1

Unit -1
BUSINESS

Unit Structure :

1.0 Objectives
1.1 Introduction
1.2 Meaning of Business
1.3 Nature/Feature of Business
1.4 Functions of Business
1.5 Scope of Business
1.6 Significance of Business
1.7 Traditional and Modern concept of Business.
1.8 Summary
1.9 Questions for Self-Assessment

1.0 OBJECTIVES

After studying the unit the students will be able to:

 Know an overview of business.
 Understand the meaning, nature/features of business.
 Study the various functions of business.
 Elaborate the scope of business.
 Know the importance of business to the various parties.
 Understand the changing concept of business.

1.1 INTRODUCTION

Business is derived from the English word “bisig” literally

means a state of being “busy”. It is a part of social system. Every
action taken in a business is related to the external world around it.
Every individual in a society is related to the business activity. It is a
gainful human activity. It is concerned with creation, exchange and
possession of wealth.

Business is an economic activity. It is concerned with the

use of resources to produce goods or services. It also involves
exchange of things. Every individual has to satisfy the wants of
food, clothing and shelter for survival, No one can produce all the
things which he or she wants to use. Therefore we have to depend
upon others i.e. businessmen. Even a businessman has to buy
goods from other businessmen for his own consumption. Thus,
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business activities are concerned with production, and distribution

of goods and services.

1.2 MEANING OF BUSINESS

According to B.O. Wheelar, “Business is an institution

organised and operated to provide goods and services to society
under the incentive of private gain.”
According to L.H. Haney, “Business is a human activity
directed towards producing or acquiring wealth through buying and
selling activities.”

1.3 NATURE/FEATURES OF BUSINESS

The main important features of business are as follow:

1. Economic activity :
Business is a form of an economic activity. It is the fruitful
occupation for millions of people around the world like traders,
bankers, industrialists, manufacturers and many more including
professionals and those employed.
2. Regularity in dealing :
Business activity is carried out regularly. It is not merely sale
or exchange but the regularity or continuity of such dealings that
constitutes business. A single transaction does not constitute
business. The production or exchange of goods or services for a
price is undertaken regularly and continuously in business.

3. Profit motives :
Business is an income oriented activity. Every businessman
expects profit from the transactions. The main object of business is
to earn profit. Businessman earns profit from the business
transactions and the buyer satisfies his wants of goods and
services.
4. Organized activity :
Business is an organised activity concerned with production
and distribution of goods and services. A firm must conduct
consumer research to identify consumer needs and wants. There is
a constant need to monitor customer needs and wants, and
accordingly produce and distribute goods and Service. Business
has to be conducted systematically with continuous research and
development. It should be organized in a systematic manner so that
business objectives can be achieved successfully.

5. Degree of scale :
Business can be undertaken at varied degree of seals of
operation. Some firm like Sole trading concerns may undertake
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business on a small scale and that too in a local area. However,

some firms, like joint stock companies may undertake business on
a large scale, even at a global level.
6. Risk and Uncertainties :
Business activities are always risky and uncertain. A
business is likely to suffer huge loss due to a number of possible
reasons such as change in fashion, tastes, preferences,
government policies, technology, recession in the economy, natural
calamities etc. All business risks can’t be insured. A business,
however, can minimise risks through proper foresight and planning.
7. Societal Interest :
At present, business firms place emphasis on “societal
concept” of business. Business make efforts to preserve and
promote customers’ and society’s well-being. Business unit try to
achieve a balance between profit + Consumer satisfaction + public
Interest. Therefore, increasing efforts are made to produce eco-
friendly products to satisfy consumer.
8. Social Responsibility :
Professional business firms are conscious of their social
responsibility. The firm try to fulfill their social responsibility towards
various groups. It needs the support of the groups i.e. investers,
employees, consumers, creditors and so on. It can’t function
without an active participation from these social groups. This
feature of business in getting more importance in today’s era of a
globalization.
9. Customer Satisfaction :
Modern business world is a consumer oriented. Customer is
the King and Centre of all marketing activities. Professional
business firms adopt customer oriented approach in their business
operations. Business firms give importance not only to profit
earning but also to customer satisfaction. Customers would be
satisfied only when they get real value for their purchases.
Business firms have to take care of not only customer satisfaction
but also have to delight the customers by providing better and
additional services.
10. Creative :
Modern business is creative in nature. These days,
consumers can’t be satisfied with the same type of goods and
services. Hence business organizations have to be innovative or
constantly search new ideas and proposals.
11. Dynamic :
Business is a dynamic activity. There is a certainty of change
in business Dynamic forces are at work from day to day. Within
business new products, methods, innovations in management
cause ever changing adjustment of policies and administration.
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From outside forces such as government regulation, war, changing

consumer income and new development in science and an art.
12. Government Control :
Business organizations are subject to government control.
The government of each country enacts laws and regulations to
control and regulate business activities. Business organisations are
expected to adhere to such laws.
13. Buying and Selling :
All business activities are directly or indirectly connected with
transfers or buying and selling of goods and services. Business is
useful to buyers and sellers. Businessmen as Seller of goods and
services, provide convenience and satisfaction to buyers through
provision of form utility, place utility and time utility. In return for the
supply of utilities, businessmen receive profit benefit from the
buyers.

