BUSINESS ORGANISATION AND ENVIRONMENT

UNIT 1

Meaning of Business:

It refers to any occupation in which people regularly engage in an activity with a view to earning profit.
The activity may consist of production or purchase of goods for sale or exchange of goods or supply of services to
satisfy the needs of other people.

These activities may be broadly classified into 2 groups

1. Economic activities: These activities are those by which we can earn livelihood. Ex: A worker working in
a factory, a teacher teaching in a school.
2. Non- economic activities: It is performed out of affection, sympathy, sentiments, patriotism, etc. Ex: A
housewife cooking food for her family.

When a person is regularly engaged in a particular economic activity, it is known as his or her occupation or
vocation. Occupations may be classified into 3 categories:

1. Business: This activity connected with the production or purchase and sale of goods or services with the
object of earning profit are called business activities. Ex: Mining, Trade and Transportation etc.
2. Profession: Any activity which requires special knowledge and skill to be applied by an individual to earn
a living is known as profession.
3. Employment: When a person works regularly for others and gets wages/ salary in return, he is said to be in
employment.

Distinction between Business, Profession and Employment

Basis Business Profession Employment

Primary objective Earning profit Rendering paid service Earnings wages/ salary
Reward or return Profit Professional fee Salary/ wages
Nature of work Production of purchase or Expert service Job performance
sale
Qualification Undefined Professional training As per the need of the
employer
Mode of establishment Entrepreneur’s decision Membership of a Appointment letter and
and other legal professional body and service agreement
formalities, if necessary certificate of practice
Capital investment Capital investment Limited capital needed No capital required
required as per size and for establishment
nature of business
Risk Profits are uncertain and Fee is generally regular Fixed and regular pay, no
irregular, risk is present and certain, some risk risk
Code of conduct No code of conduct Professional code of Norms of behaviour laid
conduct is to be followed down by the employer
are to be followed

Transfer of interest Transfer possible with Not possible No possible

some formalities
Nature and purpose of business:

Nature:

1. Business is an economic activity.

2. It includes the activities of production or purchase and distribution.
3. It deals in goods and services.
4. It implies regularity of transactions.
5. It aims at earning profits through the satisfaction of human wants.
6. It involves risk, it is not certain that adequate profit will be earned.
7. It creates utilities.
8. It serves a social purpose by improving people’s standard of living.

Purpose:

1. Economic:
Economic purpose of business includes earning adequate profit or satisfactory return on capital
invested, survival in the case of competition and growth to maintain progress.
2. Social:
Social purpose include providing employment opportunities, supply of quality goods and services at
reasonable price, improving the standard of living and contributing to environmental protection. It also
includes justice to workers in terms of wages, welfare amenities, improved service conditions and
professional growth.

Characteristics or features of business:

1. Exchange of goods and services:

All business activities are directly or indirectly concerned with the exchange of goods or services for
money or money’s worth.
2. Deals in various transactions:
In business the exchange of goods and services is a regular feature. A businessman regularly deals in a
number of transactions and not just one or two transactions.
3. Profit is the main objective:
The business is carried on with the intention of earning a profit. The profit is a reward for the services of
a businessman.
4. Business skills for economic success:
Anyone cannot run a business. To be a good businessman, one needs to have good business qualities
and skills. A businessman needs experience and skill to run a business.
5. Buyer and seller:
Every business transaction has minimum two parties that are a buyer and a seller. Business is nothing
but a contract or an agreement between buyer and seller.
6. Connected with production:
Business activity may be connected with production of goods or services. In this case, it is called as
industrial activity. The industry may be primary or secondary.
7. Marketing and distribution of goods:
Business activity may be concerned with marketing or distribution of goods in which case it is called as
commercial activity.
8. Risks and uncertainties:
Business is subject to risks and uncertainties. Some risks, such as risks of loss due to fire and theft can
be insured. There are also uncertainties such as loss due to change in demand or fall in price cannot be
insured and must be borne by the businessman.
9. Deals in goods and services:
a. Consumer goods: Goods which are used by final consumer for consumption are called consumer
goods. Ex: T.V, Soap etc.
 b. Producer goods: Goods used by producer for further production are called producer’s goods. Ex:
Machinery, Equipments.
c.
10. To satisfy human wants:
The businessman also desires to satisfy human wants through conduct of business. By producing and
supplying various commodities, businessmen try to promote consumer’s satisfaction.
11. Social obligations:
Modern business is service oriented. Modern businessmen are conscious of their social responsibility.
Today’s business is service- oriented rather than profit- oriented.

