at the same time.g. As many sales staff earn commission on the value of sales received.Table 18. The promotional objective must be clearly defined by the business as to whether it wants a short-term increase in sales or a longterm relationship with the customer. Technology has seen the expansion of direct selling into the area of telemarketing. telemarketing. personal visits or emails. where sales staff are employed to sell products over the telephone. directed catalogues. free gifts. get one free’ 335 ISBN: 9781107665910 © Gillian Somers. as with targeted market customer questions where/how you gained their personal details s Increases opportunity for customer loyalty and higher frequency s Negative image of direct mail and unwanted phone calls (particularly at meal times) s Flexible s Relatively expensive due to high costs of making direct contact rather than the broad approach of advertising Sales promotion The sales promotion technique is used to entice a customer into purchasing a product in the belief that they are gaining some economic advantage. Julie Cain. sales personnel are able to work through a far larger target market in a smaller time. where a customer needs to send in a coupon or save up points in order to gain a reward. The incentives to purchase may be immediate. a product being offered as a bonus pack or free samples attached to the regular product. mailouts. such as direct mail. Telemarketing saves a business money and time by not requiring salespeople to travel or sell on a door-to-door basis with no guarantee of a sale.g. ‘buy one. this form of promotional payment acts as a motivator to increase their sales performance. the incentive may be delayed. It can also be cost-efficient. Alternatively. e. instead of face to face.6 Advantages and disadvantages of direct marketing/selling Advantages of direct marketing/selling Disadvantages of direct marketing/selling s Allows for one-to-one personalised communication s Could be seen as invasion of privacy. teenage girls through Dolly magazine) s Inflexible or not as compelling as a salesperson s Consumer is able to tune out s Able to create powerful brand image and product recognition Direct marketing/selling This technique has developed from the desire of businesses to deal directly with their target market using marketing tools.5 Advantages and disadvantages of advertising Advantages of advertising Disadvantages of advertising s Reaches a broad or mass market s Expensive and difficult to gauge effect s Acts to persuade if creative techniques are used s Impersonal s Able to target market segments through directed media (e. the business hopes to develop a closer relationship with its customer. phone calls. By using these techniques.

. due to the heavily discounted marketing offer. The days of the stereotypical ‘loud mouth professionally trained problem-solver who has something to contribute to the business and its customers. it may be deemed successful as it has generated extra guests for the hotel. Julie Cain. it is therefore important that sales personnel are adequately trained in their product knowledge and interpersonal skills. preferably trained Personal selling salesman’ are hopefully gone. Sales promotion techniques are used on both consumers and those in the trade (retailers). To make this expense cost-effective. Table 18. This helps form the basis of relationship marketing. Table 18. The economic advantage for the retail outlet may come in the form of buying allowances. without long-term pricing implications s Short-term solution to product promotion. does not generally lead to long-term improvement in product sales s Provides opportunity for immediate feedback on effectiveness of the technique personal selling product is sold by a salesperson. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. replaced with a Personal selling can be the largest single operating expense of a business. however. A salesperson should be someone customers can trust for accurate product advice and ethical behaviour. In overall financial terms. it would not be judged as successful as the hotel has additional costs to bear associated with ensuring all its facilities are fully operational while only gaining a smaller revenue increase. cooperative advertising and point-of-sale material.7 Advantages and disadvantages of sales promotion Advantages of sales promotion Disadvantages of sales promotion s Provides additional support (reinforcement) to an advertising campaign s A technique that can be easily copied and improved upon by competitors s Offers short-term incentives to increase sales. trade shows and training to motivate staff to improve sales performance.8 Advantages and disadvantages of personal selling Advantages of personal selling Disadvantages of personal selling s In person (customer is actually dealing with a salesperson who has product knowledge) s Business needs to make sure sales staff are trained and adequate staffing levels are maintained to satisfy needs of customers s Immediate answers to questions posed by customer s Ability to ask and answer questions s Immediate feedback – not left to wonder what the answer will be. it may only be possible to reach a limited number of customers ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. can gain a response even by body language or facial expression 336 s Largest single operating expense of a business and costly on a per-customer basis s Unless a large sales force is used. where a marketing campaign offers discounted accommodation packages in off-peak periods.For instance.

