Business is an organization comprising people who strive together to achieve common objectives and goals. It is important for a business organization to have a vision that implies what it intends to achieve in the future and values that represent the organization’s integrity.
A business organization is a commercial, industrial, or mercantile enterprise, and comprises the people who constitute it. Business is a legally-recognized organization which provides goods, services, or both to the consumers.
According to F. C. Hooper, “The whole complex field of commerce and industry, the basic industries, processing and manufacturing industries, the network of ancillary services, distribution, banking, insurance, transport and so on, which serve and interpenetrate the work of business as a whole, are business activities.”
Learn about:- 1. Introduction to Business 2. Meaning and Definition of Business 3. Features 4. Characteristics 5. Steps in the Processing and Selection of Ideas 6. Economic Objectives 7. Functions 8. Requisites 9.
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Types of Business Activities 10. Dimensions 11. Strategy of the Future in Business 12. Role of Profit in Business 13. Diversification 14. Ethics 15. Challenges that A Business Faces due to Government’s Policy Changes(Impact of Government Policy Changes on Business).
What is Business: Meaning, Definition, Ideas, Ethics, Types, Functions, Features, Objectives, Strategy, Diversification and More…
Contents:
- Introduction to Business
- Meaning and Definition of Business
- Features of Business
- Characteristics of Business
- Steps in the Processing and Selection of Business Ideas
- Economic Objectives of Business
- Functions of Business
- Requisites of Business
- Types of Business Activities
- Dimensions of Business
- Strategy of the Future in Business
- Role of Profit in Business
- Diversification of Business
- Ethics of Business
- Challenges that A Business Faces due to Government’s Policy Changes
What is Business – Introduction
Business is an organization comprising people who strive together to achieve common objectives and goals. It is important for a business organization to have a vision that implies what it intends to achieve in the future and values that represent the organization’s integrity.
Organizations need to create an environment where people want to work and concurrently develop themselves through coaching, feedback, and information sharing. A business house should work in partnership with its employees, customer, suppliers, community, and the media. In order to enhance the image, it should communicate the key messages, both internally and externally, and gain commitment to its principal goals.
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A reputed business house often prefers to share its best practices with its competitors as it believes in networking, partnering, and informal collaboration. It should even undertake a practice of rewarding its employees when they perform well. It should establish a process to learn, grow, and measure its successes. Thus, the primers of an organization include vision, values, behaviours/competencies/standards, coaching, information sharing, networking, rewarding, and continuous learning.
A business organization is a commercial, industrial, or mercantile enterprise, and comprises the people who constitute it. Business is a legally-recognized organization which provides goods, services, or both to the consumers.
In order to develop an understanding of business organizations, one should be able to identify the differences between the private and public sectors of the economy, state the traditional examples of business organizations in the private sector (sole trader, partnership, and private limited and public limited companies), understand the difference in terms of liability among these business types, and identify two non-traditional business types (co-operatives and franchises).
The fundamental idea regarding business is that it is an economic activity and business decision-making is an economic process. The principal aim of any business is to make profit. An HR manager must have the ability to understand the changes in an environment, and the direction and speed of those changes. He/she should be able to develop an action plan that is essential to cope with the changes, involve employee representatives, gain their confidence, implement the changes, and finally measure the benefits of these changes.
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Understanding an organization encompasses understanding its structures, behaviours, cultures, resources, and functions, and how it learns to manage the external environment. Once the business environment has been understood, all the activities taking place inside and outside it are also easily understood.
The purpose of every business is to serve customers well. It has to deliver value by offering good quality goods/services at an affordable price. To survive and flourish in the economic jungle, businesses have to win the hearts of customers by putting resources to best use. Businesses, essentially, exist for customers.
1. Challenge and Excitement:
Businesses offer challenge, excitement and immense satisfaction if one is able to run them successfully. There is, evidently, tremendous incentive for everyone to run the race ahead of rivals and make money. Businesses generate employment and offer livelihood for millions of people all over the world.
2. Economic Institutions:
Businesses are economic institutions and they survive as long as they are able to make money. Profit is the risk premium and reward for the efforts and hard work put in by the businessman. Profit is the engine of growth and is a measure of the success of a business. Without profits, businesses collapse under their own weight.
3. Create, Communicate and Deliver Value:
Apart from making money, Businesses need to offer unmatched value to customers. They must keep costs low. They need to offer high quality goods. They need to do the job netter than rivals. Only then they will play a long innings.
4. Risky Path Full of Problems:
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It is well worth remembering here that the path of a businessman is full of thorns. The tastes of customers might change, competition may get heated up, rivals may come out with novel products/services at a lesser price, government may impose additional taxes making the business unviable, etc. Every businessman, therefore, must be prepared to accept risk and uncertainty. He must think and act like a winner always.
What is Business – Meaning and Definitions: Suggested by Prof. Owen, R. L. Dicksee, F. C. Hooper, Prof. Hancy, Melvin Anshen, Alfred Marshal and Peter Drucker
A Business may be defined as, an activity organised and operated to make available goods and services to the society under the profit motive.
Prof. Owen defines, “A Business is an enterprise engaged in the production and distribution of goods for sale in the market or rendering of services for a price”
R. L. Dicksee has rightly defined business as, “A form of activity pursued, primarily, with the object of earning profit for the benefit of those on whose behalf, the activity is conducted.”
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According to F. C. Hooper, “The whole complex field of commerce and industry, the basic industries, processing and manufacturing industries, the network of ancillary services, distribution, banking, insurance, transport and so on, which serve and interpenetrate the work of business as a whole, are business activities.”
Prof. Hancy efficiently summed up the meaning of business activities in the following words – “On one hand business rests on the technical processes of trade and manufacture. On the other, it looks to the market. At the junction stands the businessman, either directing the technical process of production or gauging the market or doing both but always engaged in buying and selling for the purpose of gain.”
According to Melvin Anshen, it is the way, men make their living, in short, the term, and “Business refers to the activity which is pursued by a human being of the acquisition of wealth”. Literally, “Business” means the state of being busy. It is associated with any activity that one can be busy about.
So, an individual remains busy in some work he is said to be doing some business in the broadest sense all activities which a man performs since morning till evening for the better living may be described as business activities and subject matter of economics.
