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What is business? What are the objectives of a business?

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Business

In simple terms business refers to a person’s regular occupation, profession or trade. A ‘Person’ can be anyone like an individual, company, society or HUF etc. In other words business is state of being busy in a professional work. A business can be any activity including or consisting of purchase, sale, manufacture, processing, marketing of products or services etc.

People generally think that business is all about profit but in reality it is more than that. Profit is a share or reward for the owner for investing in the business and taking risks, it is like wages for the workers. Profit is often regarded as the overall measure of performance or financial yardstick for evaluating business efficiency and managerial competence. In fact outside investors also equate profit with the degree of business efficiency and managerial competence and on that basis they commit their funds or take decisions for investment. Higher the efficiency the greater is the level and volume of profit.

Peter F Drucker drew two important conclusions about what is business.

  1.  Business is created and managed by people. There will be a group of people who will take decisions that will determine whether an organization is going to prosper or decline, whether it will survive or will eventually perish. This is true of every organization.
  2. Second conclusion he has drawn is that business can not be explained in the term of profit. Profit maximization in simple terms is selling at higher price than the cost. Profit maximization is a long term perspective and it is, of course, one of the goals or objectives of business but it is not the sole objective. Wealth maximization is now given the equal importance and it includes several non financials factors such as goodwill, social factor etc.

Objectives of a Business

A business has many objectives and purposes and one of them is to create customer. A customer is the foundation of the business and keeps it in existence. A business exists and functions for catering to the material needs and requirements of society within the framework of general considerations of social interest. Business is society’s organ of economic growth, expansion and change.

A  business enterprise has several objectives and some of them like profitability, productivity, growth, technological strength and dynamism, stability, survival, financial efficiency, diversification, employee satisfaction and welfare and so on can be identified as business objectives pursued by a large numbers of business enterprises.

Here we will discuss few but most important objectives of businesses.

  1. Survival Survival is the basic, implicit objective of most organization. Survival is obvious objective but it gains more value during the initial stage of an establishment or during the economic adversity.  The ability to survive is a function of the nature of ownership, business competence of management, financial strength of organization, general and industry conditions etc. However the survival is not the final destination. Enterprises are interested in more than mere survival.

  2. Stability – Stability is one of the most important objective of business enterprises. It is a cautious and conservative objective. Stability provides the foothold of business enterprise which gives enterprises an opportunity to concentrate on strength, weakness, opportunity and threats. We can say that in a sense stability is a least expensive and risky objective in terms of managerial time, talent and other resources. Stability minimizes managerial tensions, and demands less dynamism from managers. It is strategy of least resistance in a hostile external environment.
  3. Growth – Growth is another one of the most important objectives. Growth could be equated with dynamism, vigour, promise and success. Enterprise growth may take one or more of the forms like increase in assets, manufacturing facilities, increase in sales volumes in existing products or through new products, improvement in profits and market share, increase in manpower employment, acquisition of other enterprises etc. Growth may take the enterprise along relatively unknown and risky paths full of promises and pitfalls.
  4. Efficiency – Efficiency is the key to success for any organization. Business enterprise seek efficiency in rationally choosing appropriate means to achieve their goals, doing things in the best possible manner and utilizing resources in a most suitable combination to get highest productivity. Efficiency is an economic version of the technical objective of productivity -designing and achieving suitable input output ratios of funds, resources, facilities and efforts. Efficiency is a very useful operational objective.
  5. Profitability – It is generally asserted that profit is the sole motive of a company, this is not true. Many a time, it is considered that private sector exists only for profit motive. Profitability is one of important objective of business but not the sole objective. Profit is like a reward to the owners who have invested his/her funds in the business. Even though we should know that corporate social responsibility is a core function of all organization.

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