Unit 1 - Intro to Bus Mgt

Adding Value

The practice of producing a good or service that is more than the cost of the resources used in the production processes.

Businesses

Organisations involved in the production of goods and/or the provision of services.

Consumers

The people or organizations that actually use the product.

Customers

The people or organizations that buy the product.

Entrepreneur

An individual who plans, organizes, and manages a business, taking on financial risks in doing so.

Entrepreneurship

The management, organization, and planning for the other 3 factors of production.

Factors of Production

• Land: Natural resources used in production.

• Labor: Human effort applied in production.

• Capital: Tools, machinery, and equipment used in production.

Goods

Physical products produced and sold to customers such as laptops, books, toys…

Needs

The basic necessities that a person must have to survive. ex. food, water, shelter, and clothing.

Primary Sector

A business involved in the cultivation or extraction of natural resources, ex. farming, mining, fishing…

Production

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

Quaternary Sector

A sub-category of the tertiary sector, where businesses are involved in intellectual and knowledge-based activities, that generate and share information ex. research organisations, consultants.

Secondary Sector

Businesses concerned with the construction and manufacturing of products.

Services

Intangible products sold to customers, ex. education, healthcare, cinemas…

Tertiary Sector

Businesses involved with the provision of services to customers.

Wants

People’s desires; the things they would like to have, ex. new clothes, phones, holidays…

Cooperatives

For-profit social enterprises set up, owned, and run by their members, who could be employees and/or customers.

Company (or corporation)

Limited liability business that is owned by shareholders.

Certificate of Incorporation

Legal document; gives company a separate legal identity from it’s shareholders (owners).

Deed of Partnership

The legal contracts signed by the owners of a partnership. The formal deeds specify the name and responsibilities of each partner, and their proportion of any profits or losses.

Incorporation

Means that there is no 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 it’s business to shareholders on a public stock exchange for the first time. Changes the legal status of a business to a publicly-held company.

Limited Liability

A restriction on the amount of money that owners of a company can lose if the business goes bankrupt. (Shareholders can’t lose more than the amount of money they invested).

Non-Governmental Organizations (NGO’s)

Private sector not-for-profit social enterprises that operate for the benefit of others rather than primarily trying to earn profit.

Partnerships

A type of private sector business entity owned by 2-20 people (partners). They share the burdens of running and owning their business.

Private Sector

The part of the economy run by private individuals and businesses, rather than by the government. Ex. sole traders, partnerships, privately held companies, and publicly held companies.

Privately Held Company

Business owned by shareholders with limited liability, but whose shares cannot be bought by or sold to the public on the stock exchange.

Publicly Held Company

An incorporated limited liability business that allows shareholders to buy and sell shares of the company on the public stock exchange.

Public Sector

The part of the economy controlled by the government. Ex. state healthcare and education services, social housing, national defense.

Social Enterprise

Revenue-generating business with social objectives at the core of their operations. Can be for-profit or non-profit business entities.

All profits are called surplus, and get reinvested into the company to fulfil it’s social goals. (Doesn’t go to shareholders.)

Stock Exchange

A marketplace for trading stocks and shares for publicly held companies (or public limited companies).

Unlimited Liability

A feature of sole traders and ordinary partnerships who are legally liable or responsible for all money owed to their creditors, even if they need to sell personal possessions to pay off their debts.

Corporate Social Responsibility (CSR)

The conscientious consideration of ethical and environmental practice related to business activity. A business that adopts this acts responsibly and morally towards all stakeholder groups, as well as the well-being of society as a whole.

Ethical Code of Practice

Documented beliefs and philosophies of an organisation, so that people know what is considered acceptable or not within an organisation.

Ethical Objectives

Organizational goals based on moral guidelines, determined by business and/or society, which direct and determine decision-making.

Ethics

The moral principles that guide decision-making and business strategy. Morals are concerned with what is considered to be right or wrong, from society’s point of view.

Mission Statement

The declaration of an organization’s overall purpose. It forms the foundation for setting the objectives of a business.

Objectives

Specify what an organization strives to achieve. These are the goals of an organization, ex. growth, profit, and ethical objectives.

Strategic Objectives

The longer-term goals of a business such as profit-maximization, growth, increased market share.

Strategies

The various plans of action that businesses use to achieve their targets. They are long-term plans of the organization as a whole.

Tactical Objectives

Short-term goals that affect a unit of the organization. They are specific goals that guide the daily functioning of certain departments or operations.

Tactics

The short-term plans of action that businesses use to achieve their objectives.

Vision Statement

An organizations’ long-term aspirations; where the business ultimately wants to be.

Conflict

Refers to situations where stakeholders gace disputes regarding certain issues or matters. This can lead to arguments and tension between various stakeholder groups.

Directors

The senior executives who have been elected by the company’s shareholders to address their business activities on behalf of their owners.

Employees

The staff of a business. They have a stake (interest and involvements) in the organisation they work for.

External Stakeholders

Individuals and organizations not part of the business, but have a direct interest in it’s activities and performance. Ex. customers, suppliers.

Financiers

FInancial institutions and individual investors who provide sources of finance for an organization. —> Interested in a business’ ability to generate profits and repay debts.

Government

The ruling authority within a state or country. External stakeholder group; they are interested in businesses complying with laws.