Need and importance of business:

1. Improvement in standard of living:

Business helps people in general to improve their standard of living.
2. Proper utilization of resources:
It leads to effective utilization of the scarce resources of society. It provides facility of mass
production.
3. Better quality and large variety of goods and services:
It involves production, purchase and sale of goods and services for price. Customer satisfaction is the
backbone of modern business. Service such as supply of water, electricity etc. may be considered highly
significant for the community.
4. Creates utilities:
Business makes goods more useful to satisfy human wants. It adds to products the utilities of person,
time, place, form, knowledge etc. Thus people are able to satisfy their wants effectively and economically.
5. Employment opportunities:
It provides employment opportunities to large number of people in society.
6. Worker’s welfare:
Business organization these days take care of various welfare activities for workers. They provide safer
and healthier work environment for employees.

Objectives of business:

1. Economic objective:
a. Earning of profit: The primary objective of business is to produce and sell goods for profit.
b. Creating markets: Every business tries to create customers for its products and services. The more the
customers are treated, the wider will be the market for the goods and larger the profits.
c. Technological improvements: The creation of new products, new designs and application of new
techniques of production contributes to growth, change and expansion in the economy.
2. Social objectives:
a. Supply of standard quality of goods: One of the social responsibilities of business is to produce
goods of standard quality.
b. Avoidance of anti-social practices: It is not so fair on the part of a business to indulge in anti- social
practices such as hoarding, black marketing, smuggling etc.
c. Provision of more employment: Business provides employment to the people. It thus helps in
increasing the standard of living of the members of the society.
d. Co-operation with the Government: Business should pay all taxes and dues in time to the
government. All business activity should be carried within the legal frame work of the country.
e. Use of natural resources: Wastages should be reduced to the maximum.
3. Human objective:
a. The employees working in a business should be fairly rewarded.
b. A healthy climate is created by providing opportunities to the employers for development of new skills
and abilities.
c. The employees should have say in the affairs which directly affect them.
d. Thinking of modern business must go well beyond material benefits of its employees. It must reduce
unpleasantness of work and plan for job satisfaction to the worth’s.
4. National objectives:
 Every business operating on small or large scale must have an obligation towards nation also. It should
help in achieving national goals such as promoting social justice, increasing value added goods for exports,
finding out better and cheaper substitutes for imports and helping in increasing exports for building the
foreign exchange reserves to meet the import bills.

Classification of business activities:

Business activities are undertaken to satisfy human wants by producing goods or rendering services. Classification
of business activities on the basis of functions into 2 broad categories:

a. Industry
b. commerce

a. Industry:
It is concerned with the production and processing of goods. This type of business units is called
industrial enterprises which produce consumer goods as well as machinery and equipments. In other words,
industry refers to economic activities which are connected with raising, producing and processing of goods
and services.
Types of industry:
1. Primary Industry:
It includes all those activities which are connected with extraction, producing and processing of
natural resources. These industries are further sub-divided into 2 types:
a. Extractive:
 It involves the extractions of raw materials from the earth to be used by consumers. It consists
of any operations that remove metals, mineral and aggregates from the earth. Ex: It includes oil
and gas extraction, mining etc.
b. Genetic industry:
Genetic industries are those industries which are engaged in re-production and multiplication of
species of plants and animals with the sole objective of sale. These industries are engaged in
activities such as animal breeding, cattle breeding, etc. Dairying is an example of genetic industry.
2. Secondary industry:
Secondary industries are those that take the raw materials produced by the primary sector and
process them into manufactured goods and products. Examples of secondary industries include heavy
manufacturing, light manufacturing, food processing, and oil refining and energy production.
I. Manufacturing industry:
It is engaged in the conversion of raw materials or semi-finished products into finished product.
Ex: Cotton is converted into textiles.
 Analytical industry: This industry relates to the analyzing and separating different
components from a single material. For example, crude oil processed and separated into
petrol, diesel, kerosene etc.

