BUSINESS ORGANISATION

Unit 1
Business Essentials: Business means Busi-ness and refers to work, efforts, and act of human in
connection with production of wealth. Business is sum total of activities which are connected
with the production or purchase and sale of good and service to earn profit. Business essentials
include all of the human activities that contribute to the success or failure of a business.
Concept of Business
1 Profit oriented concept of Business: According to this concept business is a wealth
producing or profit making economic activity. Also, known as traditional concept of the
Business.
2 Customer oriented concept of Business: According to this concept business should be
done for mutual benefits of both business organizations & customers. Business should
earn profits through service and satisfaction of the customers. Customer is the king of the
market.
3 Social or Modern eclectic concept of Business: This concept emphasis on social
responsibility of business. Societal concept of business holds that every business
organization should determine the needs, wants and interest of the customers and deliver
the desired satisfactions effectively & efficiently in such a way that contributes to the
customer’s and society’s well being.
Nature of Business: The nature of businesses is changing very quickly.
 The people, who are engaged in business, must have to cope with the changing
environment because the people’s attitudes, habits, testes, likes and dislikes, norms,
beliefs, values, perceptions and motives are changing with the change of time.
 Profit earning cannot be the sole motive of business activity. Businessmen do have a
social responsibility too that must be met. 
 Business organizations produce goods and services to generate profit but such activities
create impact on society as well as the whole community. The responsibility of
businessman is to provide the goods and services in a way which is not harmful to the
society e.g. by
o Sale or exchange of goods and services.
o Regularity or continuity of dealing
o Profit motive
o Risk and uncertainty
o Social Objectives
Scope of Business: The scope of business is very comprehensive
a) It encompasses all human activities, which tend to satisfy needs and wants of the human
beings living in a society.
Human Activities can be classified into two categories viz.
1. Economic Activities and
 2. Non-Economic Activities.
Economic Activities: The Activities related to production, Exchange, distribution
and consumption of wealth are known as Economic Activities. These Activities
may be undertaken to produce something for or consumption or to earn income to
buy goods from the market. For example- A doctor attends to his patients and a
shopkeeper selling goods to his customers.
Non-Economic Activities: All human activities which are related to wealth or
assets are known as non economic activities. Those activities which are related to
social welfare are termed as non-economic activities. These activities takes
initiatives to satisfy sentimental pleasures.. Activities involved are social, charity,
etc.
Type of Economic Activities
1) Profession: The term profession refers to the activities which require special
knowledge and skill to be a master by individuals in their work for a living. For
example-Doctors are engaged in medical profession, Lawyers are engaged in
legal profession, teachers are engaged in teaching profession etc.
2) Employment: When a person works regularly for another person and gets
salary in return he is said to be in employment. For example- companies appoint
managers, hospitals appoint doctors or any enterprise appoints employees.
3) Business: The term business means the state of being busy. Business refers to
a set of organised activities for production of various goods and services and their
exchange for money. This way business creates utilities by producing and selling
goods and services to satisfy human wants. Thus business includes all activities
connected with production, trade, banking, insurance, finance, agency,
advertising, packaging and other related activities.
b) A large part of the business is concerned with providing the final or finished products or
goods to the desired people.
c) Business is universal and everywhere.
d) It is essential to ensure the production and distribution of goods and services to satisfy
the economic wants of people at a profit.
Classification of Business Activities: Business activities may broadly be classified into two
categories namely
1 Industry: Industry is concerned with the making or manufacturing of goods. It is that
constituent of production which is involved in changing the form of goods at any stage from
raw material to the finished product, e.g., weaving woolen yarn into cloth. Thus, industry
imparts ‘form utility’ to goods.
A) Classification of Industries: Industries may be classified as to the types of goods
produced, scale of investment and type of technology employed
 On the basis of type of goods produced:
(i) Primary and Genetic Industry: Nurseries, cattle breeding, fish hatcheries, poultry farms
 (ii) Extractive Industry: Mining, fishing, and hunting is covered in this category agriculture
and forestry.
(iii) Construction Industry: This industry is engaged in the creation of infra-structure e. g.
buildings, roads, dams, bridges, and canals.
iv) Manufacturing Industry: This Industry is engaged in the conversion of raw materials
into semi-finished or finished goods.
 On the basis of size and investment:
(i) Large Scale Industry
(ii) Small Scale Industry
 On the basis of technology employed
(i) Heavy Industry: The industry engaged in the production of machinery, steel, power
generation are called heavy industry.
(ii) Light Industry: Industries engaged in producing consumer goods etc. arc called light
industries.
2 Commerce. Industry involves production of goods and services whereas commerce is
concerned with the distribution of goods and services.
