M1 Key Terms + SL Toolkit + FFA

Businesses

organizations involved in the production of goods and/or the provision of services

Consumers

the people or organizations who actually use a product

Customers

the people or organizations that buy the product

Entrepreneurs

owners or operators of an organization who manage, organize and plan the other three factors of production. They are risk takers who exploit business opportunities in return for profits.

Needs

the basic necessities that a person must have to survive

Primary Sector

businesses involved in the cultivation or extraction of natural resources

Quaternary Sector

a subcategory of the tertiary sector, where businesses are involved in intellectual, knowledge-based activities that generate and share information

Secondary Sector

the section of the economy where business activity is concerned with the construction and manufacturing of products

Tertiary Sector

the section of the economy where business activity is concerned with the provision of services to customers

Wants

peoples desires - the things they would like to have

Adding Value

the practice of producing a good or service that is worth more than the cost of the resources used in the production process

Entrepreneurship

the management, organization, and planning of the other three factors of production. The success or failure of a business rests on the talents and decisions of the entrepreneur

Goods

physical products produced and sold to customers, such as laptops, books, contact lenses, perfumes and children's toys

Production

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

Services

intangible products sold to customers, such as the services provided by airlines, restaurants, cinemas, banks, health and beauty spas, schools and hospitals.

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. More formal ones specify the name and responsibilities of each partner and their share of any profits or losses.

Incorporation

this 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)

this occurs when a business sells all or part of its business to shareholders on a stock exchange for the first time

Limited Liability

a restriction on the amount of money that owners can lose if their business goes bankrupt (i.e. shareholders cannot lose more than they invested in the company)

Non-governmental organizations (NGOs)

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. They share the responsibilities and burdens of running and owning the business

Privately Held Company

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

Private Sector

the part of the economy run by private individuals and businesses, rather than by the government (sole traders, partnerships, companies, and cooperatives)

Publicly Held Company

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

Public Sector

the part of the economy controlled by the government (state health and education services, national defense)

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 Enterprises

revenue-generating business with social objectives at the core of their operations. They can be for-profit or non-profit businesses, but all profits or surpluses are reinvested for that of social purpose rather than being distributed to shareholders and owners.

Stock Exchange

a market place for trading stocks and shares of public limited companies.

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 practices related to business activity. Businesses who adopt these practices act morally towards its various stakeholder groups and the well-being of society as a whole.

Ethics

the moral principles that guide decision-making and 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

the articulated, measurable targets that a business must meet to achieve the aims or long-term goals of the business

Strategies

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

Strategic Objectives

the long-term goals of a business that indicate how the business intends to fulfil its mission.

Tactical Objectives

the short-to-medium term targets that, if consistently met, will help a business reach its strategic goals.

Vision Statement

an organization's long-term aspirations (where it ultimately wants to be)

Ethical Code of Practice

the documented beliefs and philosophies of an organization, so that people know what is considered acceptable or not acceptable within the organization.

Ethical Objectives

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

Tactics

the short term plans of action that businesses use to achieve their objectives

Conflict

situations where stakeholders have disagreements on certain matters due to differences in their opinions. This can lead to arguments and tension between the various stakeholder groups.

External Stakeholders

individuals and organizations not part of the organization but have a direct interest in its activities and performance (customers, suppliers, pressure groups and the government)

Internal Stakeholders

members of the organization (employees, managers, directors, and shareholders)

Pressure Groups

individuals with a common concern (such as environmental protection) who seek to place demands on organizations to act in a particular way or to influence change in their behavior

Shareholders

the owners (individuals and other organizations) of a limited liability company

Stakeholders

individuals or organizations with a direct interest in the activities and performance of a business

Customers

the clients of a business who, as a stakeholder group, seeks to have value for money such as competitive prices and good quality products.

Directors

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

Employees

the staff of an organization

Financiers

the financial institutions and individual investors who provide sources of finance for an organization. As a stakeholder group, they are interested in the organization's ability to generate profits and repay debts.

