Business Management and Change at Billabong (BB)

HSC Topic One: Business Management and Change

Case Study – Billabong

Management Theory

Behavioural Management Theory

• Creative thinking and innovation are of greater importance than ruthless efficiency. Managers see their roles primarily as motivating staff & communicating the company’s vision to customers & stakeholders.
• Workers overcame problems and gave input into the way Billabong was run.
• Primarily to do with business culture and lack of morale caused by inertia of managers & their resistance to change

BILLABONG

Sources of Change

* External influences

• Economic factors:
  – Negative: level of unemployment and growth/interest rates means less people can afford BB’s products
  – Rising incomes in East Asia and South America have helped create new markets
• Social factors:
  – Changing consumer tastes
  – Increasing tastes in sports such as skateboarding and surfing
  – BMX now included at Olympics – increases recognition of sport and clothing
• Political factors:
  – Protectionism and limiting of imports through tariffs has seen BB’s product strengthened in the domestic market
  – Gov emphasising and pushing Aus exports, BB has seen improved overseas sales.
• Geographic:
  – Pollution of beaches discourages people from surfing
  – Influences what products BB have to release
  – Snow gear in countries like Switzerland and surf gear in markets like Hawai’i

Internal influences

· E-Commerce

– Positive: Simplifying logistical and organisational difficulties

– +: Monitoring and tracking sales – Ý control

– Internet – website – greater relationship/interaction with customers

· New Procedures

– Private à Public

– Comply with legal regulations meant Ý financial record systems for annual financial report

– Tighter control over finances so as to increase return for investors

· Business Culture

– Management team changed in 1998 when Matthew Perrin and Gary Pemberton bought 49% of BB

– Now comprised of more professional managers with greater business knowledge and procedures than the original surf enthusiasts who established the business

Structural responses to change

Outsourcing

• Production to SE Asia and China
• Response to economic and financial influences
• Allows company to focus more on design and marketing
• Lowers costs to maintain competitive advantage in price-sensitive markets

Strategic Alliances

• Cooperated with Channel V – Billabong Music Bus Tour
• Both had similar target markets
• Increased brand recognition and awareness

Reasons for resistance to change

Financial Costs

• Developing new products – such as skateboards and sunglasses – requires money
• Acquiring smaller businesses, eg. Honolua Surf Company cost around $20billion

Inertia of owners

• International expansion brings some risk from the financial backers/owners and therefore saw resistance from shareholders

Managing change effectively

Identifying need for change

• BB gained an edge over competitors by being one of the first businesses to expand overseas in the early 1980s
• Diversifying into skateboarding and accessories increased market share

Creating culture of change

• New management team in 1998 acted as ‘change agents’ achieved growth by constantly observing and pursuing new opportunities

Change Models (force field analysis)

Driving Forces

Restraining Forces

• Ý revenue
• New opportunities for staff
• Year round demand (seasons)
• Costs of production
• Lack of new designers
• Need to hire new managers for new departments

Change and Social Responsibility

Ecological Sustainability

• Surfrider Foundation – Conservation and regeneration of beaches and foreshores Quality of life
• Encourages team work and a relaxed atmosphere both in the office and in retail stores
• BB has a strict ‘no child labour’ policy and regularly inspects overseas production facilities

Cultural Diversity

• Encourages communication between domestic and international stores/offices
• Employees are encouraged to transfer between international offices to gain new experiences

The Nature of Management

· Management Roles

-An interpersonal role is one in which the manager deals with people.
– Proactive- incorporates dynamic action and forward planning to achieve particular objectives

-An informational gathers information within the business and supply’s it outside the business

-A decision-making role involves solving problems and making choices

· Skills of Management

-People Skills

-Strategic thinking

-Vision

-Self-Managing

-Teamwork

– Ethical behaviour

Responsibilities to stakeholders include:

1. manage change
2. social justice
3. ecological sustainability
4. compliance with the law
5. codes of practice

Understanding Business Organisations with Reference to Management theories

· Contingency Theory

· Classical-Scientific

– Planning, Organising, Controlling

Division of labour, chain of command, autocratic leadership style meaning the manager tends to make all the decisions in the business.

· Behavioural

– ability to understand and work with people from a variety of backgrounds and different expectations

– Leading, Motivation, Communication

– Flatter organisational structure

– democratic leadership style where managers consult employees to ask suggestions and take them into account when decision making.

· Political

– encourages the formation of coalitions to promote different points of view.

– Power and Influence within a business can have both a positive and negative effect. It can be sued to intimidate (negative) or empower others (positive).

