IB Business and Management [Only SL] Full Revision

Added Value

The difference between a product's price and the total cost of the inputs that went into making it; the extra worth created in the production process.

Businesses

Organizations that are involved in the production of goods and/or the provision of services.

Capital

All non-natural resources used in the production process; examples: money, resources (machinery, tools, equipment, factories).

Division of Labor

The specialization of workers in the provision of goods and/or services by breaking a job down into particular roles or components that are repeated by the same workers.

Entrepreneurs

People who manage, organize, and plan the other three factors of production; risk takers who exploit business opportunities in return for profits.

Factors of Production

The inputs (or resources) necessary for the production process: land, labor, capital, and enterprise (aka entrepreneurship).

Functional Areas

Refer to the different sections of a business, i.e. marketing, production, finance, and human resource departments.

Labor

The physical and mental human effort used in the production process.

Land

Natural resources that can be found on the planet, including renewable and non-renewable natural resources such as water, fish, wood, and physical land itself.

Opportunity Cost

The cost measured in terms of the next best alternative that is foregone when a choice is being made, e.g. money today can be either spent for immediate benefit or saved for the future.

Primary Sector

The businesses involved in the cultivation or extraction of natural resources, such as farming, mining, quarrying, fishing, oil exploration, and forestry.

Secondary Sector

The section of the economy where business activity is concerned with the construction and manufacturing of physical products; automation and mechanization in modern societies has seen this sector decline in terms of employment.

Tertiary Sector

The section of the economy where business activity is concerned with the provision of services to customers; in modern societies, it is the largest sector in terms of employment and output.

Articles of Association

the document that sets out the internal organization and rules of a limited company, including the powers of each director and voting rules; a compulsory document needed to set up a company

Certificate of Incorporation

the document issued to a limited company to show that it has been legally formed and is therefore a separate legal entity from its owners; this certificate allows the company to begin trading shares

charities

not-for-profit organizations that are established to support good causes, from society's point of view; examples include the prevention of animal cruelty, the preservation of the natural environment, or providing assistance to the elderly

company

a business that is owned by shareholders; it possesses a certificate of incorporation that gives it a separate legal identity from its owners

Deed of Partnership

the legal contract signed by the owners of a partnership; the formal document includes the fundamental issues of the business, such as the name and responsibilities of each partner and their share of any profits or losses

incorporation

there is a legal difference between the owners of a company and the business itself that ensures that the owners are safeguarded against any losses made by the company as the owners are protected by limited liability

limited Liability

a restriction on the amount of money that can be lost from the owners of a business if it goes into bankruptcy; the owners will lose no more than the amount of capital that they put into the business

Memorandum of Association

the name of one of the legal documents required to create an incorporated company; it includes the basic information of the organization such as the name and address of the company, its objectives, and details of its share capital

Non-governmental organization (NGO)

any private sector organization that does not primarily aim to make a profit; rather, they operate for the benefit of others in society; examples include World Wildlife Fund and Friends of the Earth

Partnership

a form of private sector business owned by 2-20 people (partners) who share the responsibilities and burdens of running and owning the business

Private Limited Company

a business organization 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 under the control of private individuals and businesses, rather than the government, e.g. sole traders, partnerships, and limited companies

Public Limited Company

an incorporated business organization that allows the general public to buy and sell shares in the company via a stock exchange

public corporations

organizations wholly owned by the government but run as commercial establishments, e.g. the British Broadcasting Corporation (BBC); also known as state-owned enterprises

public sector

the part of the economy controlled by the government, e.g. state health and education services, emergency services, and national defense

Stock Exchange

the market place for trading stocks and shares of public limited companies; examples include the London Stock Exchange (LSE) and the New York Stock Exchange (NYSE)

silent partner

an investor of a partnership who is not directly involved in the daily activities of the business; also known as sleeping partner

sole trader

a self-employed person who runs the business on their own and has sole responsibility for its success (profits) or failure (unlimited liability)

unlimited liability

a feature of sole traders and ordinary partners 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 this

aims

the long-term goals of a business, often expressed in the firm's mission statement; a general statement of a firm's purpose or intentions and tend to be qualitative in nature

corporate social responsibility (CSR)

the consideration of ethical and environmental issues relating to business activity; a CSR allows the business to act morally towards its various stakeholder groups

ethics

the moral values that determine and affect business behavior and decision-making, such as taking actions that are in the best interest of the world's scarce resources

mission statement

the declaration of an organization's overall purpose; it forms the foundation for setting the objectives of a business

objectives

the relatively shorter term targets of an organization; often expressed as SMART objectives

