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TMA1 Functions of Business Enterprise Nov. 2022.

Table of Contents
1. What do Businesses do?......................................................................................................................2
Who are the stake holders?.................................................................................................................3
2. Discuss the characteristics of ideal form of business organization......................................................6
3. Enumerate the legal forms of Ownership of business and indicate the merits and demerits of each
form.........................................................................................................................................................7
4. a) What is Industry?.............................................................................................................................8
b) Discus the types of industry............................................................................................................9
5.Discuss the major phases of Human Resource Management and activities under each phase..........10
Major HRM Activities.........................................................................................................................10
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1. What do Businesses do?

The core purpose of Businesses is earning profit by supplying product needs of
customers. A product can be either goods, services or both and customers in essence can
be individuals, other business and organisations. Since there is always need which in turn
opens a market for the business to fulfil and helps in gaining profit. The supply of goods
can be ensured by producing or buying for other market place.
Depending on nature of the kind of the market they operate in, Business may have variety
of functions within. But the most common are Marketing and Sales, Supply chain,
Finance and accounting and Research and development.

The salient functions of a business are listed and discussed below.

(i) Production Function: It is concerned with the transformation of inputs like

manpower, materials, machinery, capital, information and energy by business into
specified outputs as demanded by the market and society. The production
department is entrusted with so many activities such as production planning and
control, quality control, procurement of materials and storage of materials.
(ii) Marketing Function: This focused on the distribution of goods and services
produced by the business’ production department. It can perform this function
efficiently only if it is able to satisfy the needs of the customers. For this purpose,
the marketing department guides the production department in product planning
and development. It fixes the prices of various products produced by the business.
It promotes the sale of goods through advertisement and sales promotion devices
such as distribution of samples and novelty items, holding contests, organizing
displays and trade exhibitions, etc.
(iii) Finance Function: This function is concerned with arrangement of sufficient
capital for the smooth running of business. It also assists in the proper utilization
of resources. It considers business decisions such as sources of finance,
investment of funds in productive ventures, and levels of inventory of various
items, etc.
(iv) Personnel Function: This is another important function which business must
perform in order to achieve business purpose. It is concerned with finding suitable
employees, giving them training, fixing their remuneration and motivating them.
The quality of human resource working in the enterprise is a critical factor in the
achievement of business purpose. Therefore, it is necessary that the employee is
highly motivated and satisfied with the terms and conditions of service offered by
the business enterprise.
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Who are the stake holders?

Stake holders are all parties who have direct or indirect interest on the business. Meaning
that the processes, decisions or performance of the business affects them and on the other
hand their interest impacts the business decision, strategy and operations.
The main stakeholders of any kind of business could be as follows.

Customer

Customers need products to meet their needs. They can be individual customers, business
customers, or other organizations. They buy products for final consumption or for further
processing. Customers want the money they give up commensurate with their value from
consuming the product. So, they have an interest in price and product quality. They also
like getting good customer service.

Supplier

Suppliers sell the input to the company. It can be raw materials, capital goods, semi-
finished goods, and goods and services for daily operations. They can influence a
company’s operations through price, quality, and delivery schedules of inputs. On the
other hand, they want the company to pay on time, as agreed. They also like the company
to order more frequently and in large volumes. In addition, they are also trying to
maintain a good long-term relationship with the company to secure demand.
Furthermore, the suppliers’ bargaining power affects the company’s profits. If they have
strong bargaining power, they can negotiate favorable terms to them, which can be
detrimental to the company. For example, they can sell less quality inputs at higher
prices. On the other side, the company may be forced to buy them due to weak bargaining
power and not having alternative suppliers.

Shareholders

Owners or shareholders can refer to the party who founded the company in the first place.
In other cases, the shareholders may not be the founders. Instead, they may acquire the
company from the founder. When companies issue their shares on the stock exchange,
stock investors are also shareholders, although often, their holdings are relatively small
compared to the total outstanding shares. Moreover, they can be individuals or
institutions. So, for example, when you buy stock in a company, you are a shareholder of
that company. Shareholders provide risk capital to the company. When buying company
shares on the stock exchange, they face the risk of the company’s share price falling. As a
result, they make no profit or even find it difficult to break even. Then, specifically, the
founder takes the risk by launching the business, expecting to make a profit in return.
They may also have to spend their own money as business start-up capital. Shareholders
expect the company to maximize their return on investment. Their two sources of
income: dividends and capital gains. The latter applies to public companies, where stock
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investors can sell company shares higher than the purchase price. They are interested in
its operating and financial performance because it affects the dividends and capital gains.
For this reason, they may intervene in the business using their decision-making power.
For example, they can replace underperforming directors with other ones, which is more
likely to improve performance.

