Definitions

16 December 2024 20:05

• Globalisation – the increasing freedom of movement of goods,

capital and people around the world

• Free trade – no restrictions or trade barriers exist that might

prevent or limit trade between countries

• Tariffs – taxes imposed on imported goods to make them more

expensive than they would otherwise be

• Quotas – limits on the physical quantity or value of certain goods

that may be imported

• Voluntary export limits – an exporting country agrees to limit the

quantity of certain goods sold to one country (possibly to
discourage the setting of tariffs/quotas)

• Protectionism – using trade barriers to free trade to protect a

country’s own domestic industries

• Multinational business – business organisation that has its

headquarters in one country, but with operating branches,
factories and assembly plants in other countries

• Privatisation – selling state-owned and controlled business

organisations to investors in the private sector

• External growth – business expansion achieved by means of

merging with or taking over another business, from either the
same or different industry

• Merger – an agreement by shareholders and managers of two

businesses to bring both firms together under a common board
of directors with shareholders in both businesses owning shares
in the newly merged business

• Takeover – when a company buys more than 50% of the shares

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• Takeover – when a company buys more than 50% of the shares
of another company and becomes the controlling owner of it –
often to as ‘acquisition’

• Synergy – literally means that ‘the whole is greater than the sum
of parts’, so in integration it is often assumed that the new,
larger business will be more successful than the two formerly
separate, businesses were

• Monopoly – theoretically a situation in which there is only one

supplier, but this is very rare: for government policy purposes
this is usually redefined as a business controlling at least 25% of
the market

• Social audit – a report on the impact a business has on society –

this can cover pollution levels, health and safety record, sources
of supplies, customer satisfaction and contribution to the
community

• Information technology – the use of electronic technology to

gather, store, process and communicate information

• Innovation – creating more effective processes, products or ways

of doing things in a business

• 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

• Environmental audits – assess the impact of a business’s

activities on the environment

• Social audit – a report on the impact a business has on society.

This can cover pollution levels, health and safety record, sources
of supplies, customer satisfaction and contribution to the
community

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• Pressure groups – organisations created by people with a
common interest or aim who put pressure on businesses and
governments to change policies so that an objective is reached

• Economic growth – an increase in a country’s productive

potential measured by an increase in its real GDP

• Gross domestic product (GDP) – the total value of goods and

services produced in a country in one year – real GDP has been
adjusted for inflation.

• Business investment – expenditure by businesses on capital

equipment, new technology and research and development

• Business cycle – the regular swings in economic activity,

measured by real GDP, that occur in most economies, varying
from boom conditions (high demand and rapid growth) to
recession when total national output declines

• Recession – a period of six months or more of declining real GDP

• Inflation – an increase in the average price level of goods and

services – it results in a fall in the value of money

• Deflation – a fall in the average price level of goods and services

• Working population – all those in the population of working age

who are willing and able to work

• Unemployment – this exists when members of the working

population are willing and able to work, but are unable to find a
job

• Cyclical unemployment – unemployment resulting from low

demand for goods and services in the economy during a period
of slow economic growth or recession

• Structural unemployment – unemployment caused by the

decline in important industries, leading to significant job losses in
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 decline in important industries, leading to significant job losses in
one sector of industry

• Frictional unemployment – unemployment resulting from

workers losing or leaving jobs and taking a substantial period of
time to find alternative employment

• Balance of payments (current account) – this account records

the value of trade in goods and services between one country
and the rest of the world. A deficit means that the value of goods
and services imported exceeds the value of goods and services
exported

• Exchange rate – the price of one currency in terms of another

• Exchange rate depreciation – a fall in the external value of a

currency as measured by its exchange rate against other
currencies. If $1 falls in value from €2 to €1.5, the value of the
dollar has depreciated in value

• Imports – goods and services purchased from other countries

• Exports – goods and services sold to consumers and business in

other countries

• Exchange rate appreciation – a rise in the external value of a

currency as measured by its exchange rate against other
currencies. If $1 rises from €1.5 to €1.8, the value of the dollar
has appreciated

