Unit 1: Introduction to Business Management Flashcards
Primary Sector
The part of the economy engaged in extraction or production of raw materials
eg. fishing, mining
Secondary Sector
The part of the economy engaged in refining raw materials or the manufacture of finished goods
eg. automobiles, oil refining
Tertiary Sector
The part of the economy engaged in the delivery of services
eg. banking, accommodation
Quaternary Sector
The part of the economy engaged in the delivery of knowledge-based services
Involved in production, processing and transmission of information
eg. consulting, education
Private Sector
The part of the economy owned by individuals or groups
Primary focus is typically the maximisation of profit
Public Sector
The part of the economy owned by regional, local or national governments
Primary focus is aiding the local community
Providing essential services
Providing job positions
Ensuring safety and order
eg. public schools, government services
Sole Trader
Business owned by an individual
No legal distinction exists between the owner and the business
The owner has unlimited liability for the losses incurred by the business
The business ceases to exist when the owner dies
Partnership
Business owned by a group of individuals
No legal distinction exists between the owners and the business
The owners are collectively liable for 100% of the losses incurred by the business
Deed of partnership / Partnership agreement outlines the responsibilities and division of profits between partners
Privately Held Company
Business owned by a group of individuals
Articles of association make the business a separate legal entity from its owners
Owners have limited liability for losses incurred by the business and can only lose as much finance as they themselves invested
Number of shareholders is limited, as shares need to be offered by existing owners and cannot be purchased on the public stock exchange
Publicly Held Company
Business owned by a group of individuals
Articles of association make the business a separate legal entity
Owners have limited liability for losses incurred by the business and can only lose as much finance as they themselves invested
Stock market flotation and initial public offering needed to make a private limited company “go public”, after which shares of the business become available for purchase on the public stock exchange
Must disclose sensitive information, such as accounting, to the public
Social Enterprise
Business advancing a social purpose in a financially sustainable way
Share of the profits often reinvested into the business
Typically not reliant on philanthropy
For-Profit Social Enterprise
Social enterprise that earns a profit, which is sometimes distributed among the business’ owners
Primary aim is still to provide a social service
Cooperative
Business owned and operated by its members, sharing any profits
eg. financial, housing, workers, producer, consumer (often agriculture)
Non-Proft Social Enterprise
Social enterprise that generates little to no surpluses (instead of profit)
Primary aim is to provide a social service
Non-Governmental Organisation (NGO)
Non-profit organisations, often with a humanitarian purpose
Independent of the government, but may receive government grants or funding, working in cooperation with the government
Charity
Specific form of non-governmental organisation
Relies heavily on donations, but does not need to pay any tax
Vision Statement
A philosophy, vision or set of principles which steers the direction and behaviour of a business
Typically does not change
Provides internal stakeholders with motivation and gives external shareholders a sense of shared beliefs
Business Objectives
Articulated, measurable targets that must be met to achieve the business’ long-term aims. (Ideally: Specific, Measurable, Achievable, Relevant, Time-specific)
Mission Statement
States a company’s purpose and explains why the business exists
Outlines a business’ aims and values
Often changes when there is significant change in the internal- or external business environment
Provides internal stakeholders with a direct goal and gives external stakeholders insight into what the business is about
Strategic Objectives
Long-term goals of a business that indicate how the business intends to fulfil its mission
Often performance goals, eg. market share, profitability
Usually set by board of directors/executive management
Tactical Objectives
Medium- to short-term targets that, if consistently met, help the business achieve its strategic objectives
Usually set by executive/middle management
Operational Objectives
Short-term goals governing the day-to-day improvements of a business
If consistently met, help the business achieve its tactical objectives
Usually set by middle/floor management
Corporate Social Responsibility
View that businesses, rather than focusing purely on shareholder value, should contribute to the social, economic and environmental well-being of society
Stakeholder
A person or organisation that affects or is affected by a business
Often classified as internal or external
Internal Stakeholder
A stakeholder who operates inside the business
Owners, managers, employees
External Stakeholder
A stakeholder who operates outside the business
Customers, suppliers, local communities, pressure groups, investors, creditors, governments, media
Economy of Scale
Decrease in average cost per product as output or activity increases
Diseconomy of Scale
Increase in average cost per product as output or activity increases
Fixed Costs
Costs which do not vary based on the amount of goods or services produced
Variable Costs
Costs which increase or decrease based on the amount of goods or services produced
External Growth
Sometimes referred to as inorganic growth
Occurs when a business expands with the aid of resources and capabilities attained by acquiring another company or forming some type of relationship with another organisation
eg. merger, acquisition, joint venture
Internal Growth
Sometimes referred to as organic growth
Occurs when a business grows by relying on its own resources and capabilities
eg. investment in new products, sales channels, stores
Merger
Occurs when two theoretically equal companies legally become one company
Acquisition
When one company purchases a majority (>50%) of all the shares of another company
Takeover
When one company acquires the majority (>50%) of all the shares of another company
Usually, “takeover” implies that the acquisition is not welcomed by the target company
Joint Venture
An organisation created, owned and operated by two or more businesses
Legally distinct from the organisations that created it
Strategic Alliance
Occurs when two or more businesses cooperate for mutual benefit
Members retain their independence
Less binding than joint ventures
Franchising
Method of distributing products or services
Franchisor sells the rights to use established brands and services to franchisees
Franchisee pays an initial fee and percentage of the revenue to the franchisor
Multi-National Company (MNC)
Company operating in two or more countries
Often large, but doesn’t necessarily have to be
