Business Management - Unit 1: Intro to Business

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The process of producing a particular good or service that is worth more than the cost of the resources used to produce it.

Adding value

A decision-making organization established to produce goods and/or provide services.

Business

The individuals or organizations that actually use a product.

Consumers

The individuals or organizations that purchase a product.

Customers

The individuals who take risks in overseeing a business organization or business venture, usually in pursuit of profit.

Entrepreneurs

The knowledge, skills and experiences of individuals who have the capability to manage the overall production process.

Entrepreneurship

The collective term for the resources used in the production process, i.e. land, labour, capital and entrepreneurship.

Factors of production

Function of an organization responsible for ensuring that the business has sufficient funds in order to conduct its daily operations.

Finance and accounts

These are physical (tangible) products, such as cars, clothes, flowers, food, furniture, smartphones, and toys.

Goods

The business function that handles all aspects relate to the workforce, involving all aspects of a firm's operations related to staff (personnel) within an organization.

Human resources

Business function of identifying the needs and wants of customers so that the organization can provide goods and services to meet these requirements and desires, usually in a profitable way.

Marketing

The business function referring to the process of making goods and providing services from the available resources of a business to meet the needs and wants of its customers.

Operations 

Business activity involved with the extraction of natural resources, e.g. fishing, mining and agriculture.

Primary sector

The process of creating goods and/or services using the factors of production available to the business.

Production

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Business activity involving the creation or sharing of knowledge and information.

Quaternary sector

Business activity involved with the manufacturing or construction of finished products.

Secondary sector

Intangible products, such as haircuts, tourism, public transport, banking, insurance education, and healthcare.

Services

Business activity that involves providing services to customers, i.e. consumers and business clients.

Tertiary sector

The numerical difference between the cost of factor inputs in the production process and the price that the final output is sold for.

Value added

This refers to any business organisation that is owned by its shareholders, who have limited liability. They comprise of privately held companies and publicly held companies.

**Companies** (corporations)

These are for-profit social enterprises owned and run by their members (usually employees, managers or customers). Their primary goal is to create value for their member-owners.

Cooperatives

A legally binding contract that all joint owners of a partnership sign, stating the purpose of the business, the formal rights of the partners, and how any profits should be split.

Deed of Partnership

This means that there is a legal difference between the owners of a company (the shareholders) and the business entity itself. This ensures that the owners are protected by limited liability.

**Incorporation** (incorporated)

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An IPO occurs when an organization sells all or part of its business to shareholders on a public stock exchange for the first time. This changes the legal status of the business to a publicly held company.

**Initial public offering** (IPO)

This legal status of a business enables its shareholders (business owners) not to be liable for more than the original amount of money invested in the business.

Limited liability

This is a special type of partnership where one or more partners contribute capital and enjoy a share of the profits but do not participate in the running of the business. However, at least one partner must still have unlimited liability.

Limited partnership

A type of non-profit organization (NPO) operating in the private sector of the economy for the benefit of others in society (rather than for shareholders).

**Non-governmental organizations** (NGOs)

A business alliance consisting of between 2 and 20 individual owners who are jointly responsible for the business (although this number can vary between countries).

Partnership

This section of the economy is made up of businesses that are owned by individuals or groups of individuals, rather than by the government.

Private sector

This is a business owned by shareholders with limited liability, but the shares cannot be traded on a public Stock Exchange.

Privately held company

A joint-stock company owned by shareholders. The shares in a publicly held company can be bought and sold by the general public, without prior approval of existing owners.

Publicly held company

Businesses in this section of the economy are run and owned by the government in order to provide essential services for society as a whole, e.g., education and healthcare services.

Public sector

This is an investor in a partnership but who does not get involved in the daily running and management of the organization.

Sleeping/silent partner

These organizations are revenue-generating businesses with community (social) objectives at the core of their operations in order to benefit the general public, rather than private shareholders.

Social enterprises

An organization which is owned by a single entrepreneur who has exclusive responsibility for the running of the business.

