Topic Summary

Topic 1 Nature of Business

1. THE IMPORTANCE OF BUSINESS

Business: Organised effort of individuals to produce and sell, for a profit, to satisfy the
needs and wants of the community
1.1 The function of business in creating and adding value

Business must add value to combine inputs/raw materials to produce outputs

(good/services)
Product: An item, good or service sold or offered for sale by a business.
Production: those activities undertaken by the business that combine the resources to
create products which satisfy customers needs and wants
Inputs: resources (finance, labour, equipment) that a firm uses to produce outputs (E.g.
Inputs- sugar, water, can. Output- coca cola soft drink)
Intermediate product: One which is produced by a business and is used as an input by
another business (raw materials)
Final product/service: The sum of total values made by all business activities and
resources.
Value adding: Where inputs are transformed into intermediate or finished products through
the various stages of production
Value added: Difference between inputs and outputs
Value of production: Total value added by a producer
Value chain: Set of linked activities that add value to a product or service. (E.g. raw
materials to a finished goods and service)
Inputs
(Raw materials/
intermediate
products)
$10 000

Business
production
Activities
combining
resources to create
Value of production= $15000

Outputs
(Sales/ finished
products)
$25 000

1.2 Social & economics roles

Economic role: Concerned with the financial impact that the activities of business may
have on various groups in the business environment.
a) Wealth
o
Owners paying taxes to government and provide G&S for consumers
o
Satisficing behaviour, market share, growth& diversification
o
Profit= revenue (from sales) expenses
b) Employment
o
10 million Australias employed
o Labour = income (reward)
o Retrenchment: Dismissal of employee as there is no work to justify paying them.
Reasons- Downsized(staff numbers reduced); closed a division; outsourced a function
o Redundancy: When a particular job is no longer required (due to technological changes,
a merger or takeover)
c) Entrepreneurship/Innovation
o Innovation: Occurs when something already established is improved upon
o R&D and innovation is crucial in competitive markets to improve/create new products
o Entrepreneur: Someone who starts, operates and assumes the risk of a business
venture in the hope of making a profit
o Invention: The development of something new

Social role: Focused primarily on the impact of business in the community.

a) Quality of life
o R&D +VE contribution
o Convenience for busy lifestyles Pre-prepared meals, subscription TV
b) Choice
o Encourages
prices, quality and innovation to target competitors
o
Businesses have a prime function and a mission statement(underlines purpose of firm)
1.3 Identification of relevant stakeholders

Stakeholder: Any group or individual who has an interest or is affected by the

activities/operation of a business.

Suppliers/
Creditors
Pay debts

Act ethically
and honestly

Governments

Pay taxes

Abide by tax laws

Shareholders
Provide information
about businesses
performance
Produce annual report

Manage funds so

Employees
Fair pay & conditions

Access to training
and development

reasonable return is
Responsibilities of a
firm to stakeholders
in business

Customers
Quality products
Fair prices
Service during and after
sales
Safety

Environment
Society/general public

Consider environmental

Fair and honest

impact
business practices

Environmental care &

Ethically responsible
preservation
decisions
Responsible environmental

1.4 Business goals

Financial goals: Including profit and return on investment, sales by product, market
share and market growth and diversification

Social Goals: Including community service, provision of employment, social justice,

ethical conduct and ecological sustainability.

Personal goals: of managers and owners. E.g. Job security, self- esteem and status,
professional recognition, power and influence.
1.5 Importance of small business

Employment opportunities

Adds to economic growth (wealth) and well-being of Australia

Generates export income from overseas markets

+VE impact on balance of payments

R&D adds to inventions and innovations in the economy

2. CO-ORDINATING THE BUSINESS

Co-ordinating: Management task of ensuring various parts of the business all operate in
harmony to produce a high quality finished product
Effective co-ordination includes:
o Minimal waste
o Greater efficiency
o Superior products
2.1 Controlling the value chain

Value added management: Review of all aspects of business operations. Anything not
adding value is innovated or eliminated

Just-in-time: computerised inventory program enabling business to keep a close eye on

stock levels and reorder. Stock levels can be kept to a minimum saving costs

Specialised tasks are needed with increased coordination including ordering plans and
steps to be followed, explaining role of each person and outlining how cooperation can
be achieved
2.2 The role of management

Management: Required the co-ordination of human, physical, financial and information

resources to achieve the objectives of the business.

