Chapter-2 Business System

8/2/2019 Chapter-2 Business System

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Business Oragainsation and

BUSINESS SYSTEM

Concept of Business OrganisationFunctional Areas of BusinessConcept of Business systemBusiness- Open System

Features of Business systemSub- systems of Business OrganisationInstitutional frameworkBusiness system as apart of Economic SystemTypes of Economic SystemBusiness Objectives


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Concept of Business Organisation

The term business organisation is very often used indifferent senses.

It is used to represent a business enterprise such as Tata

Iron and Steel Co., Reliance Industries, Maruti Udyog,Indian Oil Corporation, etc. Business organisation is a subject of study, Business organisation is the effective coordination of

various components or sub-systems of the business

enterprise. It embraces planning and control of production,

procurement of materials, distribution of products,management of personnel, etc.


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Contd.

Organisation is the harmonious combination of variousfactors of production for the purpose of acquisition ofwealth.

It may also be defined as the technique of conductingindustrial and commercial activities for the achievement

of certain objectives through production and exchange ofgoods and services. Organisation is one of the basic functions of

management. It involves the determination andprovision of whatever capital, materials, equipment and

personnel may be required for the achievement ofcertain predetermined goals..Thus organisation is a process of integrating andcoordinating the efforts of manpower and materialresources for the accomplishment of certain objectives.


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FUNCTIONAL AREAS OF BUSINESS

In order to achieve its objectives, a business enterprise performsmany functions, which may be broadly grouped under thefollowing headings :

Production,

Marketing,

Finance and

Personnel.In big business organisatipns, there are separate departments tolook after these functional areas. These functions are inter-dependent and inter-related.For instance, production department depends upon marketingdepartment to sell its output and marketing department depends

upon production department for the products of required qualityto satisfy its customers.

Thus, there must be proper integration of various functionalareas of business to achieve its objectives. This can be achievedby the management of the enterprise by effective planning,organisation, direction and control.


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Contd..1. Finance Function. It deals with arrangement of sufficient capital for

the smooth running of business. It also tries to ensure that there is

proper utilisation of resources. It takes many important decisionssuch as raising capital from various sources of finance, investment offunds in productive ventures and levels of inventory of various items.

2. Production Function. It is concerned with transformation of inputslike manpower, materials, machinery, capital, information and energyinto specified outputs as demanded by the society. The productiondepartment is entrusted with many activities such as production

planning and control, quality control, procurement of materials andstorage of materials.

3. Marketing Function. It is concerned with distribution of goods andservices produced by production department. A business canperform this function efficiently only if it is able to satisfy the needs ofthe customers. For this purpose, the marketing department guides

the production department in product planning and development. Itfixed the prices of various products produced by the business. Itpromotes the sale of goods through advertisement and salespromotion devices such as distribution of samples and novelty items,holding contests, organising displays and exhibitions, etc.


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Contd5. Personnel Function. This function is concerned with finding suitable

employees, giving them training and fixing their remuneration and motivatingthem. The quality of human resources working in the enterprise is a critical

factor in the achievement of business objectives. Therefore, it is necessary thatthe work-force is highly motivated and satisfied with the remuneration andfacilities provided by the business.

6. Purchase Function. Traditionally, purchasing is considered a part of theproduction function. But in big organisations, there may be a separatedepartment to perform complicated purchase activities such as inviting tenderschoosing the sources of supply, making transport arrangements and import of

raw materials and machines and equipment.

7. Public Relations Function. Modern business houses want to be in touch withthe public and government through their public relations departments. Thisdepartment organises publicity campaigns to increase the image and goodwill

of the business in the society.8. Legal Function. In a big organisation, the legal department may be organised to

ensure that the business house is abiding by the rules and regulations framedby the government. It also gives advice to the management in case of disputeswith the customers, suppliers and even government over various commercialmatters.


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Concept of Business System

"A system is an assemblage or combination of thingsor parts forming a unitary whole".

The things or parts are known as sub-systems andare so interlinked that a change in one part brings

changes in other parts also. The sub-systems are closely interdependent and

inter-related to form a co-ordinate whole. It is thesystem as an integrated body or organization thathas interaction with the external environment.

In other words all the sub-systems of a systemoperate together while responding to the forces inthe external environment.


