Business A level

Paper 1 key terms

101 Enterprise
Key Term Definition
Enterprise An enterprise can just be another name for a business. It can also mean the
having the skill and taking the initiative and the risk to make a business
happen.

SME A small to medium sized enterprise (1). Small is less than 50 employees (1).
Medium less than 250 (1). Usually sole trader, partnership or private
limited company. (1) Turnover less than £50m (1).

Needs Needs are what people need to survive – food, shelter, warmth. (1)
Needs are limited (1)

Wants Wants are what people desire but they are not necessary for survival (1)
Wants are unlimited. (1)

Entrepreneur A person who uses an idea and starts a business [1] taking on the (financial)
risks [1] in the hope of making a profit (reward) [1]

Primary Sector Primary sector - this involves acquiring raw materials. (1) This is sometimes
known as extractive production for example coal mining (1)

Secondary Sector Secondary sector - this is the manufacturing and assembly process. (1) It
involves converting raw materials into components. It also involves
assembling the product. (1) For example, house building or manufacturing
(1)

Tertiary Sector Tertiary sector - this refers to the commercial services that support the
production and distribution process. (1) It involves providing a service. (1)
For example, insurance, retaining (1)

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 102 Business plans
Key Term Definition
Business Plan The business plan makes clear the objectives of the business (1) and how
the business intends to achieve these objectives (1).

A business plan can help a business to secure finance. The owners of a

business can use a business plan to check progress against their objectives
and can act as a guide to help to make decisions.
Executive Summary This provides an overview of the business’s aims, objectives and strategy,
and is evidence that the proposal is viable. It sets out how the
business is going to be run.
The Marketing Plan Market research carried out to establish the size of the market, the needs of
the customers and the level of competition. The marketing strategy includes
the price, product promotion and place (marketing mix)
The Operations Plan Include details of where the business will be located, production methods
and any equipment needed. Plus, information on the
costs of production and where the business will buy supplies may be
included.
The Human The number of employees and the skills, experience and qualifications they
Resources Plan require will be outlined. Any management team will also be
identified.
The Financial Plan • a sales forecast indicating potential revenues
• a cash flow forecast for the first 12 months
• a profit and loss and balance forecast for the end of the first year
• a break-even analysis.

+ available start-up capital as well as any potential borrowing.

103 Markets
Key Term Definition
Market Any place where buyers and sellers meet (1) to exchange goods/services (1)

Competition/ Competition refers to the number of businesses in a market

competitive market
A competitive market is one where there are numerous producers that
compete with one another [1] to provide goods and services consumers
want and need [1]. A number of marketing strategies can be used to gain
customers/market share e.g. competitive pricing [1]

Mass Market Mass marketing is where a business sells to the whole market and markets
the product to all consumers in the same way

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Niche Market Targets the smaller segment of a larger market (1) where customers have
specific needs and wants (1). This market may have less competition (1)

Market Size The total number of sales, by value or volume, in a market as a whole.

Market Share + This measures the sales of a firm relative to the total sales in the market
Formula (market size). Formula:

Market A process of subdividing a market into identifiable subgroups (1) that have
Segmentation similar needs, wants or characteristics (1) and providing them with goods or
services that meet their needs and wants (1).

Monopoly A single or dominant business within a market (1) (could be a pure

monopoly with 100% market share or, most likely, a business with 25% or
more market share, which could be regarded as a monopoly according to
UK/EU competition authorities) high barriers to entry (1) price makers (1)
high economies of scale (1).

Oligopoly A few large companies dominate the market (1) in terms of sales
revenue/market share as well as which there may be many small firms.

They engage in non-price competition such as branding and advertising (1)

high barriers to entry (1); price makers(1) ; high economies of scale (1).

Monopolistic Many relatively small businesses (1) no dominant businesses (1) few
Competition barriers to entry (1) similar products with some differentiation (1) a little
control over prices but essentially might be price takers (1)

Perfect Competition A market in which many small firms produce virtually identical products at
similar prices (1) With the ability to enter and leave the market freely (1)

No low barriers to entry exist (1) The goods sold are homogenous (1) There
are a large number of small businesses competing (1) No one business is
large enough to influence the activities of others (1)

Consumer Laws that prevent harm such as goods not being fit for purpose or not of
Protection merchantable quality. Examples of laws are:
Sale and Supply of Goods Act 1994 -
Consumer Credit Act 1974
Trade Descriptions Act 1968 and 1972
Distance Selling Regulations

^ You do not need to know all definitions of each of these laws

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Demand The quantity of goods/services that consumers are willing and able to buy
at a given price, at a given time.

