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121 Cards in this Set
- Front
- Back
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AC (Average Cost) Valuation
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A method of stock valuation which involves recalculating the average cost of stock every time a new delivery arrives. Each unit is assumed to have been purchased at the average price of all components.
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Added Value
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The difference between a product's price and the total cost of the inputs that went into making it. It is the extra worth created in the production process.
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Businesses
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Organizations involved in the production of goods and/or the provision of services.
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Capital
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All non-natural resources used in the production process. An example is money, but the term also includes resources such as machinery, tools, equipment and factories.
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Division of Labour
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The specialization of worker in the provision of goods and/or services by breaking a job down into particular roles or tasks that are repeated by the same workers.
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Entrepreneurs
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People who manage, organize and plan the other three factors of production. They are risk takers who exploit business opportunities in return for profit.
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Factors of Production
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The inputs (or resources) necessary for the production process: land, labour, capital and enterprise.
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Functional Areas
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The term used to refer to the different sections of a business. These are usually named as the marketing, production, finance and human resources department.
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Industrialisation (HL)
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The process experienced by a country that moves away from a primary production towards manufacturing as its principal sector for national output and employment.
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Labour
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The physical and mental human effort used in the production process.
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Land
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Natural resources that can be found on the planet. This includes renewable and non-renewable natural resources such as water, fish, wood and physical land itself.
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Opportunity Cost
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The cost measured in terms of the best alternative that is foregone when a choice is made.
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Primary Sector
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Businesses involved in the cultivation or extraction of natural resources, such as farming, mining, quarrying, fishing, oil exploration and forestry.
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Secondary Sector
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The section of the economy where business activity is concerned with the construction and manufacturing of products.
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Structural Change (HL)
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A shift in the relative share of national output and employment that is attributed to each business sector.
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Tertiary Sector
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The section of economy where business activity is concerned with the provision of services to customers.
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Articles of Association
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The document that sets out the internal organization and rules of a limited company. Details might include the powers of each director and voting rules.
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Certificate of Incorporation
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The name of the document issued to a limited company to show that it has legally formed and is therefore a separate legal entity from its owners.
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Charities
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Not-for-profit organizations established to support good causes, from society's point of view.
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Company
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Business that is owned by shareholders. It has been issued a certificate of incorporation, giving it a separate legal entity from its owners.
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Deed of Partnership
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Legal contract signed by the owners of a partnership. The formal document will specify the name and responsibilities of each partner and their share of any profits or losses.
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Incorporation
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A legal difference between the owners of a company and the business itself. This ensures that the owners are protected by limited liability.
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Limited Liability
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A restriction on the amount of money that owners can lose if the business goes into bankruptcy, i.e. they cannot lose more than they invested in the business.
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Memorandum of Association
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The legal document that specifies the basic information of a company, such as the name and address of the firm, its objectives and the share capital.
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Non-Governmental Organization (NGO)
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Private sector organizations that operate for the benefit of others rather than aiming to make a profit, e.g. Oxfam and Friends of the Earth.
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Partnerships
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Form of private sector business owned by 2-20 people (known as partners). They share the responsibilities and burdens of running and owning the business.
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Private Limited Company
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Business owned by shareholders with limited liability but who's shares cannot be bought by or sold to the general public.
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Private Sector
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The part of the economy under the control of private individuals and businesses, rather than the government. Examples include sole traders, partnerships and limited companies.
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Public Limited Company
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An incorporated business organization that allows the general public to buy and sell shares in the company via a stock exchange.
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Public Corporations (State-Owned Enterprises)
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Organizations wholly owned by the government but run as commercial establishments, e.g. the BBC (British Broadcasting Corporation).
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Public-Private Enterprises (HL)
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Occur when the government creates commercial partnership with the private sector to prove certain goods or services.
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Public Sector
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The part of the economy controlled by the government. Examples include state health and education services, the emergency services and national defense.
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Stock Exchange
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The market place for trading stocks and shares of public limited companies. Examples include the London Stock Exchange (LSE) or the New York Stock Exchange (NYSE).
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Silent Partner (Sleeping Partner)
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An investor of a partnership who is not directly involved in the daily running of the business.
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Sole Trader
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Self-employed person. He or She runs the business on their own and has sole responsibility for its success (profits) or failure (unlimited liability).
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Unlimited Liability
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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.
