Business Management HL

360-degree feedback

360-degree feedback is a process whereby an employee receives feedback from all of the people with whom the employee comes into contact (peers, customers, supervisor, and so on.). Because 360-degree feedback is so comprehensive (and expensive), it is typically done most often with senior members of an organization.

Above-the-line promotion

This refers to the various forms of promotion, such as television and radio advertising, print advertising in newspapers and magazines, and so on, that are aimed at mass or large audiences. Above-the-line promotion is generally not targeted.

Acquisition

See “Merger and acquisition”.

Arbitration

Refer to “Conciliation and arbitration”.

Artificial intelligence

Artificial intelligence is a broad term for the ability of computers or computerized robots to do things normally associated with intelligent beings, for example, tasks such as understanding speech, operating autonomous vehicles and determining optimal delivery routes.

Autocratic leadership

A type of leadership where the leader concentrates all, or virtually all, decision-making in his or her own hands; usually, autocratic leaders neither seek input from subordinates or value input that they might try to provide.

Bankruptcy

A legal process that insolvent or near-insolvent companies enter into when they can no longer pay their debts. While laws governing bankruptcy vary from country to country, when a company enters bankruptcy, a court will oversee the process of the company restructuring and repayment of its debts or, in extreme cases, overseeing the liquidation of the company’s assets and the disbursement of the funds therefrom.

Batch production

This is a method used to produce similar items in groups. Each group (batch) goes through a stage of production together before the whole batch moves onto the next stage together. This continues until the batch is completed.

Below-the-line promotion

Below-the-line promotion refers to the various types of promotion that are focused on specific segments or groups and do not rely on mass promotion techniques, such as radio and television. Some below-the-line promotional techniques include fliers, banners, SMS, emails, pamphlets, sponsorships and in-store promotions.

Benchmarking

Benchmarking is the practice of comparing a company’s performance and processes to the performance and processes of recognized industry leaders.

Big data

The term “big data” is used to describe extremely large data sets, whether structured or unstructured. Increasingly, as more computer devices are interconnected and more data are collected using devices such as sensors, organizations and businesses have large data sets, which are then analysed (see “Data analytics”) and used for predictive purposes (see “Data mining”).

Brand awareness

This refers to the degree to which consumers recognize a product by its name and special characteristics.

Brand development

This is the process of building brand awareness. Companies must plan, build and maintain their brand through careful nurturing of the company’s core values and of customers’ perceptions of the company and the brand.

Brand loyalty

Brand loyalty exists when customers continue to buy a particular brand even when alternative products or companies exist. For a company, a high degree of brand loyalty means customers will continue to buy their products or services.

Brand value

This is an estimation of how much a brand is worth. When a company develops their own brand, the brand value never appears on the company’s balance sheet. When a company purchases a brand, the value of the acquired brand is the purchase price minus the net book value (assets minus liabilities) of the acquired brand, and the brand value is recorded on the balance sheet as a form of goodwill.

Bureaucracy

Though most commonly used to refer to non-elected government officials, the term “bureaucracy” is also used when referring to any organization, including large businesses, that have multiple layers of authority and complex approval processes. Decision-making in bureaucracies is generally slower than in small organizations.

Capacity utilization

This is the percentage measure of the extent to which a business is using its productive capacity.

Capital expenditure

This refers to the expenditure for assets the useful life of which is more than one year (for example, property, plant and equipment).

Centralization

Centralization occurs when an organization concentrates authority for decision-making in the personnel at the main, or central, office of the business. Individuals not in the central office largely focus on implementing the decisions made in the central office.

Chain of command

The official hierarchy in an organization. The chain of command specifies who reports to whom, and who has direct authority over specific employees.

Collective bargaining

The process whereby the employees of an organization will work together when bargaining with management about wages and work conditions. Collective bargaining can occur in non-union organizations, though typically it occurs in organizations where the employees are members of a union or unions, and representatives of the union(s) assist with the collective bargaining.

Commission

A type of payment to an employee who is responsible for completing a sale or performing a service. Commissions are typically a percentage of the monetary value of the transaction. For example, real estate agents (estate agents) typically receive a commission based upon the sales value of a house they sell.

Competitive pricing

When a company bases the price for its goods or services upon what its competitors are charging for similar goods and services.

Conciliation and arbitration

Conciliation and arbitration can occur in the collective-bargaining process.

Conciliation is the agreement to rely on a third party—someone with expertise in dispute resolution.

