Business Management

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IBDP 24' Business Management HL

207 Terms

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ROCE

(Net profit before interest and tax / capital employed) * 100

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Net profit margin

(Net profit before interest and tax / sales revenue) *100

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Gross profit margin

(Gross profit / sales revenue) *100

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Depreciation

(Original cost - residual value) / expected life

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Target profit price

(Target profit + total cost) / output

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Break even price

Total cost / output

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Target profit

(Fixed cost + target profit) / contribution per unit

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Break even

Fixed cost / contribution per unit

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Contribution per unit

Selling price - average variable cost

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Total contribution

Total revenue - total variable cost

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12

Marketing economy of scale

More efficient to advertise large number of products

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Financial economy of scale

Easier for larger companies to receive loans

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14

Role of business

The role of a business is to combine human, physical, and financial resources to create goods and services

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Inputs

Resources that a business uses in the production process

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Processes

Turning the inputs into manufactured goods or the provision of services

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Outputs

The output or provision of final goods and services

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Entrepreneur

An individual who plans, organises, and manages a business, taking on financial risks in doing so

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Intrapreneur

The act of being an entrepreneur but as an employee within a large organisation

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Private sector

Owned and controlled by private individuals with an aim to make profit

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Public sector

Owned by the government to provide essential goods and services

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Unincorporated businesses

Sole traders and partnerships

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Incorporated businesses

Private / public limited companies

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Social enterprise

Revenue-generating businesses with social objectives at the centre of business operations

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Cooperatives

Businesses owned and run by the members, including employees and customers

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Micro-finance providers

A financial service aimed at financing disadvantaged members of society

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Public-private partnerships

When the government works together with the private sector

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Non-profit social enterprises

Businesses run in a commercial manner but without profit being the main goal

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Non-governmental organisations (NGOs)

Non-profit social enterprise that operates in the private sector

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Charities

Provides voluntary support for good causes

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Vision statement

Long term aspirations of a business

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Mission statement

Underlying purpose of an organisation's existence and it's core values

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Strategic objectives

Set by senior leadership to determine the long term goals and actions

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Tactical objectives

Set by the middle management to determine the medium term action plan

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Operational objectives

Set by the lover management to determine the short term day to day objectives

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Corporate social responsibilities (CSR)

The consideration of ethical and environmental issues relating the business activity towards all stakeholders

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Altruistic attitude

The company genuinely does it for social benefits

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Strategic attitude

Businesses ought to be socially responsible only if such actions help them become more profitable

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Self-interest attitude

The belief that it is the government's job to protect society

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Ansoff matrix

Market penetration, product development, market development, diversification

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PEST analysis

Political, economic, social, technological

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STEEPLE analysis

Social, technological, economics, environmental, political, legal, ethical

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Economies of scale

As the output increases the cost per unit output decreases

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Managerial economy of scale

Lower average cost due to better skilled management

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Purchasing economy of scale

Lower average cost due to bulk purchasing

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Technological economy of scale

Lower average cost due to better investments and research

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Diseconomies of scale

As the business expands its operations the average cost per unit output increases

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Internal / organic growth

A business grows using its own resources to increase the scale of its operations

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External growth

A business grows by collaborating with another firm (acquiring, merging)

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Horizontal integration

Firms are in the same line of business at the same stage of production

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Backward / forward vertical integration

Firms are in the same line of business at different stages of production

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Lateral integration

Firms sell related goods that do not directly compete with each other

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Diversifying merger (conglomerate)

Firms are in completely different lines of business

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Joint venture

An external growth strategy that combines the contributions and responsibilities of two firms to a shared project by forming a separate legal enterprise

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Strategic alliance

An agreement between two parties to pursue shared objectives while remaining independent organisations

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Franchising

An arrangement where the franchisor sells the rights to sell their products or use the company name / brand to franchisees

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Globalisation

Worldwide movement towards economic, financial, trade, and communications integrations

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7Ps of marketing

Product, price, place, promotion, people, process, physical evidence

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HR planning

Recruitment, training, appraisal, termination

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Recruitment process

Job description, person specification, job advert, application processing, selection

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On the job training

Done while the employee is doing their normal job while at the work place

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Induction training

The training received when first starting a job

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Mentoring

The training received by a mentee from a mentor

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Off the job training

Training that happens outside working hours away from the job

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Cognitive training

Focuses on employees developing their thinking and processing skills

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Behavioural training

Focuses on employees developing certain interpersonal skills

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Staff appraisal

The process of reviewing the performance of employees against pre-set objectives

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Formative appraisal

Ongoing process that focuses on giving employees recognition and feedback

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Summative appraisal

Measures employee's performance based on standards set by the business

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360 degree appraisal

Feedback on the employee's performance is collected from managers and co-workers

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Self-appraisal

Employees reflect on their own performance by rating themselves

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Levels of hierarchy

Level of responsibilities in the business

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Chain of command

Formal route that a decision must follow

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Span of control

The number of subordinates directly under the authority of a manager

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Delegation

Giving one's subordinate authority to make a decision or carry out a task

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Centralisation

All major decisions of the company are made by a small group

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Bureaucracy

The relative importance of rules and procedures

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Tall organisational structure

Many levels of hierarchy, narrow span of control, long chain of command, centralised

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Flat organisational structure

Few levels of hierarchy, wide span of control, short chain of command, decentralised

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Organisational structure by hierarchy

Based on chain of command

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Organisational structure by function

Based on departments

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Project-based organisation

Market structure where employees are organised around different projects the firm carries out

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Shamrock organisation

Core managers, contractual fringe, flexible workforce

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Autocratic

Leader holds most decision making power, minimal consulting, close supervision

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Paternalistic

Leader takes on a paternal role, great concern for employees, extreme loyalty and trust

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Democratic

Employee involvement in decision making

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Laissez-faire

A lot of freedom, skilled workforce

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Taylor's scientific management

Pay, above all is the main source of motivation

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Maslow's hierarchy of needs

Psychological, safety, love / belonging, esteem, self-actualisation

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Herzberg's two-factor theory

Hygine and motivators

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Job enlargement

Giving workers variety in what to do

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Job enrichment

Giving workers more complex things to do

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Job empowerment

Delegating decision making to workers

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Job rotation

Employees are given unfamiliar tasks

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Adam's equity theory

Workers will compare their efforts or rewards to those of others

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McLelland's acquired needs

Achievement, affiliation, power

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Deci and Ryan's self determination theory

Autonomy, competence, relatedness

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Vroom's expectancy theory

Expectancy, instrumentality, valence

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Salary

Regular fixed payment to staff, typically monthly

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Wages (time based)

Staff is paid per hour of work

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