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Contd.. A business organisation may be viewed as a system which is

created to satisfy society's needs and desires by the productionand distribution of goods and services with a view to earnprofits.

a business system gets various inputs from the environment andtransforms them into goods and services, (i.e., output) asrequired by the environment. Thus, it has exchange relation with

the environment. A business system is composed of sub-systems such as :

Production, Marketing/ Finance, Personnel, Research andDevelopment, Legal and Management. These sub-systems areinterdependent and inter-related. They must be properlycoordinated if the business is to achieve its objectives effectively.

The business system has external environment consisting ofsocial, political, cultural, economic and other forces which affectbusiness policies, plans and practices. Each sub-system of thebusiness is influenced by these forces. To deal effectively withthe environment, the various sub-systems operateas acoordinated whole or a single entity


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Features of a Business System

Goal Oriented: A business system is directed towards the achievement ofcertain objectives. The important objective of a business is earning profits forsurvival and growth in the environment by supplying the goods and servicesrequired by the society. The business has other objectives also like providinggood working conditions to workers, providing high quality goods to thesociety and contributing towards the achievement of national goals.

Input-output: A business system imports inputs from the externalenvironment and exports its outputs to the external environment. Its inputsinclude raw materials, capital, technology, labour and information whereas itsoutputs include the goods and services produced by it.

Transformation Process: A business system is creative in nature a$ ittransforms various inputs into outputs or goods and services desired by thecustomers.

Open and Adaptive: A business is an open system in the sense that itinfluence's and is influenced by the environment. It can continuously adjustitself to the changing environment on the basis of feedback from the externalenvironment". The structure and/sub-systems of the business change due tochanges in the environment of the business.


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Contd.

Feedback: The term 'feedback' means that which is fed back to the giver ofinformation or goods. A Business provides goods and services to the societywhich in turn provides feedback to the business about the acceptability of itsgoods and services. On the basis of this information, the business can takecorrective measures, whenever required.

Sub-systems: A business is composed of various sub-systems like production

sub-system, marketing sub-system, finance sub-system, personnel sub-systemand managerial sub-system. These sub-systems are dependent upon oneanother. As a result, there is a continuous interaction among the sub-systems.

Synergy: There is proper integration of various sub-systems of the business.As a result the contribution of the whole system is greater than the sum of thecontribution of all sub-systems. This is called the law of synergy which impliesthat whole is greater than the sum of its parts.

System Boundary: Each system has a boundary which separates it from othersystems. A closed system has a fixed boundary whereas; the boundary of anopen system (e.g., Delhi University) is flexible and invisible.


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Contd..

Environment: A business organization functions under two sets ofenvironment, namely, internal and external. The internal environmentincludes production sub-system, marketing sub-system, finance sub-system, human resource sub-system, etc. These sub-systems operateunder the influence of external environment which is known as 'SupraSystem'. The external environment includes all those factors which lie

outside the system such as economic, politico-legal, socio-cultural,investors, customers, suppliers, competitors, international factors, etc;A business system gets various inputs from the external environmentand gives, in turn, its output to it.

Control Mechanism: There are many control systems within a businesssystem. The control systems are designed by the management.

Management is an important force within a business which takes allimportant decisions and implements them. It is management whichcoordinates various organizational activities to convert inputs intooutputs and to respond to environmental opportunities andconstraints.


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Environment


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Business as an Open System

A system may be closed or open. A closed system is self-dependent and does not have any interaction with the externalenvironment. For instance, mechanical systems are closedsystems. A closed system concentrates on internal relationshipsonly, i.e,interaction between sub-systems.

On the other hand, an open system has active interface with theenvironment through the input-output process. It can respondto changes in the external environment through the feedbackmechanism.

A business is an open system as it has a continuous interactionwith the environmental forces such as suppliers, customers,

competitors, government, etc. It obtains inputs, such as rawmaterials, labour, capital, technology and information from theenvironment. Operations are performed upon the inputs toproduce desirable outputs which are supplied to theenvironment (i.e., customers).


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Sub-systems of a Business

Organisation

A business organisation is an open adaptivesystem as it influences and is influenced by itsenvironment continuously. It receives inputsfrom the environment in the form of raw

materials, labour, capital, information, etc. andtransforms them into output (i.e., goods andservices) which is supplied to the environment.In order to carry out its operations effectively, a

business generally reates certain departmentswhich are known as sub-systems. Theimportant sub-systems of a business firm are :


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Contd

1. Production system Consisting of production function;i.e., plant layout, production planning, quality control,

materials handling, etc.2. Finance system Dealing with finance function ; i.e.,

procurement of funds, investment, distribution ofdividend, etc.