Arbitration occurs when management and labour present their arguments and evidence to the third-party arbitrator, who then makes decisions, which are typically binding for some agreed-upon amount of time.

Contribution pricing

This is where the price charged for a good is based upon the variable costs of manufacturing it, plus some mark-up. The difference between the price charged and the variable costs per unit is a contribution to fixed costs.

Cooperatives

Businesses owned and operated by their members, who share the profits. Cooperatives are commonplace in agriculture but also exist in other industries.

Copyright

A form of intellectual property giving the author or creator the exclusive right to reproduce the work for a period time.

Corporate social responsibility (CSR)

The view that businesses should govern themselves and act in a way that enhances society and businesses’ stakeholders. Advocates of CSR believe that businesses should be held accountable for any of their actions that affect individuals, communities or the environment.

Cost centre

A department or unit of a company that has costs but does not contribute to the profits of the business because a cost centre does not generate revenue.

Cost-plus (mark-up) pricing

This is a method of pricing a product or service whereby all total direct costs and some allocation of indirect costs are added together, along with some mark-up—either a fixed or percentage amount—to determine the sales price to the customers.

Cradle-to-cradle design

A method for designing products that looks to natural processes and that attempts to use material in products that, when no longer needed, become the basis for future materials. In other words, rather than design products or buildings with materials that eventually will become non-decomposable or toxic waste, adherents of cradle-to-cradle design want to be able to reuse raw materials indefinitely.

Current assets

Cash and other assets that a business plans to convert into cash in less than one year (debtors and stock/inventory).

Current liabilities

Debts and other payables that are due within one year.

Customer loyalty programmes

Marketing strategies that reward customers, often with points or discounts, for repeat purchases from a store or of a brand. Such programmes encourage these customers to be repeat customers.

Cybercrime

An intentional malicious attack on one or more organization’s networks, computers or other related electronic systems and devices.

Cybersecurity

The process of defending networks, computers or other related electronic systems and devices from any type of malicious attack (cyberattack).

Data analytics

Data analytics involves working with either primary or secondary data and encompasses statistics, visualization and data mining to answer business questions. Increasingly, data are captured electronically, and computer systems are used to analyse the data.

Data mining

Data mining is mostly about predictive analytics. It is the process of finding broad trends, patterns and correlations within large data sets, and using those findings to predict future situations.

Database

A systematic constructed set of electronic data files that are organized in such a fashion that they can be easily opened, administered and updated. In a business setting, databases are typically about customers or transactions.

Decentralization

Decentralization occurs when an organization delegates authority for some decision-making to offices that are not the main or central offices. Authority for making decisions, other than the highest-level strategic decisions, are made by managers in regional or outlying offices, as the managers in these offices have a better sense of local conditions.

Defect rate

The percentage measure of the number or volume of product that fails to meet specified quality guidelines.

Delayering

Delayering occurs when a business removes levels of hierarchy in an organization.

Delegation

The process of assigning authority or responsibility over specific tasks from one person in an organization to someone lower down the organizational chart. When delegation occurs, the senior person remains accountable for the successful completion of the tasks over which authority was delegated.

Democratic leadership

A style of leadership whereby the leader actively solicits input from members of the organization and encourages their participation in decision-making.

Depreciation

Depreciation has two meanings.

The first meaning is used in a general sense: the loss of the value of a long-term asset over time.

The second meaning is more precise. It refers to the exact allocation in the financial statements of the cost of a long-term asset over the life of the asset.

Direct cost

A cost that is precisely traceable to a specific cost object, which may be a product, a service or a department. Examples of direct costs include direct labour, direct material, commissions, and so on.

Diseconomy of scale

The increase in per-unit production cost as a business grows.

Disruptive innovation

The least common form of innovation. This occurs when someone or some organization creates something so wholly new that it fundamentally disrupts the marketplace by creating a new market and disrupting an existing market.

Distribution channel

The network used to move a product from manufacturer to the end users. Companies may have multiple distribution channels, depending on the type of product and the needs of the customers.

Dynamic pricing

The practice of changing the price of a good or service according to the demand. Dynamic pricing is sometimes called “surge pricing” (as prices go up when and where a surge in demand occurs) or “time-based pricing” (as prices change according to the time of day or year).

Economy of scale

The reduction in per-unit production cost as a business grows.

Employees share-ownership schemes

Various types of programmes that award employees shares in the company or allow them to purchase shares in the company at a below-market price. The aim of these schemes is to enhance employee compensation and/or to make employees more loyal and more committed to the company, as they have some ownership in the company.