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According to Alfred Marshal It is the study of mankind in the “Ordinary business of life”. This ordinary business of life stands for that part of individual which is mostly concerned with the attainment of better living in short the term “Business” refers to an activity which is pursued by a human being for the acquisition of wealth, for instance a person selling vegetable and earning some money, a person operating a daily needs shop to earn some money for living, a bookseller selling books for some economic benefits, a rice mill or dal mill owner is a businessman who earns some money.
An Industrialist manufactures some products and by selling it earn some profit. Money lender, banker or a financial institution is also businessman who deals in money for interest and profit.
In the words of Wheeler, “Business like weather, is with us every day. Buying and selling, hiring and firing, producing or financing these are but a few of the many business activities which daily influence the lives of all of us directly or indirectly.”
Thus, business is a comprehensive term, it is a complex of gainful human activities. In economic terminology, Business may be defined as any activity which leads to the creation of utility, in the form of goods and services to satisfy human wants. The main objective of business activities is to create exchange as well as possess wealth in the form of physical output and useful services. Business, no doubt, is an economic activity with the object of earning an income, i.e. Profit and thereby, accumulating wealth or purchasing power.
This activity always involves an element of risk or loss or uncertainty. In fact business is an adventurous activity. Those who have guts and daring can only involve in this activity, which an Ordinary person cannot. In earlier days profit maximisation was the sole objective of business. Money chasing was the primary aim of any economic activity. In modern days this chasing concept of business is changed and business has become a social and economic institution.
Every business has some social responsibility towards, the people in general because it does not live in a vacuum. Business is not an end but a valuable means to achieve an end that is human welfare and public good. Certainly it touches every aspect of our life. In fact we all live in a corporate society. It is a moral responsibility of modern business to satisfy the unlimited, ever-changing and varied demands of the community, so that, the community can enjoy better standards of living, maximum social happiness and welfare.
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Finally, a business aims at profit but through service. Business has various objectives. To earn income and acquisition of wealth is not the sole objective of any business but the basic or real objective of business is to create a customer and to satisfy his needs, wants and demands. “Peter Drucker” points out that there is only one valid definition of business purpose, i.e. “To create a customer” A business cannot survive without customers.
Modern business aims at profit through service or profit- nun service and not profit irrespective of service and satisfaction of customers and society in general. Now-a-days the profit concept is replaced by profit-cum-service. This concept of profit through service has become popular and widely accepted by the modern businesses. All types of modern business activities create a flow of goods and services that may be called as National Output and also which generate a flow of income which means.
National income through employment of human and non-human material resources in the best possible manner. Business activities helps directly in economic development and appreciation in gross national income or wealth. In developing and under- developing countries business activities have unlimited scope.
6 Main Features of Business – Dealing in Goods and/or Services, Production (Manufacturing) and/or Exchange of Goods and Services and More…
A business is an economic institution engaged in production and / or distribution of goods and services in order to earn profits and acquire wealth. Whatever may be the form of business organisation, for example Sole Trader ship, Hindu Undivided Family, Partnership Firm. Joint Stock Company or Cooperative undertaking or whatever may be the form or size of business it possesses the following characteristics.
The following are the common features found in every business organisation:
Feature # 1. Dealing in Goods and/or Services:
The first and basic feature of business is that it deals in goods and/or services. The goods may be consumer-goods or industrial goods or capital goods. The consumer goods are meant for direct or indirect consumption. For instance eatable goods are grouped under direct and immediate consumption and industrial or capital goods are meant for being used for the purpose of production e.g. machines, tools, equipment etc. These goods may be called as producer’s goods.
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Business activities are not restricted to production and distribution of various goods, but they include services also. These services include the supply of electricity, water, gas, finance, insurance, banking, advertising, warehouse, transporting etc. Thus, dealing in goods or services is a common feature of business.
Feature # 2. Production (Manufacturing) and/or Exchange of Goods and Services:
Production of goods of any type and their exchange for value of price is a business. All activities which are carried under love and affection, religion, charity, or for gratitude not for value or price are non-business activities. A business involves production and/or exchange of goods and services only for some value or price. Any activity without some value or price (profit) is not a business.
Feature # 3. Regularity and Continuity:
Production and exchange of goods as well as services, though for value or price for once in a while is not a business activity. For instance if a person sells his residential house for money and purchases a new house such an activity is not business. On the other hand, if a person earns his living by purchase and sale of buildings on a regular and continuous basis, such an activity is a business activity.
Thus, any activity which apparently looks like business activity but is not carried out regularly cannot be termed as business activity. As such regularity as well as continuity of such activity is the most common but important as fundamental feature or characteristics of business.
Feature # 4. Profit Motive:
Behind every business there is a ‘Profit Motive’. In absence of profit motive any activity cannot be called a business. People engage themselves in business primarily with a view to earn some profit and acquire wealth. If quality goods and services are provided, the society is ready to pay a little bit more and thereby a business can earn more profit. There is a direct relationship between the satisfaction of consumers and goods and services provided to them.
This relationship is converted into the profit of the businessman. The extent of profit depends upon the quality of goods and services. Generally, better quality goods and services are accompanied by higher profit. In public sector enterprise, the term profit is designed or defined as, ‘Surplus’. Profit motive is now widely accepted by public, committed to serve the community with satisfactory goods and services at reasonable prices.
Feature # 5. Existence of Risk and Uncertainty:
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All types of business activities involve an element of risk and uncertainty. Fast, multiple and ever growing changes that are taking place in the world of business and industry play a major role in raising risk and uncertainty in business.
For instance, due to changes arising within and outside the business enterprises like changing technology, changing consumers tastes, needs, fashion, group competition due to globalisation, faulty managerial decision, faulty planning are causing and creating heavy risks and uncertainty in business which directly affect the life and survival of business enterprises.
Feature # 6. Risk of Uncertainty of Return:
There is always risk and uncertainty of returns on investment in the form of profit, as the impact of variety of factors. No one can accurately predict about the future as to what is going to happen in near future. There are a number of uncontrollable elements that may put a business in losses.
These losses may be cause by natural calamities also. There is no guarantee of what return a businessman can earn on his investment because of risk and uncertainty of returns. No guarantee of specific returns on the investments in the business can be assumed because of changing government policies and laws.
