UNIT-1 NATURE AND

SCOPE OF BUSINESS
BLOCK-I BASIC CONCEPTS &
FORMS OF BUSINESS ORGANIZATION
Human activities-Introduction to
Business
1. Non-Economic Activities
2. Economic-Activities
a) Business
b) Profession
c) Employment
Types of economic activities

a) Business: Pursued primarily for the

purpose of earning of profits.
b) Profession: An occupation which involves
rendering of personal services of a
specialized nature based on professional
knowledge, education and training.
c) Employment: Rendering personal services
under a contract of employment or service.
Difference b/w Economic n non
economic activities
• Non-Economic • Economic Activities
Activities 1. Economic motive
1. Social, cultural and 2. Generation of
religious motives. income and
2. Generation of acquisition of
psychological wealth.
satisfaction. 3. Output measurable
3. Results not in terms of money.
measurable in 4. Business
terms of money.
4. Social work
Definition of Business

A business is a legally recognized

organization designed to provide goods and
services to consumers.
B O Wheeler “ Business is an institution
organized and operated to provide goods
and services to society under the incentive of
private gain.”

L R Dicksee “ A form of activity pursued

primarily with the object of earning profit for
the benefit of those on whose behalf the
activity is conducted.”
Essential features of Business

1. Economic activity
2. Dealings in goods and services
3. Production and/or exchange
4. Creation of utility
5. Continuity and regularity in dealings
6. Profit motive
7. Risk and uncertainty
Objectives of Business

 Economic objectives
 Social objectives
 Human objectives
Profession:
Occupation which involves the rendering of
personal services of specialized nature , based
on professional knowledge , skills and training.

Employment:
Activity in which individual works for another entity y
rendering their services in lieu of money.
 COMPARISON OF BUSINESS, PROFESSION &
EMPLOYMENT

BASIS BUSINESS PROFESSION EMPLOYMENT

Establishme Entrepreneur’s Membership of a Appointment letter

nt decision & legal professional body and service
formalities, if and certificate of agreement.
necessary. practice

Nature of Production or Personalized Performing the job

Operations purchase and sale service of expert assigned by the
of goods and nature. employer.
services.

Motive Earning profit. Rendering service Earning salaries or

and earning wages.
income.
BASIS BUSINESS PROFESSION EMPLOYMENT

Qualificatio No formal Professional Qualifications

ns qualifications qualifications and training
are required. and training as prescribed
are required. by the
employer.
Return or Profits Professional Salary or
Reward fee. wages
Investment Capital is Limited Capital is not
needed capital is required at all.
according to needed for
the nature establishmen
and size of t of office.
the business.
COMPARISON OF BUSINESS, PROFESSION &
EMPLOYMENT

BASIS BUSINE PROFESSI EMPLOYME

SS ON NT

Risk Present Present Absent

Transferabi Possible Not Not possible

lity of possible
interest
Code of None Professiona Laid down by
conduct l employer.
Industry:

An industry (from Latin industrius, "diligent, industrious") is

the manufacturing of a good or service within a category.

The activities of extraction, production, conversion,

processing or fabrication of products are described as
industry.
Classification of Industries

INDUSTRIES

Genetic
Manufacturing
Extractive Industries: Construction
Industries:
Industries: Nurseries Industries:
Iron & Steel
Mining Fish Culture Buildings
Cement
Farming Cattle Roads
Fertilizer
Fishing Breeding Canals
Sugar
Quarrying Poultry Dams
Electronics
farms
Types of manufacturing industries:
• Analytical- analyze raw material, eg: oil industry
• Synthetic- raw material combined with chemicals to
give final product- rubber industry
• Processing – material undergoes no. of processes
to make the final product .
• Assembly- no. of processes put together on
interdependence mode.
Commerce:

Commerce is a division of trade or production which

deals with the exchange of goods and services from
producer to final consumer.
It comprises the trading of something of economic
value such as goods, services, information or money
between two or more entities.
Commerce functions as the central mechanism which
drives capitalism and certain other economic systems .

Commercialization or commercialization consists of

the process of transforming something into a product,
service or activity which one may then use in
commerce.
Role of commerce

Deal with various hindrances listed below

Persons: distribution –supply chain

Place : transportation
Time : storage facilities-warehousing
Financial provisions :funds available by banks
Coverage of risks
Knowledge – Advertising
Trade:

• Trade is the willing exchange of goods,

services, or both.
• Trade refers to the sale, transfer or
exchange of goods and services.
• A mechanism that allows trade is
called a market.
• Trade between two traders is called
bilateral trade, while trade between
more than two traders is called
multilateral trade.
Categories of trade:

