2 Unit-1 Lesson-1 THE BUSINESS SYSTEM

2 Unit-1 Lesson-1 THE BUSINESS SYSTEM Unit-1 Lesson-1  THE BUSINESS SYSTEM  What is Business? The ordinary meaning of the word business is busyness, i.e., any activity in which a man is busy. A man may be busy in two kinds of activities: economic and non-economic. An economic activity denotes work or effort directed towards the production of wealth. In other words, economic activity is aimed at profit. Economic activity of a man is called business. Business, therefore, means the production or purchase of goods with a view to sell them at profit. Besides, if services are rendered on payment to others, they shall be included in business. Business may be defined as a human activity directed towards producing or acquiring wealth through buying and selling of goods and services. The term business includes trade, commerce and industry. The process of buying and selling of goods, is called Trade. Such an activity may be carried on within a country when it is called home or domestic trade. It may be called foreign or international trade when it is carried on between two different countries. To help trade, some facilities such as storing, grading, financing, transporting and insuring are needed, these are called Commerce. Industry implies all those processes, which are responsible for the  extraction and production of goods which are sold for either ultimate consumption or for further  production. So, we may say that Business = Industry + Trade + Commerce. We shall discuss the various components of business at the end of this lesson. Business Provides Services. There are service enterprises, which provide services like domestic services and financial services, etc., to individuals and business enterprises. Take the example of cinemas or hotels, they render services to the community at large. As observed by Urwick and Hunt, “A business is any enterprise which makes, distributes or provides any article or service which other members of the community need and are willing to pay for that.” How Business differs from profession? You have already noticed that a business enterprise may provide services but there are many individuals and firms that may also render services. These individuals or firms are a body of professional people, such as doctors, lawyers, engineers, etc. who may render one or the other useful services. But professional services are not business even when they are rendered in return for money. A professional like a doctor or lawyer renders a personal service of gaining intimate knowledge of a particular individual. On the other hand, a businessman is not concerned with the need of particular individuals in a general way. A human need begins to interest him only when it is widespread and general. It is when a need becomes a general and ripens or matures into demand that it comes within the scope of business. Business is a social activity. All parts of society are related with it in one way or the other and contribute in its success directly or indirectly. The society provides inputs to business in the form of men, machines, materials, money etc., and expects useful goods and services from it at reasonable rates and  adequate wages for its employees and correct taxes for the State. A business house cannot afford to ignore its social responsibility. For example, if a business house fails to please its employees, it leads to employees’ unrest causing disruption in its normal functioning and the existence of a large number of such irresponsible business houses may become the cause of national unrest. Motives for Business Following factors provide motives to business: 1.     Ambition to earn profits 2.     Psychological factors 3.     Ambition to provide service These factors are now discussed vis-à-vis the motives they provide. 1. Profit Motive: Personal gain is one of the supreme motivating forces. Business is that sphere of a man’s activity where the amount of effort determines the size of profit. It is needless to say that greater personal effort brings in greater monetary reward. This single factor has resulted in the establishment, running and expansion of business by individuals or group of individuals. 2. Psychological Factors: It is an old saying that a man does not live by bread alone. It is equally true in business. An entrepreneur may not work solely for amassing fortune. He may be guided by the ambition to build up a business empire. The biographer of William Lever, the founder of Lever Bros, Charles Wilson quotes Lever, who once said “My happiness is my business”. To grow and become big and to find an industrial empire has been valid psychological factors for business. 3. Service Motive: It is also a great motivating force. Many people are motivated to render some  service to their community. Henry Ford, the founder of Ford Motors stated that “Money chasing is not business”. In our country Jamsedji Tata built a steel plant with a great missionary zeal. Business have been founded with service as their motive. An enterprise must earn profit to remain intact and to grow and this element draws men to  business. At the same time it is necessary that an enterprise must produce goods and services of the type and quality that the customers want, must offer right kind of employment conditions to its employees, and the society must accept it as a useful institution. In fact, the mixing or blending of these two elements is necessary for any business enterprise. Of course profit is a significant motive  for business without which an economy under capitalism may not grow. Consistent growth of an economy is necessary to provide more employment and a better standard of living. Thus the two  motives must co-exist in a business enterprise for its existence, growth and status as a useful  institution. The above discussion is more relevant for a private enterprise. Let us now consider the purpose of a public