IBDP BM Unit 1

business

An organization that provides goods/services, satisfying the needs/wants in a profitable/ non-profitable way

economic sector

all businesses within an economy that are involved in a similar activity (primary, secondary, tertiary, quaternary)

primary sector

extract raw materials (eg. farming, fishery, mining)

secondary sector

transforms raw materials into goods

tertiary sector

provision of services (eg. banking, education, retail stores)

quaternary sector

services involved with data, knowledge

human resources (HR)

manages personnel of organization

finance + accounting

manages the organization's money

marketing

identifies and meets the needs and wants of consumers

operations management (OM)

process of converting raw materials and components into goods

entrepreneurship

process of setting up a new business, a skillset that allows to combine FoPs to form an organization

entrpreneur

an individual willing to take the risk to create a new business

intrapreneur

entrepreneur, but within the organization

business plan

document that outlines the potential development of the business (idea, vision/mission statement, goal, 4 business functions)

private sector

organizations owned and controlled by individuals and businesses (eg. Apple, Netflix)

public sector

organizations owned and controlled by the government

liability

the extent to which you risk losing your personal possessions in case of business failure (limited and unlimited liability)

limited liability

a layer of protection for owner's personal assets

unlimited liability

owner's personal assets are at risk

sole traders

individuals who own and run their own business, start up costs/capital is obtained from personal savings and borrowings, no separate legal identity (unincorporated)

partnership

owned by 2-20 people that share risks and profits, where at least 1 partner must ave unlimited liability

sleeping/silent partner

gives money and takes their share, but don't run the business

limited liability companies

businesses owned by shareholders (publicly and privately held companies), it's incorporated

privately held company

shares owned by friends/family (can't be traded publicly on stock exchange) (eg. Mars, IKEA), permission needed from other shareholders to sell shares

publicly held company

shares held by general public (can be traded publicly on stock exchange) (eg. Amazon, Apple), permission not needed from other shareholders to sell shares

social enterprise

organization that has social well-being as its main goal, instead of making profits

for-profit social enterprise

revenue generating enterprises with social objectives at the core of their operations. they aim to make a surplus (revenue>costs) and use it to benefit society

private sector for-profit social enterprise

operates in a similar way to traditional for-profit businesses, but aims to make surplus instead of relying on donations to help society

public sector for-profit social enterprise

raises gov. revenues to provide essential services to society that may be inefficient and undesirable if left to private sector (same features as private sector companies)

cooperative

owners ('members') own and run it, they're employees of the organization. they aim to create value for members by operating in a socially responsible way, and all employees have a vote in decision-making

non-governmental organizations (NGOs)

operates in the private sector, provides goods/services normally expected from public sector (products may be under-provided by gov.) (eg. Greenpeace)

vision statement

an outline of an organization's aspirations in the distant future (eg. a picture of success for the business, 'to be the best student in the world'), usually doesn't change

mission statement

declaration of an organization's purpose (eg. the reason it exists, 'to study hard'), can be revised every once in a while

goals (vision statement)

what business wants to achieve in the long-term (what?)

objectives (mission statement)

clearly defined tasks that a business sets to achieve goals (what?)

strategies

medium to long-term plans, methods, approaches, and schemes used to achieve objectives (how?)

tactics

short-term to medium-term actions needed to be taken to enact its strategies

corporate strategy

determines the market in which the business operates (senior management)

generic strategy

determines methods of achieving competitive edge (middle management)

operational strategy

determines what company needs to do on day-to-day routine level and how to make corporate and generic strategies happen (junior management)

profit

difference between revenues and costs

growth

achieving an increase in sales revenue or market share, more growth-> more profit

shareholder value

earning profitable return for shareholders in a sustainable way that can be continued later on, more profitable-> more dividends

ethical objectives

moral principles that guide decision-making and strategy

evaluation of objectives

SMART (specific, measurable, achievable, relevant, time-specific) + SLAP (stakeholders (internal vs external costs/benefits), long/short-term, advantages/disadvantages, priorities (mission, vision))

corporate social responsibility (CSR)

consideration of ethical and environmental practice related to business activity

stakeholder

an individual/group/organization with a direct interest in and/or is affected by the activities and performance of a business (internal or external)

internal stakeholder

members of the organization (eg. employees, managers, shareholder) that have a direct interest in, and are affected by the activities and performance of the business

employees

tend to strive for improvements in pay (and other financial benefits), working conditions, job security, and opportunities for career progression

managers and directors

oversees daily operations (managers) and are senior executives who direct business operations on behalf of shareholders (directors). they're interested in profit maximization, job security and financial benefits, and long-term financial health of the company