3. Marketing system Looking after marketing function ;

i.e., product planning and development, packaging,pricing, promotion, distribution, etc.

4. Human resource system Dealing with the humanresources ; i.e. recruitment, selection, training,compensation, welfare, personnel records, etc.

5. Research and Development (R & D) system - Monitoringthe discovery of new ideas, technology, methods, etc. Allthe sub-systems must be properly integrated and closelyco-ordinated so that the entire system functions as anobjectives for which the business has been set up.


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Thus, we can visualize a wheel within a wheel, and further wheel within wheel known

as network of systems. As said above, training and development in sub-system of the

personnel system which is turn is a sub-system of the business system. The business

itself is a sub-system of the socio-economic system of the country. Each sub-system is

closely related with the biggest system of which it is a part.


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Each sub system has a number of furthersub systems. For eg-, human resource

system (a sub-system of a business firm)has the following sub-systems

i. Recruitment and selection;

ii. Training and development;iii. Wage and salary administration ;

iv. Employee welfare and services ;

v. Personnel records and research, etc.


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BUSINESS SYSTEMS - INSTITUTIONAL

FRAMEWORK

Business Systems comprises of several inter-locking sub-systems that we call industry and commerce. Industry iscomprised of many sub-systems such as manufacturingfirms, mixing firms, construction firms, etc. Commerceincludes various firms engaged in exchange of goods andservices and providing various services such astransportation, insurance, storage, financing,advertising/ etc. Each firm, in turn, consists of many sub-systems such as production, marketing, finance andpersonnel as shown in Fig. 2.4. Every sub-system can be

further broken down into sub-systems. Thus, there is astructure of sub-systems in the business system of anycountry.


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BUSINESS SYSTEMS - INSTITUTIONAL

FRAMEWORK

Business system may be described in terms of theinstitutions that operate for the production anddistribution of want satisfying goods and services. An

industrial system can be described by listing andrelating the different institutions like manufacturingunits, mining units, construction units, etc. that compriseindustry and commercial system includes, suppliers,retailers, wholesalers, freight companies, creditagencies, public warehouses, banks, investment bankers,

So by necessity when we deal with a system/ it is to betreated as a separate legal entity under separatemanagerial control distinct from the other sub-systemsin the industry.


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Institutional Framework


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Business as a Part of Economic System

The economic system of a nation represents the business system that

involves a network of activities concerned with production anddistribution of goods and services for satisfaction of human needs. Thus,economic system is a broader system consisting of business firms andgovernment institutions which direct and facilitate the utilisation ofeconomic resources. Business is a sub-system of the economic system of

the country. Economic system aims at utilising the limited nationalresources to meet the unlimited wants of the people. The businesssystem of a country cannot be studied without reference to theeconomic system of which it is a part. The economic system of thecountry provides economic environment of business. Business is

influenced by overall economic system consisting of ownership offactors of production, economic planning (centralised or decentralised),fiscal commercial and industrial policies of the government, etc.


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Contd Under a capitalist economy, business is largely

operated by entrepreneurs for private profit.Decisions relating to production, distribution andconsumption are made through market forces ofdemand and supply without much interference bythe Government. But in a communist or socialist

economy, all business decisions are dictated andregulated by the central agencies of the Government.The business cannot take independent decisionshere. However in a mixed economy like India, thebusinessmen have freedom of choice and action in

certain industries. Some industries are reservedexclusively for the public sector. The private sectorbusiness enterprises have to be guided by thegovernment budgetary, industrial and commercialpolicies..

S O CO O C S S S


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TYPES OF ECONOMIC SYSTEMS

An economic system denotes the economic relationships whicharise in the community from the organisation of production and

distribution. In other words, an economy refers to the system inwhich people organise their activities and form institutionswhereby the economic resources, namely: land, minerals, power,raw materials, labour, capital/ and other inputs of production,are utilized for satisfying the needs of the people living in thesociety. The fundamental problem for an economy is to provide

answers to the following three fundamental questions: (a) What things will be produced ?

(b) How will things be produced ?

(c) For whom will things be produced ?

There are two basic economic systems, namely : (i) capitalism,

and (it)communism. Some countries also follow the combinationof both the systems. For example, in India we have mixedeconomic system where both public and private sectors co-exist.A brief account of these economic systems is given below.


