Business Administration Vocabulary

Area

Term

Definition

Resources:
tangible /
intangible
Tangible
resources

A resource is something the company owns or has

access to (even if access is temporary).

Basic

Intangible
resources
Competen
ce

suppliers
customers
Switching
costs
Human
capital
Profit
Financial
profit
Economic
profit

Short term
/ long term
Share or
stock
Sharehold
er or
stockholde
r
Stakehold
er
Agent

Usually physical resources: buildings, plant,

equipment, land; but also: exclusive licenses,
patents, stocks, debtors, employees.
They are less easy to recognize: skills, experience
and knowledge of employees, suppliers,
distributors, and advisers.
A cluster of related abilities, skills, knowledge and
commitments that allow/enable a person or
organization to act effectively in a job or situation.
Competence can be seen as a combination of
knowledge, skills and behavior used to improve
performance
A party that supplies goods or services.
A party that buys or consumes products and
services.
Fixed cost incurred by an organization when
changing supplier, because of product
specifications, equipment..
The organizations intellectual capital: knowledge
and skills.
Income minus costs. Gross profit (before taxes);
Net profit (after deducting taxes)
Total Income (or Revenue) minus Explicit (or
normal) costs.
Total Income (or Revenue) less Explicit costs and
Implicit costs (= the cost of income not earned by
taking the organizations resources to market, for
example. if the company had invested its money
somewhere else).
Short term: usually one year or less / Long term:
more than one year (the term varies a lot
according to the asset)
A unit of ownership that represents an equal
proportion of a companys capital.
An individual (person), group or organization that
owns shares of a company.
A person, group or organization that has an
interest or involvement in a company.
The party that has express (written or oral) or
implied authority to act for another (the principal)
in contractual relationships (contracts).

Principal
Agency
(principal /
agent)
problem
Value
added

Firm
Corporatio
n
Corporate
and social
responsibil
ity
Business
level
Corporate
level
Core
business
Opportunis
tic
behavior

The party with the primary or principal

responsibility (eg. in a contract) who designates
another party (the agent) to act on his/her behalf.
A conflict arising when a person (the agent)
entrusted to look after the interest of another (the
principal) uses the authority or power for his/her
own benefit.
The difference between sales revenue (income)
and total costs of components, materials and
services bought from other firms. It is industrys
contribution to the countrys GDP and the basis for
calculating the VAT (Value added tax). In
marketing, it is the creation of competitive
advantage by creating benefits that result in
greater customer acceptance of a product or
service.
A business organization, such as a corporation,
limited liability company or partnership.
A firm that is an entity separate and distinct from
its owners; it is owned by shareholders who share
in the profits and losses generated by its
operations.
A companys sense of responsibility towards the
community and environment (both ecological and
social) in which it operates. Companies express
this through, for example, environmental
practices, or educational and social programs.
Deals with the organization as a business and its
relationship with customers and other companies.
Deals with the organization as a whole.

The process of a business using Generally

Accepted Accounting Procedures (GAAP) for
changing their reported earnings to obtain a
desired outcome.

Legal
Incomplet
e contract

Moral
hazard

Antitrust
Producti
on

Definition of defective contract: Valid contract

which lacks legal sufficiency due, for example, to
incorrect or incomplete following of a required or
statutory procedure, and may not be enforceable
by the courts.
A circumstance that increases the probability of
occurrence of a loss (or a larger than normal loss)
because of a change in an insurance policy
applicants behavior after the issuance of the
policy.
The (U.S.) Federal laws forbidding businesses from
monopolizing a market or restraining free trade.

Input
Output
Production
factor or
factor of
production

Production
function
Stages of
production
(3)

In economics, factors of production are the

inputs to the production process.
Finished goods are the output.
There are three basic (AKA classical) factors of
production: land, labor, capital. All three of these
are required in combination at a time to produce a
commodity. Land represents the natural resources
(timber, copper..); Labor represents the work
performed by the employees (except
entrepreneurship); capital is all the tools and
machinery used to produce a good or service. The
entrepreneur is the person who takes an idea
and attempts to make a profit by combining
factors of production.
The relationship between input and output:
input determines the quantity of output; output
depends on input. Input is the starting point and
output is the end point of production process.
Primary stage: gathering raw materials;
secondary stage: transformation of raw
materials into goods; tertiary stage: providing
those goods and services to customers.

