Business Nature of Business ,. The nature of business is explained with the help of its distinct FEATURES, which are as follows: 1. Organised Activity: Business is an organised activity concerned with identification and satisfaction of customer requirements, and thereby gaining profit. Therefore, a business firm must undertake the following activities: © Identify requirements of the customers. e Produce and offer products to customers. e Obtain feedback on customer satisfaction. e Modify and innovate products to enhance company’s growth and goodwill. 2. Profit Motive: The primary objective of any business is to earn profit. Profit is the reward for the efforts undertaken by a business firm. In today’s business world, a firm can gain profits through cost- cutting measures and by delivering superior value to customers. Every firm makes efforts to maximise its profits. Profits can be utilised for: e Building reserves. « Rewarding the shareholders with higher dividends. * Rewarding the employees through profit sharing. ® Corporate social responsibility (CSR) activities. 3. Quality Focus : Now-a-days, professional business firms place focus on quality of products to gain competitive advantage. For this purpose, business firms conduct : @ Customers' feedback, eel osRisks and Uncertainties: Business is subject to risks and uncertainties. A business be affected or may suffer a loss on account of risks uncertainties. The risks may be due to the following eve Market recession. Changes in fashion and preferences of customers. Changes in government policies. Changes in technology. Damage to goods/ property due to fire, natural calam civil riots, etc. A business firm can reduce the impact of risks through of insurable risks like loss by fire, theft, etc. However; KS are non-insurable like changes in fashions, chal ment policies, etc., which can be minimized # er planning and preparedness. i fi is on ‘societal © days, business firms place emphasis on ee ‘_ 88. Business firms make efforts to promeBusiness Business units try to achieve a balance between: Profits + Consumer Satisfaction + Public Interest. Therefore, increasing efforts are made to produce eco-friendly products. 7. Social Responsibility: Now-a-days, professional business firms are conscious of their social responsibility. Business firms try to fulfill their social responsibility towards various stakeholders such as: e Employees - provision of good wages, working conditions, welfare facilities. e Customers - provision of quality goods at right prices. @ Government - payment of taxes and duties, as applicable. @ Shareholders - wealth maximisation. Competitors - adoption of fair business practices. Society - sponsorship of education, sports, culture. 8. Business Functions: Business involves a number of activities right from production to distribution of goods and services. The main business functions include: e Production activities, such as product research & development, quality control, inventory management, and so on. ¢ Marketing activities, like marketing research, pricing, promotion, distribution, after-sale-service, and so on. © Finance activities, which include obtaining funds from tight sources, and proper application of funds. © Human Resource (Personnel) activities, which include human resource planning, selection, training, placement performance appraisal, promotion, etc 9. Creative and Dynamic: Modem business is creative in nature. Business cometip with creative ideas to produce and to ae a firms need to supply good= = i i control, e = Production planning and control. e@ = Quality control. e Research and development e = Maintenance of plant and machinery Inventory Management: Inventory management refers to management of invent, as aisked goods, semi-finished goods, raw materials, ma and other items of inventory. Proper inventory of materials must be Maintained, Ore inventory and under inventory to be avoided: © Over inventory is to be avoided for it blocks Workin, 8 Capita ¢ Under inventory blocks production cycle and Consequent, affects delivery of goods in the market. : Inventory Management involves the following activities: © = Materials planning. ¢ Purchasing of materials and other inputs. © Store keeping. © — Issuing of materials and other inputs, © Monitoring inventory of items, Marketing Function: The success and survival the activities ofe Pricing of products by considering « factors such as costs, competition, customers na »s, conditions prevailing in the market, corpora age, etc. e Promotion-mix which includes publicity, advertising, sales promotion, etc. @ Product distribution which includes selection of channels of distribution, transportation, maintaining dealer relationship, etc. e Product positioning which aims at creating a distinct image of the product (brand) in the minds of target customers vis-a-vis competing brands. . Sales Function: In large firms, the sales activities are performed by the sales department. The sales department works in close coordination with the marketing department. The sales department is concerned with the selling activities of the firm. It receives or books orders from dealers or customers, and then distributes the goods through the distribution