 Synthetic industry: This industry relates to the putting of various raw materials together
to make a final product. For examples, cement is produced by mixing concrete, gypsum,
coal etc. together. 
 Processing industry: An industry, which produces the final products by using raw
materials and semi raw materials through different stages of production, is known as
processing industry. Textile industry, paper and sugar mills etc are some of the examples
of this sort of industry. 
 Assembling industry: It refers to that industry which assembles various component parts
that are already manufactured to make a new product. Manufacturing vehicles, electric
equipment etc. are some of the examples of this type of industry. 

II. Construction industry:

It includes erection of buildings, bridges, roads, railways, canals etc.
3. Tertiary industry: Service industries are those industries, which do not produce physical goods but
create utility services and sell them for a price. Nursing home services, film industries, traveling and
lodging services etc. are the examples of service industries. 

b. Commerce :
It is the sum total of all the activities connected with the placing of the product before the ultimate
consumer. It provides the necessary link between the producer and the consumer of goods. It includes
1. Trade: It refers to sale, transfer or exchange of goods. It helps in making the goods produced
available to ultimate consumers or users. It may be classified into 2 types
a. Internal trade: It means trade carried on within the boundaries of a country. It may be
divided into 2 types
1. Whole sale trade: It involves buying goods from producers and selling them in
small quantities to retailers. He serves as a connecting link between the producer and
the retail dealer.
2. Retail trade: A retail trade consists of selling goods directly to the consumers in
small quantities.
b. External trade: It refers to trade between 2 countries. It implies buying and selling of
goods by traders of 2 different countries. It involves
1. Export: It is concerned with the sale of goods to foreign countries.
2. Import: It relates to the purchasing of goods from other countries.
3. Entrepot: The goods may be imported, stored or traded, usually to be exported
again. These commercial cities spawned due to the growth of long-distance trade.
 2. Aids to trade: It is meant for assisting trade is known as auxiliaries to trade. These activities are generally,
referred to as services because these are in the nature of facilitating the activities relating to industry and
trade.

a. Transport: It creates place utility of the goods and removes the problem of distance. All kinds of goods
can be transported in large quantities over long distances. Ex: land transport, water transport and air transport.

b. Communication: It implies transmission of information, ideas, opinions etc between two or more persons.
It is a systematic and continuing process of telling, listening and understanding. Communication may be of 2
types

 Internal communication
 External communication
c. Banking and finance: Banking helps business firms to overcome the problem of finance by lending
money as and when required. Banks accept deposits and lend money. The other services of banks are
discounting of bills, collection of cheques, acting as agent. Finance is the life blood of the business.
Special financial institutions which provide finance to business are IFCI, SFC’s, ICICI, IDBI, SIDBI and
IRBI.
d. Warehousing: It refers to storage of goods which are generally produced on a large scale in anticipation
of demand. Goods have to be stored for some time before transportation by manufacturers, wholesalers
and retailers. Thus warehousing creates time utility.
e. Insurance: It is based on the principle of pooling of risks. Insurance helps the businessman to conduct his
business with confidence and peace of mind. There are 2 major types of insurance coverage. 1. Insurance
of life of people. 2. Insurance of property.
f. Advertising: It helps in providing information about available goods and inducing customers to buy
particular items. Consumer goods like electronic goods, automobiles, soaps, detergents etc.