Synergy: Relates to the whole being greater than the sum of its parts

Planning: The process of formulating

objectives and determining how to
achieve them.
o Establish objectives
o Develop plans to achieve these
objectives

Leading: When the senior manager

projects a vision for the business and
motivates the employees to achieve
these objectives.
o Motivate employees
o Direct and guide employees to
achieve excellence
o Inspire others to achieve the
objective

o
o
o
o

Organising: The structuring of a business

and preparing of all plans ready for
implementation and leading towards
business objectives.
Co-ordinate resources
Delegate tasks
Manage information
Manage flow of funds
Controlling: The process of measuring the
businesses performance against its plan
to corrective action if necessary
o Evaluate performance
o Monitor progress
o Implement corrective action so as to
achieve objectives

2.3 The interdependence of business and its environment

Interdependence: relying on other people or businesses to help produce something E.g.

Food processed- delivered- sold

The business environment: The surrounding conditions in which the business

operates(internal and external)
Internal /micro environment: Those things over which the business has some degree of
control.

External/macro environment: Those things over which the business has very little
control.

3. THE BUSINESS LIFE CYCLE

Business life cycle: Refers to the stages of growth which a business can experience over
the course of its existence
3.1 Phases of the cycle
3.2 Challenges presented at each business cycle
Renewal

Steady State
Establishment
Decline

Growth

Maturity

Post-Maturity
Cessation

Sales $

Establishment

a) Establishment (Start up)

Characterised by;
Scarce buyers
High production costs
Limited production capacity
Technical problems
Customer resistance
Expenditure greater than revenue
Investing heavily to build sales
Negative profit margin until growth
begins

Challenges
Setting foundation for future growth

Marketing strategy focus on correcting

product problems, establishing
competitive advantage, developing
product awareness
Undertaking inexpensive promotional
strategies
Financial strategy focuses on identifying
sources of funds which are difficult to
obtain
Establishing a customer base large
enough to sustain future viability
Developing a positive relationship with
customers and accurately forecasting
their needs
Human resource strategy focuses on
planning and recruiting

Growth

b) Growth

Characterised by;
Number of employees
Market awareness
Introduction of new products
Improved product quality
Improved distribution
Need for cash caused by expansion
High investment requirements
Sales volumes and

profit margins

Finance more readily available as

business establishes proven credit
rating
Challenges
Constantly
average level of sales

Growing through mergers and

takeovers
Diversifying business activities
Marketing concerned with introducing
new products and deleting old, slowselling ones to satisfy market niches
market share by mass-marketing
techniques
Adequate cash flow maintenance to
continue expansion
Financial strategies focusing on
investing
Organising credit policy
Forecasting sales and expenditure
Establishing specialist departments and
outsourcing functions
Implementing human resource
strategies in compiling job analyses
and descriptions
Human resources training and
developing people in business
Preventing rapid expansion so control
of business direction isnt lost

Renewal

Steady state

Decline
Maturity
Cessation

Post-Maturity

c) Maturity

d) Post Maturity

Characterised by;
Levelling off in sales

Compete more for market share as more

competitors enter market

Focus on productive efficiency to
maintain profit margins
Drop in investment requirements

Pricing competition becomes more

severe

Characterised by;
Renewal
Introduction of new products
New acquisitions via takeover or merger
Steady state
Sales continue to be profitable
Decline and cessation
Loss of market
Profits fall
Products become obsolete

Challenges
Maintaining profits at pre-existing levels

Challenges

Sales, cash flows and profits

Marketing concentrates on maintaining

customer and brand loyalty through
extensive advertising
Investment in new and better quality
products and research and development
Production strategy concentrates on
efficiency, quality of service to protect
profit margin
Human resources strategy focuses on
incentive schemes to efficiency
Channelling finances into advertising
and promotion
Improving efficiency to keep costs down

Management needs redefine the

business objectives and vision

Introduce a work team approach,

devolving responsibility to employees to
avoid complacency

Introduce quality programs such as total

quality management or quality circles
Program of downsizing and selling off
non- core business activities

Seek out and exploit previously unmet

demand in new markets
Undertake further diversification and
integration
Sell off any unprofitable non-corerelated activities or assets
Elimination of all products not returning
a direct profit
Conduct market research analysis to
determine customers wants and
identify and changes
Advertise in new market arras
Identify new market niches
Phase out promotion of product
Adopt lower pricing to attract sales
Preparation to cease operations
Issue new shares to raise finance to
assist with R&D
Explore possibility of exporting
Implement an organisational
development program to realign the
objectives, vision statement and
organisational structure so it fits in with
the new environment

Growth phase- mergers & takeovers

Merger: The joining together of two or more companies to form one business.
Takeover: Occurs when one business takes control of another business by purchasing a
controlling interest in it.