Internal Stakeholders

Members of an organization; employees, managers, directors, and shareholders (owners) of the business. —> within an organization.

Local Community

The general public and local businesses that have a direct interest in the activities of an organization. Want creation of jobs and CSR businesses.

Managers

Internal group of stakeholder; responsible for overseeing the daily operations of a business.

Pressure Groups

Consist of individuals with a common concern (ex. environmental protection), who seek to place demands on organizations to act in a particular way, or to influence a change in their behaviour.

Stakeholder Conflict

The differences in the varying needs and priorities of the various stakeholder groups of a business.

Stakeholder Mapping

A model that assesses the relative interest of stakeholders and their relative influence/power on a business.

Shareholders

The owners of a limited liability company. Shares in a company can be held by individuals and/or other organizations.

Stakeholders

Individuals or organizations with a direct interest (stake) in the activities and performance of a business, ex. shareholders, customers, employees, suppliers…

Suppliers

External stakeholder group that provide a business with stocks of raw materials, or other goods needed for production. They can also provide services, ex. maintenance or technical support.

Acquisition

A method of external growth that involves one company buying a controlling share in another company; with the approval and agreement of the target company’s board of directors.

Average Cost

The cost per unit of output.

Backward Vertical Integration

Occurs when a business amalgamates with a firm operating in an earlier stage of production, ex. car manufacturer takes over tire supplier.

Conglomerates

Businesses that provide a diversified range of products and operate in a range of different industries.

Demerger

Occurs when a company sells off a part of it’s business, thereby separating into 2 or more businesses. Usually happens due to conflicts, inefficiencies and incompatibilities following an earlier merger of 2 companies.

Diseconomies of Scale

The cost disadvantages of growth. Average costs are likely to eventually rise as a firm grows due to lack of control, coordination, and communication.

Economies of Scale

Refers to lower average costs of production, as a firm operates on a larger scale due to gains in productive efficiency. Ex. easier and cheaper access to sources of finance.

External Diseconomies of Scale

Occur due to factors beyond the control of business; cause average costs of production to increase as the industry grows.

External Economies of Scale

Occur when an organization’s average cost falls as the industry grows. Hence, all firms in the industry benefit.

External (inorganic) Growth

Occurs when a business grows by collaborating with, buying, or merging with other organisations.

Financial Economies of Scale

Cost savings made by large firms (ex.banks) because large firms represent less risk.

Forward Vertical Integration

Growth strategy occurs with the amalgamation of a firm’s operating at a later stage in the production process.

Franchising

An agreement between a franchisor selling it’s rights to other businesses (franchisee), to allow them to sell products under it’s corporate name, in return for a fee and royalty payements.

Horizontal Integration

External growth strategy; occurs when a business amalgamates with a firm operating in the same stage of production.

Internal Diseconomies of Scale

Occurs due to internal problems of mismanagement, causing average costs of production to increase as the firm grows.

Internal Economies of Scale

Occur within a particular organization (rather than the industry as a whole) as it grows in size.

Internal (organic) Growth

Occurs when a business grows using it’s own capabilities and resources to increase the scale of it’s operations and sales revenue.

Joint Venture

Growth strategy that combines the contributions and responsibilities of two or more different organisations in a shared project by creating a separate legal enterprise.

Lateral Integration

External growth of firms that have similar operations, but do not directly compete with each other.

Marketing Economies of Scale

Occur when larger businesses can afford to hire specialist managers, thereby improving the organization’s overall efficiency and productivity.

Merger

Form of external growth; where two or more firms agree to form a new organization, thereby losing their original identities.

Optimal Level of Output

The most efficient scale of operations for a business. This occurs at the level of output where the average costs of production are minimized.

Purchaser

The acquiring company in an acquisition or the buyer of another company in a takeover.

Purchasing Economies of Scale

Occur when larger organizations can gain huge cost-savings per unit by purchasing vast quantities of stocks (ex. raw materials).

Risk Bearing Economies of Scale

Occur when large firms can bear greater risks than smaller ones, due to having a greater product portfolio.

Specialization Economies of Scale

Occur when larger firms can afford to hire and train specialist workers, thus helping to boost their level of output, productivity, and efficiency.

Strategic Alliances

Formed when 2 or more organizations join together to benefit from external growth, without having to set up a new separate identity.

Synergy

A benefit of growth; occurs when the whole is greater than the sum of the individual parts when 2 or more business operations are combined. —> Creates greater output and improved efficiency.

(Hostile) Takeover

Occurs when a company buys a controlling interest in another firm, without prior agreement or approval from the target company’s board of directors.

Target Company

The organization that is purchased by another, in an acquisition or takeover deal.

Technical Economies of Scale

Cost savings by greater use of large-scale mechanical processes and specialist machinery, ex. mass production techniques that help reduce the average costs of production.

Vertical Integration

External growth strategy: takes place between businesses that are in different stages of production.

Gross Domestic Product (GDP)

Value of a country’s annual output/national income.

Host Country

Any nation that allows a multinational company to set up in it’s country.

Multi-National Company (MNC)

An organization that operates in 2 or more countries, with its head office (usually) based in it’s home country.

Protectionist Policies

Measures imposed by a country to reduce the competitiveness of imports, ex; tariffs, taxes, quotas, and restrictive trade practices.