IB Business Vocabulary

Primary Sector

Businesses involved in the extraction of natural resources, such as farming, mining, fishing, etc.

Secondary Sector

Business activity is concerned with the construction and manufacturing of physical products.

Tertiary Sector

Business activity is concerned with the provision of services to customers

Private Sector

Part of the economy under the control of private individuals and businesses, rather than the government. (sole traders, partnerships, corporations)

Public Sector

Part of the economy under the control of the government

Incorporation

There is a legal difference between the owners of a company and the business itself. Ensures that the owners are safeguarded against any losses made by the companies.

Limited Liability

Restriction on the amount of money that can be lost from the owners of a business if it goes into bankrupcy

Unlimited Liability

No limit to how much debt a sole trader is legally responsible to pay if failure

Non - governmental organization (NGO)

Any private sector organization that does not primarily aim to make profit. Instead, they operate for the benefit of others in society

Private Limited company

Business organization owned by shareholders with limited lability but whose shares cannot be bought or sold to the general public (stock exchange)

Public Limited company

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

Partnership

Form of private sector business owned by 1 - 20 people. They share the responsibilities and burdens of running and owning the business.

Sole trader

Self - employed person. He or she runs the business on their own and has sole responsibility for its success or failure.

Unincorporated

The owner is legally the same as the business (he or she is treated as a single entity) Owner is personally responsible for all debts

Vision statement

Outlines a business's aspirations (where it wants to be) in the distant future

Mission statement

A simple declaration that broadly states the underlying purpose of an organization's existence

Aims

General long - term goals of an organization.

Objectives

Short term and more specific goals of an organization based on its aims.

Tactical Objectives

Short - term objectives that affect a segment of the organization. Specific goals that guide the daily functioning of certain operations that are in line with the primary objectives of the business

Strategic Objectives

Long term aims of a business organization. For example: profit maximization, growth, image and reputation, and market standing.

SMART Objectives

Specific, measurable, agreed, realistic and times

Corporate Social Responsibility

Businesses that act morally towards their stakeholders such as their employees and the local community.

Social Audit

Independent assessment of how a firm's actions affect society

Stakeholder

Any person or organization that has a direct interest in and is affected by the performance of a business

Internal Stakeholders

Employees, shareholders, managers and directors of the organization

External Stakeholders

Suppliers, customers, special interest groups, competitors and the government

Stakeholder mapping

Allows managers to assess how to deal with conflicting stakeholder objectives

PEST Analysis

A framework used to analyse the opportunities and threats of the political, economical, social and technological environments on business activity

SWOT Analysis

Analytical tool used to assess the internal strengths and weaknesses and the external opportunities and threats of an organization or a decision

Decision making framework

Systematic process of dealing with business problems, concerns or issues in order to make the best decision

Decision Tree

Quantitative decision-making tool that allows firms to calculate the probable values of different options if they are pursued

Fishbone Model

Identifying the root causes of a problem or issue

Economies of Scale

Lower average costs of production as a firm operates on a larger scale

Internal economies of scale

Technical, Financial, Managerial, Specialization, Marketing, Monopsony, Commercial, Risk-bearing

External economies of scale

Those that arise form outside the firm due to its favorable location or growth in the industry.

Diseconomies of scale

Cost disadvantages of growth. Unit costs are likely to eventually rise as a firm grows in size due to internal factors and external factors

External diseconomies of scale

An increase in the average costs of production as a firm grows due to factors beyond its control

Internal (organic) growth

When a business grows internally, using its own resources to increase the scale of its operations and sales revenue

External growth

Dealings with outside organizations.

Strategic alliances

Two or more businesses seek to form a mutually beneficial affiliation by cooperating in a business venture.

Franchise

Form of business ownership whereby a person or business buys a license to trade using another firm's name, logo, brands, and trademarks

Porters generic strategies

Outlines the ways that any business can gain a competitive advantage

Ansoff matrix

Analytical tool that helps managers to devise their product and market growth strategies

Globalization

The growing integration and interdependence of the worlds economies

Multinational corporation (MNC)

Business organization that operates in two or more countries.

Regional trading blocs

A group of countries that agree to freer international trade with each other through the removal of trade barriers

Joint Venture

When two or more businesses decide to split the costs, risks, control and rewards of a business project.

Appraisal

Formal process of evaluating the contributions and performance of an employee, usually conducted through observations and an interview with the appraisees line manager.

Decentralization

When some decision-making authority and responsibility is apssed onto others in the rganization

Flat organizational structure

There are only a few layers in the organizational hierarchy and hence managers have a wide span of control

Tall organizational structure

There are many layers in the organizational hierarchy and hence managers have a narrow span of control

Matrix structure

flexible organization of employees from different departments within an organization temporarily working together on a particular project.

Offshoring

Involves relocating business functions and processes to another country

Outsourcing

The act of finding external people or businesses to carry out non-core functions of a business

Communication

Transfer of information between different people and business organization

Communication channel

The methods or routes through which information is passed form the sender to the recipient. Open channels are used when information is not confidential and can be shared by anyone. Restricted channels of communication are used when information is confidential and is directed only to those who need to know.

