Business: Definition, Elements, Functions, Features, Objectives, Importance

Next, to love and religion, business is considered as the most significant factor influencing human life. Although Allah (SWT) created us for “Obadiah”(Worship) under the guidance of Al- Quran and Sunnah, we are madly involved in serving our desires’ provoked by the traditional business firms under their ulterior motives!

This is why human civilization there- where it should not be! And since today’s business is the business of business, the ultimate purpose of business is to create customers not to satisfy their demands or maximize their satisfaction!

Consequently, to do so business firms strive to convert human beings into ‘economic people’ who born to consume and ‘win’ in the society in the form of satisfying their material and spiritual demands.

We have been trapped by the business subconsciously but magnifying it with so-called prudence.

This is all about the prevailing business domain, not the ‘desired’ business domain as encouraged by Allah (SWT) being 80% of human ‘Rijik’(Gaming) reserves in business.

However, if we leave alone the philosophical aspects of business, and speak in the tone of business scholars, we would have to glorify it and define business as the process of creating some utilities and distributing those utilities to earn a profit and to make the customer loyal.

The process includes production/ buying and selling/distribution. More specifically .where production is absent, buying takes place.

A business cannot create any matter. The matter is the gift of nature. What business can do is simply add some utilities to the gift of nature by changing their shape, size, quality or quantity.

The utilities may be formed utility, place utility, time utility, possession utility, financial utility, and utilities against risk.

Commonly from utilities refers to production and place utilities refers to distribution.

What is Business?

What is Business?

Although the exact definition of business is a matter of debt and complexity of meaning, we would rather look at some scholars view:

Koontz and Fulmer define business as, “Any person, group company or government department or agency whose purpose is to produce or sell products or services”.

According to Keith and Carlo, “Business is a sum of; activities involved in production and distribution of goods and services for private profits.”

An n the words of Ivancevich and Skinner, “Business is of exchange of goods, services, or money for mutual benefit ai profit.”

According to Robert.N.Owens,’Business is an enterprise engaged in the production and distribution of goods for sale in the market or rendering services for profit.”

Business refers to any economic activity directed toward the creation of values for satisfying demands of the customer (people) through regular production and exchange of goods and services with the object of earning a profit.

Elements of Business

The essentials of starting a business, which is abstract, called elements of the business. Some of the elements are discussed below:

Business idea

Every business starts with an idea. The idea needs to be justified in respect of its practicability and lucrativeness.

Entrepreneurship

The birth of business requires some sort of entrepreneurship. It is equally applicable irrespective of the nature and size of the enterprise.

Forecasting

A business plan is a written description of the expected future of the business. Forecasting helps in preparing a business plan.

Organization

Land, labor and capital are the scattered means of production which are arranged, correlated and coordinated by the entrepreneur to turn the idea into reality.

Uncertainty

In the free-market economy, uncertainty is inevitable since there exits the competition in the field of production as well as in distribution.

Legality

The production and distribution i.e the business needs to be legalized. To do so, it has to go through a legal framework.

Profit-seeking motive

All activities of the business such as procurement, production or creation of utilities, distribution, etc. are guided by the profit-seeking motive i.e, a surplus of income over expenditure.

Financing

Whether large or small, every business requires two types of capital – fixed capital and working capital. Thus, the business requires ensuring finance at the lowest cost.

Research and Development (R&D)

To be ahead and increase the market share, R&D remains the only alternative for the business enterprise.

Customer Satisfaction

Business organization strife to ensure customer satisfaction through the creation of utilities.

Functions of a Business

The primary function of business is to create utilities so that it can satisfy human wants. In addition to utility creation, following are the important functions of the business:

  1. Risk-Taking Function

In a business every moment there is a chance of loss.

For example, the price of the product may fall suddenly. There is also a chance of property destruction. So an important function of a businessman is that he takes the risk and starts the business.

