Section 1 : Organisational Structures and their types.

These all come under the main headings:

Business Organisation

Business Structure

Types of Business

Management Levels

Marketing and Sales

Product Management

Advertising and Pormotion

E-Commerce

Emerging Technologies

New Technologies

 

Business Organisation:

The organization of a business defines the part each member of an organization is expected to play, the relationship between those members, and their co-ordination, so that their joint efforts will be as effective as possible.

The organization process involves the following steps:
Consideration of plans
Determining the work activities
Classifying and grouping activities
Assigning work and delegating authority
Establishing the chain of command.

Team Structure:

In this, workers form teams to pool their skills when performing tasks. This means that they are more efficient and involved in their work.

Roles in Industry
The roles of people working at different levels within an organisational structure are described below.

Management

Management can be defined as defined as the individual or group responsible for decision making in a firm. It is the task of management to organise and coordinate the process of manufacture from the raw material stage to the sale of the finished product.

Planning
Engineers are responsible for planning and development work, estimating quantities and costs, testing new designs and initiating new processes, calculating material strength or suitability, and for originating plans to a preliminary stage.

Production with sales, and, with planning staff, aim at maximum efficiency of the workshop labour and equipment.

Team leaders allocate machine space and labour to ensure continuity of work and supply. They act as liaison between management and the workers.

Tradespersons carry out detailed work from drawings on machine or handwork, set up machinery for process workers and mark out. They are also used for maintenance.

Apprentices assist the tradespersons and learn the skills associated with the various aspects of work.

Semi-skilled workers carry out many machining operations, repetitive work and assembly line work.

Labourers are responsible for the general cleanliness of the shop, the movement of materials and general operations where no specialist skills are required.

Packing
Warehouse managers are responsible for the receipt and despatch of finished and unfinished components and their handling and safe storage.

Storepersons catalogue goods in and out of the warehouse and have a ready knowledge of stock.  They also allocate areas within the store for stacking goods and materials.

Finance
Auditors check and verify accountant 's statements, and are directly responsible to the management .

Accountants are responsible for keeping all books of account, calculating profit s, payment of wages, taxation, and calculating costs of work and material from time cards.

Bookkeepers make entries in the books of account  to indicate the  position of debtors, creditors, etc.

Sales

Sales managers are responsible to management for coordinating sales and demand with product ion. They make personal representation to distributors or retailers to present new products.

Sales representatives act as liaison between management and customers.
They usually travelling considerably to maintain contact or follow up enquiries and complaints.

Carriers are employed by the company for interdepartmental carrying or moving packed goods t o r et ail out let s. Private contractors or government carriers may also be used.

Market Research

Economists study market and consumer trends and advise management on product ion and marketing  techniques. They study  and report  on industry's stability , likely economic changes and consequent effects on the company .

Industrial Research

Research officers are responsible for the technical control of research and development activities within a firm.

Location of a business

Location features that affect the planning and management of a business include:

Geographic factors: size, parking and room for expansion.
Demand factors: ability to attract customers, customer flows.
Supply factors: lease conditions, rents, availability
Town planning: and Zoning regulations.
Compatibility of surrounding businesses.

Consider the following factors as they apply to your unique business needs when choosing a location:
Specific needs of your business--space, special installations, etc.
Zoning requirements (check with your local planning office)
Appearance of the area; safety
Customer base of the area; population density and type.
Traffic patterns, accessibility, and parking cost.      
Nature of competition.
Cost.
Lease terms.
Assistance – merchants associations – landlord, etc.              

Business Structure

The most common business structures are: Sole Trader; Partnership; Proprietary Limited Company.

Private businesses
The main types of private businesses are as follows:
Sole traders
Partnerships
Companies

Sole Traders

Advantages:

You are your own boss and are responsible for all decisions.

  1. All profits belong to you.
  2. It's an inexpensive business structure to establish and maintain, with the least reporting to Government.
  3. Losses from the business can be offset against any other income or future earnings.

