1.

DEFINITION AND CATEGORIZATION OF

BUSINESS
 (A) What Is Business?

• Business is an organization comprising people who strive together

to achieve common objectives and goals.
• A business organization is a commercial, industrial, or mercantile
enterprise, and comprises the people who constitute it.
• It is a legally recognized organization or entity that sells goods or
services to customers with the intention of making profit.
• It can be in the form of a company, partnership, organization, sole
proprietorship, occupation, or any entity that undertakes
commercial, industrial, charitable, or professional activities to earn
profits.
• The fundamental idea regarding business is that it is an economic
activity and, business decision-making is an economic process.
•  
• The important part of this definition is that a business is something
that operates in order to make a profit.
• This is achieved through fulfilling the main purpose of every business
which is to serve customers well.
• It has to deliver value by offering good quality goods/services at an
affordable price.
• To survive and flourish, businesses have to win the hearts of
customers by putting resources to best use.
• Not all businesses actually are successful enough make a profit, but
their main purpose is to generate profits.
• The term “profit” doesn’t necessarily mean anything monetary.
• It can be a non-monetary benefit in any form which a business entity
may consider rewarding.
• Moreover, a business can be a “for-profit” or “not-for-profit” entity and
may have a separate existence from those who run/control it.
 (B) The Nature of Business:

• Businesses have some common characteristics which include:

• i. Challenge and Excitement:
• Businesses offer challenge, excitement and immense satisfaction if run successfully. There is, 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.
• ii. 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.
• iii. 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 to be able to stay in business for
long.
• iv. Path Full of Problems and Risks:
• T 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.
 (C) Concept Of Business
• The business concept is a mandatory idea for any type of
business.
• It sets the foundations or directions that shape the future
operations of any business.
• For instance, the business concept determines the vision (details
where the organization aspires to go i.e. the aspirations of the
organization. It is an effect), mission (defines the organization’s
business, Its objectives and how it will reach these objectives i.e.
the present operation and process of company. It is a cause),
business model, and plan for a business entity.
•  To make it simpler, let’s have a look at this example. The
business concept behind Uber, an American corporation, was to
aggregate the taxi drivers under one platform and help them
offer their services on demand. Then, the company developed
all its business strategies on the basis of this concept.
•  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 training, 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.
• Thus, the drivers of an organization include vision, values, behaviours,
competencies, standards, training, information sharing, networking,
rewarding, and continuous learning.

•  
 (D) Common features found in every
business organization:
• i. 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 or services.
•  
• ii. 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. 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.
•  
• iii. 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. As such regularity as
well as continuity of such activity is the most common but important as
fundamental feature or characteristics of business.
•iv. and services are provided, the society is ready to pay a little bit more and thereby a business can earn more
profit. 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
•There is a direct relationship between the satisfaction of consumers and goods and services provided to them.
•v. Existence of Risk and Uncertainty:
•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, changing technology, changing consumers tastes,
needs, fashion, group competition due to globalisation, faulty managerial decision, faulty planning .
• 
•vi. 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 caused 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 and changing government policies and laws.
 (E) Objectives of Business

• A business may have different goals however, generally, we can

categorize them in four different ways.
• Economic Objectives basically depend on the financial needs of any
business entity. Economic objectives may include growth, profits,
survival, etc.
• Human Objectives generally target the business employees, their needs,
personal growth, security, satisfaction, motivation, etc.
• Organic Objectives include anything and everything that focuses on
business improvement. Common examples include improving brand
reputation, strengthening the business, raising capital, innovation,
growth, etc.
• Social Objectives include everything that focuses on the betterment of
society. Social objectives may include fair price policy, customer
satisfaction, quality products, charities, fair employment practices, fair
trade practices, environmental protection, etc.
 (F) 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 justifications for profit include:
• i. Survival – The basic objective of any organization is to ensure that
it continues to survive and exist in the future. Survival in long run is
possible only when organization is able to earn adequate profits.
• ii. 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.
• iii. 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.
• iv. 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.
 • v. 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.
However, profit maximization should not be the sole objective to reduce :
• a. 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.
• b. 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.
• c. Interest in social responsibilities – 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.
 (G) Types of Business

• Manufacturing
• Here, the manufacturer or producer produces one or more products and then sells them to the end
consumer to earn profits.
• A manufacturer may sell directly to the consumer or through intermediaries or middlemen.
• Merchandizing
• Is a type of business in which the seller/business sells tangible products to the customers/consumers.
• In simple words, merchandising is basically a retail business where the seller buys products directly
from manufacturers or wholesalers and then sells them to consumers at a higher price (retail price).
• Services
• Services are a type of business where the seller offers intangible goods to other businesses or
consumers.
• For example, a remote professional can provide marketing management services to a firm.
• Similarly, many firms or business entities offer services directly to the end consumers
• However, it is not possible to separate services from the service provider, and you cannot store services
either.
• Hybrid
• Hybrid businesses are those businesses where an organization practices two or more business types at
the same time. This business practice is common in the food industry, such as restaurants or fast-food
chains.
(H) Foundation for a successful business
enterprise 
• The organization and management of business involves several problems. In modern business,
increasing pressure of globalization, poor governance, poor infrastructure, insecurity, poor
macroeconomic management and environmental factors among others affect the survival of
businesses. 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.
• (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.
• (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.
• (iv) Sound Organization:
• Organization is concerned with the division of work among the employees in such a way that they work
with efficiency and coordination.
• A sound organization structure provides the necessary framework for effective communication,
teamwork and co-ordination.
• It is necessary to define clearly the authority and responsibility relationships between the personnel of
the enterprise.
• 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.
• A balanced capital structure should be developed so that the cost of capital is minimised without
subjecting the enterprise to undue financial risk.
• (vi) Marketing Network:
• Production of goods and services is meaningless unless customers accept them at prices which yield
reasonable profits to the enterprise
• 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.
• (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.
• 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 organization are good, change and development become easier.
• Ensure an effective two-way communication system between the management and the workers , the 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.