INTERNATIONAL INDIAN SCHOOL,RIYADH

CLASS:XI
UNIT-1 SUB:BUSINESS ADMINISTRATION
INTRODUCTION TO BUSINESS OPERATION
1.What is human activity?
All human beings have different needs and to satisfy these needs they perform any activity. Such activities
are termed as ‘Human activities’.
It can be divided into 2 categories :—
1)Economic Activities
2)Non-Economic Activities

2.What are the different categories of human activity?

i) Economic Activities
ii)Non-Economic Activities

i) Economic Activities :- Those activities which aim at earning a livelihood are termed as Economic
Activities. It is concerned with proper allocation & use of Economic resources.
Example - Doctor, Lawyer, teacher working in their profession. Working in a factory or office. Production,
distribution & consumption of goods & services.
Economic Activities can further be classified into 4 categories:-
1) Business 2) Profession 3) Employment 4) Services

ii) Non-Economic Activities:- Activities undertaken to satisfy emotional, social and psychological needs are
termed as Non Economic Activities. They cannot be measured in monetary terms.
Example – Businessman working in old age homes on Sunday. Teacher teaching his/her own child.

3.What are the different types of economic activities?

Economic Activities can be further classified into 4 types –
1. Business :- Business refers to those economic activities which are connected with production, purchase,
sale or distribution of goods or services with the motive of earning profit. For example – Manufacturing,
wholesale, shop owner etc.
2. Profession :- Profession refers to that economic activity which requires specialized knowledge & skill to
render service to various section of society. The individuals engaged in this activity are called professionals.
For example – Lawyer, Doctor, Painter etc.

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3. Employment :- Employment refers to that economic activity where people work for others & get some
remuneration in return (like wages, salaries). People who are working are called employees & who hire
them for jobs are called employers. For example – Working in offices, factories, school, shops etc.
4. Services :- It includes all economic activities whose output is not physical product or manufacturing. It is
generally consumed at the time it is produced. It provides convenience, recreation, comfort for example –
Health services, security services, consulting, airways, hospitality etc.

4.Define Business
“Business may be defined as human activity directed towards producing or acquiring wealth through buying
and selling goods.” — Lewis H. Haney
5.What are the different characteristics of Business ?
i.Economic Activity :
Business is an economic activity undertaken to earn money for livelihood. It satisfies human needs through
production, Sale or distribution of goods & services.
Example : Sale of toys in the shop.

ii) Sale or Exchange of Goods & Services :

For any business it is essential that there is sale or exchange of goods & services for money worth. Goods
purchased or produced for personal use cannot be termed as Business Activity.
Example : The owner of the toy shop sells his toys to the customer, it is a business activity, but if he gives a
toy from his shop to his child then it is not business activity as he is not getting any money in return.

iii) Regular Dealings :

Business involves exchange of goods & services on regular basis. One single transaction of sale or purchase
cannot be termed as business.
Example : A person sells his old air conditioner and buys a new one is not a business activity. But if he
continuously deals in sale and purchase of air conditioner, it will be considered as business activity.

iv) Production or Purchase of Goods and Services :

Business includes all the activities concerned with manufacturing goods, purchasing goods or providing
services like transportation, banking for satisfaction of human needs.
Example : Purchasing cloth from the manufacturer and manufacturing shirts to sell in the market.

v) Profit motive :
Profit earning is one of the main motive of a business activity. Earning profit is essential for survival of the
business. Businessman is always thinking to maximize his revenue (profit) by increasing his sales or
minimizing his costs.

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Example: A property dealer purchases a home at Rs. `85 lakh and sells for ` 95 lakh. ` 10 lakh is his profit in
this transaction which he will use in expansion of his business.

vi) Consumer satisfaction :

Today’s Market is ‘Consumer Oriented’ i.e. Consumer is the king in the market. So businessman has to
satisfy his consumers in all respects to run his business successfully. F
Example : Reliance industries provide consumer oriented service i.e. to provide good service to the
consumers is their priority.
6.Write a note about different scope of business
1) Survival – The entrepreneurs engage in business activities to earn profits as a means of livelihood.
Everyone has to satisfy his needs & hence no one is expected to undertake business activity without any
earnings. Business can survive only when there are adequate profits.