Disadvantages:

  1. You alone have responsibility for the business. Holidays become a luxury you may not be able to afford simply because nobody else has the expertise to run your business efficiently in your absence.
  2. You are personally liable for all business debts, which means your assets (including your home) may be at risk.
  3. You continue to pay tax at the personal rate.

Partnerships

Partnerships are a group of people who form a collective business organization to operate the business in common. The usual size of a partnership is from 2 to 20 people. Many firms are husband and wife or father and son partnerships.

A partnership is an effective way to reduce tax as each partner is taxed separately. Each partner
is equally liable and responsible  for the running of the partnership  and for the debts incurred.                                                                 

There are a number of advantages of partnerships:                                                                 

  1. Expense. Partnerships are the cheapest form of collective business organization to establish.
  2. Capital. It is easier to borrow funds for a partnership rather than a sole trader due to a larger capital base.
  3. Simplicity. Businesses are easy to establish, with or without a partnership agreement.
  4. Workload. Here are more people to share load of management.
  5. Taxation. Business partners are taxed as individuals.
  6. Reduced liabilities. Losses incurred by the business can be used to offset liability on income earned from outside the business.

Companies
A company is a special type of business organisation that allows potentially thousands of people to become owners of the enterprise.

When a company is formed, it is said to be incorporated. Companies are established under the Corporation Act (July 1998). This Act is controlled by the Australian Securities and Investments Commission (ASIC).

All companies must have a constitution, which is a set of rules that are lodged with ASIC, providing information about all aspects of the company, such as the rights of each shareholder. The rules are critical to the effective running of the company.

With limited liability companies' the liability of the shareholders to pay for the company's debts is limited by their investment in the company.

Each company has a top management team called a board of directors. Each director generally is in charge of a separate department within the company. The directors make the decisions that run the company.

A company can be public or private. A public company is open for anyone to buy its shares. A private company restricts ownership, number of shares and transfer of shares.

Advantages of companies are:

  1. Limited liability
  2. More capital available for large undertakings
  3. Strict legal requirements to safeguard shareholders interests
  4. Funds are attracted from people wanting capital gain
  5. Company can afford to employ specialists
  6. Franked dividends provide some shareholders with a tax credit.

Disadvantages of companies are:

  1. Division between ownership and management
  2. Shareholders rarely participate in decision making.

Types of Business

A business can be classified according to:
The nature of the business process
Manufacturer
Wholesaler
Retailer
Primary producer
Service Provider

 

Business Planning
A plan is a scheme of action with a definite purpose. Planning involves setting, clarifying and prioritizing goals:

A strategic plan
A long term general plan of action, indicating the ultimate direction in which the business is heading and broadly shows how its program of action is to be carried out.

A tactical plan
These focus on how to achieve the business objectives. (Sometimes called administrative plans). They are usually short-term plans of several months or a year's duration and means by which the overall business strategy is achieved

 

Management Levels

 

Directors
In the case of large public companies, e.g. Westpac, it would be impossible for thousands of shareholder owners to participate directly in the management of the business.

Top Management
In the diagram above, the Managing Director is an example of what is termed 'Top Management'.

Top Management is concerned with broad objectives and policy, strategic decisions, the
work of the organizations a whole and interactions with the external environment.

Middle Management
Middle management is concerned with co-ordination and integration of activities; and providing links with operational support staff and organizational support staff, and between the operational core and top management.

Supervisory Management
This group forms the link between Top management and the workers. It is responsible for seeing that the directives of upper levels of management are followed during the day-to-day activities of the business. In other words supervisory managers are relied upon for seeing the job gets done properly.

Total Quality Management
Total Quality Management (TQM) recognizes that improvement is a continuing process requiring ongoing commitment by management.

Marketing and Sales

Marketing
Marketing is the collective term that encompasses the planning, developing, pricing, promoting and distributing of goods and services to consumers.

Marketing includes:
Research to find out what the customer wants.
Developing goods and services that deliver the key benefits that customers require.
Working out how to perform better than competitors.
Working out how best to reach the target market.
Aiming to ensure a profit is made.

Marketing is not Sales and Marketing is not Advertising.