It becomes clear from the above characteristics of business that, business denotes a systematic production (manufacturing) and / or exchange of goods and services which are undertaken regularly and continuously with a motive to earn profit by satisfying human needs and involving an element of risk and uncertainty. Business can be easily separated from profession and employment as these are other occupation of human beings.
What is Business – 5 Important Characteristics: Profit Motive, Productive, Economic Activity, Continuity in Dealings and Risk and Uncertainty
An activity can be categorized as business if it has the characteristics listed below:
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1. Profit Motive:
Earning profit is the main objective of business without which it can’t exist. An activity carried out without profit motive cannot be called business activity. Profit motive is the highest motivator for a business person. It ensures sustainability of the business. However, it is imperative for business enterprises to adopt an attitude of service motive as well.
2. Productive:
The fundamental feature of business is buying, producing and selling of goods and services.
Goods can be classified as:
(i) Consumer Goods such as clothes, books, packaged food etc.
(ii) Producer Goods such as machinery, raw material, production tools etc.
Services are goods of intangible nature. For example, services rendered by catering agencies, customer support department of a company and a wellness center.
3. Economic Activity:
Business is an economic activity which involves production of goods and services for profit-making. Non-economic activities such as doing charitable work, nurturing one’s own farm for personal consumption of farm produce cannot encompass business.
4. Continuity in Dealings:
It means that there should be buying and selling of goods and services for money on regular basis. Consistency in dealings of goods and services is an important prerequisite of business. A single transaction cannot be categorized as business. For instance, if a man sells his furniture at a profit, it will not be called as business. However, if the man is selling furniture regularly in the market, the activity will be termed as business.
5. Risk and Uncertainty:
Like any economic activity, business also has its own downsides; risk and uncertainty are two of them. The causes of risk and uncertainty are – changing requirements of consumers and revision of government policies. Trade cycles also make business a risky activity. According to Keynes, a trade cycle is composed of periods of Good Trade, characterised by rising prices and low unemployment percentages, shifting with periods of bad trade characterised by falling prices and high unemployment percentages.
What is Business – Steps involved in the Processing and Selection of Business Ideas
Once business ideas are discovered, the following steps can be used in the processing and selection of ideas:
1. Preliminary Evaluation and Testing of Ideas
As a preliminary step, the technical feasibility of an idea is judged based on the availability of necessary technology, machinery, equipments, labour skills and raw materials. In order to assess the commercial viability of the project, an elaborate study of market conditions and prevailing situation is made. Feasibility analysis has to be conducted to find out the workability and probability of the project.
After preliminary evaluation, the idea is subjected to a thorough analysis from all angles. A complete investigation is done with regard to the technical feasibility and economic viability of the proposed project. Financial and managerial feasibility of the idea are also tested. In order to carry out the detailed analysis, experts in various areas of the industry are consulted. Since the idea is finally accepted or rejected at this stage, proper care should be taken at this step.
After the evaluation of a business idea is completed, the findings are presented in the form of a report known as ‘project report’ or ‘feasibility report’. This report helps in the final selection of a project. It is also useful for getting increases, finance etc. from government and financial agencies.
In order to choose the most promising idea, the feasibility report is analysed.
In the selection of idea for a product, the following considerations are made:
a. Products whose imports are banned by the government.
b. Products which can be exported easily and profitably.
c. Products whose demands exceed their supply.
d. Products in which the entrepreneur has manufacturing/ marketing experience.
e. Products which show high profitability.
f. Products which ensure specific advantages.
g. Products for which incentives and subsidies are available.
When the entrepreneur is convinced of the feasibility and profitability of the project, he assembles the necessary resources to launch the enterprise.
The important inputs required for launching an enterprise are as follows:
a. Information and Intelligence – Information and intelligence are the key inputs in the success of an entrepreneur.
b. Finance – Finance is the lifeblood of business. A business enterprise requires finance for the fixed capital as well for the working capital.
c. Personnel – People are the most valuable asset of an enterprise and this asset does not depreciate.
The most important objectives of a business are economic objectives and the business itself is an economic activity. The achievement of these objectives is essential for proper growth and expansion of the business.
Objective # 1. Profit Earning:
Profit earning is the principal objective of every business. Business will survive only if it earns profit. It is doomed if it continuously suffers losses. It has to maintain its assets and has to incur day to day administrative and manufacturing expenses. It can do so only if it earns profit.
The success of a business is measured by regularly increasing rate of profit it earns. The goodwill of a business is measured on the basis of profits earned. The value of a business and its credibility goes up by earning profits. It can easily get loans from the financial institutions and can easily raise fresh capital from public, if it is making a good amount of profit.
Objective # 2. Market Share:
It is important for business to build its standing in the market. In a competitive market a business can survive only if it attains a sizeable share in the market. A business enterprise should fix a target share in market which it wants to capture and it should go on increasing it steadily.
Objective # 3. Innovation:
In order to survive in today’s competitive world, it is rather essential for any business to have innovation as one of the main objectives. Innovation means to add new features to the existing product or to introduce new uses of an existing product. A business must, on a continuous basis, introduce new and unique features to its products so as to have an edge of its competitors. It must also introduce new techniques of production, marketing and distribution.
Objective # 4. Productivity:
The available resources, both financial and physical, must be put to the best possible use. They should neither be over-utilised nor underutilised. The value of the output should always be higher than the value of inputs. Productivity is measured by net increase in the value of output.
Objective # 5. Physical and Financial Resources:
A business enterprise needs both the physical resources like stock-in-trade, plant & machinery, building etc. and financial resources like capital, loans and cash to produce or purchase goods and services for consumers. It must try to acquire these resources according to its requirement and should use them judiciously to achieve maximum benefit from them. It should ensure that no equipment is idle and there is no abnormal wastage of material.
What is Business – 3 Major Functions: Internal, External and Support
A Business function is a process or operation that is routinely performed in order to achieve a desired business objective. There are no hard and fast rules as to how the business has to organize itself to perform these functions. However, irrespective of the way it is organized, it has to perform these functions to achieve its objectives.
