UNIT 1. Introduction TO Business Organisation PDF

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AC ACHAR HAR HARY YA INSTITUTE OF GRADU GRADUA ATE STUDIES Solade Soladevanahalli, vanahalli, Bengalur Bengaluru u - 107 SUBJECT SUBJECT:: BUSINESS OR ORGANISA GANISA GANISATION TION AND ENVIR ENVIRONMENT ONMENT CLASS: I SEMESTER BB BBA A A & C SECTION CHAPTER 1: INTROD INTRODUCTION UCTION T TO OB BU U SINES SINESS S OR ORGANISA GANISA GANISATION TION NAME OF THE F FA ACUL CULTY TY TY:: KUSUMA A

Evolution of business: The business of today is very complicated and challenging. But this change has not happened suddenly, business has developed over a fairly long period of human history. The evolution of business can be divided into 2: a) Evolution of commerce and b) The development industry A. Evolution of commerce In the earliest stage of civilization, man was independent and self sufficient and he himself produced all that was required. When they began to produce in excess of his needs, exchanged such commodities with other goods he needs. This was the origin of commerce. The evolution indicates every succeeding stage to be better than the preceeding stage. The important stages involved in the growth and development commerce are the following: 1. 2. 3. 4. 5.

Hunting stage Pastoral stage Agricultural stage Handicrafts stage Commercial stage

1. Hunting stage: The most primitive period in the history of human civilization was the hunting stage. The economic occupation was hunting which supplied essential requisites like food and clothing. Every family was self-sufficient and the division of labour was limited among the members of the family. They were producing whatever was required. ACHARYA INSTITUTE OF GRADUATE STUDIES

2. Pastoral stage: When the population slowly increased, primitive man faced the problem of food. They began to indulge in fishing and cattle rearing which became their most important occupation. Animals were domesticated or being killed. The animals provided them with milk and meat for food and skin for clothing. 3. Agricultural stage or barter stage: The concept of private ownership emerged at this stage. Each family began having its own agricultural land, and thus the concept of families emerged. At this stage agriculture was the main occupation and this was an important landmark in the evolution of commerce. People possessed goods and animals not possessed by others. The need for exchange of goods leading to the barter stage(direct exchange of goods without any medium of exchange is known as barter system). Disadvantages of the barter system a. There was no common measure for valuing goods. For examples: a person want to exchange a cow and another a goat. If they were unable to reach a medium of exchange barter was not possible. b. Another limitation was the need for coincidence of wants. For example: if A has surplus wheat and B has hen, a must need the hens and B, the wheat. If their wants did not coincide in this way, they could not indulge in direct exchange. c. A need has to be felt by the buyer and the seller and there should be a common meeting place to exchange goods. d. Finally, products that cannot be divided are difficult to exchange. For example, animal.

4. Handicrafts stage: In this stage people tried to satisfy various wants such as the purchase of agricultural implements, clothing, and household articles. Then some people started producing other goods in order to exchange them for agricultural goods. Then they realized the need to sell their products outside their village or town. These associations were called “Guilds”. The guilds were associations of merchants or craftsmen for the mutual benefit of members. The guilds regulated the terms and conditions of trade and performed activities for the welfare of their members. 5. Commercial stage: During barter system, barley, wheat, animals etc. were used as a medium of exchange. But the disadvantage of the barter system paved the way for a common measure of value to act as a

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medium of exchange. Greece was the first country to stamp its money and hence gave a regular system of coinage. The main functions of money are: i. It acts as a medium of exchange. ii. It has a measure of value. iii. It has storage value. iv. It can be used as a standard for deferred payments. Commerce grew rapidly with the introduction of money. In the 15 th century, the discovery of America increased the trade between Europe and America. The discovery of the cape of good hope route toindia by vasco da gama in 1498 facilitated the trade between European countries and the countries of the east.