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Capitalist System

A capitalist system is that economic systemin which free enterprise competition andprivate ownership of the property guided by

the profit motive generally prevail. Undercapitalism, the means of production anddistribution are controlled by private

owners who operate them to earn profit.The important features of a capitalisteconomy are as follows :


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Existence of Private Property. A capitalist economy is a freeenterprise economy or a free market economy in which there is

freedom of private ownership of property and means of production.The right to own property also carries with it the right to determine itsuse.

Freedom of Enterprise. There is a freedom of choice of occupation ina capitalist economy. The individuals have the right to determine theuse to which any unit of productive resources shall be put.

Profit Motive. Profit motive acts as the basic incentive for enterprisesunder capitalism. People invest capital into business to earn profit.Profit is the guiding force in making decisions regarding use ofresources. The owners of means of production enter those fields whichyield maximum profit. Naturally, costs and prices are compared formaking business decisions. More resources flow into those channelswhere profits are higher.

Free Competition. There is competition at all levels in a capitalisteconomy. There is competition among sellers to sell, among buyers topurchase and among workers to get employment. It is because of thiscompetition that the forces of demand and supply are always in actionin the market.


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Collectivist or Socialist Sysfm

The collectivist system is characterised by theconscious setting of goals for the economy as awhole and an authority to administer it. Thesocialist system can be defined as a system of

economic organisation in which there is publicownership and management of the basic industriesand public control of the distribution of income. Bypublic ownership is meant that the large and basicindustries are owned and controlled by the

government. Under communism (authoritariansocialism), the consumption pattern may beregulated by the government. The features of thesocialist system are as under :


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Public Onwership. All the factors of production are owned bythegovernment. It is the government which determines theutilisation of factors ofproduction for the production of goodsand services. The private entrepreneurshave no role to play.

Central Planning. Socialism stipulates the central authoritywhich canset and accomplish socio-economic goals. Such anauthority may be the PlanningCommission or some other organof the Government. Such authority fixes thepriorities for thenation and it has the power to direct the use of

economicresources to achieve socio-economic objectives.Allocation of resources to variousproductive activites is also theresponsibility of this authority.

Social Welfare. The main goal of socialistic system is socialwelfare.Every person in the country is ensured a decentj.tandardof living. The dispartiesin income are reduced to a considerable

extent. The determinants of social welfareare quality diet/health, education, old age security, etc.


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Mixed Economy Mixed economy is the term used to describe a comPromise between

Capitalistand socalist economic systems. The idea underlining the policy ofmixed economy is to combine the advantages of capitalist system, namely :

increased productivity, |improvement in the efficiency of utilisation ofresources, progress of science and }technology, and the advantages of thesocialist system, like reduction of inequalityof income, regulation and controlof private property/ and provision of socialsecurity, etc.

The distinctive mark of mixed economy is that a well defined role is assignedtothe public sector to ensure faster development of the economy andegalitariandistribution of national income. Although the private sector is

permitted to baseits activities on the profit motive, exploitative character ofthis motive is effectivelyctirbed by the government. In a mixed economy, thegovernment has to play animportant role in the economic sphere. It mustensure faster economicdevelopment and must, to that end, undertake toprovide social overheads,industrial climate, and industrial base. It must alsoensure that the fruits ofeconomic development are as widely distributed as isfair and possible. It musttake adequate steps to make certain that inequalities

between man and man,class and class, and region and region, are reduced tothe minimum. In India, we have a mixed-economic system where both the public andprivate

sectors co-exist. The characteristics of a mixed economy are describedbelow:


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Co-existence of Public and Private Sectors. In a mixedeconomy, some fields of production are exclusively allotted tothe public sector while others are open to the private sector. InIndia, some sectors like defe nce, nuclear energy-and public

utilities, are reserved for the public sector. In other areas, boththe private and public sectors can set-up their units.

Central Planning. In a mixed economy, there is a great role ofcentral planning. In India, we have Planning Commission whichis responsible f6rdrafting 'five year plans'. The plans areprepared keeping in view the political ideology, resourceconstraints and social aspirations of the nation. Each plan laysdown the socio-economic objectives, sets physical targets,specifies the sources of funds for implementing the plan andalso prepares specific programmes for implementing the plan.

