IB Business Management HL

Entrepreneur

Entrepreneur

An individual who demonstrates enterprise and initiative in order to make a profit

Intrapreneur

An individual employed by a large organization who demonstrates entrepreneurial thinking in the development of new products or services

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.

Secondary Sector

The portion of the economy concerned with manufacturing useful products through processing, transforming, and assembling raw materials.

Tertiary Sector

The portion of the economy concerned with transportation, communications, and utilities, sometimes extended to the provision of all goods and services to people in exchange for payment.

Quaternary Sector

Provides services which are especially focused on knowledge eg. e-commerce and services involving IT, the media and web based services

Chain of Production

"The different stages of making, distributing and selling a good or service from the initial production of parts, through to the final product through to distribution and sale of the product."

Horizontal Growth

When a business acquires or merges with another business engaged in the same activity/in the same market eg. Two grocery stores merging

Vertical Growth

When a business acquires another business involved in earlier or later stages in the chain of production, or when a business begins operations in an earlier stage via internal growth. Backward Vertical Integration - Eg. A lumber company purchasing a reserve of trees Forwards Vertical Integration - Eg. A business purchasing another business

Possible problems for a start-up

• Poor location

• Unreliable supplies

• Poor research

• Inappropriate target market

• Goals are too vague

• Accounts not kept properly

• Limited success

Purpose of a business plan

Support launch of new org or business idea; attract finance; support strategic planning, provide a focus for development, work as a measure of business success

Elements of a business plan

• Business idea, aims, and objectives

• Business organization

• HR

• Finance

• Marketing

• Operations

Sole Trader

A business owned and operated by one person. Features:

• Sole trader owns and runs the business

• No legal distinction between owner and business

• Limited finance

• Business is close to the customer

Advantage of a sole trader

• Complete control over decisions

• Flexibility in working hours and salary

• Minimal legal formalities

Disadvantage of a sole trader

• High competition with established companies

• Limited opportunities for expansion

• Limited capital

• Unlimited liability

Partnership

A business is formed by two or more people, generally friends, associates, or people of similar skills. Features:

• Joint decision making

• No legal distinction between business and owners

• More available finance

Advantage of a partnership

• Range of skills and ideas

• Partners bring more expertise

• Lower risk, more access to finance

Disadvantage of partnership

• unlimited liability

• less access to loans from financial institutions

• profits must be shared

• chance of disagreements

Company

A business organization established for a specific purpose and registered according to local or national legislation

Micro-financiers

Provide small amounts of finance to those who traditionally would not have access to it

Vision Statement

A philosophy, vision or set of principles which steers the direction and behavior of an organization

Objectives

Strategic - long term to guide company in right direction Tactical - medium to short term objectives to achieve strategic objectives Operational - day-to-day objectives to reach tactical objectives SMART: Specific, Measurable, Achievable, Relevant, Time-Specific

Business Strategy

A plan to achieve a strategic objective in order to work towards the aims of the business

SWOT Analysis

Helps managers brainstorm perceived Strengths, Weaknesses, Opportunities, and Threats for the business

Ansoff Matrix

Helps a business set objectives and plan growth strategies. Looks at growth potential in terms of the market and product.

Market Penetration

A marketing strategy that tries to increase market share among existing customers by selling more of an existing product

Market Development

Company growth by identifying and developing new market segments for current company products

Diversification

A strategy of increasing sales by introducing new products into new markets

Stakeholder

An individual or group who has an interest, often financial, in the activities and success of the organization.

Shareholder

An individual who owns a share or shares in a company

Competitor

Another business or organization offering very similar goods or services

Internal and External Stakeholders

Internal - individuals or groups that work within the business eg. shareholders, managers, employees etc. External - individuals or groups that are outside the business eg. government, suppliers, customers, pressure groups

Interests of Internal Stakeholders

1. Shareholders - focus on returns from investments

2. Managers - focus on business strategy, strategic objectives, tactical objectives

3. Employees and their unions - focus on protecting rights and working conditions

Interests of External Stakeholders

1. Government - focus on how business operates, impacts economy

2. Suppliers - focus on maintaining stable relationship

3. Customers/Consumers - focus on getting products to meet needs/wants

4. Community - impact of business of local area

5. Financers - eg. banks, return on their investments

6. Pressure groups - focus on how business impacts area of concern

Johnson and Scholes

A power-interest model, maps stakeholders against power and interest

STEEPLE Analysis

Social, Technological, Economic, Ecological, Political, Legal and Ethical

Fixed and Variable Costs

Fixed - costs which do not change according to the amount of goods or services produced by the business eg. rent

Variable - costs which increase or decrease due to the amount of goods or services produced eg. supplies

Economies/Diseconomies of Scale

Economies of Scale - achieved when the business increases its scale of productions and in the process becomes more efficient

Diseconomies of Scale - when a business experiences inefficiency due to increasing scale of production

Advantages of being a large business

• survival (less likely to fail/be taken over)

