Business Management Topic 1 | Quizlet

Adding value

The process of producing a particular good or service that is worth more than the cost of the resources used to produce it.

Business

A decision-making organization established to produce goods and/or provide services.

Consumers

The individuals or organizations that actually use a product.

Customers

The individuals or organizations that purchase a product.

Entrepreneurs

The individuals who take risks in overseeing a business organization or business venture, usually in pursuit of profit.

Entrepreneurship

The knowledge, skills and experiences of individuals who have the capability to manage the overall production process.

Factors of production

The collective term for the resources used in the production process, i.e. land, labour, capital and entrepreneurship.

Finance and accounts

Function of an organization responsible for ensuring that the business has sufficient funds in order to conduct its daily operations.

Goods

These are physical (tangible) products, such as cars, clothes, flowers, food, furniture, smartphones, and toys.

Human resources (HR)

The business function that handles all aspects relate to the workforce, involving all aspects of a firm's operations related to staff (personnel) within an organization.

Marketing

Business function of identifying the needs and wants of customers so that the organization can provide goods and services to meet these requirements and desires, usually in a profitable way.

Needs

The basic necessities that an individual must have in order to survive, such as food, water, and shelter.

Operations (or operations management)

The business function referring to the process of making goods and providing services from the available resources of a business to meet the needs and wants of its customers.

Primary sector

Business activity involved with the extraction of natural resources, e.g. fishing, mining and agriculture.

Production

The process of creating goods and/or services using the factors of production available to the business.

Quaternary sector

Business activity involving the creation or sharing of knowledge and information.

Secondary sector

Business activity involved with the manufacturing or construction of finished products.

Services

Intangible products, such as haircuts, tourism, public transport, banking, insurance education, and healthcare.

Tertiary sector

Business activity that involves providing services to customers, i.e. consumers and business clients.

Value added

The numerical difference between the cost of factor inputs in the production process and the price that the final output is sold for.

Wants

These are the desires of individual customers, i.e., the goods and services that they would like to have (rather than things they need to survive), such as a new smartphone, a family holiday in an overseas location, fresh flowers, or jewellery.

Companies (corporations)

This refers to any business organisation that is owned by its shareholders, who have limited liability. They comprise of privately held companies and publicly held companies.

Cooperatives

These are for-profit social enterprises owned and run by their members (usually employees, managers or customers). Their primary goal is to create value for their member-owners.

Deed of Partnership

A legally binding contract that all joint owners of a partnership sign, stating the purpose of the business, the formal rights of the partners, and how any profits should be split.

Incorporation (incorporated)

This means that there is a legal difference between the owners of a company (the shareholders) and the business entity itself. This ensures that the owners are protected by limited liability.

Initial public offering (IPO)

An IPO occurs when an organization 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 a publicly held company.

Limited liability

This legal status of a business enables its shareholders (business owners) not to be liable for more than the original amount of money invested in the business.

Limited partnership

This is a special type of partnership where one or more partners contribute capital and enjoy a share of the profits but do not participate in the running of the business. However, at least one partner must still have unlimited liability.

Non-governmental organizations (NGOs)

A type of non-profit organization (NPO) operating in the private sector of the economy for the benefit of others in society (rather than for shareholders).

Partnership

A business alliance consisting of between 2 and 20 individual owners who are jointly responsible for the business (although this number can vary between countries).

Private sector

This section of the economy is made up of businesses that are owned by individuals or groups of individuals, rather than by the government.

Privately held company

This is a business owned by shareholders with limited liability, but the shares cannot be traded on a public Stock Exchange.

Publicly held company

A joint-stock company owned by shareholders. The shares in a publicly held company can be bought and sold by the general public, without prior approval of existing owners.

Public sector

Businesses in this section of the economy are run and owned by the government in order to provide essential services for society as a whole, e.g., education and healthcare services.

Sleeping partner

Also known as a silent partner, this is an investor in a partnership but who does not get involved in the daily running and management of the organization.

Social enterprises

These organizations are revenue-generating businesses with community (social) objectives at the core of their operations in order to benefit the general public, rather than private shareholders.

Sole trader (sole proprietor)

An organization which is owned by a single entrepreneur who has exclusive responsibility for the running of the business.

Stock exchange

This is any marketplace where the general public and other companies can buy and/or sell shares.

Unlimited liability

This means the owner(s) of a business (such as a sole trader or partner) is personally liable for any business debts, even if this requires the debts to be settled by selling off personal assets.

Corporate social responsibility (CSR)

This is an organization's decisions and actions that impact society in a positive way.

Ethical code of practice

The formal documented philosophies and values of a business, so that stakeholders know what is considered acceptable or not acceptable within the organization.

Ethical objectives

Organizational goals based on moral guidelines that determine decision-making.

Ethics

These are moral guidelines or codes of practice which govern good organizational behaviour.

Mission statement

A succinct and motivating declaration of an organization's purpose of existence, who they are, and what they do.

Objectives

These are the clearly defined targets of a business in order to achieve its aims. They are often based on the SMART acronym - specific, measurable, agreed, realistic and time specific.

SMART objectives

Peter Drucker's framework for setting organization objectives, which should be specific, measurable, agreed (or achievable), realistic (or relevant), and time bound.

Strategic objectives

The long-term goals of a business, which could include profit maximization, growth, and increased market share.

Strategies

The various long-term plans of action and approaches used by a business to achieve its goals.

Tactic

The short-term methods, often on a daily basis, used to implement business strategy.

Tactical objectives

The relatively short-term and specific goals of a business. These targets are used to guide the daily functioning of the organization.