shareholders

powerful stakeholder group due to their voting rights. they're interested in maximizing their dividends and achieving capital gains in the value of the shares

external stakeholder

not part of the business, but have a direct interest in, and are affected by the activities and performance of a business (eg. competitors, customers, suppliers, government)

supplier

provides business with stocks of raw material needed for production. interested in clients who pay bills on time, regular contracts with clients, and good working relationships with clients

financier

financial institution and individual investors who provide sources of finance for a firm, and they earn money by charging interest on amount of money borrowed by firm. they're interested in the ability of the firm to repay debts by generating profits and establishing long-term relations with firms

pressure groups

individuals with a common interest to seek to place demands on organizations to influence a change in behaviours. they're interests depend depends on the purpose of the pressure group

competitors

rival businesses of an organization. they're interested in innovation that arises from rivalry, responding to competitive threats, performance benchmarking

stakeholder conflict

inability of an organization to meet all its stakeholder objectives simultaneously

economies of scale (EoS)

average costs of production decrease as organization's size or output increases

diseconomies of scale (DoS)

an organization becomes too large, causing inefficiencies that result in an increase in average costs of production

purchasing EoS

large firms benefit from buying resources in bulk (discounts usually given)

marketing EoS

large firms benefit from selling in bulk, and high advertising costs can spread by large firms through using the same marketing campaign globally

risk-bearing EoS

diversifying product portfolio (spreading costs across wide range of operations)

conglomerate

corporation made of several different independent businesses (eg. Nestle)

managerial EoS

employing specialized and experienced managers to increase productivity

technical EoS

large firms use sophisticated capital and machinery to mass produce their goods, where equipment has high fixed costs, but they're spread over the output

financial EoS

large firms can borrow large sums of money at lower interest rates, less risky to financiers

specialization EoS

division of labour in the workforce, where specialists are responsible for one part of the production process, leading to higher productivity

internal EoS

occurs inside the firm and can be controlled by firm

external EoS

occurs outside the firm and can't be controlled by firm

technological progress

technological innovations increases productivity within an industry

improved transportation networks

globalized transportation networks allows firms to import raw materials and finished goods at lower costs

abundance of skilled labour

reduces costs of recruitment and training

regional specialization

certain locations/countries have established reputations for specializing in specific goods and services (they're able to charge premium price for their products) (eg. Hollywood is specialized in film production)

bureaucracy

too many procedures

complacency

taking shortcuts or not perform

business growth

increase in the size of the business (size can be measured in terms of market share, revenue, profit, workforce, and capital employed)

internal growth

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

external growth

occurs through dealing with outside organizations, usually in the form of alliances/mergers with other firms or through the acquisition of other businesses

merger

2/more firms agreed to form a new company with its own legal identity (A+B=AB)

acquisition

a company by a controlling interest in another firm with the permission/agreement of its board of directors (A+B=A)

takeover (hostile takeover)

when a company purchases a controlling stake in another company (publicly held) without permission and agreement of the company/board of directors

horizontal integration

a company grows its operations at the same level in an industry (eg. secondary sector company acquiring a secondary sector company)

vertical integration

a company simplifies its operations by taking direct ownership of various stages of its production (forward and backward)

backward integration

move the ownership control of its product to appoint earlier in the production process (eg. secondary sector company acquiring a primary sector company)

forward integration

Expands by gaining control of the distribution process and sale of its finished products (eg. secondary sector company acquiring a tertiary sector company)

lateral integration

when 2 businesses combine that have related goods in the same industry, don't compete directly with each other

synergy

cooperating > working individually, leads to higher productivity

redundancies

services aren't required, laying off people (firing) and paying them off

joint venture (JV)

2/more businesses split the costs risks control and rewards of a business project (A+B=C) (eg. ABC+NBC=hulu)

strategic alliance (SA)

2/more businesses cooperate in a business venture for mutual benefit, they share costs of product development, marketing, and operations, but remain independent organizations (A and B cooperate)

franchising

form of business ownership where a person/business by the license to trade using another firms name, logo, brand, and trademarks. agreement is between the franchisor (firm selling license) and the franchisee (entrepreneur buying the license) (eg. McDonald's)

multinational company (MNC)

organization that operates in 2/more countries, usually with the headquarters in the home country (eg. Apple, Coca Cola, Nike)

globalization

trend/process of integration of local economies into one global economy, where companies, organizations, and people think globally, but act locally

host country

nation that allows an MNC to set up in the country