• economies of scale (more common for large businesses, higher profits)

• market leader status (can influence market habits)

• market share (allows them to determine prices, customer base)

Advantages of being a small business

• greater focus (are able to focus on smaller tasks/product range)

• exclusiveness (allows them to charge higher prices)

• greater motivation (prestige can motivate workers)

• competitive advantage (personalized service gives comp. adv)

• less competition (likely in smaller markets)

Internal Growth (Organic)

Occurs when a business expands its existing operations

External Growth

Business expansion achieved by means of merging with or taking over another business, from either the same or a different industry

Horizontal Integration

The integration of two businesses which are in the same industry and same chain of production

Backward Vertical Integration

Occurs when a business integrates with another further back in the chain of production, usually to protect their supply chain. In same industry.

Forward Vertical Integration

When a business integrates with another in the same industry further down the chain of production (usually to secure an outlet for products)

Conglomeration

When two businesses in separate industries integrate (to reduce overall corporate risk)

Joint Venture

When two businesses agree to combine resources for a specific goal and over a finite time period

Strategic Alliance

A long-term partnership between two or more companies established to reach a specific goal.

Differs from Joint Venture as there can be more than two businesses involved and the businesses remain independent.

Franchise

A business established or operated under an authorization to sell or distribute a company's goods or services in a particular area

Franchisee advantages and disadvantages

Advantages:

• the product exists and is usually well known

• set-up costs are reduced

• secure stock supply

• franchisor can provide legal/financial etc. help

Disadvantages:

• unlimited liability

• has to pay royalties to the franchiser

• no control over products

• no control over supplies

Franchisor advantages and disadvantages

Advantages:

• quick access to wider markets

• does not have risks/liabilities of running franchise

• gains high profits and sign-up fees

Disadvantages:

• loses control in day-to-day running of business

• brand image will suffer if franchisee acts improperly

Globalization

The process by which the worlds regional economies become one integrated global unit

Multinational Company

A business that operates in more than one country and is legally registered in more than one country

Advantages and Disadvantages of multinational companies on host countries

Advantages:

• economic growth (employment, taxes etc)

• new ideas

• skill transfer

• more choice of products

• infrastructure

Disadvantages:

• majority of profits do not go to host country

• local businesses may experience loss of market share

• may be short term (may not remain in host country)

Fishbone diagram

A visual identification of many potential causes of a problem

Benefits:

• motivating, discussing problems

• flexible

• simple, visually attractive

• can single out cause of problem

Limitations:

• does not necessarily show solutions

• can lead to arguments

• requires knowledge + honesty

• requires follow up process

Decision Tree

A planning tool used to help make strategic decisions, using probabilities of success and failure

Benefits:

• gives clear answer to complex problem

• flexible

• simple, visually attractive

Limitations:

• based on estimates

• based on quantitative data, not qualitative

• can be difficult to make if many possible situations

Force Field Analysis

A technique for determining which forces drive a proposed change and which forces restrain it. Used to decide whether to make a change or not

Benefits:

• gives clear answer to complex question

• flexible

• simple, visually attractive

Limitations:

• involves interpretations of which factors to include

• based on estimates on weighing each factor

• based on qualitative data, not quantitative issues

Gantt Charts

planning charts used to schedule resources and allocate time

Benefits:

• gives clear picture of current progress of tasks

• gives picture of overall project

• flexible

• allows managers to plan use of resources to remain efficient

Limitations:

• based off estimates

• difficult to apply to complex projects

• based on qualitative data not quantitative (eg costs)

• cannot separate interdependent tasks

• pressure to meet deadlines can stress workers

Labour turnover

A measure of how many people leave a business over a given period of time. It is usually expressed as a percentage of the total labour force

External factors influencing potential workforce

• technological change (eg. working at home)

• government regulations (eg. minimum wage etc)

• demographic change (ageing population, birth rate etc)

• social trends

• state of economy (boom or recession)

• education (courses available, skill sets etc)

• labour mobility (changing occupations, locations etc)

Internal Factors influencing HR plan

• changes in business organization

• changes in labour relations

• changes in business strategy

• changes in business finance

The Human Resources Plan

1. Recruitment (choosing the right worker)

2. Training (making sure worker has correct skills)

3. Appraisal (performance evaluation)

4. Termination or Dismissal

Stages of Recruitment

1. Identification

• Job description

• person specification

• internal or external recruitment?

2. Application

• job advert

• application form or resume (CV)

• internal or external agency

3. The Selection Process

• shortlisting

• testing (aptitude, team based etc)

• interviews

Induction Training

Focuses on making a new employee familiar with business functions, lines of authority etc. Helps them settle in quickly

On-the-job training

When employees are trained while doing their normal job. Normally occurs through mentoring, eg. an experienced employee guiding new workers. Shadowing is also common, when the new employee follows another to learn a skill

Off-the-job training

When the employee is given time off work to attend training for the job. eg. in a workshop, conference, or external agency.

