Nature and Objectives

of Business

ttARNlNG OBJECTIVES
After studying this chapter, you should understand:
Definition and Concept of Business
Characteristics of Business
2.3 Necessityof Business
2.4 Business as an EconomicActivity
2S Objectivesof Business
2.6 Role of Profit in Business
2.7 Objections against Profit Maximisation

In the literal sense, the term "Business" means the state of being busy. But it is a very
wide connotation of business because it covers every human activity. Business is really
concerned with the production and exchange of goods and services with the aim of earmng
money. Business creates utilities by producing and selling goods and services to satisfy
human wants.

2.1 DEFINITION ANDCONCEPT OF BUSINESS

Business is an activity, in which different persons exchange something of value.
whether goods or services, for mutual gain or profit. It is an organised or systematic actiuty
involving the satisfaction of human wants. Business involves regular or recumng purchase
and sale of goods and services with the purpose of earning profits through the satisfaction
of human needs. Repeated dealings rather than a single isolated transaction constitute
business. Business may be distinguished from other activities by the fact that goods and
services created or purchased are meant for sale and not for personal consumpuom

Definitions of Business
Various experts have defined business in different ways. Some of the popular
definitions of business are given below:
Jlaney "Business may be defined as a human activity directed touards prvxiucing
"
or acquiring wealth through buying and selling of goods
15
 16 ISC COMMERCE FOR CLASS
B.(). Wheeler "Business is an institutionorganised and operated to provide goods
and services to society under the incentive of private gain."
with the ObjectiveOf
L.R. I)ick.sce"Business is a form of activity pursued primarily conducted."
is
earning profits for the benefit of those on whose behalf the activity
earning profits are termed
James Stephenson "Economic activities performed for
as Business".
involved in the production and
Keith and Carlo "Business is a sum of all activities
distribution of goods and services for private profits"
makes, distributes or provides
Urwick and Hunt "Business is any enterprise which
of the community need and are able and
any article or service which the other members
willing to pay for".
production and distribution
R.N. Owens. "Business is any enterprise engaged in the
of goods for sale in market or rendering services for a price."
and industry, the basic
F.C. Hooper. "The whole complex field of commerce services,
ancillary
industries processing and manufacturing industries and the network of
interpenetrate the
distribution,banking,insurancetransportand so on which serve and
world of business as a whole".
These definitions highlight the different aspects of business. Haney's definition
includes goods only but rendering of service is also a part of business. Wheeler considers
private gain as the sole motive of business whereas some business activities like public
utility services are undertaken primarily for the benefit of society. Definitions of (Jr-wick,
Ilunt and Ownes focus on providinggoods and services to people for a price. Hooper
has tried to enumeratevarioustypes of business activities. His definition appears to be
comprehensive but does not point out the purpose of business.
Business may be defined as an economic activity which involves regular transfer or
exchange of goods and services for a price with the object of earning profits and acquiring
wealth through the satisfaction of human wants, with an element of risk.

