BUSINESS ORGANIZATION AND ENVIRONMENT GLOSSARY

CHAPTER 1: THE NATURE OF BUSINESS:

BUSINESS: an organization engaged in the trade of goods and/or services to
consumers
INPUTS: Raw materials, components, machinery and labour
PROCESS: Turning inputs into the provision of services or the manufacture
of goods
OUTPUTS: Output of provision of final goods and services
SOLE PRIPRIERTORSHIP: Owned by one person
PARTNERSHIP: Owned by 2 or more people
CORPORATION: An artificial person created by law and owned by
shareholders
SHAREHOLDERS: an owner of shares in a company
CO-OPERATIVE: owned by workers or members who buy from the business
FRANCHISE: when a business licences another to use its name, operating
procedure, etc. Under an above form of ownership
FOR PROFIT BUSINESS: produces or sells goods/services for the purpose of
making profit
NON-FOR-PROFIT BUSINESS (NPO): operates strictly to help people in a
community
INTERDEPENDANT: when business rely on the goods and services from a
variety of businesses to satisfy consumer needs and wants
COMPETITION: competitors competing in the same market selling similar
products/services

OBSOLETE: when a product is no longer in demand

PRICING POWER: increases prices in response to increased costs or to
increase profits
MARKET: a meeting place where buyers and sellers meet to trade
goods/services
CONSUMER GOODS: consumer durable and non-durable
DURABLE/TANGIBLE: physically touchable
ADDED VALUE: allows businesses to sell their product for more than the
cost of production
OPPURTUNITY COST: cost of passing up the next best choice when making
a decision
FACTORS OF PRODUCTION (FACTOR INPUTS) different elements used for
production
-

LAND
LABOUR
CAPITAL
ENTREPRENEURSHIP (MANAGEMENT)

DEMAND: quantity of a good or service consumers are willing to pay at a

particular price
LAW OF DEMAND: as price of a product falls, quantity demanded of the
product will increase
SUPPLY: quantity of a good or service that businesses are willing to provide
within a price range people are willing to pay
LAW OF SUPPLY: as price of product rises, the quantity supplied of the
product will increase

SPECIALIZATION: when a business concentrates on the production of a

particular good/service
BUSINESS FUNCTIONS (DEPARTMENTS):
FINANCE: monitors the movement of funds into and out of business
MARKETING (4 Ps): conducts research on consumer
HR MANAGEMENT: recruitment, rewarding, motivation and training of
staff
OPERATION MANAGEMENT: production of goods or delivery of
service

BUSINESS SECTORS: business activities classified into three main

economic sectors within the chain of production
PRIMARY: extraction of raw materials, agricultural and fishing
SECONDARY INDUSTRY: industries that create a finished good
TERTIARY: provision of services to businesses and consumers

CHAPTER 2: TYPES OF ORGANIZATIONS

PRIVATE SECTOR: owned and controlled by private individuals
PUBLIC SECTOR: operate under the ownership and control of the
government
ENTREPRENEUER: individuals that take advantage of opportunities
BUSINESS START-UP TERMS:
MARKET OPPURTUNITY: the identification of new or unsatisfied consumer
needs
LIMITED LIABILITY: when one cant lose more than they invested into the
business
CROWN CORPORATION: operated by the provincial or federal government
and provide services to local citizens

MUNICIPAL CORPORATION: operated by the city and provide goods and

services to local citizens
COOPERATIVES: all members contribute to the running of business and all
members have equal vote and power within the business
MERIT GOODS: services which people should be provided in greater
quantities such as healthcare and education

CHAPTER 3: ORGANIZATIONAL OBJECTIVES:

ORGANIZATIONAL OBJECTIVES: the nature, role and importance of
objectives
MISSION STATEMENT: a statement of the businesss core aims, phrased in
a way to motivate employees and to stimulate interest by outside groups
S.M.A.R.T OBJECTIVES:
SPECIFIC: stating exactly what is trying to be achieved
MEASURABLE: able to measure to decide if they have achieved their
goal
AGREED: approval and understanding of everyone involved

