BUSINESS ORGANIZATION

UNIT - I

By: Dr. Garima Sachdeva

INTRODUCTION
Human beings are generally engaged in some activity or the other.

ECONOMIC NON-ECONOMIC
ACTIVITIES ACTIVITIES

Concerned with Concerned with social,

production, exchange psychological and
and distribution of religious, sentiments,
products and services. cultural, etc.
Economic gain. Non-economic gain.
In return they get For eg. Household,
profit, fees, salaries, social services, etc. no
wages, etc. monetary gain.
 TYPES OF ECONOMIC ACTIVITIES
These activities are also called occupation:
Business
Profession
Employment

Business: Economic activities pursued primarily with the purpose

of earning profits carrying legal activities on regular basis and involve
an element of risk and uncertainty. For e.g. manufacturing, trading,
mining, banking, transport, insurance, etc.

Earlier: Business is an economic activity which involves regular

production and exchange of goods and services with the main
purpose of earning profits through the satisfaction of human wants.
 DEFINITION (BUSINESS)
According to Bayord O. Wheeler, Business is an institution organized
and operated to provide goods and services to society under the
incentive of private gain.
BUT, now only private gain is not the motive- earn living, welfare of
workers and general public is also there.
Nowadays business activities include:
Banking
Transport
Insurance
Warehousing
Advertising
Industry
Trade
NATURE OF BUSINESS
Whether big or small, all types of business possess
these characteristics:
Dealings in goods and services
Production and/or exchange
Creation of utility
Regularity & continuity in dealings
Profit motive
Risk & uncertainty
 PROFESSION
Profession is an occupation which involves rendering of
personal services of a specialized nature, based on
professional knowledge, education and training. For e.g.
physicians, lawyer, CA, doctor, architect, etc.
Features:
Specialized knowledge & training
Prescribed qualifications
Membership of professional body
Code of conduct enforced
Responsive to the needs of the society & so enjoys social
status
Charges fees for the services rendered.
EMPLOYMENT OR SERVICE
When a person undertakes employment to render
personal services under a contract of employment
or service. In return they receive wages or
salaries, allowances, bonus & other employment
benefits. It can be a government or private firm
and even professionals can also do service.
 COMPARISON
S. BASIS BUSINESS PROFESSION EMPLOYMENT
No
1 Establishment Entrepreneurs decision and Membership of a professional Appointment letter and
legal formalities, if necessary. body and certificate of practice. service agreement
2 Nature of Production or purchase and Personalized service of expert Performing the job
Operations sale of goods and service nature assigned by the employer
3 Motive Earning profit Rendering services and earning Earning salaries or wages
income
4 Qualifications No formal qualifications are Professional qualifications & Qualifications and training
required training are essential as prescribed by the
employer
5 Investment Capital is needed according Limited capital is required for Capital is not required at
to the nature and size of the establishment of office. all
business
6 Return or Profits Professional fee Salary or wages
Reward
7 Risk Present Present Absent

8 Transferability Possible Not possible Not possible

of Interest
9 Code of No code of conduct is Professional code of conduct is Norms of behavior laid
Conduct prescribed to be followed down by the employer are
to be followed
INTER-RELATIONSHIP
In spite of these differences, there is a close inter-relationship between
business, profession and employment.

A business enterprise needs to employ a number of persons in order to achieve

its objectives. Big business enterprises also require the services of professional
experts like CA, Lawyers, etc. who provide their specialized services for the
progress of the business.

Modern business has become very complex and for its efficient operation and
management, the services of professionals have become necessary. Professionals
and other employees provide the services essential for the smooth running of
any business.