• Fiscal policy – concerned with decisions about government

expenditure, tax rates and government borrowing – these
operate largely through the government’s annual budget
decisions

• Government budget deficit – the value of government spending

exceeds revenue from taxation

• Government budget surplus – taxation revenue exceeds the

value of government spending
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 value of government spending

• Monetary policy – is concerned with decisions about the rate of

interest and the supply of money in the economy

• Market failure – when markets fail to achieve the most efficient

allocation of resources and there is under- or overproduction of
certain goods or services

• External costs – costs of an economic activity that are not paid

for by the producer or consumer, but by the rest of society

• Income elasticity of demand – measures the responsiveness of

demand for a product after a change in consumer incomes

• Hard HRM – an approach to managing staff that focuses on

cutting costs, e.g., temporary and part-time employment
contracts, offering maximum flexibility but with minimum
training costs

• Soft HRM – an approach to managing staff that focuses on

developing staff so that they reach self-fulfilment and are
motivated to work hard and stay with the business

• Part-time employment contract – employment contract that is

for less than the normal full working week of, say, 40 hours, e.g.,
eight hours per week

• Temporary employment contract – employment contract that

lasts for a fixed time period, e.g., six months

• Flexi-time contract – employment contract that allows staff to be

called in at times most convenient to employers and employees,
e.g., at busy times of day

• Outsourcing – not employing staff directly, but using an outside

agency or organisation to carry out some business functions

• Teleworking – staff working from home but keeping contact with

the office by means of modern IT communications
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 the office by means of modern IT communications

• Zero-hours contract – no minimum hours of work are offered

and workers are only called in-and paid-when work is available

• Labour productivity – the output per worker in a given time

period

• Labour productivity = total output in time period/total workers

employed

• Absenteeism – measures the rate of workforce absence as a

proportion of the employee total

• Absenteeism = no. of employees absents/total no. of employees

* 100

• Workforce planning – analysing and forecasting the numbers of

workers and the skills of those workers that will be required by
the organisation to achieve its objectives

• Workforce audit – a check on the skills and qualifications of all

existing workers/managers

• Trade union – an organisation of working people with the

objective of improving the pay and working conditions of their
members and providing them with support and legal services

• Trade union recognition – when an employer formally agrees to

conduct negotiations on pay and working conditions with a trade
union rather than bargain individually with each worker

• Collective bargaining – the process of negotiating the terms of

employment between an employer and a group of workers who
are usually represented by a trade union official

• Terms of employment – include working conditions, pay, work

hours, shift length, holidays, sick leave, retirement benefits and
health care benefits

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• Single-union agreement – an employer recognises just one union
for purposes of collective bargaining

• No-strike agreement – unions agree to sign a no-strike

agreement with employers in exchange for greater involvement
in decisions that affect the workforce

• Industrial action – measures taken by the workforce or trade

union to put pressure on management to settle an industrial
dispute in favour of employees

• Organisational structure – the internal, formal framework of a

business that shows the way in which management is organised
and linked together and how authority is passed through the
organisation

• Matrix structure – an organisational structure that creates

project teams that cut across traditional functional departments

• Level of hierarchy – a stage of the organisational structure at

which the personnel on it have equal status and authority

• Chain of command – this is the route through which authority is

passed down an organisation – from the chief executive and the
board of directors

• Span of control – the number of subordinates reporting directly

to a manager

• Delegation – passing authority down the organisational

hierarchy

• Centralisation: keeping all of the important decision-making

powers within head office or the centre of the organisation

• Decentralisation: decision-making powers are passed down the

organisation to empower subordinates and regional/product
managers

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• Delayering – removal of one or more of the levels of hierarchy
from an organisational structure

• Line managers – managers who have direct authority over

people, decisions and resources within the hierarchy of an
organisation

• Staff managers – managers who, as specialists, provide support,

information and assistance to line managers

• Informal organisation – the network of personal and social

relations that develop between people within an organisation

• Effective communication – the exchange of information between

people or groups, with feedback

• Communication media – the methods used to communicate a

message

• Information overload: so much information and so many

messages are received that the most important ones cannot be
easily identified and quickly acted on – most likely to occur with
electronic media.

