GCE

GLOSSARY OF TERMS
The Competitive Business
AS1 and AS2
Contents
Page

GCE Business Studies

Glossary of Terms AS 1 3
THE COMPETITIVE BUSINESS

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 10
MANAGING BUSINESS RESOURCES

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
Variance Analysis 15

Final Accounts 16

Depreciation 17
GLOSSARY OF TERMS – AS 1

THE COMPETITIVE BUSINESS

Central Purpose of Business Activity

Adding Value 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.

Competitive A favourable situation that a business organisation has over its

Advantage 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 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.

Partnership 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.

Deed of Partnership A binding legal document which states the formal rights of
partners in the business.

Silent/Sleeping A partner who contributes capital and shares in profits/losses

Partner but does not participate in decision making.

Limited Partnership 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.

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Limited Company 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.

Shareholders Investors who have a bought a share in the company.

Limited Liability Each shareholder is only liable for the original amount of money
invested in the business.

Franchise 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).

Worker’s Co- A business organisation owned by employees who contribute to

operative production and share profits.

Markets and Market Forces

Consumer Goods 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.

Capital Goods 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.
Labour The physical and mental effort expended by people in the
production of goods and provision of services.

Demand The desire to own anything, the ability to pay for it, and the
willingness to pay.

Supply The quantity of products which suppliers make available to the

market at any given price.

Equilibrium Price The price at which the quantity demanded by consumers is equal
to the quantity supplied.

Unique Selling Point The USP refers to the particular aspects of a product that makes
it different from other products.

Marketing Objectives What a business hopes to achieve through marketing its product
or service.
Mass Market A broad, non-targeted, non-segmented market.

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Niche Market A business aims their product at a narrow or focused subset of a
larger market sector.

Price Elasticity of A measure used to show the responsiveness, or elasticity, of the

Demand quantity demanded of a good or service to a change in its price.

Spectrum of Competition

Market Share The proportion of total sales in a particular market for which
one or more firms are responsible – this is usually expressed as a
percentage.

Market Growth Relates to the percentage increase in the size of the whole
market, of which the individual firm is merely a part.

Monopoly A market structure in which only one firm supplies the entire
output, there is no competition and there are barriers to entry.

Oligopoly 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.

Perfect Competition A market structure where there is perfect knowledge, many

buyers and sellers, freedom of entry and exit and a
homogeneous product.

Office of Fair A Government body that has responsibility for overseeing all
Trading policy relating to competition and consumer protection. It can
refer specific cases to the Competition Commission for
investigation.

Competition It will investigate and report on any monopoly, proposed merger

Commission 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.

Regulators of Private Agencies set up to regulate prices in the provision of water, gas,
Utilities electricity etc to the general public.

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Market Research

Marketing Research The collection, collation and analysis of data relating to the
marketing and consumption of goods and services.

Primary Research Information collected by a business through field research e.g.

survey. It involves the collection of data that does not already
exist.

Secondary Research Using existing sources of information to research the market e.g.
past sales data.

Focus Groups 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.

Consumer Panels A group of consumers who are consulted about their views on a
particular product over a period of time.

Test Marketing Selling a product in a restricted section of the market in order to

assess consumer’s reaction to it.

Quantitative Data Numerical data that can be used to inform decisions made by
the business.

Qualitative Data People’s opinions or judgements that may be used to inform

decisions made by the business.

Sample A group of consumers selected from the population.

Random sample Everyone is given an equal chance of being chosen.

Cluster sample The population is divided into ‘clusters’ usually geographic areas
and then a random sample is chosen.

Quota sample 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.

Stratified sample The population is divided into mutually exclusively strata or

layers with random sampling taking place within each stratum.

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Marketing Mix

Marketing Mix The elements of an organisation’s marketing plan that are

designed to meet the needs of its customers.

Price The amount charged by the business for providing a product to

the consumer.

Product This represents the nature of the item provided by the business
to the consumer.

Promotion The efforts made by the business to retain and attract consumers
by drawing attention to its product.

Place The means by which the product will be distributed at a time

and location convenient to the consumer.

People The behaviour and attitude of staff who determine the level of
customer satisfaction in business transactions.

Processes The systems employed by the firm to ensure their services are
successfully delivered to customers.