enterprise. The guiding factor in the case of a public enterprise is service but it shall be wrong to remark that a public enterprise should exist only for a few services. Profit may serve as a useful purpose where it is used for the economic growth of the country. It may be concluded that both types of enterprises should aim at not only the profit but also rendering service. Let us consider the profit from the point of view of a corporation or joint stock companies. The structures of modern economies are such that industrial, trading and commercial activities are carried on by these corporations. These corporations are owned by the shareholders and managed by managers who are not very much interested in them as owners. These managers work for the good of shareholders, employees and consumers. Thus, they are liable to earn profit for the shareholders and to fulfil their obligations towards others. They are motivated to work hard not because they would gain some individual profits but because the profit being more would give them satisfaction and status. These managers aim at improving the process of marketing and production to earn more profit. The skill of these people is always at trial. In the process of proper planning for marketing and production, the manager of a large company applies Profit Test and theProfit Motive. The latter is associated with individuals. In the long run, profits do indicate the health of a business enterprise vis-à-vis the consumers, the labour force and the shareholders. For example, lack of cooperation on the part of labour shall certainly mean lower profitability. The profit test, however, implies satisfactory profit and not huge profits. The importance of this test is immense. After all, on what basis you would assess the  performance of a business enterprise? Even in communist countries this kind of test is being applied to a business unit to measure the efficiency of the enterprise. In our country too, the public enterprises pursue profit motive with the aim of generating surplus for planned growth. So, both the profit motive and service motive are essential for the very existence of business. Profit is essential for making provision for depreciation, for paying better wage rates to employees and for the expansion of business. The huge size of big business houses like D.C.M. or Mafat Lal Group which we see today is primarily because of ploughing back of these profits. Service motive directly affects the profitability of a business. Poor service leads to lesser sales volume and hence low profits. Moreover, to provide service to the community is the social responsibility of a business. Littlefield had rightly remarked that business must earn profits sufficient to compensate the owners for the use and risk of capital, must serve varied needs of employees and must contribute to the stability and progress of community. What  may have started as purely economic venture for maximum profits may soon take on social and political dimensions. Further, in an economy such as that of India, where millions of business organisations create the major part of the nation’s wealth, income and employment, it is easy to see that the collective impact of the business is very great indeed. What is Organisation? This has been defined in a variety of ways by various authorities on the subject. The essence of the various definition is best reflected in the definition given by Haney. He defines organisation as a  “harmonious adjustment of specialized parts for the accomplishment of some common purpose”. In  simple words, organisation is putting together of men, material and machines to achieve the defined goals. Through organisation there is cohesion, which result in efficient functioning of an enterprise and resulting into profits to the enterprise, more wages to its employees and lower cost of goods to the consumer. Thus, the economic gains of such an enterprise are more and social costs are less. Businessman or Entrepreneur Before we conclude our study on the nature and purpose of business, it would be proper that we  cast a look at the businessman. Businessman, in simple words, can be defined as provider of  goods  and services to people, which they need but do not possess. He takes the initiative and the risk to produce or market goods and services. He therefore, with his foresight exploits an economic opportunity. He makes business plans and executes them with a view to earn  profits though it does not mean that every businessman makes profits. Some may even lose  because  of the uncertainties of economic factors. Entrepreneur binds the factors of production for  the objectives already stated. Thus he guarantees wages to his employees and interest to the lenders of capital. All that we have so far stated about him would necessarily imply possession of certain qualities  on his part. Let us now consider the qualities that a businessman must possess. Features of Business The common features of a business can be given below: (a) Dealing in goods and services for value: Business provides goods and services to society.  