Unit 1: Introduction to Business management

NEW SPEC

Adding value

A process through which a business increases the worth of the resources included in production so that customers perceive the product to be worth more than the cost of the inputs

Non-governmental organization (NGO)

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

Partnerships

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

Private sector

Part of the economy run by private individuals and businesses, rather than by the government.

Privately held company

a business owned by shareholders with limited liability but whose shares cannot be bought by or sold to the general public on a Stock Exchange.

Publicly held company

an incorporated limited liability business that allows shareholders to buy and sell shares in the company via a public stock exchange

Public sector

the part of an economy that is controlled by the government.

Sole trader

a self-employed person who runs and controls the business and is the sole person held responsible for its success (profits) or failure (unlimited liability)

Social enterprise

Revenue-generating businesses with social objectives at the core of their operations. Surplus (profit) is maintained within the organisation and reinvested for future growth.

Businesses

commercial establishments that attempt to earn profits for their owners by offering goods and services for sale

Consumers

The people or organisations that use a product

Customer

a person or organization that buys goods or services from a store or business.

Entrepreneur

a person who organizes and operates a business or businesses, taking on greater than normal financial risks in order to do so.

Goods

the physical objects that someone produces

Needs

Basic requirements for human survival

Primary Sector

The portion of the economy concerned with the direct extraction of materials from Earth's surface, generally through agriculture, although sometimes by mining, fishing, and forestry.

Production

The process of creating goods and services

Quaternary Sector

a way to describe a knowledge-based part of the economy which typically includes services such as information generation and sharing, information technology, consultation, education, research and development, financial planning, and other knowledge-based services.

Secondary Sector

the part of the economy that transforms raw materials into manufactured goods

Services

Intangible products sold to customers such as services provided by airlines, restaurants, cinemas etc.

Tertiary Sector

the part of the economy that involves services rather than goods

Wants

Desires that can be satisfied by consuming a good or service

Cooperatives

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

Company (corporation)

A business that is owned by shareholders. It has been issued a certificate of incorporation, giving it a separate legal identity from its owners.

Deed of partnership

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

Incorporation

means that there is a 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)

the first time a company issues stock that may be bought by the general public

Limited liability

A form of business ownership in which the owners are liable only up to the amount of their individual investments.

Stock exchange

\n a market for buying and selling stock

Unlimited liability

A feature of sole traders and ordinary partnerships who are legally liable for all monies owed to their creditors, even if this means that they have to sell their personal possessions to pay for their debts.

Corporate Social Responsibility (CSR)

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

Ethical code of practice

The documented beliefs and philosophies of an organization.

Ethical objectives

A business' goals that relate to fair business practice or moral guidelines and make a positive contribution to the business' reputation.

Ethics

Moral principles that guide decision making and business strategy. 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 organisation strives to achieve. Goals of the organisation such as growth, profit etc

Strategic Objectives

Longer-term goals of a business, such as profit maximization, growth, market standing and an improved corporate image.

Strategies

Plans of action for achieving goals and objectives.

Tactical Objectives

short-term goals that affect a section of the organization

Tactics

Short-term plans of action that firms use to achieve their objectives

Vision Statement

expresses what the organization should become, where it wants to go strategically

Conflict

refers to situations where stakeholders have disputes or differences regarding issues or matters.

Directors

The senior members of staff who have been elected by shareholders of a company to run the company on their behalf

Employees

the staff of an organisation.

External Stakeholders

individuals or organisations not part of the business but have a direct interest in its activities and performance.

Financiers

Financial institutions (such as banks) and individual investors who provide source of finance for businesses. They are interested in the organization's ability to generate profits and to repay debts.

Government

refers to the ruling authority within a state or a country.

Internal Stakeholders

People who work for or own the business such as employees, directors, and stockholders

Local community

The general public and local businesses that have a direct interest in the activities of the organization. They are interested in the firm's ability to create jobs and to operate in a socially responsible way.