1.4 FUNCTIONS OF BUSINESS

Functions refer to series of activities or tasks performed to

achieve pre determined objectives. For the smooth conduct of
business activities, there is a need to perform certain important
functions. These functions are as follows.
1. Purchase and store keeping :
Business firms have to make a series of purchases for
conducting business activities. Such purchases include the buying
of raw materials, components, spare parts, movable and
immovable, assets relating to the functioning of the business
activity. Traders purchase finished goods in order to sell these.
An allied function would be to store the raw materials
purchased for which a separate and special facility has to be
provided. Care must be taken to maintain proper inventory of
materials. Over stocking of material block the working capital on the
other hand, under-stocking blocks the production cycle. Further,
there must be a proper stock of finished goods so as to distribute
them as per the delivery schedules.
2. Production :
Production means conversion of raw material in to semi
finished or finished product. The production department deals with
activities like design of the operations system (product design,
process design, and location of facilities, facilities layout and
capacity planning) and operation and control decisions (routing,
loading, scheduling, dispatching and expediting).
3. Marketing Function :
This function is concerned with, Controlling the level and
composition of demand. If deals with creating and maintaining
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demand for goods and services produced by the production

department. It determines physical attributes of the product, fixes its
price, motivates consumers to buy the same through
advertisement, personal selling and Sales promotion and
determines the path through which goods will be transferred from
sellers to buyers.
4. Finance Function :
This function deals with obtaining and effectively utilising
funds necessary for efficient Operations. It ensures that right
amount of finance, at right cost and at right time is available for
carrying out business Operations. It also deals with investment of
funds in long-term assets and short-term assets to ensure smooth
business functioning.
5. Personnel Function :
This function deals with effective utilisation of human
resource. It aims at selecting right persons at the right place i.e.
jobs and motivating them to work through team work and co-
operate to achieve organizational goal. They have to do the work
with commitment and loyalty.
6. Research and Development:
Research and Development plays an important role in
product development. It helps to bring out product modifications
and product innovations. Business firms need to spend a good
amount of time on research and development activities. Many
professional business firms set up a separate department for
research and development activities to make change in the
business as per the requirement.
7. Public Relations :
There is a need to maintain good public relations with the
various sections of the public. Therefore, it makes a good sense to
maintain separate department to look after public relations,
especially in the case of large firms. It handles public queries,
media queries, interviews, complaints etc. It develops the good
public relation and bring positive image in the minds of the
customer about the business, firm.
8. Sales Function :
The Sales department works in close co-ordination with the
marketing department. The sales department is concerned with the
Selling activities of the firm. It books orders from the customers and
then distributes the goods through the distribution channels. This is
one of the most important functions of business, through which
satisfied the consumers needs and wants.
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1.5 SCOPE OF BUSINESS

Business has a very wide scope. It includes large number of

activities. These activities may be grouped under Two broad
categories i.e. Industry and commerce.
The Scope of business shown in the following table.

Business

Industry Commerce

primary Trade Aids to Trade

Genetic Ware
Internal External housing

Extractive Transport
Wholesale Import

Manufacturing Communic
Retail Export ation

Construction Insurance
Entrepot

Banking
Service

Advertising

Salesmans
hip

Mercantile
Agents
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I. Industry :

The term industry refers to that part of business activity

which directly concerns itself with production, processing or
fabrication of goods and services. It creates form utility. In industry,
raw materials are converted in to finished products, which can be
used for consumption. Some industries manufacture consumer
goods while others manufacture capital goods.

Following are the various types of industries-

a) Primary Industries-

These industries are engaged in the production of primary

goods, such as rice, cotton, fish etc.

The best examples of this type of industries are Agriculture,

fishing etc.

b) Genetic Industries :

`Genetic industry involves breeding and reproduction of

plants and animals for the purpose of sale. Poultry, Plant nurseries,
sericulture etc. are examples of genetic industry. The price of
products available from such activities is generally less.

c) Extractive Industries :

Extractive industries extract valuable minerals, ores etc. from

the natural elements like soil, water and air. These industries are
concerned with the discovery and utilisation of natural resources
such as minerals and forests.

d) Manufacturing Industries :

Manufacturing industries are concerned with the conversion

of raw material into finished goods. They create form utility. The
products of primary and extractive industries such as cotton, iron-
ore, crude oil, etc. are used as a raw material in these industries.

e) Construction Industries :

Construction industries are concerned with the construction

work like construction of bridges, dams, canals, roads, harbours,
building etc. These industries do not operate in factory buildings but
at the site allotted..
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f) Service Industries :

Service industries produce intangible goods i.e. goods which

can’t be seen or touches for example transport, insurance, banking
etc. These services are essential and useful for the expansion of
business.

