Edexcel AS/A Level Business - Theme 3

Corporate objectives

The objectives of a medium to large-sized business as a whole

Departmental and functional objectives

The objectives of a department within a business

Mission statement

A brief statement, written by the business, describing its purpose and objectives, designed to encapsulate its present operations

Objective (or goal)

A target of or outcome for a business that allows it to achieve its aims

SMART

Acronym for the attributes of a good objective: Specific, Measurable, Agreed, Realistic and Time Specific

Corporate strategy

The plans and policies developed to meet a company's objectives. It is concerned with what range of activities the business needs to undertake in order to achieve its goals. It is also concerned with whether the size of the business organisation makes it capable of achieving the objectives set.

Distinctive capability

A form of competitive advantage that is sustainable because it cannot easily be replicated by a competitor

Diversification

Developing new products in new markets

Market development

The marketing of existing products in new markets

Penetration

Using tactics such as the marketing mix to increase the growth of existing products in an existing market

Portfolio analysis

A method of categorising all the products and services of a firm (its portfolio) to decide where each fits within the strategic plans

Product development

Marketing new or modified products in existing markets

External audit

An audit of the external environment in which as business finds itself, such as the market within which it operates or government restrictions on its operations

Internal audit

An analysis of the business itself and how it operates

SWOT analysis

An analysis of the internal strengths and weaknesses of the business and the opportunities and threats presented by its external environment

Trade association

An organisation whose members are all involved in the same industry or trade. The organisation pursues the interests of these businesses.

Monopoly

A market dominated by a single business

Oligopoly

A market dominated by a few large businesses

PESTLE analysis

Analysis of the external political, economic, social, technological, legal and environmental factors affecting a business

Diseconomies of scale

Rising long-run average costs as a business expands beyond its minimum efficient scale

Economies of scale

The reductions in average costs enjoyed by a business as output increases

External economies of scale

The cost reductions available to all business as the industry grows

Internal economies of scale

The cost reductions enjoyed by a single business as it grows

Minimum efficient scale

The output that minimises long-run average costs

Backward vertical integration

Joining with a business in the previous stage of production

Forward vertical integration

Joining with a business in the next stage of production

Horizontal integration

The joining of businesses that are in exactly the same line of business

Integration

The joining together of two businesses as a result of a merger or takeover

Merger

Occurs when two (or more) businesses join together and operate as one

Synergy

The combining of two or more activities or businesses creating a better outcome than the sum of the individual parts

Takeover

The process of one business buying another

Vertical integration

The joining of two business at different stages of production

Inorganic growth

A business growth strategy that involves two (or more) businesses joining together to form one much larger one

Organic growth

A business growth strategy that involves a business growing gradually using its own resources

Centring

A method used in the calculation of a moving average where the average is plotted or calculated in relation to the central figure

Correlation

The relationship between two sets of variables

Correlation coefficient

A measure of the extent of the relationship between two sets of variables

Moving average

A succession of averages derived from successive segments (typically of constant size and overlapping) of a series of values

Scatter graph

A graph showing the performance of one variable against another independent variable on a variety of occasions. It is used to show whether a correlation exists between the variables.

Time series analysis

A method that allows a business to predict future levels from past figures

Average rate of return or accounting rate of return (ARR)

A method of investment appraisal that measures the net return per annum as a percentage of the initial spending

Capital cost

The amount of money spent when setting up a new venture

Discounted cash flow (DCF)

A method of investment appraisal that takes interest rates into account by calculating the present value of future income

Investment

The purchase of capital goods

Investment appraisal

The evaluation of an investment project to determine whether or not it is likely to be worthwhile

Net cash flow

Cash inflows minus cash outflows

Net present value (NPV)

The present value of future income from the investment project, minus the cost

Payback period

The amount of time it takes to recover the cost of an investment project

Present value

The value today of a sum of money available in the future

Decision tree

A technique which shows all possible outcomes of a decision. The name comes from the similarity of the diagrams to the branches of trees.

Earliest start time

How soon a task in a project can begin. It is influences by the length of time taken by tasks which must be completed before it can begin.