In fact, business, profession and employment should be regarded as

complementary to one another. They should not be regarded as mutually
exclusive.
 SCOPE OF BUSINESS
According to F.C. Hooper, The whole complex field of commerce
and industry, the basic industries, processing and manufacturing
industries, the network of ancillary services: distribution, banking,
insurance, transport and so on, which serve and inter-penetrate the
world of business as a whole are business activities.
The business activities may be grouped under two broad headings:

BUSINESS

INDUSTRY COMMERCE

TRADE AIDS TO TRADE

INDUSTRY
CONSUMERS, PRODUCERS & INTERMEDIATE LEVEL
Primary
Extractive
Farming, mining, Quarrying, Fishing
Genetic
Nursery, cattle, breeding, poultry, farming
Secondary
Manufacturing
Engineering, iron & steel, cement, sugar, textiles
Construction
Buildings, bridges, dams, roads, canals
Service Industry
COMMERCE
Trade
Home Trade
Wholesalers, retailers, mercantile agents
Foreign Trade
Import, export, entrepot trade

Aids to trade
Transport
Warehousing
Insurance
Bank
Advertising
HINDRANCES COVERED BY COMMERCE
Person
Exchange
Finance
Place
Time
Knowledge
Risk
COMPARISON
S. No. INDUSTRY
1 It means production of goods
and services.
2 It represents supply side of
goods and services.
3 It requires huge fixed and
working capital in production.
4 It includes genetic, extractive,
manufacturing and construction
industries.
5 It may be carried on at home,
workshop, factory or mine.
6 It creates form utility by
changing the form or shape of
materials.
COMMERCE TRADE
It means distribution of goods It means actual exchange
and services supplied by or process of purchase and
industry. sale of goods.
It represents demand side of It represents exchange of
goods and services. goods and services.
It requires limited fixed It requires limited fixed
capital, but huge working capital. Limited working
capital. capital is enough if
turnover is quick.
It includes trade and it includes inland and
auxiliaries to trade. international trade.
It involves movement of goods It is carried on where
from the place of production buyers and sellers exist.
to the place of consumption.
It creates place utility and time It creates possession utility
utility through preservation of through exchange of goods
goods and their movement and services.
from one place to another.
INTER-RELATIONSHIP
INDUSTRY

COMMERCE TRADE
 BUSINESS ORGANIZATION
Business organization can be understood in different senses such
as:
Business enterprise
Subject of study
Bringing together various elements of business with the object
of establishing harmonious relationship & adjustment.

Business activities like production, service and distribution

performed under the framework of institution is known as
business organization.

Business organization is the effective co-ordination of various

components or sub-systems of the business enterprise.
FUNCTIONAL AREAS OF BO
Finance function
Production function
Marketing function
Personnel function
Purchase function
Public relations function
Legal function
BUSINESS SYSTEM & ENV. INTERFACE
A nation is composed of numerous systems like
economic, social, education, political, legal, etc. business
is a part of economic system.

Benefits of applying systems approach to business

Logical objectives
Proper emphasis to inputs and outputs
Proper emphasis on organization as a whole
Improves communication
Accept change
BUSINESS SYSTEM
Acc to Cleland & King, A system may be defined as an
assemblage or combination of things or parts forming a complex
or unitary whole.

It is a combination of system and sub-systems.

Features:
System is goal oriented
Whole is > than sum of all parts
Processing
Inter-related & interdependent subsystems
System act upon environment and vice-versa
ORGANIZATION AS A SYSTEM
ENVIRONMENT

INPUT PROCESS OUTPUT

FEEDBACK
BUSINESS SYSTEM Contd.
A business organization may be viewed as a system
which is created to satisfy societys needs and desires by
the production & distribution of goods & services with a
view to earn profits.

A system may be open or closed (mechanical).

The organizations ability to respond to changing

environment will determine its effectiveness in the long-
run.
BUSINESS AS AN OPEN SYSTEM
EXTERNAL
ENVIRONMENT

ORG. &
MANAGER
INPUT IAL OUTPUT
PROCESS

FEEDBACK
 FEATURES OF A BUSINESS SYSTEM
Goal-oriented
Input-output
Transformation process
Open & adaptive
Feedback
Sub-systems
Synergy
System boundary
Environment
Control mechanism
Psycho-social system
Creative system

