Key Terms

Business plan

A written document that describes a business, its objectives and its strategies, the market it is in and its financial forecasts

Business process re-engineering

Fundamentally rethinking and redesigning the processes of a business to achieve a dramatic improvement in performance

Capital goods

Physical goods that are used by industry to aid in the production of other goods and services

Change Management

Planning, implementing, controlling and reviewing the movement of an organisation from its current state to a new one

Command economy

Economic resources are owned, planned and controlled by the state

Computer-aided Design (CAD)

Using computers and IT when designing products

Computer-aided Manufacturing (CAM)

The use of computers and computer-controlled machinery to speed up the production process and make it more flexible

Conglomerate integration

Merger with or takeover of a business in a different industry

Consumer goods

The physical and tangible goods sold to the general public

Consumer services

Non-tangible products that are sold to the general public

Corporate or strategic objectives

Important, broadly defined targets that a business must reach to achieve its overall aim

Corporate Social Responsibility

Concept that businesses consider the interests of society by taking responsibility for the impact of their decisions and activities on the world

Cost-push inflation

Caused by rising costs forcing businesses to increase prices

Decision tree

A diagram that sets out the options connected with a decision and the outcomes and economic returns that may result

Demand-pull inflation

Caused by excess demand in an economy

Diseconomies of scale

Factors that cause average costs of production to rise when the scale of operation is increased

Diversification

The process of selling different, unrelated goods or services in new markets

Economies of scale

Reduction in a firm’s unit (average) costs of production that result from an increase in the scale of operations

Economic growth

Increases in the level of a country’s Gross Domestic Product (GDP)

Entrepreneur

Someone who takes the financial risk of starting and managing a new venture

Environmental audit

Assesses the impact of a business’s impact on the environment

Ethical code (Code of conduct)

A document detailing a company’s rules and guidelines on staff behaviour that must be followed by all employees

Ethics

Moral guidelines that determine decision making

Exchange rate

The value of one currency in terms of another currency

Expected value

The likely financial result of an outcome obtained by multiplying the probability of an event occurring by the forecast economic return if it does occur

External constraints

Limiting factors in decision-making that are beyond the organisation’s control

External growth

Business expansion achieved by means of merging with or taking over another business (from either the same or a different industry)

Fishbone diagram

A visual identification of many potential causes of a problem

Fiscal Policy

Changes in government spending levels and tax rates

Force field analysis

An analytical process used to map the opposing forces within an environment (such as a business) where change is taking place

Forward vertical integration

Integration with a business in the same industry but a customer of the existing business

Franchise

A business that uses the name,logo and trading systems of an existing successful business

Free international trade

International trade that is allowed to take place without restrictions such as ‘protectionist’ tariffs and quotas

Free-market economy

Economic resources are owned largely by the private sector with very little state intervention

Globalisation

The growing trend towards worldwide markets in products, capital and labour, unrestricted by barriers

Horizontal integration

Integration with firm in the same industry and at the same stage of production

Inflation

The rate of change in the average level of prices

Information technology

The use of electronic technology to gather, store, process and communicate information

Internal constraints

Limiting factors in decision-making that can be controlled by the organisation

Internet

The worldwide web of communication links between computers

Intuitive decision-making

Involves making decisions based on instinct or ‘gut feeling’ for a situation (perhaps based on the manager’s experience)

Joint venture

Two or more businesses agree to work closely together on a particular project and create a separate business division to do so

Limited Liability

The potential loss a shareholder has if the company fails is the amount invested in the company

Market development

The strategy of selling existing products in new markets

Market Penetration

The objective of achieving higher market shares in existing markets with existing products

Merger

An agreement by shareholders and managers of two businesses to bring both firms together under a common board of directors

Mission Statement

A statement of the business’s core aims, phrased in a way to motivate employees and to stimulate interest by outside groups

Mixed economy

Economic resources are owned and controlled by both private and public sectors

Monetary Policy

Changes in the level of interest rates which make loan capital more or less expensive

Multinational companies

Business organisations that have their headquarters in one country but with operating branches, factories and assembly plants in other countries

Non-governmental organisation (NGO)

A legally constituted body with no participation or representation of any government

Non-profit organisation

Any organisation that has aims other than making and distributing profit

Partnership

A business formed by two or more people to carry on a business together with share capital investment and responsibility

PEST analysis

Analytical framework for external environment factors affecting business objectives and strategies

Primary sector business activity

Firms engaged in extracting natural resources so they can be used and processed by other firms

Private limited company

A small to medium sized business that is owned by shareholders who are often member of the same family

Private sector

Comprises businesses owned and controlled by individuals or groups of individuals

Privatisation

The sale of public sector organisations to the private sector

Pressure group

An organisation created by people with a common interest or objective who lobby businesses and governments to change policies so that the objective is reached

Public corporation

A business enterprise owned and controlled by the state also known as nationalised industry

Private Finance Initiative (PFI)

Investment by private sector organisations in public sector projects

Product Development

The development and sale of new products or new developments of existing products in existing markets

Project Champion

a person assigned to support and drive a project forward

Project groups

Created by an organisation to address a problem that requires input from different specialists

Public limited company (plc)

A limited company often a large business with the legal right to sell shares to the public

Public-private Partnership (PPP)

Involvement of the private sector, in the form of management expertise and/or financial investment, in public sector projects aimed at benefiting the public

Public sector

Comprises organisations accountable to and controlled by central or local government (the state)

Quota

A physical limit placed on the quantity of imports of certain products

Recession

Six months (two quarters) of falling GDP (negative growth)

Secondary sector business activity

Firms that manufacture and process products from natural resources

Scale of operation

The maximum output that can be achieved using the available inputs (resources)

Share

A certificate confirming part ownership of a company

Shareholder

A person or institution owning shares in a limited company

Social audit

An independent report on the impact a business has on society

Social enterprise

A business with mainly social objectives that reinvests most of its profits into benefiting society rather than maximising returns to owners

Sole trader

A business in which one person provides the permanent finance and, in return, has full control of the business and is able to keep all of the profits

Stakeholders

People or groups of people who can be affected by and therefore have an interest in any action by an organisation

Stakeholder concept

The view that businesses and their managers have responsibilities to a wide range of groups not just shareholders

Strategic Alliance

Agreements between firms in which each agrees to commit resources to achieve an agreed set of objectives

SWOT analysis

A form of strategic analysis that identifies and analyses the main internal strengths and weaknesses and external opportunities and threats

Tactical or operational objectives

Short or medium term goals or targets which must be achieved for an organisation to attain its corporate objectives

Takeover

When a company buys over 50% of the shares of another company and becomes the controlling owner (often referred to as acquisition)

Tariff

Tax imposed on an imported product

Tertiary sector business activity

Firms that provide services to consumers and other businesses

Triple bottom line

The three objectives of social enterprises which are economic, social and environmental