Unit 1

Meaning and definition of business essentials & scope of business,

Classification of Business Activities, Meaning, Definition,
Characteristics and objectives of Business Organization, Evolution
of Business Organization . Modern Business, Business &
Profession.
 Meaning and definition of business essentials
 Business – Meaning

 Literally speaking, the term ‘business’ means to be ‘busy’ or ‘occupied’. In practice,

business includes certain economic activities in which people are busy or engaged.
Such activities relate to production, distribution, trading or exchange of goods and
services to satisfy the needs of people so as to earn income or profit.
 A business is created to provide products or services to customers. If it can conduct its
operations effectively, its owners earn a reasonable return on their investment in the
firm. In addition, it creates jobs for employees. Thus, businesses can be beneficial to
society in various ways.
 A business (or firm) is an enterprise that provides products or services desired by
customers. Along with the large, well-known businesses such as – The Coca-Cola
Company and IBM, there are many thousands small businesses that provide
employment opportunities and produce products or services that satisfy customers.
 Business refers to the economic activities concerned with the production and
exchange of goods and services, primarily pursued with the objective of earning
profits.
Definitions
 “Business may be defined as human activity directed towards or
acquiring wealth through buying and selling of goods.” – Lewis H.
Haney
 “Business may be defined as an activity in which different persons
exchange something of value, whether goods or services, for mutual
gain or benefit” – Peterson and Plowman
 “Business is an enterprise engaged in the production and distribution of
goods for sale in the market or rendering service for a price.” – R. N.
Owens
 According to B.O. Wheeler, “Business is an institution organised and
operated to provide goods and services to society under the incentive
of private gain.”
Business is basically an economic activity:

 According to L.R. Dicksee, “Business is a form of activity pursued primarily with the
object of earning profit for the benefit of those on whose behalf the activity is
conducted.” Business involves production and/or exchange of goods and services to earn
profit, or to earn a living. However, profit is not the sole objective of the business. It
may have other objectives like promotion of welfare of the workers and the general
public.
 “Business is an institution organised and operated to provide goods and services to
society under the incentive of private gain.” —B.O. Wheeler
 “All the activities including the production and sale of goods or services may be
classified as business activities.” —William Spriegel
 “Business is a form of activity pursued primarily with the object of earning profit for the
benefit of those on whose behalf the activity is conducted.” —L.R. Dicksee.
Scope of Business
 Classification of Business Activities

(1) An Economic Activity  A business is an economic activity which includes the

purchase & sale of goods or rendering of services to earn
money.
 It is not concerned with the achievement of social and
emotional objectives.

(2) Manufacturing or  Before offering goods to the consumer for consumption it

Procurement of Services should be manufactured or procured by businesses.
and Goods  Business enterprise converts the raw material into finished
goods.
 Organisations also procure finished goods& services from the
producers to meet the needs of the customers in the market.
 Goods can be a Consumer good like sugar, pen, ghee, etc.
capital goods include machinery, furniture, services like
transportation, banking, etc.
 Classification of Business Activities

(3)Exchange or Sale of  Every business activity includes an exchange or transfer of services

and goods to earn value.
Goods and Services for the
Satisfaction of Human  Producing goods for the goal of personal consumption is not included
in business activity.
Needs
 So, there should be the process of sale or exchange of goods or services
exits among the seller and the buyer.

(4) Dealings With Goods • Every business, rendering either services or goods
and Services on a Daily should deal daily.
Basis • A one-time sale is not considered a business
activity.
Example: If a person sells his old car through OLX even at a
profit will not be considered as a business activity. But if he is
engaged in regularly trading of cars at his showroom will be
considered as business activity.
 Classification of Business Activities

(5) Profit Earning  No business can last for long, without making a profit.
 The purpose to conduct the business is to earn profits and minimise the
cost.

 Example: A business house tries to reduce the cost of

production and the cost of raw material to earn high
profits.

(6) Uncertainty of Return  The possibility of earning profit or loss is very uncertain and
can’t be anticipated by the entrepreneur.
 Hence, no business can totally do away with risks.
Business Organization-Meaning

 An entrepreneur organizes various factors of production like land, labour, capital,

machinery, etc. for channelizing them into productive activities. The product finally
reaches consumers through various agencies.
 Various individual efforts must lead to the achievement of common business goals.
Organization is the structural framework of duties and responsibilities required of
personnel in performing various functions with a view to achieve business goals
through organization. Management tries to combine various business activities to
accomplish predetermined goals.
 Present business system is very complex. The unit must be run efficiently to stay in
the competitive world of business. Various jobs are to be performed by persons most
suitable for them. First of all various activities should be grouped into different
functions. The authority and responsibility is fixed at various levels. All efforts should
be made to co-ordinate different activities for running the units efficiently so that
cost of production may be reduced and profitability of the unit may be increased.
 Definitions:

 Louis Allen, “Organization is the process of identifying and grouping work to be performed,
defining and delegating responsibility and authority and establishing relationships for the
purpose of enabling people to work most effectively together in accomplishing objectives.”
 In the words of Allen, organization is an instrument for achieving organizational goals. The
work of each and every person is defined and authority and responsibility is fixed for
accomplishing the same.
 Koontz and O’Donnell, ‘The establishment of authority relationships with provision for co-
ordination between them, both vertically and horizontally in the enterprise structure.” These
authors view organization as a coordinating point among various persons in the business.
 Oliver Sheldon, “Organization is the process so combining the work which individuals or
groups have to perform with the facilities necessary for its execution, that the duties so
performed provide the best channels for the efficient, systematic, positive and coordinated
application of the available effort”.