channels. The sales department may have to undertake follow- up of sales, especially in the case of consumer durables or industrial goods. . Finance Function: Every business firm, large or small, requires adequ of funds for the efficient conduct of its activ considered as the life-line of modern busi Business finance is concerned wit! utilizing, and controlling of fu important finance functions Determining the right s10 Commerce - I (F.Y.B.Com.; SEM.) Human Resource Management (HRM): The success and survival of a firm largely depends upon the quality of people. HRM is concerned with the management iy people in the organisation. . HRM activities include: Human resource planning. Recruitment and selection. Training of manpower. Performance appraisal. Promotions and transfers. Compensation to Employees. Research and Development: Now-a-days, large firms set up separate department to look after R&D activities. R&D department plays an important role in product modifications and product innovation. Now-a-days, firms need to allocate a good amount of money for R&D activities. At present, in India, the R&D expenditure is very negligible. Even large firms in India allocate hardly 1% of their sales revenue towards R & D activities. Firms, t ped countries spend a good : ance, in 2020, the leading R & Dcompanies integrate business operations. all stakeholders and not just siness firms to behave ethically 0 development while improving the workforce and their families as well as of sity and society at large. panies Act 2013 mandates companies with a net worth than @500 crore or revenue of more than 71000 crore or profit of more than 75 crore, to earmark at least 2% of ir average net profits of the preceding three years for CSR ivities. Firms undertake a series of activities to fulfill CSR obligations. The CSR activities include: Donations to relief and rehab programmes. Undertaking social awareness campaigns Supporting educational initiatives Training weaker sections of the society for self- employmentCommerce - I (Pp. PYB Ci Com: ate competitive advantages, such ag: p “SE, ‘ Enhae CSR can gener ay s to capital and markets, Increased sales and profits, Operational cost savings, Improved produc vity and quality, Efficient human resource network, , Improved brand image and corporate reputa| ed customer loyalty, making and risk management piel Ses,Business a Industry Industry is concerned with production of goods and services. The industry is concerned with processing and production of goods, extraction of natural resources, reproduction of plants and animals, etc, The industry represents supply side i.e. supply of products to meet demand of customers. Types of Industries The various types of industries can be broadly divided into six categories: Manufacturing Types of Industries 1. Primary Industries : These industries are engaged in the production of primary goods, such as rice, cotton, fish ete, Agriculture and fishing are examples of primary industry. 2 Genetic Industries : These industries are engaged in the reproduction and multiplication of certain species of plants and animals with the object of sale. Cattle breeding, poultry and plant nurseries are examples of genetic industry 3. Extractive Industries : These industries are concerned with extracting materials or minerals from natural resources. Mining and oil drilling are examples of extractive industries. 4. Manufacturing Industries : These industries are concerned with the production of finished goods. The finished goods can beCommerce - t (5 Y.B.Cop : either consumer goods or industrial 800ds. T, chemicals are the examples 5. Construction Industries : These industries ae COnce, Thy construction activities like construction of buildings 8 ete 6. Service Industry : Now-a-days, service sec tor is as industry. Service sector plays an import economic development of a nation. Examples also Tefe ett ANt role i. : ~ hotels, tas tourism, transport, entertainment, information technolo, BY ef Commerce Itisa part of business, which is concerned with distribution Of goog and services. : Commerce can be broadly divided into two groups; Trade and Aix, to- Trade. COMMERCE = TRADE + AIDS-TO-TRADE The following chart indicates the classification of commerce: COMMERCE| Business I. Trade Trade refers to buying and selling of goods and services. It involves transfer or exchange of goods and services for money or money's worth, With the help of trade, the manufacturers can transfer the goods to final consumers. Types of Trade Trade can be divided into two groups : e Internal Trade or Home Trade e External Trade or Foreign Trade (A) 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. For instance, a manufacturer of Mumbai selling goods to a retailer of Goa, is an example of home trade. © Internal trade can be further sub-divided into two groups : (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 : It involves buying in smaller lots from the wholesalers and selling in very small quantities to the consumers for personal use. The retailer is the last link in the chain of distribution . The retailer acts as a link between the wholesaler and consumers. (B) External Trade: It is also called as foreign trade. It refers to