SMART objectives

well-set objectives ought to be Specific, Measurable, Agreed, Realistic, and Timed

social audit

an independent assessment of how an organization's actions affect society; likely to include a review of the firm's environmental impact, staff management, and contributions to society

social responsibility

a business being conscientiously concerned about the well-being of the general public as a whole; socially responsible organizations are likely to act in an ethical manner and consider the needs of all their stakeholders

strategy

the various methods that businesses can use in an attempt to achieve their mission or vision; it forms the long-term plans for the whole organization

tactics

the short-term methods that firms can use to achieve their objectives

vision statement

an organization's long-term aspirations, i.e. where it ultimately wants to be

conflict

situations where people have disagreements on certain matters due to differences in their opinions; can often lead to arguments and tension between various stakeholder groups

directors

the senior members of staff who have been elected by shareholders of a company to run the business on their behalf

external stakeholders

do not form part of the organization but have a direct interest or involvement in the actions of the organization; examples include customers, suppliers, and the government

industry trade groups (Trade Associations)

organizations that specialize in promoting the aims of a particular industry through education and public relations campaigns; also known as trade associations

internal stakeholders

members of the organization, i.e. the employees, shareholders (who own the business), managers, and directors of the business

managers

the people responsible for the day-to-day operations of a business or a department within a business; accountable to Directors and responsible for their staff teams

pressure groups

a type of special interest group which consists of individuals with a common concern who seek to place demands on organizations to act in a particular way or to influence a change in their behavior; examples include Greenpeace and People for the Ethical Treatment of Animals (PETA)

shareholder concept

the notion that shareholders are the key stakeholder group as any business ultimately belongs to its shareholders

special interest group (SIG)

the organization of people who have a common interest, such as the protection of the global environment, and collectively act to achieve that interest by swaying public opinion and support, lobbying government policy and influencing business behavior

stakeholders

individuals or organizations that have a direct interest (stake) in the activities and performance of a business; examples include shareholders, employees, trade unions, customers, financial investors, suppliers, managers, and the government

stockholders (Shareholders)

the owners of a company; the shares of a company may be held by individuals or other organizations; also known as shareholders

Balance of Payments

an annual record of a country's export earnings and its import expenditure; a surplus exists if the value of exports exceeds the value of imports (vice versa for a deficit on the balance of payments)

deregulation

the removal of government rules and regulations which constrain an industry, thereby enhancing its efficiency; should also encourage more competition within an industry

direct tax

a levy that is paid from the income of individuals or businesses, such as personal income tax and corporation tax

economic growth

measures the change in the Gross Domestic Product (GDP) of a nation over time; growth occurs if there is an increase in GDP for two consecutive quarters

ethics

the moral values and judgments that society believes organizations should consider in their decision-making

exchange rate

the value of a country's currency in terms of another currency

external shocks

unforeseeable and unexpected changes in the external business environment that tend to affect all businesses in the economy, such as natural disasters or wars; also known as exogenous shocks

fiscal policy

government policies that deal with taxation and government expenditure in order to affect the level of economic activity

Gross Domestic Product (GDP)

the total value of a nation's annual output, used as an indicator of the level of economic activity in a country

indirect tax

a levy placed on the purchase of goods and services, such as sales taxes and excise duties

inflation

occurs when the general price level in an economy continously rises; calculated by measuring changes in the cost of a representative basket of goods and services purchased by the average household over a period of time

interest rate

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

monetary policy

government policies concerned with changing interest rates in order to control the money supply and the exchange rate