Vertical Integration: Occurs when a business expands at different but related levels in
the production and marketing of a product.

Horizontal integration: Occurs when a business takes over or merges with another firm
which makes and sells similar products.

Diversification/ conglomerate integration: Occurs when a business takes over or merges

with a business in a completely unrelated industry.

Fine furniture
factory

Golden wheat
farm

Golden crust
bakery

Slice of life bakery

Top-line
Bakery

Buy-rite
supermarket

3.3 Voluntary & involuntary cessation

Reasons for business failure

Ill-conceived business idea

Failure to meet customers needs

Producing a product which few people want

Not preparing a business plan

Ignorance of existing competition

Lack of management skills

Main reasons for business failure;

o Lack of sufficient money/Undercapitalisation: Without sufficient capital the business
will not be able to purchase stocks and materials resulting in loss of sales and
profits
o Lack of management expertise: As the environment changes, the firm doesnt
prepare a business plan or modify their existing one. Businesses dont plan to fail,
they fail to plan.
Cessation: When a
business ceases to exist
as a business entity

Voluntary: Ceasing to operate

the business of your own accord
Sole trader
OR
Partnership

Bankruptcy:
declaration that a
person or business is
unable to pay his or
her debts

Voluntar
y

Involuntar
y

Involuntary: Occurs when the

owner is forced to cease trading
by the creditors of the business
Public company
OR
Private
company

Voluntary administration:
Occurs when an independent
administrator is appointed to
operate business to trade out
present financial problems
Liquidation: Process of
converting businesses assets
into cash.
Voluntar
y

Involuntar
y

 Undercapitalisation: When there is a lack of sufficient funds to operate a business

normally.
Creditors: Those people or businesses who are owned money
Realisation: the process of converting the assets of a business into cash
4. TYPES OF BUSINESS ENTITY
4.1 Classification of business
a) Legal
Structure

No of
owne
rs
1

Liability

2.
Partnershiplegal business
structure
owned and
operated by 220 people with
the aim of
making a
profit

2-20

Unlimite
d

3. Company
Private: (Pty
Ltd) Company
owned by its
selected
shareholders
Public: (Ltd)
Company
owned by its
shareholders
publicly on the
stock
exchange

2- 50

4.
Cooperativeis made up of
a group of
people who
join for a
particular
purpose

Smal
l
grou
p

1. Sole TraderBusiness
owned and
operated by
one person

Advantages

Unlimite Low cost entry

d
Simplest form
Complete Control
Less costly to operate
Partner disputes do not
occur
Profits belong to owner

Limited

Limited

Disadvantages

Personal (unlimited
liability) business debts
Business dies when owner
dies
Must carry all losses
Burden of management
Must perform wide variety
of tasks
Difficulty in raising finance
for expansion
Low start-up costs
Personal unlimited liability
Less costly to operate than Liable, for all debts, even
a company
before the partnership
Share responsibility and
has begun
Possibility of disputes
workload
Pool funds and talent
Difficulty in finding a
Minimal government
suitable partner
Divided loyalty and
regulation
No taxes on business
authority
profits, only on personal
income
Easier to attract public
Cost of formation
Double taxation- company
finance
Limited liability- separate
and personal
Personal liability for
legal entity
Can transfer ownership
business debts if
easily
directors knew at the
Enjoys a long life-perpetual
time the business was
succession
unable to pay loans
Experienced management- Must publish a yearly
board of directors
annual report of audited
Greater spread of risk
accounts
Public disclosure- reporting
of certain information
Becomes too large
resulting in inefficiencies
Allows groups of people to May not provide incentives
pool their assets and
for members to
work towards a common
contribute additional
goal.
capital
Control of the business is Need to consider an equity
kept in the hands of
redemption plan
Long and costly process of
those who use the
issuing shares through
business
Organised on a democratic
security commission
principal of one member, Patronage earnings
maintained rather than
one vote.