Appraisal

The performance of the employee is reviewed. Methods:

1. Formative - Giving employees feedback after appraisal to help them learn and improve

2. Summative - measures employees performance according to set standards. Employees can pass or fail. Usually conducted at end of project or contract

3. 360 Degree - provides employees with opportunity to receive performance appraisal from managers AND co-workers, and even customers. Involves upwards appraisal

4. Self-appraisal - employees can reflect on their own work, usually with the aid of a form. Helps identify their strengths and weaknesses.

Termination, Dismissal and Redundancy

• Termination: Employee terminates or leaves the business at the end of their contract

• Dismissal: When an employee breaks terms of the contract and is dismissed as a result

• Redundancy: When a business no longer has any work for an employee (can be either voluntary/involuntary)

Outsourcing

When a business subcontracts a process, such as manufacturing or packaging, to another business or organization

Offshoring

When a business outsources a process or service to another country in order to reduce costs

Organizational chart

A diagram that outlines the formal roles, responsibilities and reporting lines

Levels of hierarchy

The number of layers of management and supervision existing in an organization

span of control

How many subordinates are directly below the authority of the manager and whom a manager is responsible for

Chain of command

The formal route through which a decision must travel through the organization/commands going from top of hierarchy to bottom

Delegation

Transferring authority to a person for a task

Centralization

A high degree of centralization indicates that all major decision is maintained within a small group of manager operating close to the head of the business

Decentralization

Senior managers maintain core strategic decisions, but other decision making authority is delegated to middle managers

de-layering

The process of flattening out an organisational hierarchy. This means reducing the number of layers of management.

Tall Organization Structure

• many levels of hierarchy

• narrow spans of control

• centralized decision making

• long chains of command

• autocratic leadership

• limited delegation

Flat organizational structure

• Few levels of hierarchy

• Wider spans of control

• Decentralized decision making

• Shorter chains of command

• Democratic leadership

• Increased Delegation

Charles Handy Shamrock Model

Model suggests that businesses can reduce costs, gain competitive advantage and increase response time by trimming their workforce and retain only a multiskilled core

Verbal communication

• interviews

• meetings

• lectures

• presentations

• telephone conversations

• face to face conversations

*quick, direct, effective, immediate feedback *misunderstandings

Visual communication

• presentations

• videos

• notice boards

• signs

• symbols

• body language

*effective, permanent, recognizable *incorrect interpretations

Written communication

• reports

• letters

• notices

• bulletins

• forms

• press releases

• memos

• emails

*effective, permanent, can be revised *impersonal, minunderstandings

Functions of management

Planning (setting strategic/tactical/operational objectives) Organizing (resources, people etc) Commanding (making sure employees perform correct tasks) Coordinating (parts of production, areas etc) Controlling (quality, production levels etc)

Autocratic leadership

Leadership style that involves making managerial decisions without consulting others

Paternalistic leadership

A leadership style where the leader has authority over employees but regards them as 'family' and is concerned for their wellbeing.

Democratic leadership

A leadership style that promotes the active participation of workers in making decisions

Laissez-faire leadership

A leadership style that leaves much of the business decision-making to the workforce - a 'hands off' approach

Situational leadership

Effective leadership varies with the task in hand and situational leaders adapt their leadership style to each situation

Intrinsic Motivation

Motivation which comes from the satisfaction of carrying out a particular activity

Extrinsic Motivation

Motivation derived from external factors, such as money

Frederick Winslow Taylor

American mechanical engineer, who wanted to improve industrial efficiency. He is known as the father of scientific management, and was one of the first management consultants Thought standardization of work methods and enforced adoption of ideal ways of working were key to maximizing output.

Abraham Maslow's Hierarchy of Needs

Maslow's pyramid of human needs; must satisfy levels below before reaching to next; can go up and down pyramid stages

Frederick Herzberg's Motivation-Hygiene Theory

Workers must have both hygiene and motivation factors to be truly motivated.

Hygiene needs:

• company policy/administration

• work conditions

• salary

• status

• personal life

Motivation factors:

• achievement

• recognition

• the work itself

• responsibility

• advancement

John Adams: "Equity Theory"

based on concepts of inputs, outputs and equity. Employees will be motivated when they perceive that their inputs into the business are equal to the outputs they receive

Inputs (what employee brings to business)

• ability/skills

• dedication

• effort

• hard work

• loyalty

• knowledge

Outputs (what employee receives from business)

• fringe benefits

• job security

• praise

• recognition

• responsibility

• salary

• sense of acheivement

Daniel Pink Motivation Theory

Thought older motivation theories were outdated and flawed. Though businesses must focus on INTRINSIC motivation

Power culture (Charles Handy)

Concentrating power among a few people

Role culture (Charles Handy)

Each member of staff has a clearly defined job title and role

Task culture (Charles Handy)

Used in situations where short term teams address specific problems - power shifts based on the skill set of workers on team