A2 Definitions

01 External Influences on Business Activities

Enterprise: An enterprise is a factor of production required to turn ideas into successful
organizations.

Infrastructure: Refers to roads, bridges, highways and railways including communication systems
which support the effective operation of society and the economy

Market failure: It occurs when prices in the market are no longer determined by the forces of
demand and supply and resources are misallocated

Macroeconomic: The study of how the economy as a whole functions along with factors which
affect the economy

Economic growth: An increase in the value of total goods and services produced in an economy
overtime

Trade cycle: The trade cycle represents the regular fluctuations an economy goes through. It
consists of four stages including recovery, boom, recession and slump

Inflation: A sustained increase in the general prices in an economy as the value of money
declines

Demand-pull inflation: Occurs when the demand for goods and services exceeds an economy’s
ability to supply these goods and services

Cost-push inflation: Occurs when firms have to pay increasing prices for labor and raw materials
for production

Recession: Associated with falling demand, output and unemployment over a period of at least 6
months

Slump: It occurs after recession, when production and employment are at its lowest and many
businesses are failing

Unemployment: It refers to the portion of people wanting and seeking a job, but not currently
working

Structural unemployment: It occurs due to fundamental changes in the economy, particularly as

industries are dying and particular labor skills are no longer needed

Cyclical unemployment: It is caused by the fluctuations in the trade cycle, e.g., unemployment is
high during recession

Frictional unemployment: It refers to when people are temporary out of work as they have left their
previous jobs and are yet to find a new one

Monetary policy: It regulates the amount of money supply and interest rate of an economy

Fiscal policy: It uses taxing and expenditure to achieve a desired level of economic activity

Direct tax: It is a form of taxation imposed on income and wealth e.g., income tax

Indirect tax: It is a form of taxation imposed on spending

Supply-side policies: A range of measures which promote the effective operation of the free
market and therefore increase the total output supplied or produced by an economy
Exchange rate: It is the price of a country’s currency in terms of the price of another currency(s)
CSR: A concept which identifies a business’s responsibilities to all its stakeholders including
employees, customers, the local community and government

Pressure group: An organization of individuals with similar interests which brings the attention of
the public and authorities to irresponsible business practices

Social audit: An assessment which determines the impact of the business’s activities on society

Window dressing: It is when an organization manipulates or displays its financial records in the
most favorable manner

Urbanization: Refers to the movement of people from country-sides to cities

Big data: It is a vast and complex set of data which can be analyzed using modern-day software
and technology

Barrier to entry: Refers to something which makes it harder for other businesses to penetrate a
market e.g., existing brands in the market enjoying extensive customer loyalty

Disruptive innovation: Is when a business establishes a new market or market segment by

disrupting an existing one, and may even replace market-leaders eventually

MNC: It is a corporation which has headquarters in one country, but runs operations in a range of
different countries

Environment audit: An assessment carried out by an independent body to judge the level of
damage caused to the environment by a particular business’s activities

Sustainability: A sustainable business approach aims to meet the current needs while not
comprising on the ability of future generations to meet their needs

02 Business Strategy
Strategy: Long term plan-of-action devised keeping in mind corporate and business objective.

Tactics: Specific actions or steps you undertake to accomplish your strategy.

Strategic management: The process of developing and implementing a strategy.

Competitive advantage : An advantage gained by a business compared to its competitors

because of factors like innovative methods or low prices of similar products.

Strategic Analysis: Analyzing the current position of a business and the environment it operates in,
to help inform strategic decisions.

Macro - environment: Refers to external factors that influence a business’s performance but are
outside their control.

Blue ocean planning: When a business combines a strategy of differentiation and low costs to
create a new space in the market and new demand

Scenario planning: Technique to help managers plan ahead.

SWOT Analysis: A model of assessing a business’s strengths and weaknesses, and the external
opportunities and threats presented to it.

PEST Analysis: A way of analyzing the external macro-environment of business.

Vision Statement: A statement of what a business aims to achieve in the future.

Boston Matrix Analysis: Assessing a business’s products in relation with their market position.