II. Commerce :

Commerce involves all those activities which facilitate

transfer of ownership and movement of goods from the centers of
production to the centers of consumption. In other word it involves
all forms of trade and the services that assist trading. Commerce
include trade and aids to trade.

A) Trade :

Trade means buying and selling of goods and services. It

involves transfer of ownership of goods from the seller to buyer
against money. In other words, trade is an exchange of goods and
services for a price which the consumers are ready to pay.
Consumers may be an individuals, government and industries who
need raw materials.

1. Internal Trade :

Internal trade is also known as home trade. It is conducted

within the country. It can be at local level, regional level or national
level.

a) Wholesale trade :

It involves buying in large quantities from producers and

selling in smaller lots to retailers. The wholesaler is a link between
manufacturers and retailers.

b) Retail Trade :

Retail trade involves buying in smaller lots from the

wholesaler’s and Selling in very small quantities to the consumers
for personal consumption. The retailer is the last link in the chain of
distribution. He established a link between wholesaler and
Consumers.
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2. External Trade :

The trade carried on between the traders of two different

countries is called external trade. It is also called as International
trade or foreign trade. It includes following trade.

a) Export Trade :

Export trade involves selling of goods from one country to

another. For example, when goods are sold from India to America.

b) Import trade :

Import trade involves buying of goods from a Seller of

another country. For example, a buyer from India purchases goods
from a seller of china.

c) Entrepot trade :

When goods are imported from one country and then re-
exported to some other country, it is called entrepot. For example
an Indian trader may buy goods from Bangladesh and then sell it to
Pakistan.

B) Aids-To-Trade

Aids to trade constitute another component of commerce.

Aids to trade include various agencies which are useful for the
conduct of trading activities. There are as follows.

a) Warehousing :

There is a time gap between production and consumption.

However, goods which are produced at one time are not consumed
at the same time. Hence, it becomes necessary to make
arrangement for storage or warehousing. Agricultural commodity
like wheat and rice are seasonal in nature but are consumed
throughout the year. On the other hand goods such as Umbrellas
and woolen cloths are produced throughout the year but are
demanded only during particular seasons. Therefore goods need to
be stored in warehouses till they are demanded.

b) Transport :

There is a place gap from the place of production to the

place of consumption. Goods are produced in one part of the
country and Consumption in other parts of the nation. Transport fills
the place gap. It meets out the gap between producer and
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consumer. It helps the manufacturer to expand their markets from

local to regional, regional to national and national to global.

c) Communication :

Communications facilitates transfer of information. It involves

transfer of messages from one person to another and from one
place to another. It can be in oral or writing form of information. Oral
communication can take place through telephone or personally.
Written communication is possible through letter, fax, e-mail etc. It
facilitates quick transfer of messages to take important decisions
quickly.

d) Insurance :

Insurance reduces the problem of risks. Business is subject

to risks and uncertainties. These are inevitable in the field of
business. Risks may be due to fire, theft, accident or any other
natural calamity. Insurance companies who act as risk bearer cover
risks. Insurance tries to reduce risks by spreading them out over a
greater number of people. The rate of premium depends upon the
type of risks and the period for which the risk is covered.

e) Banking :

Banking solves the problem of payment and facilitates

exchange between buyers and sellers. Lending and borrowing the
funds are the traditional functions of the banks. Banks provide
short, medium and long term loans to the needy people. Other
functions have started gaining importance such as merchant
banking, development banking, credit cards etc. This has further
facilitated to trade.

f) Advertising :
Advertising as a powerful marketing tool of communication is
highly useful to the manufacturer, retailers, consumers and the
society at large. Advertising is basically designed to inform, create
interest and induce people to act in a particular way. It can be used
for communicating both commercial and non-commercial
messages. It creates awareness of the product and builds a good
brand image in the minds of consumer and society at large.

g) Salesmanship :
Salesmanship refers to personal presentations by the firm’s
sales force for the purpose of making sales and building customer
relationships. It facilitates personal selling. The salesmen provide
information to the buyers. They convince and persuade buyers to
buy goods.
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h) Mercantile Agents :
In the process of distribution, producers and consumers are
unable to have direct contact, as consumers are spread over a vast
area; mercantile agents remove this difficulty of personal contact.
Mercantile agents are the intermediaries who form a link between
the buyers and the sellers. They do not carry business in their own
name. These are several types of mercantile agents such as
brokers, commission agents, auctioneers, underwriters, insurers,
etc.