– Legitimate power – due to status or position of the person in the firm e.g management

– Expert power – due to a result of a persons skills and expertise

– Referent power – from a person’s individual characteristics (personality and charisma)

– Reward Power – to the rewards or compensation a manager distributes

– Coercive power – controls individuals by the actions or words of the manager

– Negotiating and Bargaining, Stakeholder views, Coalitions

Managing Change

· Nature and Sources of Change in Business

– External – Changing Nature of Markets, Economic Influences, financial, geographic, social, legal, political, technological

Internal – Effects of decelerating technological change, e-commerce, new systems and procedures, new business cultures

– Structural Response to Change

-Outsourcing

– Flat Structure

– Strategic alliances

– Networks

· Reasons for Resistance to Change

Financial Costs

Inertia of managers and owners

Cultural incompatibility in mergers and takeovers

Staffing Considerations – de-skilling, acquiring new sources, loss of career prospects and opportunities.

* Managing Change Effectively

Identifying need for change- SWOT anaysis and balance sheets

Setting Achievable goals – mission statements and company goal

Culture of Change

Change Models
– Force-Field Analysis
Unfreeze/Change/Refreeze

Change and Social Responsibility

Social Responsibility is the awareness of a business’s management of the social, environmental and human consequences of its actions. Customers eventually find out which businesses are acting responsibly and which are not.

– Ecological Sustainability

– Quality of Working life

– Technology

– E-Commerce

– Globalisation and Managing Cultural Diversity

HSC Topic Two – Financial Planning

The Role of Financial Planning

* Strategic role of Financial Planning

strategic plan

Organisational goals and objectives

Managing financial resources

* Objectives of Financial management

– Liquidity -pay debts in the short term (less that 12 months)

– Profitability – ability to maximise profit

– Efficiency -manage its assets to maximise profits with the lowest possible level of assets

– Growth – increase its size in the long term

– Return on capital -profit returned to owners or stakeholders as a % of their contribution

* The planning Cycle

– Addressing present financial position e.g revenue, p & l statements, budgets

– Determining financial elements of the business plan

– Developing budgets

– Cash Flows

– Financial reports

– Maintaining record systems

– Planning financial controls

Financial Markets Relevant to business financial needs

* Major Participants in Financial markets

Banks

Financial companies -provide loans to individuals and businesses e.g personal and secured

Insurance companies -loans to the corporate sector through insurance premiums

Merchant bks (investment bks) -services such as borrowing and lending to the business sector.

Superannuation/Mutual funds – provide funds to the corporate sector through the investment of funds received from superannuation contributions

The Reserve bank of Australia (Government) -acts as a banker and financial agent for the federal government

* The Role of the Australian Stock Exchange (ASX) as a primary Market

The ASX is the major financial exchange in the country. It comprises the largest primary and secondary markets for companies and individuals wishing to create and exchanges financial assets in the economy

* Influences on Financial Markets

domestic markets e.g change in inflation, demands for funding, changes in government policies. Companies can be positively and negatively affected.

Overseas influences such as world events, foreign exchange rates, tax regulation for foreign operations

* Trends in Financial Markets

Technology has allowed markets to become more competitive and grow allowing financial transactions all the time. Globalisation will also give overseas investors access to Australian companies and increase opportunities for Australian investors and international markets.

Management of Funds

* Sources of Funds

Internal

– Owners Equity

– Retained Profits

External

Short-term borrowing

– Bank Overdraft – allows a business to overdraw their account to an agreed limit

– Bank Bills
Long Term Borrowing

– Mortgage

– Debentures -The company repays the amount of the debenture by buying back the debenture. Finance companies raise funds through debenture issues to the public.

– Leasing – involves the payment of money for the use of equipment that is owned by another party.

– Factoring – is the selling of accounts receivable for a discounted price to a finance of factoring company.

– Venture Capital – is funds supplied by investors to either a new organisation or to an already established business ready to grow or diversify.

– Grants – are provided by the government for businesses to develop and promote international competitiveness. Grants often enable an organisation to become competitive in the global environment e.g exporting organisations.

* Comparison of debt to equity financing

Debt finance refers to short and long term borrowing from external sources of an organisation

Equity Financing refers to the internal sources of finance in the organisation

Gearing/Leverage is the proportion of debt to equity which is used to finance the activities of a business

Using Financial Information

* The Accounting Framework

Financial Statements

Revenue Statements shows the revenue earned and expenses incurred over the accounting period with the resultant profit or loss. Revenue statements show operating revenue earned from the main functions of the business e.g sales of inventories and the non-operating revenue earned from operations such as rent and commission. It also shows operating expenses such as rent, advertising, insurance.