B. The Industrial stage: The transport system improved with the expansion and development of commerce. The invention of steam engine contributed to the development of railways. The railways facilitated the movement of bulky goods in large quantities over long distances. Later sailing ships were replaced by steam ships. The development of the transport system was followed by a series of improvement introduced into the methods of production between 1760 and 1830. Weekly markets started which characterized selling and buying were replaced by continuous trade. Trading across the boundaries of nations intensified. All these development were known as industrial revolution. The large scale production of different types of goods necessitated large scale distribution. This led to the development of national and international markets. The increased need of capital for running the business paved the way for starting joint stock companies. The industrial revolution thus gave new life to society, i.e., the emergence of new industries, large scale production of goods. It is a pattern of continuous change, adoption, progress and growth, in which every stage was a natural off spring of the preceeding one.

Meaning and definition of Business The business is an activity which is primarily pursued with the object of earning profit. A business activity involves production, exchange of goods and services to earn profits or earn a living. The word “BUSINESS” literally means a state of being busy.

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According to Urwick and Hunt business is defined as “any enterprise, which makes, distributes or provides any article or service, which the other members of the community need and are able and willing to pay for”. L.H. Haney defined as “a human activity directed towards producing or acquiring wealth through buying and selling of goods”. The early objective of a business or firm was profit making but now, additionally firms have to struggle for survival, existence, excellence, social well-being, and holistic development, to get the competitive edge. In an ever changing world, especially after the opening up of the economy, organisations must equip themselves to respond to changes for their survival and existence. Characteristics of Business 1. Entrepreneur: There must be someone to take initiative for establishing a business. The person who recognized the need for a product or service is known as entrepreneur. The entrepreneur is a key in the progress of economic growth. The quality of entrepreneurship existing in any region determines to a large extent the department of that region, the entrepreneur combines various factors of production and puts them into a going concern. 2. Economic Activity: Business includes only economic activities. All those activities relating to the production and distribution of goods and services are called economic activities. Busin ess is carried on with a profit motive. Any activity undertaken without economic consideration will not be a part of business. 3. Exchange of goods and services: A business must involve exchange of goods and services. The goods to be exchanged may either be produced or procured for other sources. The exchange of goods and services is undertaken with a profit motive. 4. Profit motive: The profit motive is an important element of business. Any activity undertakenwithout profit motive is not business. A businessman tries to earn more and more profits out of his business activities. The incentive of earning profits keeps a person in a business and is also necessary for the continuity of the business. The responsibility of business towards society restricts a businessman from earning exorbitant profit. The business activity will flourish more when the business serves the society. ACHARYA INSTITUTE OF GRADUATE STUDIES

5. Risk and uncertainty: The business involves a large element of risk and uncertainty. A businessman tries to foresee the future uncertainties and plans his business activities accordingly. The factors on which business depends are never certain, so the business opportunities will also be uncertain. 6. Continuity of transactions: Only those transactions are included which have regularity and continuity. An isolated transaction will not be called business, even if the person earns profit from that deal. 7. Creation of utility: The goods are provided to the consumers as per their likings and requirements. Business creates various types of utilities in goods so that consumers may use them. The utility may be form utility, place utility, time utility, etc. when raw materials are converted into finished goods it creates form utility. The goods are transported from the places of production to the ultimate consumers, it creates place utility. The consumer may use them according to their preference and needs. 8. Organization: Every enterprise needs an organization for its successful working. Various business activities are divided into departments, sections and jobs. An organization creates the framework for managerial performance and helps in co-ordinating various business activities. A proper organization is helpful in the smooth running of the business and helps to achieve its objectives. 9. Financing: Business enterprise cannot move a step without finance. The finances are required for providing fixed and working capital. The availability of other factors and production also depends upon the availability of finances. After estimating its financial requirement, the businessman tries to find out the sources from which these requirements will be met. A proper capital structure is a must for the success of the business. 10. Consumer satisfaction: The ultimate aim of business is to supply goods to the consumers. The goods are produced for the consumers. If the consumer is satisfied then he will purchase the same thing again, otherwise he will go in for an alternative commodity. The existence and expansion of business depends upon the liking of the consumers for the products of that business. The businessman should try to produce goods according to the likings and tastes of consumers.