REALISTIC: achieve goals while taking into consideration of resources,

competition, market, etc.
TIME SPECIFIC: a time frame in which it should be achieved in
CORPORATE AIMS: concentrate on business development and growth
CORPORATE OBJECTIVES: designed to turn details that are turned into
goals and objectives which are specific to the business itself
STRATEGIC OBJECTIVES: short term goals organization must achieve to
ensure its long term sustainability
TACTICAL/OPERATIONAL OBJECTIVES: short term goals a business
achieves
THE BUSINESS PLAN: should clearly state nature of business, amount of
external finance it seeks and the purpose of their application
DESCRIPTION: history of business and goals
PRODUCT/SERVICE: should be described in comparison with other
products, its unique selling points should be specified
MARKETING PLAN: market research and data of current consumer
trends
FINANCE: budgets for main functional areas of business
THE STRATEGIC PLANNING PROCESS:
GLOBAL STRATEGIES: development of business outside of national
boundaries
CORPORATE STRATEGIES: shape long term position of business and
to develop overall shape and nature of business

BUSINESS LEVEL STRATEGIES: plans a company uses to gain

competitive advantage over its rivals
FUNCTIONAL STRATEGIES: designed to improve efficiency in
different areas of business
HIERARCHY OF OBJECTIVES: tool that helps analyze and communicate the
project objectives
SWOT ANALYSIS: A widely used framework for organizing and using data
from the internal and external environment of a business
Advantages:
- Quick and simple
- Reduces risk in decision making
- Provides insight on a business current position
Disadvantages:
- Too simplistic, not detailed enough
- Static model
- Should not be used in isolation of other organizational tools

CHAPTER 4: STAKEHOLDERS
STAKEHOLDER: any person or organization with s direct interest in, and is
affected by the performance of a business.
INTERNAL STAKEHOLDERS: stakeholders that are internally involved with
the business
-

Managers, Employees,

EXTERNAL STAKEHOLDERS: stakeholders that are externally involved with

the business
-

Competitors, Government, Customers

STAKEHOLDER CONFLICT: when actions in a certain area of business

affect stakeholders in a negative way

CHAPTER 5: EXTERNAL ENVIRONMENT:

EXTERNAL ENVIRONMENT: External factors are those issues which either
restrict or aid the performance of an organization, but are beyond its control.
FACTORS THAT AFFECT ALL BUSINESSES IN AN ECONOMY (P.E.S.T.):

Political legislation, interest rates

Economic inflation

Social culture and ethics

Technological advances

S.T.E.E.P.L.E. ANALYSIS: an analytical tool for looking at the external

environment of a business.
SOCIAL: lifestyle changes, demographic changes
TECHNOLOGICAL: technological advancements
ECONOMIC: economic growth, state of economy
ENVIRONMENTAL: environmental regulations
POLITICAL: government organization
LEGAL: tax policies, employment laws, safety regulations
ETHICAL: conducting business in a fair manner
FISCAL POLICY: government control over tax rates
MONETARY POLICY: government control over interest rates

S.W.O.T. ANALYSIS:
STRENGTHS: strong characteristics a business possesses (internal)
WEAKNESSES: weak characteristics a business possesses (internal)
OPPURTUNITIES: opportunities a business can take to grow (external)
THREATS: factors that threaten a business (external)

CHAPTER 6: ORGANIZATIONAL PLANNING TOOLS:

BUSINESS PLAN: description of the business
EXECUTIVE SUMMARY: an overview of the new business and its
strategies
DESCRIPTION OF BUSINESS OPPURTUNITY: what is going to be sold,
why and to whom