SUB-SYSTEMS OF A BO
Production system
Production function, plant layout, production planning, QC, materials handling
Finance system
Procurement of funds
Investments
Distribution of dividends
Marketing system
Product planning & development
Packaging
Pricing
Promotion
Distribution
HR system
Recruitment
Selection
T&D
Compensation
Welfare
Personal records
Employee welfare
Research & Development system
Monitoring the discovery of new ideas
Technology
methods
 INTERACTION B/W SUB-SYSTEMS
Interaction between various sub-systems creates new behavior
pattern i.e. emergent behavior.
Problems in Integration:
Different orientation
Different objectives
Water-tight compartments
Lack of co-operation
Conflict between goals
Techniques of Achieving Interaction:
Harmonized goals
Interdependency
Understanding between heads
Two-way communication
Periodical review
Equal & proper emphasis on each sub-system.
BUSINESS SYSTEM AT THE NATIONAL LEVEL

Business system of a country includes all firms engaged in production

and distribution of goods and services.
Structure of business system:
 BUSINESS SYSTEM AS A PART OF
ECONOMIC SYSTEM
The economic system of a nation represents the network of economic
institutions for the organization of national economic resources to
satisfy the needs of the people.

Economic system: Business Firms & Govt. Institutions

Economic system utilizes limited natural resources to meet the

unlimited wants of the people.

Business system has to operate within the limits imposed by

economic system such as ownership, control of factors of production,
property rights, price mechanism, economic plans, govt. Policies,
etc.
 ECONOMIC SYSTEM
An economic system denotes the economic relationships
which arise in the community from the organization of
production & distribution.

It answers three fundamental questions:

What things will be produced?
How things will be produced?
For whom things will be produced?
TYPES OF ECONOMIC SYSTEMS
Capitalist System
Collectivist or Socialist or Communism
System
Mixed Economy
 BUSINESS ENVIRONMENT
Business environment may be defined as all those
conditions and forces external to a business unit under
which it operates. These forces are:
Frequent changes in government economic policies.
Rapid technological changes.
Political uncertainty.
Social changes
Changes in fashion & tastes of consumers.
Labour unrest leading to industrial conflicts.
Increased competition
 NATURE OF BUSINESS ENVIRONMENT
General Environment
Economic Forces
Global Forces
Technological Forces
Political Forces
Social Forces
Specific Environment
Owners
Investors
Creditors
Government
Employees
Competitors
Suppliers
Customers
Business System
 CHARACTERISTICS OF ENV. OF
MODERN BUSINESS
Total external forces
Specific & general forces
Dynamic
Uncertain
Relative influence
Contextual
Inter-temporal
 SIGNIFICANCE OF BUSINESS ENV.
Identification of opportunities to get first mover
advantage.
Identification of threats or warning signals.
Sensitization of management.
Intellectual stimulation
Formulation of strategy
Continuous learning
Image building
 DIMENSIONS OF BUSINESS ENV.
Economic environment
Politico-legal environment
Socio-cultural environment
Technological environment
Educational environment
Historical environment
Physical environment
International environment
 MANAGERIAL RESPONSE TO
ENVIRONMENTAL CHALLENGES
Anticipating & Adapting
Smoothing & Leveling
Competitive Advertising
Brand Building
Strengthening of Distribution Network
Up-gradation of Technology
Diversification Strategy
Joint Venture
Merger & Acquisition
 OBJECTIVES OF BUSINESS
Business can be regarded as an economic activity
carried by the people, through the people & for
the people.

Business objective is the purpose or the reason for

its existence in the society.