INTERNAL TRADE-
 Within the boundaries of a country, payments made
in national currency.
 Wholesale Trade- It involves purchase and sale of
goods belonging to a specific type of variety in bulk.
 Retail Trade- It refers to the selling of goods by the
retailers to the customers.
EXTERNAL TRADE-
 Between more than two or more countries, foreign
currencies.
 Import Trade
 Export Trade
 Re-export Trade- Import of foreign goods with a
view to re-exporting them and making a profit.
• Transportation
• Warehousing
• Insurance
• Advertising
• Banking
An organization is a social
arrangement which pursues
collective goals, which controls its
own performance, and which has
a boundary separating it from its
environment.
Business Organization is a social
arrangement which pursues
collective goals, which controls its
own performance, and which has a
boundary separating it from its
environment.
When you plan to set up a new
business, you have to decide which
form of organization is more suitable
for the proposed business.For this we
have to critically analyze the
suitability of various forms of
organizations in the light of the
nature of the proposed business.
Functions of business

• Finance – arrangement of capital

• Production- transformation of goods & services
• Marketing- related to products
• Personnel-HR related
• Purchase- related to raw material
• PR relations-liasioning with govt. and other
association
• Legal-matter related to disputes
 Forms of Business Organization

Non-Corporate Corporate forms

forms Of
Of organizations organization

Sole Joint
Partnership Cooperative
Trader Stock
Organization Organization
Organization Company
• Cleland & King “A system may be defined
as an assemblage or combination of things
or parts forming a complex or unitary
whole.”
• A system is a set of sub-systems associated
in a way that forms a coordinated whole.
Benefits of System Approach

• Helps in formulation of logical

business objectives.
• Gives proper emphasis to inputs and
outputs.
• Emphasizes to the organization as a
whole and not merely the collection
of separate departments.
• Provides information for decision
making & managerial control.
• Stresses the ever-changing
environment of business.
Systems:

– System - a set of interrelated and

interdependent parts arranged in a
manner that produces a unified whole

– Closed system - not influenced by and

do not interact with their environment

– Open system - dramatically interact

with their environment
 Environment

System

Inputs Transformation Outputs

Raw materials Employee’s work Products and services
Human resources activities Financial results
Capital Management Information
Technology activities Human results
Information Technology and
operations methods

Feedback

Environment
Features of business System

• Goal oriented
• Input –output process
• Transformation process
• Open & adaptive
• Feedback
• Sub systems
• Synergy
• Environment
• Control mechanism
• All those conditions and forces external to
a business unit under which it operates.
• Includes customers, creditors, competitors,
suppliers, government, sociocultural
organizations, political parties,
international organizations etc.
• Economic Environment
• Politico-legal Environment
• Socio-cultural environment
• Educational environment
• Historical environment
• Physical environment
• International environment
Impact of Environment on
Business
• Both business and environment are
dependent on each other.
• Direct Environment forces: Shareholders,
consumers, labor organizations,
suppliers, competitors & govt. agencies.
• Indirect Environment forces: General
economic, political & technological
environment.
Characteristics of environment
• Total external forces
• Specific & general forces
• Dynamic
• Uncertain
• Relative influence – one change may be good in
1 business but not good in other
• Contextual
Significance of BE

• Identification of opportunities
• Identification of warning signal
• Sensitization of management
• Intellectual stimulation
• Formulation of strategy
• Continuous learning
• Image building
Managing response to environmental
challenges
• Anticipating and adapting
• Competitive advertising
• Brand building
• Strengthening distribution network
• Upgradation of economy
• Diversification strategy
• Joint venture
• Mergers and acquisition
Business Objectives

Kinds of objectives:
• Organic objectives
• Economic objectives
• Human objectives
• Social objectives
• National objectives
Organic Economic Human Social objectives National
objectives objectives objectives objectives
Reinvesting a part of Earning of an adequate Treating employees as Provision of quality Self sufficiency in
profits so that the return (profit for the risk partners in the business. products at reasonable production.
business may grow & undertaken) prices.
survive in the face of
competition.
Attaining fair size of Creating customers for Developing new skills Generating employment Import substitution and
operations so that the the products of the and abilities among opportunities for local promotion of exports.
business could prosper business. Ensuring employees. people.
through the economies of adequate supply of
scale. quality goods at
reasonable prices.
Creation of a good image Innovating in terms of Ensuring job satisfaction Generating facilities for Facilitating the
of the business. developing new to the employees. the spread of literacy, development of small
techniques of training of workers. scale and ancillary units.
production, new
products, new uses
etc.
Treating customers fairly Providing help to social,
in terms of dealing with cultural and charitable
them with courtesy, institutions engaged in
understanding, improving the lot of
accomodation. human beings.
 Objectives

• Organic Objectives: Survival, Growth, Prestige.