Balance Sheets represent the assets and liabilities at a particular point in time expressed in money terms and calculates the net worth of the business. The balance sheet shows the level of current and non-current assets and liabilities including investments and owners equity. Balance sheets indicate whether

– it has enough assets to cover debt

– interest and money borrowed that can be paid

– assets used to maximise profits

– if owners are making a good return on their investment

* The accounting Equation and Relationships

(A) Assets = (L) Liabilities + (OE) Owners Equity

The accounting equation forms the basis of the accounting process which shows the relationship between assets, liabilities and owners equity. The accounting equation shows that the assets of the business may be financed by either the owners or by parties external to the business.

COGS = inventory + purchases – closing stock

* Comparative Ratio Analysis

By comparing ratios of a firm over time reveals trends and indicate directions for the future. Comparisons with other businesses and industry ratios is often used although can be inaccurate due to differences in companies and industries. Businesses often compare ratios against common standards such as statistics from the ABS.

* Limitations for Financial Reports

Historic cost accounting states that values are stated at the cost incurred at the time of purchase or acquisition, meaning financial statements will be a mixture of different year figures. Historic cost has been used for a long time although may become inaccurate in times of inflation.

Value of Intangibles licences, trademarks, brand names and goodwill.

Effective Working Capital (Liquidity) Management

* The Working Capital Ratio

Working Capital Ratio = Current Assets over Current Liabilities (2:1 ACCEPTABLE – ALTHOUGH VARIES)

The Working capital ratio shows if current assets can cover current liabilities.

* Control of Current Assets

Cash Balances are generally kept at a minimum and hold marketable securities as reserves of liquidity.

Receivables is important in terms of management of working capital. The quicker the debtors pay, the better the firms cash position.

Inventories make up a significant account of current assets and their levels must be carefully monitored so that excess or insufficient levels of stock do not occur.

* Control of Current Liabilities

Payables must be paid by their due dates due to avoid any extra cash charges imposed for late payment and to ensure that trade credit will be extended to the business in the future.

Loans – management of loans is important for establishment interest rates and ongoing charges must be investigated and monitored to minimise costs.

Overdrafts – policies should be used to manage bank overdrafts and monitor budgets on a daily or weekly basis so that cash supplies can be controlled.

* Strategies for Managing Working Capital

Leasing

Factoring

Sale and Lease back is the selling of an owned asset to a lesser and leasing the asset back through fixed payments for a specified number of years.

Effective Financial Planning

* Effective Cash Flow Management

The activities of a business are divided into three categories as a statement of cash flows –

1. Operating Activities – e.g inflow – cash and credit, outflow – payments to employees

2. Investing Activities -e.g selling of old motorbike, purchasing new property

3. Financing activities- e.g inflow – selling of shares, outflow – repayment of debt.

* Management Strategies

distributing payments through out a month or year or different period so that cash shortfalls do not occur – payments and bad debt of accounts by debtors can cause shortfalls of cash for businesses at important times.

discounts for early payments

* Effective profitability Management

Cost Control

Fixed Costs e.g insurance and salaries

Variable costs change with the level of activity within a business e.g materials and labour used in the production of a product e.g fixing a roof.

Cost Centres are particular areas, departments or sections of a business to which costs can be directly attributed. Direct costs are those allocated from a particular product, activity, department or region e.g depreciation of equipment used solely in the production of one good. Indirect costs come from shared projects, activities, departments or regions.

Staff should be motivated to minimise expenses where possible as savings can be substantial if people take a close look at costs and eliminate waste and unnecessary spending.

* Revenue Controls

Sales objectives must be at a level of sales that will cover costs (fixed and variable) and result in profit. Changes to the sales mix can affect revenue. Research should be made to identify the effects of sales mix changes before implantation.

Pricing Policy affects revenue and therefore impacts on working capital. To attract buyers while underpricing may bring high sales but still result in cash shortfalls.

Ethical and Legal Aspects of Financial Management

* Audited Accounts

An audit is an independent check of the accuracy of financial records and accounting procedures. Types of Audits-

1. Internal – conducted internally by employees

2. Management – used to review the firm’s strategic plans and determine if changes need to be made.

3. External – required by corporate law to ensure it complies with Australian auditing standards.

* Australian Securities and Investments Commission (ASIC)

ASIC enforces and administers laws and protects consumers in the areas of investment, life, insurance, super and Australian banking. ASIC sets out to reduce fraud and unfair practices in financial markets and products. ASIC ensures that companies adhere to the law. Collects information about companies and makes it accessible to the public.

* Corporate Raiders and Asset Stripping

Asset Stripping describes the practice of organisations that identify and sell off for a profit, assets of a company, especially one that has been acquired in a recent takeover. Entities that take over other companies and sell off the assets are known as corporate raiders.