 All those activities which are connected with taking goods and services from producers to
users come under the purview of commerce.
 The goal of commerce is to ensure a proper flow of goods and services for the benefit of
both producers and consumers.
 People are able to buy goods produced anywhere in the world with the help of commerce.
 Commerce is related to the activities dealing with distribution and exchange of goods and
services. These activities relate to trade aspect.
 Commerce covers all these activities which smoothen or help trade. These activities are
transport, banking, insurance, warehousing, advertising, etc. These are ancillary services
and are called aids to trade.
 Commerce is a part of business. Business is a wider concept and includes industry too.
 Commerce is a part of economics. Economics is a study of human beings as consumers
and producers and it has a much wider scope than commerce.

Business Organization: BO an entity formed for the purpose of carrying on commercial

enterprise. Such an organization is predicated on systems of law governing contract and
exchange, property rights, and incorporation.
 The modern society is a society of organisations. Organisations affect our from childhood
to adulthood to old age.
 Organisation is a collective group of people who work together on a continuous basis in
order to achieve an intended goal.
Definition of Business organizations
 According to F.C. Hooper “ The complex field of commerce and industry, the basic
industry’s like processing and manufacturing industries and network of service,
distribution, banking, insurance, transport and so on which serves the world of business”.
According to Chester Barnard-“Organisation is a system of consciously coordinated
activities or forces of two or more persons”.
According to SP Robbins- “ An organisation is a consciously coordinated social unit,
composed of two or more people, that functions on a relatively continuous basis to
achieve a common goal or set of goals”.
Business enterprises customarily take one of three forms:
 Individual proprietorships: A single person holds the entire operation as his personal
property, usually managing it on a day-to-day basis. Most businesses are of this type.
 Partnerships: The partnership may have from 2 to 50 or more members, as in the case of
large law and accounting firms, brokerage houses, and advertising agencies. This form of
business is owned by the partners themselves. They may receive varying shares of the
profits depending on their investment or contribution. Whenever a member leaves or a
new member is added, the firm must be reconstituted as a new partnership.
 Limited-liability companies (or corporations ) Denotes included/incorporated groups
of persons. i.e. A number of persons considered as a legal entity (or fictive/ fictional"
“person”) with property, powers, and liabilities separate from those of its members. This
type of company is also legally separate from the individuals who work for it, whether
they be shareholders or employees or both. It can enter into legal relations with them,
make contracts with them, and sue and be sued by them. Most large industrial and
commercial organizations are limited-liability companies.
Objectives of Business organizations
1) Economic Objectives:
i) Earning Adequate profits
ii) Exploring New Markets
iii) Innovation
2) Social Objectives
i) Generation of Employment
ii) Production of standard quality goods
iii) Providing goods at reasonable prices
iv) Fair return to investors
v) Contribution to community development
3) Human Objectives
i) Fair Deal with employees
ii) Participation of Management
iii) Job Satisfaction
4) National Objectives
i) Social Justice
 ii) Production according to national priorities
iii) Regular payment of taxes
iv) Proper use of national resources
Features of business organisation
1) It is a unit composed of two or more people.
2) The people who make an organisation share common values, beliefs and goals.
3) It has a separate identity; distinct from its members. It can enter into agreements in its
own name.
4) It is always a goal oriented. The goal may, however, be profit or service.
5) Though goals of members are subordinate to those of the organisations, every
organisation strives to maximise both individual and organisational goals.
Characteristics of business organisation
1. Economic activity of a person or group of persons: The business may be carried on by a
natural or artificial person e.g. companies, corporations etc
2. Production of goods & services: Production is the process of transportation of set of
resources or raw material into something with greater value which the members of society need.
Goods produced may be
a) Consumer goods: Consumer goods are those goods which are used or consumed by the
individuals. Bread, butter, sugar, shampoo, stationary items, shoes, scooter, car etc. or
b) Producer goods: Producer goods are those used or consumed in the process of production or
manufacturing by the producers or manufacturers. Industrial dyes and chemicals, industrial
machineries and equipments, fertilizers, pesticides etc.
3 Exchange of goods & services: Exchange of goods and services
4. Creation of utilities: utility is the power or capability of a product or service to satisfy a
human need Business may create-
a) Form Utility: Form utility is created by production or manufacturing of goods by
converting raw materials. Production of car or steel furniture by converting steel.
b) Place utility: Place utility is created by exchange and delivery of goods where
customer wants. Goods that are lying at a factory do not serve the needs of a customer.
Transportation also help in the exchange process.
c) Time utility: Time utility is created by providing goods at a time when they are needed.