  1. Management

The basic function of the businessman is to manage the business. Management solves many problems like starting, operating, planning, staffing and controlling the business.

The management has to provide direction for all the subordinates.

  1. Planning

A business firm needs planning of what is to be produced. When and for whom it is to be produced.

  1. Financial Function

Money plays a very important role in business. Without capital, a businessman can not establish and expand the business.

When a firm has not a sufficient amount, it borrows the money from banks and other financial institutions to operate the business. Credit control loans, wages, purchase and sale discounts are the financial functions.

  1. Innovative Functions

Today there is stiff competition in the business market. Innovation is essential for business advancement.

A businessman keeps in view the needs and wants of the consumer, introduces new goods according to the demands of the peoples.

So he tries to find out new production techniques and new forms of business organization.

  1. Payment of Rent Wages and Interest

A businessman hires factors like land, labor, and capital to produce goods and services. He pays the reward to these factors in the shape of rent, wages, and interest.

  1. Production Function

A businessman combines the factors of production and produces the goods with the object of earning a profit. A businessman conducts this process for his profit.

  1. Use of Technology

A businessman also uses the technology and new methods of production according to the nature of his business. It increases his profit.

  1. Optimum Combination

A businessman tries to combine the factors of production in such a way that the cost of production remains at minimum and profit up to the maximum level.

  1. Improvement of quality

A businessman also improves the quality of the product to increase his sales. Otherwise, he will suffer loss.

  1. Sales Function

It is a very difficult job for the businessman because there is a hard competition in the market. Noteworthy, a businessman also performs various other duties before selling like grading, sorting, and packaging.

  1. Transportation and Communication Function

Transportation and communication functions performed by the businessman, It involves the transfer of goods from one hand to another in exchange for money.

  1. Social Function

In urban areas, pollution is increasing due to industrial expansion. So businesses should also share the cost of pollution. It is the responsibility of businesses to reduce pollution as part of social function.

  1. Sound Organization

There is a need for a sound organizational structure for the business. It will use the sources properly and will increase profit and production.

  1. Motivation

It is an important function of a business. It encourages employees to give their best performance to achieve the objectives.

To sum up, all these functions are necessary for ensuring customer satisfaction and to win in the battle of competition.

Features/Characteristics of Business

Although business organization differs in many ways, they have a common feature ‘conversion-transformation’ of inputs (resources) into outputs (goods or services).

The conversion process may be illustrated in the following Figure:

[ fig ]

In addition to conversion, the following are the common features of business concerns:

Deals in goods and services

People in business are engaged in the production and distribution of goods and services. The goods may be consumer goods like bread, butter, milk, tea, etc. or capital goods like a plant, machinery, equipment, etc.

The services may be in the form of transportation, banking, insurance, warehousing, advertising and so on.

Sale or exchange of goods and services

If a person produces or buys a product for self-consumption or for gifting it to another, he is not engaged in business. But when he produces or buys goods to sell it to somebody, he is engaged in business.

Thus, in business, the goods and services produced or purchased must be exchanged for money or goods (under the barter system between the buyers and sellers.

Without the sale or exchange of goods, the activities cannot be treated as a business.

Regular exchange of goods and services

The production or buying and selling activities must be carried out regularly. Normally, an isolated transaction is not treated as a business.

For example, if Adam sold his old Toyota car to Moses, it is not considered as business, unless he continues to carry the buying and selling of cars regularly.

Requires investment

Every business activity requires some amount of investment in terms of land, labor or capital. These resources are utilized to produce a variety of goods and services for distribution and consumption.

Aims at earning profit

Business activities are performed with the primary objective of earning income by way of profit.

Without profit, it is not possible to survive for a long period. Earning of profit is also required to grow and expand the business.

Involves risk and uncertainty of income

We know that every business aims at earning a profit. The businessman who invests the various resources expects a fair amount of return.

But, in spite of his/her best effort, the reward he/she gets is always uncertain.