Supply The quantity of goods/services that producers are willing and able to
supply to the market at a given price, at a given time.

Market Equilibrium This is the price where quantity demanded is equal to quantity supplied.

Price Elasticity of Measures the sensitivity of demand to a change in price.

Demand + Formula Formula:
Percentage change in quantity demanded
Percentage change in price
*don’t need calculation for paper 1 (calculation on paper 2)

Price Elastic • Price elasticity is greater than one

• Where the quantity demand rises or falls by a larger percentage than
the price change.

Price Inelastic • Price elasticity value is between 0 and 1

• Where a change in price results in a smaller % change in quantity
demanded

Income Elasticity of Income elasticity of demand measures the responsiveness / sensitivity (or
Demand + Formula change to) of demand (1) to a change in income (1).
Formula:
Percentage change in quantity demanded
Percentage change in income
*don’t need calculation for paper 1 (tested on paper 2)

Income Elastic • Income elasticity is greater than one

• Where the quantity demand rises or falls by a larger percentage than
the income change.

Income Inelastic • Income elasticity is between 0 and 1

• Where the quantity demand rises or falls by a smaller percentage than
the income change

Inferior Goods A product that has negative income elasticity. (1) As incomes decrease,
demand increases and vice versa (1)

Normal Goods A product that has positive income elasticity. (1) As incomes increase,
demand increases and vice versa (1)
Luxury Goods Goods for which demand increases significantly when incomes increase,
and vice versa.
Positive income elasticity that is greater than one

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 104 Market research
Definition Key Term
Market Research The process of gathering primary and secondary data on the buying
habits, lifestyles, usage and attitudes of actual and potential customers.

Primary Research Primary research, or field research, gathers first-hand information. The data
gathered is new and directly relevant to the needs of the business. [1]
Methods include questionnaires, interviews, focus groups, consumer
panels, experiments, observations and test marketing. [1]

Secondary Research Secondary research, or desk research, involves the use of previously
collected information. The information used has not been gathered
specifically for the business but instead adapted for its use. [1] Methods
include official publications, industry magazines, internal information or
online desk research. [1]

Qualitative Data Data referring to attitudes, opinions, intentions, motives and beliefs. [1]
Focus groups, open-ended questionnaires, interviews, customer reviews.
[1]

Quantitative Data Data or facts that can be tested (1) Information in the form of
numerical/mathematical data (1)

Information that can be measured (1) Information that is statistically valid

(1) Information that can be interpreted using figures (1)

Sampling Sampling occurs when researchers take a selection of the population (1)
who are representative of the whole population. (1) Examples are quota
and random (1)

Quota Sampling Involves population being segmented into specific groups with the same
characteristics and then a number selected from each group
Random Sampling A subset of a statistical population where every member of the population
has an equal chance of being interviewed

Bias Something that may cause data within a sample to be weighted towards
one side. Bias occurs when one subgroup outweighs another in a sample

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 105 Business Structure (ownership)
Key Term Definition
Private Sector • Businesses owned and run by private individuals.
• Aims and objectives of the private sector might include survival, market
share, profit maximisation, growth, maximisation of sales revenues,
increasing share value

Public Sector Organisations which are owned (1) and run/funded/controlled by the
government (local and national) (1)

Sole Traders A private sector business that is owned and run by one individual (but they
may employ people). They have unlimited liability.

Partnership A private sector business that owned and run between 2–20 people. They
have unlimited liability.

Unlimited Liability Where the owners become personally responsible for the debts of the
business. (1) Individuals may be forced to sell personal possessions or use
personal savings to meet such debts (1)

Private Limited A business that is owned by its shareholders, run by directors and where
Company (Ltd) the liability of shareholders for the debts of the company is limited (limited
liability). Shares can only be sold privately e.g. to family and friends

Public Limited A business that is owned by its shareholders, run by directors and has
Company (PLC) limited liability. Shares can only be sold publicly on the stock exchange

Limited Liability The investor/owner is seen as separate to the company. Personal assets are
not at risk to pay debts. Owners are only liable to lose the amount of
money invested in the business (1);

Social Enterprises Aim to solve problems and improve communities they operate in, they do
not exist solely to make profits. Profits are usually reinvested towards
achieving their social ethical goals. They do not have shareholders

Charities A non-profit-making organisation established with the aim of collecting

money from individuals and spending it on a cause, which is usually
specified in its title.

Stakeholders A stakeholder is anyone with an interest in a business. Stakeholders are

individuals, groups or organisations that are affected by the activity of the
business.

