GCE GLOSSARY OF TERMS The Competitive Business AS1 and AS2

Transcription

1 GCE GLOSSARY OF TERMS The Competitive Business AS1 and AS2

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3 Contents Page GCE Business Studies Glossary of Terms AS 1 THE COMPETITIVE BUSINESS 3 Central Purpose of Business Activity 3 Forms of Business Activity 3 Market and Market Forces 4 Spectrum of Competition 5 Market Research 6 Marketing Mix 7 Product Life Cycle 7 Marketing Planning and Strategy 8 Quality Management 8 Investment and Productivity 9 Glossary of Terms AS 2 MANAGING BUSINESS RESOURCES 10 Organisational Design 10 Communication 10 Motivation Theorists 11 Methods of Motivation 11 Principles of Management and Leadership 12 Investing in People 13 Break-even Analysis 14 Budgeting 14 Cash Flow 15

4 Variance Analysis 15 Final Accounts 16 Depreciation 17

5 GLOSSARY OF TERMS AS 1 THE COMPETITIVE BUSINESS Central Purpose of Business Activity Adding Value Competitive Advantage A business will add value to raw materials used in its production process so that there will be a significant difference between the cost of purchasing raw materials and the selling price of the finished article. Can also refer to extra" feature(s) of an item of interest (product, service, person etc.) that go beyond the standard expectations and provide something "more" while adding little or nothing to its cost. A favourable situation that a business organisation has over its rivals arising from a marketing opportunity such as price or cost or both. Achieving competitive advantage strengthens and positions a business better within the business environment. Forms of Business Activity Sole Trader Partnership Deed of Partnership Silent/Sleeping Partner Limited Partnership A business organisation which has a single owner and in which there is no legal distinction between the owner and the business. The owner receives all profits (subject to taxation specific to the business) and has unlimited responsibility for all losses and debts. A business relationship of two or more entities conducting business for mutual benefit. Partners, manage the business and are equally liable for its debts; other individuals called limited partners may invest but not be directly involved in management and are liable only to the extent of their investments. In a partnership each partner shares equal responsibility for the company's profits and losses, and its debts and liabilities. A binding legal document which states the formal rights of partners in the business. A partner who contributes capital and shares in profits/losses but does not participate in decision making. A partnership which has at least one ordinary partner who has unlimited liability. A limited partner contributes capital, share in profits but has limited liability. A limited partner cannot participate in decision making. 3

6 Limited Company Shareholders Limited Liability Franchise Worker s Cooperative A business organisation which has a separate legal entity from those of its owners. The liability of the members or subscribers of the company is limited to what they have invested or guaranteed to the company. Investors who have a bought a share in the company. Each shareholder is only liable for the original amount of money invested in the business. An agreement between two parties, which gives one party (the franchisee) the rights to market a product or service using the trademark of another business (the franchisor). A business organisation owned by employees who contribute to production and share profits. Markets and Market Forces Consumer Goods Capital Goods Labour Demand Supply Equilibrium Price Unique Selling Point Marketing Objectives Mass Market These are goods produced by a business and sold to consumers. They consist of durable goods which can be used repeatedly and non-durable goods which are used very soon after purchase. These are goods purchased by a business and used to produce other goods. Capital goods include factories, machinery, tools, equipment, and various buildings which are used to produce other products for consumption. Capital good, are products which are not produced for immediate consumption; rather, they are objects that are used to produce other goods and services. The physical and mental effort expended by people in the production of goods and provision of services. The desire to own anything, the ability to pay for it, and the willingness to pay. The quantity of products which suppliers make available to the market at any given price. The price at which the quantity demanded by consumers is equal to the quantity supplied. The USP refers to the particular aspects of a product that makes it different from other products. What a business hopes to achieve through marketing its product or service. A broad, non-targeted, non-segmented market. 4

7 Niche Market Price Elasticity of Demand A business aims their product at a narrow or focused subset of a larger market sector. A measure used to show the responsiveness, or elasticity, of the quantity demanded of a good or service to a change in its price. Spectrum of Competition Market Share Market Growth Monopoly Oligopoly Perfect Competition Office of Fair Trading Competition Commission Regulators of Private Utilities The proportion of total sales in a particular market for which one or more firms are responsible this is usually expressed as a percentage. Relates to the percentage increase in the size of the whole market, of which the individual firm is merely a part. A market structure in which only one firm supplies the entire output, there is no competition and there are barriers to entry. A market structure that has a small number of firms who dominate the market by producing heavily branded products. There are some barriers to entry. A market structure where there is perfect knowledge, many buyers and sellers, freedom of entry and exit and a homogeneous product. A Government body that has responsibility for overseeing all policy relating to competition and consumer protection. It can refer specific cases to the Competition Commission for investigation. It will investigate and report on any monopoly, proposed merger or anti-competitive practices that are referred to it by the Office of Fair Trading or Regulators of privatised industries that are deemed not to be in consumer s interests. Agencies set up to regulate prices in the provision of water, gas, electricity etc to the general public. 5

