Business Studies – Case Study Notes – Topic 1: Operations
Role of operations management
•
Strategic role of operations management – cost leadership, good/service differentiation
Ø Cost leadership: Apple reduces its operations costs by forming a partnership with
manufacturers such as Foxconn in China. Costs of production such as labour and
materials are significantly lower in China than the USA or Australia.
Ø Good/service differentiation: Apple differentiates their iPhones from its competitors by
the product features and quality. Product features include their operating system (iOS),
touch screen, app, iTunes and distinctive appearances.
The focus on iTunes and apps has been key to Apple’s success in establishing itself as a
market leader for smartphones. However, when the iPhone 5 was released in late 2012
it fell from the top position as highest selling smartphone, superseded by Samsung due
to lack of innovation and rising competition in the smartphone market which are
considered the main reasons for Apple’s continuous loss of market share.
Quality has been one of the key focuses of Apple’s as they market their iPhones as a
premium product and priced accordingly. Apple has promoted their iPhone with a focus
on innovation to differentiate it from competitors. Quality issues in the production of
the iPhone 5 (scratching of cases) led to the model being discontinued in 2013 and
replaced by the iPhone 5c which used a low cost plastic casing. This represented a shift
in Apple’s approach to quality yet low sales of the model would suggest it was not a
success.
•
Goods and/or services in different industries
Ø Apples products are mostly standardised (mass produced)
Ø Customers can customise standardised goods through apps, music, etc
Ø Apple supplies goods and services – Apple Genius bars provide customised after sales
service
Ø Online booking system for Genius bar provides an element of self-service
•
Interdependence with other key business functions
Ø Operations/marketing – market research from previous sales of ipad provided Apple
with benchmarks for ipad mini sales (how much to produce). Operations provide
marketing dept with costs for production of the iPhone 5c so as to determine the price
of the new iPhone
Ø Operations/ finance – Apple allocates a price per unit for production of iPhones, which it
pays outsourcing partners. Partners negotiate with Apple if prices go up
Ø Operations/human resources – Apple tend to hire technically savvy staff from product
development to retail staff. Foxconn employed an extra 10,000 factory staff to meet
production of the iPhone 5c in 2013
Influences
•
Globalisation, technology, quality expectation, cost based competition, government policies,
legal regulation, environmental sustainability
Ø Globalisation – Apple use the global web and sources production globally (Foxconn has
factories in China, Europe and South America, produces 40% of the world’s electronics).
Apple relies on partners in China to ensure production targets and quality standards are
met. Imitation and reverse engineering an issues (Samsung copying Apple technology).
Ø Technology – Apple forced to continually patent/trademark innovations to compete.
Lack of innovation saw Samsung go into top position for smartphones. Significant
investments in R&D needed to be innovative and competitive.
Ø Quality expectation – A lot of Apple’s success has been due to its reliable, durable,
functionally simple and clean designs. Premium price with a premium price. In 2013 the
iPhone 5c (low cost option using low cost materials0 along with the iPhone 5s (premium
quality) allowed them to cater for quality expectation in multiple target markets.
Ø Cost based competition – Economies of scale, Apple suppliers can adjust for changing
volumes of a product by adjusting staff, reconfiguring tasks and rebalancing the line.
Standardised nature of production allows Apple to shift resources and adjust fixed and
variable costs to other products of volume or demand changes.
Ø Government policies – In March 2013 Apple were summoned to appear before a federal
parliamentary committee to explain their pricing policies and why Australia were forced
to pay more for some of their products compared to other countries.
Ø Legal regulations – Apple has been repairing phones outside the warranty period for free
since the Australian Consumer Law (ACL) changed in 2011. Electronic goods should be
covered for a time that is reasonable – phones for the durations of their contract.
Ø Environmental sustainability – Apple’s website states: “The way products are
manufactured, used and recycled represents the largest percentage of Apple’s
greenhouse emissions. That’s why we design them for better environmental
performance to try and reduce our carbon footprint”
•
Corporate social responsibility
Ø The Apple website in the section of Apple’s supplier responsibility states “workers
everywhere should have the right to safe and ethical working conditions. 6 areas of
focus: accountability, empowering workers, labour and human rights, health and safety,
environment and audited results”.
Operations processes
•
Inputs
Ø Transformed resources – Materials (Memory chips, speakers and touch screens),
Information (development in technology) and Customers (tastes and preferences)
Ø Transforming resources – Human resources (Apple Australia employed 2418 staff in
2013 while Foxconn employs around 200,000) and facilities (17 final assembly plants
around the world in 2012 with 200 suppliers)
•
Transformation processes
Ø The influence of volume, variety, variation in demand and visibility (customer contact)
Volume – The smartphone market is competitive and subject to rapid change in product
design and demand. Predicting volume required involves risks and costs, such as overordering components
Variety – iPads, iPods, iPhones, etc.
Variation – In 2012 the demand for the iPhone 5 exceeded the initial supply during the
launch. The ability to produce more in a short period of time depended on the suppliers
and their ability to adjust operations.
Visibility (customer contact) – The iPhone 4 has 2 versions with many problems in the 4
fixed in the 4S. This is due to customer feedback.
