IB Business and Management Vocabulary

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Clustering

A business locates near other organizations that operate in similar or complementary markets

Liquidity crisis

A cash flow emergency situation where a business does not have enough cash to pay its current liabilities

Communication network

A diagram representing the communication structure within an organization

Trademarks

A form of intellectual property right that uses signs or logos to represent a business or its brans and products

PEST Analysis

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

Regional trading blocs

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

Delayering

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

Marketing audit

A review of a firms current marketing mi in terms of its strengths, weaknesses, opportunities and threats

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.

Mission statement

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

Liquidity crisis

A situation where a firm is unable to pay its short - term debts

Deadlock

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

Liquidity

Ability of a business to convert assets into cash quickly and easily without a fall in its value

Stakeholder mapping

Allows managers to assess how to deal with conflicting stakeholder objectives

Debtor days ratio

An efficiency ratio that measures the average number of days it takes for a business to collect the money owed from its debtors

Creditor days ratio

An efficiency ratio that measures the number of days it takes, on average, for a business to pay its creditors

External diseconomies of scale

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

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.

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

Ansoff matrix

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

SWOT Analysis

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

Unique selling point

Any aspect of a product that makes it stand out form those offered by rival businesses

Variance analysis

Any discrepancy between actual outcomes and budget outcomes. Favorable variances exist when the variance is beneficial for the business, such as sales being higher than budgeted or costs turning out to be lower than expected. The opposite is true for adverse (unfavorable) variances

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)

Above the line promotion

Any form of paid-for advertising through the mass media in ordre to reach a wide audience

Stakeholder

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

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

Trading account

Appears at the top section of the profit and loss account and shows the difference between a firms sales revenue and its direct costs of trading.

Quantitative investment appraisal

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

Supply chain management

Art of managing and controlling the sequence of activities from the production of a good or service to its delivery to the end customer

Liquid assets

Assets of a business that can be turned into cash quickly, without losing their value

Extension strategy

Attempt by marketers to lengthen the product life cycle of a particular product

Market - led pricing strategies

Based on the level of customer demand for a firm's products.

Crisis planning

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

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 Limited company

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

Multinational corporation (MNC)

Business organization that operates in two or more countries.

B2B

Business-to-business and refers to online trade conducted directly for the business customer rather than the end-user, such as Amazon supplying books to other book retailers

B2C

Business-to-consumer and refers to online business conducted directly for the end-user

Primary Sector

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

Corporate Social Responsibility

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

Wholesalers

Businesses that purchase large quantities of products form a manufacturer and then separate or break the bulk purchases into smaller units for resale to retailers

Purchasing

Buying of raw materials, components and/or equipment needed for the production process

Marginal cost pricing

Calculates the cost of supplying an extra unit of output in order to determine a suitable price

Promotional mix

Combination of individual promotional methods used by business

Visual communication

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

Verbal communication

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

Predatory pricing

Competition-based pricing strategy that involves a firm setting prices so low that other competitors cannot compete at a profitable level

Promotion

Component of the marketing mix. Refers to the methods used to inform, persuade or remind people about its products, brands or business.

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

Indirect costs (overheads)

Costs which do not directly link to the production or sale of a specific product

Conflict resolution

Course of action taken to resolve conflict and differences in opinion

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)

External growth

Dealings with outside organizations.

Liabilities

Debts owed by a business. Current liabilities are short-term debts such as an overdraft which need to be repaid within twelve months from the balance sheet date. Long-term liabilities such as mortgages and bank loans are repayable over a long period

Democratic leader

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

Culture gap

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

Stock turnover

Efficiency ratio that measures the number of times a firm sells its stocks within a year

Return on capital employed (ROCE)

Efficiency ratio. It measures the profit of a business in relation to its size. The higher the ROCE figure, the better it is for a business as it shows more profit being generated form the amount of money invested in the firm

Internal Stakeholders

Employees, shareholders, managers and directors of the organization

Cost - benefit analysis

Financial decision making tool. It compares the financial costs of a decision with the quantitative benefits

Investment appraisal

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

Budget

Financial plan for expected revenue and expenditure for an organization for a given period of time

Profit and Loss Account

Financial statement of a firm's trading activity over a period of time.

Balance sheet

Financial statement showing a firm's assets and liabilities at a specific point in time. It shows the sources of funds, such as long-term loans and owners equity, which must be balanced with the uses of funds, such as the purchase of fixed assets

Franchise

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

Line production

Form of flow production whereby a product is assembled in various stages along a conveyor belt until a finished product is made

Go-slow

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

Flow production

Form of mass production whereby different operations are continuously and progressively carried out in sequence

Partnership

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

Personal selling

Form of promotional technique that relies on keen and knowledgeable sales staff directly helping and persuading customers to make a purchase

Appraisal

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

Aims

General long - term goals of an organization.