8 Market Research Marketing Research Primary Research Secondary Research The collection, collation and analysis of data relating to the marketing and consumption of goods and services. Information collected by a business through field research e.g. survey. It involves the collection of data that does not already exist. Using existing sources of information to research the market e.g. past sales data. Focus Groups Consumer Panels Test Marketing Quantitative Data Qualitative Data Sample Random sample Cluster sample Quota sample Stratified sample A range of individuals who are deemed to be representative of the customers in a particular segment who are brought together to answer and discuss questions prepared by market researchers. A group of consumers who are consulted about their views on a particular product over a period of time. Selling a product in a restricted section of the market in order to assess consumer s reaction to it. Numerical data that can be used to inform decisions made by the business. People s opinions or judgements that may be used to inform decisions made by the business. A group of consumers selected from the population. Everyone is given an equal chance of being chosen. The population is divided into clusters usually geographic areas and then a random sample is chosen. The population is segmented into a number of groups who share specific characteristics e.g. age, gender. Interviewers are given targets for the number out of each segment. The population is divided into mutually exclusively strata or layers with random sampling taking place within each stratum. 6

9 Marketing Mix Marketing Mix Price Product Promotion Place People Processes Physical Environment E-Commerce Product Life Cycle Extension Strategies Product Portfolio The elements of an organisation s marketing plan that are designed to meet the needs of its customers. The amount charged by the business for providing a product to the consumer. This represents the nature of the item provided by the business to the consumer. The efforts made by the business to retain and attract consumers by drawing attention to its product. The means by which the product will be distributed at a time and location convenient to the consumer. The behaviour and attitude of staff who determine the level of customer satisfaction in business transactions. The systems employed by the firm to ensure their services are successfully delivered to customers. This applies to the store, office and company website where business transactions occur. The selling, marketing and servicing of products or services over electronic systems such as the internet. This shows the different stages in the life of a product and the sales that can be expected at each stage. The methods used by a business to extend the life of a product. The particular mix of products which a firm is marketing. Product Life Cycle Product Life Cycle Extension Strategies Product Portfolio This shows the different stages in the life of a product and the sales that can be expected at each stage. The methods used by a business to extend the life of a product. The particular mix of products which a firm is marketing. 7

10 Marketing Planning and Strategy Marketing Plan Marketing Positioning Market Segmentation SWOT The actions that management take via the marketing mix in order to achieve its marketing objectives. The perception that consumers have of the quality, value for money and image of the product relative to those of competitors. Breaking down a market into sub-groups which share similar characteristics e.g. age, gender, income. Assessment of the internal strengths and weaknesses of a business and the external opportunities and threats that the business needs to consider. Quality Management Quality Quality Award British Standard Institution Best Practice Benchmarking EFQM Balanced Score Card The features of a product that allow it to satisfy customer s needs. It may refer to some standard of excellence. Given to a business if their products have achieved and maintained a particular standard e.g. the Kite Mark is awarded for safety. An independent organisation that sets quality standards in industry. A technique used by some businesses to ascertain what is the best from the customer s perspective and then emulate it or try to surpass it. European Foundation for Quality Management is a practical tool that can be used in a number of different ways by businesses e.g. self-assessment, benchmarking, identifying areas for improvement, basis for common vocabulary and as a structure for management. A quality management scheme that involves creating a detailed set of measurement for four key strategic perspectives upon which the success of a business can be assessed. It generally uses three non-financial topic areas and one financial. These may include performance in the following areas: Financial performance, Customer satisfaction, Internal Business Processes and Learning and Growth. 8

11 Investment and Productivity Investment Productivity Job Production Batch Production Flow Production Lean Production Cell Production This refers to the purchase of capital goods which are used to produce further wealth. Also investment can refer to expenditure by a business that is likely to yield a return in the future e.g. research and development. This is a measure of how efficient a firm is in providing its product/service. A method of production which involves employing all factors to complete one unit of output at a time to customer specifications. A method of production which involves completing one operation at a time on all units before performing the next. Very large production of a standard product, where one unit of production is performed continuously, one after the other, usually on a production line. An approach to production operation management aimed at reducing the quantity of resources used in the production of goods. Involves producing a family of products in a small selfcontained unit or cell. 9