Ø Sequencing and scheduling – Gantt charts, critical path analysis
In the assembly of an iPhone, certain components and circuitry will need to be
assembled prior to others being installed in the phone.
Apple have tracked an order-delivery sequence (critical path analysis) of an iPad at 12
days, 18 hours and 8 minutes.
Ø Technology, task design and process layout
Technology – Automation is used by Apple for placement of small components that are
difficult to perform and error prone, not to eliminate work that can be done manually.
Task design – Employees on an iPhone assembly line will require certain knowledge and
skills. Unskilled workers have specific functions with no shared tasks. They are highly
supervised and the speed of work is quick.
Process layout – Apple suppliers use a product layout for their manufacturing. Machines
and equipment is arranged according to the sequence in which the iPhone is assembled.
Ø Monitoring, control and improvement
Monitoring and control – Apple suppliers have a high level of supervision as many
workers are unskilled. Tasks need continual monitoring and control checks to improve
time management, improve quality, etc.
Improvement - The iPhone 5 has a metal band, which is prone to scratching. Continuous
customer feedback about receiving new products with scratches have led to tighter
production standards and tougher quality tests and controls. Longer lead times were a
result.
•
Outputs
Ø Customer Service – Apple suppliers have a high level of supervision as many workers are
unskilled. Tasks need continual monitoring and control checks to improve time
management, improve quality, etc.
Ø Warranties – Apple suppliers have a high level of supervision as many workers are
unskilled. Tasks need continual monitoring and control checks to improve time
management, improve quality, etc.
Operations Strategies
•
Performance objectives – quality, speed, dependability, flexibility, customisation, cost
Ø Quality – CEO Tim Cook stated “We have never been about selling the most. We’re
about selling the best experience and the happiest customers”. The challenge is
maintaining quality due to rising competition.
Ø Speed – The level of demand of a new iPhone cannot always be accurately determined
in advance, so once it is launched operations must quickly respond to the new level of
demand.
Ø Dependability – Some features of the iPhone were criticised for lack of dependability
(e.g. maps). Apple needed to respond quickly to dependability issues in order to
maintain consumer confidence in the iPhone.
Ø Flexibility – Changing the design of the iPhone 5 to embrace colour and achieve lower
production costs was a strategy to increase its market share of low-cost smartphones.
Ø Customisation – Apple products can be customised through Apps, music, cases, etc.
Ø Cost – Apple has made cost a performance objective by: outsourcing operations to
China, switching outsourcing partners to reduce production costs and designing the
iPhone 5 c, with cheaper components such as plastic casing.
•
New product or service design and development
Ø Development of the iPad mini launched in 2012.
o Market research, product concept and development – customers wanted a
smaller screen.
o Product and quality design – Apple engineers spent months designing a smaller
and lighter tablet.
o Testing and assessment – assessing customer feedback, improvements in future
models.
o Product refinement – testing iPad mini led to developments of the iPad mini 2.
Improved screen resolution and large storage model were some ideas.
o Product launch and distribution – in 2013 the launch of the iPad mini2 was
delayed to allow the launch of the iPhone 5 to stand alone.
•
Supply chain management – logistics, e-commerce, global sourcing
Ø Logistics – In 1998, to ensure new I Macs were available at Christmas, Steve Jobs paid
$50 million to buy up all the available holiday air freight space.
Ø E-commerce – When apple.com was established, iPod sales took off. Apple realised it
was economical to ship them directly from Chinese factories to consumer’s doors.
Ø Global sourcing – Apple have a variety of suppliers from all around the world. E.g. Korea
and Taiwan (LCD screens, chipset, batteries and flash memory), Europe (gyroscope,
rotation of display), Inner Mongolia (rare earth minerals used in glass polishing, colour
screen, etc.) and USA (software, audio chip, design and development).
•
Outsourcing – advantages and disadvantages
Ø Advantages
o Reduced costs of production: labour, materials, facilities and energy
o Access to expertise, Foxconn is the largest outsourcer in the world of electronic
products.
o Greater flexibility
o Access to the best technology
o Able to focus on core business activity.
•
Ø Disadvantages
o Increased transportation costs
o Loss of control
o Security risks
o Human resource problems/loss of jobs
o Language problems
o Dependant on other businesses
.
Technology – leading edge, established
Ø Leading edge – Fingerprint sensor technology
Ø Established – The iOS operation system that runs on the iPhone, iPod tounch and iPad
devices.
•
Inventory management – advantages and disadvantages of holding stock, LIFO (last-in-firstout), FIFO (first-in-first-out), JIT (just-in-time)
Ø Apple must order components in advance of new product launches. Materials are
acquired through a combination of purchase orders, supplier contracts, open orders and
prepaid orders
Ø High inventory turnover and the number of days in which inventory is warehoused is
very low.
Ø JIT is employed as once products are ordered online the product is shipped directly from
China.
Ø This reduces lead times, demands are met quickly, Apple avoids damage or warehousing
costs and it minimises the chance of stock becoming obsolete
•
Quality management (Control, assurance, improvement)
Ø Apple requires a commitment to rigorous quality assurance. This ensures the highest
standards of total quality management. The ideal suppliers are those who understand
Apple’s culture, standards and expectations.
