Secondary sector

Firms that manufacture goods by processing the natural resources. This includes factories manufacturing computers, brewing beverages, baking, clothes-making and construction.

Tertiary sector

Firms that provide services to consumers and other businesses, such as retailing, transport, insurance, banking, hotels, tourism and telecommunications. It also includes selling the goods to the final consumer such as shops.

Quaternary sector

It is a subset of the tertiary sector which includes firms that are involved in the research and development process and are knowledge based. Universities, School and Technology based companies are a part of it.

Added value

It is the difference between the selling price of the product and cost of producing the product.

Adding value

It is the process of increasing the difference between the selling price of the product and the cost of producing the product. This is done either by increasing the selling price or decreasing the cost of production.

Brand / Brand name

It is a name, design, logo, symbol that makes a product recognisable and distinguishes it from the competitors in the eyes of the customer.

Market forces

They are the forces of supply and demand which determine the price of a product and the quantity bought and sold in a market.

Scarcity / Economic Problem

It refers to the limited resources available in comparison to the unlimited wants of consumers.

Opportunity cost

It measures the benefit lost (forgone) by not consuming or producing the next best alternative. Next best alternative sacrificed (forgone).

Enterprise

It is the risk taking ability to start a new business and take important decisions. It is also the skill needed to make a new idea work.

Entrepreneurs

They are individuals who take the risk to create or start a new business or project.

Intrapreneurs

They are people within an established business who think and act like entrepreneurs. They have all the skills and knowledge of an entrepreneur but they don’t have the ability to take risks.

Business plan

It is a written document that provides the details of the business objectives that a firm is expecting to achieve in the near future. This document also includes product details, marketing plan, industrial research, financial forecast and other important budgeted information.

Nationalisation

occurs when a government takes ownership of a business from the private sector into the public sector.

Privatisation

occurs when a government transfers ownership of a business from the public sector to the private sector.

Merit goods

are goods or services, such as education and health, whose benefits individuals may not fully appreciate. These are goods and services that benefit the society hence it has substantial external benefits.

Demerit goods

are goods or services such as cigarettes and alcohol, which harms the society and the individuals do not understand the harm fully. These are goods and services that harm the society hence it has substantial external costs.

Limited liability

occurs when an individual or groups of individuals are not personally responsible for all the actions of their business. Limited companies have limited liability where shareholders are not personally liable for the company’s loans and their liability is limited to their investment in the company.

Unlimited liability

occurs when an individual or groups of individuals are personally responsible for all the actions of their business. With sole traders, there is no distinction in law between the individuals and the business, and so they could lose their personal assets if the business has financial problems.

A company

is a business organisation which has its own legal identity and which has limited liability.

Shareholders

are persons or organisations that own a part of a company.

A franchise

occurs when a franchisor sells the rights to use or sell their products to a franchisee.

A niche

is a small segment of a market.

An objective

is a target that is measurable and has a given timescale.

Labour productivity

measures the output per time period of an employee.

A corporate objective

is a target set for the business as a whole.

The market share

of a business measures its sales as a percentage of the total market sales.

Cash flow

is the movement of cash into and out of a business over a time period.

Ethics

are moral principles that can shape the way a business behaves.

Social responsibility

is a philosophy under which businesses consider the interests of all groups in society as a central part of their decision-making.

A mission statement

sets out the overall purpose of a business.

An aim

is a long-term goal that determines the objectives that an organisation sets itself.

Strategy

is the long-term plan to achieve the objective of a business.

Tactics

are the short-term actions needed to implement the strategy.

A target

is a goal pursued by a business, such as achieving a particular market share or rate of growth of sales.

Budgets

are financial plans setting out a business’ future revenues and expenditure.

Ethical behaviour

is behaviour that is thought to be morally correct and not necessarily the most profitable.

Stakeholders

are groups or individuals who have an interest in a business.

Authority

is the power or ability to carry through a task or action.

Internal stakeholders

are individuals and groups within a business; for example, employees.

External stakeholders

are groups outside a business; for example, people who live near to the business’ premises.

Dividends

are money that is paid out of profits to shareholders. It is a reward to the owners of the business.

Human resource management (HRM)

is the process of making the most efficient use of an organisation’s employees.

Delayering

is a reduction in the number of levels of hierarchy within an organisational structure.

Teamworking

is the process of breaking down production into large units and using groups of employees to complete these tasks.

A workforce (or human resource) plan

assesses the current workforce and actions necessary to meet the business’ future labour needs.