• Communication barriers – reasons why communication fails

• Formal communication networks – the official communication

channels and routes used within an organisation

• Informal communication – unofficial channels of communication

that exists between informal groups within an organisation

• Marketing plan – a detailed, fully researched written report on

marketing objectives and the marketing strategy to be used to
achieve them

• Income elasticity of demand – measures the responsiveness of

demand for a product following a change in consumer incomes

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• Income elasticity of demand = % change in demand for the
product/% change in consumer incomes

• Promotional elasticity of demand – measures the responsiveness

of demand for a product following a change in the amount spent
on promoting it

• Promotional elasticity of demand = % change in demand for the

product/% change in promotional spending

• Cross elasticity of demand – measures the responsiveness of

demand for a product following a change in the price of another
product

• New product development (NPD) – the design, creation and

marketing of new goods and services

• Test marketing – the launch of the product on a small-scale

market to test consumers’ reactions to it

• Research and development – the scientific research and

technical development of new products and processes

• Sales forecasting – predicting future sales levels and sales trends

• Sales-force composite – a method of sales forecasting that adds

together all of the individual predictions of future sales of all the
sales representatives working for a business

• Delphi method – a long-range qualitative forecasting technique

that obtains forecasts from a panel of experts

• Jury of experts – uses the specialists within a business to make

forecasts for the future

• The trend – the underlying movement in a time series

• Seasonal fluctuations – the regular and repeated variations that

occur in sales data within a period of 12 months
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 occur in sales data within a period of 12 months

• Cyclical fluctuations – these variations in sales occur over periods

of time of much more than a year and are due to the business
cycle

• Random fluctuations – these can occur at any time and will

cause unusual and unpredictable sales figures – examples
include exceptionally poor weather or negative public image
following a high-profile product failure

• Globalisation – the growing trend towards worldwide markets in

products, capital and labour, unrestricted by barriers

• Multinational companies – businesses that have operations in

more than one country

• Free international trade – international trade that is allowed to

take place without restrictions such as ‘protectionist’ tariff s and
quotas

• Tariff – tax imposed on an imported product

• Quota – a physical limit placed on the quantity of imports of

certain products

• International marketing – selling products in markets other than

the original domestic market

• BRICS – the acronym for five rapidly developing economies with

great market opportunities – Brazil, Russia, India, China and
South Africa

• Pan-global marketing – adopting a standardised product across

the globe as if the entire world were a single market – selling the
same goods in the same way everywhere

• Global localisation – adapting the marketing mix, including

differentiated products, to meet national and regional tastes and
cultures
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 cultures

• Capacity utilisation – the proportion of maximum output

capacity currently being achieved

• Excess capacity – exists when the current levels of demand are

less than the full capacity output of a business – also known as
spare capacity

• Rationalisation – reducing capacity by cutting overheads to

increase efficiency of operations, such as closing a factory or off
ice department, often involving redundancies

• Full capacity – when a business produces at maximum output

Capacity shortage – when the demand for a business’s products
exceeds production capacity

• Outsourcing – using another business (a ‘third party’) to

undertake a part of the production process rather than doing it
within the business using the firm’s own employees

• Business-process outsourcing (BPO) – a form of outsourcing that

uses a third party to take responsibility for certain business
functions, such as HR and finance

• Lean production – producing goods and services with the

minimum of wasted resources while maintaining high quality

• Simultaneous engineering – product development is organised

so that different stages are done at the same time instead of in
sequence

• Cell production – splitting flow production into self-contained

groups that are responsible for whole work units

• Kaizen – Japanese term meaning continuous improvement

• Quality product – a good or service that meets customers’

expectations and is therefore ‘fit for purpose’

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• Quality standards – the expectations of customers expressed in
terms of the minimum acceptable production or service
standards

• Quality control – this is based on inspection of the product or a

sample of products

• Quality assurance – a system of agreeing and meeting quality

standards at each stage of production to ensure consumer
satisfaction

• ISO 9000 – this is an internationally recognised certificate that

acknowledges the existence of a quality procedure that meets
certain conditions

• Total quality management – an approach to quality that aims to

involve all employees in quality-improvement

• Internal customers – people within the organisation who depend

upon the quality of work being done by others

• Zero defects – achieving perfect products every time

• Benchmarking – involves management identifying the best firms

in the industry and then comparing the performance standards –
including quality – of these businesses with those of their own
business