2.2 CHARACTERISTICS OF BUSINESS

The salient features of business are given below:
I. Creation of utilities. Businessmakes goods more useful to satisfy
human wants.
It adds time, place, form and possession utilities to various
types of goods. In the words
of Roger, "a businessexists to create and deliver value
satisfaction to customers at a
profit". Business enables people to satisfy their wants
more effectively and economically.
It carriesgoods from place of surplus to the
place of scarcity (place utility). It
goods available for use in future through makes
storage (time utility).
2. Dealings in goods and services.
Every business enterprise produces
goods and services for selling them to and/or buys
others. Goods may be consumer
goods. Consumer goods are meant for goods or producer
direct use by the ultimate
tea, shoes, etc. Producer goods are consumers, e.g., bread,
used for the production
like raw materials, machinery, etc. of consumer or capital goods
Services like transport,
etc. may be considered as intangible warehousing, banking, insurance,
and invisible goods.
selling of goods by overcoming Services facilitate buying and
various hindrances in
trade.
NATUREAND OBJECTIVES OF BUSINESS 17
3. Continuity in dealings. Dealings in goods and services become business only
if undertaken on a regular basis. According to Peterson and Plowman, "a single isolated
transaction of purchase and sale will not constitute business. Recurring or repeated transaction
of purchase and sale alone mean business." For instance, if a person sells his old scooter or
car it is not business though the seller gets money in exchange. But if he opens a shop and
sells scooters or cars regularly, it will become business. Therefore, regularity of dealings is
an essential feature of business.
4. Sale, transfer or exchange. All business activities involve transfer or exchange
of goods and services for some consideration. The consideration called price is usually
expressedin terms of money. Business delivers goods and services to those who need
them and are able and willing to pay for them. For example, if a person cooks and serves
food to his family, it is not business. But when he cooks food and sells it to others for a
price, it becomes business. According to Peter Drucker "any organisation that fulfils itself
through marketing a product or service is a business".
5. Profit motive. The primary aim of business is to earn profits. Profits are essential
for the survival as well as growth of business. Profits must, however, be earned through
legal and fair means. Business should never exploit society to make money.
6. Element of risk. Profit is the reward for assuming risk. Risk implies the uncertainty
of profit or the possibility of loss. Risk is a part and parcel of business. Business enterprises
function in uncertain and uncontrollable environment. Changes in customers' tastes and
fashions, demand, competition, Government policies, etc. create risk. Food, fire, earthquake,
strike by employees, theft, etc. also cause loss. A businessman can reduce risks through
correct forecasting and insurance. But all risks cannot be eliminated.
7. Economic activity. Business is primarily an economic activity as it involves production
and distribution of goods and services for earning money. However, business is also a social
institution because it helps to improve the living standards of people through effective utilisation
of scarce resources of the society. Only economic activities are included in business. Non-
economic activities do not form a part of business.
8. Art as well as science. Business is an art because it requires personal skills and
experience.It is also a science because it is based on certainprinciplesand laws.
The above mentioned characteristics are common to all business enterprises
irrespectiveof their nature, size and form of ownership.
Characteristics of Business at a Glance
1. Creation of Utilities
2. Dealings in Goods and Services
3. Continuity in Dealings
4. Sale, Transfer or Exchange for Price
5. Profit Motive
6. Element of Risk
7. Economic activity
8. Art as well as Science
18 ISC COMMERCE FOR CLASS
2.3 NECESSITY OF BUSINESS
Business is needed due to the following reasons:
1. To remove poverty. The economic development of a country depends upon the
growth of business. Industry, trade and other business activities generate wealth and add
to national income. A country may have abundant natural resources. But it will remain
poor until these resources are utilised productively. Business enterprises make productive
use of national resources so that per capita income of people can increase. Business also
makes effective use of technological improvements to create wealth.
2. To generate employment. The number of persons who seek jobs is rapidly
increasing. In a country like India, agricultural sector is already over-burdened and
unemployment has become a serious problem. Business offers employment to millions
of people. There is unlimited scope for employment in industry and trade due to the vast
range of business activities.