product specification sheets.au (3 – telecommunications supplier) UÊ www.) Can it be registered through a search engine so that customer product or service enquiries are directed to your website? Can it get referrals by using links to other websites? ACTIVITY 18. such as grocery items. How should it be advertised on the internet? Should it use banner advertising to draw customers to your site? (Banners are the headline advertisements seen on the top of popular websites.com.com.com. Julie Cain. UÊ www.au (Holden Limited) UÊ www.Internet marketing This technique involves all online marketing activities used to promote and sell the goods and services of one business to another business (B2B) or a business selling to the consumer market (B2C).au (Virgin Australia airline) 1 Identify the aim of the website. there must be some additional incentive to using this promotional strategy sæ sæ sæ sæ sæ as a purchasing method.afl. having the items delivered directly to their home. goods or services that require a first-hand experience or demonstration in order to appreciate their benefits would be more difficult to sell online. 2 What age do you think is the target market for the products or service? 3 Identify and describe strategies used by some of the site to gain further commitment and brand loyalty.) UÊ www. . sales brochures.11 Visit five of the following websites and answer the questions below.raysoutdoors. while simple and easy for customers to use.au (Ray’s Outdoors) UÊ www. 4 Estimate how long you spent browsing the site.com (Nike Inc.com (The Cola-Cola Company) UÊ www.com. secondly. Online grocery and produce shopping has experienced a slow increase in popularity and offers to the consumer the convenience of firstly not having to take time out to go into a store and.au (The Commonwealth Bank of Australia) UÊ www. It is important that the web address of the business is included in other forms of promotional activities and communication such as advertisements. adequately reflects their corporate brand and image? How do they get customers to visit their website? Promotional strategies will only be successful if sufficient visitors are attracted to their website. business cards and even delivery and service vehicles. What type of website do they need – one that. Similarly.au (Australian Football League) UÊ www.au (Arnott’s Biscuits Limited) UÊ www.arnotts.virginaustralia. and how can that potential be used? For instance. letterheads. Would you visit it again? CHA P T E R 18 THE MARKETING MIX AND RELATED MARKETING STRATEGIES 337 ISBN: 9781107665910 © Gillian Somers.com.coca-cola.holden.three. When adopting this form of promotion.com.commbank. if the product is currently widely available from a retail outlet.nike.com. there are some considerations that need to be analysed by the business: sæ Do the goods or services have online promotional potential. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party.

Public relations activities involve communication aimed at developing a favourable corporate and product or service image. as the business generates the communication s Difficult to be in total control of the publicity a business receives s High credibility s Can be negative as well as positive s Allows the business to build a positive brand image 338 ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. Justify your choice. special events. 3 For the products and services listed below. it is hardly surprising that the mobile phone is now becoming a means to market products and services. which attracts a cost.12 1 From the various forms of promotional activity discussed in this chapter. ACTIVITY 18. lobbying and sponsorships. identify which of those you consider to be the new forms of promotional activity to market products or services. some businesses are now making use of the location-based services (GPS function) on phones for target marketing to people in a geographic area. Table 18.Mobile marketing As there are now more mobile phones than people in Australia. With the advent of iPhone and other sophisticated handsets from competitors.9 Advantages and disadvantages of publicity and public relations Advantages of publicity and public relations Disadvantages of publicity and public relations s Low cost. product launches. The common tools used by publicists are press releases. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. identify which form of promotional activity you recommend would be best to market that product or service. The role of a publicist is to attract favourable attention to the business and what it offers without having to pay media costs. a Underwear b Houses for sale c A school d Superannuation e Solar heating f Rainwater tanks g Hairdresser h Gymnasium/Fitness centre i Solicitors j House builder. 2 Identify either a product or service being marketed using a new form of promotion or media. Publicity and public relations Publicity is a ‘free’ form of mass communication that is different from advertising. The communication can take the forms of advertising and/or publicity and acts to support other marketing strategies. Julie Cain. . Comment on whether you believe the form of promotion or media chosen is effective for advertising that particular product or service.