Ø Control checks – Apple employs a secure online database that has regularly updated
information on current and potential suppliers
Ø Control issues with iPhone5. At least 5 million were returned to Foxconn due to an
unnamed defect
•
Overcoming resistance to change – financial cost, purchasing new equipment, redundancy
payments, retraining, reorganising plant layout, inertia
Ø Since Steve Jobs returned to Apple in the 80’s, executive staff have been made
redundant, new equipment has been procured, change agents have been introduced
and all current and new staff are continually retrained in new technology.
Ø Supply chains are continually reorganised and any sign of inertia from suppliers/staff is
not tolerated.
•
Global factors – global sourcing, economies of scale, scanning and learning, research and
development
Ø Global sourcing – Benefits for Apple include cost savings by outsourcing, proximity to
suppliers and overseas markets, and access to leading technologies. The majority of
components come from China and Mongolia (reduces transportations costs). Negatives
include worldwide economic conditions, fuel costs, unemployment, etc.
Ø Economies of scale – Efficiencies in production by using skilled labour of mega factories
such as Foxconn. Having over 300 suppliers in China, Apple outsources large overseas
production to gain lower unit costs, economies of scale and quick lead times, giving
Apple a competitive advantage.
Ø Scanning and learning – Due to the competitive nature of the smartphone market,
competitors need to scan and learn from competitors in the design, manufacturing and
delivery of smartphones in order to remain competitive. Issues include imitation and
protection of intellectual property
Ø Research and development – Apples investment in R&D is a crucial strategy in
maintaining a competitive position in the smartphone market. Total R&D expenses in
2013 was $4.5 billion.
Case Study Notes – Topic 2: Marketing
Role of marketing
•
Strategic role of marketing goods and services
Ø Marketing at Apple plays a major role in generating sales, thereby contributing to
strategic goals such as: profit maximisation, growth, the development of brand
awareness, customer loyalty
•
Interdependence with other key business functions
Ø Operations – Market research enables sales forecasts for the new model which are used
by operations to prepare production schedules
Ø Finance – Budgets will be allocated to the marketing department to effectively control
costs and minimise expenses in their activities.
Ø Human resources - The launch of the new iphone by the marketing department created
the need for staff training and development of Foxconn employees (assembly, etc).
Employees at retail stores need to be trained in the specifications and promotional
offers for the new range.
•
Production, selling, marketing approaches
Ø Selling approach in the introductory stage as products were beyond customer
expectations
Ø Apple now employs a marketing approach. Understanding what the customer wants and
needs is integral to the success of Apple’s marketing and the maintenance of a
competitive advantage,
•
Types of markets – resource, intermediate, industrial, consumer, mass, niche
Ø Apple sells mainly to consumer markets but also have other intermediaries such as
JBHiFi selling Apple products
Influences on marketing
•
Factors influencing customer choice – psychological, sociocultural, economic, government
Ø Psychological – The perception is that Apple products are cool and innovative, motive is
peer pressure, attitude is that Apple products are easy use, and personality is usually
those who love new gadgets. E.g. iPhone 5c in various colours to attract teenagers
(colour reveals your personality) and iPhone5s for forward thinkers.
Ø Sociocultural – Apple users believe life is easier with Apple, apps such as Ping create
social bonds.
Ø Economic – GFC led to falling sales and the iPhone 5c was a result of this. Strong iPhone
sales during 2008-2009 recession offset not so strong Mac sales.
Ø Government – Apple needs to ensure it complies with laws related to warranties when
selling in Australia.
•
Consumer laws
Ø Deceptive and misleading advertising – Apple must ensure promotional information
doesn’t convey a false impression of the iPhone, or suggest certain qualities that it
doesn’t have.
Ø Price discrimination – Apple must sell the iPhone at the same price to all customers in
Australia. However, this doesn’t prevent other retailers of iPhones from determining
their own price.
Ø Implied conditions – Smartphones must be fit for purpose, correspond with their
description and spare parts, repairs, etc. must be available and comply with warranty
conditions.
Ø Warranties – All Apple products come with a warranty and must be compliant with the
Competition and Consumer Act.
•
Ethical – truth, accuracy and good taste in advertising, products that may damage health,
engaging in fair competition, sugging
Ø Truth, accuracy and good taste – The sale of all Apple items come with a set of terms
written in fine print. Apple has been criticised for influencing children through product
placement in Toy Story 3.
Ø Engaging in fair competition – Given the popularity of some Apple products, they limit
the number for purchase.
Marketing process
•
Situational analysis – SWOT, product life cycle
Ø SWOT analysis
Strength
Well-established brand
Opportunities
New innovations and technologies
Weakness
High price relative to competitors
Threats
Increased competition
Ø Product life cycle
iPhone 6s/6s plus (introduction), iPhone 6/6 plus (growth), iPhone 5c/s and iPhone 4
(maturity) and iPhone 5 (cessation)
•
Market research
Data collection:
Ø Primary data – Every month Apple surveys iPhone buyers to see what is driving demand
for their products versus competitors’ products, what features they use most, customer
demographics and their level of satisfaction with different aspects of the iPhone
Ø Secondary data – Apple uses sakes data and information collected from other sources.