Creditors

Creditors refer to parties who provide loans to the company. They could be banks or debt
securities investors. They are willing to lend money if the company can pay the debt plus
interest on time. If the company fails to pay, creditors might file for bankruptcy against
the company in court. So, the company must have sufficient cash flow to pay debts. On
the other hand, companies need loans to operate and grow the business. Some loans are
used as working capital and to finance day-to-day operations. Others are used as capital
to support business expansion. Creditors pay attention to the company’s financial
condition, including the company’s liquidity and solvency. They also use credit ratings to
determine a company’s default rate. But, on the other hand, they also like companies
applying for new contracts for loans as long as they can afford to pay them back.

Employee

In this discussion, I refer to employees as staff or those who occupy positions within the
management level. In general, they pay attention to salary levels, benefits, job security,
respect, recognition, and a supportive work environment.

 Staff work under the direction of the manager. They are not in a position to make
a decision.
 Management has the power to make decisions. This position has responsibility for
planning, organizing, leading, and controlling company resources. And, it spans
multiple layers, including directors, middle-level managers, and lower-level
managers.

Employees provide time, effort, and skills. As compensation, they want a commensurate
salary and benefits. In addition, they also demand job satisfaction, job security, and good
working conditions. Promotion and training, and development programs are their other
concern.

For companies, high salaries create high operating costs, reducing company profits.
Shareholders also don’t like it because it reduces the money they could potentially
receive from dividends. Likewise, high labor costs also reduce the company’s ability to
pay debts, so creditors do not like it either.
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Furthermore, although their interests in the company are relatively the same as those of
staff, managers have significant influence. They set goals, design strategies and tactics,
create action plans and allocate company resources. Thus, the company’s performance
depends on the quality of their work and their decisions.

Labor union

Through labor unions, companies can access the required qualified workforce more
easily. As a result, they help provide companies with productive employees. On the other
hand, labor unions want their members to be compensated according to their contribution
to the company. They strengthen the bargaining position of workers in negotiations
related to, for example, salaries. They protect workers’ interests, provide job security,
protect workers from unfair dismissal, and provide them with legal support and services.

Competitor

Competitors aim to outperform the company to make more money. They serve the same
customer needs as the company. They are happy when the company fails. Their strategy
affects the company’s success.

Companies and competitors pay attention to the fair and legal competition. As a result,
they try to avoid legal consequences as a result of anti-competitive practices. In other
cases, they may also cooperate – known as coopetition – as long as it is not against the
law.

Public

Companies cannot operate entirely through automation, relying on robots and computers.
Instead, they need humans as input. How high they depend on the workforce, it varies
between businesses. Labor-intensive businesses rely on more human labor than capital-
intensive businesses.

Local communities and the general public supply labor to companies. When people are
highly educated and skilled, they supply a quality workforce, affecting many aspects of
business, such as productivity, efficiency, and innovation.

Local communities and the general public are interested in employment, environmental
protection, privacy protection, safe products, price, quality, and various products. For
example, they expect the company to provide employment and not generate negative
externalities. They also want companies to set prices fairly and protect their privacy, such
as not commercializing personal data.
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Government

Governments are interested in business performance, decisions and operations as they

affect tax revenues, public welfare, and environmental sustainability. They want
businesses to pay taxes, comply with laws and regulations, adopt justifiable employment
practices, have honest reporting, legality, generate no negative externalities, and practice
fair competition. In addition, they are also concerned with the welfare of society,
including those related to employment and income, which are affected by business
activities.

The government influences the company through the regulations and policies it makes.
Labor regulations, product safety, antitrust laws, and environmental requirements are
examples. Minimum wage policies, subsidies, and taxation also affect business activities.
In addition, the government bureaucracy also impacts the ease of doing business and
regulatory costs.

Non-compliance with government regulations and policies can hurt the company, such as
fines and other legal consequences, even operating licenses revoked.