buying and selling of goods across national boundaries. For instance, a seller from New Delhi, (India) sells goods to a buyer at New York, (US.A.) is an example of foreign trade, It can be divided into three types as follows: ia) Export Trade : It involves selling of goods from one country to another. For instance, when goods are sold from India to Pakistan, is an example of export trade.16 -1(F.Y.B.Com.: SEM-I) (b) Import Trade : ods from a seller of another. India purchases goods oO y ‘one country and then r, it is called entrepot. For goods from Bangladesh and which (directly or indirectly) facilitate smooth and services. The need for aids- to-trade is felt face some difficulties in smooth conduct of trade. or activities that facilitate smooth flow of goods to the consumer are called as aids-to-trade. ? Var sing : It removes time difficulty. In today’s world, production is undertaken in anticipation of demand. Goods are not consumed immediately after production. Therefore, goods need to be stored in warehouses till they are demanded. Some of the important advantages of warehousing are : e It enables the supply of seasonal goods throughout the year. ¢ It protects and preserves the goods from damage spoilage, 2. Transport: It solves place difficulty. There is a place gap from tl production to the place of consumption, Goods pro one corner of the country or globe may be consumption at the other part. Transport fills the Some of the important advantages of ti e It facilitates distribution of goods, « It enables marketers to expand markets, ie ? ..eS Business 3. Pee 17 Communication ; The advantages of communication include : e It facilitates quick transfer of messages, © Quick decisions can be taken. Insurance : It minimizes the risks, Business is subject to risks. Certain risks can be insured. There are other risks, such as risks of loss due to price changes, workers strike, etc., which cannot be insured, Risks such as loss due to fire, theft, etc, can be insured with insurance companies, Some of the important advantages of insurance are : e — It covers the loss on account of insurable risks, e It enables firms to expand business, Banking: tebe —e— a and to pay money fo: also require short such funds | SomeCommerce - I (P.Y.B.Com.: SEM-1) various media, such as, radio, newspapers, magazines, T.V. outdoor, ete. The advantages of advertising include ; e It creates awareness of the products, e It builds a good brand image. 7. Salesmanship : It facilitates personal selling. Sales force is required to book orders from dealers or customers. Some of the important advantages of salesmanship are : e The salesmen provide information to the buyers. e They convince and persuade buyers to buy goods. 8. Mercantile Agents : The mercantile agents act as intermediaries between buyers and sellers. The agents remove personal contact difficulties. Mercantile agents facilitate personal contact between the buyers and the sellers. There are several types of mercantile agents such as factors, brokers, commission agents, auctioneers, etc. Some of the advantages of mercantile agents are: @ The agent acts as a link between the buyer and seller. @ ©The seller can concentrate on production and marketing. op * Business plays an important role in any economy. It benefits several ‘sections of the society. It is significant not only to business firms and consumers, but also to government and society as a whole.Business 29 that are widely available and are _| firm enhances customers’ and low in cost. society’s well-being, 14, Applicability: This concept is still applicable, where there is sellers’ market, ecially in third world countries. | is This concept is applicable mostly It does not give importance to consumer tastes and preferences. 16. Competitive Advantage: This concept hardly places any emphasis on competitive edge in the market. Modern/ professional firms make every possible effort to gain competitive edge in the market. (Note : Students may write 8 points.) ectives are the aims of an organisation. The objectives can be Short term, medium term and long term. Generally, the objectives of a business unit include: sales, market share, profits, corporate image, and so on. is A. Allen “Objectives are goals established to guide the efforts the company and each of its components”. eps in Setting Business Objectives Bepjectives are to be set in all areas, which have a bearing on the mowth of the firm. To set objectives, the organisation needs to nsider the following factors / steps30 (The flow chart indicates main steps in setting Business Objectives x Analyse Internal Environment : The organization needs to analyse the internal environment The internal environment analysis involves analysis of: The analysis of the internal environment would reves! and weaknesses of the organisation. The organisation” make every possible effort to correct weaknesses and t0 on the strengths of the organisation. Commerce -1(F-Y.B.Com 7-LOM, + ¢ SEM Analysis of Environment J‘ Values of Top Management 4 ; Setting of Objectives L Implementation L Review of Performance Physical resources such as materials, machines. Financial resources such as sources and application © funds. Human resources in terms