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 106 Business location
Key Term Definition
Infrastructure Infrastructure means roads, rail and shipping. In addition - electronic
communication systems, training agencies and financial services. The basic
physical and organizational structures and facilities (e.g. buildings, roads,
power supplies) needed for the operation of a society or enterprise.

(no specific key terms for this section)

107 Business finance

Key Term Definition
Sale of Assets Established businesses are able to sell off assets that are no longer
required, such as buildings and machinery

Debt Factoring Where a business can raise cash by selling their outstanding sales invoices
(money owed by customers) to a third party (a debt factoring company) at a
discount. This is a short term source of finance and is useful when the
business has a cashflow problem

Retained/Re- Where a business used profits made at the end of the financial year and
Invested profit reinvest them back into the business to fund expenses.

Share Issue A share issue is the offering for sale of new shares of ownership in a
business. It is only available to LTDs and PLCs

Overdraft An arrangement where a bank allows its customer to take out more money
than is in their account. The bank can charge interest and/or a fee for this
arrangement. It is for short term use only.
Bank Loan A loan is borrowing a fixed amount, for a fixed period. Payments are usually
made monthly.
Trade Credit Businesses buy items such as fuel and raw material and pay for them at a
later date – possibly 30–90 days later.
Leasing Leasing is where a business pays for the use of an asset/equipment (1) but
will never own the asset (1) improving short term cash flow compared to
buying the asset outright (1)

*this is repeated in the finance section

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 108 Revenue, costs and profit
Key Term Definition
Revenue Revenue is the money a business makes from sales.

Total revenue = quantity sold x selling price

Profit The amount left after a business subtracts total costs from the revenue they
generate from selling products to customers.

Calculation: Total Revenue – Total Costs

Fixed Costs Do not vary with output. Fixed costs only change in the long run. Examples are rent
and insurance

Variable Costs that change in direct proportion to changes in output. Examples are raw
Costs materials, stock
Semi Variable Costs that include both fixed- and variable-cost components e.g. a business may
Costs pay employees a monthly salary (fixed cost) but pay them overtime if they have a
lot of orders (variable)

Direct Costs Direct costs are costs which can be identified directly with the production of a
good or service, e.g. raw materials.

Indirect Costs Indirect costs are costs which cannot be matched against each product because
(Overheads) they need to be paid whether or not the production of good or services takes
place, e.g. rent on the premises.

Total Costs Total fixed costs + total variable costs

Contribution Selling price – variable cost per unit

This allows an organisation to analyse whether each of its products covers its own
variable costs.

Breakeven A diagram that shows the level of output where a business does not make a profit
(chart) nor a loss.
Formula:
Fixed Costs
Contribution (Selling Price – Variable Cost per unit)

Margin of The margin of safety shows how much a producer can reduce output before the
Safety business starts to make a loss.

Actual output – Break-even output

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 109 - 116 Marketing Key terms
Marketing Marketing involves the understanding, anticipation and fulfilling of customer
needs

Market orientation Market orientation is when a business bases its marketing mix on the
perception of what the market (customer) wants (1) using market research
and customer opinions. (1)

Product orientation Product orientation is when a business bases its marketing mix on the
business’s product strengths and capabilities. The business develops products
based on what it is good at making or doing, rather than what a customer
wants. It may involve innovation

Asset-led marketing A marketing strategy based on a firm's own strengths, not solely on the
customers' needs. This could include production techniques and distribution
network, branding, experience, and image.

Marketing mix The marketing mix outlines the marketing strategy (1) and consists of product,
price, promotion, and place (1).

Product portfolio The collection/range of all the goods and services offered by a business.

Brand Unique design, sign, symbol, and/or words used in creating a unique image
that identifies a product and differentiates it from its competitors.

Unique selling point What distinguishes a product from ones sold by competitors. It may involve
the branding, lowest price, the best quality, or the first of its kind.

Differentiation Distinguishing a product or service from others. By making a product different

or appearing to be different from similar products sold by rivals, a business will
hope to attract more customers.

Product lifecycle The product life cycle represents the stages that a product goes through from
the initial development and introduction to growth, maturity, saturation, and
decline. It measures sales over time.

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*PLC and cashflow

For info (not a

definition)

• During the development stage cash flow is negative, because development

costs are being incurred before any revenue is achieved.
• Once the product is introduced cash flow starts to increase although there
may still be costs associated with the launch of the product, cash flow
could remain negative.
• As sales grow, cash flow increases and becomes positive until the product
reaches maturity.
• Once product sales go into decline cash flow also begins to fall.

Extension strategy An extension strategy is a way of prolonging / lengthening the life of a product
(1) that stops the product from reaching the decline stage (1). This can be
done through ways such as promotions, new flavours, new packaging (1).