Warehousing and transport services of business create time utility of goods.
d) Ownership utility: Ownership utility is created by exchange of goods at a price. The
retailing and wholesaling activities of business create such value by exchanging or selling
goods for a price.
e) Possession utility: Possession utility is created by providing goods to customers for
their use on hire or rent and get back when their purpose is accomplished. Business
organisations that provide goods or articles such as car, scooter, cycle, books etc. on hire
for use of the customers create the possession utility. In this case, customer do not become
owners of the things given on hire or rent. Legally it is called Bailment of goods.
 f) Task utility: Task utility is created by providing services to customers that help in
performing their task. Banking, insurance, telephone, transport services etc. create/ provide
task utilities to customers
g) Knowledge utility: Knowledge utility is created by dissemination of information and
knowledge to the society. Educational and research institutions, publication houses,
electronic media etc. are run by business organizations which provide vast amount of
knowledge to the society.
5. Recurrenceof transactions or exchanges: Production and exchange of goods & services on a
regular basis. Continuity or recurrence of production and exchange of goods or services is the
hallmark of business.
6. Legality: The business should be conducted in accordance with the legal framework of the
country. The production or exchange of goods against the law of the land (selling of smuggled or
stolen goods) cannot be covered under the scope of business.
7 Profit objective: Where any economic activity is carried on without the objective of earning
profits, it cannot be said to be a business. Every economic activity to be called a business must
have one of its objectives to earn profits. Profit is essential for survival, growth and expansion of
the business.
8) Risk or Uncertainty: In business there is always a possibility of loss. The uncertainty in
business generally arises on account of following reasons:
 Price fluctuations,
 Increase in competition,
 change in fashion & in taste ,
 change in technology
 Change in the laws, rules, regulations relating to the business
 Dispute between the business partners, associations and the third parties
 Natural calamities and catastrophes
 Human misconduct e.g. fraud, theft etc
9. Entrepreneurship: Entrepreneurship is the ability to take risk. Without entrepreneurship, no
business can be started and operated.
10. Capital: Capital is also one of the basic requirements of Business. It is not possible to run a
business without capital.
Role/ Importance: Business not only satisfies everyday needs but also provides jobs and ever
increasing standard of living to all the members of society.
The role and significance of business may be discussed under the following heads:-
1. Importance for the national economy:
i. Proper utilization of natural physical resources
ii. Proper utilization of human resources
iii. Creates employment opportunities
iv. Helps increase productivity of resources
 v. Encourage capital formation
vi. Contributes to national planning
vii. Balanced economic development
viii. Helps reduce poverty and inequality
ix. Contributes to the prosperity of nation
x. Contributes to the foreign exchange reserves
xi. Creates & maintain sound relations with the nations
2. Importance for the society:
i. Proper utilization of society’s resources
ii. Integrates interest of different sections of society
iii. Produces and distributes goods & services
iv. Improves standard of living and quality of life
v. Generates employment opportunities
vi. Provides career opportunities-
vii. Provides avenues for savings and investments
viii. Promotes social change
ix. Promotes social Upliftment.
x. Benefits all sections of public-
3. Importance for the consumers:
i. Helps them to get right product, at the right place, at the right time & at a
right price.
ii. Satisfaction of the needs of customers.
iii. Customer better facilities, better deal & after-sale service.
iv. Get benefits under loyal customer schemes. The regular customers get
extra benefits and discounts.
v. Customer get better products & services at lower costs from large business
houses.
vi. Customer get the joy of larger choice. Growth, diversification &
competition in the field of business had resulted in the availability of many
substitutes & new products

Evolution of Business Organization: The study of business, or our general understanding

of business and its role in society, is sometimes confused and mistakenly made directly
synonymous with more specific job professions within finance, consulting or any other field. In
fact, business should be considered in its broader sense and appreciate this breadth and all its
comprising industries. A look at business, from a past, present and future perspective highlights
business evolution
Back to Basics
Business, in simple terms, is when a person or organisation profits by providing goods and/or
services in exchange for money – engaged in commercial, industrial or professional activities.
Business structures vary, with the four primary ones being sole proprietorships, partnerships,
corporations and limited liability companies. These distinctions are crucial, not just in terms of
defining business goals and performance, but also for legal and tax purposes.
Common Business Structures
A sole proprietorship is a business that is owned and operated by a single person and so there is
no legal separation between the business and the individual. This also means that the business
owner is liable him- or herself for profits and losses. A partnership is similar to that of a sole
proprietorship, but this includes operations amongst two or more owners. Generally, the benefit
of that is that more resources can be shared and liabilities are spread across more owners.
A corporation is when a group of people act together as a single entity. Most commonly, owners
of a corporation are shareholders of that company. Incorporating a business in this way means
that owners are not personally liable for financial or business obligations, but corporations still
tend to have unfavorable taxation rules.