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Aims
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The long-term goals of a business, often expressed in the firm's mission statement. They are a general statement of a firm's purpose of intentions and tend to be qualitative in nature.
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Corporate Social Responsibility (CSR)
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The consideration of ethical and environmental issues relating to business activity. A business that adopts CSR acts morally towards its stakeholders.
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Ethics
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The moral values that determine and affect business behavior and decision-making, such as taking actions that are in the best interest of the natural environment.
Advantages of ethical behavior: Improved corporate image Increased customer loyalty Cost cutting- Reducing the amount of packaging to be environmentally friendly Improved staff morale and motivation Limitations of ethical behavior: Compliance cost- high cost of acting ethically (organic products are more expensive) Lower profits Stakeholder conflict- Conflict with profit margin so some stakeholders may not be very happy. Examples of unethical behavior: Financial dishonesty Environmental neglect Exploitation of the workforce Exploitation of suppliers- Big businesses can take advantage by providing them with business or taking it away so they can cut prices for themselves. Exploitation of customers- Tobacco, alcohol, gambling. Few competitors and so can make prices high. |
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Strategy & Tactic
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Strategy refers to any plan of action to achieve the strategic objectives of an organization.
Tactics are short-term methods used to achieve aims and objectives. Operational strategies are day-to-day methods used to improve the efficiency of an organization. (Tactic) Generic strategies are those that affect the business as a whole. (Strategy) Corporate strategies are targeted at the long-term goals of a business. |
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Mission Statement
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The declaration of an organization's overall purpose. It forms the foundation for setting the objectives of a business.
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Objectives
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Relatively short-term targets of an organization. They tend to be expressed as SMART objectives.
Specific Measurable Achievable Realistic Time constrained |
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Social Audit
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Independent assessment of how a firm's actions affect society such as a review of the firm's environmental impact, its contribution to society and staff welfare.
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Social Responsibility
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A business being conscientiously devoted to the wellbeing of society as a whole. Such organizations behave ethically and consider the needs of all their stakeholders.
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Vision Statement
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An organization's long-term aspirations, i.e. where it ultimately wants to be.
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Conflict
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Situations where people have disagreements on certain matters due to differences in their opinions. It can lead to arguments and tension between various stakeholder groups.
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Directors
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The senior members of staff who have been elected by shareholders of a company to run the business on their behalf.
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External Stakeholders
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Not a part of the organization but have a direct interest in its actions, e.g. customers, supplies, financiers, and the government.
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Industry Trade Groups (Trade Associations)
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Organizations that specialize in promoting the aims of a particular industry through education and public relations campaign.
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Internal Stakeholders
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Members of the organization, i.e. the employees, shareholders, managers and directors of the business.
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Managers
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The people responsible for the daily running of a business or a department within the business. They are accountable to the directors and responsible for their staff teams.
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Pressure Groups
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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.
Actions taken by pressure groups: Boycotting Lobbying Public relations- use of celebrities to support their cause Direct action |
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Shareholder Concept
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The notion that shareholders are they key stake holder group as any business ultimately belongs to its shareholders.
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Special Interest Group (SIG)
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Refers to the organization of people who have a common interest (such as environmental protection) and collectively act to achieve that interest.
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Stakeholder Mapping (HL)
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Analytical tool developed by Johnson and Scholes which places different stakeholder groups into quadrants depending on their relative levels of power and interest in an organization.
Level of Interest Low High Low A B Level of Power High C D |
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Stakeholders
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Individuals or organizations that have a direct interest in the activities and performance of a business, e.g. shareholders, employees, customers and suppliers.
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Stockholders (Shareholders)
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The owners of a company. Shares in a company can be held by individuals and other organizations.
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PEST, STEEPLE & PESTLE
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PEST is an acronymn for the Political, Economic, Social and Technological opportunities and threats of the external environment within which businesses operate.
Political- Employment law, consumer protection rights, copyright and trademark regulations. The boundaries within which businesses can operate. Economic- The state of the economy in which businesses operate is determined by four key variables: inflation, unemployment, economic growth and international trade. Social- Social, cultural and demographic changes can present opportunities and threats. (More women in workforces). Technological- Advances in the technology and work processes have improved productive efficiency. The high cost of staying up to date with the technological progress can hinder the performance of a businesses. PESTLE Include Legal and Environmental O & T STEEPLE Include Ethical O & T |
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Fiscal Policy
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Use of taxation and government expenditure policies to influence the economy.