3. To improve standard of living. Business helps to increase the purchasing power
of people. It provides them a wide range of products and services to satisfy human wants.
Business firms provide information and education to consumers through advertisements and
other means. People can enjoy new and better products to improve their living standards.
Increase in consumption increases demand and production thereby contributing to further
progress of the country.
4. To earn foreign exchange. A country can not produce everything needed by its
people. It has to import certain items for which foreign currency is required. Business
helps to earn foreign exchange through exports. It helps to reduce pressure on the country's
balance of payments and enables a nation to achieve economic independence. A country can
obtain supplies of food and other essential products which it does not produce. Similarly,
a country can sell its surplus output to other countries.
5. To promote social welfare. Business can enrich human life and establish a better
society. In the course of business activities people belonging to different religions, castes
and regions come to one another. Business dealings between nations provide socially
useful, culturally desirable and politically significant movement amongst people. Business
enterprises assist the community in public health, education and other socially useful
programmes.Tnthis way business contributes to art, culture and peace in society.
Human beings have several wants which go on increasing day by day. In order to
satisfy their ever increasing wants, people require various types of goods and services.
Business activities are essential for production of these goods and series and for their
distribution among ultimate consumers. Business creates utility for satisfaction of humans
-wants. It makes proper allocation and utilisation of natural, financial and human resources
for the economic growth of the country and for the welfare of society. It helps nations
overcome geographical barriers. It facilitates mutual understanding between people and
international cooperation. In fact, modern and civilised life cannot be possible without
business.
In the words of wheeler, "business—likeweather is with us everyday. Buying and
selling, hiring and firing, producing and financing, these are but a few of the many business
activities which daily influence the lives of all of us directly or indirectly."
NATUREAND OBJECTIVES OF BUSINESS 19
The study of business is important to know the position of economic development
in a country. The study of business activities helps a person to take better decisions. One
can be better customer, employee and investor if one is familiar with business enterprises
and their operations. A formal study of business can enable a person to launch his own
business.
2.4 BUSINESS AS AN ECONOMIC ACTIVITY
Business is regarded as an economic activity due to the following reasons:
1. The object of business is to sell goods or services for Profit. Economic activities
are those activities which are undertaken to generate an income. Business is an economic
activity because it is carried on as a means of earning money. Businessmen make money
by producing and selling commodities which help to satisfy human wants. For example,
a farmer who grows vegetables for the consumption of his family is not engaged in
business. But a farmer who grows vegetables for the purpose of selling them in the market
is undertaking a business. His object is to earn income in excess of the cost of growing
vegetables. This excess of income over expenditure is called profit. The chief end of any
business enterprise is generation of profit and wealth.
2. Business Activities Involve Use of Scarce Resources. Business activities require
use of scarce resources such as raw materials, labour, capital and other factors of production.
A businessman provides the necessary funds from his personal and other sources to meet
the capital requirements of his business. He arranges for the raw materials from the
suppliers required to produce the goods. He employs labour to assist the production. Thus,
a businessman has to produce goods utilising various scare resources.
3. Business Activities Satisfy Needs of the Public and of Businessmen. Business
activities satisfy the needs of the public by making available goods and services. Public
can buy these goods and services and satisfy their needs. Business is a source of income
for the businessman. With the help of this income he can satisfy his needs as well as the
needs of his family members.
Thus, business may be regarded as an economic activity both as a means of generating
an income and also as a means of satisfying the wants of society.
2.5 OBJECTIVES OF BUSINESS
Every business enterprise has certain objectives which regulate and generate its
activities. Objectives are needed in every area where performance and results directly affect
survival and prosperity of a business. Various objectives of business may be classified into
four broad categories as follows .
OBJÉCtiVÉ OF BUSINESS