HSC Topic 3 – Marketing

Case Study

Types of Markets

Resource – BHP Billiton

Industrial – Painter

Intermediate – Gloria Jeans selling cakes

Mass – IBM Computers

Niche – ‘Mountain Bike’ Magazine

Developing Marketing Strategies

Product and Service

Positioning

* Qantas was under competitive pressure from Virgin Blue in the leisure market

* Qantas wanted to maintain its higher positioned government and business segments

* Expanded to a subsidiary – Jetstar – who were positioned as a value-for-money product

Price including pricing methods

Price Points

* Jetstar International

* Base price for seat, Charge $30 for meal, $7 for blanket and amenity kit and $12 for entertainment kit

Promotion

Advertising

* Dell Computers focus much of their advertising to print media

* Use inserts/pamphlets/brochures in magazines, typically in the technology liftout section of the newspaper, where their target market is most likely to be reading

Place

Distribution

* Dell distribute products directly, with no intermediaries

* Exclusive distribution (no stores), Intensive (internet)

* Distribution system is e-commerce

Ethical and Legal Aspects

Role of Consumer Laws in dealing with

Deceptive and Misleading Advertising

* Gillette (Duracell) VS Eveready

* TV advertisement claims Duracell lasts up to four times longer than ordinary batteries

* Eveready claimed the ad infringed the TPA

* Independent tests showed the Duracell batteries never last 4x longer

* Federal Court ruled Duracell breached the TPA in the areas of misleading and deceptive conduct and false representations about the quality and benefits of goods

The Nature and Role of Markets and Marketing

Marketing is a total system of interacting activities designed to plan, price, promote and distribute products to present and potential customers.

* Types of Markets

– Resource markets e.g mining, agriculture, forestry and machinery.

– Industrial Markets purchase products to use in the production of other products e.g buying flour to make bread

– Intermediate markets (resellers) consist of wholesalers and retailers who purchase finished products and resell them to make profit

– Consumer Markets e.g cars, clothing, food

– Mass Market is when the seller mass produces, mass distributes and mass promotes one product to all buyers

– Niche Markets are micro markets made for buyers who have specific needs or lifestyles

* Production

– Production Orientation – 1820’s – 1920’s

When a business concentrates on making as many possible goods at the lowest price possible

– Sales Approach 1020’s – 1060’s

When a business concentrates on selling techniques to attract customers

– Marketing Approach 1060’s – 1980’s

When a business collects information on consumer trends to sell its products

* The Marketing Concept

– Consumer Orientation – when a business concentrates on maximising customer satisfaction to sell its products

– Relationship Marketing – the focus on encouraging repeat purchases and loyalty to the business by managing customer relations at the time of and after the initial purchase.

Elements of a Marketing Plan

* Establishing Market Objectives

* Identifying Target Market

– Total Market Approach – one type of product with little or no variation aimed at everyone through one distribution system.

– Market Segmentation approach – the market is subdivided into groups of people who share certain characteristics.

* Developing Marketing Strategies (examining elements of the 4 P’s)

* Implementation, Monitoring and Controlling

– Financial Forecasting measures the sales potential and revenue forecasts (benefits) for strategies and compares these with anticipated costs.

– Comparing actual and planned results

1. Sales analysis – comparing of actual sales with forecast sales to determine the effectiveness of the marketing strategy

2. Market share analysis/Ratios – by comparing competitions market share to their own this can reveal changes in total sales (increase or decrease)

3. Marketing Cost Analysis – marketer breaks down the total marketing cost into specific marketing activities to access the effectiveness of each activity.

Market Research Process

Market research is the process of systematically collecting, recording and analysing information concerning a specific marketing problem.

The three steps of the market research process are;

1. Determining information needs

2. Collecting data from primary and secondary sources

3. Data analysis and interpretation -the data that represents average, typical or deviations from typical patterns. The data must be then displayed in way which statistics and figures can be conducted e.g spreadsheets

Customer and Buyer Behaviour

Customers are classified into two categories:

– Consumer – the process of purchasing goods and services for personal household use.

– Organisational – the purchase of goods and services by producers, resellers and government.

Types of Customers

– Household & Personal – personal and household spending plays a dominant role within the economy as it contributes to the level of economic activity which affects business profits, unemployment levels, interest rates levels and rate of inflation.

– The Firms market consists of businesses that purchase goods and services for further processing or for use in their production process.