Sole trader (sole proprietor)

This is any marketplace where the general public and other companies can buy and/or sell shares.

Stock exchange

This means the owner(s) of a business (such as a sole trader or partner) is personally liable for any business debts, even if this requires the debts to be settled by selling off personal assets.

Unlimited liability

This is an organization’s decisions and actions that impact society in a positive way.

Corporate social responsibility (CSR)

The formal documented philosophies and values of a business, so that stakeholders know what is considered acceptable or not acceptable within the organization.

Ethical code of practice

Organizational goals based on moral guidelines that determine decision-making.

Ethical objectives

These are moral guidelines or codes of practice which govern good organizational behaviour.

Ethics

A succinct and motivating declaration of an organization’s purpose of existence, who they are, and what they do.

Mission statement

These are the clearly defined targets of a business in order to achieve its aims. They are often based on the SMART acronym – specific, measurable, agreed, realistic and time specific.

Objectives

Peter Drucker’s framework for setting organization objectives, which should be **s**pecific, **m**easurable, **a**greed (or achievable), **r**ealistic (or relevant), and **t**ime bound.

SMART objectives

The long-term goals of a business, which could include profit maximization, growth, and increased market share.

Strategic objectives

The various long-term plans of action and approaches used by a business to achieve its goals.

Strategies

The short-term methods, often on a daily basis, used to implement business strategy.

Tactic

The relatively short-term and specific goals of a business. These targets are used to guide the daily functioning of the organization.

Tactical objectives

An inspiring declaration of what an organization ultimately strives to be, or to achieve, in the distant future.

Vision statement

Method of stakeholder conflict resolution with all stakeholder groups in conflict agreeing to accept the decision or judgment of the independent arbitrator.

Arbitration

These are the firm’s rivals, which operate in the same industry and contest for the same customers.

Competitors

Method of stakeholder conflict resolution which aims to align the incompatible interests of different stakeholder groups by helping different parties to better understand each other’s interests.

Conciliation

This refers to the mutually exclusive and incompatible interests of different stakeholder groups. If this is not managed, it often leads to protracted disagreements, disputes, and arguments in the workplace.

Conflict

These are the firm’s clients, individuals and other businesses, who purchase the organization’s goods and/or services. Their interests include competitive prices, fit-for-purpose products and overall value for money.

Customers

The group of senior managers who run a company on behalf of the owners of the company.

Directors

These are the workers within an organization. Their interests include: job security, a competitive remuneration package, a safe working environment, and opportunities for career development.

Employees

Stakeholder groups that are not directly involved in the running of an organization but have a direct interest in its operations.

External stakeholders

Financial institutions (such as banks) and individual investors who provide source of finance for businesses. They are interested in the organization’s ability to generate profits and to repay debts.

Financiers

These stakeholders are part of the organization, such as employees, managers, directors, and shareholders.

Internal stakeholders

The people hired to be responsible for overseeing certain functions, operations, or departments within an organization.

Managers

Individuals who come together or organizations that are set up for a common concern. They aim to influence government and public opinion in order to create the desired social change.

Pressure groups

The people or organizations that have shares in a company. Their interest is financial, i.e. regular dividends and a higher share price.

Shareholders (stockholders)

Refers to differences in the varying needs, perspectives, and priorities of the numerous stakeholder groups of an organization.

Stakeholder conflict

A business management model used to determine the relative interest of stakeholders and their level of influence (or power) on an organization.

Stakeholder mapping

The individuals, organizations, or groups with a vested interest in the actions and outcomes of a specific organization. They are directly affected by the performance of the business.

Stakeholders

Organizations that provide the goods and support services for other businesses. Their interests include receiving regular orders and receiving payments from their business customers on time.

Suppliers

A method of external growth that involves one company buying a majority stake in another company with the agreement and approval of the target company’s Board of Directors.

Acquisition

A method of external growth that involves a company buying another company that is further away from the consumer in the chain of production.

Backwards vertical integration

This form of external growth occurs when two or more businesses in unrelated industries integrate through a merger, acquisition, or takeover.