Business functions can be broadly classified into Internal Functions, External Functions and Support functions. The three categories of business functions are not independent of each other. There is a lot of overlap and interdependence between them.
Now let’s discuss in detail each category of functions of business:
Function # 1. Internal:
Internal functions are functions that are carried out within the organization. Hence, they are called Internal Functions. They consist of all those essential and crucial business activities which help to lay a business foundation.
The main internal functions of business are as follows:
i. Production:
Production is the process of making the goods that the business intends to sell. It involves conversion of raw- material into a finished product, which is needed by people. Thus, it creates form utility.
Production involves a large number of activities. It consists of activities such as product design, planning of production schedules, optimal utilization of resources such as raw material, labour, plant & machinery, etc. Quality control is another critical aspect of production function. It also involves maintaining a safe and healthy environment within the production facilities.
ii. Procurement:
Procurement essentially involves purchase of raw materials. In case of trading concerns, procurement involves purchase of the goods from larger distributors. The procurement function involves three aspects, namely Quality, Price and Time of Delivery. Procurement is about purchasing the right quality of material at the right price and making sure that such material is available on time.
Large organizations have centralized Purchases or Procurement divisions. These divisions not only purchase raw materials and trading goods, but also fixed assets that are required by the organization. Procurement teams try and build relationships with strategic suppliers. They try and forecast their needs into the future.
They look at the market situation and see if there are any chances of any shortfall of the supplies. They try and forecast price movements. They play a very critical role in keeping the costs of the business lower.
iii. Personnel:
Personnel function is concerned with “persons” or people. Any organization requires a large number of people to carry out specific tasks so that the organization can achieve its objectives. The personnel function makes sure that the right kind of people do the desired work in the best possible manner. It involves “Recruitment”, which is simply hiring of the people with the right skills for various jobs. It includes “Payroll”, which essentially ensures that the people are getting the pay that they deserve for the work that is done by them.
The personnel function is probably the most complicated function of business. It is because the business is dealing with people, who have a mind of their own. While it is easy to plan for materials and machines, it is difficult to plan for people. However, the simplest way of describing the Personnel function is to make sure that there are people to carry out different tasks and that they are willing to do it happily.
iv. Finance:
A business cannot exist without money. Finance function focuses on making money available for business. Finance is acquired from various sources like banks, investors, and other financial institutions.
The money so collected is used for various business activities such as purchase of fixed assets, purchase of raw-materials and/ or finished goods, making strategic investments, etc. Thus, Finance function is mostly associated with raising of money and then utilizing it.
v. Operations:
The nature of business has changed significantly over the years. Today, Organizations no longer restrict themselves to the core functions of Production, Finance, Human Relations (Personnel) and Marketing (External function). They do a lot of other activities also. Particularly in respect of Service organizations, the amount of such work is huge.
For example, a stock broker’s main business is to buy and sell securities for his clients. However, he has to make sure that clients have enough money to pay for what they have bought. He needs to generate reports that explain whether the money invested by his clients has resulted in profits and losses.
Such activities are very important for the success of his business. All such activities are collectively called Operations. For example, Bank of America is one of the largest banks of USA. It also has offices in India. However, these offices do not accept deposits or lend money.
Instead, a large number of people are employed to provide Infrastructure support, perform Reconciliations, and ensure Regulatory compliance, Risk management, MIS reporting, etc. for its clients. Many of these employees also interact with the customers of the Bank. The customer does not even know that the person on the other side is located in a remote city, say Hyderabad, in another country, India. All these activities are called Operations.
Function # 2. External:
External functions consist of all those activities happening outside the premises of an organization. They mostly focus on selling the goods produced (or purchased for trading) by the business organization.
The main external function of business is marketing. All other external functions are essentially sub functions of marketing. Normally, the Head of Marketing forecasts, plans and controls the external function of business. These functions are initiated when he/she seeks profitable business opportunities in the market.
i. Marketing:
Marketing is a much wider term. It is much more than selling. It is concerned with understanding the needs of potential customers and satisfying them. A business is created on the basis of a Marketing idea. For example, a businessman opens an Italian restaurant because he feels that there are lot of people who wish to enjoy eating Italian food but there are not many (or not good) restaurants who offer such food.
Similarly, a teacher may offer tuition classes to students in the locality if he feels that there are many students who are looking for a good teacher to explain the various concepts to them. Thus, every business is attempting to bring a product, which could be either goods or services, to meet a particular need.
Once the business is started, the business now has to make efforts to educate people that such goods and services are available in the market. The business also has to compete with several other businesses which are trying to meet the same need. The business has to reach out to potential customers so that it gets their attention and not competitors. The various activities that are taken up towards this objective come under the function of Marketing.
Marketing involves the following sub-functions:
a. Market Research:
Marketing research is concerned with collecting information in terms of a business idea and analyzing it, so that appropriate marketing decisions could be taken. Let us understand this with the example of the Italian Restaurant.
Before starting the restaurant, the Businessman would like to know as to how many people in the locality (or town or city) like Italian food, how frequently do they like to eat Italian food, how much are they willing to pay for such food, which other restaurants in the locality (or town or city) offers Italian food, what is the feedback of the people regarding the taste, quality and price of Italian food in such restaurants, etc. Based on this study, the businessman will come up with his plans.
b. Advertisement and Sales Promotion:
The hindrance of information and how Advertisement is an aid to trade that removes this hindrance. The business informs potential customers about its products and how the use of such products is beneficial to them. There is lot of competition amongst various products in the market. Customers have lot of choice and therefore, advertisement is very crucial for business to influence the customer’s decision making.
c. Sales Promotion:
Consists of the various ways in which a business tries to increase the sales of the product. The usual methods of sales promotion are distribution of free samples, coming up with “combo” offers (for example, tooth paste with tooth brush), offering discounts (for example. Flat 30% off), cash back schemes, etc.
d. Distribution:
A business may have a world class product, people may be aware of the product, but if the product is not available at a point that is convenient for the customers to buy, then such business is unlikely to be profitable. Distribution is concerned with making the products available for the potential customers to buy them. The business must ensure that goods are properly and promptly supplied to all target (advertised) areas and are available for sale to potential customers whenever they wish to buy.
e. Customer Service:
Businesses now realize that it needs to keep its customers happy. Happy customers come back and give more business. They are also the biggest and most credible source of publicity. A happy customer encourages other persons to also buy the product he/she is happy with. An unhappy customer goes to great lengths and virtually stops potential customers from buying the product.