• Project – a specific and temporary activity with a start and end

date, clear goals, defined responsibilities and a budget

• Project management – using modern management techniques to

carry out and complete a project from start to finish in order to
achieve pre-set targets of quality, time and cost

• Critical path analysis – a planning technique that identifies all

tasks in a project, puts them in the correct sequence and allows
for the identification of the critical path

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• Critical path – the sequence of activities that must be completed
on time for the whole project to be completed by the agreed
date

• Network diagram – the diagram used in critical path analysis that

shows the logical sequence of activities and the logical
dependencies between them – so the critical path can be
identified

• Cost centre – a section of a business, such as a department, to

which costs can be allocated or charged

• Profit centre – a section of a business to which both costs and

revenues can be allocated – so profit can be calculated

• Full costing – a method of costing in which all fixed and variable

costs are allocated to products, services or divisions of a business

• Contribution or marginal costing – costing method that allocates

only direct costs to cost/profit centres, not overhead costs

• Budget – a detailed financial plan for the future

• Budget holder – individual responsible for the initial setting and

achievement of a budget

• Variance analysis – calculating differences between budgets and

actual performance, and analysing reasons for such differences

• Delegated budgets – giving some delegated authority over the

setting and achievement of budgets to junior managers

• Incremental budgeting – uses least year’s budget as a basis and

an adjustment is made for the coming year

• Zero budgeting – setting budgets to zero each year and budget

holders have to argue their case to receive any finance

• Flexible budgeting – cost budgets for each expense are allowed

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• Flexible budgeting – cost budgets for each expense are allowed
to vary if sales or production vary from budgeted levels

• Adverse variance – exists when the difference between the

budgeted and actual figure leads to a lower-than-expected profit

• Favourable variance – exists when the difference between the

budgeted and actual figure leads to a higher-than-expected
profit

• Intellectual property – the amount by which the market value of

a firm exceeds its tangible assets less liabilities – an intangible
asset

• Market value – the estimated total value of a company if it were

taken over

• Capital expenditure – any item bought by a business and

retained for more than one year, that is the purchase of fixed or
non-current assets

• Revenue expenditure – any expenditure on costs other than non-

current asset expenditure

• Depreciation – the decline in the estimated value of a

noncurrent asset over time

• Assets decline in value for two main reasons: normal wear and
tear through usage & technological change, making either the
asset, or the product it is used to make, obsolete

• Net book value – the current Statement of financial position

value of a non-current asset = original cost – accumulated
depreciation

• Straight-line depreciation – a constant amount of depreciation is

subtracted from the value of the asset each year.

• Straight line depreciation = original cost of asset-expected

residual value/expected useful life of asset (years)
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 residual value/expected useful life of asset (years)

• Net realisable value – the amount for which an asset (usually an

inventory) can be sold minus the cost of selling it – it is only used
on Statements of financial position when NRV is estimated to be
below historical cost

• Return on capital employed (%) – operating profit/capital

employed × 100

• Capital employed – the total value of all long-term finance

invested in the business: it is equal to (non-current assets +
current assets) − current liabilities or non-current liabilities +
shareholders’ equity

• Inventory turnover ratio – cost of goods sold/value of inventories

• Day’s sales in receivables ratio – trade accounts receivable *

365/revenue

• Share price – the quoted price of one share on the stock

exchange Dividend – the share of the company profits paid to
shareholders

• Dividend yield ratio – dividend per share * 100/current share

price

• Dividend per share – total annual dividends/total number of

issued shares

• Dividend cover ratio – profit for the year/annual dividends

• Price/earnings ratio – current share price/earnings per share

• Earnings per share – profit for the year/annual dividends This is

the amount of profit (after tax and interest) earned per share

• Investment appraisal – evaluating the profitability or desirability

of an investment project

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• Annual forecasted net cash flow – forecast cash inflows minus
forecast cash outflows