Physical This applies to the store, office and company website where
Environment business transactions occur.

E-Commerce The selling, marketing and servicing of products or services over

electronic systems such as the internet.

Product Life Cycle This shows the different stages in the life of a product and the
sales that can be expected at each stage.

Extension Strategies The methods used by a business to extend the life of a product.

Product Portfolio The particular mix of products which a firm is marketing.

Product Life Cycle

Product Life Cycle This shows the different stages in the life of a product and the
sales that can be expected at each stage.

Extension Strategies The methods used by a business to extend the life of a product.

Product Portfolio The particular mix of products which a firm is marketing.

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Marketing Planning and Strategy

Marketing Plan The actions that management take via the marketing mix in
order to achieve its marketing objectives.

Marketing The perception that consumers have of the quality, value for
Positioning money and image of the product relative to those of
competitors.
Market Segmentation Breaking down a market into sub-groups which share similar
characteristics e.g. age, gender, income.

SWOT 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 The features of a product that allow it to satisfy customer’s

needs. It may refer to some standard of excellence.

Quality Award Given to a business if their products have achieved and

maintained a particular standard e.g. the Kite Mark is awarded
for safety.

British Standard An independent organisation that sets quality standards in

Institution industry.

Best Practice A technique used by some businesses to ascertain what is the

Benchmarking ‘best’ from the customer’s perspective and then emulate it or try
to surpass it.

EFQM 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.

Balanced Score Card 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.

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Investment and Productivity

Investment 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.
Productivity This is a measure of how efficient a firm is in providing its
product/service.

Job Production A method of production which involves employing all factors to

complete one unit of output at a time to customer specifications.

Batch Production A method of production which involves completing one

operation at a time on all units before performing the next.

Flow Production Very large production of a standard product, where one unit of
production is performed continuously, one after the other,
usually on a production line.

Lean Production An approach to production operation management aimed at

reducing the quantity of resources used in the production of
goods.

Cell Production Involves producing a ‘family of products’ in a small self-

contained unit or cell.

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GLOSSARY OF TERMS – AS 2

MANAGING BUSINESS RESOURCES

Organisational Design

Business Structure The way in which a business is organised.

Hierarchy This refers to the order or levels of management in a business

from the lowest to the highest.

Chain of Command The system of reporting relationships within the organisation.

Span of control The number of subordinates working under a superior.

Organisation Chart A diagram illustrating the structure of an organisation.

Delegation The authority/responsibility passed down from a superior to a

subordinate.

Centralisation 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.

De-centralisation 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.

De-layering The removal of managerial layers in the hierarchical structure of

an organisation.

Downsizing The process of reducing capacity, this is done usually by making

staff redundant.

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Communication

Channel of The route by which a message is communicated from sender to

Communication the receiver.

Effective This occurs if the message is received and understood by the

Communication receiver and there is appropriate feedback.

ICT Information and communication technology. The use of

technology to deliver messages and data from groups,
individuals or businesses to others.

Barriers to Something that prevents effective communication from taking

Communication place e.g. inappropriate choice of communication channel.

Communication The written, oral or technological methods used to communicate

Media a message.

Motivation Theorists

Motivation This is the process of encouraging people to think and want to

achieve the objectives set by management.

Maslow 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.

Herzberg 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.

McGregor He developed the Theory X and Theory Y approach which is

based on assumptions about human behaviour that influence
managerial action.

Taylor He developed the Scientific Management theory as a way of

increasing productivity and lowering costs.

Methods of Motivation

Motivators Incentives given to workers to encourage greater productivity

and satisfaction at work.

Monetary Motivators Financial incentives used to encourage greater productivity.

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Non-Monetary Incentives that focus on job design used by management to
Motivators encourage greater productivity

Time Rates A system of rewarding employees for the amount of time spent
doing a particular job based on a specific rate per hour.

Fringe Benefits Additional benefits given to workers e.g. company car for
executives, private health care, company pension, free car
parking or luncheon vouchers.

Job Enlargement 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.

Job Enrichment 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.

Job Rotation Transferring between jobs allows employees to gain more

experience and become multi-skilled.

Empowerment Official authority given by managers to employees to make

decisions and control their own activities.