• Economic Objectives: Earning of profits, Creation &
satisfaction of customers, Innovation.
• Human Objectives: Employees and customers
• Social Objectives: High quality, creation of employment
opportunities, fair dealing, development of community,
fair trade practices etc.
• National Objectives: Achieving self sufficiency, import
substitution & export promotion, development of small
scale ind., dev. Of backward classes & regions, starting
business in national priority areas of business.
Relevance of profit objective

• According to Urwick, “Earning of

profits cannot be the objective of
a business any more than eating
is the objective of living.”
• Peter Drucker “ Profit is not an
objective but it is a requirement
that has to be objectively
determined in respect of the
individual business, its strategy,
its needs and its risks.”
Functions of Profit Maximization

• It measures the effectiveness of the efforts.

• Profit is the risk premium covering the cost
of staying in business replacement,
obsolescence, market risk and uncertainty.
• Profit ensures the supply of capital for
innovation & expansion.
• Enhances public image of business.
• Encourages socially undesirable means
such as profiteering, black marketing,
hoarding, exploitation of workers,
avoidance of taxes etc.
• Ignores interests of labour, customers,
community at large & government.
• Sacrifices long-term survival of business,
ignores research & development, after
sales service, training etc.
• H R Bowen “Obligation to pursue those
decisions, or to follow those lines of action
which are desirable in terms of objectives
and values of our society.”
• Steiner “ The assumption of social
responsibilities implies recognition and
understanding of the aspirations of the
society and determination to contribute to
its achievement.”
Arguments on assuming social
obligations:
• Use of society’s resources.
• Long term business interest
• Moral justification
• Better public image
• Conscious customers
• Profit and responsibility
• conflicting considerations
• Difficult to ascertain impact
• Arbitrary power & responsibility
• Disregard of market mechanism
• Burden on customers
• Difficult implementation.
Measures for ensuring social
responsibilities
• Legislative Measures- memorandum of
Association, Board of Directors, Social
audit.
• Voluntary Measures- Shareholders’
associations, consumers’ associations,
Trade associations & chambers of
commerce, appropriate organizational
culture.
• Garret “ Ethics is the science of judging
specifically human ends and the relationship
of means to those ends. In some way it is
also the art of controlling means so that they
will serve specifically human ends.”
Functional Ethical Practice
Area
Plant No adverse impact on local community &
Location environment
Production Control of pollution

Purchase & No hoarding of raw materials and finished goods

Storage
Transportati Complying with safety regulations
on
Marketing Fair treatment to customers
Advertising Truthful and realistic claims

Administrati Concern for social values

on
Finance Protection and appreciation of capital
HR Just and equitable treatment to employees.
Need and Imp. of Business Ethics

• Moral consciousness
• Enlightened self
interest
• Social pressure
• Legal imperative
Business Values

• Beliefs that guide actions and judgment in

different situations.
• Basic convictions about right behavior.
• Relatively stable and enduring.
• Ethics is the entire body of moral values &
values are the language of ethics.
Importance of Values in Business

• Corporate culture
• Ends means chain
• Guides to action
• Objective
standards
• Social
responsibility
• It is defined as a set of systems and
processes which ensure that a company is
managed to the best interests of all the
stakeholders.
• It is the imbedded configuration of values,
ethics and appropriate & expected
behavior which provides the coordinates
for the organization’s performance of its
role as a societal entity, in all its aspects.
Issues in Corporate Governance

• Composition of Board of Directors

• Role of BOD
• Audit committee
• Shareholder’s committee
• Changing ownership structure
• Social responsibility
• Scams
• Scattered shareholder’s
• Executive compensation
• Globalization
Fundamental principle of
Corporate Governance

• Transparency
• Accountability
• Merit based management
• Independence
• Reporting
• Role of Board of Directors: Guide management,
oversee operations, compliance with legal &
ethical standards.
• Composition of the Board; Non executive
members can take independent decisions.
• Audit Committee: Reviewing financial
statements, creating climate of discipline &
control & reducing opportunity for fraud.
• Remuneration of directors, Board procedure
• Shareholder’s & disclosures
• Shareholders’ committee: SEBI requirements.
• Compliance , CEO/CFO certification
For Ideal form of Business org.

1. Ease of formation
2. Scope of raising capital
3. Extent of liability
4. Flexibility of operations
5. Stability and continuity
6. Effectiveness of management
7. Extent of government control and
regulations
8. Business Secrecy
9. Tax burden
10. Ownership Prerogatives
Criteria for choice of Org.

1.CRITERIA AT THE TIME OF

STARTING A BUSINESS-
a. Nature of business
b. Volume of business
c. Area of operation
d. Desire for control
e. Capital requirements
f. Extent of risk and liability
g. Government regulations
2. CRITERIA AT THE TIME OF
EXPANSION-

a. Need for larger financial resources

b. Need for internal reorganization
and control
c. Need for specialized services
d. Increase in governmental controls
and regulations
e. Increase in tax liability
f. Increase in the problem of control
and coordination