Data analysis and interpretation:
Ø “The growth in iPhone net sales during 2013 resulted from increased demand for
iPhones in all of the Apple’s geographical regions, primarily due to the launch of the
iPhone 5”.
•
Establishing market objectives
Ø Increase market share in China by 10% in the next 12 months
Ø Develop new products and services – Apple radio and iPhone 6 plus
Ø Expand existing markets – Increase online sales by 15% in the next quarter
Ø Maximise customer service – Genius training
Ø Expand sales to customers who do not yet own an Apple product
•
Identifying target markets
Ø Apples strategy is to target different segments of the market. Apple target specific user
experiences, and build the product accordingly eg iPad mini
•
Developing marketing strategies
Ø Apple integrate all of these to consistently communicate its unique benefits to
consumers
•
Implementation, monitoring and controlling – developing a financial forecast; comparing
actual and planned results, revising the marketing strategy
Ø Apple monitors the sales figures for the iPhone to identify market saturation (when sales
are no longer increasing)
Ø They also found the iPad was more popular with men
Ø Corrective action may require a new model of iPhone to be launched or identify new
distribution channels to increase sales and market share
Ø Apple developed the iPad mini to attract women
Marketing strategies
•
Market segmentation, product/service differentiation and positioning
Ø Market segmentation
Geographic location - High growth of smartphone sales in Asia has required changes to
the marketing mix for the iPhone to remain competitive
Demographic characteristics – iPhones are targeted at high income earners in developed
countries
Psychographic characteristics – iTunes show how Apple identified the interests and
habits of consumers
Behavioural characteristics – Network carriers will segment customers based on usage.
Ø Product/service differentiation – Apple’s branding and marketing efforts have focused
on design, innovation and quality in an attempt to differentiate the iPhone. It allows
them to charge a premium price
Ø Positioning – Apple is positioned to produce high quality and high priced products, using
leading edge technology, and this is what customers come to expect.
•
Products – goods and/or services
Apple products include iPhones, iPads, iMacs, etc. and focus on innovation and design
Ø Branding – Strong brand image and highly visible placement of logo on device. Most
valuable brand in the world
Ø Packaging – Apple packaging is suggestive of quality and part of the buying experience. A
lot of consumers keep the packaging
•
Price including pricing methods – cost, market, competition-based
Apple used competition based pricing for the iPhone 5c and older models.
Ø Pricing strategies – skimming, penetration, loss leader, price points
Apple uses market skimming for new iPhone models.
Ø Price and quality interaction – People associate the high price with a product of better
quality.
•
Promotion
Ø Elements of the promotion mix – advertising, personal selling and relationship
marketing, sales promotions, publicity and public relations
Personal selling and relationship marketing – Specially trained staff at Apple stores.
Apple ensure existing customers are happy by connecting them with the brand.
Advertising – TV and mass media promoting the benefits of Apple products, product
placement in movies and TV shows e.g. The Office and Toy Story 3. Social media,
websites.
Sales promotion – Apple gives 10% discounts to students at the start of the school year.
Publicity and public relations – Apple rely on secrecy to build momentum for a new
launch. Use of media to create a highly publicised event of new product launches
Ø The communication process – opinion leaders, word of mouth
Opinion leader – Celebrity endorsement E.g. U2 appear in ads and played at 2014 launch
of the iPhones.
•
Place/Distribution
Ø Distribution channels
Apple uses traditional channels (producer to retailer to customer) and innovative
channels (internet marketing, e-commerce via producer to consumer)
In 2013 30% sales were through direct channels (online and Apple retailers), and 70%
through indirect channels (network carriers and other retailers)
Ø Channel choice – intensive, selective, exclusive
Selective – Apple has opened 415 retail stores in key cities around the world (13
countries) in up-market, quality shopping venues.
Ø Physical distribution issues – transport, warehousing, inventory
Transport – Apple uses a small variety of transport methods (air, ship and road)
Warehousing – Apple uses e-commerce and sells directly tp the consumer to avoid large
warehousing costs
Inventory – To avoid costs (theft and damage) Apple employs a just in time inventory
method.
•
People, processes and physical evidence
Ø People – Strong focus on sales and customer service – customer obsessed, empathetic
staff
Ø Processes – Online ordering system, free upgrade of iOS for existing customer, preordering.
Ø Physical evidence – Apple has opened 415 retail stores in key cities around the world (13
countries) in up-market, quality shopping venues.
•
E-marketing
Ø Apple products use internet based apps and online services such as iCloud
Ø Apple.com is customised to suit different regions around the world and sells Apple
products directly to the consumer
Ø Apple uses social media accounts to create publicity and support product launches
•
Global marketing
Ø Global branding – In 2013 Apple was named the world’s most powerful brand. The Apple
logo is globally recognised.
Ø Standardisations – Apple uses the standardised approach with their products. Whilst
pricing may differ, the same product is found in every country in which it is sold. The
iPhone ads focused on people from various nationalities, speaking their own language
on their colourful iPhone 5c.
Ø Customisation – Apple uses elements of customisation. Eg Apple products have local
variations.
Ø Global Pricing – Apple takes into account local market considerations when setting
prices such as freight charges, local taxes, import duties, competition, local laws, etc.