Quality Circles 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 People in authority who are responsible for ‘getting things done’
usually through other people.

Management According to Henri Fayol, managers are responsible for

Functions planning, organising, commanding co-ordinating, and
controlling employees and work within the business.

Leadership 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.

Paternalistic Style The manager dictates what has to be done but indicates the
benefits to the employees of a particular course of action.

Democratic Style The manager provides opportunities and encourages employees

to participate in decision making.

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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 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.

Planning Methods 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.

Labour Turnover 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.

Effective The selection and retention of the best candidate for the job.
Recruitment

Internal Recruitment Filling a vacancy by appointing someone from within the

organisation.

External Recruitment Filling a vacancy by appointing someone from outside the

organisation.

Job analysis A study of what the job entails such as the skills, tasks and
performance expected.

Job Description A general outline of the duties to be undertaken, the reporting

relationships and reference may be made to remuneration for
the successful candidate.

Job/Person A list of all the qualifications, skills, qualities and experience

Specification required from a suitable applicant.

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Break-even Analysis

Break Even Point 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).

Margin of Safety The range of output between break even output and the current
level of output, over which a profit is made.

Variable Costs Costs that change directly as output levels change.

Semi-variable Costs 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.

Total Costs Fixed and variable costs added together.

Total Revenue The number of units sold by the business multiplied by the
selling price per unit.

Profit Total revenue less total costs.

Contribution 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.

Fixed Costs Costs which do not change as output levels change.

Budgeting

Budgetary Control A business system which involves making future plans,

comparing the actual results with planned results and then
investigating the cause of any differences.

Budget An agreed financial plan drawn up for a specific time frame

setting out proposed revenue and costs.

Fixed Budget A budget that is not changed even when the actual activity levels
differ from those set.

Flexible Budgets A budget which is changed to allow for the behaviour of variable
costs at different levels of activity.

Zero-based Budget 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.

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Cash Budget A forecast of receipts and payments normally prepared on a
monthly basis for the budget period.

Master Budget 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 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.

Opening Balance The amount of money available at the beginning of the budget
period.

Net Cash Flow The difference between the receipts and expenses in a particular
budget period.

Closing Balance 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 The difference between the actual value and the planned value in
a budget.

Favourable Variance This occurs when the actual figures achieved by the business are
better than the budgeted figures.

Adverse Variance This occurs when the actual figures achieved by the business are
worse than the budgeted figures.

Variance Analysis The process used by managers to examine variances and identify
reasons why they occurred with a view to improving
performance.

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Final Accounts

Income Statement Summarises income/expenses and details the profit/losses made

by the business in the accounting period.

Sales Revenue Income earned in the accounting period from trading activities.

Opening Inventories Inventories that the organisation has at the start of the trading
period, carried over from the previous trading period.

Purchases Additional inventories bought by the business for re-sale.

Closing Inventories The amount of unsold inventories left at the end of the trading
period.

Cost of Sales Opening Inventories + Purchases – Closing Inventories.

Gross Profit Sales Revenue – Cost of Sales.

Net Profit Gross Profit – Expenses.

Statement of Details in summary format, the financial position of the

Financial Position business.

Assets Items of value held by a business which are likely to generate

future income.

Non-Current Assets 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.

Current Assets Assets that the business expects to turn into cash within one
year e.g. inventories/trade receivables/cash/bank.

Trade Receivables Money that is owed from customers to the business arising from
goods sold on credit.

Non-Current Debts that the business is required to meet in a future

Liabilities accounting period i.e. beyond one year e.g. bank loan.

Current Liabilities Liabilities that the business expects to pay within a one-year
accounting period e.g. trade payables, bank overdraft.

Trade Payables Money that is owed from the business to a supplier who
provided goods/services on credit.

Equity The value of funds within the business which can be attributed
to the owner/s.

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Depreciation

Depreciation A fall in the value of assets caused by wear and tear, lack of
maintenance, obsolescence or passing of time.

Straight Line 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.

Historic Cost This is the original cost of the asset.

Residual Value This is the amount the business expects the asset to be worth at
the end of its useful life.

Expected Life The length of time the business expects the asset to last.

Net Book Value The historic cost of the asset less depreciation accumulated each
year.

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