Check your Progress

1. Define the following terms

a. Business
b. Trade
c. Entrepot trade
d. Aids-To-Trade
e. Mercantile Agents
f. Internal Trade
g. Production
2. Draw the table showing the Scope of business.
3. Enlist the main feathers of business.
4. Explain the following functions of business:
a. Store keeping
b. Marketing
c. Finance
d. Personnel

1.6 SIGNIFICANCE OF BUSINESS

Business is useful to the society in general and the business

firms and consumers in particular as it create utilities. Let us see
the benefits it offers to various groups. There are as follows.

I. Significance of Business to the Firms :

Business plays very important role to business firms. The

manufacturer, marketers, traders and even service providers get
benefit from business.
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Following are the significance of business to business firms.

a) Accomplishment of objectives :

Business helps the firms to achieve its various objectives. It

creates utility by creating goods and services. These goods and
services are consumed by the people for the satisfaction of needs
and wants. Thus with increased sales firms can achieve the
objectives, like increase in sales, increase in profit etc. Besides
earning profits firms are able to achieve its other objectives such as
increase in market share, growth and expansion, creating goodwill
etc.

b) Improvement of knowledge and skill :

Managing business, interacting with people, trying to

develop new methods and techniques etc. It helps in improving the
knowledge and skills of the employer and employees involved in
business. This ultimately benefits to the business organisation as
the overall functioning of the business firm improves.

c) Expansion of business :

Healthy and sound business practices help the organisation

to grow and expand its activities. Firm can introduce new and better
products in the market and can expand its activities. Firm can also
expand its area of market operations. Market expansion can be
right from local to international level.

d) Product Development :

Business undertakes marketing research and product

research activities regularly for the purpose of product
development. Due to these research and development activities,
firms are able to introduce new, innovative and better products in
the market. Thus advanced products benefit to the consumers as
well as business firms.

e) Improve Relations :

Sound business practices improve relations of a firm with

various sections of the society. Business firms need to maintain
good relations with dealers, suppliers, customers, government
authorities, media people, and society in general. The survival and
success of business is depends upon the business relations with
the stakeholders.
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f) Corporate Image :

Business helps the organisation to create and improve

corporate image in the market. Business can create a good
reputation about itself in the minds of employees, shareholders,
investors, consumers, government and general public. Corporate
image is vital to any organisation, as it enhances marketing,
financial and social value of a firm. Corporate image helps the
forms for long term Survival.

g) Optimum Utilisation of Resources :

Resources are the basic inputs which are necessary to

produce goods and services. The resources are limited and in short
supply. Hence, it should be used in such a way that it will ensure
minimum use and maximum output. In achieving its goals business
ensures optimum use of scarce resources by utilising it in most
profitable areas. Sound business practices enable a firm to make
optimum use of resources.

h) Increase in market Share :

Every organisation desire of increasing its share in the

market. Increase in market share brings in more profits, more
respect, better image and increase in market value of shares.
Sound business practices enable a firm to increase in market share
and create more goodwill in the market.

i) Increase in profit :

Every business is subject to risk and uncertainties. Profit is

the reward for their risks undertaken by the businessman with the
help of business activities a business firm able to earn profits.
Profits play a role of return on the investment done by
businessman.

II) Significance of Business to Consumer:

Business plays a significant role in respect of consumer.

Following are the significance of business to consumers.

a) Better quality of goods and services :

Now a days, competition has increased tremendously. To

face this competition, firms try to make every possible effort to
improve the quality of goods and services. Business firms make
available quality goods and services required by consumers.
Business provides better quality of goods and services to the
prospective buyers.
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b) Reasonable price :

Today’s market is a consumers’ market where supply

exceeds demand for products. In order to attract consumers,
business firms offer quality goods and services at competitive
prices. They try to offer value for money. Business provides goods
and services at right prices.

c) Better facilities and Services :

Every business wants to survive in the competitive business

world. It tries to provide better facilities and services to the
customers at low cost. The services like after sale-service, free
home delivery, extended warranties, Sale on installment basis, zero
rate of Interest etc. are provided by the business firms. Due to
these facilities and services customers are benefited to a great
extent.

d) Customer Satisfaction :

Modern business has become consumer oriented. Moreover,

in order to survive and grow, business organisations thrive to
provide consumer satisfaction. Their objective is to retain the old
customers as well as to find new customer. Some professional
business firms go a step forward to delight its customers by
providing additional facilities.

e) Higher Standard of Living :

Business generate employment in areas of production,

distribution, banking, transport and so on. This increases the level
of income and create additional demand for product in the market.
This in how business generate demand which in turn result in more
jobs and income which finally result in satisfying the number of
human wands and increase their standard of living.