The price of the iPhone 5 varied from $649 in USA, $777 in Singapore, $844 in Australia
and $892 in Germany and France ($US)
Ø Competitive positioning – Apple has positioned its products in the high end of the
market in terms of quality and design, and was priced accordingly. Apple are now
turning to high growth economies such as China and India. New marketing strategies are
needed due to lower income levels and other demographic factors. E.g. iPhone 5c.
Case Study Notes – Topic 3: Finance
Role of financial management
•
Strategic role of financial management
•
Objectives of financial management
Ø Profitability, growth, efficiency, liquidity, solvency
Profit maximisation, long term growth, minimise costs and use resources effectively,
free up working capital for future innovations and improve ability to pay long term
loans.
Ø Short-term and long term
•
Interdependence with other key business functions
Ø Operations – Design and develop future models based on funds allocated for R&D and
production
Ø Marketing – Provide various secondary market research data such as sales analysis, to
determine future marketing strategies
Ø Human resources – Consider costs of replacing dissatisfied staff, e.g. recruitment and
training
Influences on financial management
•
Internal sources of finance – retained profits
Ø In 2012. Apple’s retained profits accounted for 86% of shareholder’s equity, and 84% in
2013
•
External sources of finance
Ø Debt – short-term borrowing (Overdraft, commercial bills, factoring), long term
borrowing (mortgage, debentures, unsecured notes, leasing)
Apples debt increase by 44% in 2013
Ø Equity – ordinary shares (new issues, rights issues, placements, share purchase plan),
private equity
Equity finance increased by 5% in 2013 (shares and sales and retained profit)
•
Financial institutions – banks, investment banks, finance companies, superannuation funds, life
insurance companies, unit trusts and the Australian Securities Exchange
Ø Promotes “Apple Financing” for consumers to take advantage of the GE CreditLine card
when buying Apple products
•
Influence of government – Australian Securities and Investments Commission, company
taxation
Ø Apple is subject to taxes in the US and other countries where subsidiaries are based
Ø They have been criticised for using technicalities to pay little or no corporate taxes on at
least $US74 billion over the last 4 years
Ø They are currently being investigated and if found to be owing tax, their operating
results, cash-flows and financial condition could be adversely affected.
•
Global market influences – economic outlook, availability of funds, interest rates
Ø Level of economic growth will directly impact on Apple sales and therefore profits
Ø Apple has been able to borrow in the US due to low interest rates after the GFC
Processes of financial management
•
Planning and implementing – financial needs, budgets, record systems, financial risks, financial
controls
Ø Debt and equity financing – advantages and disadvantages or each
Apple’s total short-term debt was about $20.3billion and long-term debt was
approximately $21.4billion as at Sept 2013.
In 2013 Apple sold bonds and borrowed money to utilise low interest rates and offset
large corporations tax.
Apple raises equity finance by selling shares on the US stock market. Apple paid $10.5
billion in dividends in 2013, compared to $2.5 billion in 2012.
It’s 2013 annual report anticipated quarterly dividends of $3.05 per common share each
quarter.
Ø Matching the terms and source of finance to business purpose
•
Monitoring and controlling – cash flow statement, income statement, balance sheet
Ø Cash flow statement
In millions ($USD)
Period ending:
September 2013
September 2012
September 2011
Opening cash balance
$10,746
$9,815
$11,261
Cash Inflows
Operating activities
$53,666
$50,856
$37,529
Cash Outflows
Investing activities
($33,774)
($48,227)
($40,419)
Financing activities
($16,379)
($1,698)
$1,444
Net Cash Flow (in-out)
Closing Cash Balance
•
Ø Income statement
Ø Balance sheet
Financial ratios
Ø Liquidity – current ratio (Current assets ÷ current liabilities)
2015
2014
2013
1.11:1
1.08:1
1.68:1
Ø Gearing – debt to equity ratio (total liabilities ÷ total equity
2015
2014
2013
143%
107%
67.6%
Ø Profitability – gross profit ratio (gross profit ÷ sales); net profit ratio (net profit ÷ sales);
return on equity ratio (net profit ÷ total equity)
Gross Profit ratio:
2015
2014
2013
40%
39%
38%
Net Profit ratio:
2015
23%
2014
22%
2013
22%
Return on owners’ equity:
2015
45%
2014
35%
2013
30%
Ø Efficiency – expense ratio (total expenses ÷ sales), accounts receivable turnover ratio
(sales ÷ accounts receivable, 365 ÷ pre-answer)
Expense ratio:
2015
2014
2013
9.6%
9.9%
9%
Accounts receivable turnover ratio:
2015
2014
6.5
5.8
56 days
63 days
2013
7 times
52 days
Ø Comparative ratio analysis – over different time periods, against standards, with similar
businesses
Over different times – Apple compares figures each quarter
With similar businesses – Apple compares sales figures with competitors such as
Microsoft and Samsung
Against industry standards (benchmarks) – Apple compares cost of suppliers to industry
standards and aims to be market leader
•
Limitations of financial reports – normalised earnings, capitalising expenses, valuing assets,
timing issues, debt repayments, note to the financial statements
Ø All costs and revenue involved in launching a new product would be considered as
normalised earnings for the quarter that the product was launched. It would be hard to
compare to other quarters that don’t have the results of a product launch in them.