Human National
Economie SOOjäl
objectives
objectives Objeetives Objeotives

Business is basically an •economic activity. Therefore, its primary objectives are

20 tgc„ COMMERCE

economic in nature. 1hc tuain economic otycc0veq of busjncs« arc ag follows:

(i) profits, A bustnc«s cntctprjsc is established Corearning sornc
It is the hope of corning profits that inspirc« people to start busmcss. profit
csscntial for the survival of every business unit. Just as a person cannot
without food, a business firm cannot survive without profit. Profits enable
businessman to stay in business by maintaining intact the wealth producing
growth
capacity of its resources. Profit is also necessary for the expansion and
the modernisation and
of business. Profits ensure continuous flow of capital for
barometer
extension of business operations in future. Profit also serves as the
of stability, efficiency and progress of a business enterprise.
the force of nature
(ii) Creating customers. Profits are not created by God or by
and wants of
They arise from the businessman's efforts to satisfy the needs
enough CUStomers
customers. A businessman can earn profits only when there are
of Drucker, "There
to buy and pay for his goods and services. In the words
customer. The
is only one valid definition of business purpose; to create a
to supply
customer is the foundation of business and keeps it in existence. It is
to a business
the customer that society entrusts wealth-producing resources
value for their
enterprise". No business can succeed without providing customers
customers.
money. Business exists to satisfy the wants, tastes and preferences of
services
In order to earn profit, business must supply better, quality goods and
at reasonable prices. Therefore, creation and satisfaction of customers is an
important economic objective of business. Business creates customers through
advertising and salesmanship. It satisfies the needs of customers by producing
the required goods and services and by creating utilities.
(iii) Innovations. Business is an organ of dynamism and change. In these days of
competition a business can be successful only when it creates new designs,
better machines, improved techniques, new varieties, etc. Modern science and
technology have created a great scope for innovation in the business world.
Innovation is not confined to the invention of a new machine. It comprises all
efforts made in perfecting the product, minimising the costs and maximising
benefits to customers. It involves improvements in management, production,
selling servicing, methods of personnel and accounting, etc. Business firms
invest money, time and efforts in Research and Development (R&D) to introduce
innovations. They develop new technology, introduce new designs and new
tools and processes to minimise costs and to satisfy ever increasing wants of
customers. Jn order to create customers business has to explore new markets and
attract more customers. It has also to retain old customers by providing better
services to them.

2. Social Objectives
Business does not exist in a vacum. It is a part of society. It cannot survive and grow
without the support of society. Business must therefore discharge social responsibilities
in addition to earning profits. According to Henry Ford, "the primary aim of business
should be service and subsidiary aim should be earning of profit". The social objectives
NATURE AND OBJECTIVES OF BUSINESS 21
of business are as follows:
(i) Supplying desired goods at reasonable prices. Business is expected to supply
the goods and services required by the society. Goods and services should be
of good quality and these should be supplied at reasonable prices. It is also the
social obligation of business to avoid malpractices like boarding, blackmarketing
and misleading advertising.
(ii) Fair Remuneration to employees. Employees must be given fair compensation
for their work. In addition to wages and salary a reasonable part of profits
should be distributed among employees in recognition of their contributions.
Such sharing of profits will help to increase the motivation and efficiency of
employees. It is the obligation of business to provide healthy and safe work
environment for employees. Good working conditions are beneficial to the
organisation because these help to improve the productivity of employees and
thereby the profits of business. Employees work day and night to ensure smooth
functioning of business. It is, therefore, the duty of employers to provide hygenic
working and living conditions for workers.
(iii) Employment Generation. Business should provide opportunities for gainful
employment to members of the society. In a country like India unemployment
has become a serious problem and the Government is unable to offer jobs
to all. Therefore, provision of adequate and full employment opportunities
is a significant service to society. If unemployment problem increases, the
socioeconomic environment cannot be congenial for the growth of business
activities.
(iv) Fair return to investor. Business is expected to pay fair return to shareholders
and creditors in the form of dividend and interest. Investors also expect safety
and appreciations of their investment. They should be kept informed about the
financial health and future prospects of business.
(v) Social welfare. Business should provide support to social, cultural and religious
organisations. Business enterprises can build schools, colleges, libraries, dharam
shalas, hospitals, sports bodies and research institutions. They can help non-
government organisations (NGOs) like CRY, Help Age, and others which render
services to weaker sections of society.
(vi) Payment of Government Dues. Every business enterprise should pay tax
dues (income tax, sales tax, excise duty, customSduty, etc.) to the government
honestly and at the right time. These direct and indirect taxes provide revenue
to the Government for spending on public welfare. Business should also abide
faithfully by the •lawsof the country.
Thus, businessmen should pursue those policies and take those actions which
are desirable in terms of the objectives and values of our society.