Though profit motive constitutes the primary

motive for business activities, but it is not the sole
objective of business.
 TYPES OF BUSINESS OBJECTIVES
Multi-dimensional objectives of modern business are:
Organic Objectives
Survival
Growth & Expansion
Creation of a good public image
Economic Objectives
Earning profits
Creation & satisfaction of customers
Innovation
Human Objectives
Treating employees as partners in the business
Developing new skills & abilities among employees
Job satisfaction of the employees
Fair treatment to customers
 TYPES OF BUSINESS OBJECTIVES (contd)
Social Objectives
Supply of quality products at reasonable prices.
Generating employment opportunities
Improvement of local community life
Generating facilities for the spread of literacy, health, services,
etc.
Pursuing fair trade practices.
National Objectives
Self-sufficiency in production
Import substitution and promotion of exports
Development of small scale and ancillary units
Development of backward classes and regions
Promotion of national integration
 RELEVANCE OF PROFIT MOTIVE
Can Profit Be The Sole Objective Of Business?
Acc to Urwick, Earning of profits cannot be the objective of a
business any more than eating is the objective of living.
Acc to Peter Drucker, Profit is not an objective but it is a
requirement that has to be objectively determined in respect of the
individual business, its strategy, its needs & its risks.
Profit serves important economic & social functions:
Measurement of Effectiveness
Coverage of Risk
Survival & Growth
Arguments Against Profit Maximization:
Undesirable Practices
Ignoring the Interests of customers
Sacrificing Long-term Interest
UnrealisticView
 ROLE OF PROFIT IN BUSINESS
Acc to P.E. Drucker, A business must achieve sufficient profits to
cover the risks of economic activity & thus to avoid loss.
Profits are also essential to provide adequate return to the owners or
shareholders, to ensure funds for growth and expansion, and to
improve the goodwill and public image of the business.
A business must earn adequate profits because of the following
reasons:
Means of livelihood
Return to investors
Reward for risks
Source of finance for growth & expansion
Indicator of efficient working
Goodwill or reputation
MULTIPLICITY OF OBJECTIVES OF A BUSINESS
Acc to P.F. Drucker, To manage a business is to balance a variety of
needs & goals. And this requires multiple objectives.
Acc to him there can be eight key areas where objectives must be set:
Market Standing
Innovation
Products & Services
Methods of Production
Productivity
Human Organization,Workers Attitude & Performance
Physical & Financial Resources
Managerial Performance
Social Responsibility
Profitability
SOCIAL RESPONSIBILITIES OF BUSINESS
SR means the obligation of business to act in a manner
which will serve the best interest of the society.

Social obligation relates to the voluntary efforts on the

part of the businessmen to contribute to the social well-
being. What is good for the society is also good for
business.