Furthermore, companies also need some services from the government, for example,
through infrastructure and education. For example, companies use highways for the
smooth delivery of goods and raw materials. Smoother logistics allows for lower
transportation costs. Indeed, the company might be able to build a road, but that would be
too expensive. Long story short, infrastructure development by the government
contributes to the company’s operations.

Furthermore, through a good education system, companies can recruit qualified workers.
The government also provides skills centers and produces people who are ready to work.
And, ultimately, qualified human resources make an important contribution to the
company’s innovation and competitive advantage.

2. Discuss the characteristics of ideal form of business organization.

The characteristics of Business are:

 profit motive:
As the main purpose of any business organization is profit, individuals and
groups involving in the business are oriented to make profit. Profit is one
is one of the indicators of success and failures of business.
 Exchange of goods and services:
Every business involves exchange of products and materials with their
customers and suppliers.
 Continuous process:
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One time economic activity involving profit is not considered business.

Business are there for continuous economic process which are executed
for longer periods as long as the they performing well in the market.
 Risk and uncertainties:
Since any kind of business is functioning in fast changing world that the
customer needs would change, the high rate of competitions, policies
might be changed and natural and artificial disasters impacted them.
 Creative and dynamic:
Due to the rapidly changing and growing needs of customers and markets,
business organization are always challenged to come up with new ideas/
solutions.
 Customer satisfaction:
As customers are the major stakeholders, business has make sure their
products meets the customers satisfaction.
 Government control:
Government controls are also another aspects that any business owner
should take into consideration. Legal responsibility and conformance to
the rules and regulations.
 Optimum utilization of resources:
In order for any business to operate effectively and efficiently, they must
first understand their resources and make sure to utilize them with high
degree of effectiveness.

3. Enumerate the legal forms of Ownership of business and indicate the

merits and demerits of each form.
Merits Demerits

Sole proprietorship Simple and easy to form and Limited resource and skill
dissolution.
Unlimited liability
Minimum government control
Limited managerial skill
Flexibility of operations
Uncertain futures(lacks
Freedom of control continuity)
Retention of business secret

Partnership Ease of organization Unlimited liability

Larger financial resource and skill Lack of harmony

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Reduced Risk Lack of continuity

Flexibility Non-transferability of interest

Democratic functionality Lack of public confidence.

Cooperation (joint stock Limited liability Difficult of formation

company)
Strong finance capital Lack of personal interest.

Stability/ ensured continuity Delay in decision making.

Better management Taxed both at individual and

company level.

Expensive administration

Hard to retain company

secrecy.

Cooperatives Limited liability Limited capital

Low operating cost Lack of managerial talent

Easy of formation Internal bickering

Stability and continuity Lack of motivation

General Reserve Delay in decision making

Exemption and privileges Lack of secrecy and

government regulation
Social advantages
Limitation of size

Lack of public confidence.

4. a) What is Industry?
An industry is a group of companies with similar business activities, products, and services.
The activities of extraction, production, conversion, processing or fabrication of products are
described as industry. These products of an industry may fall under any one of the following
three categories:

(i) Consumers Goods: Goods used by final consumers are called consumers goods.
Example of consumer goods Laptop, handset, bags, pencil, biro, cleaner, edible Oils,
Cloth, Jam, Television, Radio, Motor Car, Refrigerator, etc.
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(ii) Capital Goods: Goods used in the production of other goods are described as capital
goods. Steel produced by steel plant is used for fabrication into a variety of products
such as motor cars, scooters, rail Locomotive engines, ships, surgical instruments,
blades, etc. Similarly machine tools and machinery used for manufacturing other
products also come under this heading.
(iii) Intermediate Goods: There are certain materials which are the finished products of
one Industry and become the intermediate products of other industries. A few
examples of this kind are the copper industry, the finished products of which are used
in manufacturing Electrical Appliances, Electricity Wires, Toys, Baskets, Containers,
and Buckets.

Industries can also be defined as a group of companies that are related based on their
primary business activities for examples a group of automotive companies for
Automotive Industries.

Broadly speaking, industrial activities may be classified into primary and secondary.
which are explained in the following lines.

b) Discus the types of industry .