Marketing is the correlation of all the business functions to enable a competitive and successful position in the market for your business.

Marketing Mix
The ways in which marketing elements are combined is often referred to as the marketing mix.
The six interrelated elements of a marketing mix are:

The Product
The customer must want the product and therefore it must have a certain appeal that will give it an edge aver competitors' products.

The Position
This refers to the market position or the area of the total market where the product will appeal.

Packaging
This will influence the customers' initial reaction to the product.

Price.
If the price is too high the customer will not buy the product. If the price is too low the profit margin may not be enough to sustain the business. Potential customers may even avoid buying a low-priced product as they may feel it must be of poor quality if it is very cheap.

Promotion
Informs the potential customers about the product and its benefits.

Place
Efficient distribution of the product is essential. Customers  will be discouraged if they are unable to obtain the product they want immediately.
Market Groups
There are several terms used to describe market groups including:

Target market This refers to the group of people for whom the product is specifically intended.

Market segmentation In order to develop a product that is viable, businesses need to clearly identify which group of consumers they are aiming for. This group represents a section of the market, not the whole market.

Niche market This is a smaller market within a market segment that has particular characteristics that sets it apart from other groups.

Mass market This market includes everyone, not just specific groups.

Market Variables
Market variables refer to tile variations within a market. They are often used to segment or divide the market into groups. The most common market variables are:

      1. Demographic, such as age, gender, income, education and ethnicity.
      2. Socio-economic, including income, education, religion, class and occupation.
      3. Geographic, such as country, city, state, suburb and climatic zone.
      4. Psychological, for example, personality type, ambitions, attitudes, values and standards.
      5. Lifestyle, such as sporting and outdoor activities, academic pursuits, family orientation and level of technology use.

Product Management

Product management is concerned with ensuring the ongoing viability and profitability of a product. A successful business regularly reviews its products and modifies them in response to market trends. It will also remove unsuccessful products from the market before too much profit is lost.

There are three parts to product management:

  1. New product development is essential for most large companies to survive.
  2. Product modification  occurs through the changing of features, quality or style.

Product rationalisation is about deciding when the product life cycle has ended.

New Product Development
There are five stages to new product development:

Exploring ideas. New ideas are generated through research, suggestions by customers, suppliers, wholesalers and retailers, and from analysis of competitors' products, from employees' suggestions or from planning suggestions.

Screening. The ideas need to be analysed and those that are not suitable removed if they do not fit with the organisation's strategic plan.

Business analysis. The costs need to be calculated and initial financial projections must be made. If the idea is not financially viable it is abandoned.

Development. This involves the further development of the idea to produce a total product concept. A prototype or sample may be produced at this stage.
A marketing strategy is also developed. Many new products do not get past this stage.

Testing. New products are tested to determine if they suit the intended purpose for which they were designed. Tests may be for quality, safety, durability and so on. The product may also be tested on a representative sample of the target market.

Advertising & Promotion

To do well in business, customers have to know about you and your products or services. Many small business people question the value of advertising.

Sales Promotion
This includes all types of specials; promotions such as giveaways (caps, pens, tee-shirts, etc.), free samples, coupons, contests and point-of-purchase displays designed to help your sales effort.

Packaging
Containers such as boxes, wrapping, see-through plastic packages, tins, bags and cartons used to deliver or display products. In the service business packaging can mean how you present your service (your company brochure).

Direct Mail
Brochures or letters sent to potential customers through the mail. If you use this method your message must be simple and interesting.

Personal Selling
Direct one-on-one selling to customers by you or your sales representatives in the store, over the phone, or at homes or businesses.

Advertising
This includes paid messages using different advertising media such as radio, television, newspapers, magazines and billboards. In selecting the media for advertising, attempt to identify your market audience and then decide the best way to attract their attention.

Radio
Radio advertising is more effective when it is used frequently, but be sure you identify what the prime listening time is for your clients. The individual stations will provide rate cards with audience profiles and discuss what can be bought with your budget.