Sometimes he/she enjoys profits and also times may come when he suffers heavy losses. This happens because the future is unpredictable and businessman has practically no control over certain factors.

Business Objectives/Goals

It is generally believed that a business has a single objective, that is, to make a profit. But it cannot be the only objective of a business.

While pursuing the objective of earning a profit, business units do keep the interest of their owners in view.

However, any bush ess unit cannot ignore the interests of its employees, customers, the community, as well as the interests of society as a whole.

For instance, no business can prosper in the long run unless fair wages are paid to the employees and customer satisfaction is given due importance.

Again a business unit can prosper only if it enjoys the support and goodwill of people in general.

Business objectives also need to be aimed at contributing to national goals and aspirations as well as towards international well-being.

Thus, the objectives of business may be classified as:

  1. Economic Objective.
  2. Social Objectives.
  3. Human Objectives.
  4. National Objectives.
  5. Global Objectives.

Economic Objectives

Economic objectives of business refer to the objective of earning profit and also other objectives that are necessary to be pursued to achieve the profit objective, which includes the creation of customers, regular innovations and the best possible use of available resources.

Economic objectives also include;

  • Growth and Expansion
  • Exploration of new market
  • Better service to retain an existing customer
  • R & D
  • Adoption of the latest technology
  • Targeted return on investment

Social Objectives

In the words of Henry Ford, “The primary objective of business should be service and its subsidiary aim should be earning of profits”. That means the focus is on the social objectives of a business.

And social objectives are those objectives of a business, which are desired to be achieved for the benefit of society. Since business operates in society by utilizing its scarce resources, society expects something in return for its welfare.

No activity of the business should be aimed at giving any kind of trouble to society.

If business activities lead to socially harmful effects, there is bound to be a public reaction against the business sooner or later.

Social objectives of business include production and supply of quality goods and services, adoption of fair trade practices and contribution to the general welfare of society and provision of welfare amenities.

Other social objectives are:

  • Sufficient return to investors.
  • Protecting the interest of stakeholders.
  • Avoiding unfair tax and VAT practice.
  • Paying a fair dividend to shareholders.
  • Protecting the environment.

Human Objectives

Human objectives refer to the objectives aimed at the well­being as well as the fulfillment of expectations of employees as also of people who are disabled, handicapped and deprived of proper education and training.

The human objectives of business may thus include the economic well-being of the employees, social and psychological satisfaction of employees and development of human resources.

The human objective also includes:

  • To provide an opportunity for employees to participate in decision making relating to heir interest.
  • To ensure fair wages and incentives
  • To provide a better working environment to employees
  • To ensure growth opportunities to employees

National Objectives

Being an important part of the country, every business must have the objective of fulfilling national goals and aspirations.

The goal of the country may be to provide employment opportunities to its citizens, earn revenue for its exchequer, become self-sufficient in the production of goods and services, promote social justice, etc.

Business activities should be conducted keeping these goals of the country in mind, which may be called the national objectives of a business.

Thus in Bangladesh, a business organization should have the following national objectives:

  1. Development of entrepreneurship.
  2. Production based on national priorities.
  3. National self-sufficiency and export promotion.

Global Objectives

Earlier socialist countries had a very restricted business relationship with other nations. There was a very rigid policy for the import and export of goods and services.

But, nowa­days due to liberal economic and export-import policy, restrictions on foreign investments have been largely abolished and duties on imported goods have been substantially reduced.

This change has brought about increased competition in the market. Today because of globalization the entire world has become a big market.

Goods produced in one country are readily available in other countries.

So, to face the competition in the global market every business has certain objectives in mind, which may be called the global objectives.

Thus, we may sum up, in the words of Urwick, “Earning of profits cannot be the objective of a business any more than eating is the objective of living. Rather, all business organizations should ensure sufficient effort to achieve the above objectives of a business.”