Therefore, businesses are increasingly spending a lot of time in communicating with their customers. Many businesses offer warranty on their products. There are 24 hour customer care helplines to hear what the customers are unhappy about. Liberal return and exchange policies are offered by many businesses. All these efforts are being made to keep the customer happy and satisfied, so that there is a positive impact on the sales of the organization.
ii. Strategy:
One of the objectives of any business is to grow in scale and size. A business may want to take-over or merge with another business. For example, initially Tech Mahindra took over Satyam Computers and finally merged Satyam Computers into itself. Similarly, an Organization, which is a large behemoth, might want to de-merge itself and create smaller organizations by splitting the large organization.
Business has to continually look at various strategies to attain its various objectives. This function is normally handled by senior management or by the Corporate Strategy division. This function is an External function of the business.
Function # 3. Support:
Support functions include all those ancillary (assisting) activities, which facilitate and ensure smooth working of both internal and external functions of business. Generally, managers of respective support teams operating within an organization handle these functions.
The significant support functions of business are depicted below:
i. MIS:
Businesses take decisions on the basis of information available to them. Information needs to be accurate and timely. Thus, businesses are making significant investments in creating a Management Information System that provides its management all the relevant information in real time. Businesses now appoint a full time CIO (Chief Information Officer) to take care of this need.
ii. Audit and Accounts:
Accounting operations are required for recording the day-to-day transactions entered into by the business. Audit is needed to ensure that the transactions are correctly recorded as per accepted accounting principles. Audit is done by a Chartered Accountant, who belongs to an external organization. However, businesses have their internal audit departments to make sure that there are proper controls.
iii. Administration:
There are so many works that need to be done on a day to day basis. For example, a business needs to have a reception so that any outsider can contact the business. The reception can guide the outsider to the relevant department or person who can talk to that outsider. Phone calls need to be received. Assets need repairs and servicing.
Electricity Bills, Telephone bills, etc. need to be paid. Refreshments are to be provided to guests (who could be important people such as Regulators, Auditors, etc. or even Customers and Suppliers) as well as to employees. The list of such activities is endless. All such activities come under the “administration” function.
iv. Public Relations:
While Advertisement focuses on the product and the target is the potential customer, public relations focuses on creating a positive image about the business. It is targeted at the society at large. Designated officers called PROs (Public Relation Officers) represent the business and work with customers, shareholders, media, government, and others.
Their purpose is to create a favourable impression about the business in the eyes of various stake-holders. They frequently hold press conferences, create corporate brochures, participate in exhibitions, respond to media enquiries and also run PR campaigns.
Foundation for a successful business enterprise – Clear-Cut Objectives, Efficient Business Planning, Sound Organisation, Financial Planning, Human Relations and More…
The organisation and management of business involves several problems. Every business enterprise seeks to achieve the objectives of survival and growth. In modern business, it has become very difficult to achieve these objectives due to the increasing pressure of environmental forces. In order to achieve its objectives effectively and efficiently, a business enterprise must have at all times appropriate interaction with its environment. There is no short-cut to success in business.
However, the following factors provide the foundation for a successful business enterprise:
(i) Clear-Cut Objectives:
The first essential of a successful enterprise is the establishment of definite and clear-objectives. In addition to the overall objectives, specific objectives should be laid down in different functional areas of business on which the survival and growth of business depends. These areas include production, marketing, financing, personnel, research and development, etc.
The functional (secondary) objective should be in harmony with organisational (primary) objectives. Similarly, a proper balance should be created between long-term and short-term objectives. Objectives form the nucleus around which all other activities-rotate. They should be so realistic that they can be achieved.
(ii) Efficient Business Planning:
Planning is an essential requisite for successful operations of a business enterprise. Planning enables the enterprise to meet contingencies of the future and thereby saves it from floundering. Planning is foreseeing and charting-out a future course of action. Sound planning requires accurate forecasting of sales. Effective plans should be formulated for every department or division of the enterprise. Departmental or divisional plans should be coordinated with the overall or master plan of the enterprise as a whole.
(iii) Proper size, Location and Layout:
The success of a business enterprise depends to a great extent on these factors. Optimum size results in the lowest average cost of operations per unit. Appropriate location helps the enterprise in securing the required materials, labour, power, markets, etc., at minimum possible costs. Productivity depends largely on technology and the firm must have proper plant, equipment, machinery, etc.
These facilities should be laid out in such a way that there will be optimum utilisation of all the resources. Mistakes made in the determination of size, location and layout have long term implications and may endanger the very survival of the firm.
(iv) Sound Organisation:
Organisation is concerned with the division of work among the employees in such a way that they work with efficiency and coordination. A sound organisation structure provides the necessary framework for effective communication, teamwork and co-ordination. In order to develop an effective organisation, it is necessary to define clearly the authority and responsibility relationships between the personnel of the enterprise. Everyone should know clearly the limit of his/her authority, extent of responsibility and the scope of the job. Besides suitable internal organisation, an appropriate form of ownership should be chosen.
(v) Financial Planning:
Finance is the lifeblood of business. Therefore, there should be a proper flow of finance at all times in a business enterprise. Adequate funds should be made available at the right time for long-term and short-term needs of business. There must be proper allocation and utilisation of the procured funds in different projects or investments.
A balanced capital structure should be developed so that the cost of capital is minimised without subjecting the enterprise to undue financial risk. Accurate measurement and control of financial performance is necessary for efficient management of the finance function.
(vi) Marketing Network:
Production of goods and services is meaningless unless customers accept them at prices which yield reasonable profits to the enterprise. An efficient distribution network is required for this purpose. The approach to the marketing function should be customer-oriented. Product mix, pricing policy, distribution channel and techniques of sales promotion should be decided on the basis of the needs and aspirations of consumers. Marketing research plays an important role in knowing and understanding the requirements of present and prospective customers.