Labour turnover

is the percentage of a business’ workforce that leaves a business over a given period of time (usually one year).

Recruitment and selection

is the process of filling an organisation’s job vacancies by appointing new staff.

Job descriptions

list the duties and responsibilities associated with a particular job.

Person (or job) specifications

outline the skills, knowledge and experience necessary to fill a given position successfully.

An employment contract

is a legal agreement between an employer and an employee setting forth the terms and conditions of the employment arrangement.

A business culture

is the attitudes, values and beliefs that normally exist within an organisation.

A dismissal

occurs when an employer terminates the employee’s contract.

Redundancies

take place when an employee is dismissed because a job no longer exists.

Employee welfare

is a broad term covering a wide range of facilities that are essential for the well-being of a business’ employees.

Employee morale

is the satisfaction felt by employees within the workplace.

Work–life balance

refers to the obligations placed on employees by employers that determine the amount of time that employees spend on work-related activities.

Diversity, in an employment context

refers to recognising the differences between individual employees and also the differences that may exist between groups of employees.

Equality

is the circumstance in which all people are equal, particularly in relation to rights and opportunities in the workplace.

Training

is a process whereby an individual acquires jobrelated skills and knowledge.

Development

refers to activities designed to increase employees’ skills, education, knowledge and abilities in the workplace.

Delegation

means passing authority down the organisational hierarchy. This is only genuine if the manager relinquishes some control to the subordinate.

Intrapreneurship

occurs when individuals within organisations are being entrepreneurial – taking risks and generating new ideas.

Multi-skilling

exists when employees have the skills to carry out several roles within an organisation.

A trade union

is an organisation of workers established to protect and improve the economic position and working conditions of its members.

Collective bargaining

is negotiation between employers and representatives of employees, normally trade union officials.

Motivation

describes the factors that arouse, maintain and channel behaviour towards a goal.

Absenteeism

describes a situation in which an employee is absent from work without a good reason.

Human needs

can be defined as the elements required for survival and good mental and physical health.

Schools of thought

are individuals and groups who hold similar views on a particular matter – in this case on what motivates employees.

Piece-rate

is a system whereby employees are paid according to the quantity of a product they produce.

Division of labour

is the breaking down of production into a series of small tasks, carried out repetitively by relatively unskilled employees.

The hierarchy of needs

is a theory that employees have successive requirements that can be fulfilled through work.

Hygiene factors (also called maintenance factors)

are a group of influences that may result in employee dissatisfaction at work.

Motivators

are a series of factors, such as promotion, that may have positive influences on employee performance at work.

Performance-related pay (PRP)

exists where some part of an employee’s pay is linked to the achievement of targets at work. These targets might include sales figures or achieving certain grades in an annual appraisal.

Variable pay

is a reward for working that is based on employee performance or results judged against some targets.

Fringe benefits (or perks)

are those extras an employee receives as part of their reward package.

Job redesign

means changing the group of tasks or duties which make up a specific job.

Job enrichment

occurs when employees’ jobs are redesigned to provide them with more challenging and complex tasks. Also called vertical loading.

Job enlargement

is giving employees more duties of a similar level of complexity. Also called horizontal loading.

Job rotation

is the regular switching of employees between tasks of a similar degree of complexity.

Empowerment

is a series of actions designed to give employees greater control over their working lives.

Job design

is the process of grouping together individual tasks to form complete jobs.

Employee participation

is the involvement of employees in the process of decision-making within a business.

Leadership

includes the functions of ruling, guiding and inspiring other people within an organisation in pursuit of agreed objectives.

Management

is planning, organising, directing and controlling all or part of a business enterprise.

Autocratic management

exists when managers keep control of information and make major decisions alone. Sometimes known as authoritarian management.

Paternalistic management

is a style in which managers take decisions in what they believe are the best interests of their subordinates.

Democratic management

occurs when information is shared and team members participate in decision-making. Sometimes known as participative management.

Laissez-faire management

takes place when managers allow subordinates freedom to make their own decisions.

Marketing

is the process of identifying, anticipating and satisfying the needs of customers in a mutually beneficial exchange process.

A marketing objective

is a marketing target for the business, setting out what it wants to achieve and when.

A corporate objective

is a target set for the business as a whole.

A marketing strategy

is a marketing plan to achieve the marketing objective.

Business-to-consumer marketing (B2C)

occurs when one business is marketing its products to the final consumers.

Business-to-business marketing (B2B)

occurs when one business is marketing its products to other businesses.

The market size

is the total number of items sold (this is measuring volume) or the total value of sales.