quality (competence and capabilities) and quantity of manpower. Policies and strategies of various functional arees such® production, marketing, human resources, finance. Working conditions, and welfare facilities. Management - labour relations.Bi Business 31 For example, if employees are not committed or motivated, there is a need for motivation and training. And if the machines are outdated, the company may replace them with new ones. Analyse External Environment : The company needs to analyse the external environment that affects the working of the firm. Analysis of the external environment involves analysis of: e Government policies. e Competitors’ strategies. e Consumer tastes and preferences. e Events in the international environment. e Technological developments in the industry, etc. The analysis of the external environment reveals opportunities and threats. This analysis helps the organisation to grab the opportunities and to minimize or defuse the threats. Values and Beliefs of Top Management: The values and beliefs of the top management influence setting of objectives. For instance, in some organizations, the top executives may value quality and innovation and as such they may allocate more funds for R & D. In other organizations, the top executives may believe in volumes and not quality, and they may not go for innovation, as it involves huge expenditure ~ At this stage, the management may frame mission statement. Jf mission statement is in existence; management may analyse the same. Mission statement becomes the basis of setting objectives in professional business firms. Involvement of Employees: ‘There is need to involve employees in setting objectives. The company may adopt the technique of Management by Objectives (MBO). Under MBO approach, the managers and the subordinates jointly define and set the goals.Commerce -1.Y.B.Com. Sy.» die alisa in goal-setting helps to . j 4 mitment of the subordinate, ; us activities to achieve the goals, objectives and performance of the ater, objectives. Normally, a firm q ‘onsi d ler the past objectives and developments of ¢h, of Objectives : Management needs to set the objectives in all the functig areas - production, marketing, finance and HRM. The fig n should set the long-range as well as the short-range obje While setting objectives, certain essentials need to be cons such as: Specific and well defined. e Measurable against standards. @ Attainable with the given resources, ¢ Realistic (neither too high nor too low) ¢ Time bound - definite time limit to achieve. e Priority of objectives, etc, 7. Implementation: After setting objectives, the management must plan implement the targets. Implem entation of activities iny @ Organising resources, ; @ Directing subordinates, @ Motivating subordinates.* Privatisation involves dereservation and disinvestment of public sector. The impact of privatization is as follows: I. Positive Impact: 4. Benefits of Dereservation: The Government has dereserved 7 public sector. At present, there are only three industries reserved | i for public sector. Dereservation has enabled the entry of private sector in those industries, which were earlier reserved for public sector This has generated competition between the private and publie Sector, which in turn has improved customer service, and efficiency of business firms. 2. Benefits of Disinvestment: The Industrial Policy 199! allowed disinvestment of public sector units, especially non-strategi¢ _a II. Negative Impact: t 53 ones. Disinvestment means selling of Government shareholding, in public sector units to private parties, Disinvestment aims at the following objectives: e Improvement in customer service. e Improvement in the performance of units. e Overcoming the political interference. e Overcoming corruption and inefficiency, etc. production capacities, which resulted : from 1996 to 2003. Problem of Disinvestment: The process of disinvestment since 199 to: ¢ Exploitation of workers e Exploitation of custonCOTNCICe ~ 2 UP ee mulation of product-market strategy, th, ement in managerial systems, such ag | structure, etc. Miy 78 e — Refor' e = Improv organisationa te about 8 to 10 strategies for g » Students may wri F pms: No need to group the points under 5 groups, Mar, v TUR Turnaround refers to transformation of a loss-making uni 4 profitable one. «rms suffer from huge losses due to various ee ie Teleservices suffered a net loss of 8 4,858 = 2012-13, and for the year 2013-14, the loss was 2 6,166 _ Therefore, Tata Teleservices would make every possible eff bring the company back on the tracks. In 2019, Tata Tele seric, sold its consumer mobile business to Airtel. Turnaround is possible only when the company restructure jy operations. Turnaround strategy is a broader strategy an; hide divestment strategy - where a firm decides to div ut of certain business and sells off units or divisions. turnaround strategy aims at improvement ind are and profits. The declining sales or market everal factors both internal and external to the! ors may include high cost of materials, @ the goods and services, increased competi successful, the following gui € management or turnaround experts ion: There must be good organisation. Any inform