12 GLOSSARY OF TERMS AS 2 MANAGING BUSINESS RESOURCES Organisational Design Business Structure Hierarchy Chain of Command Span of control Organisation Chart Delegation Centralisation De-centralisation De-layering Downsizing The way in which a business is organised. This refers to the order or levels of management in a business from the lowest to the highest. The system of reporting relationships within the organisation. The number of subordinates working under a superior. A diagram illustrating the structure of an organisation. The authority/responsibility passed down from a superior to a subordinate. The process by which the activities of an organisation, particularly those regarding planning and decision-making, become concentrated within a particular location and/or group. The policy of delegating decision-making authority down to the lower levels in an organization, relatively away from and lower in a central authority. A decentralized organization shows fewer tiers in the organizational structure, wider span of control, and a bottom-to-top flow of decision-making and flow of ideas. The removal of managerial layers in the hierarchical structure of an organisation. The process of reducing capacity, this is done usually by making staff redundant. 10

13 Communication Channel of Communication Effective Communication ICT Barriers to Communication Communication Media The route by which a message is communicated from sender to the receiver. This occurs if the message is received and understood by the receiver and there is appropriate feedback. Information and communication technology. The use of technology to deliver messages and data from groups, individuals or businesses to others. Something that prevents effective communication from taking place e.g. inappropriate choice of communication channel. The written, oral or technological methods used to communicate a message. Motivation Theorists Motivation Maslow Herzberg McGregor Taylor This is the process of encouraging people to think and want to achieve the objectives set by management. He produced a theory based on the classification of needs and their relationship with each other. He placed these in a Hierarchy of Needs and presented it as a pyramid. He developed the 2-Factor Theory consisting of Hygiene Factors (dis-satisfiers) and Motivators (satisfiers). The theory was based around the design of the actual job. He developed the Theory X and Theory Y approach which is based on assumptions about human behaviour that influence managerial action. He developed the Scientific Management theory as a way of increasing productivity and lowering costs. Methods of Motivation Motivators Monetary Motivators Incentives given to workers to encourage greater productivity and satisfaction at work. Financial incentives used to encourage greater productivity. 11

14 Non-Monetary Motivators Time Rates Fringe Benefits Job Enlargement Job Enrichment Job Rotation Empowerment Quality Circles Incentives that focus on job design used by management to encourage greater productivity A system of rewarding employees for the amount of time spent doing a particular job based on a specific rate per hour. Additional benefits given to workers e.g. company car for executives, private health care, company pension, free car parking or luncheon vouchers. The increase in scope of the role of an employee i.e. doing more of the same. It simply increases the number of tasks without changing the challenge. The vertical extension of the job which will enhance the employee s role and responsibilities. It attempts to motivate employees by giving them the opportunity to use the range of their abilities. Transferring between jobs allows employees to gain more experience and become multi-skilled. Official authority given by managers to employees to make decisions and control their own activities. Small groups of workers in the same area of production who meet regularly to study and solve problems related to their job. Principles of Management and Leadership Management Management Functions Leadership Paternalistic Style Democratic Style People in authority who are responsible for getting things done usually through other people. According to Henri Fayol, managers are responsible for planning, organising, commanding co-ordinating, and controlling employees and work within the business. A manager might have a leadership role, but not always, as this involves demonstrating the ability to adapt to changing situations and persuading others to follow. The manager dictates what has to be done but indicates the benefits to the employees of a particular course of action. The manager provides opportunities and encourages employees to participate in decision making. 12

15 Laissez-Faire Style Translated, this means leave well alone, so the manager encourages employees to make their own decisions with few restrictions. Investing in People Succession Planning Planning Methods Labour Turnover Effective Recruitment Internal Recruitment External Recruitment Job analysis Job Description Job/Person Specification This is undertaken by the human resources department to ensure the organisation has the correct number of staff with the appropriate level of qualifications, skills and experience to meet its objectives in the future. This is the process chosen by management to ensure that its human resource plan is successful and will include the following: - analysis of current employment situation; forecasting employee demand and forecasting future supply of employees. The number of employees leaving the organisation. It may be calculated by expressing the number of staff leaving the organisation during a period in time by the average number of staff in post during the period. The selection and retention of the best candidate for the job. Filling a vacancy by appointing someone from within the organisation. Filling a vacancy by appointing someone from outside the organisation. A study of what the job entails such as the skills, tasks and performance expected. A general outline of the duties to be undertaken, the reporting relationships and reference may be made to remuneration for the successful candidate. A list of all the qualifications, skills, qualities and experience required from a suitable applicant. 13