3. Human Objectives
Business is run by people and for people. Labour is a valuable human element in
business. Human objectives of business are concerned with the well-being of labour. These
objectives help in achieving economic and social objectives of business. Human objectives
 22 ISC COMMERCE FOR CLASS
of business are given below:
labour and human
(1) Labour welfare. Business must recognise the dignity of
should be provided
factor should be given due recognition. Proper opportunities
of workers. Adequate
for utilising individual talents and satisfying aspirations
social security. Business
provisions should be made for their health, safety and
to workers.
should ensure job satisfaction and sense of belonging
be provided the opportunities
(it) Developing human resources. Employeesmust
resources are the most valuable
for developing new skills and attitudes. Human
in the growth of business.
asset of business and their developmentwill help
self-development of workers by encouraging creativity
Business can facilitate
skilled manpower is necessary for
and innovation among them. Development of
the economic development of the country.
should be allowed to take part in decision
(iii) Participative management. Employees employees.
the development of
making process of business.This will help in
information to management for
Such participationwill also provide valuable
participation in management will
improving the quality of decisions. Workers'
usher in industrialdemocracy.
should strive for creating and
(iv) Labour management cooperation. Business ensure peace and
maintainingcordial employer employee relations so as to
individuals
progress in industry. Employees should be treated as honourable
and should be kept informed.

4. National Objectives
National objectives of business are as follows:
(D Optimum utilisation of resources. Business should use the nation's resources
in the best possible manner. Judicious allocation and optimum utilisation of
scarce resources is essential for rapid and balanced economic growth of the
country. Business should produce goods in accordance with national priorities
and interests.It should minimise the wastage of scarce natural resources.
(it) National self-reliance. It is the duty of business to help the government in
increasing experts and in reducing dependence on imports. This will help a
country to achieve economic independence.This requires development of new
technology and its application in industry.
(iii) Developmentof small scale industries. Big business firms are expected to
iiii'-
encourage growth of small scale industries which are necessary for generating
employment.Small scale firms can be developed as ancillaries which provide
inputs to large scale industries.
(iv) Development of backward areas. Business is expected to give preference
to the industrialisationof backward regions of the country. Balanced regional
development is necessary for peace and progress in the country. It will also
help to raise standardof living in backward areas. Government offers special
incentives to the businessmenwho set up factories in notified backward areas.
(v) Control over pollution. Rapid industrialisationhas resulted in air, water and
noise pollution. Business is responsible for reducing the adverse effect of
NATUREAND OBJECTIVES OF BUSINESS 23
business on the quality of life. It must make proper arrangements for the disposal
of smoke, emuents, wastes, etc. to protect the health and life of people, animals
and birds.

Business Objectivesat a Glance

Economic Social objectives Human Objectives National Objectives
Objectives
l. Earning Profit l. Quality goods at l. Labour welfare 1. Optimum utilisation
fair prices of resources
2. Creating 2. Fair remuneration 2. Developing 2. National self-reliance
customers to employers Human
Resources
3. Innovations 3. Generating 3. Participative 3. Development of small
employment management business
4. Fair return to 4. Labour 4. Developmentof
investors management backward areas
Cooperation
5. Social welfare 5. Pollution control
6. Payments of taxes

2.6 ROLE OF PROFIT IN BUSINESS

Profit earning is essential in business due to the following reasons:
I. Incentive. Profit is the driving force behind every business. It inspires people
to start an enterprise and to work hard for making it successful. Profit is the reward for
undertaking the risk of business.
2. Survival. Profit is essential for the survival of business and it ensures the continuity
of an enterprise. In the absence of profits, an enterprise will eat up its own capital and
ultimately close down. With the help of profits business can replace obsolete machinery
and equipment and thereby maintain its capacity to create wealth. According to Drucker,
"profit is the risk premium that covers the costs of staying in business". Profits help
business to face trade cycles and other shocks. Profits are also required to reward various
factors of production.
3. Growth. Profits is the biggest source of capital for expansion and growth of
business. It serves as a means of self-financing. In addition, profits enable business to
attract capital from outside. Nobody likes to invest money in a loss making enterprise.
4. Measure of efficiency. Profit is considered to be the index of success in business.
People judge the performance of an enterprise on the basis of profits earned by it.
5. Prestige and recognition. A loss making business enjoys no goodwill. Profits
provide economic power and status to businessmen. Higher profits increase the bargaining
strength and credit worthiness of business. Moreover, only a profit making business can
provide service to society.
 ISC COMMERCE FOR CLASS
24