The goods may be for consumption or for production. The first type of goods are called as consumer goods, e.g., clothes, shoes, fans, sugar etc. and the second type of goods are called as  capital goods, e.g., plant and machinery. These goods and services are meant for sale. The goods and services produced for personal consumption are not within the scope of business. So, when a person repairs his own scooter, it is not business but when he opens a repair workshop that becomes  business. (b) Recurring nature of transactions: A single transaction of sale or purchase or any dealing  casually does not amount to a business transaction though it might have resulted into profits. A transaction comes under business only when it occurs at regular intervals or it is recurring in nature. For example, where a person sells his scooter that is not business. But if he opens a garage and keeps a stock of scooters for sale that would constitute business. (c) To earn Profits: Business is a human activity directed towards earning wealth. Profit is  essential for the livelihood of the entrepreneur as well as survival and expansion of the business. (d) Increase in Utility: Business activities create utility in one form or the other. Manufacturers convert raw materials into finished products: whole salers, retailers and transporters etc. help in their distribution. Thus each one of them increases the utility of goods. (e) Risk element: Business is full of risks. Profits do not depend solely on efforts of entrepreneur. Certain other forces may intervene over which a business man had no direct control. These factors may be changes in consumer tastes and fashions; changes in technology, strikes; power  failures; loss by fire and theft etc. Some of these risks can be passed on to others by means of insurance while some risks have to be borne by businessman. Most of the business decisions relate to  future and future is full of uncertainties. It is because of these uncertainties that business is also  called as an adventure. Qualities of a Successful Businessman A successful businessman is an asset to a nation. He helps to discover new processes, products and uses of goods. And he helps in the creation of income and wealth for a nation. He produces or  markets those goods and services which are needed most by the people. These functions require talent to direct and to lead people who shall be working towards the common purpose. In other  words, a businessman must possess some qualities. These have been summed up as under: 1. Time Sense: A business cannot accomplish anything without time sense. This implies that he  should take decisions carefully since one decision may affect other decisions in his business. 2. Alertness: Without this quality, a businessman can not hope to go far. He should know the  changing pattern of demand, changes in technology and what his rivals are doing. All this he can know only if he is alert. 3. Honesty: Honesty creates a permanent market for a businessman. A businessman cannot  hope to survive in business unless he depicts true quality of his products before the buyers. 4. Ability to Cooperate: A businessman must have the ability to cooperate and adjust with persons with whom he deals, especially his customers. He must realize that he too could be wrong  and  he should make amends. 5. Dependability: In order to permit smooth functioning of the organisation which a businessman has evolved, it is necessary to make the organisation dependable at all times, all  people  in the organisation know their functions and thus dependability is ensured. 6. Energy: Mental and physical energy on the part of the businessman would make the business  a success. Vigour always inspires confidence. 7. Character: No other single factor may build business so much as this single factor alone  may. Character lends value and credence to ability to cooperate, dependability and alertness. In  simple words the character builds business. 8. Ability to lead: A successful business must have basic leadership quality to lead his co-workers. Leadership quality is cultivated. 9. Education and Training: A sound education and proper training in the conduct of business  would certainly make businessman more successful. From our discussion we can conclude that the term business is very exhaustive in scope. The variety of activities included in the scope of business have one feature common and that is the goods produced are to be sold and that too for making profit. Therefore, goods produced for personal  consumption do not fall within the scope of business. The regularity and recurring nature of buying and selling transactions is another important characteristic of business. A single transaction does not constitute business. For example if I sell my study table to you and make some profit in this transaction, it does not amount to business. If I maintain a stock of furniture and sell it to customers, it will amount to business. Profit is the main stimulus for promoting and continuing a business. It is essential for its survival  and development. But for the continuous existence of a business, it must fulfill its social  responsibilities. Another characteristic of business is that the profit earned by business does not depend only on the efforts of the entrepreneur but also on many other factors not wholly under his control.  Business  is full of uncertainties, hence full of risk and because of this reason it is sometimes  described as an adventure.  Requisites of a successful business A successful business must bring a compromise between the conflicting objectives of providing goods and services to consumers and social responsibilities. That a business may have  started purely as an economic venture for maximum profits may soon take on social and political  dimensions. To achieve its different objectives a business system should continuously strive to fulfill the following requisites: 1.    Before establishing any business both long range and short range objectives should be  established. 2.    Planning should be given due importance. To plan is to propose a forward programming for guiding the future functioning of an enterprise. 3.    Proper location and layout of the plant and suitable size of the firm contribute substantially to the success of a business system. 4.    The organisation must be clearly defined. It should be adequately manned with competent personel. 5.    It must have an up-to-date knowledge of the latest developments in the field of technology. 6.    Research in all aspects of business, e.g., product research for ensuring success in the long run. 7.    