rategy to the concernedyasine’ss 79 an important role in making the turnaround strategy more effective. Availability of Resources: There must be availability of required resources to make turnaround effective. The turnaround strategy would require proper amount of cash to meet working capital needs and certain fixed capital needs. The business unit may also require skilled manpower to handle newly introduced technical jobs. Leadership: To make turnaround successful, there is a need to have good leadership at all levels, especially at the top level management. The CEO needs to be committed and dedicated to the organisation. He needs to be a dynamic person with creative skills to handle the turnaround situation. If need be, the Board of Directors may change the CEO, and appoint a new leader to handle the situation. Long-term Approach: Firms must undertake turnaround strategy not only from short-term point of view, but also from long-term point of view. The top management must implement the turnaround strategy by keeping in mind its impact on long- term prospects of the firm. Review of the Situation: The turnaround team needs to conduct a proper review of both the internal and external situation affecting the firm. The turnaround team should review: Government policies that affect the firm. Competitor's strategies. Customers’ Tesponse to the firm’s products. Market position of the firm - market share, sales. Machinery and technology used by the firm, Management-labour relations, etc Such a review will help the turnaround experts to know the Strengths, weaknesses, opportunities and threats (GWOT). Support from Various Parties: To make turnaround effective, there should be good support from various parties such as |80 Ee ia suppliers, shareholders, cleatigg Com 8, tc. For instance, support j : rt is fy nt the various decigi “A titey employees, authorities, Fls, e employees to impleme turnaround purpose. Viability of Business: Turnaround strat: when ae is viability of business. One pm which has no prospects. It is better to close do when there are no prospects. ive a WT a by, For instance, Encyclopaedia Britannica announced j the closure of 32 printed volumes after 244 years en ‘The main reason is that the demand for the §; dwindled due to the popularity of internet. ing and Control: There must be proper plang ‘of various operations. A firm implementing needs to analyse both internal and eg, ts and then plan accordingly. Apart from: ust be effective control of various activities - non-financial. d Strategy: strategy, and to make it success that may be followed by business fims ound Committee 1 es of Losses ; 4 tigation um C SolutionsBusiness 4. Setting up of a Turnaround Committee: The busin set up a turnaround committee or a team to deal \ n turnaround strategy. The committee may involve top management personnel, consultant, and may include employees’ representative. At times, business firms appoint a new CEO to deal with turnaround strategy. The CEO may take the help of some top management personnel to manage the turnaround strategy. 2. Identifying the Causes of Losses: The turnaround team has to identify the possible causes of losses. The losses may be due to internal factors or external factors or both. The internal causes may be: e Entry ina new non-viable business. e Excessive manpower. e Focus on several product lines or brands. e Use of outdated technology. e Growing customer complaints, etc. The external causes may be: © — Changes in government policies Competitors’ strategies.; Commerce - I (P_y. B 8 oa ce ; 8 Dealers’ survey may becond ucted to obtain their my on the company’s policies sSlahineay dealer ince Os complaints from customers, competitors’ Strategic, s ons: The team must look for , me the problem of poor performs, y be: me, 4. Alternative Soluti solutions to overco! alternative solutions ma Downsizing of workforce. Debt-equity swap to reduce interest burden, . Divestment of unviable or non-core business unit eoee ie Focusing on profitable customers, etc. 5) ‘of Alternatives: The turnaround committee . yse the various alternatives. There must be analysi benefits and costs of every alternative solution or Strategy. nefits to be analysed in terms of return; , : ts to be analysed in terms of money, manpove: benefits and costs must be undertaken not perspective but also from long term point: Alternatives: The team may select a prop the several listed. The choice of the causes of poor performalAllocation of Resources: The company needs ~outces required to implement the selected i case of divestment, the firm will get the capital n the sale of the unit or product line. In certain any needs to negotiate with financial institutions ed for implementation. The sharehol ders may © by way of right issue of shares. : The company needs to get good support from yees, shareholders and financial institutions to make und strategy successful. There must be a continuous een the turnaround team and the employees. The to hold talks with the financial institutions and € turnaround strategy needs to be monitored at ses. Monitoring of implementation is a must to revival. If required, the company may adopt measures to overcome the turnaround strategy. eo | =