Porter’s Five Forces Analysis: A model for understanding the level of competition in the industry a
business operates in.

Core Competencies: Unique capabilities that set a business apart from its competitors.

Ansoff’s Matrix Analysis: A model for assessing the degree of risk associated with prominent
growth strategies.

Force Field Analysis: Quantifying the desirability or restrictiveness of factors that influence a
strategic choice.

Decision Trees: Assessing options in relation to their outcomes and economic returns.

Strategic Implementation: Process of implementing the chosen strategy by adequate resource

planning and allocation.

Corporate Culture: The collective beliefs and attitudes of an organization’s people.

Change Management: Managing an organization’s transition from one stage to another during
strategy implementation.

Contingency Plan: A plan for coping with unplanned events.

03 Organisational Structure
Organizational structure: The way a business is designed to carry out its activities

Authority: The power to control the decisions or actions of others in relation to particular tasks or
circumstances

Responsibility: To be held accountable for the fulfillment of a certain task

Hierarchal structure: In this structure, all employees are subordinate to someone above them in a
hierarchy with the exception of executives

Functional structure: This type of structure is based upon various functions of the business e.g.,
marketing, finance or HR

Matrix structure: This structure puts together teams of employees from different departments with
different specialties to complete projects and fulfill the business’s needs

Intrapreneurship: Is the idea that employees are given the room and authority to make their own
decisions and implement their own ideas in their department, division or team

Chain of command: It is the line of information and authority within the organization

Span of control : The number of subordinates under the responsibility of one manager

Delayering: Is the process of reducing the layers of hierarchy within the business

Centralized: A centralized structure is where managers are in control of all major decisions

Decentralization: In this structure, greater decision-making power is delegated to employees

down the organizational structure

Line managers: Line managers have authority over a certain group of employees in the
organization or over the resources of a particular department
Staff managers: Staff managers have the responsibility to provide support functions within the
business, particularly to line managers in the form of guidance, assistance and training

04 Business Communication
Communication: The exchange of ideas and thoughts between people
Effective communication: When information is given to people and met with feedback to ensure
that it has been understood

Feedback: A responsive given in return to information to confirm that it has been received,
acknowledged and understood

One-way communication: When information is passed from top to bottom within the organization
with no feedback

Two-way communication: Information flows both upward and downward in an organization or is

both received and given out by the organization

Vertical communication: The exchange of information between people who are at different levels
of hierarchy in the organization e.g., employee appraisal

Horizontal communication: Exchange of information between people who are at the same level of
hierarchy in an organization e.g., board meetings

Formal communication: The exchange of information within and outside the organization using
official channels such as meetings

Informal communication: The exchange of information through unofficial channels

05 Leadership
Leadership: Leadership is the art of motivating and inspiring a group people to achieve a common
objective

Directors: Directors are elected by shareholders and they oversee long-term business goals

Managers: Managers are responsible for planning, organizing, motivating and controlling the
business’s resources including workforce

Supervisors: They are the link and bridge of communication between managers and the
business’s shop-floor workers

Worker representatives: Worker representatives are elected by the workforce and act as a link
between workers and management. They are consulted over major changes or matters which
affect the workforce significantly e.g., merger

Emotional intelligence: It is the concept which states that one should recognize his or her own
feelings as of others in order to manage emotions such as stress, anger etc. well in interpersonal
or work relations

06 HRM Strategy
Human Resource Strategy: A strategy to achieve a business’s human resource (HR) objectives in
order to fulfill its corporate objectives

Hard HRM: An approach that prioritizes the business and makes optimal use of its employees by
cutting costs and providing minimum growth.

Soft HRM: An approach that treats employees like an asset and focuses on their training, growth,
and well-being.
Flexible workforce: A workforce wherein less emphasis is placed on full-time employee contracts
and more on part-time or temporary ones.

Temporary worker: A worker with an employment contract that only exists for a specific period of
time, perhaps six months.

Part-time staff: Employees that work about half the hours as full-time employees.

Job sharing: A flexible employment contract that employs two part-time employees to complete
the work of a full-time employee.