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Balance of Payments
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Annual record of a country's exports earnings and its import expenditure. A surplus exists if the value of exports exceeds that of imports (vice versa for a deficit).
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Deregulation
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The removal of government rules and regulations which constrain an industry. It should therefore enhance efficiency and encourage more competition within the industry.
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Direct Tax
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A levy on the income of individuals or businesses, such as personal income tax and corporation tax.
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Economic Growth
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Measures changes in the Gross Domestic Product of a country over time. Growth is said to occur if there is an increase in GDP for two consecutive quarters.
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Exchange Rates
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The value of a country's currency in terms of another country.
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External Shocks (Exogenous Shocks)
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Unforeseeable and unexpected changes in the external business environment that tend to affect all businesses in the economy.
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Gross Domestic Product
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Total value of a nation's annual output. It is used as an indicator of the level of economic activity in a country.
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Indirect Tax
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A levy on the purchase of goods and services, e.g. sales taxes and excise duties.
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Inflation
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Occurs when the general price level in an economy continuously rises. It is measured by changes in the cost of a representative basket of products purchased by the average household.
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Interest Rate
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A measure of the price of money in terms of the amount chargers for borrowed funds of how much is offered on money that is saved.
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Monetary Policy
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Government policies concerned with changing interest rates to control the money supply and the exchange rate.
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Protectionism
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Any measure taken by government to safeguard its businesses from foreign competitors. This presents a threat for businesses trying to operate in overseas markets.
Examples of protectionism Tariffs- a form of tax placed on imported products. Quotas- quantitative limits on the volume or value of imports. Subsidies- payments made by government to domestic firms as financial aid (aid in giving competitive advantage). Embargos- physical bans on international trades with a certain country. Technological and safety standards. |
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SWOT
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Strengths- Internal factors that are favorable compared to competitors.
Weaknesses- Internal factors that are unfavorable when compared to competitors. Opportunities- External possibilities and prospects for future development. Threats- External factors that hinder the prospects for an organization. Advantages: Simple and quick Wide range of applications Helps determine the organization's position in the marketplace Encourages Foresight Limitations: Simplistic & does not demand detailed analysis Environment is always changing Only useful if decision makers are willing to recognize their weaknesses For Exam: Do NOT put in a table. Examiners prefer in bullet points with justifications |
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Business Plan
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Report detailing how a business sets out to achieve its aims and objectives. It requires managers to plan their marketing, financial and human resources.
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Decision Making
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Process of choosing between the alternative options available.
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Decision-Making Framework
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Systematic process of dealing with business problems, concerns or issues in order to make the best decision.
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Decision Trees
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Quantitative decision-making tool that calculates the probable values of different options, helping to minimise the risks in decision making.
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Six Thinking Hats
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Devised by psychologist Edward De Bono
White hat: factual information only Red hat: thinking based on emotions and feelings Black hat: considerations of only the bad points of a decision Yellow hat: the benefits of a decision Green hat: creative solutions to a problem Blue hat: neutral thinking |
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Executive Summary
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Written statement placed at the beginning of a business plan and summarizes the information given in the main business plan, including the conclusions.
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Fishbone Diagram (Cause-and-Effect Model) (HL)
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Decision-making framework based on identifying the root causes of a problem or issue.
The 4 M's are: Management Manpower Machines Material |
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Intuitive Decision Making (HL)
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Decision-making that is based on gut feelings, hunch and/or instinct rather than relying on quantitative or scientific techniques.
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Planning Tools
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Various methods that businesses use to aid their decision making such as SWOT and Decision Trees.
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Scientific Decision Making
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Based on a systematic and logical framework to remove subjectivity and emotions from decision making.
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Ansoff's Matrix
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Analytical tool to devise product and market growth strategies, depending on whether firms want to market new or existing products in either new or existing markets.
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Backward Vertical Integration
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When a business amalgamates with a firm operation in an earlier stage of production, e.g. a car manufacturer taking over a supplier of tires or other components.
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Barriers to Entry
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Obstacles that make it difficult for a new firm to enter a market. Examples include high set-up costs and the market power of established firms in the industry.
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Conglomerates
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Businesses that provide a diversified range of products and operate in an array of different industries.