5. Trustrelationship in
which one
person (the
trustee) holds
property (the
trust property)
on behalf of
another ( the
beneficiary)Ty
pes: Family
and unit
6. Franchisea licence to
operate an
individually
owned
business as if
it were part of
a chain of
outlets or
stores

Does not pay on income

that it distributes as a
patronage dividends
Limited liability of the
owners
Perpetual existence of the
cooperative
Limited
Flexible mean of
distributing income and
assets
May provide tax savings
because income can
spread among family
members

Limited

Franchisor
an individual
or
organisation
granting a
franchise

cash dividend
distribution
Some entrepreneurs dont
invest because of
patronage dividends and
voting process
Substantial amounts of
money may have to be
given to beneficiaries
High costs
Complex taxation laws
relating to trust.
Must seek advice from an
accountant or solicitor

Franchise
Opportunity to start with

limited finances
Guaranteed customer base
Established name
Management back- up
Proven methods of

business

Franchise
Franchisor retains great
deals of control
Limited scope for
individuality in business
operations
Disagreements over
conditions and terms of
contract
If too successful, franchisor
Franchisor
may open own outlet
Fast and selective product
distribution
Franchisor
Avoids cost of construction
Does not have to operate Unsuitable franchisee
Disagreement over
outlets
conditions and terms of
Agreement ensures some
contract
control
b) Industry
sector

Primary: Businesses in
which production is
directly associated with
natural resources E.g. All
types of farming, mining,
fishing, grazing and
forestry.

Industry
sector
Primary
Secondar
y
Tertiary

Private sector %
of all firms by
industry
11%
21%
68%

Secondary: Businesses
which take the output of
firms in the primary
sector (raw materials)
and process it into a
finished or semi finished
product. E.g. Iron ore &
limestone turned into
steel to manufacture
cars.

% of total
employme
nt
6%
20%
74%

Tertiary: Involves
performing a service for
other people. E.g.
retailers, dentists,
solicitors, banks &
museums.

Quaternary: Includes
services that involve the
transfer and processing
of information and
knowledge. E.g
telecommunication,
property, computing,
finance and education.

Quinary: Includes all

services that have
been traditionally
been formed in the
home. E.g. hospitality,
tourism, craft- based
activities and child
care.

The primary sector accounts for only 4% of total employment while the tertiary sector
contains 76% of total employment because when a country becomes more economically
advanced there is a greater demand for services. Consumers spend a small 5 of their
income on necessities like food and housing and more on services.

Firm: Any business such as a sole proprietorship, partnership or corporation.

Industry: Business involved in similar types of production concerned with goods opposed
to services.
c) Size

Small, medium, large (Qantas, Woolworths)

d) Public sector

Public Business enterprise: (GBEs) government-owned and operated. Fed, State and
local E.g. State rail Authority, Australia post and Great Southern Energy.

Provide community services such as health, education, roads and welfare

Privatisation: The process of transferring the ownership of government business to the

private sector. E.g. Some GBEs
e) Private sector

Private business enterprise: Businesses owned and operated by private individuals or

groups of individuals (99% of businesses privately owned) E.g. Sole trader opening a
business such as the local corner store to large companies operating around the world.

Corporatisation: The transformation of state- owned enterprises into commercial

entities, subject to commercial legal requirements and government structures, while
retaining state ownership
f) International

International business: one in which produces its products in only one country and
exports to overseas markets. E.g. North America and Asia exports
g) Transnational

Transnational business: A large business with a home base in one country operating
partially or wholly owned businesses in other countries. E.g. Mc-Donalds, Coca-cola
4.2 Relationship of legal structure to particular circumstances

Selecting the right legal structure depends on a number of factors. May change
throughout the life cycle of the business. E.g. becoming a listed company on the Stock
Exchange in order to raise finance for expansion
Factors;
o Size of business
o Ownership structure
o Finances needed
o Process of privatisation
4.3 Factors influencing choice of legal structure
a) Size

Market Float: Raising of capital in a company through the sale of shares to the public (to
expand business)

A prospectus is issued, the business is listed on the stock Exchange and shares are
offered for sale
Business life cycle phase
Establishment
Growth
Maturity
- Renewal
- Decline