and to provide physical protection for the product. term. personal selling. A product line represents the broad group of products intended for the same use. persons. UÊ There are five stages in developing a new product: 1 Idea development 2 Idea screening 3 Idea evaluation 4 Product development 5 Product commercialisation. . places. UÊ Product mix represents the full set of products being sold by a company. UÊ Product is anything that can be offered to a market to satisfy a need or want. internet marketing. UÊ Business goods are classified as raw or manufactured materials or parts. to differentiate from other products. mobile marketing and public relations. achieve a profit margin. events. supplies and services. direct marketing/selling. Julie Cain. UÊ A brand is the distinguishing name. as their result should be the achievement of set marketing objectives. information and ideas. symbol or design that is used to identify and differentiate one manufacturer’s product from that of another. through direct or indirect distribution channels? UÊ Promotion – how is the business going to make the product known to its market? UÊ Promotional techniques include advertising. sales promotion. CHAPTER SUMMARY UÊ Marketing strategies are seen as a ‘means to an end’. price. it acts to advertise. properties. UÊ Consumer goods are classified as convenience. specialty or unsought. CHA P T E R 18 THE MARKETING MIX AND RELATED MARKETING STRATEGIES 339 ISBN: 9781107665910 © Gillian Somers. UÊ Packaging is multifunctional. experiences. UÊ As businesses aim to provide customer satisfaction and business profitability.UÊ Each stage in the product life cycle will attract the use of a different marketing strategy. be competitive. UÊ Products and services can also be classified as being either consumer or business goods. UÊ The marketing mix comprises four variables: product. or adopt pricing strategies appropriate to the relevant stage in the product’s life cycle? UÊ Place – how will the consumer get the product. place and promotion. UÊ Product life cycle has four stages: 1 Introduction 2 Growth 3 Maturity or saturation 4 Decline/extension. services. organisations. shopping. UÊ Products can be physical goods. capital items. to build a brand image. UÊ Price – what are customers prepared to pay? UÊ Price – how is it determined? Does the business want to cover costs. understanding how marketing strategies relate to each component of the marketing mix is vital. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. publicity.

a Product b Impulse goods c Wholesale d Brand e Retail f Break-even point g Distribution h Going rate i Promotion j Psychological pricing k Product line l Publicity m B2C website. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. 5 Identify any current government restrictions that are imposed on products or services relating to their packaging. explain why they are successful. Provide more than one technique for each product or service. a Manufacturer b Consumer. Julie Cain. . place and promotion. 3 Direct-to-consumer or factory shops have become a very popular shopping alternative. pricing.CHAPTER SUMMARY QUESTIONS 1 Define the following terms and then use each in a sentence to demonstrate your understanding. a Local petrol station b Florist c Hairdresser d Ladies clothing (fashion) boutique e Menswear shop f Take-away food shop g Greengrocer h School cafeteria. 340 ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. 2 What pricing policy should the following businesses adopt? 4 List and explain which would be the best promotional techniques for the following products and services. a Hair shampoo b Life insurance c Window washing service d ‘Hire a Hubby’ maintenance service e Chocolates f Instant microwave meals g Instant mocha coffee h Deodorant i Sports drink j Hair care products. From the point of view of the following parties.

She has good forward orders for the entire product range: straight leg. c Create a website that allows customers to view her range of jeans and then order online. does she need to design a separate range of jeans? UÊ Price – what pricing policy would be the most appropriate. Current sales figures indicate that her jeans are very popular. b Remain in her current premises and distribute the jeans through retail outlets. boot leg. price. how will customers find out about her website? CHA P T E R 18 THE MARKETING MIX AND RELATED MARKETING STRATEGIES 341 ISBN: 9781107665910 © Gillian Somers. Julie Cain. competitive or give the highest profit margin? Will the pricing policy need to be different for online customers? UÊ Place – does she want to be both a manufacturer and a retailer? What will be the best way of delivering the product to online customers? UÊ Promotion – if she is to become a retailer. . flares. EXTENSION QUESTION Samantha manufactures jeans at her small premises in Brunswick. place and promotion) of each option. Samantha seeks your advice on what to do. and let them worry about promoting the jeans to the consumers? If she sells her jeans online. consider the marketing implications (product.a Move to a larger factory in an outer suburb where she will have the capacity to make more jeans. hipsters. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. She now has a dilemma of whether she should: Some issues to think about when giving advice include: UÊ Product – is this product a fashion item or a longstanding product? If she sells her product online. In providing advice. This additional space will allow her to create a factory outlet store. how will she promote her jeans? Would it be better to ensure sales are gained from retailers.

Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. .19 MANAGING THE PUBLIC RELATIONS FUNCTION WHAT’S AHEAD Ethical and socially responsible management Significance of image Public relations (PR) The ‘public’ PR objectives PR objectives and strategies Planned situations PIs – evaluate PR Unplanned – crisis management PR issues ISBN: 9781107665910 © Gillian Somers. Julie Cain.

the need they have – their business reputation.KEY KNOWLEDGE Students will learn the following about managing the public relations function: – the management of public relations and its relationship to business objectives and business strategy – the significance of image – the concept of ‘publics’ and their respective characteristics AREA OF STUDY MANAGING THE PUBLIC RELATIONS FUNCTION 3 – public relations objectives and strategies used in a range of planned business situations for identified ‘publics’ – public relations objectives and strategies used in a range of unplanned situations – relevant performance indicators to evaluate the performance of public relations strategies – issues in public relations. but sometimes overlooked. 343 ISBN: 9781107665910 © Gillian Somers. public relations relationships established with the media to create favourable reports about the business and its products permanently tarnished. public opinion is more difficult relations is another area related to organisational to change – the reputation of a business can be communication and marketing objectives. Julie Cain. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. many communication strategy is the use of public businesses are turning their attention to how relations techniques. . While for effective communication and business unfavourable judgments can be challenged in marketing strategies was discussed. Public a court of law. In the previous chapters they can protect one of the most valuable assets on communication and marketing. including the role of technology in the global business context and in the context of ethical and socially responsible management and legal requirements. In a business environment where legal action An important. against organisations is increasing.

Well-planned public relations campaigns will contribute to the achievement of business objectives such as: sæ increasing the customer base sæ increasing demand for products or services sæ gaining a competitive edge sæ enhancing credibility sæ creating goodwill within the community. What is public relations? There are a number of definitions of public relations. usually at little cost to the business itself. it may occur as a result of a crisis and is usually seen as a long-term investment in the goodwill and reputation of the organisation. including the following: sæ PR is the practice of promoting goodwill among the public to present a favourable image. Julie Cain. planned and sustained effort to establish a relationship between an organisation and its public’. ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. Some businesses also engage in charitable activities to convey a positive image. A large proportion of media stories develop from PR leads. is usually not product-specific. Both functions aim to increase the 344 reputation and recognition of the organisation in the public arena. . Instead. and perhaps diversification of products and customer base. however. it is not the same concept. A major aspect of the role performed by the PR professional is that of issue and crisis management (discussed in more detail later in this chapter). Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. which will hopefully flow into increased sales and market share. Public relations. Public relations should be planned and used to increase public recognition of the business and prepare public opinion to accept the business brand and its product range.The role of public relations (PR) is vital. as businesses that develop effective networks and PR strategies will often find their exposure to the public increased. growth. Public relations and its relationship to business objectives and business strategy It is important for any business. to have a business plan and some strategic or long-term objectives. regardless of its size. sæ PR is primarily concerned with the image of the organisation portrayed to the public. so businesses need to tap into this resource to enhance their profile. Businesses can build a reputation by pursuing free media publicity through events. The long-term objectives of the business are likely to include increased market share. sæ PR also refers to how the public sees the organisation and the image it has decided to portray. sæ The British Institute of Public Relations has defined PR as ‘a deliberate. and by issuing media releases. While PR is aligned to marketing and communication techniques. community involvement.