III) Significance of business to society :

Business plays a significance role towards the society.

Following are the significance of business to the society.

a) Economic Growth :

Business activities facilitate economic growth in the country.

It undertakes expansion and diversification activities. New products
and services are offered to consumers constantly. New business
firms are set up thereby leading to accelerated rate of growth.
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b) Regional Development :

Business firms facilitate to bring about regional development.

Government encourages business firms to start operations in under
developed areas by giving tax benefits, duty concessions and so
on. This leads to a balanced regional development.

c) Revenue to the Government :

Business firms provide substantial revenue to the

government. Business sector provides revenue through taxes,
duties, customs duty, sales tax, corporate tax, Octroi etc. contribute
to the income of the government. The government can also
generate revenue by way of profits earned by public sector units.

e) Employment Opportunity :

Business provides employment to number of people. It

provides employment in the activities such as production,
distribution, marketing, promotion of products, and so on. It is thus
a source of employment to the people. A large section of the
population of the world earns its regular income by means of
business.

e) Social Welfare :

Business helps in social welfare of the society. It can be in

the form of starting schools and Colleges, providing donations for
starting hospitals, sponsoring various sports and cultural events
and so on. In other words they undertake various social welfare
programmes and there by reduce the burden of the government.

f) Capital Formation :
Business facilitates capital formation in the country. Capital
formation takes place as a result of savings and investment in the
country. All those connected with business i.e. business firms,
employees, traders, service providers and other save part of their
income earned from business. These savings are put into
investments. These investments lead to capital formation in the
country.

g) Global Relations :
Business helps to maintain good and cordial relations with
other countries. This is because of foreign trade. Foreign trade
enables countries to be dependent on each other, which in turn
helps to develop good and friendly relations among participating
countries. Sound business tries to build a cordial relation with other
countries.
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1.7 TRADITIONAL AND MODERN CONCEPT OF

BUSINESS

Traditional Concept of Modern concept of

business business
a) Meaning
As per the traditional concept, As per the modern concept,
business means production and business means provision of
marketing of goods and services goods and services for the
for private gain. satisfaction and welfare of
consumers and the society at
large.
b) Scope
The Scope of business was The scope of business covers
restricted to local market. national and even global market.
c) Objectives
The Objectives of business was The Objectives of business is
profit. Business was treated as consumer satisfaction and
the end in itself. It was service to society. Business is
production and distribution for treated as a means to serve the
earning profit. society and rise social welfare.
d) Position of Consumer
Consumers were neglected and Consumers are given priority
were taken for granted. They and business is adjusted as per
were exploited for profiteering. the needs and expectations of
No attention was given to consumers. Consumer welfare
consumer welfare. is given special attention.
e) Social Orientation
Social orientation to business Business is treated as social
was absent. institution with social obligation.
f) Social Responsibility
The concept of social Business accepts and honors
responsibility was absent. social responsibilities. It is
Business was not socially treated as an integral part of
responsible. social system.
g) Nature of concept
It is treated as old, outdated and It is treated as dynamic and
narrow concept as business is broad concept as it is given
treated merely as profit making social orientation. It is for the
activity. satisfaction of human wants.
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h) Role of profit
Profit was the sole purpose in Profit is given secondary
business. Profit alone was the position. Profit through service is
guiding principle in business. the guiding principle in business.
i) Type of Orientation
Traditional concept was Modern concept is social
businessman oriented i.e. profit oriented i.e. consumer oriented.
oriented. Limited importance Special importance to consumer
was given to consumers and satisfaction and social welfare
social welfare. and not merely to profit making.

1.8 SUMMARY

From this chapter it is clear that business is an economic

activity which mainly aims at profit making. Modern concept of
business tries to have balance between profit making, customer
satisfaction and social Interest. Business activity is important to
various parties like business, customer, employees, society as well
as nation. Thus modern business tries to become a social entity
because business is a social system.

1.9 QUESTIONS FOR SELF-ASSESSMENT

a) Define business. Explain its features.

b) Explain the functions of a business.
c) Explain briefly the scope of business.
d) Discuss the significance of business to the firm.
e) What are the significance of business to the customer?
f) Explain the Significance of business to the society.
g) Distinguish between traditional and modern concept of
business.


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Unit-2

OBJECTIVES OF BUSINESS

Unit Structure
2.0 Objectives
2.1 Introduction
2.2 Definition of Business Objective
2.3 Steps in Setting Business Objectives
2.4 Classification of Business Objectives
2.5 Reconciliation of Economic and Social Objectives
2.6 Distinguish between economic and social Objectives
2.7 Summary
2.8 Questions for Self-Assessment

2.0 OBJECTIVES

After studying the unit the students will be able to:-

 Understand business Objective
 Define business Objective
 Explain the steps in setting business Objectives.
 Study in detailed the classification of business Objectives.
 Know the reconciliation of economic and social Objectives.