Boston Matrix A technique which allows businesses to analyse their product portfolio with
the use of a matrix.(1) Products are categorised according to market growth
and (relative) market share. (1) Products are placed into one of four
categories – stars, cash cows, dogs and question marks. (1)

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Penetration pricing Charging a low price to penetrate the market. This may be used to enter the
market where there is much competition and price is elastic.

Price skimming Market skimming means charging a high price to maximise profits on each
item sold for a limited period. It is suitable when the product is price inelastic
in the short term. The aim is to gain as much profit as possible for a new
product while it remains unique in the market.

Cost-plus pricing Cost-plus pricing is where a profit percentage is added to the average cost of
producing the good / service.

Competitive pricing Competitive is where a business considers what their competitors are charging
for a product or service, based on this, they will decide their pricing strategy

Psychological pricing Psychological pricing is where business price products that make customers
believe they are paying less than they really are e.g. 99p

Contribution pricing Price will be based on the variable costs plus a contribution towards overheads
and profits. Orders can be priced based on different contribution basis for
different products. Contribution is selling price – variable cost per unit

Above the line Above the line promotion is advertising.(1) Advertising that takes place
promotion through mass media such as print media and broadcast media e.g.
newspapers, magazines, television, and radio.(1) It targets a wide audience it
can also be seen by anyone outside the target audience.

Below the line Below the line promotional strategies used to target consumers more directly
promotion such as personal selling, packaging, direct mail, sales promotions, public
relations, and sponsorship

Distribution channel The path/route taken by a product as it goes from the manufacturer/producer
to the ultimate/final consumer. These could include using a wholesaler,
retailer, or direct selling.

Multi-channel Where a combination of distribution channels is used. For example, a clothing

distribution brand sold through retailers, its own stores, its own website, and other online
platforms

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Digital media Digital media refers to any information that is broadcast through a screen. This
includes text, audio, video, and graphics that is transmitted over the internet,
for viewing on the internet.

e-tailing ‘Electronic retail’ or e-shopping is a form of electronic commerce that allows

consumers to directly buy goods or services from a seller over the internet.

m-commerce M-commerce is the buying and selling of goods and services online (1) through
wireless handheld devices such as mobile phones and apps (1)

117 – 122 Finance Key terms

Budget A budget is a financial plan for the future (1) aimed at controlling expenditure
and/or revenues (1)
Variance analysis Checking actual outcomes against predicted outcomes.

Adverse variance An adverse variance is when the actual figure will lead to less overall profit
being made than was budgeted (1). This could either be that actual costs
were higher than budgeted (1) or actual revenue was lower than budgeted (1).
Favourable variance A favourable variance is when the actual figure will lead to more overall profit
being made than was budgeted. This could either be that actual costs were
lower than budgeted or actual revenue was higher than budgeted
*C2 topics
Internal source of Internal sources of finance are generated from within the business [1] e.g.
finance owner’s capital, sale of assets, reinvested profit [1]

External sources External sources of finance are those raised from outside of the business [1]
e.g. money raised from share issue/capital, overdraft, venture capital, bank
loan, hire purchase, leasing, trade credit, debt factoring [1]

Overdrafts An arrangement where a bank allows its customer to take out more money
than is in their account. The bank can charge interest and/or a fee for this
arrangement. It is for short term use only.

Loan Is an agreed sum borrowed from the bank paid back over a set period of time
(long term) with additional interest. It could be available very quickly once
agreed.

Share capital Share capital is the money invested in a company by the shareholders. Share
capital is a long-term source of finance. In return for their investment,
shareholders gain a share of the ownership of the company. LTD and PLC
companies have share capital.

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Venture capital Usually invests in small-medium high risk growing businesses in return for a
high stake in the business and has a direct say in how the business is run. This
type of finance is usually more appropriate for new smaller businesses with
less shareholders / owners present.

Leasing Leasing is where a business pays for the use of an asset/equipment (1) but will
never own the asset (1) improving short term cash flow compared to buying
the asset outright (1)

Trade credit When a business buys raw materials, components, services or other goods
from another business but agrees to pay for those at a later scheduled date.

Debt factoring Where a business can raise cash by selling their outstanding sales invoices
(money owed by customers) to a third party (a debt factoring company) at a
discount. This is a short term source of finance and is useful when the
business has a cashflow problem

Cash flow forecast A projection/prediction (1) of the likely cash inflows and outflows in
a business. (1)
Income statement An income statement shows the business' financial performance over a given
time period e.g. one year. It shows gross profit and net profit.

Gross profit Gross profit calculates a company’s revenues minus its cost of goods sold
(direct costs).