it is difficult to change quickly quickly in response to changes within the market and needs to be cultivated over time Marketing needs to make the most of the opportunities as tastes and trends change Reputation is something a business wants to strengthen Marketing is product-specific Public relations relates to the organisation as a whole Marketing is designed to increase sales and market share Public relations is used to strengthen credibility. Julie Cain.Table 19. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. enhance business image Emphasis is on product recognition and product image Organisation attempts to control the release of information to the media Focus is on customers and potential customers and clients Public relations is used to gain publicity for the organisation Often follows market research before an advertising campaign is launched Public relations is designed to keep the organisation in the public eye Public relations uses a variety of media Public relations is aimed at the public at large or the ‘public’ of the organisation CHAP T ER 1 9 MANAGING THE PUBLIC RELATIONS FUNCTION 345 ISBN: 9781107665910 © Gillian Somers. .1 The difference between marketing and public relations Image and marketing Reputation and public relations A business must work on creating and promoting an image for the business A reputation is gained over time and it occurs when the community sees what an organisation is doing Marketing involves a conscious decision to spend A reputation is an asset that the business can develop money on an advertising campaign in an effort to gain over time extra sales Marketing campaigns and advertising can be changed Reputation is complex.

his approach is a lesson about the value of PR and that publicity is advertising that is not paid for.1 1 List the image or impressions that you identify with the following people. An image can be carefully created and developed so that there is a public persona that is readily identifiable with an individual or company. Many of these may also be given items such as designer clothing. In some circles. Branson has estimated that his PR stunts are 30 times more effective than money spent on advertising. While small to medium-sized businesses cannot match the profile of Branson. a Dick Smith b Paris Hilton c SS Holden Commodore d Large four-wheel drive vehicles e The Salvation Army f Madonna g Porsche Motor Company h Ralph Lauren.com.The significance of image There is a saying that ‘image is everything!’. Richard Branson. ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers. a good publicity or PR stunt is known as ‘doing a Richard Branson’ ACTIVITY 19. . and this provides further publicity for the business. actors and sportspeople to promote the image of the business. A famous actor or actress arriving at the Academy Awards. may be wearing a particular brand of watch or a designer dress. jewellery and perfumes to wear as a way to further enhance the image of the business by association. is an expert in marketing and public relations. it is. They pay celebrities. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. Julie Cain. customers will find out when his 346 company has a new product or service. Branson is an entrepreneur who knows that through highprofile events. According to dynamicbusiness. and perhaps in terms of public relations. Many businesses have used celebrities as a means to develop and promote an image for the business. He uses the media and is able to create news. 2 Why do you have these impressions? List as many sources as possible about where these impressions have come from. for example. organisations and products. for example.

’ Branson says. but he won’t accept the notion that perhaps his name and Virgin had virtually become co-branded. I surrounded myself with see why he has fun. You can it couldn’t be done.’ saying it.’ ‘I believe the Virgin brand. innovation and value for money. CHAP T ER 1 9 MANAGING THE PUBLIC RELATIONS FUNCTION 347 ISBN: 9781107665910 © Gillian Somers. Unlike other stars. putting faith in a lot of people who had experience where I didn’t. then so be it. for many people. And if it means dressing Brand power. he insists that it is much more than just Richard Branson. Virgin’s brand identity. the letters people who believed as much as I did that we BP and the name Richard Branson have one could do it. stands for quality service. who instantly makes consumers think about his products. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party. as well as those who didn’t have a clue. Brand experts have acknowledged the entrepreneurial instincts and strategic vision of Sir Richard – along with his quality management teams. . according to Thinking outside the square the experts. I didn’t stop and think his corporate competitors are doing. and it attracts people who appreciate and demand great customer service. we spoke to Sir Richard. ‘Yes. has reached planet celebrity status. which are driven by a fanatical will to succeed – as being critical to the success of Virgin products. It’s argued that the Virgin brand is the ‘glue’ that holds it together. defined as not doing what whatever I attempted.2 Read the article and answer the questions that follow. The success of a brand is its ability to tell the market what it stands for without actually Branson’s summation of how he made his vision real recounts a formula for success: ‘By working damn hard. The first thing we asked was whether it was always his intention to create one of the most well-known brands in Tassie Tiger costume for the launch of a new route.’ thing in common – they have brand identity. his business model seems to be ‘I always wanted to have fun and succeed at a contradictory one. fun and value for money. Brand power with Richard Branson by Peter Switzer The words Coca-Cola and Microsoft. innova- Branson believes owners of businesses have tion. but had great life experience and by following instinct and having a great time.ACTIVITY 19. And all of these to be willing to have a go.’ Branson acknowledges that the role he plays is important. He states ‘I think it’s Branson symbols are constantly delivered by a important to put yourself on the line if you are maestro of public relations (PR). Branson-style up in a wedding frock or wearing a stinking-hot When a Branson event is announced to the media. In many ways. I think it probably was. however. he is a walkingtalking brand. Against the mould the world. Julie Cain. To gain insights into his intimate understanding of brand building. like Bill Gates and Michael Jordan. the simple assumption is that a news story is on the way. Beyond the vision Branson. In fact. now stands for a lifestyle choice that sums up our core brand values of fun. going to back something.