Ø It would be difficult to estimate the market value of the brand, logo and goodwill of
Apple. The true value can only be measured if Apple was sold.
•
Ethical issues related to financial reports
Ø Apple paid little tax in Australia compared with its global situation. E.g. IN 2012 $40
million from revenue of $6 billion
Ø Tax minimisation strategies such as reporting higher costs of goods sold.
Financial management strategies
•
Cash flow management
Ø Cash flow statements
Apple Inc experienced a steady improvement in its cash flow from 2011 to 2013 due to:
o Inflows from operating activities increased by 36% in 2012 and 5.5% in 2013
o Outflows related to investing activities increased by 19% in 2012 but decreased
by 30% in 2013
o Outflows related to financing activities increased by 860% in 2013 due to Apple
undertaking long term debt
Overall these changes led to an increase in Apple’s cash flow by 45% between 2011 and
2013.
Ø Distribution of payments, discount for early payments, factoring
Apple carefully distributes payments throughout each quarter and are proactive in
setting prices with suppliers allowing them to forecast payments over the financial year.
•
Working capital management
Ø Control of current assets – cash, receivables, inventories
Cash – Increased by 45% form 2011-2013
Receivables – Credit checks, issue of statements and reminders, charges for late
payments, credit insurance
Inventories – JIT, suppliers are instructed to have a 2-week turnaround on production.
Ø Control of current liabilities – payables, loans, overdrafts
Payables – Apple negotiate terms of sale with suppliers
Ø Strategies – leasing, sale and lease back
Apple leases their retail store
•
Profitability management
Ø Cost controls – fixed and variable, cost centres, expense minimisation
Fixed and variable costs – Design new models with cheaper components, source cheaper
suppliers, change outsourcing partners to reduce labour costs
Cost centres – Attributes suppliers’ costs to cost centres
Expense minimisation – Waste and unnecessarily costs minimised due to costs being
attributed to all suppliers before negotiations are confirmed.
Ø Revenue controls – marketing objectives
Sales mix – In 2013 Apple altered its marketing mix to focus on 3 key models – iPhone
5c, iPhone 5s and iPhone 4 and 4s
Pricing policy – Apple looks at costs and projected profit to price products
•
Global finance management
Ø Exchange rates
Customised global pricing strategies are used to combat global strategies are used to
combat the fluctuations in exchange rates.
Ø Interest rates
In the beginning of 2013 Apple capitalised on low interest rates by selling $17billion
bonds. Borrowing money when interest rates are low allows Apple to invest in new and
innovative assets at a low cost.
Ø Methods of international payment – payment in advance, letter of credit, clean
payment, bill of exchange
Apple negotiates methods of payments and bills of exchange as part of their supplier
contracts. Apple is known to be ruthless in their approach due to large volumes they
require
Ø Hedging
Ø Derivatives
Apple uses derivatives to reduce the risk associated with foreign currency and interest
rate fluctuations
Case Study Notes – Topic 4: Human Resources
Role of Human Resources
• Strategic role of human resources
Qantas is one of Australia’s largest employers, employing over 28000 people (92% based in
Australia) across 200 separate job categories
• Interdependence with other key business functions
Operations – Staff need to be trained when new operations technology is adopted (e.g. new
aircraft and security systems). Operational changes such as cutting flights during the GFC
changes size and type of workforce.
Marketing – The right staff must be employed and trained to create the service that satisfies
Qantas’ consumers. People are an important part of marketing at Qantas.
Finance – Recent financial decisions at Qantas like outsourcing, cutting flights, launching new
airlines in Asia have affected staff levels and the levels of industrial disputes (e.g. industrial shut
down in 2011). Staffing is Qantas’ biggest expense.
• Outsourcing
Ø Human resource functions
Qantas has increased looked to outsourcing to become more cost effective and to
simplify its business.
Ø Using contractors -domestic, global
Qantas uses subcontractors to create cost savings, access greater expertise and improve
its competitiveness.
Domestic
o Jetstar has outsourced its entire call centre operations to Melbourne Operator
Sales Force
o Outsources domestic voice, data and domestic services to Telstra
o Outsources data centres, its mainframe and mid-range computing operations
and project management to IBM
Global
o Contracts some maintenance jobs overseas to Singapore and New Zealand
o Established a base in London for about 400 of its international flight attendants
saving them about $18 million through rostering efficiencies and reduced
accommodation and allowance costs
o Outsources its IT applications support and maintenance to 2 companies in India
o Outsources entire reservation system to a Munich based company called
Amadeus, includes the moving of its inventory of fares, seats, departure control
and boarding passes.
Key influence
•
Stakeholders – employers, employees, employer associations, unions, government organisations,
society
Employers
Employees
Trade unions
Employer Associations
Government organisations
Society
•
Qantas has restructured its organisation,
outsourced more functions, relocated staff
overseas, launched discount airlines and hired
more casual staff to cut costs and increase
flexibility. They have taken a confrontational
stance with unions
Qantas employs over 28000 full time
employees. They are concerned with existing
levels of pay, working conditions and job
security. They have been angered by Qantas’s
cost saving tactics
Qantas has a highly unionised workforce.