Conglomerate

This occurs when a company sells off a part of its business, thereby separating into two or more separate entities. This often happens due to conflicts and inefficiencies of two or more firms previously in a merger agreement, such as culture clashes.

Demerger

Growth that is excessive results in inefficiencies and higher average costs of production, perhaps due to problems such as miscommunication, misunderstandings, and poor management of resources.

Diseconomies of scale

These are cost-saving benefits enjoyed by a business as it increases the size of its operations, i.e. lower average costs (the cost per unit).

Economies of scale

Category of economies of scale that occurs when a firm’s average cost of production falls as the industry grows, i.e., *all* firms in the industry benefit.

External economies of scale

This occurs when an individual firm has higher cost per unit of output due to factors beyond its control as the industry as a whole grows.

External diseconomies of scale

Also known as **inorganic growth**, this takes place when an organization requires the support of a partner organizations for its growth.

External growth

Banks and other lenders charge lower interest to larger businesses for overdrafts, loans and mortgages as they represent lower risk.

Financial economies of scale

This external growth method occurs when one company buys another business that is closer to the consumer in the chain of production.

Forward vertical integration

This growth strategy involves the right to trade using another company’s products, brand name and corporate logo.

Franchise

A growth method that involves two parties, with the franchisor giving the licensing rights to a franchisee to sell goods and services using the franchisor’s brands and products.

Franchising

This external growth strategy occurs when a merger, acquisition, or takeover takes place between two or more companies operating within the same industry (thereby reducing competition).

Horizontal integration

Higher unit costs of production that occur due to internal problems of mismanagement as a business organization grows.

Internal diseconomies of scale

Category of economies of scale that occurs for and within a particular organization (rather than the industry in which it operates) as it grows in size.

Internal economies of scale

Also known as **organic growth**, this takes place when an organization expands without the help of an external partner firm.

Internal growth

An external growth method that involves two or more organizations agreeing to create a new business entity, usually for a finite period of time.

Joint venture

An external growth method that involves two or more firms in a merger, acquisition, or takeover that have similar operations but do not directly compete with each other.

Lateral integration

Larger businesses can afford to hire specialist functional managers, thus improving the organization’s efficiency and productivity.

Managerial economies of scale

Larger businesses can spread their fixed costs of marketing by promoting and advertising a greater range of brands and products.

Marketing economies of scale

This form of external growth involves two or more companies agreeing to form a single, larger company thereby benefiting from operating on a larger scale.

Merger

The level of output where the average cost of production is at its lowest value, so at this level of output, profit is maximized.

Optimal output level

Larger firms can gain huge cost savings by buying vast quantities of stocks (raw materials, components, semi-finished goods and finished goods).

Purchasing economies of scale

Large businesses can bear greater risks than smaller ones due to a greater product portfolio. Hence, inefficiencies will harm smaller firms to a greater extent.

Risk bearing economies of scale

Larger firms can afford to hire and train specialist workers, thus helping to boost output, productivity, and efficiency (thereby cutting average costs of production).

Specialization economies of scale

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.

Strategic alliances

This is a key benefit of growth which occurs when the whole is greater than the sum of the individual parts. A larger company, with synergy, through a merger, acquisition, or takeover creates greater levels of output and improved efficiency.

Synergy (general)

Also referred to as hostile takeover) occurs when a company buys a controlling interest in another firm without the prior agreement or approval of the target company’s Board of Directors.

Takeover

The business that is the focus of being bought out by the purchasing company in an acquisition or takeover.

Target company

Cost savings by greater use of large-scale mechanical processes and specialist machinery, e.g., mass production techniques.

Technical economies of scale

When an acquisition or takeover occurs between two companies operating in different industries.

Vertical integration

This refers to cross-border investment in which a foreign company establishes an ongoing and significant stake (financial interest and degree of influence) in its operations in another economy.

Foreign direct investment (FDI)

This is any nation that allows a multinational company to set up in its country.

Host country