Television
This is very expensive and most small businesses cannot afford this type of advertising. If you decide it is for you, choose the channel and timing most appropriate for you. Most channels have facilities to make your ad and can advise of the appropriate time to place your ad. The businesses it serves best are those with products and services with a wide appeal, not specialised businesses.

 Newspapers
There are three main categories: daily, weekly and local or community papers. The  daily Papers generally have a much wider circulation and higher advertising costs.

 Magazines
There is a wide variety of these and before advertising you must assess which will best suit your target market. Magazines best serve businesses whose target markets are well defined, such as restaurants, entertainment and specialty shops.

Internet
A web page/website will provide customers if set up correctly but it needs constant monitoring/updating.

Other
Placing an ad in the Yellow Pages telephone directory is a very good method of advertising for service.s

Billboards
Another important method is to display an outstanding sign at your place of business which will attract local traffic. Check with your local Council regarding approvals before erecting any external signage.

It is really important to return a profit.
In order to return a profit, an industry needs to become efficient in whatever it does. In becoming efficient, it will also produce more goods, which can be sold for a profit. This profit can then be re­invested in the company to help it become more efficient, and so on.

 

Production

Production is inevitably linked to efficiency. The more efficient an industry is the more it can produce. Then it can make a large profit that reflects the company's efficiency.

Planning is the key to efficiency
Strategic planning
A long term general plan of action, indicating the ultimate direction in which the business is heading and broadly shows how its program of action is to be carried out.
Operational planning
These plans are intended to implement the strategic plans and are used by managers to help carry out their tasks and responsibilities. They may be ongoing (standing plans) or single use plans.
Tactical planning
These focus on how to achieve the business objectives. (Sometimes called administrative plans). They are usually short-term plans of several months or a year's duration and the means by which the overall business strategy is achieved.

Efficiency

Is not just the day to day running of the business but the culmination of all the factors that control the business and how well these are organised into a cohesive unit. In production, Quality Control plays an important role in efficiency of production.

Time Management
Time management is the art of using available time in  the  most  effective  or beneficial way.
Time is a finite resource. In other words, there is only so much of  it. 
Time that is wasted cannot be replaced.

Two basic requirements for efficient production are:
An efficient plant layout.

Efficient work procedures and sequences.
Efficient work procedures are difficult to achieve if the plant is not laid out in a logical manner.

Machines should be positioned according to the sequence and flow of work.

New technology
Market changes and trends are significant as they encourage businesses to be dynamic and enterprising.

Technological change brings about changes to how products are produced and services are provided as well as changes to products themselves.

For example:
Compact discs have replaced vinyl records
Robotics for automatic welding
Bar-coding of products.

Employee enrichment programs and improved working environment

The continual production of new products and services and the introduction of new production techniques have had considerable impact on the work and activities of employees.

New products and services, and new techniques have opened up many career opportunities, and have reduced the need for employees to perform menial, dirty and repetitive tasks such as underground mining, routine office filing and garbage collection.

Electronic Commerce

Electronic Commerce (e-commerce) is the use of electronic communication to do business. It may be used to carry out business-to-business or business-to-consumer transactions.

Although business to consumer commerce will increase in the future, it is predicted that the major growth in e-commerce will be business-to-business, where it is expected that this form of trade will increase five-fold in the next four years.

The real benefit of e-commerce is not that it makes old processes work better but rather it provides a means to break with tradition and create new ways of doing business.

Electronic Commerce can provide the following benefits over non-electronic communication:

  1. Reduced Costs - Reduced labour, reduced paper, reduced errors in keying in data, etc.
  2. Reduced Time - Shorter lead times, faster delivery of product.
  3. Flexibility with Efficiency - The ability to handle complex situations, product ranges and customer profiles without the situation becoming unmanageable.
  4. Enhanced Long Term Trading Partner Relationships - Improved communication between trading partners leads to enhanced long-term relationships.

Lock in Customers - The closer you are to your customer and the more you work with them to change from normal business practices to best practice .

  1. E-Commerce, with e-commerce it is harder for a competitor to upset your customer relationship.
  2. New Markets - The Internet has the potential to expand your business into wider geographical locations. However, it is necessary to develop the appropriate production capacity and distribution channels to support market demands generated by promoting your business to a larger marketplace.