Most appropriate legal structure

Sole trader or partnership
Partnership, private company, cooperative
Public company (depending on rate of growth)
Public company
Could revert back to sole trader or partnership

b) Ownership

For the owner to retain ownership and control of the business they must hold 50% of
shares sold (More shares, more ownership)
c) Finance

Venture Capital: Money that is invested in small and sometimes struggling businesses
that have the potential to become very successful

Seed Capital: The venture capital used in the initial stages of determining the viability of
an idea

the world over a period of time, usually one year

d) Privatisation

E.g 1990s- Qantas, Commonwealth bank and Telstra

Privately owned business enterprises are more efficient and profitable than GBES

There are approx 5000 government-owned businesses employing about 18% of the
work force and producing nearly 23% of Australia GDP
5. SMALL- MEDIUM ENTERPRISES (SMES) IN AUSTRALIA
5.1 Definition of SME

5.2 Number of SMES

Its difficult to provide an accurate figure for the number of small-medium business as it is
such a dynamic, changing sector of the Australian economy. However, ABS research
indicates there are approx 1.3 million small and 23,000 medium businesses in Australia,
representing more than 95% of private sector businesses

92% of all small businesses are in the service sector, including construction (21%) property
and business services (20%) and retail (16%)

5.3 Contribution of small business sector to the economy

Small businesses play a crucial role in the Australian economy. Although the individual
efforts of each small business may appear insignificant, their total impact is enormous
a) Contribution to gross domestic product (GDP)

ABS estimates small businesses contributed 40% of Australia GDP approx $240 billion E.g.
Doctors, lawyers, technical firms, corner E.t.c
b) Contribution to employment

Accounts for 50% of all private sector business employment (approx 3.4 million people) and
have greatly contributed to solving unemployment problems
c) Contribution to the Balance of Payments (BOP)
BOP: a record of a countrys trade and financial transactions with the rest of the world over
a period of time, usually one year

The number of small Australian exporters is growing faster than large exporters
contributing to BOP- especially in agribusiness, manufacturing and professional services.

Small businesses are more adaptable and flexible, making them more responsive to the
needs of overseas markets
d) Contribution to invention and innovation
Main source of most inventions and innovations in Australia
Resulted in improved efficiency and increased productivity
Level of innovation among small businesses is much higher than employees of large
businesses
Over the past 9 years R&D has trebled in real terms

More than half of the major technological advanced of the 20 th century come from small
businesses E.g. Brick Veneer building techniques, self-erecting crane, nanotechnology,
bionic ear and two-stroke engine
5.4 Success and failure of small business
Success
Entrepreneurial abilities
Access to information
Flexibility
Focus on market Niche (specialise/quality service)
Reputation
Failure
Approx 32000 Australian small businesses fail each year (90% per day)
Unincorporated & declared bankrupt
Incorporated and either forced into liquidation or voluntarily closes down
Failed to plan
Inaccurate record keeping
Lack of managerial experience
Incompetence
Incorrect marketing strategy
Lack of financial planning
5.5 Future prospects of small business

High technology (hi-tech): new and innovative typed of businesses that depend on
advanced scientific and engineering knowledge
o Aged services- Home delivered meals, house cleaning, garden maintenance and
health care demand because of ageing population
o Small office Home office (SOHO)- Run from home, services to support these
businesses such as accounting, personal computers, telecommunications facilities
and office equipment
o Franchising- Key ongoing trend E.g. Jims mowing, house cleaning, home and
gardening maintenance and catering.
14% per year
o Outsourcing- The contracting out of part of business operations. E.g. Graphic art,
design, publicity, business documentations
6. THE BUSINESS ENVIRONMENT AND ITS IMPACT ON BUSINESS
6.1 Economic and social factors
a) Economic cycles

Economic/ business cycle: Periods of growth (boom) and recession (bust) that occurs as a
result of fluctuations in the general level of economic activity.
Inflation: General increase of income of an individual and prices of product.
GDP: Gross domestic product is the total value of all finished goods and services in an
economy in one year.

b) Consumer tastes

Niche Markets: breaking down of a market into smaller segments so that particular
groups with certain characteristics are being targeted by a business E.g. teenagers,
women over 40

c) Cultural and productive diversity

Multiculturalism has provided business with;
o Different demand of products and services
o Meets needs and wants of various cultures
o
Market base
o Establish and expand new business

In order to be successful firms need to modify existing products (adding and deleting)
Main influences;
o Competitors
o Consumers tastes and fashions
o Technology
6.2 Competitive situation

Sustainable competitive advantage: the ability of a business to develop strategies to

ensure it has an edge over its competitors for a long period of time.