Annualized hours: Contracts with a fixed number of hours to be worked over a certain period of
time.

Zero-hour contract: A contract with no fixed number of hours agreed upon by the employer or the
employee.

Flexi-time: A flexible working contract wherein employees work their hours based on individual
preferences and circumstances.

Shift working: A working practice that allows businesses to operate round-the-clock by employing
people in shifts throughout the day.

Compressed working hours: A practice where an employee reduces their number of working days
per week but has to work longer hours each day to compensate.

Labor Turnover: The number of employees leaving an organization over a specific period of time.

Labor Productivity: The rate of output of an employee over a specific period of time

Absenteeism: The rate of employee absence in relation to the total employees employed.

Management by Objectives (MBO): Motivating and coordinating a workforce by dividing

organizational objectives into divisional and departmental objectives.

07 Marketing Analysis
Market analysis: Examines a market’s condition in terms of the sensitivity of demand with respect
to a change in other factors

Price elasticity of demand (PED): The responsiveness of a product’s demand in relation to a

change in its price

Income elasticity of demand (IED): Measures the sensitivity of a product’s demand in relation to a
change in the consumer’s income levels.

Promotional elasticity of demand (PED): Seeks to measure the change in demand in relation to a
change in promotional expenditure

Research and development: The process of acquiring and applying scientific knowledge to create
a new product or service

Sales forecasting: The process of estimating the volume or value of a firm’s sales in the future

Correlation: A potential link between two variables under consideration

Extrapolation: Involves identifying the underlying trend in past data and projecting this trend
forwards

Total revenue: The total amount of income generated from sales.

 08 Marketing Strategy
Marketing plan: A plan set out to convey the intentions of a business with regards to its marketing
activities based on market research

Marketing mix: The marketing mix is a combination of 4Ps (product, price, place, and promotion)
that make up for the main tactical marketing domains for a product

Marketing strategy: A long-term plan of action for the marketing department to achieve its
marketing objectives

Protectionism: Occurs when a government protects domestic producers against foreign

competitors

Tariffs: Taxes placed on foreign goods and services being imported into a country

Quotas: Limits on the number of foreign goods and services that can be imported into a country

Globalization: Increased flow of people, capital, and goods from one part of the globe to another

Economic collaboration: Occurs when countries make trade easier between each other

Pan global strategy: The same marketing strategy adopted for all markets of the business

Localized strategy: Adapts the marketing mix to cater to local tastes and consumer cultures

09 Location and Scale

Capital: The money invested into a business and used to purchase a range of assets, including
machinery and inventories

Offshoring: When a business moves one or more of its operations to another country

Reshoring: When a business moves back to its initial country of operations

Globalization: Occurs when countries become more open to trade and the movement of money,
people, goods and services across borders

Scale of operations: The maximum capacity of production of a business with the available
resources

Economies of scale: Reductions in unit costs due an increased scale of operations

Diseconomies of scale: Increase in unit costs of production as the scale of operations increase

10 Quality Management
Quality control: It is the process of assessing products for faults at the end of the production
process

Quality: A quality product refers to one which meets customers’ needs and expectations

Quality assurance: It is the prevention of faults in products during the production process rather
than correcting mistakes once production is finished

Total quality management (TQM): It an approach to quality which integrates all employees of the
organization, whereby employees aim to integrate the expectations of both internal (colleagues)
and external customers

Benchmarking: It is when a business measures performance against leaders in the fields, learns
from them and therefore aims to improve quality
 11 Operations Strategy
Operations management: Operations management is responsible for the production of goods and
services of a business. In other words, it controls the transformation of raw materials into final
goods

Computer aided design: It is the usage of computer software to create and modify product
designs

Computer aided manufacturing: It is the usage of computer software to control the manufacturing
process

Product innovation: Involves development of new products

Process innovation: Involves the development of new and more efficient production systems
Enterprise resource planning: It is the usage of software to collect information used by managers
to carry out day-to-day business activities to do with suppliers, accounts etc.