2) Growth & Expansion – Profit not only provides funds for growth & expansion but also motivates
businessman to think of diversification & re-invest for expansion.

3) Reward for Risk bearing – Profit motivates businessman to take risks, higher the risk, higher is the
possibility of earning more profits. In the eventuality of loss due to any risk, he does not stop the business.
He runs the business assuming profits in future.

4) Measures efficiency – Profit is considered as an index for judging the performance of the business
enterprise if profits are higher it indicates the efficiency of management.

5) Goodwill & Reputation – Higher profitability builds reputation of the business. Goodwill creates market
standing which helps to raise loans and obtain credit for further expansion.
7.What are the different types of business operations?

1. On the basis of scale of operation

1. Small Scale Business – A small scale business is an undertaking in which the investment in fixed assets,
plant & machinery, whether held on ownership term or on lease, should be more than 25 lakhs, but should
not exceed Rs. 5 crore in case of marketing sector. In case of service sector, the investment can be more
than 10 lakhs but less less than 2 crores. However this investment limit is varied by the Government from
time to time. Registration of such business is not compulsory but if registered with Commissioner of
Industries then they can avail Financial Assistance. There is easy Mobilization of Capital, Entrepreneurial
Skill and other Sources Small Scale Business are a big support to Medium Scale & Large Scale Units. A Small
Scale unit is generally a Sole-Proprietorship or may be Partnership. The area of operation is generally
localized catering to local demand. These units are mostly Labour Intensive with Smaller Capital
Investment. For Example – Chemicals, Shoes, Bicycles, Readymade Garments, Consumable Goods, Sports
Goods, Plastic Products, Leather Products, Processed Food, Spices .
2. Medium Scale Organization – Medium scale business is an undertaking in which the investment in fixed
assets, plant & machinery should be more than 5 crore but not to exceed 10 crore in case of manufacturing
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sector. But in case of service sector investment can be minimum 2 crore & maximum limit is Rs. 5 crore. The
business is mostly privately owned but managed by owner & some professionals in key roles. Limited
sources of capital, limited customer base generally catering to local & region at large. Technologically
advanced as compared to small scale business organization. They can employ more people in the business
if its expanding. Medium scale business typically results from slow & steady growth of small business. As
the organization earns more revenue, it sets aside capital for building, equipment more employees thus
bridging the gap between small business & large corporations. The Government of India now regulates the
small scale & medium scale business under MSMEs (Micro Small & Medium Enterprises Act 2006). It
provides a legal framework & defines the specific roles of the related institutions.

3. Large Scale Business Organisation – The industries or organizations with fixed assets of more than 10
crore are called large scale organizations. These could be manufacturing units or other which use both
indigenous & imported technologies. All capital goods and consumer goods can can be produced through
large scale industries. Mostly the investment is done through Public Investors. The units are more capital
intensive & technologically advanced. These Business Organization have Structured Governance,
Professional Management, Diverse Markets, Wide range of Funding Rources. Companies like Reliance, Tata
Group, Infosys Technology, Mahindra Group etc. all the large scale business organizations.