Cost of goods sold Cost of sales are the direct costs (variable costs) related to the supply of a
(cost of sales) product / service.

Net profit Net profit measures the revenue minus all of the expenses. The formula is
gross profit – expenses or indirect costs.

Gross profit margin Gross profit/sales revenue x 100.

It shows how well a business controls its production costs e.g. raw materials. It
is an indicator of how efficient the business is at making and selling its product

Net profit margin Net profit/sales revenue x 100.

It shows how efficiently a business controls all its expenses. It shows how well
it manages its expenses

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 123 – 133 HR Key terms
Functions of the HR The human resources department is responsible for all aspects of managing
department people who work in a business. This includes e.g. pay and rewards,
recruitment, selection and training and dealing with disputes

Flexible workforce When the business’s workforce does not work the traditional pattern of 9-5
5 days per week and their work pattern is designed to meet changing
demand patterns and provide labour specifically when it is required. It
includes flexible working methods such as part time, flexi time, zero hours
contracts etc

Flexible working Flexible working means that there is some flexibility as to when and where
employees work. It might include flexi-time, where workers can choose
which hours they work, so long as they work their quota of hours.

Flexible hours The employee chooses when to start and end work (within agreed limits)
(flexi-time) but works certain 'core hours', for example 10am to 4pm every day.

Part time working A part-time worker is someone who works fewer hours than a full-time
worker. There is no specific number of hours that makes someone full or
part-time, but a full-time worker will usually work 35 hours or more a week
therefore part time is less than this.

Multi skilling Involves businesses training their workforce to be able to work effectively
across a wide range of tasks for example through job rotation

Hot desking Hot-desking means that an employee has no fixed work space (1) often
booking work desks when required (1) Hot-desking reduces the need for
office space (1).

Zero hours contracts This is where an employee has to be available to work but is not guaranteed
work (1). Provides employers with total flexibility (1). Employees may be
given no hours or full-time hours depending on demand (1). Workers have
no income security (1).

Work force Workforce planning is the process of determining the labour needs of the
plan/workforce company, now and in the future (1), including the number of workers
planning required (recruitment / redundancies) and their skills. (1)

The process of determining the labour needs of a business now and in the
future (1), then devising a strategy to achieve those labour needs (1).

Internal recruitment Internal recruitment: Filling a vacancy by employing someone who already
and external works for the business, could be a promotion or sideways movement.
recruitment External recruitment: Filling a vacancy by employing someone from outside
of the business.

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Recruitment process The typical recruitment process could involve: job analysis, job description,
person specification, job advert, shortlisting, interview.

Job analysis A job analysis is part of the recruitment process that occurs once a vacancy
has been identified (1) that involves determining in detail the duties and
responsibilities and the skills and knowledge required to carry out the
position (1). A job analysis is used to help to write the job description and
person specification (1).

Job description Job description – lists the specific duties the employee will be required to
carry out as part of their job

Person specification Person specification – lists the qualifications, skills, experience and personal
attributes needed by the person who will be selected for the job

Selection methods Ways of deciding which of the applicants should be given the job. Examples
include interviews, work trials, testing, selection exercises and telephone
interviews and video

Induction training Induction training is the training that an employee receives when they first
joins a business or organisation. It enables a new recruit to
become productive as quickly as possible It includes health and safety
training

On the job training Training that occurs at the employee’s place of work [1] while he/she is
doing the job/learning by doing [1], usually supervised by a more
experienced employee or trainer [1]

Off the job training Where the employee attends college to study for qualifications s,
or through the use of internal (in-house) courses structured directly for the
needs of the business. This takes place outside of the employee’s normal
work environment

Apprenticeships A form of training for young people whilst undertaking paid employment.
Often combines workplace training with attendance at college on day
release or evenings. Qualifications are attained on completion of the
apprenticeship programme. Can be supported by government funding.
Remuneration could be less than the minimum wage.

Appraisal The process whereby the performance of an employee is evaluated [1]

against targets set [1]. Feedback is provided usually by their manager [1]
and new targets for the next cycle are set [1] Examples are peer, self,
superior and 360⁰ (1)

Superior’s assessment This is when a worker’s performance is assessed by his/her line manager
(immediate boss) who comes up with future targets and training needs.

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Peer assessment This is when a worker’s performance is assessed by other colleagues who
work in the same level in the hierarchy and who do similar job roles.

Self assessment This is when workers reflect on their own recent performance and set their
own targets and considers their own training needs.

360 degree feedback This is when a worker’s performance is assessed and feedback by their line
manager, colleagues, subordinates, self-assessment, and sometimes from
customers and suppliers.