12 Financial Statements
Statement of profit or loss: A financial statement showing the total sales revenue, costs of
production, and profits earned by a business over a specific trading period

Statement of financial position: A financial statement that records the assets and liabilities of a
business on a specific day within a certain accounting period

Profit: A surplus of revenue over costs which is often invested back into the business

Loss: As a business’s expenditure exceeds its total sales revenue, a loss is incurred

Gross profit: The difference between the total sales revenue and the costs of production incurred
by a business

Operating profit: The profit incurred by a business after deducting the expenses or the indirect
costs like salaries from the gross profit of that particular operating period

Assets: Items owned by a business in the form of cash, property, machinery, vehicles, or even
employees

Liabilities: Debts owed by a business to other businesses or individuals. They could be in the form
of taxes and loans acquired by a business

Equity: A shareholder’s share in a limited company that they are owed if the business decides to
shut down operations, sell its assets, and pay all its liabilities

Capital expenditure: Money that is spent by businesses on assets that last for a period of more
than a year, for example, property and machinery

Closing inventory: The amount of inventory a business has left at the end of an accounting year

Net realizable value (NRV) method: The technique of valuing inventories by calculating the amount
that would be raised by selling them and deducting any costs that might be involved in the sale of
those inventories

Depreciation: A decrease in the value of a business’s assets over time

13 Analysis of Published Accounts

Ratio analysis: The technique of assessing a business’s financial performance by comparing one
piece of accounting information with another
Liquidity: The ability of a business to raise cash as and when needed without the assets losing
any value

Liquid assets: Assets owned by a business that can easily be converted to cash should the need
arise, for example, shares

Current ratio: A ratio that measures the ability of a business to meet its liabilities over a period of a
year or so

Acid test ratio: A ratio that measures the ability of a business to meet its short-term debts by
comparing its current liabilities with its liquid assets

Capital employed: The long-term funding employed by a business that comprises of its non-
current liabilities, its share capital, and its reserves

Return on capital employed (ROCE) ratio: The percentage return of operating profits earned on
the total value of the capital employed

Gross profit margin: The percentage of the revenue which accounts for the gross profit earned by
a business over a specific accounting period

Operating profit margin: The percentage of the revenue which accounts for the operating profit
earned by a business over a specific accounting period

Inventory turnover ratio: A ratio that represents the selling out of a business’s inventory in
comparison to its costs of sales

Trade receivables turnover: The time taken by a business to collect the money that its customers
owe them

Credit sales: Purchases made by customers for which payment is delayed by an agreed-upon
time period between the business and the customer

Cash sales: Purchases made by customers where payment is made at the time of the sale

Trade payables turnover: The amount of time taken by a business to pay back the money it owes
to its suppliers or other trade payables

Gearing: The long-term liquidity of a business

Dividend per share: The division of the total annual dividends offered by a company with the total
number of issued shares, giving out the dividend offered over each share issued

Dividend yield ratio: The percentage of dividend received on one share compared to its market
price

Dividend cover ratio: The extent to which a business is able to easily pay back its dividends from
the profits for the year

Price-earnings ratio: The amount that shareholders are willing to pay for each dollar earned on a
single share

14 Investment Appraisal
Investment Appraisal: A series of techniques designed to assist businesses in judging the
desirability of investing in particular schemes

Risk: The chance of a misfortune occurring, possibly resulting in financial loss

Payback: The amount of time required for the earnings from a project to recover the costs of initial
investment

Accounting rate of return (ARR): Percentage rate of return on each possible investment

Discounting: Adjusting the value of future earnings to reflect their present value

Present Value: The current worth of a cash flow or amount of money

15 Finance and Accounting Strategy

Chief financial officer: The senior manager who has overall responsibility for the financial affairs of
an organization.

Key performance indicators (KPIs): Measures of how well a business is meeting its targets, such
as revenue or profit per customer.

Overtrading: When a business expands quickly without organizing the long-term finance that is
necessary to fund the expansion.

Dividend strategy: Refers to a company’s long-term approach to allocating a proportion of its

profits to shareholders as dividend payments

Capital structure: Refers to the way in which a business has raised the capital it requires to
purchase its assets