Last but not the least is the requisite of efficient management. Rise of Professional Manager Management of a business enterprise has become the most important aspect of its functioning. In fact, it would not be an exaggeration to say that proper management of an organisation is necessary for its survival. There are many challenges to modern management, which  are  stated below. 1. Complexity of modern industrial structure: The Industrial revolution brought about a complete  change in the techniques of output and their ultimate organisation. This change has made the modern industrial structure complex. Modern industry is capital intensive which necessitates the demand for a large amount of funds. To meet this challenge of fund raising, it became necessary to discover a form of organisation that would meet this demand. Man’s talent to invent led to the  formation of the join-stock company. The large size of business created the problems of managing  it properly. A very high degree of managerial skill is needed to run a large business enterprise  since risks are large and managers cannot experiment with ideas. An error of judgement may  prove very costly and the organisation may end abruptly or suddenly. Another factor is the  divorce between ownership and management which is the direct result of the company form of organisation. This adds further to the complexity of modern industrial system in societies under capitalism. Thus, the modern industrialism is (what Galbraith calls Techno-structure) which consists  of  a group of people working together. 2. Size of the Markets: This is a major challenge of industrialisation whether it is of the capitalist or of the communist variety. Size of the markets is the testing ground for managerial  efficiency. The large size of markets is the direct result of technology and mass production. Marketing of products has to face many a problems, e.g., the competition, introduction of new  products, better consumer servicing, increase in the demand for existing products, to ensure a minimum growth rate of the enterprise and so on. The manager must be conscious to these tasks  and  meet the challenge of wide markets and the problems associated with them. 3. Tariff Barriers and Export-Import Regulations: No country can live in isolation today. International trade is necessary for every nation for its economic survival since no single country  is self-sufficient in all respects. Every country regulates its export and import trade through various means like export duties (tariff barriers as they are called) and import levies to protect the economic  welfare of the nation. The enterprise that is engaged in export and import faces the challenge of  barrier of levies and duties in its own country and other countries. 4. Effect of Trade Cycle: Cyclical changes take place in the economic activity of the country. Sometimes the demand for certain goods and services is high while at any other time it is low. Higher demand means greater profits while lower demand results in lesser profits. This is the effect of trade cycles on demand. An element of great risk and uncertainty gets introduced in the economy. In fact it may be correct to say that challenge of change and of uncertainty is a great challenge and the management must give adequate response to this factor. 5. Governmental Control: Government enforces control over business for the general economy. There is challenge inherent in the governmental action of controlling the business. The government regulation of business can be through the Companies Act, Labour Act, Licensing of enterprises, taxation law etc. To meet the above challenges of modern business adequately it would be desirable that managers should be sufficiently trained and available in sufficient numbers. In the West, professional manager has come of age. In our country too he is emerging and in the next decade or so, he is going to play still more dominant role. Some of the large joint-stock companies are being managed by the professional managers who are quite different from the owner-managers. Many universities and specialized institutions now impart business education to managers-to-be and existing managers at different levels. Components of business Business is an all embracing term. It includes trade, commerce and industry. Business can be classified into two broad categories (a) Industry and (b) Commerce (including trade). Industry is concerned with the production of goods, and commerce with the distribution of what is produced. Industry: The process of extraction, production, conversion, processing or fabrication of products are described as industry. The products of industry are sold either for further transformation into finished  goods or for ultimate consumption. Goods used for final consumption are termed as consumers’ goods, and those used in production of other goods are designated as producers’ goods. A steel mill may make steel for further fabrication into a variety of articles, such as surgical blades, etc, or engineering concern may make machine tools and machinery to be used for manufacturing other products. These are called capital goods.   Types of Industry Broadly, an industry is either primary or secondary. Primary industry may be either extractive or genetic, and secondary industry is either manufacturing or construction. Extractive Industries: These industries are engaged in supplying commodities, which are extracted or raised from the earth, sea and air. The products of such industries are generally used by manufacturing and construction industries for making finished goods. Fishing, mining, fruit gathering, agriculture and afforestation are some of the examples of extractive industries. Genetic Industries: These are industries which, though dependent on nature, require a greater application of human skill in their production than extractive industries. The enterprises engaged in cattle raising, fish culture and nurseries are examples of genetic industries. Manufacturing Industries: Manufacturing industries are concerned