Emerging Technologies:

If they are to remain competitive, businesses cannot ignore technological change, including those developments that can make their activities more efficient.

Also of significance to marketers is the effect of technology on the life span of products. New
technology tends to make the existing products they succeed obsolete·. The impact of a rapidly changing technology has thus reduced the lifecycle of products.

Accelerating technology can be a major force in bringing about change in the internal business environment. Management generally sees technology as a means of bringing about efficiencies that cut production costs and allow the product to be competitively priced.

Most motor vehicles are now assembled with the aid of robotics. This involves the use of machines that can be preset to carry out a highly complicated sequence of steps, such as spot­ welding along a curved car body part.

Robotics devices are cheaper to use than human labour to carry out the same task because they are quick; make fewer mistakes, do not get involved in industrial disputes and can work nonstop. In other words; the development of new technology has made it possible to reduce the costs of one of the more expensive resource inputs:

Labour Technology has also been applied to reduce the cost of other resources used in the production of various products. For example, even expensive cameras now contain a large amount of injection moulded plastic.

The addition of new technology can result in a better product that allows an industry to maintain a competitive edge in Australia and also to gain export orders.

Introducing New Technology

Common Problems of Introducing Change

      1. Management does not trust new technology since many promises made in the past have been broken.
      2. People are resistant to change.
      3. Change is necessary for an organization to suNive.
      4. Working with new technology is exciting.
      5. New technology can introduce uncertainty.
      6. New technology often replaces people.

How do you increase the likelihood that a new technology will be accepted by the technical community?

Quality Control
Quality control is concerned with using land, labour, capital and enterprise effectively in order to produce a service that is acceptable in accordance to its price.

Quality Standards
These will depend in part on what is acceptable to customers. For a piston manufacturer supplying to a car assembly plant, dimensions are critical and tolerances minimal.

For a dressmaker, dimensions are less critical, finish is highly significant and tolerances are low.

Quality is determined by dimensions, taste, surface finish, freedom from blemish, how well the product  works  or how well the item  fits  together with  other separate items.      
Quality control is concerned with using resources effectively so that the goods produced will be acceptable to the market at an acceptable price.

Quality
The quality of the design is a major marketing tool. Quality has two dimensions: level and consistency.

The level of quality refers to the ability of a product to perform its function for an acceptable period of time.

It includes the product's overall durability, reliability, precision, ease of operation and repair, and other valued attributes.

Consistency of quality refers to consistently delivering the targeted level of quality to consumers.

Finance

Finance Resources
The availability and cost of finance is a key input which can determine whether:
A new enterprise can commence operation
An existing business expands its operations

The introduction of more efficient techniques can be financed.

Whether financing is internal (equity) or external (debt financing), it can have a sustained effect on the firm's internal environment (e.g. servicing of loans should come from the firm's own cash flow).

If this falls short and the firm is unable to refinance the loan it may be forced to sell off some of its assets to meet its loan requirements .

Types of Finance
Business finance can be categorized as:
Short term;
Medium term;
Long term.
Short Term Finance
This form of finance is commonly called "working capital" and is the capital (money) required to fund the day-to-day running of the business.
Working capital should not be used for long term projects as it is generally more expensive (in terms of interest rate charges) than money paid back over a longer period.
Short term finance or working capital typically comes in the following forms:

Bank Overdraft
An overdraft can be used to cover financing shortfalls from day-to-day according to your cash flow.
The interest will be calculated on your daily outstanding balance and is usually charged on a quarterly basis. Depending on your financier, an overdraft facility may also incur other sundry fees.

Medium Term Finance
This is finance usually required for a three to 10 year period and is principally used by businesses to finance equipment, business expansion and development of new products.

Long Term Finance
This type of finance is used to fund the purchase of assets such as the business itself, land, buildings, plant or machinery which will directly or indirectly contribute to profit over a period of years.
Term Loans would be the most common way to structure long term borrowings.