Managers

The people responsible for supervising the use of an organization's resources to meet its goals

Pressure groups

a group that tries to influence public policy in the interest of a particular cause.

Stakeholder conflict

When different stakeholder groups have different aims and objectives, which can be difficult for a business to satisfy at the same time.

Stakeholder mapping

A model that assesses the relative interest of stakeholders and their relative power

Shareholders

The owners of a limited company. They buy shares which represent part ownership of a company.

Stakeholders

the people whose interests are affected by an organization's activities

Suppliers

individuals and organizations that provide an organization with the input resources it needs to produce goods and services

Acquisition

a method of external growth that involves one company buying a controlling interest in another company, with the agreement and approval of the target company's Board of Directors.

Average cost

cost per unit of output

Backward vertical integration

Occurs when a business amalgamates with a firm operating in an earlier stage of production, e.g. a car manufacturer acquires a supplier of tyres or other components.

Conglomerate

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

Demerger

Where a firm sells of a part/parts of its business to create separate firms.

Diseconomies of scale

increases in cost per unit when output increases

Economies of scale

factors that cause a producer's average cost per unit to fall as output rises

External diseconomies of scale

An increase in the average costs of production as a firm grows due to factors beyond its control

External economies of scale

The cost benefits that all firms in the industry can enjoy when the industry expands

External Growth (inorganic growth)

occurs when a business grows by collaborating with, buying up or merging with another firm.

Financial economies of scale

Banks and other lenders charge lower interest to larger businesses for overdrafts, loans and mortgages as they represent lower risk.

Forward vertical integration

is a growth strategy that occurs with the amalgamation of a firm operating at a later stage in the production process, e.g. a book publisher merges with a book retailer.

Franchising

A contractual agreement between a franchisor and a franchisee that allows the franchisee to operate a business using a name and format developed and supported by the franchisor.

Horizontal Integration

An external growth strategy that occurs when a business amalgamates with a firm operating in the same stage of production.

Internal diseconomies of scale

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

Internal economies of scale

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

Internal Growth (organic growth)

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

Joint venture

A growth strategy that combines the contributions and responsibilities of two different organizations in a shared project by forming a separate legal enterprise.

Lateral integration

refers to external growth of firms that have similar operations but do not directly compete with each other, such as PepsiCo acquiring Quakers Oats Company.

Marketing economies of scale

A situation where larger firms are able to lower the unit cost of advertising and promotion perhaps through access to more effective marketing media.

Merger

Combination of two or more companies into a single firm

Optimum level of output

The most efficient scale of operation for a business which occurs at the level of output where average costs of production are minimised.

Purchaser

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

Purchasing economies of scale

A reduction in unit costs as a result of buying in large quantities; these are sometimes called buying economies of scale.

Risk-bearing economies of scale

Large businesses can bear greater risks than smaller ones due to a greater product portfolio. Hence, inefficiencies will harm smaller firms to a greater extent.

Specialization economies of scale

Larger firms can afford to hire and train specialist workers, thus helping to boost output, productivity and efficiency (thereby cutting average costs of production).

Strategic alliances

agreements among two or more independent firms to cooperate for the purpose of achieving common goals such as a competitive advantage or customer value creation

Synergy

A benefit of growth, which occurs when the whole is greater than the sum of the individual parts when two or more business operations are combined.

Takeover

Occurs when one business buys a controlling interest in another

target company

a company that another company wants to buy

Technical economies of scale

Cost savings by greater use of large-scale mechanical processes and specialist machinery, e.g. mass production techniques.

Vertical Integration

takes place between businesses that are at different stages of production

Gross Domestic Product (GDP)

The sum total of the value of all the goods and services produced in a nation

Host country

Any nation which allows a multinational company to set up in its country

Multinational corporation

An organisation that operates on two or more countries, with its head office usually based in the home country.

Protectionist policies

Measures imposed by a country to reduce the competitiveness of imports, such as tariffs (import taxes), quotas, and restrictive trade practices.