Critical path

The tasks involved in a project which, if delayed, could delay the project

Critical path analysis (CPA)/network analysis

A method of calculating the minimum time required to complete a project, identifying delays which could be critical to its completion

Free float

The time by which a task can be delayed without affecting the following task

Latest finish time

The latest time that a task in a project can finish

Network diagram

A chart showing the order of the tasks involved in completing a project, containing information about the times taken to complete the tasks

Nodes

Positions in a network diagram which indicate the start and finish times of a task

Total float

The time by which a task can be delayed without affecting the project

Asset stripping

The practice of buying businesses and breaking them up. The profitable parts are sold for cash and the rest are closed down.

Evidence-based decision making

An approach to decision making that involves gathering information and using a systematic and rational approach to reach a conclusion

Long term

The time period where decisions have an impact on the vision, mission and objectives of a business - typically longer than five years

Short term

The time period where decisions only have an impact on the operational activities of a business - typically less than five years

Strategic decisions

Decisions concerning policy that can have a long-term impact on a business - can be risky

Subjective decision making

An approach to decision making where the personal options of the key decisions maker strongly influence the course of action chosen

Cultural dimensions

A set of characteristics that form the international context of business culture

Organisational, organisation, corporate or business culture

The values, attitudes, beliefs, meanings and norms that are shared by people and groups within an organisation

Strong culture

A culture where the values, beliefs and ways of working are deeply embedded within the business and its employees

External stakeholders

Groups outside a business with an interest in its activities

Internal stakeholders

Groups inside a business with an interest in its activities

Shareholder value

A measure of company performance that combines the size of dividends with the share price

Stakeholders

Those with an interest in the activities of a business

Corporate Social Responsibility (CSR)

A business assessing and taking responsibility for its effects on the environment and its impact on social welfare. It involves the idea that businesses bear a responsibility that stretches beyond their shareholders.

Ethical codes of practice

Statements about how employees in a business should behave in particular circumstances where ethical issues arise

Ethics

In the context of business ethics, consideration of the moral 'rights and wrongs' of a decision at an often strategic level, in accordance with the law, and a business' code of conduct in relationship to Corporate Social Responsibility'

Living wage

An hourly rate of pay based on the basic cost of living, set independently of government and updated annually

National Minimum Wage

The minimum pay per hour all workers are entitled to by law

Remuneration

The reward for work in the form of pay, salary or wages, including allowances and benefits, such as company cars, health insurance, pension, bonuses and non-cash incentives

Sanctions or Trade embargoes

Sanctions are restrictions imposed on trade or investment with the aim of influencing a policy change in another country. Trade embargoes can be included in sanctions, where commercial shipments are banned in and out of a particular country, or where an embargo is placed on a particular product.

Finance cost

Interest paid by a business on any borrowed money

Finance income

Interest received by a business on any money held in deposit accounts

Gearing ratios

Exploration of the capital structure of the business by comparing the proportions of capital raised by debt and equity

Profitability or performance ratios

Illustration of the relative probability of a business

Ratio analysis

A numerical approach to investigating accounts by comparing two related figures

Return on capital employed (ROCE)

The profit of a business as a percentage of the total amount of money used to generate it

Window dressing

The legal manipulation of accounts by a business to present a financial picture that is to its benefit

Labour productivity

Output per worker in a given time period

Labour retention

The number of employees that remain in a business over a period of time

Labour turnover

The rate at which staff leave a business

Rate of absenteeism

The number of staff who are absent as a percentage of the total workforce. It can be calculated for different periods of time eg daily or annually.

Organisational change

A process in which a large company or organisation changes its working methods or aims, for example in order to develop and deal with new situations or markets

Transformational leadership

Where new leadership such as a new CEO brings about change with the purpose of improving business performance

Management of change

The process of organising and introducing new methods of working within a business

Business continuity plan

Shows how a business will operate after a serious incident and how it expects to return to normal in the quickest time possible

Risk assessment

Identifying and evaluating the potential risks that may be involved in an activity that a business proposes to undertake, ensuring compliance with health and safety legislation

Risk mitigation plans

Identify, assess and prioritise risks and plan responses to deal with the impact of these risks on the operation of the business

Scenario planning

A strategic planning method designed to explore uncertainties, learn how to protect the business from their worst consequences and prepare how to exploit any opportunities that might present themselves

Succession planning

Identifying and developing people who have the potential to occupy key roles in a business in the future