Vision statement

An inspiring declaration of what an organization ultimately strives to be, or to achieve, in the distant future.

Arbitration

Method of stakeholder conflict resolution with all stakeholder groups in conflict agreeing to accept the decision or judgment of the independent arbitrator.

Competitors

These are the firm's rivals, which operate in the same industry and contest for the same customers.

Conciliation

Method of stakeholder conflict resolution which aims to align the incompatible interests of different stakeholder groups by helping different parties to better understand each other's interests.

Conflict

This refers to the mutually exclusive and incompatible interests of different stakeholder groups. If this is not managed, it often leads to protracted disagreements, disputes, and arguments in the workplace.

Customers

These are the firm's clients, individuals and other businesses, who purchase the organization's goods and/or services. Their interests include competitive prices, fit-for-purpose products and overall value for money.

Directors

Also known as or executives, this group of senior managers who run a company on behalf of the owners of the company.

Employees

These are the workers within an organization. Their interests include: job security, a competitive remuneration package, a safe working environment, and opportunities for career development.

External stakeholders

Stakeholder groups that are not directly involved in the running of an organization but have a direct interest in its operations.

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

The ruling authority within a state or nation. The government, as an external stakeholder, is interested in businesses complying with the laws of the country, such as employment legislation.

Internal stakeholders

These stakeholders are part of the organization, such as employees, managers, directors, and shareholders.

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 hired to be responsible for overseeing certain functions, operations, or departments within an organization.

Pressure groups

Individuals who come together or organizations that are set up for a common concern. They aim to influence government and public opinion in order to create the desired social change.

Shareholders (stockholders)

The people or organizations that have shares in a company. Their interest is financial, i.e. regular dividends and a higher share price.

Stakeholder conflict

Refers to differences in the varying needs, perspectives, and priorities of the numerous stakeholder groups of an organization.

Stakeholder mapping

A business management model used to determine the relative interest of stakeholders and their level of influence (or power) on an organization.

Stakeholders

The individuals, organizations, or groups with a vested interest in the actions and outcomes of a specific organization. They are directly affected by the performance of the business.

Suppliers

Organizations that provide the goods and support services for other businesses. Their interests include receiving regular orders and receiving payments from their business customers on time.

Acquisition

A method of external growth that involves one company buying a majority stake in another company with the agreement and approval of the target company's Board of Directors.

Backwards vertical integration

A method of external growth that involves a company buying another company that is further away from the consumer in the chain of production.

Conglomerate

This form of external growth occurs when two or more businesses in unrelated industries integrate through a merger, acquisition, or takeover.

Demerger

This occurs when a company sells off a part of its business, thereby separating into two or more separate entities. This often happens due to conflicts and inefficiencies of two or more firms previously in a merger agreement, such as culture clashes.

Diseconomies of scale

Growth that is excessive results in inefficiencies and higher average costs of production, perhaps due to problems such as miscommunication, misunderstandings, and poor management of resources.

Economies of scale

These are cost-saving benefits enjoyed by a business as it increases the size of its operations, i.e. lower average costs (the cost per unit).

External economies of scale

Category of economies of scale that occurs when a firm's average cost of production falls as the industry grows, i.e., all firms in the industry benefit.

External diseconomies of scale

This occurs when an individual firm has higher cost per unit of output due to factors beyond its control as the industry as a whole grows.

External growth

Also known as inorganic growth, this takes place when an organization requires the support of a partner organizations for its growth.

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

This external growth method occurs when one company buys another business that is closer to the consumer in the chain of production.

Franchise

This growth strategy involves the right to trade using another company's products, brand name and corporate logo.

Franchising

A growth method that involves two parties, with the franchisor giving the licensing rights to a franchisee to sell goods and services using the franchisor's brands and products.

Horizontal integration

This external growth strategy occurs when a merger, acquisition, or takeover takes place between two or more companies operating within the same industry (thereby reducing competition).

Internal diseconomies of scale

Higher unit costs of production that occur due to internal problems of mismanagement as a business organization grows.

Internal economies of scale

Category of economies of scale that occurs for and within a particular organization (rather than the industry in which it operates) as it grows in size.

Internal growth

Also known as organic growth, this takes place when an organization expands without the help of an external partner firm.

Joint venture

An external growth method that involves two or more organizations agreeing to create a new business entity, usually for a finite period of time.

Lateral integration

An external growth method that involves two or more firms in a merger, acquisition, or takeover that have similar operations but do not directly compete with each other.

Managerial economies of scale

Larger businesses can afford to hire specialist functional managers, thus improving the organization's efficiency and productivity.

Marketing economies of scale

Larger businesses can spread their fixed costs of marketing by promoting and advertising a greater range of brands and products.

Merger

This form of external growth involves two or more companies agreeing to form a single, larger company thereby benefiting from operating on a larger scale.

Optimal output level

The level of output where the average cost of production is at its lowest value, so at this level of output, profit is maximized.

Purchasing economies of scale

Larger firms can gain huge cost savings by buying vast quantities of stocks (raw materials, components, semi-finished goods and finished goods).

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

These are formed when two or more organizations join together to benefit from external growth without having to set up a new separate legal entity.

Synergy

Often referred to as "1 + 1 = 3", this is a key benefit of growth which occurs when the whole is greater than the sum of the individual parts. A larger company, with synergy, through a merger, acquisition, or takeover creates greater levels of output and improved efficiency.

Takeover

Also referred to as hostile takeover) occurs when a company buys a controlling interest in another firm without the prior agreement or approval of the target company's Board of Directors.

Target company

The business that is the focus of being bought out by the purchasing company in an acquisition or takeover.