‘Always ask as many people as you can for advice and guidance – that certainly doesn’t stop just because you’ve become successful. not just the so-called experts. Megan Jeffery 2011 Cambridge University Press Photocopying is restricted under law and this material must not be transferred to another party.1 Richard Branson has used publicity to develop a recognisable brand 348 ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2 ISBN: 9781107665910 © Gillian Somers.Getting the message out On the issue of brand building.’ Source: www. ‘Friends. Branson’s insights are instructive. colleagues. 2 How has Richard Branson developed his ‘brand’? 3 Discuss the methods Richard Branson has used to gain access to free publicity and PR.’ he insists. . advertising is a strong and consistent means of communicating the message. Questions 1 Define the concepts of marketing and public relations. Virgin and the roles played by advertising and PR. happens in spurts. he is not entirely convinced about experts and does not believe that they had a critical role in the building of his brand. his observations on their merits will please the advertising industry. ‘Both are important. family. Sometimes it’s a “spur of the moment” idea that takes the PR team by surprise. PR. mentors – draw on everyone around you. While he likes to hear other points of view. on the other hand.com.’ he advises.au. 4 What advice does Branson give in making the most of publicity and business opportunities? Figure 19. ‘While PR is great to get a key message out there.’ His thoughts on what brand-builders of the future should be thinking about are typically provocative and predictably Branson. He views advertising as a steady medium that gradually drops in the Virgin message to its target audience. even a deliberate or calculated “stunt” that gets PR attention. For those wondering about the relative importance of the often-competing marketing methods. Julie Cain.switzer.

Public relations officers need to explain to senior management the differences. For example. Senior management. stories and brochures. He stated: ‘I thought. There is a tendency for image to get a lot more attention than reputation. shareholders and management. this is usually achieved using a range of strategies that the organisation has developed. In a planned situation.’ Branson continued with his public relations campaigns and adventures under the Virgin brand. often do not fully appreciate the differences between image and reputation. I’ll keep going.3 List the ‘public’ for each of the following organisations. The public may be internal or external stakeholders: sæ Internal public may include employees. This may be presented in a diagram. Julie Cain. sæ External public might include the local community. The aim of public relations is to maximise ‘good’ news and to minimise ‘bad’ news. Richard Branson has been able to develop and expand the image and reputation of Virgin. then it is necessary to reach all Australians. The aims of public relations can be classified under the following headings: sæ Gain free publicity sæ Promote the organisation sæ Develop relationships with the community sæ Lobby to influence government or other policy makers sæ Provide the public with information sæ Manage issues and crises. It is therefore important for organisations to be very clear about who their public really is. Campaigns may include advertisements. competitors. Other organisations may find that their public is only a sector of the community.The concept of the ‘public’ and its characteristics ‘Publics’ will vary for each business or organisation. The public can be defined as those with a stake or interest in a particular company or business. The ‘public’ may be all members of a particular state or country. Public relations objectives Image and reputation are closely related and sometimes people have trouble telling which is which. ACTIVITY 19. suppliers. grabbing headlines around the world. In order to get Virgin Atlantic known and its launch publicised. Public relations strategies must be targeted at the correct groups and in the most appropriate form. These ensure that the messages and images they wish to portray to their public are executed in line with overall organisational objectives. . so that brand marketing and corporate communication effort