As such, corporations may choose to become limited liability companies (LLC): a private
company whose owners are legally responsible for its debts only to the extent of the amount of
capital they invested. While all of this may seem like crossing the border into dry legal jargon, it
is important to be able to make distinctions between businesses as it helps to understand what
business actually constitutes.
The History
Business as we know it can be tracked back 3,000 years to India and China where companies –
with structures resembling sole proprietorships, partnerships and corporations – began entering
into contracts and owning property… essentially setting up the basic frameworks of business that
we use today.
From 1500 AD we see the first few government-backed companies, like the Dutch East India
Company and British East India Company, taking on global business challenges and exchanging
goods far away from home. After the Industrial Revolution in 1790 business began to change
every 50 years or so, shaped by new inventions, trade and changing consumer habits.
Businesses and Global Trade
When infrastructure in many parts of the world began to evolve and improve, transportation
costs were lowered and the business world saw an exponential increase in global trade – today it
is unimaginable that a business would have to be constrained solely within the borders of a single
country.
Eventually, business management took off as a career for people to pursue and throughout the
1900s the business potentials began to appear endless. That being said, business has not always
been smooth sailing throughout history. The Great Depression in the 1930s and the financial
crisis of the 1970s are just some examples of global economic set-backs that slowed down the
progress of business.
Even so, these set-backs shaped the way people thought about business, its risks but also its
potential. Clearly, businesses have played a vital role in human history and in society, and it is
undeniably going to continue to do so in the future. The question remains, however, what it is
that we can actually expect in the future?
The Future Digital transformation essentially refers to the novel use of digital technology to
solve traditional business problems. These digital technologies enable new types of innovation
and creativity, rather than simply supporting traditional methods. Think artificial intelligence, e-
commerce, fintech, entirely new business models… the list goes on. Businesses are constantly
researching and looking into new ways of operating, interacting with customers and driving
innovation.
Modern Business: Modern business management is more than a concept, it's an integrated
approach to everything an organization does – and that requires an environment built around it.
Modern business management has a top-down or bottom-up perspective with project execution,
collaboration and business intelligence (BI). A modern business is that which use the latest in
technology on their benefit, in order to maintain a competitive advantage over their competitors.
Characteristics of Modern Business
1. Pluralistic institution:   It is a system in which two or more groups, sources of authority, etc.,
coexist. The conduct & success of business depends on the efforts and cooperation of various
sections or groups. These include entrepreneurship, investors, shareholders, managers,
employees, government, consumers, suppliers and other sections of public.
2. Institutional Framework: Today the partnership, companies or corporation are formally
registered with the proper authorities for carrying on the business activities. Even individuals
today generally do the business by creating formal organizational framework.
3. Global organization: Many global or transnational and multinational business organisations
have emerged and developed in the modern era.
 A multinational corporation or company (MNC) is one which has its headquarter in one
country but operates its business in two or more other countries.
 A global or transnational corporation is one that has worldwide network of integrated
production and marketing operations and its managers view the whole world as one
market.
4. Profit through customer and social wellbeing: The modern business regards that;
 It is an organ of society and consequently it is a part of the society.
 It exists for creation and satisfaction of customers.
 It owescertain social obligations towards the society.
 It must serve as an instrument of social change.
5. Capital intensive: More and more capital is being invested in business activities. Foreign
direct investments are being made. Labour intensity in business has reduced over the time.
6. Growth of service sector: In the past few years, the business in service sector has grown
tremendously. Industrial growth is increased and it indicates that in modern times share of
service sector in business is growing at a faster pace.
7. Increasing competition: During the recent years, the competition in the business is increasing
day by day due to liberalization and globalization policies. Fair competition has always been
good to both the business and society. Consumers have more options to buy than before.
8. IT revolution: Business has led to the information technology revolution. Today, most
businesses are computerized. It has, therefore, made it possible to store, analyze and transmit vast
amount of data. Managers can manage their business operations in any part of the world from
their head office. Lakhs of on-line transactions take place every day all over the world.
10. Expansion of e-business: People are buying and selling products and services through the
internet. Lakhs of transactions are completed everyday through the internet all over the world.
11. Both an art and science: Business is an art because application of skills is essential for
doing business. Business is a science because it is conducted on the basis of scientifically
developed principles and procedures. Doing business is both an art and science because it is
conducted by applying scientifically developed principles skillfully. Conducting business is a art,
and the knowledge & principle underlying the conduct of the business is science.
12. Regulation and control of business: Competition act, micro, small and medium enterprises
development act or MSMED act, etc. are some statutes promulgated by the government with a
view to regulate the various activities of business in the country.