(vii) Executive Development:
The continuity and growth of a business enterprise depends upon the availability of competent executives at all times. The executive team of an enterprise is subject to constant change on account of retirement, death, resignation, etc. Arrangements should, therefore, be made for the training and development of future executives. Executive obsolescence may prove fatal to the growth of an enterprise.
(viii) Dynamic Management:
The efficient utilisation of resources and, therefore, the success of an organisation depends upon the calibre and philosophy of its management. Enlightened and competent management is the single most important requisite of success in modern business. Without innovation and growth, an enterprise will stagnate and decay. Therefore, management must adopt a dynamic outlook. The people working in an enterprise will give desired performance under effective leadership.
(ix) Human Relations:
Teamwork, a sense of belonging and high morale are the hall-marks of sound human relations in business. When relations between the members of an organisation are good, change and development become easier. In order to develop good human relations, there should be an effective two-way communication system between the management and the workers so that the grievances, suggestions and reactions of workers are known at all times. Workers should be treated as human beings and proper arrangement should be made for their welfare and all-round development.
(x) Research and Development:
Technology and customer satisfaction are important factors influencing the success of a business enterprise. In order to develop new and more efficient techniques and processes of production, research and development is required. Systematic and permanent facilities for research and development also enable the firm to offer new and better products to the customers. It is for these reasons that large business enterprises often have their own departments or institutes for research and development activities.
Top 2 Types of Business Activities – Economic and Non-Economic Activities
The spectrum/the range/or the sum total of business activities, mainly consist of two things:
1. Economic Activities:
They are concerned with the production, distribution and consumption of goods and services. They enable people to earn their bread and butter. Such income-generating activities could be classified into three categories.
The categories are:
(i) Business,
(ii) Profession, and
(iii) Employment.
(i) Business:
Economic activities are pursued with a clear intent to earn profits. These involve production and exchange of goods and services on a regular basis. Risk and uncertainty are ever-present in every business activity.
(ii) Profession:
It may be defined as any occupation which involves offering of skills, expertise and competencies of special nature (to clients against a fee) acquired through years of education, training and hard mental labour (e.g., doctors, advocates, tax consultants, auditors etc.). It is a vocation based on expertise relating to a field. Professionals keep good contact with clients and render services by charging a fee.
They are supposed to take care of the interests of the clients by following a code of discipline established by members belonging to a profession known as a professional body. The professional body restricts entry into profession and lays down the rules of the game to be followed by every member (e.g. The Institute of Chartered Accountants of India). Professionals, generally speaking, are guided by the service motive.
(iii) Employment or Service:
The term employment refers to the work done by a person (called as employee) reporting to an employer and carrying out assigned work according to the terms and conditions of a contract. The contract specifies the payment to be made in terms of salary, bonus, and other service benefits for obtaining the services of an employee. The employee is expected to complete the work that is entrusted to him on a temporary basis or on a permanent basis.
2. Non-Economic Activities:
These are the activities undertaken without any profit motive. There is no intent to make money. People indulge in non-economic activities out of sympathy, love, charity, patriotism, religious feelings, etc.
The spectrum of business activities is fairly wide and covers lot of ground. It includes all those activities aimed at facilitating the production and distribution of goods and services such as manufacturing, trading, warehousing, banking, insurance, packaging and transportation etc.
3 Popular Dimensions of Business – Product, Customer Segment and Value Creation
Another expert Derek F.Abell, in his little “The starting point of strategic planning”, expressed same views on defining business. He is of the opinion that business may be defined doing three dimensions namely. Customer groups, customer functions, and alternative technologies.
Here, customer group-indicates as to who is to be satisfied; customer functions indicate as to what is to be satisfied; and alternative technologies speak of how the needs are to be satisfied. Thus, business house is to define its business in the contexts of three dimensions namely, the product, the customer segment, and the value creation.
Dimension # 1. The Product:
The organisation has to spell out clearly the product it has to offer. Precise spelling is to speak in terms of length, width and breadth. Thus company manufacturing and marketing say wrist watches should make it very clear that whether it is producing all possible watches for men and women for all purposes.
It should specify the product features, quality range, price, distribution, after sale services and so on. The company is to think twice as to what it is specifying. This depends on the competitive advantage it enjoys in a practical aspect or aspects. If, it has competitive advantage in producing marketing solid 18 carats wrist-watches for men and women then to that extent it should make it clear.
Dimension # 2. Customer Segment:
It is impossible for a wise company to satisfy all customers spread over a wide geographical area. That it should make clear the customers it wants to serve and the geographical area in which it wants to operate.
Even if it is possible, it may not be feasible under conditions of acute and changing competitive forces. It pays to serve a particular group or class of people located in a specific area. Thus, the adult diapers is meeting a particular age group and income groups those can afford to buy these diapers on medical and personal reasons.
Dimension # 3. Value Creation:
Value creation is the process of value adding that make the consumers that the product utility is commensurate with price a customer pays. In a buyers’ market, consumer is always in search of products that are capable of giving higher value perception. That is, the price he is saying is less than or equal to the value that he perceives.
That is, he is glad to pay some price or higher price provided the product has high utility or high value in his or her eyes. What is the value-is purely a personal and mental faceting, the value differs from person to person and time to time. In this context, the organisation has to define clearly what value the customer considers very important.
This value may be-reliable after sale service for Mr. X, regular delivery for Y, credit sale and door delivery in case of Z or it may be lower price for Mr. A. In that sense, the organisation should make it also clear that how, the company is going to create or add this value.
The terminal part of the business definition is that, like strategy, business is defined at the different levels. That is, at corporate level business level and functional level. It goes without saying that a company which is engaged in only one line, this defining business is somewhat easy.
On the contrary, in case of multi-SBUs firm, as there is more than one line, this defining the business is somewhat more difficult. What is important is, functional level definition of business becomes a part of business level and business level becomes the part of corporate level. This kind of business definition is a must so that the companies’ personnel really work hard in a particular focus that is created.
What is Business – How to become successful in future?
The changing pattern of environment will necessarily require a redefining and re-focussing of the strategy of a firm. In the 80’s and the early 90’s significant contributions were made in this area by renowned experts, such as, Prahalad and Hamel. Porter and Ries and Trout. Collectively, all these thinkers do provide a perspective on how to successfully reach the future first. Hamel and Prahalad, in their path breaking book Competing/or the Future, stress the need for regenerating a strategy that goes beyond restructuring of the portfolio, downsizing of head count, re-engineering of business processes, and making continuous improvement.