They are represented by 18 different unions.
They have reacted angrily to Qantas’ drive to
cut labour costs and have wages a political,
community and industrial campaign against
Qantas
Qantas is a member of the Australian
International Airlines Operation Group. They
make sure Qantas’ concerns are represented
to the government at the federal level and to
the community
The government enacts employment
relations legislation such as Fair work Act,
Corporations Law, Work Health and Safety
Act and Workers Compensation.
Society want as few disputes as possible as
they rely on the dependability of Qantas
when travelling either domestically or
internationally.
Legal – the current legal framework
Qantas must follow the rules and regulation set out under the Fair Work Act, and other relevant
HR legislation
Ø The employment contract – common law (rights and obligations of employers and
employees) minimum employment standards, minimum wage rates, awards, enterprise
agreements, other employment contracts
o Qantas have had to implement the 10 National Employment Standards into
their practises.
o Qantas will face big penalties if it is proved they do not bargain in good faith
when negotiating new enterprise agreements.
Ø Work health and safety and worker’s compensation
o Qantas WH&S program has increased safety awareness and led ti an 80%
reduction in employee injuries since 2001
o They must take out worker’s compensation insurance
Ø Antidiscrimination and equal employment opportunity
o Qantas investigates and takes seriously all claims of discrimination
o Qantas ensures female employees are treated with fairness and equity. They
have taken measures to increase the number of women in management (up by
11% since 2007) and on the Qantas Board (up by 15% since 2007) and support
those in executive roles.
•
Economic
Ø Due to the GFC in 2009, there was a fall in demand for Qantas’ services as well as an
increase in competition as part of the new global economy (globalisation). Qantas
therefore reduced staff and froze executive pay in order to cut costs.
Ø A pick up in the economy in recent years has seen staff numbers increase. However,
they announced in 2014 they would axe 5000 jobs as part of a cost reduction program to
improve profitability.
•
Technological
Technological change in Qantas includes:
Ø New security systems in response to terrorism threats
Ø New planes (Dreamliner and A380)
Ø New inflight entertainment systems
Ø New online check-in, self-service kiosks, etc.
As a result, Qantas’ staff have had to learn new skills, or their jobs may have become redundant
•
Social – changing work patterns, living standards
Ø About 24% if staff at Qantas are now part-time or casual
Ø Female employees now comprise 41% of Qantas’ total workforce following an increase
in the participation rate of women
Ø Qantas have adopted more family friendly practises such as building new child care
facilities and a keep in touch program for staff on maternity leave
Ø The number of women accepted into its graduate intake and leadership program has
increased
Ø Population shifts have created a more ethnically and culturally diverse workforce at
Qantas requiring more cultural awareness
•
Ethics and corporate social responsibilities
Modern society expects more form Qantas than just making profits. Example of HR programs
implemented by Qantas are:
Ø Working life – a health surveillance program, including flexible work practises
Ø Cultural diversity – Reconciliation Action Plan focusing on employing Indigenous
Australians
Processes of human resource management
•
Acquisition
Ø Identifying staffing needs – Qantas will conduct a job analysis to produce a job
description which defines the scope of job activities, major responsibilities and
positioning of the job at Qantas
Ø Recruitment – Sources or recruitment for Qantas are internal and external. Due to high
recruitment costs (advertising), these methods are constantly evaluated
Ø Employee selection – Qantas conducts interviews, personality tests, background checks,
selection decisions, physical examinations which ends in a job offer and contract of
employment. The wrong choice can be costly for Qantas
•
•
•
Development
Training and development at Qantas is about a $275 million a year investment. Its objectives
include:
Ø Increased efficiency
Ø Improved quality of service
Ø Fewer accidents and damage to equipment
Ø Personal growth of employees
Ø Make employees more flexible and adaptable to change
Ø Reduce absenteeism and staff turnover
Training includes:
Ø On the job (apprenticeships, coaching, job rotation, mentoring, etc.)
Ø Off the job (simulation, Qantas College Online, day and block release at Qantas’ Centre
of Service Excellence)
Maintenance
Ø Remuneration – used to increase job satisfaction, reward peak performance and reduce
staff turnover, Qantas has aimed to keep increasing pay by about 3% per year.