16 Break-even Analysis Break Even Point Margin of Safety Variable Costs Semi-variable Costs Total Costs Total Revenue Profit Contribution Fixed Costs This is the level of output where total revenue is equal to total cost. It can be calculated by dividing the organisations fixed costs by contribution (Selling price per unit less variable costs per unit). The range of output between break even output and the current level of output, over which a profit is made. Costs that change directly as output levels change. A cost that has an element of both fixed and variable charges e.g. a telephone bill has a fixed line rental but the charges for calls are variable depending on the number made. Fixed and variable costs added together. The number of units sold by the business multiplied by the selling price per unit. Total revenue less total costs. The amount of money left over after a sale when all variable costs have been covered i.e. selling price variable costs. This amount will contribute towards paying off the fixed costs of the business. Costs which do not change as output levels change. Budgeting Budgetary Control Budget Fixed Budget Flexible Budgets Zero-based Budget A business system which involves making future plans, comparing the actual results with planned results and then investigating the cause of any differences. An agreed financial plan drawn up for a specific time frame setting out proposed revenue and costs. A budget that is not changed even when the actual activity levels differ from those set. A budget which is changed to allow for the behaviour of variable costs at different levels of activity. This is often used in a new or unstable business. When a budget is drawn up it will be based on entirely new costings and projections. 14

17 Cash Budget Master Budget A forecast of receipts and payments normally prepared on a monthly basis for the budget period. This is a summary of all individual budgets from within the company that shows the estimated income and expenditure and budgeted profit for the trading period. Cash Flow Cash Flow Forecast Opening Balance Net Cash Flow Closing Balance A prediction of all expected receipts and expenses of a business over a future time period and the expected cash balance at the end of the month. The amount of money available at the beginning of the budget period. The difference between the receipts and expenses in a particular budget period. The net cash flow and opening balance added together at the end of the budget period. It may be a positive or negative balance and it is carried forward to become the opening balance of the next month. Variance Analysis Variance Favourable Variance Adverse Variance Variance Analysis The difference between the actual value and the planned value in a budget. This occurs when the actual figures achieved by the business are better than the budgeted figures. This occurs when the actual figures achieved by the business are worse than the budgeted figures. The process used by managers to examine variances and identify reasons why they occurred with a view to improving performance. 15

18 Final Accounts Income Statement Sales Revenue Opening Inventories Purchases Closing Inventories Cost of Sales Gross Profit Net Profit Statement of Financial Position Assets Non-Current Assets Current Assets Trade Receivables Non-Current Liabilities Current Liabilities Trade Payables Equity Summarises income/expenses and details the profit/losses made by the business in the accounting period. Income earned in the accounting period from trading activities. Inventories that the organisation has at the start of the trading period, carried over from the previous trading period. Additional inventories bought by the business for re-sale. The amount of unsold inventories left at the end of the trading period. Opening Inventories + Purchases Closing Inventories. Sales Revenue Cost of Sales. Gross Profit Expenses. Details in summary format, the financial position of the business. Items of value held by a business which are likely to generate future income. Assets that the business expects to retain ownership of, for a period of at least one year e.g. plant and machinery. These assets are held to help with the day to day running of the organisation. They are not usually acquired for profitable resale purposes. Assets that the business expects to turn into cash within one year e.g. inventories/trade receivables/cash/bank. Money that is owed from customers to the business arising from goods sold on credit. Debts that the business is required to meet in a future accounting period i.e. beyond one year e.g. bank loan. Liabilities that the business expects to pay within a one-year accounting period e.g. trade payables, bank overdraft. Money that is owed from the business to a supplier who provided goods/services on credit. The value of funds within the business which can be attributed to the owner/s. 16

19 Depreciation Depreciation Straight Line Historic Cost Residual Value Expected Life Net Book Value A fall in the value of assets caused by wear and tear, lack of maintenance, obsolescence or passing of time. The most common method of calculating depreciation used by business that assumes the net cost of the asset should be written off in equal amounts over its life e.g. Cost residual value/expected life. A fixed percentage may also be applied. E.g. if the expected life expectancy of an asset was 5 years, this equates to depreciation of 20% each year. This is the original cost of the asset. This is the amount the business expects the asset to be worth at the end of its useful life. The length of time the business expects the asset to last. The historic cost of the asset less depreciation accumulated each year. 17