Provides
choices, range of qualities, variety of prices competition can stimulate greater
efficiency in production and usually results in better quality and service at a lower cost to
the business
Factors relating to a businesss competitive situation;
o Number of competitors
o Ease of entry into a market for a new firm
o The local and foreign competition
o Marketing strategies employed by competitors
o The substitutes available for your product

a) Number of competitors
Market concentration: The number of competitors in a particular market
b) Ease of entry

c)

Local and foreign competitors

Local competitors

Produce a product and service in the same market

They all deal with the same variables including;
o Labour costs
o Transport
o Economy
o Cost of stock/materials
Foreign competitors

Businesses located overseas or offshore

Foreign goods are cheaper to buy than the locally produced mainly due to the lower
production costs overseas

Deregulation: The reduction or removal of the amount of restrictions that are in place
at a particular industry. Primarily done to improve competition.

Enterprise bargaining: Encourages wages to be determined between employer and

employee within each individual workplace. This is part of the decentralised approach
of determining rates of pay

d) Marketing strategies

Marketing: Refers to the total system of interacting activities designed to plan,

promote and distribute products to present and potential customers.
The type & extent of marketing depend on;
o Size of the market
o Size of the business
o Number of competitors
o Nature of product
e) Substitutes

Those products and services that a consumer can purchase as a direct alternative E.g.
Favourite brand unavailable, consumer will buy a similar product

E.g. Products- Washing powders face moisturises. Bread, TV, soap, CD players

Services- Mechanics, Dry cleaners, Doctors, hair dressers, cafes

Product differentiation: Products that are the same or similar in nature are made to
appear different and/ or better than those of their competitors. Can be achieved
through packaging, quality and brand
6.3 Government

Regulations: Rules, laws or orders that businesses must follow

a) Business law relating to levels of government

b) Regulatory bodies

6.4 Other institutional influences

7. ETHICAL AND SOCIAL RESPONSIBILITIES OF BUSINESS

Business ethics: the application of moral standards to business behaviour

Corporate code of conduct: a set of ethical standards for managers and employees to abide
by
Core values of a business;
o Show respect for the law and perform our roles accordingly
o Conduct ourselves with integrity and act in a fair and honest manner
o Value people and show them respect
o Use the funds and assets of the company responsibility and in its best interests
o Accountable for our own actions and their consequences
4 main ethical issues
o Fairness and honesty- Business must obey all laws and regulations and treat
customers and suppliers honestly and fairly. Firms must tell the truth and avoid
misleading or deceptive information
o Communications- Advertising can create ethical dilemmas. It is illegal to use false
advertising. Use words with a clear meaning in advertising and what you say
o Workplace relations- Under the Corporate code of conduct, employees have the
right to a safe and harassment free workplace, a fair pay level and confidentiality
of information
o Conflict of interest- When a person takes advantage of a situation or piece of
information using their own gain rather than the employees interest. Corruption
undermines the integrity of the workplace and if left unchecked, it may infiltrate

the workplace culture. When corrupt practices such as bribes/payments/gifts are

eventually exposed, the businesses image will be severely damaged

Social responsibilities of business

Businesses social responsibility: includes obligations to the community, above and beyond
making a profit, obeying laws or honouring contracts

Awareness of a businesss management of the social, environmental, political and human

consequences of its actions

Two goals: Expanding the business and providing for the greater good of society

Views of social responsibility

a) Economic (traditional) model

Based on the idea that society will gain the most benefits if business is left to produce and
market products that are in demand

Adopts traditional idea of business that they exist to make and produce product, earn a
profit and provide employment
b) Socio-economic (Non-traditional model)

View emphasises not only profit but also the impact of business decisions on the whole of
society

Reasons for acceptance of model;

o Corporate behaviour
o Pride of social sustainability record E.g. Body shop adhered to ten commandments
of corporate social responsibility
o Enlightened self- interest: the belief that a business ultimately helps itself when it
helps to solve societies problems

Sustainability report/social audit: comprehensive report of what a business has done, and is
doing with regard to the social issues that effect it

Business must answer- How do businesses operations and practices affect society and the
environment?