Incontlvo

Survival
Efficiency

Profits

Prostlgo Growth

desirable objective of every business. But

and
Thus, profit earning is an essential to Drucker, "the problem of any business
According
mere money chasing is not business. of sufficient profits to cover
the risks
but the achievement
is not the maximisationof profit The businessmen who keep their CUStomers,
avoid loss.
of economic activity, and thus, to definitely earn goods profits". Urwick
society satisfied, will
employees, investorsand the motive in business as. "earning of profits
of profit
has very aptly summed up the relevance eating is the objective of living". A
any more than
cannot be the objective of a business cannot live without food. But profits
profit just as a person
business cannot survive without the aim of life. Hoivever, profits
of business just as eating is not
cannot be the sole purpose
by satisfying the wants of customers and after paying workers their dues.
must be earned has
the words of Arvind Mafatlal, "no business or industry is run philanthropically. It
In
cannot be at the expense of labour and
to make a profit for further growth. But this profit
the community at large"
contradictory. They go hand
Economic and social objectives of business are not
satisfying customers and
in hand in the long run. No business can earn profits without
without earning profits.
other sections of society Similarly, business cannot render service
consumers,
Thus, the real objective of business is to earn profit by serving the interests of
employees, investors, Government and the society as a whole.

2.7 OBJECTIONS AGAINST PROFIT-MAXIMISATION

Despite their indispensablerole in business, profits cannot be the be-all and end-all
of business.The profit maximisationobjective is undesirable on account of the following
reasons:
1. Profit maximisation overstresses the end result and overlooks the means employed
to achieve the profits. It considers profit as the ultimate goals of business rather than a
means to the real end. The ultimate aim of business should be social welfare. If profit
maximisationis consideredas the ultimate aim of business, businessmen might try to
maximise profits by socially undesirable means such as profiteering, black-marketing,
hoarding, exploitation of workers and consumers, etc.
2. Profit maximisationoverstresses the reward for owners and ignores the interests
of other stakeholders.Profit is the reward for capital and profit maximisation gives the
NATUREAND OBJECTIVES OF BUSINESS 25
impression that a business concern is the domain only of owners. In reality, no business
can succeed without the fullest co-operation of labour, consumers, Government and the
community at large. Profit maximisation objective overlooks the stake of these groups in
business.
3. Profit maximisation misguides managers to the point where they may endanger the
survival of the business. In order to maximise current profits, managers may undermine
the firm's future. They may ignore research and development, executive development,
pushing of the most easily saleable products, and other long-term investments. Such
activitiesthreaten the long-term success of the enterprise.
4. Profit maximisation has capitalistic overtones. The advocates of socialism decry
the goal of profit maximisation on the ground that profit maximisation results in the
exploitationof poor by the rich. It also accentuatesinequalitiesin the distributionof
income and wealth.
5. Profit maximisation is inconsistent with the modern trends in business. Diffusion of
share ownership, professionalisation of management, growth of institutional shareholding
and the emergency of a distinctive technostructure are some of these trends. The main goal
of the technostructure(control by managers and technologists),is survival and growth
of business. Profit maximisation may endanger long term growth and, therefore, the
technostructure prefers long-term growth. These professionals regard profit maximisation
as unrealistic,inappropriateand even immoral.
A t-uly successful business can be built only if the objective of "service to the society"
is constantly followed. If this is done profits will come automatically,but if the whole
emphasis is on making money business may not survive and succeed for a long period.
The guiding principle of business should be profit through service. Every business should
provide a proper balance between profit motive and social service.

SUMMARY