2.1 INTRODUCTION

Every business unit should have certain well-defined

Objectives. It should conduct various activities in order to achieve
such objectives. Profit making, social recognition and business
growth are some universal business Objectives. Objectives indicate
the destination towards which the business unit desire to move.
Running a business unit without well-defined objectives is like
travelling without fixed destination. Objectives are the end points
towards which the organisation has to move forward. They provide
the spotlights over the route along which business activities are to
be organized and efforts are to be directed. Business Objectives
are not stable over a long period. In fact, they are redefined from
time to time as per the environmental changes.
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2.2 DEFINITION

According to D. E. Mc. Farland,

“Objectives are the goal, aims or purposes that organisations

wish to achieve over varying period of time.”

2.3 STEPS IN SETTING BUSINESS OBJECTIVES

Following are the steps involved in formulating business

Objectives.

1) Analyse Internal Environment :

An analysis of internal environment helps in fixing realistic

Objectives. Internal environmental factors include human
resources, financial resources, physical facilities, management
structure, internal relationship etc. must be studied, such an
analysis helps in understanding strengths and weaknesses of the
organisation. The Organisation needs to make every possible
efforts to correct weaknesses and to improve the strengths of the
organisation.

2) Analyse External Environment :

The Organisation also needs to analyse the external

environment. It includes customers, suppliers, competitors, political,
economic, social, technological, natural and so on. Such an
analysis reveals the opportunities and threats created by the
environment such analysis would help the organisation to grab the
opportunities and to minimize or defuse the threats.

3) Considering resources of the Organisation :

Setting objectives of business depends on the availability of

human and non-human resources with in the business. These
resources should be properly considered. The proper consideration
of these resources results into optimum utilization of resources,
reduction in wastages, reduction in cost and increase in profitability.

4) Consider value System :

The values system followed influences the functioning of the

business organisation to a great extent. Value System is a set of
consistent ethical values followed by an individual or an
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organisation. While setting objectives, value system must be

considered.

5) Consider management philosophy :

Management philosophy also affects setting of business

objectives. A management that adopts on orthodox approach uses
traditional and old fashioned practices to carry on its business.
Objectives set by such a management would differ from those set
by professional management.

6) Awareness of past Objectives :

Past Objectives and achievements of the organisation serve

as guidelines for formulating future objectives. Normally an
organisation does not deviate too much from the past objectives
while setting objectives.

7) Setting of objectives :

After analysing the internal and external environment, the

firm should set the objectives in all the areas. Long term and short
term objectives must be set. Further, these must be set on the
basis of priority. Once the objectives are decided, it must be inform
to the all personnel.

2.4 CLASSIFICATION OF BUSINESS OBJECTIVES

Business objectives are many and varied in nature. The

success of any organisation depends on how well these are
balanced. Business objectives can be broadly classified into five
major categories. These have been depicted by a chart given
below.

Classification of
Business Objectives

Organic Economic Social Human National

Objectives Objectives Objectives Objectives Objectives
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A) Organic Objectives or Threefold Objectives of

business :

The organic objectives also called as three-fold objectives of

business. Organic objectives are the primary objectives relating to a
firm. Every firm has to give attention to three basic objectives.
These Objectives are as follows-

1) Survival :

Survival is the basic objective of every organisation. Other

objectives can be thought of only if the organisation survives. Due
to globalization, liberalization and privatization, the business
environment has become extremely competitive. Further,
technological advancements and changing consumer behaviour
has made the business environment complex. This has made
survival extremely difficult. Constant monitoring of the business
situation and strategic planning are necessary for survival in the
competitive business environment.

2) Growth :

Growth is the second major organic business Objective.

Business should grow in all directions over period of time. Growth
takes place through expansion or diversification. Expansion
involves increase in business by introducing a product which is
similar to the existing product line of the business. While
diversification involves introducing a product which is totally
different.

Growth brings more profit, opportunities for advancement,

better utilisation of resources, reputation and goodwill etc. In fact,
growth is required for survival ‘Grow or Perish’ is the requirement of
the day which means if the organisation is not able to grow it will be
droop out from the market.

3) Recognition and Prestige :

Every business organisation desires to have social

recognition and prestige. This objective is partly economic and
partly social. Prestige of an organisation is due to standard quality
of its products, regularity in their supply, reasonable prices and
satisfactory service to customers. Recognition indicates public
confidence on an organisation. Such recognition is possible only
after a long period of useful service to the society.
 23

Business organisations are not satisfied only with profit and

growth. It desire to create goodwill and good image in the market. It
has publicity and promotional value. A business organisation wants
popularity among consumer’s, dealers, employees and local
community. For this, it has to provide financial support to social,
cultural and other activities. In addition, it must be fair and liberal
with different social groups.