Labour productivity Labour productivity can be measured by dividing the output by the number
of workers(1) over a period of time (1).

The calculation is:

Total output per period of time
Average number of employees per period of time.

NB: a reference to time or period is needed for full marks.

Absenteeism Absenteeism is the number of working days lost (1) due to employee(s) not
attending work, for example calling in sick (1).
(Do not accept “absence” “absent” – as it is too similar to the key term).

Absenteeism is the percentage of employees not at work (1) on a given

day/in a given time period (1).

Labour turnover A measurement of the rate at which employees are leaving an organisation.
It is calculated using the following formula:

Number of staff leaving x 100

Average number of staff employed

Authority and Authority is the power to make decisions and take action, while
responsibility responsibility is the obligation of the subordinate regarding a specific duty
or task assigned by the superior

Chain of command The chain of command describes the lines of authority (reporting system) in
the business/communication path. (1) Orders / instructions are passed
down / feedback is passed up. (1).

Span of control The number of workers a manager is responsible for. It could be wide
(manager is responsible for many employees) or narrow (manager is
responsible for smaller number of employees)

Delegation Where manager passes authority onto employees for particular functions,
tasks, and decisions. Delegation can allow subordinates to gain more
autonomy and become empowered

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Hierarchy • Shows the levels of management from the top to the bottom.
• Indicates who is responsible to whom – the way authority is organised.
• Shows the chain of command – tall hierarchies have long chains of
command and flat hierarchies have shorter chains of command

Centralisation A centralised structure is where business decisions are made at the top of
the hierarchy or in a head office and distributed down the chain of
command

Decentralisation A decentralised approach is where a business allows decisions to be made

by managers and subordinates further down the chain. This structure
provides staff with more decision-making responsibilities.

Empowerment Where manager passes authority onto employees so that they can make
their own decisions

Delayering Delayering is the process of removing one or more layers [1] in a hierarchy/
organisational structure [1]. Delayering can result in a flatter organisational
structure [1] and a wider span of control [1].

Hierarchical structure A hierarchical structure has many layers of management, and businesses
with this structure often use a ‘top-down’ approach with a long chain of
command. In a hierarchical structure, managers will have a narrow span of
control and a relatively small number of subordinates

Flat structure A flatter organisational structure has a hierarchy with relatively few (or no)
management layers. It can be achieved through a process of delayering. In a
flat structure, managers have a wide span of control with more
subordinates, and there is usually a short chain of command.

Matrix structure Matrix structure is often used when cross-functional teams are created to
run a project. Team members may come from different disciplines. The
team will disband when the project is complete.

Financial methods of • Piece rate - where an employee is paid based on the amount of
motivation products they produce
• Commission - usually given as a percentage of a sale
• Bonus - additional remuneration, this is money paid to an employee for
excellent performance
• Salary - Employees are paid a set amount per year, which is split into
equal amounts each month.
• Profit sharing - where a business gives employees a share of the
business profits.
• Share ownership – where employees are given shares in the business.
• Performance related pay - Performance-related pay is payment that is
based on the performance of employees - the better an employee
performs, the more they are paid.

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Non financial methods • Consultation - This is when managers ask the views of employees and
of motivation involves them in the decision making process.
• Job design – where managers plan the job so that it is more interesting
to an employee
• Job enlargement - This is when managers increase the scope of the job
for the workers by giving them more jobs to do to prevent boredom.
• Job rotation - This is when managers stop employees completing the
same job day in day out and instead change the employee’s role so they
have a greater variety of work to do.
• Job enrichment -This is when managers give employees more work to
do but the extra job has a higher responsibility level.
• Empowerment - Where manager passes authority onto employees to
make employees more motivated.
• Team working - This is when employees work with other employees to
learn off each other, develop social skills and share ideas so that they
can become multi-skilled.
• Flexible working - This is when an employee is allowed to choose their
working hours in accordance to their personal needs

Management by A way of management where objectives are defined within an organisation

objectives (MBO) so that the management and workers agree to the objectives and
understand what they need to do in order to achieve them.

It involves the breaking down the aims and goals of an organisation into
targets and objectives for divisions, for departments, for managers and
finally for workers to meet. If all levels meet their targets, then the business
should perform better

Leadership styles Autocratic – the leader makes all of the decisions and does not require
input form the workers. This means decision making could be fast.
Democratic - this leadership style encourages employees’ participation in
decision-making. The leader still makes the decision but could consider the
workers’ opinions. This makes decision making slower than autocratic or
laissez faire
Paternalistic – the leader is autocratic but makes decisions in what they
believe to be the best interests of the workers (like a parent).
Bureaucratic – decisions can only be made if rules and procedures are
followed. This makes decision making slow but clear
Laissez faire – the leader allows the workers to make their own decisions
and trusts the workers to work without direction.