According to G. A. Steiner, The assumption of social

responsibility implies recognition and understanding of the
aspiration of society and determination to contribute to its
achievement.
 ASSUMPTION FOR & AGAINST SR
Case FOR Assumption of SR:
Business belongs to society
Long-term interest of business
Fear of Government Intervention or Regulation
Public Image
Moral Justification
Consumers Consciousness
Case AGAINST SR:
Relation between Profit & Responsibility
Difficulty to estimate Positive Impact
Compliance of Law
Extent of Responsibility
Role of Society in safeguarding its interests.
Complex ethical issues
Kinds of SR:
Economic Responsibility
Legal Responsibility
Ethical Responsibility
Discretionary Responsibility
 SR TOWARDS DIFFERENT GROUPS
Owners & Investors:
Safety of investment
Fair return on investment
Capital appreciation
Optimum utilization of resources
Communication with the investors
Protection of Assets
Stability & Growth
Customers:
Produce goods-satisfying consumers
Right Quality, right people, right time & place, reasonable prices
Prompt, adequate & courteous services
Grievance handling
True advertisement
Fair trade practices
SR TOWARDS DIFFERENT GROUPS (contd..)
Employees or Workers:
Reasonable wages & other benefits
Security of job
Good working conditions
Welfare facilities
Job satisfaction
Avenues for career growth & development
Recognition of workers rights
Co-operation
Suppliers:
Ensure regular payments to the supplier
Assist small-scale suppliers
Avoid exploitation of the suppliers
Help the supplier in improving quality of products
SR TOWARDS DIFFERENT GROUPS (contd..)
Government:
To abide by the laws of nation/policies & guidelines
Pay taxes honestly & timely
Avoid corrupting government employees
Discourage- concentration of economic power & monopoly
Encourage fair trade practices
Fair dealings in foreign trade
SR TOWARDS DIFFERENT GROUPS (contd..)
Community & Society:
Socio-economic objectives
Improvement of local environment
Creation of employment opportunities
Efficient use of resources
Welfare activities
Business morality
Safety of local surroundings
Steps against pollution
Quality Work Life
Promote social & cultural values
Promote national integration
Provide quality product
 SOCIAL RESPONSIVENESS
The level or degree of interest exhibited by an organization in
discharging social responsibility.
The inner coherence of the corporate strategy would be extended by
choosing (social) issues most closely related to the economic strategy
of the company, to the expansion of its markets, to the health of its
immediate environment, to its own industry & internal problems.
WHY SR
Compelling Forces
Persuasive Forces
Favorable Forces
 BUSINESS ETHICS
The word ethics comes from the Greek root ethos character, guiding
beliefs, standards or ideals that pervade a group or community.
Ethics specify what is good or bad, fair or unfair, right or wrong?
In business, it means the business practices which are desirable from the
point of view of the society.
Business ethics refer to the moral principles which should govern business
activities.
Business ethics provide code of conduct for the managers.
Examples of Ethical Business practices:
To charge fair prices from the customers
To use fair weights for measurement of commodities
To pay taxes to the government honestly
To charge reasonable profits from the customers
To ensure genuine & safe products for the public
To give fair treatment to the workers
 NATURE OF BUSINESS ETHICS
Business Ethics is an umbrella term
Ethics co-exist with law
Concept of equality is implied in ethics
Business Ethics emphasize making a business honest, just
& responsible citizen.
Business Ethics create self-imposed discipline on the part
of the business firms.
 ETHICAL ISSUES FACED BY MANAGERS
According to Waters, Bird & Chant:
With respect to employees:
Feedback about performance & standing
Employment security
Appropriate working conditions
With respect to peers & superiors:
Truth-telling
Loyalty
support
With respect to customers:
Fair treatment
Truth telling
Questionable practices
Collusion
 ETHICAL ISSUES FACED BY MANAGERS
According to Waters, Bird & Chant:
With respect to suppliers:
Fair/impartial treatment
Balanced relationship
Unfair pressure tactics
Truth-telling
With respect to others & stakeholders:
Respecting legal constraints
Truth-telling in public relations
Shareholders interest
 COMMON UNETHICAL PRACTICES
1. Adulteration of goods
2. Sale of superior products
3. Sale of duplicate products under popular brand names
4. Sale of products injurious to public health
5. Deceptive advertisement & false claims in advertisements
6. Pollution of environment
7. Exploitation of workers
8. Bribing public officials to obtain undue favors
9. Keeping two sets of books to evade taxes
10. Using company property for personal use
11. Overlooking safety norms & regulations to get the job done
12. Revealing confidential information or trade secrets to competitors
13. Artificially inflating profits to get re-elected as directors.
 IMPORTANCE OF BUSINESS ETHICS
Business is a part of the society
Survival of business
Manager is a trustee to various groups
Consumer are no longer at the mercy of business firms
Various laws reflect the ethics of society
Job is the centre of life.
Determinants of Business/Managerial Ethics:
Social factors
Economic factors
Cultural factors
Political factors
Organizational factors
Institutional codes
 BUSINESS VLAUES
According to Milton Rokeach, beliefs that guide action
and judgment across a variety of situation.

Features ofValues:
Values are comprehensive standard that direct conduct
of people in different situations.
Values guide people to take specific position of societal
issues
Values provide standards of morality
Values are relatively stable & enduring as these are
passed from one generation to another.
 IMPORTANCE OF BUSINESS VALUES
Business values consists of principles
Business values are basis for managements philosophy
Managerial decisions & actions are guided by business
values
Business values are relatively permanent in nature
Business values get reflected in long-term plans &
policies
Business values help in building the public image of
business & its management
 Values Followed By Top Management
Service to customers
Innovation & creativity
Safety of product & processes
Honesty
Loyalty to Company
Achievement
Gender equality

LEVELS OF VALUES
Individual values
Group values
Top management values
Environmental values