Market growth

measures the rate at which the market as a whole is growing over a given time period.

A unique selling point (USP)

is something about your product which is perceived by your customers as unique.

Niche marketing

occurs when a business focuses on a particular (usually small) segment of the market.

A market segment

exists when there is a group of clearly identifiable customer needs and wants.

Mass marketing

occurs when a business targets the majority of the market.

Customer-relationship marketing (CRM)

involves gathering and analysing data about customers to understand their behaviours and take appropriate actions to move them towards a purchase.

Customer retention

measures the proportion of customers who continue to buy from the business over a period of time.

Market research

is the process of gathering, analysing and producing data relevant to the marketing process.

Primary market research

gathers data for the first time for a specific purpose.

A focus group

is a small number of people gathered together to talk about a particular issue in open discussion.

Secondary market research

uses data that already exists.

A sample

is a group of people selected to represent the population as a whole.

The validity of market research

refers to how accurate the findings of market research are.

The reliability of market research

refers to the extent to which the same results would be received if the research was conducted again.

The marketing mix

is the combination of elements that influence a customer’s decision on whether or not to buy a product.

The products

of a business refer to what it offers to sell to its customers. These may be goods, which are tangible items, or services, which are intangible.

The tangible attributes

of a product refer to its physical aspects, such as how it looks and feels.

The intangible aspects

of a product refer to aspects that cannot be touched but can still be important to customers, such as the brand and its key values.

Product differentiation

occurs when the benefits of your product are perceived as clearly different from competitors’ products.

Product portfolio analysis

occurs when a business examines the position of all of its products in terms of their relative market share and market growth.

The product life cycle

shows the stages of a product over its lifetime.

An extension strategy

occurs when marketing activities are changed to prevent sales from falling.

Product portfolio analysis (PPA)

examines the market position of a firm’s products.

The Boston Matrix

is a method of product portfolio analysis that examines the products of a business in terms of their market share and the market growth.

Competitive pricing

is when companies set their prices at the same level as, or slightly below, their rivals.

Penetration pricing

is a pricing strategy aimed at gaining market share via a low entry price.

Price skimming

occurs when a high initial price is set for a product and this is reduced over time.

Price discrimination

occurs when different prices are charged for the same product.

Dynamic pricing

occurs when different prices are changed at different times to reflect demand conditions.

Cost-based pricing

occurs when a business considers the costs of an item and adds on an amount or a percentage to ensure it makes a profit.

Psychological pricing

takes account of the psychological effect of a price on customers.

The promotional mix

refers to the combination of ways in which the business communicates about its products.

Digital promotion

involves promoting a brand, product or service on digital channels such as search engines, social media, email and mobile apps.

The click-through rate (CTR)

measures the number of visits to a website as a percentage of the number of impressions of a digital advert.

The marketing expenditure budget

is the amount of money a business allocates to spend on marketing activities such as promotion.

The distribution channel

describes how the ownership of a product moves from the producer to the customer.

The distribution outlet

is where the product is actually sold; for example, the shop.

The output

of a business is the total amount produced in a given time period.

Inventory

refers to the stocks held in a business, such as materials and semi-finished goods.

Operations management

oversees the planning, coordination and control of the transformation process, turning resources (inputs) into outputs.

Productivity

measures the output per hour, per person or per machine.

Sustainable

activities are those that meet the needs of the business or of society without compromising on the ability to meet future needs.

Capital-intensive

production means there is a high proportion of capital (for example, machinery) used relative to other factors of production.

Labour-intensive

production means there is a relatively high proportion of labour (employees) used relative to other factors of production.

The supply chain

refers to all the different stages involved in making, distributing and selling a good or service, beginning with the material through to the production of parts, through to the distribution and sale of the product.

Supply chain management

involves managing the flow of goods and services, and includes the different processes that transform raw materials into final products.

Lean production

is an approach that continually seeks to reduce any form of wastage in the production process.

Capacity

measures the maximum amount of output a firm can produce at a given moment with its existing resources.

Factors of production

are inputs into the transformational process of business, such as land, labour, capital and enterprise.

Capacity utilisation

measures the existing output relative to the maximum possible output.

Capacity under-utilisation

occurs when a business is producing less than the maximum amount it can produce, given its existing resources.

Rationalisation

occurs when a business reduces the scale of its operations and reduces its capacity level.

Subcontracting

occurs when one business employs another business to undertake some of the work.

Outsourcing

occurs when the business uses other producers to undertake some of its operations.