Communication network

A diagram representing the communication structure within an organization

Delayering

A method of improving communication by reducing the number of levels in an organizational hierarchy

Formal communication

The official channels of communication that are established by an organization

Informal communication

Unofficial channels of communication naturally established by people from within an organization, often based on their common interest

Non-verbal communication

Any form of communication other than oral communication. (electronic systems such as email, written methods such as letters, visual stimulus such as body language)

Verbal communication

Communication via the use of spoken works, such as meetings, interviews, and appraisals

Visual communication

Communication methods that use visual images and stimuli, such as poster displays and a person's body language

Autocratic

Managers and leaders that adopt an authoritarian style by making all the decisions rather than delegating any responsibility to their subordinates. They tell others what to do.

Contingency theory

Leadership model based on the belief that the best leadership style for a business depends on a range of interconnected factors, such as the size, skills, and abilities of the workforce

Democratic leader

Decision-maker who takes into account the views of employees.

Leadership

The skill of getting things done through other people by inspiring, influencing and motivating them

Management

The practice of achieving an organization's objectives by using the available resources of the business, including human resources

Management by objectives

Management technique whereby employees set their own objectives, with the help and advice of their manager. Subordinates then decide how they will achieve these targets. Progress towards meeting these objectives is then tracked with follow-up meetings with the manager

Paternalistic

Managers and leaders treat their employees as if they were family members by guiding them through a process of consultation. In their opinion, they act in the best interest of their workers.

Situational leadership

The belief that there is no distinct or unique approach to leadership and management which suits all organizations and all employees. The best style depends on different situations, such as the culture and attitudes of managers and workers

Corporate culture

The traditions and norms within an organization such as: dress code, work ethos and attitude towards punctuality

Culture clash

When there is conflict between two or more cultures within an organization. This may exist, for example, when two firms integrate via a merger or takeover

Culture gap

Difference between the existing culture of an organization and its desired culture. Management will use different strategies to reduce this gap

Collective bargaining

Negotiation process whereby trade union representatives and employer representatives discuss issues with the intention of reaching a mutually acceptable agreement

Arbitration

Process that involves an independent person or body, known as the arbitrator, deciding on an appropriate outcome to dispute.

Conflict resolution

Course of action taken to resolve conflict and differences in opinion

Deadlock

A situation where there has been a failure to reach a satisfactory compromise in the negotiation process

Go-slow

Form of industrial action that involves employees working at the minimum pace allowable under their employment contract

Contingency planning

How to deal with a crisis to ensure the continuity of the business.

Crisis management

The responses of an organization's management team to a crisis situation. It involves setting up measures to allow instantaneous and constructive action to be taken in the even of a crisis

Crisis planning

Being reactive to events and changes that might cause serious disruptions and damage to a business.

Business angels

Wealthy and entrepreneurial investors who risk their money in small to medium sized businesses that have high growth potential. Their hand-on approach, experience and financial investment can have a large impact on the success of business start-ups

Capital expenditure

Spending by businesses on fixed assets such as the purchase of land and buildings. Such expenditure is seen as vital to the growth and survival of businesses in the long run.

Creditors

Individuals or organizations that the business owes money to that needs to be settled within the next 12 months.

Debentures

Long-term loan to a business with the promise of fixed annual interest payments to the debenture holders. The vast majority of these loans are also repayable on maturity, although some are indefinite so are classed as permanent capital to the firm as there is no maturity date.

External financing

Getting sources of finance from outside the organization such as through debt, share capital, or funding from the government

Leasing

Is suitable if a firm needs to use expensive assets such as equipment or vehicles. The leasing company owns the equipment and hires it out to the customers. Lessees do not have to commit to large amounts of their own capital

Overdrafts

A service offered by financial institutions that allow a business to spend in excess of the amount in its account, up to a predetermined limit.

Revenue expenditure

Spending on the day-to-day running of a business such as, rent, wages and utility bills

Sources of finance

General term used to refer to where or how businesses obtain their funds, such as from working capital, commercial lenders and/or government assistance

Working capital

Day-to-day money that is available to a business. It is calculated as the difference between a firm's liquid assets (the value of cash, stocks and debtors) and its short-term debts (such as creditors, tax and overdrafts)

Investment appraisal

Financial decision-making tool that helps managers to assess whether certain investment projects should be undertaken based mainly on quantitative techniques

Net present value

An investment appraisal technique that calculates the total discounted cash flows, minus the initial cost of an investment project. If the figure is positive, then the project is viable and should be undertaken

Payback period

An investment appraisal technique that calculates the total discounted cash flows minus the initial cost of an investment project. If the figure is positive, then the project is viable and should be undertaken.

Qualitative investment appraisal

Refers to judging whether an investment project is worthwhile through non-numerical means, such as whether an investment decision is in line with the corporate culture.

Quantitative investment appraisal

Appraisal refers to judging whether an investment project is worthwhile through numerical means

Working capital

The amount of finance available to a business for its daily operations.

Current assets

Resources that belong to a business that are intended to be used within the next twelve months, such as cash, debtors and stocks

Net cash flow

The cash that is left over after cash outflows have been accounted for from the cash inflows. If it is positive, then this means the value of cash inflows exceeds that of cash outflows.