B) Economic Objectives of business :

The main economic objective of business is profit. To earn

profit, there are several other economic objectives, which are to be
accomplished. The important-economic objectives of business are
as follows.

1) Profit :

The main economic objective of business is to earn profit.

Business activity is primarily undertaken for earning profit. It
enables a business to realise other objectives of business. Profit is
the main motive of all business activities and is necessary for
survival, growth and prestige of an enterprise. Profit is an indicator
of business performance and a sign of efficiency. It is a reward for
bearing risk and uncertainty in business. It is a lubricant which
keeps the wheels of business moving.

2) Creation of Wealth :

Creation of wealth is one of the important objectives of

business. Creating wealth involves increasing the wealth of the
shareholders. It happens only if the business grows steadily
whereby the shareholders get higher dividends and there is an
appreciation in the market value of the shares.

3) Creation of Customer :

The purpose of business is to create a customer. Customer

is the foundation of a business. Business has a important human
obligation. Profit can’t be earned only by producing the goods.
Every businessman has to find customers for high goods or
services. Thus, the objective of the business should be to identify
the customer for their goods and services. This requires creation of
customer in the market and distributes goods and services.
 24

4) Innovation :

Innovation means to bring new methods, new ideas and

concepts and modern efficient techniques. It mean something new
and creative. It is useful in improving quality, reducing costs and
satisfying the customer better. It is a continuous process. In order
to survive and succeed in today’s competitive business
environment, a business organisation needs to be innovative.

5) Utilisation of Resources :

Effective utilization of resources is the most important

economic objective of a business enterprise, It is expected to utilise
available resources fully i.e. to the optimum level. The resources
available with an enterprise may be limited but they must be utilized
fully. The production capacity of plant, machinery, and equipment
must be used fully wastages of all kinds should be avoided or
minimized. Modern technology should be used for more production
and Superior quality production. It leads to bring down the cost of
production.

6) Expansion of Market :

A business firm may aim at entering in to new market. i.e.

domestic as well as in international market. This would enable the
firm to survive during recession grow and also gain reputation not
only in the domestic markets but also in the international market. A
business enterprise may increase its market share by effective
distribution network, maintaining good relations with dealers,
effective advertising and publicity, providing effective and efficient
after-sale-service, effective sales promotion etc.

7) Growth of business :

Growth of business activities is one of the economic

objectives of business. Growth is desirable for more production and
turnover in business. Business expansion also gives advantages of
large scale operations. Introduction of new products, setting new
production unit, and use modern techniques of production are some
methods useful for the growth of business activities. Such growth is
necessary for meeting market competition.

8) New product Introduction :

A firm may aim at introducing new product lines or brands.

The introduction of new products or brands would help the
organisation in several ways i.e. increase its overall market share,
 25

face the competition effectively in the market, earn good amount of

profit and so on.

C) Social Objectives Business :

Business is a part of a social System. A social system

involves people and their Organisations in mutual relationship to
each other. Business is an integral part of society.

Following are the social objectives of business

1) Social Objectives towards Customers :

The Survival and success of any business organisation

depends on its cusumers. One universally accepted social objective
of business is to satisfy consumers by providing goods and
services as per their needs and expectations. Business activities
are essential for meeting the needs of consumers. Business have
to supplied quality good at reasonable price to the customer.

2) Social Objectives towards Employees :

The Social Objective of a business firm towards its

employees is to treat them with respect and provide them with the
right compensation and facilities. Business should provide better
wages, working conditions, good treatment to the employees. It
also provide monetary and non-monetary benefits for satisfaction of
the employees. This also ensures industrial peace and harmony.

3) Social Objectives towards shareholders :

Shareholders invest their money in the business in the form

of shares, debentures bonds etc. The basic objective is that the
shareholder should receive a fair, return on their investment. The
Objective of the business is to utilise efficiently the money of the
shareholder and give them fair return on their investment in the
form of dividend a interest.

4) Social Objectives towards Government :

A business organisation can’t function smoothly without the

support and co-operation of the Government. Hence, it becomes
necessary on the part of the organisation to fulfill its social duties
towards the government. These include payment of taxes and
duties, following the rules and regulations framed by the
 26

government from time to time, contributing towards the welfare

activities of the government and so on.

5) Social Objectives towards Suppliers :

The suppliers can play an important role in the success of an

organisation by Supplying the right quality and quantity of material
at the right time. Therefore, a business firm needs to have social
objectives towards supplier in respect of timely payment of dues.
Helping the suppliers in their financial requirements by making
advance payments.

6) Social objectives towards Dealers :

Dealers assist business firm by promoting and pushing

goods and services in the market at the right time at the right place.
It is one of the basic social objectives that goods of special quality
be produced and supplied. If this basic demand of the society is
met, the business may survive in the long run.