Leadership styles have advantages and disadvantages – there is no one best

style
Contract of A contract is an agreement that sets out an employee’s employment
employment conditions, rights, responsibilities and duties. A written statement of the
terms and conditions must be given to an employee within 2 months of the
employment starting.

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Minimum wage The legal minimum wage rates that must be paid to employees

Equal opportunities The Equality Act 2010 legally protects people from discrimination in the
workplace and in wider society. It is against the law to discriminate against
anyone because of:
• age
• being or becoming a transgender person
• being married or in a civil partnership
• being pregnant or having a child
• disability
• race, including colour, nationality, ethnic or national origin
• religion, belief or lack of religion/belief
• sex
• sexual orientation
(you do not need to be able to list all 9 of these)

Trade union An organisation that represents workers in a particular trade, industry or

occupation. Its purpose is to protect and improve its members’ terms and
conditions of employment.

Collective bargaining The official process by which representatives of the workforce, usually trade
unions, negotiate with employers on behalf of their members

Industrial action This happens when the employees are in a dispute with their employer and
have failed to reach an agreement. It can include work to rule/go-slow,
overtime bans and strikes

ACAS The Advisory, Conciliation and Arbitration Service is an independent

organisation that can offer 3 services when there is a dispute in the
workplace. i) it gives advice to both sides, ii) it conciliates i.e. tries to help
both sides reach an agreement and iii) it can arbitrate i.e. listen to both
sides and decide which side is right.

Motivation Theories (in brief)

Taylor Money is the only motivator, piece rates should be paid/other monetary rewards for
meeting targets should be given

Mayo Communication and teamwork motivate workers. Firms should enable workers to
work together and managers should show an interest in employees
Maslow Workers are motivated by different needs. These are in a hierarchy. Once a need in
the hierarchy has been satisfied it no longer motivates and workers are motivated by
the next level up. The levels (needs) are physiological, security, social, self esteem
and self-actualisation

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Herzberg Said there were two factors when motivating workers. Hygiene factors (pay, working
conditions, teamworking) made workers satisfied with their jobs but didn’t motivate
them to work harder. Motivators, such as recognition and achievement, make
workers more productive, creative and committed
Vroom Expectancy theory states that employee's motivation is an outcome of: how much an
individual wants a reward (Valence), the assessment that the likelihood that the effort
will lead to expected performance (Expectancy) and. the belief that the performance
will lead to reward (Instrumentality). If any of these three factors are not present or
weak then the employee will not be motivated.
Porter and an individual’s motivation is affected by the reward they expect to receive for
Lawler completing the task. The individual’s view of the attractiveness of the possible reward
will determine their level of motivation. Rewards could be intrinsic and extrinsic.
Intrinsic e.g, feelings of satisfaction and pride, extrinsic e.g. increased pay or bonuses

Management and leadership theories in brief

McGregor’s theory X A theory of how managers view their workers. Some managers view them
and theory Y as lazy, only motivated by money and needing constant supervision (theory
X). Some managers view workers as self-motivated, able to work without
direction and enjoy the challenge of work (theory Y)

Fiedler’s theory Leaders are not able to change their leadership style to suit circumstances.
Leaders have particular traits that make them appropriate for particular
situations. Some leaders are focused on getting the task done whereas
others are care much more about emotional engagement with the people
they work with, therefore the leader can be changed to suit the situation.

Wright and Taylor’s This theory is not concerned with the style (autocratic, democratic etc) but
theory that it is possible to improve a leader's performance and that this could be
done through education. Whatever the style, managers and leaders can
improve their style with support

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 134 – 143 Operations Key terms
Added value Added value is the difference between the price of the finished product
(selling price) [1] and the cost of inputs involved in making it [1]
1 mark for formula (selling price – cost of bought in materials)

Job production Producing a one-off item that has been tailor made to suit a specific
customer.

Batch production Manufacturing a limited number of identical products. At each stage of

production work will be completed for the whole batch before the next stage
is begun

Flow production Continuous production on production lines, allowing a large quantity of

identical products to be made.

Labour productivity Labour productivity can be measured by dividing the output by the number of
workers(1) over a period of time (1).

The calculation is:

Total output per period of time
Average number of employees per period of time.

NB: a reference to time or period is needed for full marks.

Capacity utilisation A measure of the extent to which the productive capacity (or resources) of a
business are being used, expressed as a percentage. The formula is: actual
output/maximum possible output x 100.