The third bottom line assesses the social and ethical effects of the operations of public
and private businesses
7.1 Responsibilities to shareholders, managers, employees and society
a) Shareholders

Owners of a business
Maximise shareholders return on the shareholders investment
Large public companies must make sure business is operated efficiency and effectively
Must report profit levels in an ethical manner
Hold annual General meetings to give the shareholders the opportunity to ask questions of
the board of directors
Allow shareholders to sell their shares as they wish
Divide surplus assets upon the companys closure

b)

Managers
Give honest and accurate account of their management of the businesses resources
Top-level commitment and support
Corporate policies that include references to ethical business practices
A code of conduct
Extensive training and development
Effective auditing programs

c)

Employees
Most valuable asset of any organisation
Need a safe and psychologically rewarding work environment
Privacy
Elimination of discrimination on gender, marital status and pregnancy
Elimination of harassment, intimidation and bullying
Promoting equality and men and women

d) Consumers

One of the largest groups that business must satisfy is its customers

Consumerism: Consists of all those activities that protect the rights of consumers in their
dealings with business

Four basic rights;

o Safe products- direction for proper use are provided and products are tested by the
manufacturer to ensure quality
o Accurate product information and descriptions
o Full disclosure of the terms of sale
o Warranties and guarantees are honoured
e) Society

Give back the community something of what they take out in generating profits

Participate in a range of community projects and activities. E.g. BHP Limited Sponsors the
Young achievement Australia project which provides opportunities for secondary students
to learn about business
7.2 Reconciling conflicting interests of stakeholders

All Stakeholders who interact with a business require something different and all place
competing demands upon a business

Satisfying one set of stakeholders will probably result is others being dissatisfied

Senior management must constantly access business actions to satisfy as many

shareholders expectations as possible

Businesses have a responsibility to take into account the long-term ramifications

concerning production processes, workplace practices, employment programs, product
development and design and business expansion

a) Between shareholders, society and future environments

b) Between shareholders and employees
Stakehold
er

Conflict

Resolution

Owners vs. Managers have responsibility to earn

managers
profit for shareholders, but
shareholders may not approve of
methods used by management

Speculators are motivated by a quick

return on their investment while
Non- speculative shareholders are
concerned with the long-term

investment strategies
Managers may be more concerned
about their own ego than
efficiency/probability, placing them
in conflict with owners
Managers may feel that owners are
not providing adequate resources to
allow the business to run efficiently
Owners vs. Shareholders desire expense

employees
minimisation and cost reduction
while employees want higher wages
and improved working conditions

Owners and managers may reduce

the size of the workforce, placing
burden on the remaining employees
Some businesses are their use of
permanent workers leading to a loss

of job security for employees

Owners vs. Development of environmentally

environme
friendly business practices come at
nt
a cost to the business, which may
lead to either prices and/or
profits
Failure to develop environmentally
friendly practices can lead to
levels of pollution, land
degradation, depletion of nonrenewable resources and/ or
extinction of species
Owners vs. Owners wish to maximise profits
customers
while customers wish high quality
products for reasonable price (lower
price)
Customers want realistic/ truthful
information about the product while
firms wish to maximise sales

Triple bottom line: where shareholder

value increases through the careful
management of shareholder value.
Owners and managers can use the
Annual General meeting (AGM) to
discuss relevant issues and come to
an agreement
Shareholders (owners) may decide not
to renew management contract or
even dismiss a manager they
believe is not performing adequately

Employee share acquisition schemes=

opportunity for eligible employees to
buy shares at a reduced price
Training and development strategies
for employees improves product
quality and
production costs as more skill =
efficiency and rises profit levels
pleasing shareholders
Negotiation
If there is a breach of law resolution
may occur through the court system

Adopt environmentally sound

practices = share price
because
they were noticed by stock market
analysts, created +VE publicity and
created a +VE business image
Firms introduce environmentally
friendly packaging/products and/or
production methods

Governments have introduces

legislation to ensure that advertising
is honest and not misleading
Competition between firms ensures
price/quality combinations provide
customers with choice