An asset

is any item owned by a business that can generate an income for the enterprise.

Capital

is the money invested into a business either by its owners or by organisations such as banks.

Non-current assets

are assets that a business expects to hold for one year or more. Examples include property and vehicles.

Short-term sources of finance

are needed for a limited period of time, normally less than one year.

Long-term sources of finance

are those that are needed over a longer period of time, usually over a year.

Insolvency

exists when a business’ debts (or liabilities) exceed the assets available to pay them.

Liabilities

refers to the money owed by a business to individuals, suppliers, banks and others.

Bankruptcy

occurs when an individual, a sole trader or a partnership is judged unable to pay its debts by a court of law.

Liquidation

is the dissolution of a company by selling its assets to settle its liabilities.

Administration

is a process available to a company to protect itself while it attempts to pay its debts and to escape insolvency.

Working capital

is the cash a business has for its day-to-day spending. Current Assets - Current Liabilities.

Current assets

are items owned by a business that can be readily turned into cash. Examples include cash, money owed by customers (trade receivables) and inventories (stocks).

Trade payables

is the amount of money owed by a business to its suppliers for goods and services that have been received but which have not been paid for.

Trade receivables

is the amount owed by a business’ customers for products that have been supplied but for which payment has not yet been made.

Revenue expenditure

refers to the purchase of items such as fuel and raw materials that will be used up within a short space of time.

Capital expenditure

is the spending by a business on noncurrent assets such as premises, production equipment and vehicles.

A statement of financial position

is a financial statement that records the assets (possessions) and liabilities (debts) of a business on a particular day at the end of an accounting period. It was previously called a balance sheet.

An income statement

is a financial statement showing a business’ sales revenue over a trading period and all the relevant costs incurred to generate that revenue.

An internal source of finance

is one that exists within the business.

An external source of finance

is an injection of funds into the business from individuals, other businesses or financial institutions.

Trade credit

is a period of time offered by suppliers of goods and services before payment is to be made.

A bank loan

is an amount of money provided to a business for a stated purpose in return for a payment in the form of interest charges.

Venture capital

is funds (in the form of a mix of share and loan capital) that is advanced to businesses which are thought to be relatively high-risk.

Debt factoring

takes place when banks provide up to 80 per cent of the value of a business’ debts immediately to provide an instant inflow of cash.

Microfinance

is the provision of financial services for poor and low-income clients.

Crowdfunding

is a source of finance that entails collecting relatively small amounts of money from a large number of supporters (the ‘crowd’).

A government grant

is a sum of money given to entrepreneurs or businesses for a specific purpose.

Cash

is a business’ most liquid asset – it is notes and coins as well as funds held in the business’ bank accounts.

A cash-flow forecast

is a document that records a business’ anticipated inflows and outflows of cash over some future period, frequently one year.

Costs

are expenses that a business has to pay to engage in its trading activities.

Revenue

is the income a business receives from selling its goods or services.

Direct costs

can be related to the production of a particular product and vary directly with the level of output.

Indirect costs

are overheads that cannot be allocated to the production of a particular product and relate to the business as a whole.

Full costing

allocates all the costs of production for the whole business. Therefore, these costs are absorbed into each output unit. This is also known as absorption costing.

Contribution

can be defined as the difference between sales revenue and variable costs of production.

Break-even

is the level of production or output at which a business’ sales or total revenue is exactly equal to its total costs of production.

Profits

are the amount by which revenue exceeds total costs, although there are several different measures of profit.

Contribution costing

calculates the cost of a product solely on the basis of variable costs, thus avoiding the need to allocate fixed costs.

Average costs

are the total cost of production divided by the number of units produced.

Marginal cost

is the extra cost resulting from producing one additional unit of output. In most situations the marginal cost of an additional unit of a product is the variable cost of its production.

Cost-plus pricing

is the process of establishing the price of a product by calculating its cost of production and then adding an amount which is profit.

Contribution pricing

is based on the notion that any price set that is higher than the variable cost of producing a product is making a payment towards fixed costs.

Special-order decisions

occur when a business’ managers have to decide whether or not to accept unusual customer orders.

The margin of safety

measures the quantity by which a firm’s current level of sales exceeds the level of output necessary to break even.

Incremental budgeting

is a process where budget figures are minor changes from the preceding period’s budgeted or actual data.

A flexible budget

is a budget that is designed to change along with the sales volume or production levels.

A budget holder

is responsible for the use and management of a particular budget.

Zero budgets

exist when budgets are automatically set at zero and budget holders have to argue their case to receive any funds.