Lean production Lean production aims to remove / eliminate waste from the production
process (1) and as a result increases productivity and reduces costs (1). Lean
production seeks to improves efficiency in the production process by
minimising the use of resources (1) while maintaining quality (1).

Kaizen Continuous improvement. Employees are encouraged to make regular small

changes so that the business continuously improves in terms of waste
reduction, productivity and quality.

Just in time production (JIT) tries to ensure that parts, raw materials and components are received
only when needed. Products are only made when ordered. This minimises
stock holding and emphasises quality at all stages of production.

Cell production The production line is subdivided into a number of cells (teams). The workers
are trained so that they can fulfil a number of tasks within the cell. This allows
job rotation. The skills of the workers mean that they can each play a role in
improving quality

Time based Emphasis is placed on reducing time taken in all aspects of the whole
management production process.
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Quality control Quality control is based on inspection (by quality inspectors) of (a sample of)
finished products. Quality checking occurs at the end of the production
process.

Quality assurance Quality assurance is a system of agreed quality standards (accept a promise or
guarantee) at each stage of production. Quality checks are carried out by
employees throughout the production process. Focus is on prevention of poor
quality.
Total quality A managerial approach which focuses on quality and aims to improve the
management effectiveness, flexibility and competitiveness of a business. It could include
empowerment, teamwork, achieving zero defects, and benchmarking

Benchmarking Benchmarking is where a business sets a target in terms of its standard of

quality (1) based on competitors / best performing areas of the business (1)

Stock control Stock control is the management of raw materials in a business (1). Also
includes work-in-progress (1) and finished goods (1). It ensures that there is a
smooth flow of goods to the final customer (1) / able to meet customer
demand (1)
*Do not accept the term ‘stock’ when the learner attempts to define stock
control.

Re-order level The level of stock at which a new order is placed

Re-order quantity The quantity ordered in order to return the stockholding to maximum level –
measured by the difference between the maximum and minimum stock
holding levels

Lead time The amount of time that elapses between placing an order and the delivery of
that order

Buffer stock The amount of stock held below the minimum stock level and zero stock. (1)
Stock held for unforeseen rises in demand (1)
Stock held as a precaution in case of a break in supply (1)

Minimum stock level The lowest amount of stock the business wants to hold

Innovation The creation of a new product or an improved version of a current product or

service. (1) The commercial exploitation of an invention.(1)

CAD (computer aided CAD software enables businesses to create products on-screen (1). CAD
design) allows products to be tested on-screen (1). CAD allows designers to
change/re-design product ideas on-screen (1). CAD can link to machines and
printers so product designs can be made (1).

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Research and Research is the inquiry into and discovery of new ideas. Development is the
development process which changes ideas that result from the research process into
commercially viable products and processes.

Economies of scale The reduction in (average) costs per unit of production that occur as a
business increases its scale of production / as the business grows

Internal economies of • Purchasing economies of scale – as businesses grow, they increase the
scale size of orders of raw materials or components. This may then result in
discounts resulting in lower average unit costs
• Marketing economies of scale – as businesses grow, each pound spent on
advertising will have greater benefit for the business. The cost of a
marketing campaign will be spread over a greater level of output reducing
average unit costs.
• Financial economies of scale – as businesses grow, they will have access
to a wider range of finance. As the assets of businesses grow, they are
able to offer more security when seeking to borrow money which reduces
risk to the lender. Larger businesses can therefore negotiate more
favourable rates of interest reducing average unit costs
• Managerial economies of scale – as businesses grow, they are able to
employ specialist managers who know how to get the best value for each
pound spent in the business, improving decision making reducing average
unit costs
• Technical economies of scale – as businesses grow, they are able to
purchase the latest equipment and incorporate new methods of
production. This increases efficiency and productivity, reducing average
costs of output reducing average unit costs

External economies of External economies of scale occur through the growth of the whole industry
scale (1) outside of the business (1) resulting in lower average unit costs (1).

• Supplier economies – a network of suppliers may be attracted to an area

where a particular industry is growing. The setting up locally of supplier
businesses, often in competition with one another, reduces buying costs
reducing average unit costs
• Educational economies – local colleges will set up training schemes suited
to the largest employers’ needs, giving an available pool of skilled labour.
This reduces recruitment and training costs reducing average unit costs
• Financial economies – financial services can improve, with banks and
other financial institutions providing services that may be particularly
geared towards a particular industry reducing average unit costs

Diseconomies of scale Diseconomies of scale is where the business faces higher costs per unit as the
business grows in size. Diseconomies of scale occur due to e.g.
communication and coordination problems

*Key terms that have been tested have (1) after each valid point to indicate how the marks are
awarded.
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