MARKETING SALES AND STRATEGIES: details of why the entrepreneur

thinks customers will buy what the business plans to sell and how the
business plans to sell to them
MANAGEMENT AND PERSONELL: the skills and experience of the
entrepreneur and the staff he/she tends to recruit
OPERATIONS: premises to be used, production facilities, It systems
FINANCIAL FORECAST: the future projection of sales, profit and cash
flow
INTUITIVE DECISION MAKING: involves making decisions based on
instincts or gut feeling
ANSOFF MATRIX: to help organize how companies options when it comes
to being able to change their product and/or its market based on all the
external factors
SCIENTIFIC DECISION MAKING: involves basing decisions on research and
data analysis of both the problems and the options available
DECISION MAKING TREES: A Visual Representation of Choices,
Consequences, Probabilities, and Opportunities
ISHIKAWAS FISHBONE MODEL: The fishbone diagram (also know known
as the Ishikawa or cause and effect diagram) attempts to identify the causes
of an event.
- Manpower, Methods, Machinery, Materials, Mother Nature
(environment), Measurements (the 6 Ms)
DECISION TREE
Advantages:
- Transparency: Easy comparison to other alternative decisions.

- Specificity: Ability to provide specific values and probabilities of

each problem, decisions and outcomes of each decision.
- Comprehensive Nature: Provides comprehensive analysis of each
possible decision such as what the decision leads to.
- Ease of use: Easy to use. Simple graphical representation with no
need for explanation.
- Flexibility: Remain flexible to handle items with a mixture of realvalued categorical features and items with some missing features.
- Resilience: Little room for errors if inputs are correct.
- Validation: Quantify values providing probabilities of each outcome
of a decision.
Disadvantages:
- Complexity may be difficult to make the decision tree with lots of
branches
- Costs need people prepared to do statistical analysis and
calculations.
- Too much information amount of information can be
overwhelming
- Unwieldly may take time to draw large decision trees and you
may need to re-draw them.

CHAPTER 7: GROWTH AND EVOLUTION:

GROWTH: expansion in the size of a firms operations
ECONOMIES OF SCALE: proportionate saving in costs gained by an
increased level of production
DISECONOMIES OF SCALE: when businesses become too large and costs
for production rise

INCREASE SCALE OF OPERATION: This refers to any increase in the

capacity of a business
INTERNAL (ORGANIC) GROWTH: when a business uses its own resources
to increase the scale of its operations and sales revenue
EXTERNAL (INORGANIC) GROWTH: Occurs through dealings with outside
organizations
INTEGRATION OPTIONS:
HORIZONTAL: same product and same industry of production (United
Airlines)
FORWARD VERTICAL: same industry but a customer of the existing
business. Manufacturer owns Distribution Company and retailers
(Comcast Cable owns NBC T.V)
BACKWARD VERTICAL: same industry but a supplier of the existing
business. Manufacturer owns suppliers; helps control and stabilize the
supply chain (Car manufacturers owns tire, glass, and metal fabricator)
CONGLOMERATE: merger or takeover of a business in a different
industry (GE owns finance, energy, technology, and companies)
JOINT VENTURES: Two or more businesses agree to work closely together
to further a common interest.
STRATEGIC ALLIANCE: Agreements between firms to commit resources to
achieve an agreed set of objectives
PORTERS GENERIC STRATEGIES MODEL: framework for building
competitive advantage

COMPETITIVE STRATEGY: is the means by which organisations seek to

achieve and sustain competitive advantage
COST LEADERSHIP: superior profits through lower costs
DIFFERENTIATION: higher profits by adding value to the product areas
which are of real significance for customers who in turn are willing to pay
premium prices
FOCUS STRATEGTY: concentrating on a limited part of the market Focus
strategy is then subdivided into focus cost leadership and focus
differentiation
FOCUSED COST LEADERSHIP: a strategy that aims to attract one
type of customer with a low cost product and to be the lowest cost
operator in one particular niche segment of the market
FOCUSED DIFFERENTIATION: A strategy that aims to attract one
type of customer with a differentiated product