To be successful in the future, companies will have to redefine and reinvent the industry boundary in a manner that would lead to total industry transformation, thereby giving them significant advantages over their inward-looking rival, Hamel and Prahalad further observe that competition for the future will be the competition to create and dominate the emerging opportunities, To take on this competition, companies will need to develop their own strategic architecture that will provide a blueprint for building future competencies.
The authors’ advice includes adoption of a new strategy paradigm that stresses transformation of the industry boundary, building effective coalitions between companies, development of a core competency agenda, and minimising time for global pre-emption. They also urge companies to forget and unlearn the past and do some fundamental rethinking in terms of new ways of doing business in the changed arena. To do all these, manager’ will need foresight rather than any particular sophisticated forecasting technique.
Prof. Michael Porter stresses the need to make a distinction, between improving operating efficiency and shifting competitive position, in order to compete successfully in the future. While operating efficiency in producing and delivering products and services is a must, there is also a need to effect a change in a firm’s positioning through an alteration in such offerings. Such repositioning can be effected without sub-optimising the continuity in the basic position. To achieve this, companies shall require skills in learning new facts rapidly and assimilating the same to get new ideas for repositioning.
The new ideas so developed must be connected to the strategy the firm intends to pursue in the future, thereby ensuring that it is making the correct choices and also avoiding the adoption of a universal ‘me-too’ strategy. Porter has also cautioned companies not to get trapped in the pursuit of certain new strategic thoughts that art of late being propounded in order to be successful in the 21st century.
Two of these traps, according to him, are:
(i) The excessive attention being given to maximise market share, even to the point of reducing profitability; and
(ii) The desire to minimise the time to market. Porter says that such universal strategies will not work for every industry and all companies should not pursue the same regardless of the industry characteristics.
Prof Phillip Kotler perceives that the emerging future successful companies will need to focus either on high income consumers requiring the high quality products and personalised services, or on low income consumers who just want the basic core products with almost no services. In the new scenario, the middle income customers will form a declining segment. The high income category will be better-educated, better-travelled, better-informed and time starved, all of which implies an opportunity to offer value-added products and services.
Similarly, the lower income group possesses certain characteristics which can be exploited usefully. In general, irrespective of the segment the company of the future shall concentrate upon, the key success factor will be to offer the desired value-added quality products and services at a cost lower than that offered by the competitors. This is going to be an important challenge since customers are becoming more discerning and demanding, and they will be in a position to assess the intrinsic value of a product and service offering.
Prof. AI Ries and Prof. Jack Trout-who promoted the concept of positioning-underline the need for focus in the context of a growing market size, more media options, an expanding telecommunication network, and universalisation of consumer preferences, The strategy of various companies will be to perfect everything they do-be It manufacturing, marketing, distribution or services.
The emphasis will be on a careful targeting of select segments, building one or two strong brands and developing a service-driven relationship with the customers. Concentrating resources on a narrow segment and using such new generation options as interactive advertising, infomercials, direct mail, the Internet, etc. to reach and communicate with the target group will be the hallmark of the 21st century strategy.
Companies planning to attain leadership in the next century will also have to predict the future scenario more precisely (viz., in the way their respective industries are likely to move) by improving their understanding of the pattern and direction of convergence of various industries in order to create an entirely different industry. Organisations will need to track this new development and work out implications for formulating their respective strategies.
It is thus clear from the writings of these authors that foreseeing the future well in advance rather than merely reacting to the unfolding development, will be central to managing the future successfully. Every firm has to recognise the possibility of the increasing convergence of various industries. The thrust has to be on taking initiatives in transforming the firm and redefining the industry boundary in a manner that gives it certain strategic advantages over its competitors.
Such an effort will help in repositioning the firm in a significantly different way. Side by side, efforts to achieve operating efficiency in basic positioning and to provide high quality products and services at prices lower than that of competitors will continue to be the key components of a firm’s strategy. The sharp differences in value expectations between various customer segments-particularly those in the high income and low income categories-and proliferation of products, services, brands and media will require companies to concentrate on specific focus areas.
What is Business – Reasons that Justify the Role of Profit in Business
Profit is the main motive of every economic activity. As business is an economic institution, it must earn sufficient profits to cover its costs and to provide for growth.
The following reasons justify the role of profit in business:
1. Survival – The basic objective of any organisation is to ensure that it continues to survive and exist in the future. Survival in long rim is possible only when organisation is able to earn adequate profits.
2. Expansion and Growth – Every business enterprise wants to expand its business. Expansion needs sufficient amount of capital. Profit acts as a source of finance to meet expansion requirements of the business.
3. Measure of Efficiency – The efficiency and prosperity of a business is measured through the profit it earns. Higher profits indicate the efficient working of business.
4. Reward of Risk Bearing – An entrepreneur assumes a lot of risk while carrying out business activities. Profit is considered as a reward for bearing this risk. If there is no profit in business activity, no one would like to assume risk of running business.
5. Better Reputation and Goodwill – A profit-making company enjoys better goodwill in the market as compared to loss-making company. A company with better goodwill is able to attract and retain talented work force. It becomes easy for such a firm to raise loans and obtain credit.
Profit maximization should not be the sole objective:
Inspite of indispensable role of profits in business; it cannot be the sole objective of business.
Profit maximization is an essential or the leading objective but not the sole objective due to following reasons:
1. Corrupt Practices – Business may engage in malpractices or unfair means like hoarding, black marketing, adulteration, etc. in order to achieve the aim of profit maximization.
2. Leads to Exploitation – A business trying to earn more and more profits may exploit workers by paying them less and low quality goods may be provided to consumers to increase the profits.
3. Long-term interest – Too much emphasis on profit may lead to ignorance of social responsibility. It is in the long-term interest of business to pursue social responsibilities along with earning profit.
Finally, it can be concluded that ‘profit earning through service to society’ should be the real objective of business.
Diversification refers to company diverting the business focus from the existing traditional areas to new promising areas. Since technology is changing day by day, ‘customer’ demands are changing accordingly. Company introduced new and substitute products and services available in the market to meet the customer’s expectations and to draw their attention.