Organization helps in efficient utilization of resources by dividing the duties of various persons.
 Characteristics of Business Organisation
 1. Economic activity:
 2. Buying and Selling:
 3. Continuous process:
 4. Profit Motive:
 5. Risk and Uncertainties:
 6. Creative and Dynamic:
 7. Customer satisfaction:
 8. Social Activity:
 9. Government control:
 10. Optimum utilisation of resources:
 Objectives of Business Organisation
A. Economic Objectives
 Profit Earning
 Creation of customers
 Regular innovations
 Best possible use of resources

B. Social Objectives:
 Production and Supply of Quality Goods and Services
 Adoption of Fair-Trade Practices
 Contribution to the General Welfare of the Society

С. Human Objectives:
 Economic Well-being of the Employees
 Social and Psychological Satisfaction of Employees
 Development of Human Resources
 Well-being of Socially and Economically Backward People
 Objectives of Business Organisation
 D. National Objectives:
 (i) Creation of Employment:
 (ii) Promotion of Social Justice
 (iii) Production According to National Priority
 (iv) Contribute to the Revenue of the Country:
 (v) Self-sufficiency and Export Promotion

E. Global Objectives
 (i) Raise General Standard of Living:
 (ii) Reduce Disparities among Nations
 (iii) Make Available Globally Competitive Goods and Services:
 Evolution of Business Organization

 1. Barter System
 2. Village Economy
 3. Introduction of Money
 4. Town Economy:
 5. Industrial Revolution:

These changes were:

 (i) Development of Engineering:
 (ii) Revolution in Iron-making:
 (iii) Use of Steam Power in Textiles:
 (iv) Rise of Chemical Industry:
 (v) Development of Coal Mining
 (vi) Revolution in Transport
 Evolution of Business Organization

 6. Revolution in Transport and Communication

 7. Advancements in Modern Business
 (i) Improved Methods of Production
 (ii) Large Scale Production
 (iii) Specialisation
 (iv) Research and Development
 (v) Expansion of International Trade

8. Growth of Public and Private Enterprises:

Modern Businesses

 Companies that have rapidly reshaped their categories to place previous leaders
at a disadvantage or who have created entirely new categories of their own.
They have employed a dizzying array of new techniques and technologies and
it is often hard to separate their strategy from their execution. However, as
more of these companies emerge, it has become clear that there are a consistent
set of fundamentals that they all have in common.
1. Committed deeply to delivering individual, social, and environmental value that
is tightly aligned with the creation of economic value for its stakeholders.
2. Built around a purpose: Enlists employees, customers, and partners to help
achieve the purpose.
3. Design workplaces and cultures that install employees with passion and
autonomy: Employ flatter structures, offer more holistic, human work.
4. Transparent, open and sharing by default. View operations and culture as a
competitive advantage.
Modern Businesses

 5. Create ecosystems of shared value within their industry: Utilize platforms

and networks to scale value creation and further social and economic goals for
a wide range of stakeholders and partners
 6. Primarily profit through eliminating waste and breaking barriers within their
industries or categories or through enabling greater value for partners and
customers.
 7. Deliver real value to people and the community, build relationships with
customers not transactions
 8. Make real progress against social goals and commercial goals
Business & Profession
 Business means to earn profit by supplying goods and services, whereas profession is
an advice or service rendered by one or a group of persons which does not include
manufacturing or selling of goods.
 In order to become a professional, a person has to attain certain academic
qualifications and training. Examples are Chartered Accountants, Doctors, Advocates,
Engineers, Cost Accountants and Company Secretaries
 The points of difference between business and profession are given below.

1. Difference in Educational Qualifications

The professional should have the specified academic qualifications to practice the
profession, whereas the businessman is not expected to have such specified academic
qualifications.
2. Difference in Expert in the Field
The businessman need not have expertise knowledge in his field of business. On the other
hand, the professional must be an expert in his profession.
Business & Profession
3. Difference in Personal Attention
The businessman can appoint anybody to manage the affairs of his business. The
professional, on the other hand, must perform the duties personally.

4. Difference in Name of the Reward

The reward for business is known as profit. The reward for profession is called as fee.

5. Difference in Code of Conduct and Ethics

There is no rigorous code of conduct and ethics to be followed by a businessman. The
professional, on the other hand is expected to follow code of conduct and ethics.

6. Difference in Governing Body

Association does not govern the business man. He may or may not be a member of any
trade association. On the other hand, the association to which he belongs governs the
professional.
Business & Profession
 7. Difference in Motive

The primary motive of a businessman is profit. The basic motive of a professional is

service, and profit is only secondary.

 8. Difference in Advertisement

The businessman can advertise his business to attract more and more customers towards
his business. A professional, on the other hand, cannot advertise except displaying a name
board in front of his office.