Government

the ruling authority within a state or country. As a stakeholder group, they are interested in businesses complying with the law with regards to the conduct of business activities

Local Community

the general public and local businesses that have a direct interest in the activities of an organization, namely to create jobs and to conduct business activities in a socially responsible way.

Managers

an internal group of stakeholders responsible for overseeing the daily operations of the business

Stakeholder Conflict

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

Stakeholder Mapping

a model that assesses the relative interest and influence (power) of stakeholders on an organization

Suppliers

an external stakeholder group that provide a business with stocks of raw materials, component parts and finished goods needed for production. They can also provide commercial services, such as maintenance and technical support.

Backward Vertical Integration

this occurs when a business amalgamates with a firm operating in an earlier stage of production

Conglomerates

businesses that provide a diversified range of products and operate in an array of different industries

Diseconomies of Scale

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

Economies of Scale

lower average costs of production as a firm operates on a larger scale due to gains in productive efficiency.

External Growth/Inorganic Growth

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

Forward Vertical Integration

a growth strategy that occurs with the amalgamation of a firm operating at a later stage in the production process

Franchising

an agreement that allows an individual or other business the rights to sell products under their name in return for a fee and regular royalty payments.

Horizontal Integration

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

Internal Growth/Organic Growth

this 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

mergers & acquisitions between firms that have similar operations but do not directly compete with each other

Merger

a form of external growth whereby two (or more) firms agree to form a new organization, thereby losing their original identities

Optimal 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 minimized.

Acquisition

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

Average Cost

the cost per unit of output

Demerger

when a company sells off a part of its business thereby separating into two or more businesses. It usually happens due to conflicts, inefficiencies and incompatibilities following an earlier merger of two or more companies

External Diseconomies of Scale

these occur due to factors beyond its control which cause average costs of production to increase as an industry grows

External Economies of Scale

these occur when an organizations average cost falls as the industry grows, hence all firms in the industry benefit.

Financial Economies of Scale

cost savings made by large firms as banks and other lenders charge lower interest (for overdrafts, loans and mortgages) because larger businesses represent lower risk

Internal Diseconomies of Scale

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

Internal Economies of Scale

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

Marketing Economies of Scale

when larger businesses can afford to hire specialist managers, thereby improving the organizations overall efficiency and productivity

Purchaser

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

Purchasing Economies of Scale

when larger organizations can gain huge cost savings per unit by purchasing vast quantities of stocks (raw materials, components, semi-finished goods and/or finished goods)

Risk Bearing Economies of Scale

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

Specialization Economies of Scale

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

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

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 which can create greater output and improved efficiency

Takeover/Hostile Takeover

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 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 such as mass production techniques which help to cut average costs of production

Vertical Integration

this takes place between businesses that are at different stages of production

Business Cycle

the fluctuation in the level of business activity over time. Countries tend to move through the cycle of booms, recessions, slumps, recovery and growth.

Deregulation

the removal of government rules and regulations which constrain an industry to enhance efficiency and encourage more competition within the industry.

Economic Growth

this measures the change in the Gross Domestic Product of a country over time, It occurs if there in an increase in GDP for two consecutive quarters.

Ethics

the moral values and judgments that society believes businesses ought to consider in their decision-making.

Exchange Rate

the value of a country's currency in terms of other currencies

Inflation

this occurs when the general price level in an economy continuously rises. It is measured by changes in the cost of living for the average household in a country.

Interest Rate

a measure of the price of money in terms of the amount charged for borrowed funds or how much is offered on money that is saved.

Protectionist Measures

any measure taken by a government to safeguard its industries from overseas competitors. They are a threat to businesses trying to operate in foreign markets.

STEEPLE Analysis

an analytical framework used to examine the opportunities and threats of the external environment on business activity.

Unemployment

the number of people in the workforce who are willing and able to work but cannot find employment.