PORTERS GENERIC STRATEGY

Cost Leadership
PROS
ELIMINATE RIVALS
INCREASE MARKET SHARE
ENJOY HIGHER THAN AVERAGE PROFITS
CONS
COMPETITION
DAMAGING PRICE WARS
DIFFICULTY SUSTAINING COST LEADERSHIP

Differentiation

PROS
LESS ELASTIC PRICE
CAN CHARGE A PREMIUM
CAN RESULT IN HIGHER PROFITS
CONS
SUSTAINING DIFFERENTATION CAN BE HARD
CUSTOMERS MAY CARE MORE ABOUT PRICE
CREATING DIFFERENCES THAT CUSTOMERS DONT CARE ABOUT

Focus Strategy
PROS
LOWER INVESTMENT OF RESOURCES
FIRM BENEFITS FROM SPECIALISATION
MAKES ENTRY TO NEW MARKETS EASIER AND LESS COSTLY
HIGHER CUSTOMER LOYALTY
CONS
RISK OF IMITATION
RISK OF CHANGES IN TARGET SEGMENT
LIMITED OPPORTUNITIES OF GROWTH
THE FIRM COULD OUTGROW THE MARKET

CHAPTER 8: CHANGE AND MANAGEMENT OF CHANGE

CHANGE MANAGEMENT: Processes and techniques used to plan,
implement and evaluate changes in business organizations.

KOTTERS SIX CHANGE APPROACHES MODEL: six change approaches

including educate, participate, intimidate, negotiate, facilitate, and
manipulate
LEWINS FORCE-FIELD ANALYSIS: an analytical process used to map the
opposing forces within an environment (such as a business) where change is
taking place
DRIVING FORCES: Those forces affecting a situation that are pushing in a
particular direction; they tend to initiate a change and keep it going. (To gain
competitive advantage)
RESTRAINING FORCES: Are forces acting to restrain or decrease the
driving forces. (Fear or change)
EQUILIBRIUM: when the sum of the driving forces equals the sum of the
restraining forces.

CHAPTER 9: GLOBALIZATION:
GLOBALIZATION: The growing trend towards world-wide markets in
products, capital and labor, and unrestricted by barriers.
WORLD TRADE ORGANIZATION (WTO): An International organization that
promotes trade among member nations.
REGIONAL TRADE BLOCS:

Free Trade Areas / Agreements (NAFTA)

Free trade with no tariffs, quotas, or restrictions. Each country controls
non-members themselves.

Customs Unions
(Mercosur Argentina, Brazil, Paraguay, Uruguay, and
Venzuela)
These are free trade areas but members AGREE on restrictions for nonmembers.

Common Markets (European Union EU the worlds largest

common market. There are 27 member countries.)
Free trade of capital AND people between members as well as common
product standards (i.e. emission standards for cars).

Economic and monetary unions (EMU) i.e. Eurozone

These members share a common currency and an interest rate that is
determined by a central bank. (EU has 16 members of the Eurozone)

MULTINATIONAL CORPRATION: a business that runs in two or more

countries

BUSINESS ORGANIZATION AND ENVIRONMENT DIAGRAM

KEY
CHAPTER 5: EXTERNAL ENVIRONMENT

CHAPTER 6: ORGANIZATIONAL PLANNING TOOLS:

EDWARD DE BONOS SIX THINKING HATS:

DECISION TREES:

A Visual Representation of Choices, Consequences, Probabilities, and

Opportunities.

A Way of Breaking Down Complicated Situations Down to Easier-toUnderstand Scenarios.

Enable a business to quantify decision making

Places a numerical value on likely or potential outcomes

Allows comparison of different possible decisions to be made

A figure is placed on a proposal which is calculated as follows:

(likely financial outcome 1 x probability of outcome 1)

+ (likely financial outcome 2 x probability of outcome 2)
cost of investment

This figure is then be compared with the numerical value placed

on other proposals (which may in fact include doing nothing)

ISHIKAWAS FISHBONE MODEL

The fishbone diagram (also know known as the Ishikawa or cause and
effect diagram) attempts to identify the causes of an event.