Economic Welfare. The purpose of mixed economic system is

faster economic development accompanied by a sufficientlyrapid increase in opportunities for employment. In addition, thepublic sector undertakes to reduce inequalities by startingindustries in the less developed regions and by openingemployment opportunities for backward classes,


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Market Mechanism. The output of the public sector has to be soldbecause there is no question of self-consumption. Even the goodsproduced in the private sector are largely marketed. A mixed economicsystem is therefore known for the market mechanism. Law of demand

and supply plays an important role subject to the intervention by theGovernment.

Role of Profit Motive. In a mixed economy, profit motive is allowed toplay its role within certain limits. The private sector is permitted tofunction in such a manner that gains are made by an increase inefficiency and not by exploitation of customers and workers. The

public sector is mainly guided by social interest. But an element ofprofit is also there. It is the profit motive which,in combination with thepricing system, determines the allocation of resources.But profitmotive is not allowed unrestricted operation in a mixed economy.

Role of Government. In a mixed economy, the government playsimportant role in the economic sphere. The public sector covers asubstantial field and the government sees to it that it is administeredand managed efficiently in the interest of social good. It must step inwhen and where private enterprise operates against the socio-economic goals of the nation. It must see to it that industrialenterprises, public as well as private, are so located that all regions andclasses march forward together on the road to economic development.


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BUSINESS OBJECTIVES

Objectives give the business a clearly defined target. Plans canthen be made to achieve these targets. This can motivate the

employees. It also enables the business to measure the progresstowards to its stated aims. The most effective businessobjectives meet the following criteria:

S Specific objectives are aimed at what the business does,e.g. a hotel might have an objective of filling 60% of its beds anight during October, an objective specific to that business.

M - Measurable the business can put a value to the objective,e.g.10 million sales turnover in the next half year of trading.

A - Agreed by all those concerned in trying to achieve theobjective.

R - Realistic the objective should be challenging, but it should

also be able to be achieved by the resources available. T- Time specific they have a time limit of when the objective

should be achieved, e.g. by the end of the year.


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The main objectives that a business

might have are:

Survival a short term objective, probably for small businessjust starting out, or when a new firm enters the market or at atime of crisis.

Profit maximisation

try to make the most profit possible

most like to be the aim of the owners and shareholders.

Profit satisficing try to make enough profit to keep theowners comfortable probably the aim of smaller businesseswhose owners do not want to work longer hours.

Sales growth

where the business tries to make as many salesas possible. This may be because the managers believe that thesurvival of the business depends on being large. Largebusinesses can also benefit from economies of scale.

Alternative Aims and Objectives


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Alternative Aims and ObjectivesNot all businesses seek profit or growth. Some organisations have alternative objectives. Examples

of other objectives:

Ethical and socially responsible objectives organisations like the Co-op or the Body Shophave objectives which are based on their beliefs on how one should treat the environment andpeople who are less fortunate.

Public sector corporations are run to not only generate a profit but provide a service to thepublic. This service will need to meet the needs of the less well off in society or help improvethe ability of the economy to function: e.g. cheap and accessible transport service.

Public sector organisations that monitor or control private sector activities have objectives

that are to ensure that the business they are monitoring comply with the laws laid down. Health care and education establishments their objectives are to provide a service most

private schools for instance have charitable status. Their aim is the enhancement of theirpupils through education.

Charities and voluntary organisations their aims and objectives are led by the beliefs theystand for.

Changing Objectives

A business may change its objectives over time due to the following reasons:

A business may achieve an objective and will need to move onto another one (e.g. survival inthe first year may lead to an objective of increasing profit in the second year).

The competitive environment might change, with the launch of new products fromcompetitors.

Technology might change product designs, so sales and production targets might need tochange.


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OBJECTIVES The various objectives of business may broadly

be classified as follows : 1. Organic objectives 2. Economic objectives

3. Social objectives 4. Human objectives 5. National objectives The realization of economic and organic

objectives helps the business directly andimmediately whereas the social, human andnational objectives help the business indirectlyand in the long run.


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Organic objectives

As an entity, a business enterprise has itsown stages of infancy, childhood, andmaturity. Like a human being, the first

concern of "a business enterprise is toensure its survival. When the enterprise isassured of its survival, it will aim at growthand expansion. To accomplish this objective,

it will attempt to win prestige, recognitionand goodwill from the society in which itoperates. iness.