2.On the basis of Ownership

1. Sole Proprietorship – Sole Proprietorship refer to a form of business organization which is owned,
managed and controlled by an individual. Here sole means ‘only’ and the proprietor mean ‘owner.’ The
Proprietor bears all the risks, invests capital and enjoys all the profits. He takes all the decision, employs
staff and procures all the resources required to run his business. He has the sole right to control the
business operations. This business is carried out on small scale where customers demand personalized
services.
2. Partnership – Partnership is that form of business organization in which two or more persons agree to
pursue a lawful business for the purpose of earning profit. The persons who for partnership are called
‘partners’ and the business is conducted with the name of the ‘firm’. The capital is invested by the partners
in an agreed ratio and even the profits and losses are divided as decided in partnership deed. The minimum
no. of partners can be 2 and maximum can be 20 in case of ordinary business and 10 in case of banking
business.
3. Hindu undivided family Business – Hindu undivided family or Joint Hindu Family business is a special
type of business organization which is governed by the provisions of Hindu Succession Act, 1956 under
Hindu Law. The business is owned and carried on by the members of Hindu Undivided Family. The property
is managed and held by the senior male member as the Head of the family known as ‘Karta’. The basis of
membership in the business is birth in a family and 3 successive male generations can be members of the
business. Now even women have been given equal right in inheritance of ancestral property according to
Hindu Succession (Amendment) Bill 2004.
4. Cooperative Societies – Cooperative Society is a voluntary association of persons who join together for
mutual help, economic & social interests. The registration of cooperative society is compulsory under the
Cooperative Societies Act, 1912. The capital of cooperative societies is raised from its members through
issue of shares. The organization is established primarily with a view to render service to its members and
not earn profits. There are various types of Cooperation Societies like Housing Cooperative Societies,
Consumer’s Cooperative Societies, Credit Cooperative Societies etc.
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 5. Joint Stock Company – It is considered to be the most suitable form of organization for operating
business activities on large scale. “A Company is an artificial person created by law having a separate entity
with perpetual succession and common seal”. It is governed by the Companies Act, 1956 and without
registration no company can come into existence. The shareholder are the owners of the company. The
Board of directors are elected as representatives who manage the affairs of the company on behalf of the
members. It has a separate legal entity. Company can be classified as Private Company and Public Company.
The minimum number of members to start a Private Company is 2 and maximum is 50 whereas Public
Company has to have 7 minimum number of members and no limit for maximum

3. On the basis of nature of activities

1.Industries
The activities of extraction, production, processing, Conversion of products are described as industry.
Industry produces both Consumer goods and Producers goods For Example - Automobile Industry,
Electronic Industry, Steel Industry etc.
The industries can be of following types –
1) Extractive Industries – These industries extract products from natural sources like earth, water, air etc.
The products of these industries are used by manufacturing & construction industry. For example : farming,
mining, fishing, lumbering etc.
2) Genetic Industries – These industries are engaged in breeding plants & animals for their use in further
reproduction. For example – Plant in nurseries, horticulture, poultry farms etc.
3) Manufacturing Industries – These industries are concerned with the conversion & transformation of raw
materials and semi finished products into finished products. Articles of daily use are mostly produced by
manufacturing units. For example – Oil, Cars, Fertilizers, Medicines, Textile, Television, Paint etc.
4) Construction Industries – These industries are engaged in construction of buildings, dams, roads, canals
etc. These industries create the basic infrastructure for development. For example – DLF Construction
Company
2. Commerce
The term commerce refers to all those activities that facilitate the transfer of goods & services from
producer to consumers. Facilitating services like transportation, warehousing, insurance, banking,
advertising, packaging help the smooth & easy transfer of goods from manufacturer to end user.
Commerce can be divided into 2 broad categories :
i)Trade
(ii) Auxiliaries to trade

i)Trade
Trade is that branch of commerce which is concerned with the sale, transfer or exchange of goods &
services. All the commercial services like transportation, storage, insurance, banking etc. revolve around
trade. It is nucleus of all commercial activities.
Trade is of following types :

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a) Internal Trade – It consists of buying & selling of goods within the boundaries of a country. It is also
known as domestic trade or inland trade. It can be further classified into
i) Wholesale Trade – It refers to sale of goods of specific variety in large quantities. They buy in bulk from
manufacturer and then sell in small quantities to the retailers. For Examples – Biscuits manufactured by
Parle-G is bought in bulk by the distributors all over the country.
ii) Retail Trade – It refers to purchase of goods in small quantities from wholesaler and finally their sale to
final consumers. For Example – Parle-G Biscuits sold by shop keepers in the market to consumers.
b) External Trade – It consists of the exchange of goods & service between nations. It is also known as
Foreign Trade or International Trade. It involves use of foreign currency & transportation like shipping &
airways.
It can be further classified into
i)Import – Purchasing goods from foreign country for home consumption. For Examples – LED lights are
purchased from China for domestic use.
ii) Export – Selling domestic product in foreign countries. For Examples – Rice is exported to other countries
from India.
iii) Entreport - Import of foreign goods with a view to re-export them.