7) Social Objectives towards Society :

Business organisation gain profit because of the support of

the society. Naturally, they are expected to provide financial
support for various social, educational and cultural activities. This is
also necessary for maintaining cordial relations with the society.
Business organizations must also support social welfare
programmes.

D) Human Objectives of business :

One of the objectives of business is to look after the interest

of the people who make business successful. It has been widely
recognised that human beings should be treated as an individual.
Businessman should have parental approach towards human
being.

Following are the human Objectives of business.

1) Fair wages :

Employees should be treated as human beings first and then

as workers. The employees should be paid fair wages. Apart from
this, they should also be given other monetary and non-monetary
benefits, incentives and other facilities.
 27

2) Better working condition :

The working conditions provided to the employees must be

hygienic. Good lighting ventilation, good recreation facilities, better
labour management relations etc. provide a healthy work
atmosphere. This is necessary so that the health of the workers is
not adversely affected.

3) Workers participation in the management :

Workers participation in the management has been

recognised. Their representation in the management may create
healthy co-operation. The problems and disputes can be solved on
human grounds. This enables both employees and managers to
understand each other’s problems and improve relations.

4) Human Resources Development :

The management must undertake human resource

development programmes. Necessary training should be given to
the employees to improve their skills. Suitable conditions should be
created to enable them to use their latest talents like creativity,
communication skills, decision-making ability etc. This develops
their overall personality, which ultimately benefits to the
organisation.

5) Job Satisfaction :

Business enterprise should provide challenging and

interesting job opportunities to the employees. If Jobs are routine
and less challenging, then it brings boredom and may lead to
labour turnover and absenteeism. Jobs can be made more
challenging and interesting through techniques like job
enlargement, job enrichment, Job rotation etc. Some times
promotions and transfers can also be used to bring job satisfaction.

6) Motivation :

The employees should be motivated to work hard. This can

be done by offering monetary and non-monetary benefits to them.
Monetary rewards includes high salaries, housing allowance, car
allowance etc. while non-monetary incentives includes
appreciation, recognition, promotions, Job title etc.
 28

7) Welfare facilities :

The Organisation should provide to its employees proper

welfare facilities like canteen facilities, transport facilities, sports
and recreation facilities, education facilities and so on.

E) National Objectives of business :

National objectives are the more Specific objectives of

business. These are aimed at fulfillment of national needs and
aspirations. The government has to implement the national plans
and policies in accordance with the accepted priorities. Business
organisation should consider these priorities, policies and plans
making business decisions.

Following are the important national objectives of business.

1) Social Justice:

Social justice means providing equal opportunities to all,

protecting the interest of neglected, unorganised and economically
backward sections of the society and prevention of any sort of
exploitation. For example, a business organisation should do social
justice to its handicapped workers, and women employees.

2) Development of small scale industries :

Small scale industries are those that require less capital and
generate more employment. In the present era of globalization, this
sector is adversely affected; In order to boost this industry, big
business organizations should assist the growth of small scale
industries by purchasing raw material from them.

3) Self Sufficiency :

Every business organisation should make use of available

natural resources and human resources for economic development.
It should reduce the countries dependence on foreign countries by
producing goods indigenously or by promoting exports and
reducing imports.

4) Production as per National Priorities :

Business organizations must make efforts to provide the

basic requirement of life i.e. food, clothing and shelter at
reasonable prices. In other words, every business organisation
 29

should set its objectives after considering national priorities.

Secondly, efforts should be made to reduce the nation’s
dependence on foreign countries. This could be done by
undertaking production indigenously, promoting exports and
reducing imports.

5) Social welfare :

Business Organisation may also support directly or indirectly

welfare schemes in the society. The welfare schemes that business
has to adopted i.e. adopting schools in backward areas, providing
funds for rural development activities such as construction of roads,
irrigation etc. organizing health camps etc.

6) Development of Backward Areas :

Business organisation can contribute towards development

of backward areas of the nation. This can be done by setting up
industries in such areas. Also, financial and technical assistance
can be provided to units in such backward areas. The government,
too, encourages the development of backward areas by providing
lots of incentives such as tax holidays, low rates of taxation, tax
exemptions and so on.

7) National Integration and communal Harmony :

Business organisation is referred as corporate citizens.

Therefore, they should work for national integration and communal
harmony. They should not support anti-social elements or
communal forces who work against national integration. This is one
of the most important national objectives of business.

8) Creation of Employment opportunities :

Business creates employment opportunities either directly or

indirectly. In a country like India where unemployment and
disguised employment are at a very high level, it is advisable for the
industries to adopt wherever possible labour intensive techniques
so as to employ more number of people and thereby reduce the
number of people below the poverty line.