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Survival : First of all a business enterprise tries to maintain itsexistence. Survival or stability objective implies the maintenanceof a firm's competitive position or earning capacity or marketstanding. Unless an enterprise survives no other objective can

be accomplished. Growth : Growth and diversification is one of the major

objectives of business. Growth may be measured in terms of size,investment, market share, etc. Market share which a businessenterprise commands reflects its standing in the market. Abusiness enterprise may identify new customers, new productsor new markets or increase its market share in the presentmarket. Growth brings higher profits, economic and socialpower, etc.

Prestige and Recognition: Prestige and recognition help toensure the survival and growth of a firm. A business enterprise

with good image or goodwill can easily attract customers,investors and competent employees.


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Economic Objectives

Economic Objectives Business is an economic activity and,

therefore, its major objectives are economic. Economicobjectives refer to those goals which determine a person'sconduct in the business part of life. Economic objectives ofbusiness are as follows :

Profit-making : Risk is inherent in business and profit is thereward for undertaking risk. A business must earn profits in

order to stay in business and to maintain intact the wealth-producing capacity of its resources. But profit making is not thesole objective of business. According to Henry Ford, "meremoney chasing is not business".

Example ___Ford could build up the world famous Ford MotorCo. because he aimed at providing a people's car. Profit through

service rather maximum profits is the real aim of business. Abusiness cannot survive for long if it aims solely at theenrichment of its owners. According to Drucker, "Profit is not anobjective but a requirement that has to be objectivelydetermined in respect to the individual business, its strategy, itsneeds and its risks.


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Creation of Customers: Business can earn profits only when itprovides goods or services which people are able and willing to

buy. Every business enterprise is conceived in terms of a productor service that meets the needs of public. A business enterprisecannot survive unless there are enough people to buy theproducts and services offered by it. Customer is the generator ofrevenue for business. By paying for goods and services,customers determine what shall be produced and how much? In

the words of Drucker, "There is only one valid definition ofbusiness purpose: to create a customer. It is the customer whodetermines what a business is....The customer is the foundationof business and keeps it inexistence..... and it is to supply thecustomer that society entrusts wealth-producing resources to abusiness enterprise.'" Customers can be created only when

business supplies them what they want and at the price, placeand time they desire. Business earns by satisfying the needs ofthe customers satisfaction of customers is an importantobjective of business Creating customers amounts to creatingthe market for goods and services.


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Innovation: Modern business is highly dynamic and anenterprise can continue to be successful only by adapting itselfto changes in its environment. A successful firm has not only toadjust itself to changing environment, it must on its own create

conditions favorable to survival and growth. The highlycompetitive nature of modern business puts a premium oninnovation and creativity which implies the introduction of newand better products, improved means of production anddistribution, new technology, new methods and procedures ofmanagement, etc. Profits are the result of efficient performance

in marketing, innovation and productivity. Innovation results inbetter and cheaper products and more employment for thesociety. Innovation is essential for the survival and growth ofbusiness. It is through innovations that business firms performdynamic functions of growth, diversification and change in theeconomy. The most progressive or excellent companies allocate

large amount of money on research and development forachieving the objective of innovation.


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Social Objectives The economic objectives of business can be realised only by

serving the society. Business is an organ of society and it draws

its resources from the society. Therefore, it must satisfy thewants and aspirations of society. A business enterprise cansurvive and grow only when it caters to the needs of the society.A really successful business can be built on the foundation, ofsocial service. If a business enterprise serves the varioussections of society, profits will follow automatically. Profits are,

in other words, the reward which business receives by servingsociety. There is no conflict between profit-motive and service tosociety. It is through service that business earns profits. Socialobjectives of business refer to the obligations of businesstowards customers, employees, investors, suppliers,Government and the general public. The profits of business

represent a social surplus in which all stakeholders must sharein proportion to their contributions. The social objectives ofbusiness .are as follows :

Quality Goods at Fair Prices The first and foremost social objecti e


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Quality Goods at Fair Prices : The first and foremost social objectiveof business is to provide regularly the goods and services of properquality and quantity to consumers at reasonable prices. Todayconsumers are conscious of the quality of goods they buy. Therefore,business units must always maintain a continuous and adequate supply

of articles of standard quality. Businessmen who keep their customerssatisfied are likely to earn profits. Providing Employment: Another social objective of business is to

create opportunities for gainful employment of the people. Sometimesthis objective may conflict with the economic objective of cutting downcosts and improving profits by introducing mechanization orautomation. In a country like India, mechanization may have to bedeferred or implemented gradually in stages without causing loss ofjob to anyone.