with the working of raw materials or partly finished materials into finished products. Manufacturing processes are carried on chiefly in factories and constitute a very large part of the total business activities. Among the manufacturing industries may be mentioned the iron and steel works, spinning and weaving mills, flour mills, the making of machinery, etc. Manufacturing industries may be either continuous or an assembly type. A continuous industry is one in which all the materials are received at one point, from which successive operations turn these into a finished product. Yarn spinning, paper and pottery manufacture are examples. In an assembly industry, the finished product can be produced only after various components have been made and then brought together for final operations. Manufacture of shoes, automobiles and garments making fall in this category. Commerce: The process of buying and selling and all those activities which facilitate trade, such as storing, grading, packaging, financing, insuring, transporting are called commerce. The principle function of commerce is to remove the hindrances of person, place, time, exchange and knowledge, in connection with distribution of commodities until they reach the consumers. By removing these hindrances commerce ensures a free and smooth flow of goods from producers to consumers. A brief description of these hindrances is given below: Hindrances of persons: Buyers and sellers of goods and services are not always found at the same place so that contact between them is hindered by distance. Commerce helps to remove this hindrance between persons by means of trade. Trade as part of commerce therefore plays a major role in establishing contact between sellers and buyers. Hindrance of Exchange:  With money as the medium of exchange, payment for goods and services  is made possible through institutions such as the banks. In this way, banks as part of commerce act to remove the hindrance of exchange and enable buyers to procure goods, especially by extending their own credit. Hindrances of place: The goods may be produced at one place and the demand for them may be greatest at a different place where they are not produced. This barrier of distance is removed by commerce through the different means of transport and the goods are carried from one place to another. Added to direct movement of goods from the points of production to the points of consumption are the services of insurance to cover the risk of loss and packing to protect goods against damage and pilferage. Hindrances of Time: Goods are often produced in anticipation of demand. They must therefore be  stored  in a safe place to be released as and when demanded. The function of storing and preservation  is performed by warehouses. The warehouses remove the hindrances of time by balancing the time lag between production and consumption, and so create time utility. Insurance comes into play where goods are stored in warehouses and cover the risk of loss or damage through theft or fire. Hindrances of Information: Selling of products is today the most important problem that a manufacturer has to solve. His product may be the best, but unless the prospective buyer knows about them they remain unsold. Advertising and personal salesmanship help to remove this hindrance of the lack of knowledge or information by bringing to the notice of the people the advantages of buying the goods and services offered. To sum up, commerce may be said to be that branch of business which facilitates exchange of goods by removing the various hindrances, namely, those of persons through trade and of exchange through banking; of place through transport, insurance and packing; of time through warehousing and insurance; lack of knowledge or information through advertising and salesmanship. Stephenson defines commerce as “the sum total of those processes which are engaged in the removal of hindrances of person (trade), place, (transport and insurance) and time (warehousing and insurance) in the exchange (banking) of commodities. Trade: Trade is the fundamental state of business activity and involves the sale and purchase of goods and services. It is to facilitate the transfer of goods from the seller to the buyer that all the above mentioned activities are undertaken. Types of Trade: Trade may be (a) Internal or domestic, or it may be (b) External, Foreign or International. Internal trade may in turn, be (i) wholesale trade or (ii) retail trade. Foreign trade would be (i) import trade and (ii) export trade. Internal trade, also known as home trade or domestic trade, comprises of buying and selling of goods within the bounds of a country. It may be wholesale or retail trade. Wholesale trade relates to purchase of goods in large quantities from producers and growers and their resale to retailers in small lots. It serves as a link between the manufacturers or producers and retailers who sell them to the ultimate consumers. Retail trade is the last link in the economic chain whereby human wants are satisfied. The retailer assembles at a  convenient place, his shop or stores, various types of products from numerous sources and supplies these in small quantities to consumers. Foreign trade refers to buying of goods from or selling commodities to traders doing business in foreign lands. Foreign or international trade is normally wholesale trade and takes the form of import or export, or it may be entreport trade. By import trade we mean buying goods from suppliers in foreign lands and by export trade selling to buyers in foreign countries. Entreport trade consists of importing foreign produced goods merely with the object of re-exporting them. BUSINESS SYSTEM The objective of this lesson is to introduce to the students the broad spectrum of Business System rather than its detailed exposition. The study of business system shall be restricted to its panoramic perspective, rather