– Educational institutes

– Government Customers Governments spend billions of dollars each year for a wide variety of goods and services ranging from battleships to paperclips. All purchases of the government spend public funds to buy products, the government is accountable to the public, requiring a much more formalised set of buying procedures where firms submit quotes to supply a particular good or service and the lowest bid is generally accepted.

* The Buying Process

The buying process involves 5 common steps:

1. Recognise the problem – need or want requiring satisfaction
2. Search for info – brands, product characteristics, warranty, price etc
3. Evaluate alternatives – cost and benefit analysis
4. Purchase
5. Evaluate after purchase – stability of product, satisfaction gained or dissatisfaction may occur.

* Factors influencing Customer Choice

– Psychological influences – e.g perception, motive, attitude and personality

– Socio-cultural influences – e.g family, friends, social class, culture and subculture.

– Economic Influences -A boom is a period of low employment and rising income. Contraction is a period of slowly rising unemployment with incomes stabilising. Recession sees unemployment reach high levels and incomes fall dramatically. Expansion means unemployment levels start to fall slowly and incomes begin to rise.

– Government Influences – government will put into place policies that expand or contract the level of economic activity. These policies directly or indirectly influence business activity and customers spending habits and such will influence the marketing plan.

Developing Market Strategies

* Pricing Strategies

• Price Skimming – charging the highest price possible for innovative products
• Pricing Penetration – charges to lowest price possible for a product or service to achieve large market share
• Loss-leader – selling a product below its cost price to attract customers
• Price Lining – a limited number of key prices for selected product lines e.g one line of watches for $35 and a more expensive line at $55

* Pricing Methods

• Cost-plus margin – the total cost of production then adds on amount for profit (mark-up)
• Market – set prices according to the level of supply and demand, when demand is high prices are high
• Competition based – a business chooses a price based on competition, either below, equal to or above

* Marketing segmentation and product

1. Mass marketing or a total marketing approach – This includes basic food items, water, gas, electricity etc.
2. Concentrated Market Approach -By using the concentrated market approach the business is able to analyse its customer base more closely and design strategies to satisfy this select groups needs, and develop particular products based on customer feedback.
3. Product Differentiation – is the process of developing and promoting differences between the businesses products and those of its competitors. e.g jeans with designer labels and washing detergent with brightener additives

* Place/Distribution

– Channels of Distribution or marketing channels are routes taken to get the product from the factory to the customer. The process usually involves a number of intermediaries such as wholesalers, brokers, agents or retailers.

– To choose the channel of distribution the location is the main contributor of the business market or market coverage (number of outlets a firm chooses for it product). There are three ways a business can cover a market –

1. Intensive distribution – when a business saturates the market with their product e.g milk, lollies and newspapers
2. Selective Distribution – businesses use a moderate proportion of possible outlets where customers are prepared to travel e.g clothing, furniture
3. Exclusive Distribution – only one retail, outlet in a large geographical area for exclusive and expensive products.

– Physical Distribution

1. Transport
2. Warehousing – involves receiving, storing and dispatching goods.
3. Inventory – controlled through a system that maintains quantities and varieties of products appropriate for the target market.

· Effects on Distribution

1. Technology

2. Local Government

– Approving new development applications and alteration to existing premises

– Fire regulations

– Determining land zoning and the purpose for which a building and land can be used

– Parking regulations

– Health regulations

– Size, shape and location of business signs

Ethical and legal Aspects

Environmentally responsible products

Materialism – an individuals desire to constantly acquire possessions

Impact of retail development -intensely competitive environment may result in some retailers using questionable marketing practices

Sugging – Selling Under Guise of a survey,

Role of Consumer Law

Deceptive and misleading

Price- Discrimination

Implied Conditions or terms

Merchandise quality meaning that the product is of a standard a reasonable person would expect for the price

Fitness of purpose meaning that the product is suitable for the purpose for which is being sold. That is, it will perform as the instructions or advertisement implies

Warranties

Resale Price Maintenance

Legislations to respond to ethical and legal aspects of marketing:

The Trade Practice Act 1974 is one of the most important pieces of legislation in Australia and has two purposes:

1. To protect consumers from misleading and deceptive conduct

2. Restrictive trade practices to restrict competition as well as ensuring that a number of businesses are operation at any one time in the same market, to avoid the problem of monopolistic power.

Fair Trade Act (FTA) is a mirrors legislation that covers sole traders and partnership as well as companies

Implied conditions in both Acts:

– Merchantable quality – worth the money

– Fit for purpose – does its jobs.

HSC Topic Four: Employment Relations

Case Study

Managing the ER function

Line Management

* ALDI Supermarkets

* Individual store managers are expected to solve all instore problems – there is no ‘area manager’ or specialist ER department

Key influences on ER

Social Inf