These changing attitudes of the customers, the company has been opening more and more new areas of promising business. Diversification may involve internal or external, related or unrelated, horizontal or vertical, active, or passive dimensions. The change of business focus may be either in terms of customers function, customer group and new alternative technologies.
1. Related diversification
2. Unrelated diversification
3. Internal diversification
4. External diversification
5. Horizontal diversification
6. Vertical diversification
7. Concentric diversification
8. Active diversification
9. Passive diversification
Related diversification is diversification into new business activity that is linked to company’s existing business activity; normally these activities are common between one or more components of each activities of existing business activity of value chain. Normally these linkages are based on manufacturing, marketing or technological commodities.
Unrelated diversification is diversification into a new business area that has no obvious connection with any of the companies’ existing areas.
Diversification business activities within the company such is known as internal diversification. It means that a company ready to introduce new products with in the same geographical areas.
External diversification involves diversification of the business activities like manufacturing, production and marketing, technological changes diversified with the other companies to save operating cost of the goods and services.
5. Horizontal Diversification:
Horizontal diversification is undertaken in order to increase market share by expansion of same product lines with more varieties to serve customers in different areas. Of different types and affluence levels. Horizontal diversification may be taken up to expand business geographically in new territories by taking up an increased market share and an improved business volume.
Vertical diversification means diversification into a new production line to produce items required as inputs for other main products of the same company.
7. Concentric Diversification:
Concentric diversification is to concentrate the direction of business for expansion and diversification is to concentrate the direction in the same and attendant product lines. Concentric diversification may take the form of marketing – related or technology – related diversification.
Active diversification is the long-term expansion of the business activities. Passive diversification is short termed and has negative impact to continuous long-term contracts with partners.
What is Business – Business Ethics
This aspect needs particular attention, especially in rural marketing field, as the trust which is a new buzzword in marketing literature, has been at the heart of all transactions whether cash or kind. Therefore, to make a lasting impact on the rural clients, the firms need to build trustful relationships which can be done by no other means but ethical conduct. The gains from such attitude and behaviour in rural markets can be quite significant.
Partnership for Sustainability:
Finally, there is need to build partnership with rural clients for a sustainable business relationship and sustainable marketing performance. As it is happening in business marketing, there should be a definite long-term alliances between firms and farmers for agrobusiness projects which are risky, long drawn, and technical in nature.
This would help farmers become viable users of the inputs and services provided by the firms. It should be regarded as an investment for the future market. In the presence of farming becoming highly unattractive to the rural people, there is need to work on these lines so that the business of farming goes on which will be crucial for the input markets to remain and grow.
Some of the entry points for this partnership could be-awarding company product distributorship to local groups and individuals, employing locals, staff secondment in local projects, preferential purchase of local products, training to locals and discount on product supplies in some areas. Working with local NGOs can also be a useful strategy for input firms as NGOs have better linkages and understanding of the local communities and their problems.
Excel Industries Ltd., a chemical and bio-plant protection products company, has embarked upon an integration of agricultural input marketing with agro-output marketing under which it helps farmers fetch a better price for their crops like cardamom, cloves, chillies, pepper, cotton and basmati rice.
Similarly, Nagarjuna Fertilisers and Chemicals Ltd. has set up an agro-output business division under which Farm Management Service (FMS) is provided to farmers and a package right from soil testing to post-harvest stage of the crop system.
The FMS aims at enhancing farm productivity, optimising cost of production, improving economic returns to farmers and enhancing produce cost of production, improving economic returns to farmers and enhancing produce quality.
It focuses on Integrated Pest Management (IPM). Under this scheme, already 6,000 farmers from 350 villages in crops like cotton, maize, soya, paddy, sugarcane, chillies, sunflower, mango, turmeric and grapes have been involved.
Another case of going beyond mere marketing of inputs is that of the Gujarat Narmada Valley Fertiliser (GNFC). Its community service programme in Gujarat, is case of larger social responsibility for development as part of business activity wherein it has a set up school, hospitals, colleges, community centres and water supplies for local communities.
What is Business – Challenges that A Business Faces due to Government’s Policy Changes (Impact of Government Policy Changes on Business)
The government’s policy of liberalization, privatization and globalization on one hand has made a significant impact on the working of enterprises but on the other hand created various challenges for businesses and industries.
Let us discuss the challenges a business or an industry faces due to government’s policy changes:
1. Increasing Competition:
Liberalization has increased the number of private firms and disinvestment has invited many foreign companies especially in service industries like telecommunications, airlines, banking, insurance, etc. giving rise to increased competition for existing business firms.
2. More Demanding Customers:
With globalization and increased competition, consumers of today are well informed and have wider choices while purchasing goods and services. As a result, customers demand better quality products at reasonable prices.
3. Rapidly Changing Technological Environment:
Fast changing technology requires companies to improve their machinery, adopt latest methods and processes to produce goods of better quality. It is relatively easy for big companies to accept and adopt changes but it creates tough challenges before smaller firms as it may require huge investments.
4. Necessity for Change:
The change in industrial policies has led to a turbulence in the market forces which has forced business enterprises to constantly modify their policies and practices. It is a must for enterprises to invest money in research and development to update their products.
5. Need for Developing Human Resource:
The new market conditions and ever changing technology requires business enterprises to use machinery with latest technology. This requires personnel with appropriate training, competence and commitment. Therefore, there is a need for business enterprises to develop and train human resources.
6. Market Orientation:
In earlier times business enterprises worked on the basis of production oriented marketing operations. They sold the products they produced but with ever changing demands of consumers’ business enterprises had to shift from product oriented to market oriented. They need to study the market and its needs before deciding what to produce.
7. Loss of Budgetary Support to the Public Sector:
With introduction of privatization, there is a shift from public sector to private sector. There is decline in financial support to public sectors. As a result, public sector enterprises need to be efficient and generate their own resources to compete with private enterprises.
From the above discussion though it seems that changing government policies has created many challenges for business enterprises but at the same time it has opened many new avenues for business development and growth. The business enterprises have become more sensitive towards consumers, they produce goods as per market demand, take utmost care for quality and adopt measures to improve customer relationship and satisfaction.