than to a close up. In simple words, system means an assemblage or combination of things or parts forming a complex or unitary whole. It is an establishment or arrangement  of parts for achieving the desired objectives. A system may comprise of different sub-systems and it may itself be a part of another broader system. All these are inseparably related with each other like the gear in a machine and has to operate in a coordinated way to achieve the planned  objectives. For a clear understanding of a system, it is necessary to know the interrelationships of sub-systems in order to find out how they are interrelated. When the study of a phenomenon is undertaken in this manner, it is called a ‘systems analysis’ or a systems approach’. The meaning of the term ‘system’ can be best understood by taking the example of human body system which in itself consists of various sub-systems like digestive system, respiratory system, nerves system etc. These sub-systems have further sub-parts. All sub-systems of the human body system must function in a closely coordinated way. The interrelated sub-systems form a unitary whole i.e., a human being who is himself a part of the environment and the society in which he lives. A sub-system, in our context, may be defined as a departmental activity within the framework of a functional activity. Respective departments set their objectives within the framework of functional objectives and accordingly this may be defined as sub-objectives. Like a human body system, a business system too consists of various sub-systems like production, financing, marketing, personnel etc. which operate in unison to make the unitary whole i.e. a business system. These sub-systems may have further sub-systems. For example, personnel sub-system is divided into other sub-systems like selection, training, remuneration, promotion etc. The success of any business system as a unitary whole depends on the close coordination of these sub-systems. Another way of distinguishing sub-systems is according to activities and accordingly each business may have the following sub-systems : (a)   A decision making sub-system to produce plans and shape the activities of the enterprise as a whole. (b)   A processing sub-system which procures information, materials, energy etc. and converts these into salable products. (c)   An information handling sub-system specially concerned with the use of accounting data. (d)   A control sub-system to ensure that actual performance is according to plans. (e)   A memory sub-system to store information and make it available as and when required. (f)       A  sensory sub-system to measure significant changes in both, the system and its environment. A business house as a system is a part of the broader system i.e. the industry to which it belongs and the industry is a part of the entire industrial set up and that industrial set up is a part of the national economic situation. Thus, there is a chain of complicated relationships each affecting the other. A business can be regarded, from the angle of the system approach as an entity or a system functioning in the social, economic and political environment of the country or even the world. The use of the ‘system’ theory in the study of a business enterprise is really quite complicated because it is difficult to know where to draw a line of distinction that separates a firm as a unique entity from its environment. Present day business cannot function in vacuum. It has to take a serious note of the  social,  political and economic environment in which it functions. It has the social responsibility and unless it proves its commercial viability and its concern towards the interest of consumers, employees, creditors and the society in general, it simply cannot survive for long. When undertaking the study of a business system, we are concerned not only with the structure of the business system but also with its environment because these environmental factors have a direct bearing on the smooth functioning of a business system and its environment. Now we shall try to explain in detail, how the environment affects a business system. The environment may be: 1. Economic environment—As already stated in this lesson that, no business exists in a vacuum and cannot independently control its destiny, as it is subjected to external influences over which it has no direct control. A business must suitably react to these external influences in order to survive. A business firm belongs to a particular industry: manufacturing, banking, insurance, mining and so on. These industries are the essential element of national economic system. The national economic system cannot exist in isolation either, as it is an integral part of the world economic system. Both national and international economic forces influence the demand for the product of a particular business. Production programmme of business firms are affected by these economic forces and the production programmes in turn determine the resources required in the shape of raw materials. The availability of these resources is also dependent on political, economic and social circumstances prevailing within the countries supplying raw materials. Demand affects the level of employment at home and abroad. Increase in demand at home for consumer goods creates additional demand for new plant and machinery, in order to expand its production which may be purchased from home capital goods industry or from abroad. It may create balance of payment  problems, if purchased from abroad which have to be financed either by additional exports or by loans from international financial institutions. 