Empowerment

Empowerment is a management strategy. It is a long-term process whereby employees are developed and given the tools and resources to make decisions.

External growth

External growth occurs when a business expands by relying on external resources, typically by acquiring or forming some kind of relationship with another organization.

Fixed costs

Those costs that, during the relevant period, do not vary with output or activity.

Formative appraisal

The continuous appraisal of employees so that they can improve their performance. Formative appraisal is on-going, not just once a year or within some other periodic fixed time period.

Franchising

A type of business organization whereby a business (the franchisor) develops the product or service and develops its brand, and then sells the right to use the brand and its related product or service to other businesses (franchisees). To operate as a franchise, the franchisee typically pays, in addition to an original fee, some percentage of revenue and agrees to comply with operating and quality specifications set by the franchisor.

Fringe payments

Any kind of compensation that an employee receives other than their salary. Fringe payments might be the use of a company car, life insurance coverage or, in countries without a national health insurance, health insurance coverage.

Incremental innovation

Incremental innovation occurs when small and continuous improvements are made to the existing products, services or processes in a business.

Indirect cost/overhead

Costs that are used in multiple areas or activities of the business and, therefore, are not traceable to a specific cost object.

Induction

The process of welcoming new employees into a company and providing company-specific rules, regulations and training to increase the likelihood that they can successfully perform their job according to the expectations of the company.

Industrial democracy

In a broad sense, industrial democracy refers to the process of allowing workers to have a say in the decision-making of a company.

In a narrower sense, industrial democracy is co-determination, whereby several workers will actually sit on the board of directors of the company and assist in making highest-level organizational decisions.

Innovation

Innovation occurs when someone or some organization creates something new with value.

Insolvency

Insolvency has two meanings.

In a general sense, insolvency is when a company lacks the ability to pays its bills and debts owing to insufficient cash.

The second meaning is more precise and occurs when a company’s liabilities are greater than the value of its assets. That is, the company has a negative net worth. With either meaning, the implication is the same: the company cannot pay its debts.

Insourcing

This occurs when a company decides to have its own personnel perform tasks or operations previously performed by an external organization.

Intellectual property

Intellectual property is a widely used term to cover all types of intangible interests in work or inventions to which a company has proprietary right. The most common types of intellectual property are patents, copyrights and trademarks.

Internal growth

This occurs when a business gets larger by using its own resources, that is, it reinvests its profits in new products, new sales channels or more stores, and so on, in order to increase sales.

Internet of things (IoT)

This refers to the systems of computerized devices transmitting data to one another without human involvement.

Job enlargement

Job enlargement is a technique of job design whereby many tasks associated with a job are officially added to the job description. Unlike job enrichment, the additional tasks are horizontal in terms of skill and difficulty level.

Job enrichment

Job enrichment is a motivational technique that occurs when a job is given additional tasks that are challenging and are usually done by managers. These extra tasks make the work more interesting, lead to professional growth, and can eventually lead to higher pay or promotion.

Job production

When each product is produced individually, usually to unique specifications, and the production process begins when the previous job is completed.

Job rotation

When employees are regularly rotated into different positions in an organization, which allows the employees to gain experience and acquire new skills. Job rotation also gives employees a broader perspective about how the various positions fit into the whole organization.

Joint venture

When two business create, own and operate a third organization.

Just-in-time

This is traditionally a term used to describe an inventory management strategy that minimizes the amount of stock (inventory) that a company holds at any time. Raw materials are ordered and delivered immediately before their use. Today, the term is sometimes applied to manufacturing (just-in-time manufacturing), which is very similar to lean production. All stages of the manufacturing and sales process are done just-in-time, from arrival of raw materials and other inputs for manufacturing to shipment of finished goods.

Kaizen

A Japanese term that means “continuous improvement”. Kaizen is a philosophy, an approach where employees are encouraged always to seek better ways to improve processes and to implement those changes, even when they appear to be only minor adjustments. Collectively, continuous small improvements can have a significant impact.

Laissez-faire leadership

A style of leadership whereby the leader “lets go” of decision-making and allows members of the group or team to make decisions.

Lean production

A systematic approach to production that attempts to reduce waste at all stages of the production process. Reducing waste includes all elements of waste, such as materials, space, human effort, and so on. Lean production is the attempt to produce high-quality products that the customers want while using as few resources of any kind in doing so.

Levels of hierarchy

The number of layers of authority available within an organization.