Strategy
Strategic
Orientatio
n (SOR)
SWOT =
Strengths,
Weakness
es,
Opportunit
ies,
Threats
Business /
Corporate
level
strategy

A specific method to develop strategies based on

the analysis of strengths, weaknesses,
opportunities and threats (SWOT). It generates a
number of realistic alternatives and provides a
prioritization.
The SWOT analysis combines 2 parts: an
internal analysis of a project/organization
(Strengths and Weaknesses) with an external
analysis of the environment (Opportunities and
Threats).
Business-level strategies deal with a specific
business unit; corporate strategies, in contrast,
deal with the entire corporation, which may
include several business units. Business-level
strategies deal with specific issues, such as
determining the price of products, increasing sales
or introducing a new product. Corporate strategies,
on the other hand, tend to be very broad and deal
with issues such as creating a competitive
advantage in the marketplace.

Porters
five forces

Bargaining
(=
negotiatin
g) power
Porters
Strategy

The capacity of one party to dominate the other

due to its influence, power, size, or through a
combination of different persuasion tactics.

Scope /
market
scope
Growth
strategy

The area covered by a given activity / market

scope: the area/extent covered by a
product/service/firm in a market.
A strategy aimed at winning larger market share
(even at the expense of short-term earnings). 4
growth strategies: diversification, product
development, market penetration, market
development.
A long term strategy aimed at helping a company
obtain a competitive advantage over its rival,
usually when the market is saturated.

Competitiv
e strategy
Turnaroun
d
strategies
Cost
advantage
Cost
leadership

Turnaround strategy means to convert, change or

transform a loss-making company into a profitmaking company. If a turnaround strategy is not
applied to a sick company, it will close down.
Superiority achieved through factors such as
access to cheaper inputs, efficient processes,
favorable location, skilled workforce, superior
technology, etc.
Strategy used by businesses to create a low cost
of operation within their niche. The objective is to
obtain an advantage over competitors by reducing
operation costs below others in the same industry.

Benefit
advantage
downsizin
g

Differentiation deriving benefits for the customer.

Market
share
Differentia
tion

A percentage of total sales volume in a market

captured by a brand, product or company.
When a product or brand stands out (or is
different) because it provides a unique value to
customers in comparison to that of competitors.
Close coordination between departments, groups,
organizations, systems, etc.
Mergers of companies at different stages of
production and/or distribution is the same
industry or sector. Backward integration: when a
company buys it input supplier. Forward
integration: when it buys (or acquires) companies
in its distribution chain. Example: an oil company
that owns oilfields, refineries, tankers, trucks, as
well as gas stations.
Mergers of companies at the same stage of
production in the same or different industries. For
example, when competitors merge. This can result
in an oligopoly or monopoly.
When a company enters an industry or market
that is different from its core business.
Reasons: not to depend on only one product; to
avoid seasonal or cyclical fluctuations in demand;
higher growth rate; to compete against another
company
Another company that produces an almost
identical good or service offered for sale in the
same market. For example, a pizza shop competes
directly with another pizza shop.
Competition among suppliers of different types of
products that satisfy the same needs. For example,
a pizza shops competes indirectly with a
hamburger shop (both are fast food but of a
different type).
Factors (economic, procedural, regulatory or
technological) that restrict the entry of new firms
into an industry (sector) or market.
Participants (other firms) that could potentially
enter a market or industry sector.
Different goods or services that can satisfy the
same needs of the customer and, therefore,
replace or substitute one another.
Rivalry among different companies, competitors

Reduction in the size of a workforce at all staffing

levels to improve efficiencies, or because of lower
demand.

Competit
ion

Integration
Vertical
integration
(backward
/ forward)

Horizontal
integration
Diversifica
tion
(strategy)

Direct
competitor
Indirect
competitio
n
Entry
barrier
Potential
entrants
Substitute
(goods)
Rivalry
(=
opponent)
Concentrat

The extent or degree to which a relatively small

ion /
industrial
concentrat
ion
Concentrat
ion ratio
(%)
Concentrat
ion
strategy
Herfindahl
Index
(0..1)
Informatio
n
asymmetr
y

number of firms account for a relatively large

percentage of the market or industry.
Percentage market share attributable to a given
number of the largest firms in an industry. For
example, CR4 means the market share of the
largest 4 firms, and CR10: that of the 10 largest.
The strategy in which a business focuses on a
single market or product. This allows a company to
invest more resources in production and marketing
(but also a higher risk in depending on one product
or market).
A measure of a companys market concentration
and monopoly power in relation to other firms
within the same industry. Increase = decrease in
competition.
A situation that favors the more knowledgeable
party in a transaction. For example, a seller that
has more information about products than the
buyer, or a banker that knows more about loans
than a borrower.