Ø Work environment – excellent staff facilities help motivate and retain staff
Ø Flexible working conditions – Increasing maternity leave from 10 to 12 weeks, up to 10
days’ carers leave, a keep in touch program for staff on maternity leave, new child care
facilities in Sydney, Melbourne and Brisbane
Ø Increasing parental leave for primary care givers from 52 to 104 weeks
Ø Complying with existing legislation regarding human resource
Separation
Ø Qantas has had to downsize their staff over recent years due to the GFC, international
competition, changes in technology and falls in profits
Ø They have just downsized by 5000 staff over the last 3 years – involuntary separation
Strategies on human resource management
•
Leadership style
Ø Qantas has adopted a democratic leadership style since privatisation occurred in 1995
Ø Qantas employees now have much more input into decision making
•
Job design – general or specific tasks
Ø There is a wide variety of tasks required in Qantas from baggage handling to flying the
A380
Ø Qantas uses strategies such as job rotation, job enlargement and job sharing
Ø Job design is an ongoing process at Qantas aimed at allowing employee input, giving
employees a sense of accomplishment, balances static and dynamic work and provides
feedback about their performance
•
Recruitment – internal or external, general or specific skills
Ø Qantas uses a mix of internal and external recruitment
Ø Alan Joyce (CEO) was an internal appointment, formally in charge of Jetstar
Ø Types of external recruitment include advertisements (online), contractors, head
hunters, competitors
•
Training and development – current or future skills
Ø Qantas has invested more than $275 million over the last 5 years
Ø Training is crucial due to rapid technological change and global competition
Ø Recent training has included new security procedures, international business class,
engineering and maintenance, leadership and culture, customer service, people and
safety and informational technology procedures
Ø Qantas uses online learning (Qantas College Online)
Ø Qantas’ 2000 pilots do vast amounts if training yearly in aircraft simulators, benefits of
these activities to Qantas include:
o Enhanced organisational productivity because employees can do their jobs
more effectively
o Improved quality for outputs. A highly trained employee is aware of the
significance of their actions
o Enhanced ability to cope with change because employees have a variety of skills
o A more committed workforce
•
Performance management – developmental or administrative
Ø Qantas uses performance management as a tool to encourage string performers to
maintain their high level of performance and to motivate poor performers to do better.
Ø The objectives of performance management at Qantas include:
o To provide a rational basis for pay and promotion decisions
o To assess the training and development needs of employees
o To help clarify strategic goals and performance expectations
o To provide individual feedback to aid performance improvement
•
Rewards – monetary and non- monetary, individual or group, performance pay
Ø Monetary – Qantas offer competitive wages and salaries, uses performance based pay
for some employees – this means that direct remuneration is tied to individual, team
and company performance. Cash bonuses based on profit
Ø Non-monetary – Qantas offers interesting and challenging work, job recognition, job
performance feedback, promotion, autonomy in the job, good relationships with coworkers and a safe and healthy environment
•
Global – costs, skills and supply
Ø The Qantas workforce is made up of 99 nationalities, speaking 51 different languages
Ø Employing a global workforce is challenging because of differences in culture, levels of
economic development and legal systems
Ø Global costs – Qantas has outsourced some functions such as IT, maintenance and call
centre operations to reduce labour costs. This can however lead to a reduction in
standard of work and result in negative publicity (e.g. stapled wiring discovered on a
plane serviced in Singapore
Ø Global skills – Overseas workers may need to be trained to become familiar with the
Qantas business culture and practises. Qantas will use global staff for maintenance, IT
and reservations due to their great expertise
Ø Global supply – Asia’s share of the global labour market will reach 65% by 2025. Qantas
can take advantage of this through outsourcing. Qantas provides good working
conditions which helps prevent a shortage of skilled labour.
Ø Global staffing approach – Qantas uses a polycentric and ethnocentric approach to
staffing. Generally, tries to hire host country nationals instead of transferring its
domestic staff to work in senior management positions in their foreign operations
•
Workplace disputes
Ø Resolution – negotiation, mediation, grievance procedures, involvement of courts and
tribunals
Ø Qantas has workplace dispute strategies in place to overcome disputes with minimal
disruption. This hasn’t always worked to plan particularly in 2011-2913, however over
the last 2 years workplace disputes have been dealt with much more amicably and
successfully for Qantas
Effectiveness of human resource management
•
Indicators
Ø Corporate culture
Steve Jobs built a corporate culture around being revolutionaries and rebels, Apple is
known for using T-shirts, parties and celebrations to build cohesion, a collaborative
workforce with teams, innovative working conditions and a place where employees
ideas are valued
Ø Benchmarking key variables
Qantas benchmarks the following indicators internally (previous year) or externally
(different organisations typically in their industry)
Ø Changes in staff turnover
Staff turnover as increased from 4.6% in 2014 to 4.7% in 2015, however these are both
quite an improvement on the 2013 figure of 5.5% and the 2009 figure of 8.7%.
Ø Absenteeism
Qantas absenteeism rates decreased in 2013 and 2014 – 9.1 and 9 days respectively
(from 9.6 days in 2012). This shows HRM is effective and reflects employee health and
wellbeing, the level of staff engagement and productivity.
Ø Accidents
Ø Qantas uses 2 indicators – TRIFR (total recordable injury frequency rate) and LWCFR (lost
work case frequency rate). These have both increased in 2015, indicating a deterioration
in Qantas’ injury prevention performance.
Ø Levels of disputation
Qantas has been plagued by recent industrial issues (2011 – 2013) with engineers,
baggage handlers, flight attendants and even pilots. This historical high number of
disputes has affected the reliability of the network and harmed Qantas’ brand. However,
2013 – 2015 has seen negotiations between Qantas and unions become more amicable,
with 18 EBAs (Enterprise Bargaining Agreements) being agreed upon with little or no
disputation.
Ø Worker satisfaction
Qantas sees worker satisfaction as being important as it directly effects motivation and
productivity. It is difficult to measure. Qantas uses measures such as surveys, invitations
for employee feedback and external consultants.