CATEGORIES:
The Six Ms Recommended for Manufacturing Goods:

Manpower, Methods, Machinery, Materials, Mother Nature

(environment), Measurements

Recommended for Delivery Services:

Equipment, policies, procedures and people.

The 4 Ms of management

Management, Manpower, Machines, Materials

Administrative and service-related problems

Policies, people, paraphernalia, procedures

The 4 Ss

Surroundings, suppliers, system, and skills

STEPS IN USING A FISHBONE DIAGRAM:

1. Identify and agree on the problem/issue.

Write down the exact problem

Identify the staff involved, and when and where the problem
occurs.
Write the problem on the right hand side of the diagram.
Draw arrow across the paper horizontally to the problem,
providing a framework to develop ideas.

2. Establish the major causal factors involved.

Identify the factors that may be root causes of the problem and merit
further investigation.
Draw lines off the spine for each of the factors and label the
branches.
These may include factors such as the people involved with the
problem, machinery employed, methods used and materials used.
These factors may be established using a brainstorming exercise.
3. Identify possible causes.

Where a cause is complex, there may be several sub-causes.

For each root cause identified ask: why is this cause happening?
Establish possible related sub-causes.
These are the smaller lines off the bones of the fish.
The five waves technique would be useful here.

4. Analyze the Diagram.

Investigate the most likely causes identified on the diagram, which
may involve further, more extensive and detailed research.
This should help clarify whether the causes are correct.

SUCCCESSFUL FISHBONE DIAGRAMS:

1. Clearly state the problem
2. Contributors must be concise. Causes rather than symptoms.
3. For each bone brainstorm causes to place on node

4. For each branch, identify the root cause

5. Consider combining branches that are empty
6. Consider separating overcrowded nodes
7. Consider which root causes warrant further investigation
8. Discuss how each circled item affects the problem
9. Once root causes have been established the fishbone is complete

CHAPTER 7: GROWTH AND EVOLUTION:

ECONOMIES OF SCALE:

PORTERS GENERIC STRATEGIES FRAMEWORK:

an

CHAPTER 8:
Change Management: planning, implementing, controlling and reviewing
the movement of an organisation from its current state to a new one
Incremental/ Evolutionary change: change occurs slowly over time. Ex:
More fuel-efficient cars
Dramatic/ Revolutionary change: if unanticipated, can cause many
problems.
Factors causing resistance to change
Fear of the unknown: change means uncertainty which worries some
people.
Fear of failure: change requires new skills and abilities that, despite
training, may be beyond a workers capabilities.
Losing something of value: workers could lose income, status or job
security as a result of change and want to know precisely how change will
affect them.
False beliefs about the need for change: people believe that the current
system will continue to work without the need of radical change
Major Causes of Change:
Globalisation: increasing interdependence of countries economies through
free trade and multinational company investment

Technological Advances: leading to new products and new processes

Macro-economic changes: fiscal policy, interest rates, business cycle
CHAPTER 9: GLOBIZATION
GLOBILIZATION: The growing trend towards world- wide markets in
products, capital and labor, and unrestricted by barriers.
Advantages:
Closer to your markets:
-

Lower transportation costs

Better market information you are closer to your customers
May be considered a local company and gain customer loyalty

Lower costs of production:

-

Lower labor rates compared to more developed countries

Cheaper rent / cost of production facilities
Government tax incentives to encourage development

Avoid import restrictions:

-

By producing locally you avoid import duties (taxes) and other

import restrictions

Access to local natural resources:

-

These resources may not be available in your country or very

limited.

Take advantage of expanding markets:

-

Increased sales, profits, and growth opportunities

Disadvantages:
Exploitation of local workforce: Lack of local labor laws and safety rules
Pollution due to lower environmental standards
Local/domestic firms may suffer
Western business may be seen as imposing culture on in other parts
of the world

Profits may not be reinvested in host country

Depletion of natural resources in host country