PEST analysis

a framework used to analyze the opportunities and threats of the political, economic, social, and technological environments on business activity; one of many tools used in the decision-making process

protectionism

any measure taken by a government to safeguard its businesses from foreign competitors; this presents a threat or barrier to trade for businesses trying to operate in overseas markets

tariffs

a method of protectionism whereby the domestic government taxes foreign imports, thereby giving domestic producers a relative price advantage

trade cycle

the fluctuation in the level of economic activity over time; economies tend to move through the cycle of booms, recessions, slumps, recovery, and growth; also known as the business cycle

unemployment

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

business plan

the name given to a report detailing how a business sets out to achieve its aims and objectives; requires managers to plan their marketing, financial, and human resources

decision-making

the process of choosing between the alternative options available to a business

decision-making framework

the phrase to describe a systematic process of dealing with business problems, concerns, or issues in order to make the best decision

decision trees

a type of quantitative decision-making tool that allows firms to calculate the probable values of different options if they are pursued; they help minimize the risks involved in decision-making

executive summary

a written statement placed at the beginning of a business plan and summarizes the information given in the main business plan, including conclusions

planning tools

the various methods that businesses use to aid their decision-making; examples include business plans, SWOT analysis, the 5 Why's model, and decision trees

scientific decision-making

decision-making that is based on a systematic and logical framework; its purpose is to remove, as far as possible, subjectivity and emotions from decision-making

strategy

any medium to long-term plan of how a business intends to achieve its goals

SWOT analysis

a popular analytical tools used to assess the internal strengths and weaknesses and the external opportunities and threats of an organization or a decision

backward vertical integration

a form of amalgamation that takes place when a business acquires or merges with a firm operating in an earlier stage of the chain of production, e.g. a car manufacturer buying out a supplier of tires or other components

barriers to entry

the obstacles that make it difficult for a new firm to enter a market, including high set-up costs and the market power of established firms in the industry

conglomerates

businesses that provide a diversified range of products and operate in an array of different industries; likely to have resulted from external growth strategies

diseconomies of scale

the cost disadvantages of growth; unit costs are likely to eventually rise as a firm grows in size due to internal factors (such as a lack of control, coordination, and communication) and external factors (such as saturated markets which create a need for cost cutting)

diversification

a growth strategy of large businesses by spreading risks over a variety of products and markets; example: conglomerates provide a whole range of goods and services to clients all around the globe

economies of scale

the lower average costs of production as a firm operates on a larger scale; benefits include easier and cheaper access to finance, marketing economies, division of labor, and technological economies

economies of scope

cost-saving benefits of producing a large range of related products by sharing production facilities and resources

external diseconomies of scale

an increase in the average costs of production as a firm grows due to factors beyond its control; often caused by problems associated with too many firms being in the industry

external growth

occurs when a business grows by collaborating with, buying up or merging with another firm; a more expensive but quicker method of growth than organic growth; also known as inorganic growth

forward vertical integration

a growth strategy that occurs with the acquisition or merger of a firm operating at a later state in the chain of production, e.g. a book publishing company merging with a book retailer

franchise

an agreement between a franchisor selling its rights to other businesses (franchisees) to allow them to sell products under its name; in return, the franchisee pays a fee and a royalty (percentage of the profts) to the franchisor

horizontal integration

an external growth strategy that occurs when a business acquires or merges with a firm operating in the same stage of the chain of production, e.g. two commercial banks decide to merge

joint venture

a strategy that combines the contributions and responsibilties of two different organizations to a shared project by forming a separate enterprise; both businesses in a joint venture retain their original identity unlike a merger or takeover

management buy-out

occurs when the managers of a company purchase all the shares in the business, thereby becoming the firm's legal owners

market development

a medium-risk growth strategy that involves selling existing products in new markets, i.e. an established product is sold in a new market

market penetration

a low-risk growth strategy that involves businesses choosing to focus on selling existing products in existing markets

merger

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

organic growth (Internal)

occurs when a business grows internally, using its own resources to increase the scale of its operations and sales revenue; occurs through a firm's efforts to sell more of its own products by using its own resources; also known as internal growth

product development

a medium-risk growth strategy that involves selling new products in existing markets