IB Business Management Unit 1: Introduction to Business Management

Definitions of all key terms in IB Business Management: Introduction

Adding Value

practice of producing a good or service that is worth more than the cost of the resources used in the production process

Business

organizations involved in the production of goods and/or the provision of services

Consumers

are the people or organizations that actually use a product

Customers

are the people or organizations that buy the product

Entrepreneurs

the people who manage organize and plan resources needed for business activity in pursuit of organizational objectives. They are risk takers who exploit business opportunities in return for profits

Entrepreneurship

refers to the collective knowledge, skills, and experiences of entrepreneurs

Goods

Physical products produced and sold to customers. Example: laptops, books, perfumes, etc.

Needs

basic items that a person must have to survive. Example: food, water, shelter, clothing, healthcare, education.

Primary Sector

business involved in the harvesting, extraction, or conversion of natural resources. Example: farming, mining, fishing, etc.

Production

process of creating goods and/or services, adding value in the process.

Quaternary Sector

sub-category of tertiary sector. businesses in this sector are involved in intellectual and knowledge-based activities that generate and share information. Example: research organizations, think tanks, etc.

Secondary Sector

businesses involved in the construction and manufacturing of products. Example: toy-making, clothing brands, tech companies.

Services

intangible products sold to customers. Example: airline services, restaurants, schools, hospitals, etc.

Tertiary Sector

businesses involved in the provision of services to customers

Wants

people’s desires. i.e. things they would like to have. Example: jewelry, toys, vacations, etc.

Transformation Process

the process that all businesses are involved in. the process of converting inputs into outputs

Factors of Production

inputs of a business. They are land, labour, capital, and enterprise.

Factor of Production: Land

refers to all natural resources used in production. Example: gold, oil, fish, minerals. Includes physical land as well.

Factor of Production: Labour

refers to humans doing work. Includes skilled and unskilled labour.

Factor of Production: Capital

Non-natural resources used in production. Example: machinery, equipment, delivery vehicles, buildings, etc.

Factor of Production: Enterprise

set of skills that drives innovation. includes risk-taking, initiative, determination and more. this is what the most successful entrepreneurs have.

Brand

a name, design, logo, symbol or indeed anything that makes a product recognizable and distinguishes it from the competition in the eyes of the customer.

Unique Selling Proposition (USP)

a feature of a product that makes it different from competitors, for the customer.

Market Forces

the forces of supply and demand which determine the price of a product and the quantity bought and sold in a market.

Opportunity Cost

the cost of forgoing the next best alternative

Capital Growth

increase in the value of assets or investments

Cooperatives

for-profit social enterprises set up, owned, and run by their members, who might be employees and/or customers

Company/ Corporation

refers to a limited liability business that is owned by shareholders. A certificate of incorporation gives the company a separate legal identity from its owners.

Deed Of Partnership

legal contract signed by the owners of a partnership. The formal deeds specify the name and responsibilities of each partner

Incorporation

refers to the legal difference between the owners of a company and the business itself. This ensures that the owners are protected by limited liability

Initial Public Offering (IPO)

occurs when a business sells all or part of its business to shareholders on a public stock exchange for the first time. This changes the legal status of the business to publicly held company

Limited Liability

restriction on the amount of money that owners of a company can lose if the business goes bankrupt, i.e. shareholders cannot loser more than the amount they invested in the company

Non-governmental Organization (NGOs)

private sector not-for-profit social enterprises that operate for the benefit of others rather than primarily aiming to earn a profit.

Partnerships

are a type of private sector business entity owned by 2-20 people (a.k.a partners). They share the responsibilities and burdens of running and owning the business.

Private Sector

part of the economy that is run by private individuals and businesses, not the government.

Privately Held Company

business owned by shareholders with limited liability but whose share cannot be bought by or sold to the general public on a stock exchange.

Publicly Held Company

incorporated, limited liability business that allows shareholders to buy and sell share in the company via a public stock exchange.

Public Sector

part of the economy controlled by the government.

Sole Trader

self-employed person who runs the business on his/her/their own. Owner runs & controls his business and is completely responsible for it’s success (profits) or failure (unlimited liability).

Social Enterprises

revenue-generating businesses with social objective at the core of their operations. They can be for-profit or non-profit business entities, but all profits or surpluses must be reinvested for that social purpose rather than being distributed to shareholders and owners.

Stock Exchange

a marketplace for trading stocks and share of publicly held companies (or public limited companies).

Unlimited Liability

a feature of sole traders and ordinary partnership who are legally liable or responsible for all monies owed to their creditor even if this means that they have to sell their personal possessions to pay for their debts.

Shareholder

a person, company, or institution that holds 1 or more shares of a company’s stock.

Mission Statement

sets out the overall purpose of a business

Vision Statement

sets out what the business wants to be in the future.

Strategy

a long-term plan to achieve the objective of a business. It involves a consider commitment of resources.

Objective

is a target that is measurable and has a given timescale

Functional Objective

target for one of the functions of the business (marketing, finance, operations, or human resources)

Corporate Objective

target set for the business as a whole

Labor Productivity

measures the output per time period of an employee

Profits

difference between total revenue and total costs in a given time period. Total Revenue - Total Cost = profit

Market Share

measures a business’ sales as a percentage of the total market sales.

Cash Flow

is the movement of cash into and out of a business over a time period

Diversification

occurs when a business offers new products and services in new markets.

Ethical Objectives

are those that are based on moral principles

Corporate Social Responsibility

an approach under which businesses consider the interests of all group in society as a central part of their decision-making.

Tactics

short-term plans that implement the strategy.

Ethical Behavior

behavior that is thought to be morally correct and not necessarily the most profitable

Ethics

moral principles that can shape the way a business behaves.

Budget

spending plan based on income and expenses.

Cash Cycle

time that elapses between outflow of cash to pay for production resources and inflow of cash following product sales

Stakeholders

are groups or individuals who have an interest in a business

Internal Stakeholders

are individuals and groups within a business

External Stakeholders

are individuals and groups outside a business

Economies of Scale

occur when unit costs fall as the scale of production increases

Diseconomies of Scale

occur when unit costs increase as the scale of production increases.

Mergers

a.k.a mergers and acquisition (M&As) are the combining of 2 or more firms into a single business, following an agreement by the firms’ management teams and shareholders.

Takeover

occurs when one company acquires complete control of another by purchasing more than 50 percent of its share capital against the will of the target company’s board.

Joint Venture

occurs when two or more businesses set up a new business with its own legal identity to collaborate on specific activities.

Strategic Alliance

occurs when two ore more businesses collaborate on specific activities but remain fully independent of each other

Franchise

occurs when a franchisor sells the right to use or sell his or her products to a franchisee.

Price War

occurs when two or more companies repeatedly lower their product prices to steal customers from competitors or gain market share. It is a form of market competition.

Multinational Company (MNC)

a business organization which has it’s headquarters in one country but has operations in a range of different countries