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

External financing

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

Break-even chart

Graph that shows a firms costs, revenues and profits at various levels of output

Contingency planning

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

Fishbone Model

Identifying the root causes of a problem or issue

Total quality culture (TQC)

In organizations that embed quality in all aspects of business activity, with every employee accustomed to being responsible for quality control and quality assurance

Public Limited company

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

Social Audit

Independent assessment of how a firm's actions affect society

Creditors

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

Primary research

Involves data being collected by the researcher since the information does not currently exist

Batch production

Involves producing a collection of identical products

Offshoring

Involves relocating business functions and processes to another country

Secondary research

Involves using data and information that has already been collected by another party

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

Distribution

Is the fourth P in marketing mix, placement, refers to the process of getting product to customers at the right time and place in the most cost-effective way

Just-in-time

Is the stock control system where materials and components are scheduled to arrive precisely when they are needed in the production service

Net profit

Is the surplus that a business makes after all expenses have been paid for out of gross profit. Calculating: Expenses - gross profit

Just-in-case

Is the traditional stock management system that recognizes the need to maintain large amounts of stock in case there are any emergencies or supply and demand fluctuations

Consumer goods

Items bought by the final user for their own personal consumption

Fixed assets

Items of monetary value that are owned by a business but are not intended to be sold within the next twelve months. They can be used repeatedly to generate revenue for the business

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

Window dressing

Legal act of manipulating financial information to make the results look more flattering.

Patents

Legal protection for a finite period of time to the registered producer or user of a newly invented product or process

Break-even quantity (BEQ)

Level of output that generates neither any profit nor loss

Strategic Objectives

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

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.

Economies of Scale

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

Marketing mix

Main elements of a firms marketing strategy. It consists of the 4 P's - product, price, promotion and place

Marketing

Management role of predicting, identifying and meeting the needs and wants of customers in a profitable manner

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

Ratio analysis

Management tool that compares different financial figure. It requires the application of figures found in the balance sheet and profit and loss account of a business

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.

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.

Mass production

Manufacturing of large amounts of homogeneous product

Penetration pricing

Market-led pricing strategy that involves a firm setting low prices to gain entry into a new market.

Skimming

Market-lef pricing strategy that involves charging a high price for innovative or high-tech products for an initial period

Standardization

Means producing an identical or homogenous product in large quantities such as printing a particular magazine, book or newspaper

Income elasticity of demand (YED)

Measures the degree of responsiveness of changes in demand due to a change in consumer income levels

Price Elasticity of demand (PED)

Measures the degree of responsiveness of changes in demand due to a change in the products own price

Cross price elasticity of demand (CED)

Measures the degree of responsiveness of the level of demand for one product due to a change in the price of a related good

Advertising elasticity of demand (AED)

Measures the impact on the demand for a firm's product following a change in its advertising expenditure

Market share

Measures the value of a firms sales revenues as a percentage of the industry total

Advertising

Method of informative and/or persuasive promotion that has to be paid for

Job production

Method of production that involves the production of a unique or one-off job

Last in, Last out (LIFO)

Method of stock valuation that uses the most recent batches of stock first. It is a suitable method for stock that does not need to be rotated. This method raises the value of COGS

First in, First out (FIFO)

Method of stock valuation whereby stock is valued based n the order in which it was purchased by the business. This method ensures that any unsold stock is more realistically valued a its replacement cost

Quality assurance

Methods used by a business to reassure customers about the quality of their products in meeting certain quality standards

Revenue

Money that a business collects from the sale of its good and services

Critical path

Most efficient sequence of activities in a project which maximizes the time needed to complete a project

Collective bargaining

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

Agents

Negotiators who help to sell the vendor's products, such as real estate agents selling residential property on behalf of their clients

Unlimited Liability

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

Vision statement

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

Porters generic strategies

Outlines the ways that any business can gain a competitive advantage

Offshoring

Overseas firm in another country as the subcontractor

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

Break-even point

Position on a break-even chart where the total cost line intersects the total revenue line TC-TR

Sampling

Practice of selecting a representative group of a population for primary research purposes

Competition based pricing

Pricing strategies based on the prices charged by the rivals in the industry

Price discrimination

Pricing strategy that involves charging different prices to different groups of customers for the same product

New product development

Process of getting the latest products onto the market

Arbitration

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

Cell production

Production method that organizes workers into independent cells

Gross profit margin

Profitability ratio that shows the percentage of sales revenue that turns into gross profit

Net profit margin

Profitability ratio that shows the percentage of sales revenue that turns into net profit

Critical path analysis

Project management tol, which serves to improve the efficiency in the production process by systematically scheduling tasks and resources

Decision Tree

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

Sales forecasting

Quantitative technique that attempts to estimate the level of sales a business expects to achieve

Product Portfolio

Range of products or strategic business units owned and developed by an organization

Production process

Refers ti the method of turning inputs into outputs by adding value in a cost-effective way

Cash cow

Refers to any product that generates significant sales revenue due to its large market share in a slowly expanding or mature market

Differentiation

Refers to any strategy used to make a product appear to be dissimilar from others

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.