Investme
nts
Investmen
t Banker
Liquidity

A
A measure of the extent to which a person or organization has cash to
meet immediate and short-termobligations, or assets that can be quickly
converted to do this.
Read more:
http://www.businessdictionary.com/definition/liquidity.html#ixzz2fnRazDd
7

Mergers

A
Voluntaryamalgamation of two firms on roughly equal terms into one new
legal entity.
Read more:
http://www.businessdictionary.com/definition/merger.html#ixzz2fnRkMWN
g

Acquisition
s
Partnershi
p

Purchase, buy
A
A type of businessorganization in which two or more individualspool
money, skills, and other resources, and share profit and loss in
accordance with terms of the partnership agreement.
Read more:
http://www.businessdictionary.com/definition/partnership.html#ixzz2fnSE
omq2

Joint
Venture

A
New firm formed to achieve specific objectives of a partnership like
temporary arrangement between two or more firms.
Read more: http://www.businessdictionary.com/definition/joint-ventureJV.html#ixzz2fnS2aUNQ

Alliance

A
Coming together of two or more firms to create a unique
organizationalentity (such as a joint venture), in which each firm retains

its individualidentity and internal control. The purpose of an alliance is to

(1) achieve joint strategic goals, (2) reduce risk while increasing rewards
and/or, (3) leverageresources. Since an alliance is neither an acquisition
nor a merger, it requires new control methods and new managementskills.
Read more:
http://www.businessdictionary.com/definition/alliance.html#ixzz2fnSMs1lj

IPO

First

First offering of a firms' stock (shares) on the stockmarket, at the time it

'goes public.' Because a stockmarket usually values the stock on the
expectations of the firm's future growth and income, IPOs are typically an
opportunity for the founders and other early investors to make high profits
by cashing their stockholdings.
Read more: http://www.businessdictionary.com/definition/initial-publicoffering-IPO.html#ixzz2fnSTTiMC

Tender
offer

Formal, open offer by a private or publicly-traded corporation to the

shareholders of a publicly-traded corporation to buy their shares usually at
an attractive premium above the share current market price. Such tender
offers are often a key element of a takeoverstrategy and are usually made
subject to (1) the offerer (bidder) being able to acquire at least a
minimum number of shares, and (2) automaticexpiration of the offer after
a certain maximum number of shares have been acquired.
Read more: http://www.businessdictionary.com/definition/tenderoffer.html#ixzz2fnSeRvV2

Takeover
hostile or
friendly

Assumption

of control of another (usually smaller) firm through purchase of 51 percent

or more of its voting shares or stock.
Read more:
http://www.businessdictionary.com/definition/takeover.html#ixzz2fnSn5g
S3
Hostile:
Acquiring

a firm despite the disapproval of, or open

resistance from, its board of directors. The

acquirer ('raider') usually takes the
takeoveroffer direct to the target firm's
stockholders (shareholders) or seeks their
approval to remove the obstructing board
members.
Read more: http://www.businessdictionary.com/definition/hostiletakeover.html#ixzz2fnSx7BM5

Golden
parachute
Poison pill
Recapitaliz
ation
Leverage
-financial

The use of borrowed money to increase productionvolume, and thus sales

and earnings. It is measured as the ratio of total debt to total assets. The
greater the amount of debt, the greater the financial leverage.
Read more: http://www.businessdictionary.com/definition/financialleverage.html#ixzz2fnTEoCiF

Leveraged
recapitaliz
ation
Proper
interests
Rational

In economics, game theory, decision theory, and

agent

artificial intelligence, a rational agent is an agent

which has clear preferences, models uncertainty
via expected values, and always chooses to
perform the action with the optimal expected
outcome for itself from among all feasible actions.