2. Technological environment—The demand for a product is affected by the technological changes. Consumers respond to technological changes and demand for products incorporating the latest technology. A business must be quick to respond to these technological developments. Examples of this include transistorised radios and changeover from metal products to plastic or fiberglass products. A business can retain its  share of production or increase only by quick response to technological developments and for this market research is a must. 3. Financial environment—A business unit cannot remain unaffected by the financial environment existing in the country. For instance, the economic crisis in a country may be reflected in the financial position of those business houses who have to suffer from deficiency of liquid funds. Economic crisis, leading to lower level of demand cause fall in production which in turn leads to increase in fixed cost per unit thus reducing profit margin of per unit sold. Even where a business can obtain some short-term finance in the form of loans, the interest rate is quite high which further increases the financial overhead burden. 4. Sociological environment—The employees of today are developing a new sociological outlook. The present-day employees cannot be effectively controlled in an autocratic fashion. They want to participate in the management process. This calls for democratic approach in management and for that management has to change its traditional approach towards the personnel or labour. 5. Legislative environment—A large number of government legislations like the Companies Act, the Industries Development and Regulation Act, Income Tax Act, Sales Tax Act etc. affect the activities of business. From the above discussion it is clear that a business manager has not only to integrate the men, machine, material, information and money into the business system but he has also to coordinate these with the environment in which these exist. A business system has to adapt to the changes in environment like the change in the economic policy, change in demand, and other political and social changes. Above all this, he has to take into account the international market situation. Business system is an open system because it recognizes the existence of external environment which affects its performance and which in turn is also affected by the business system. It is not at all a closed  system which is a self-contained unit completely detached from its external environment. Like a human body system, which constantly adjusts itself to the external environment, an open system too is characterised by its capacity of self repair. Business Organisation is the hub or the central part of any business system. It has the usual features of a system:— 1.     Plans—objectives, policies, procedures etc. 2.     Inputs—men, machine, material, money etc. 3.     Processing—activities concerning producting, financing, marketing, personnel, etc. 4.     Output—goods and services to society. 5.    Feedback—alteration and modification of plans and activities if needed. See Figure No. 2 Plans                    Inputs                  Processing                            Output Feedback The Feedback Concept The feedback concept is concerned with the process of increase or decrease in the support to a business unit in response to its performance. In our study, it refers to the arrangement by which society gets various outputs from business in return for the inputs and the society increases or decreases the inputs provided to the business system depending upon the satisfaction derived from the output of business. Feedback is necessary to feed the various sub-systems in the organisation with the requisite information. For instance, if the results of any business unit reveal that the quality of its products is not upto the mark, it will necessitate the steps for higher quality production. But suppose the results as such are not acceptable, it will call for modification of the plans. This may be described as the systems’ approach to business  organisation. This approach highlights the integrated complex, each sub-system inter-related and well co-ordinated with each other so that the whole firm functions in unison.  From the above discussion, it is clear that systems’ approach is always goal oriented. The systems’ approach is the most appropriate method of organising and evaluating a business house and its performance. An organisation has to continuously work to bring the best balance between a mass of conflicting objectives like service to society and dividend to shareholders. It has to reconcile the various objectives of business in such a way that will provide the maximum satisfaction to the total system. A business system on the whole is something more than just the aggregation of all sub-systems in it. It is responsible for transforming the inputs into outputs to satisfy consumer demands. An organisation has to develop sensitivity to know the changes in its environment and adaptiveness to the demands of its environments, if it has to accept the challenges and also ensure its survival and growth. Feedback is necessary to achieve this objective. The systems’ approach to a business organisation draws the attention towards the integrated complex system, each functional part integrated with others so that the ‘whole’ moves in unison. The interesting feature of a business system is that its various parts are inter-related and interact with each other, while the business system on the whole, interacts with its environment. The business system affects its environment by its output and is itself dependent on its environment which increases or decreases the inputs according to the satisfaction to the society. So, an efficient business system should not only be a suitable mix of its various sub-systems but it should also be in tune with the changing environment. Thus a systems’ approach highlights the fact that the business system and its environment are inseparable and feed-back is necessary from one sub-system to another sub- system so that the process of providing goods and services to the society continues smoothly and efficiently.