Below the line promotion

Refers to promotional methods that do not directly use the mass media as a form of promotion

Float

Refers to spare time that is available

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

Limited Liability

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

Random sample

Sampling method that gives every person in the population an equal chance of being selected

Quota sample

Sampling method that involves segmenting the population and then selecting a certain number of people in each market segment

Sole trader

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

Cost based pricing

Setting prices based on the costs of production rather than on the level of demand or the prices set by competitors

Earnings per share (EPS)

Shareholders raio which shows the amount of money that stockholders could receive per share if the company allocated all its after - tax profits to the shareholders.

Current ratio

Short - term liquidity ratio that calculates the ability of a firm to meet its debts within the next twelve months. It is worked out by: current assets/current liabilities

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

Objectives

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

Net assets

Show the value of a business by calculating the value of al its assets minus the long-term liabilities.

Cost of goods sold

Shown in the trading account of the profit and loss account. It represents the direct costs of producing or purchasing a particular level of stock that has actually been sold to customers.

SMART Objectives

Specific, measurable, agreed, realistic and times

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.

Revenue expenditure

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

Repositioning

Strategy that involves changing the markets perception of a product or brand relative to those offered by rival firms

External Stakeholders

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

Decision making framework

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

Cost plus pricing

Takes place when a firm calculates its unit costs and then adds a percentage profit to determine the price

Internal economies of scale

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

Research and development (R&D)

Technological and scientific research that helps to generate a flow of new ideas and processes

Infrastructure

Term used to describe the transportation, communication and support networks in a certain area

Outsourcing

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

Working capital

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

Lean production

The approach used to eliminate waste in an organization.

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

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.

Innovation

The commercial development, use and exploitation of an invention or creative idea that appeals to the customers

Overheads

The costs not directly associated with the production process but necessary for providing and maintaining business operations

Fixed costs

The costs that do not vary with the level of output (rent, salaries and interest repayments/bank loans)

Latest finishing time (LFT)

The deadline for a particular activity so that the entire project can be completed in the minimum time

Margin of safety

The difference between a firms level of demand and its break-even quantity

Gross profit

The difference between the sales revenue of a business and its direct costs incurred in manufacturing or purchasing the products that have been sold to its customers. It is calculated by using sales revenue - COGS

Specialization

The division of a large task or project into smaller tasks that allow individuals to concentrate on one or two areas of expertise

Marketing plan

The document outlining a firms marketing objectives and strategies for a specified time period

Depreciation

The fall in value of fixed assets over time. The main cause of depreciation is wear and tear (loss of value due to the asset being used) although some assets can become obsolete (outdated or out of fashion)

Appropriation account

The final section of a profit and loss account which shows how the net profits of a business are distributed. Profits are appropriated in three ways: taxation, dividends and retained profits

Globalization

The growing integration and interdependence of the worlds economies

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.

Formal communication

The official channels of communication that are established by an organization

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

Management

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

Outsourcing

The practice of using external firms to provide goods or services as a method of reducing costs

Benchmarking

The process of identifying best practice in an industry, in relation to products, processes, and operations

Total quality management (TQM)

The process that attempts to encourage all employees to make quality assurance paramount to the various functions of the organization

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

Retailers

The sellers of products to the general public that operate in outlets

Leadership

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

Corporate culture

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

Book value

The value of an asset as shown on a balance sheet. The market value of assets may be higher than its book value because of intangible assets

Closing balance

The value of cash left in a business at the end of the month closing balance= opening balance + net cash flow

Channels of distribution

The ways that a product gets from the manufacturer to the consumer

Tall organizational structure

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

Flat organizational structure

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

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.

External economies of scale

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

Variable costs

Those that change in proportion to the level of output such as raw materials and piece rate earnings of production workers

Kaizen

Those who stive for total quality culture

Boston matrix

Tool used for analyzing the product portfolio of a business. It measures whether products have a high or low market share and operate in high or low market growth industries

E-commerce

Trading of good and services via the internet

Quality control

Traditional way of quality management that involves checking and reviewing work processes

Communication

Transfer of information between different people and business organization

Strategic alliances

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

Absorption cost pricing

Type of cost-based pricing method that focuses on covering all costs of production. Indirect costs are apportioned to different departments based on a predetermined set of criteria

Intangible assets

Type of fixed asset but do not exist in physical form.

Product life cycle

Typical process that products go through form their initial design and launch to their decline and often their death

Informal communication

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

Branding

Use of an exclusive name, symbol or design to identify a specific product or business

Contribution per unit

Used to work out the break-even quantity

Capital employed

Value of all long-term sources of finance for a business, such as bank loan, share capital and any reserves that the business holds

Position map

Visual aid that shows the customers perception of a product or brand in relation to others in the market

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

Internal (organic) growth

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

Earliest start time (EST)

When a particular activity can begin

Decentralization

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

Goodwill

When the value of a firm exceeds its book value (the value of the firms net assets).

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

Joint Venture

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

Segmentation

`Categorizing customers into distinct groups of people with similar characteristics and similar wants or needs for research and targeting purposes

Matrix structure

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


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