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Cost Leadership (HL)
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One of Porters generic strategies that concentrates on gaining a competitive advantage by reducing costs.
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Differentiation (HL)
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When a firm makes its products distinct from those of its competitors, e.g. by packaging or branding to make the product seem unique. Also a part of Porters generic strategies.
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Diseconomies of Scale
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Cost disadvantages of growth. Unit costs are likely to eventually rise as a firm grows, e.g. lack of control, coordination and communication.
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Diversification
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High-risk growth strategy that involves a business selling new products in new markets, i.e. spreading risks over a diverse variety of products and markets.
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Economies of Scale
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Lower average costs of production as a firm operates on a larger scale, e.g. easier and cheaper to access to finance.
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Economies of Scope
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Cost-saving benefits of producing a large range of related products by sharing production facilites and resources.
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External Diseconomies of Scale
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An increase in the average cost of production as a firm grows due to factors beyond its control, mainly because there are too many firms in the industry.
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External Growth (Inorganic Growth)
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When a business grows by collaborating with, buying up or merging with another firm.
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Focus (HL)
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When a firm targets a niche or single segment of the market, either by focusing on being a low-cost producer or by differentiation.
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Forward Vertical Integration
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Growth strategy that occurs with the acquisition or merger of a firm operating at a later stage in the chain of production, e.g. a book publisher merges with a book retailer.
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Franchise
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An agreement between a franchisor selling its rights to other businesses (franchisees) to allow them to sell products under its name in return for a fee and royalty payments.
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Horizontal Integration
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External growth strategy that occurs when a business acquires or merges with a firm operation in the same stage of the chain of production.
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Joint Venture
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Growth strategy that combines the contributions and responsibilities of two different organizations to a shared project by forming a separate legal enterprise.
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Management Buy-Out (MBO)
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Defensive growth strategy that involves the management team of the target business buying shares in the company to become the owners.
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Market Development
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Medium-risk growth strategy that involves selling existing products in the new markets, i.e. an established product is sold in a new market.
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Market Penetration
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Low-risk growth strategy that involves businesses choosing to focus on selling existing products in existing markets.
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Merger
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Form of growth whereby two (or more) firms agree to form a new organization, thereby losing their original identities.
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Organic Growth
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When a business grows internally, using its own resources to increase the scale of its operations and sales revenue.
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Porter's Generic Strategies (HL)
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The ways that any business can gain a competitive advantage, i.e. cost leadership, focus, or differentiation.
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Product development
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Medium-risk growth strategy that involves selling new products in existing markets.
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Takeover (Acquisition)
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Form of external growth whereby one firm buys up another by purchasing a controlling interest in that company.
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Change Management (HL)
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Management process of planning, forecasting, controlling, and steering change within an organization.
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Change Masters (HL)
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Skilled managers in the art of change management. They are able to deal with change by adapting and reacting quickly to different scenarios.
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Driving Forces (HL)
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Forces or reasons acting for change, i.e. benefits to the organization following the implementation of change, such as reduced costs or improved productivity.
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Force Field Analysis (HL)
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Kurt Lewin's model of change management that deals with the forces for and against change.
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Resistance to Change (HL)
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The pressures from staff against change being introduced, i.e. a reluctance to change, due to factors such a unfamiliarity or a lack of understanding.
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Restraining Forces (HL)
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Cause of resistance to change, i.e. the forces that act against any proposal for change.
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Stakeholder Mapping (HL)
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Management tool for dealing with change and conflict by identifying the level of influence of various stakeholder groups and their likely reaction to change.
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Closer Economic Partnership Arrangement (CEPA)
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WTO-compliant free trade agreement between two or more countries.
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Common Market
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A customs union, such as the European Union, that allows the free movement of factors inputs (land, labour, capital and enterprise) between member countries.
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Customs Union
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An affiliation of countries that trade freely with each other but impose the same trade barriers to non-member countries.
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Free Trade
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When countries trade without any international trade barriers such as tariffs, quotas, and bureaucratic procedures.
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Globalization
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Integration and interdependence of economic, social, technical and cultural issues of the world's economies.
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Multinational Corporations (MNC)
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Companies that operate production or service facilities outside their home country.
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Regional Trading Bloc
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A group of countries that agree to freer international trade with each other by removing trade barriers.
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