Primary Industries: Primary industries include the followings as listed below:
 Extractive Industries
 Genetic Industries
 Extractive Industries: In extractive industries, the industries extract or draw their
products from natural sources such as earth, sea, air. The products of such industries are
generally used by other industries such as manufacturing and construction industries for
producing finished goods. Farming, mining, lumbering hunting, fishing, etc., are some of
the examples of extractive industries.
 Genetic Industries: Genetic simply means parentage or heredity. Genetic industries are
engaged in breeding plants, and animals for their use in further reproduction. For
breeding plants, the seeds and nursery are typical examples of genetic industries. In
addition, the activities of cattle-breeding farms, poultry farms and the hatchery come
under the category of genetic industries.
Secondary Industries: Secondary industries include the followings as listed below:
 Manufacturing Industries
 Construction Industries
 Manufacturing Industries: These are engaged in producing goods through the creation
of what is known as ‘form utility’ such industries are engaged in the conversion or
transformation of raw materials or semi finished products into finished products. The
products of extractive industries generally become the raw-materials of manufacturing
industries. Factory production is the outcome of manufacturing industry. Manufacturing
industries may take any one of the following forms: Analytical, Synthetic, Processing,
and Assembly Line.
(i) Analytical: This is a situation where the basic material is analyzed and separated
into a number of products. Oil refining is an example of analytical industry. The
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crude oil is extracted from beneath the earth and is processed and separated into
petrol, diesel, kerosene, gasoline, lubricating oil, etc.
(ii) Synthetic: In this type of industries at least two materials are mixed together in the
manufacturing operations to obtain some new products. Products like soap,
cement, paints, fertilizers, cosmetics are the products of this industry. A new
product will be derived from the combination of two or more products mixed
together.
(iii) Processing: In this type of industry, raw materials are processed through a series
of manufacturing operations making use of analytical and synthetic methods.
Textiles, sugar and steel are examples of this category of industries.
(iv) Assembly line: In assembly line industry, the finished product can be produced
only after various components have been made and then brought together for final
assembly to be converted into final or finished products. Production of
automobiles, watches, televisions, bicycles, railway wagons, etc., are the typical
examples of the industry.
 Construction Industries: These types of industries are focused on the making of
constructing of buildings, bridges, dams, roads, canals, etc. These industries use the
products of manufacturing industries such as Iron and Steel, Cement, Lime, Mortar, etc.,
and also the products of extractive industry such as stone, marble, granite, etc. one of the
remarkable feature of these industries is that their products are not sold in the sense of
being taken to the markets. They are constructed and fabricated at fixed sites.

5.Discuss the major phases of Human Resource Management and

activities under each phase.
The Three major phase of HRM are:

Acquisition includes planning, as well as the various activities that lead to hiring new personnel.
Altogether this phase of HRM includes five separate activities. They are as follows:
• Human resources planning—determining the firm’s future human resources
needs
• Job analysis—determining the exact nature of the positions
• Recruiting—attracting people to apply for positions
• Selection—choosing and hiring the most qualified applicants
• Orientation—acquainting new employees with the firm.
Maintaining human resources consists primarily of encouraging employees to remain with the
firm and to work effectively by using a variety of HRM programs, including the following:
 Employee relations—increasing employee job satisfaction through surveys,
employee communication programs, exit interviews, and fair treatment
 Compensation—rewarding employee effort through monetary payments
 Benefits—providing rewards to ensure employee well-being
The development phase of HRM is concerned with improving employees’ skills and expanding
their capabilities. The two important activities within this phase are

 Training and development—teaching employees new skills, new jobs, and

more effective ways of doing their present jobs
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 Performance appraisal—assessing employees’ current and potential

performance levels.

Major HRM Activities

Human resources planning is the development of strategies to meet a firm’s future human
resources needs.

 Forecasting Human Resources Demand

 Forecasting Human Resources Supply
 Matching Supply with Demand
 Cultural Diversity in Human Resources
Job Analysis is a systematic procedure for studying jobs to determine their various elements and
requirements.
 Job description
 Job specification
Recruiting is the process of attracting qualified job applicants.
Selection is the process of gathering information about applicants for a position and then using
that information to choose the most appropriate applicant.
Orientation is the process of acquainting new employees with an organization.
Compensation and Benefit
Training and Development
Performance appraisal is the evaluation of employees’ current and potential levels of
performance to allow managers to make objective human resources decisions