Importance/Role of Business in Socio-Economic Development of a Country

Business is the process of creating wealth under the incentive of private gain. It leads to innovations and improvements to enrich the lives of people.

Based on it, the importance of business can be discussed in the following ways;

Supplier of goods and services

Business firms supply goods and services to society.

Utilization of resources

It utilizes the resources of society for the production of goods and services.

Capital formation

Business firms are responsible for capital formation in the economy.

Employment generation

Providing employment opportunities to a large number of members of society, business firms increase total national income.

Standard of living

Supplying better quality of goods and services, the business helps in improving the standard of living.

Government revenue

Business firms provide tax revenue to the government of the country and enable it to undertake development projects and programs for the welfare of the citizens.

Social justice

Employees of the business firms spend a major part of the active lives in the organization.

In return ensuring a safe, healthy and humane work environment for the employers, some organizations are ensuring social justice.

Encouraging creativity and growth

In its interest, some business organizations encourage the creativity of employees which leads to their career growth and advancement.

Creating a scope for high caliber (freedom seeker):

Those people, who are high caliber in nature, freedom seeker and who bring about changes in the society and economy are allowed to step towards their way through the business.

Changes in benchmarking

The concept of benchmarking is no more limited to the national boundary, it goes to a global perspective.

As a result, local firms are to compete internationally. Since their benchmark is international.

Prerequisites of a Successful Business Organization

Business profit is not only the output of entrepreneurial effort; it is the logical sequence of favorable factors called prerequisites of business profit.

Let us for those:

  1. Market Condition.
  2. Availability of Capital.
  3. The scale of Production.
  4. Form of Organization.
  5. Selection of Location.
  6. Government Policy.
  7. Concessions.
  8. Availability of Raw Material.
  9. Availability of Labor.
  10. Availability of Machines.
  11. Means of Transportation and Communication.
  12. Administrative Conditions.
  13. Formulation of Business Policy.

Market Condition

First of all, businessmen keep in view tho demand for the goods which he wants to produce and keeps in view his skill and experience.

If the demand is inelastic then chances of success are bright.

Availability of Capital

Capital is considered an important factor in the business. It is required for the purchase of land, machines, and wages and raw material.

A businessman has to decide before starting the business how much capital he can arrange.

The scale of Production

Before starting the business a businessman also decides that he has to produce the goods on a small scale or large scale. He makes the decision keeping in view the availability of capital and demand for the goods.

Form of Organization

A businessman also to decide about the form of organization. He may start the business as a sole proprietor or ai a partnership or in the form of a joint-stock company.

Selection of Location

A businessman selects the place for business keeping in view the availability of raw material cheap labor and transportation.

If these things are easily available then he will start the business there.

Government Policy

The attitude of the government towards the business is also considered by the businessman. If Govt, is encouraging the business then it will be profitable for the businessman.

Concessions

Sometimes the government provides loans on a low rate of interest to particular industries. Sometimes tax holiday is provided in particular areas.

So a businessman also considers the government, concessions before starting the business.

Availability of Raw Material

A businessman should also keep in view the availability of raw material. If it is imported from the other countries then it may create problems for him.

Availability of Labor

Before starting the business, a businessman should also consider the availability of labor. If skilled and efficient labor is not available then the business will not be profitable.

Availability of Machines

A businessman should also examine that machines required for the business are available inside the country or not. If these will be imported then the government will provide the foreign exchange or not.

Means of Transportation and Communication

If the means of transportation are quick and cheap then the cost of production will be low and the rate of profit will be high.

The expansion of the market also depends upon the quick and cheap means of production.

Administrative Conditions

The success of a business depends upon the administration. If the administration is efficient and capable then the rate of profit will be high in the business.

So a businessman should pay proper attention to the administrative aspect of the business.

Formulation of Business Policy

A businessman also frames the policy about the methods of payments, receipts, and techniques of production. These are very essential for a successful business.