Avoidance of Profiteering and Anti-social Practices: It is legitimatefor a business enterprise to work for legitimate profit. But it must notover-charge the customers or indulge in profiteering at their cost. It isthe social obligation of a business concern not to indulge in hoarding,

black-marketing, adulteration and other anti-social practices. In timesof scarcity it should ensure fair and equitable distribution. Moreover,business enterprise is expected to adopt socially responsible andethical behavior with the suppliers, competitors, and other interactinggroups of people. It should be fair in its dealings with all these groups.


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Human Objectives

A business enterprise is an institution carried on bypeople (entrepreneurs and managers), through people(employees) and for people(consumers and public).Therefore, human factor pervades all business activities.Business is not an end in itself but a means towards

human welfare. People are the most valuable asset ofbusiness and their well-being is its main concern. Thesuccess of a business depends upon the quality of peopleworking in it. In order to win the cooperation ofemployees, business must fulfill their expectations. The

human objectives of business arise from theseexpectations. The important human objectives ofbusiness are given below.

f f


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Fair Deal to Employees: The first human objective of business is to payfair wages, salaries and incentives to the employees at different levels.Fair working and living conditions and security of the maximisation ofprofit, but the achievement of sufficient profits to cover the risks ofeconomic activity and thus to avoid loss".' Business must try to earn at

least the profit required to enable it to stay in business and to maintainthe wealth-producing capacity of its assets. Profit is only one of theeight key areas on which the survival and growth of the businessdepends. These areas include marketing, innovation, productivity,social responsibilities, human organisation, physical resources andfinancial resources. Profit-making is essential in business because ofthe following reasons :

Incentive : Profits provide the basic stimulus to establish and operatebusiness enterprises. Profit is the driving force behind privateenterprise. It is the return on capital and a reward for the risk ofentrepreneurship.

Survival: Profits cover the risks and costs of staying in business. Profitshelps to maintain intact the revenue-generating capacity of business.Through profits, an enterprise can replace obsolete machinery andequipment. It can build reserves and gain strength to withstandcompetition and recession. Profits are needed 'to strengthen the capitalassets base of business and as a shock absorber against trade cycles.


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Growth : In order to expand and grow, an enterprise needs funds.Retained earnings or ploughing back of profits is an important sourceof capital for expansion and innovation. Profits provide the means ofself-financing. Profits also help to attract new capital from outside

sources. Unless fair profits are earned, a business decays and dies outsooner or later. A business enterprise which is not earning profitscannot attract investors. Even in a State-owned enterprise profits areconsidered necessary to finance expansion and other economic andsocial needs.

Measure of Efficiency : Profit is an important measure of success in

normal times. Profits are the criteria by which people evaluate theefficiency and performance of a business enterprise. Availability ofreasonable profits over a long period of time indicates that theenterprise is successful and the society has appreciated the servicesrendered by it.

Prestige : A losing concern has no goodwill or image in society.Accumulation of wealth through business earnings has enabled peopleto build business empires. Big business provides economic power andsocial status to businessmen. Society, too, can progress only whenhuman effort yields profits because a losing organisation leaves less forall to share.


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Conclusion:

Thus, earning of sufficient profits is necessary not only to pay adequate returnsto the investors, but also to provide for the growth and diversification of thebusiness, for maintaining stability and for feeding innovation. Profits bringprestige and power to business. After a point, profits induce businessmen tobehave in a socially responsible manner. According to Drucker, profits servethree purposes :(a) It measures the net effectiveness and soundness ofbusiness efforts. It is the ultimate test of business performance.(V) It serves as

the 'risk premium' which covers cost of staying in business, replacement,obsolescence, market risk and uncertainty.(c) It ensures adequate funds forfuture expansion and innovation thereby increasing the wealth of the country.However, profit is not the sole criterion of business. The early concept ofbusiness was based on the goal of profit maximisation as reflected in theslogan 'the business of business is to do business.' This concept later changedto 'profit with service.' The modern concept of business is founded on the goal

of'profits through service'. Business earns money by supplying the goods andservices which can satisfy human wants. Business may be carried on 'at noprofit no loss basis' for the welfare of the general public.

Documents

Chapter-2 Business System