Liquidity

The ability to convert an asset into cash without loss of value. Therefore, cash is a company’s most liquid asset, typically followed by debtors (accounts receivable) and stock (inventory). When an assertion is made such as “The company has a weak liquidity position,” the speaker is implying that, though the company has assets with value, it does not have much cash or many assets easily convertible into cash.

Lockouts

Lockouts are, in certain respects, the opposite of a strike. Lockouts occur when, as part of the negotiating process with labour, management locks up the company or factories so that the workers cannot enter the premises. With lockouts, even employees who wish to do their jobs or are happy enough with wages and working conditions cannot perform their jobs.

Loss leader

A product that is sold at a loss to attract customers into the store. For example, a company selling scores of products may advertise one popular item at a very low price (loss leader) with the hope that customers, while at the store, will purchase other products, which are priced to make a profit.

Margin of safety

This is the difference between the current or forecasted level of sales and, respectively, the current or forecasted break-even level of sales.

Market growth

The increase in the number of consumers who buy a product or service. It also refers to the increase in the number of products sold.

Market orientation

Market orientation is an approach by companies that seeks to determine what customers need and want, and then make, design and deliver products or services based upon the customers’ needs and wants.

Market share

Market share refers to the percentage of a given market controlled by a particular company or product. Market share can be calculated based upon either total sales value or, with high cost items, like automobiles, by volume (in terms of total units).

Mass customization

Because of computer-assisted design and advanced robotics, certain items manufactured today can have features of both mass manufacturing and individualization. For example, aluminum water bottles can be manufactured uniformly in terms of size, shape, volume (mass production), but then have different painting and finishing according to customer needs (individualized customization). Mass customization is, therefore, a combination of mass production and individualized customization.

Mass market

A market for goods that are produced in very large quantities. Because of economies of scale, products sold in mass markets are less expensive than goods produced for niche or highly specialized markets.

Mass/flow production

Mass/flow production is the production of large amounts of standardized products in an assembly line. Mass/flow production is a continuous process whereby a product moves on an assembly line from stage to stage. At each stage, a worker or robot will perform some operation on the semi-completed product, which will then flow to the next stage. Products are continuously being started and completed.

Matrix structure

When individuals in an organization report to more than one person in the fulfillment of the job duties. Matrix structures often exist in work environments where projects and project completion require the “signing off” by managers in different areas of the organization, each manager with a different type of expertise (marketing, operations, human resources, and so on).

Merger and acquisition

A merger occurs when two companies legally consolidate into one company; an acquisition occurs when one company purchases the shares of another company. Thus, a legal distinction exists between a merger and an acquisition, though, in practice, the two have very similar aims: the combination of the resources of the two companies.

Niche market

A small part of a larger market. In niche markets, customers have very specialized needs or wants that are different from the larger market. Often, products sold in niche markets are more expensive than in mass markets, precisely because products for niche markets are not suitable for mass production and sale.

Non-governmental organizations (NGOs)

These are organizations independent of government. They are non-profit and often have a humanitarian or social purpose. Though technically independent, NGOs often receive government funding and cooperate with government.

No-strike agreement

A provision in the collective bargaining agreement whereby the workers agree that they will not take strike or other industrial action against the company for a specified period of time, typically the life of the collective bargaining agreement.

Offshoring

Offshoring occurs when a business moves some, or virtually all, of its business operations to another country.

Off-the-job training

The process of training employees offsite, and the training is provided by an outside party. Off-the-job training could include seminars, short courses, university classes or experiential types of learning where employees are replicating tasks that they will eventually do as part of their job.

On-the-job training

The process of training employees during their normal working hours and onsite. On the-job training can include close supervision and mentorship as an employee performs tasks of their jobs and formal classroom-style instruction.

Organizational chart

A visual presentation (in the form of a chart) that shows the reporting relationships within an organization. At the top of the organizational chart will be the chief executive officer (CEO). Beneath the CEO are the people who directly report to him or her, and beneath that layer, the chart shows who reports to whom, all the way down to the lowest level of the workforce.

Organizational culture

Organizational culture refers to the beliefs, norms, customs and social practices of an organization. Organizational culture will typically reflect some of the cultural practices of the host country, though any two organizations within one host country could have remarkably different organizational cultures.

Outsourcing/subcontracting

Outsourcing/subcontracting occurs when a business takes an internal function and has it performed externally by another person or business.

Partnership

This refers to a business owned and run by two or more persons who share the profits, often specified in a partnership agreement. Like a sole trader, no legal distinction exists between the business and the partners, who legally are 100% liable for all debts of the partnership, regardless of any understanding specified in the partnership agreement.