ii)Auxiliaries to Trade
Commerce includes several auxiliary services which help in exchange of goods & services.
Following are the aids to trade :-
i)Transportation – It performs the function of carrying goods from producers to wholesalers, retailers and
finally consumers. It creates place utility and connect the world efficiently.
ii) Warehousing – It performs the function of storing the goods both for manufacturers & traders till they
decide to sell the goods. It creates time utility.
iii) Insurance – It provides a cover against loss of goods in the process of transit or storage. The producers &
traders can get their products insured & avoid risk of loss due to fire, theft etc. It removes hindrance of risk.
iv) Banking – Banks offer credit facility to needy producers at reasonable interest. Banks facilitate in easy,
safe & quick transfer of money. It removes hindrance of finance.
v) Advertising – It helps in awareness creation & idea formation. It helps to highlight – distinctive features &
utility of different products. The customer can choose the product according to their needs & obtain better
value for money. It removes hindrance of information.
8.What are the key areas of business operation?
Business operations typically include four key areas :
 Location : Where you do business – Physically and online.
 Equipment : The tools you need to get the job done.
 Labour : The human side of business operations.
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 Process : The way you get business done, including your systems for quality control and improvement
9.What are the major activities involved in management of business operations
1.Strategic planning – Planning is an important and basic requirement of any business. Strategic Planning is
a broad plan for bringing the organization from its present position to the desired position in future. Top
management should identify who will be involved in the planning process, provide opportunity for proper
participation, give responsibility for developing and implementing the plans.
2. Financing Decision – Finance is the life blood of any business organization. There must be a continuous
flow of funds for the business to commence its operations, to continue operations & for expansion or
growth. Finance is an important operative function of business. The business firm has to raise funds from
several sources at reasonable cost & ensure its effective utilization so as to generate adequate profits.
3. Market research and development- In recent years, competition in most of the industries has increased
due to growing industrialization, expanding size of operations, liberalization. The business organization
have to be fully aware of marketing environment & formulate company policies keeping in mind the target
customers, pricing, sales promotion and after sales service.
4. Logistics decisions - Logistics decisions is concerned with the proper movement of material from source
of supply to place of procedure and movement of finished product from the factory to the customer. It
helps to provide product to the customer at right place and at right time. The business firm has to design
and operate a quick, accurate and efficient order processing system to retain customers and ensure repeat
order. It includes decision regarding transportation, warehousing, order processing, inventory
management, procurement, vendor management etc.
5.Technological decisions – Information Technology is a boon to any business organization. Through
Information Technology they can perform many functions & activities in lesser time & at lesser cost. To
improve the quality of decisions, managers require very fast processing & transmission of huge mass of
data. I.T. helps in collecting, processing & communicating information very quickly & effectively.
6. Internal process review - It is easy to focus only on the day to day running of your business especially in
early stages. But once the business expands a regular review of the progress, internal process policy and
procedures can help the business to identify its position in the market. This review highlights the
assessment of core business activities, finance, business efficiency and competitor analysis.
7. Maintaining Customer Relationship – Maintaining good customer relationship is growing in importance
due to the challenging business environment faced by organization throughout the world today. The aim
should be to maximize profit over the long run through the satisfaction of customer’s wants. All the plans,
policies & operations of business enterprise should be oriented towards customer. Every business decision
is made with a prior knowledge of its impact on the customers as ‘consumer is the king.
8. Employee enrichment - Human resources are the only resource which has an unlimited potential for
empowerment and development. Sound organization adopts right strategies for attracting, developing,
retaining and utilizing human resources. A competent & dedicated team of employees can help an
enterprise in achieving its goals efficiently & effectively.
9. Innovation & Creativity — Innovation implies doing new things or doing things that are already being
done in new ways. It involves creativity & thought process to transform idea or resource into some useful
applications. To survive and succeed in this competitive environment it’s imperative for any organization to
conceive something original and unique.