• Payback period – length of time it takes for the net cash inflows
to pay back the original capital cost of the investment

• Accounting rate of return – measures the annual profitability of

an investment as a percentage of the initial investment

• ARR (%) = annual profit (net cash flow)/initial capital cost × 100
An alternative formula is:

• ARR (%) = annual profit (net cash flow)/average capital cost ×

100 where the average capital cost = initial capital cost – residual
capital value/2

• Net present value (NPV) – today’s value of the estimated cash

flows resulting from an investment

• Internal rate of return (IRR) – the rate of discount that yields a

net present value of zero – the higher the IRR, the more
profitable the investment project is

• Criterion rate or levels – the minimum levels (maximum for

payback period) set by management for investment appraisal
results for a project to be accepted

• Corporate strategy – a long-term plan of action for the whole

organisation, designed to achieve a particular goal

• Tactic – short-term policy or decision aimed at resolving a

particular problem or meeting a specific part of the overall
strategy

• Strategic management – the role of management when setting

long-term goals and implementing cross-functional decisions
that should enable a business to reach these goals

• Competitive advantage – a superiority gained by a business

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• Competitive advantage – a superiority gained by a business
when it can provide the same value product/service as
competitors but at a lower price, or can charge higher prices by
providing greater value through differentiation

• Strategic analysis – the process of conducting research into the

business environment within which an organisation operates,
and into the organisation itself, to help form future strategies

• SWOT analysis – a form of strategic analysis that identifies and

analyses the main internal strengths and weaknesses and
external opportunities and threats that will influence the future
direction and success of a business

• PEST analysis – the strategic analysis of a firm’s

macroenvironment, including political, economic, social and
technological factors

• Mission statement – a statement of the business’s core purpose

and focus, phrased in a way to motivate employees and to
stimulate interest by outside groups

• Vision statement – a statement of what the organisation would

like to achieve or accomplish in the long term

• Boston Matrix – a method of analysing the product portfolio of a

business in terms of market share and market growth

• Core competence – an important business capability that gives a

firm competitive advantage

• Core product – product based on a business’s core competences,

but not necessarily for final consumer or end user

• Ansoff ’s matrix – a model used to show the degree of risk

associated with the four growth strategies of market
penetration, market development, product development and
diversification

• Market penetration – achieving higher market shares in existing

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• Market penetration – achieving higher market shares in existing
markets with existing products

• Product development – the development and sale of new

products or new developments of existing products in existing
markets

• Market development – the strategy of selling existing products in

new markets

• Diversification – the process of selling different, unrelated goods

or services in new markets

• Force-field analysis – technique for identifying and analysing the

positive factors that support a decision (‘driving forces’) and
negative factors that constrain it (‘restraining forces’)

• Decision tree – a diagram that sets out the options connected

with a decision and the outcomes and economic returns that
may result

• 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

• Strategic implementation – the process of planning, allocating

and controlling resources to support the chosen strategies

• Business plan – a written document that describes a business, its

objectives and its strategies, the market it is in and its financial
forecasts

• Corporate plan – this is a methodical plan containing details of

the organisation’s central objectives and the strategies to be
followed to achieve them

• Corporate culture – the values, attitudes and beliefs of the

people working in an organisation that control the way they
interact with each other and with external stakeholder groups

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• Task culture – based on cooperation and teamwork

• Person culture – when individuals are given the freedom to

express themselves fully and make decisions for themselves

• Entrepreneurial culture – this encourages management and

workers to take risks, to come up with new ideas and test out
new business ventures

• Power culture – concentrating power among just a few people

• Role culture – each member of staff has a clearly defined job title
and role

• Change management – planning, implementing, controlling and

reviewing the movement of an organisation from its current
state to a new one

• Business process re-engineering – fundamentally rethinking and

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

• Project champion – a person assigned to support and drive a

project forward, who explains the benefits of change and assists
and supports the team putting change into practice

• Project groups – these are created by an organisation to address

a problem that requires input from different specialists

• Contingency plan – preparing an organisation’s resources for

unlikely events

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