That is customization ACHARYA INSTITUTE OF GRADUATE STUDIES

11. Satisfying social needs: The business should aim at serving the society at large. The business is a socioeconomic institution. It must look to the public good. A great emphasis is laid, nowa-days, on the social aspects of business and social obligations of business. It is not only the public which needs business but business also needs public support. Business enterprise must serve public purpose.

Infosys example Objectives of business: The objectives of business are as follows: a. b. c. d. e.

Economic objectives Socio-economic objectives Social-objectives Human objectives National objectives

a. Economic objective:

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Business is an economic activity and therefore its major objectives are economic in nature. Economic objectives refer to those objectives, which determine a person’s conduct relating to the commercial aspects of life. Economic objectives are given below; Earning adequate profit: But it is an important objective of business due to the following reasons;  Profit is the reward to the entrepreneur for understanding and taking the risk of business.  Minimum profit is necessary for the survival of business.  Profit helps to generate sufficient resources for existence, expansion and growth.  Profit is the measuring rod of business performance and the test of effective business operations.  Profit ensures the stability and prosperity of the organization. Creation of a loyal customer base: There has been a revolutionary change experienced in the Indian market after liberalization and the opening up of the economy. The impact of competition today is more pronounced than that in earlier days. The business activity of an enterprise can be

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sustained only if there are enough customers to buy the products and services offered by the enterprise, without which a business enterprise cannot survive. Innovation: Innovation in business means adaptation to the changes taking place in the society. Innovation is using new techniques, adopting new processes, providing new uses for the product. Innovation helps a business enterprise increase its competitive strength and improve its image in the minds of customers.

b. Socio-economic objectives:  Supply of goods services which the society requires It is the responsibility of the business enterprise to supply goods and services of standard quality, according to the requirements of the community. If it does so, it can enjoy the goodwill of the community.  Avoidance of profiteering and anti-social practices. Profiteering means maximizing profits by exploiting the community and overcharging. The socio-economic objective insists that business units should never consider profiteering as their motto and must not indulge in any sort of unfair trade practices like hoarding, black marketing etc. instead, every business unit must play a significant role in the welfare of society through various social welfare measures.  Providing employment The need of the hour necessitates that business units cut down costs and increase profits through mechanization and automation. The rate of unemployment is so high that providing employment to the unemployed is an important socio-economic objective of any business enterprise.  Paying fair wages and providing other benefits to employees Only paying fair wages to employees is out dated. Now, the firms are providing several welfare measures such as medical, educational, insurance and housing facilities. Extra labour welfare measures give extra satisfaction to workers. Some reputed companies have their own innovative methods of motivating and retaining employees.

c. Social objectives Social responsibility of business firms means the ability and willingness of the management to relate plans and policies to the social environment, so that it will be ACHARYA INSTITUTE OF GRADUATE STUDIES

mutually beneficial to the organization and to the society. In simple terms a business enterprise must interact with and live in the society as a responsible citizen. Every business firm is closely related to the business environment and takes resources from the business environment. Therefore, the business units must give this back to the society by contributing towards the development of roads, for providing drinking water, street lights, building and maintaining hospitals, educational institution. 1. Regular and timely payment of taxes The direct and indirect taxes collected by the government are spent for the welfare of society. So business units have to pay taxes at the right time. 2. Social welfare Business units must serve the people who are affected in times of war, famine, earthquake or any other natural calamities. Similarly some business firms are providing financial help to the poor, disabled, handicapped and other weaker sections of the society. 3. Prevention of pollution Pollution affects the hygiene and health of human beings and animals. So one social objective and obligation of every business firm is to take steps to prevent the pollution of the air, water and soil. 4. Respect for the ethical and moral norms of society A business organization should be fair and equitable in its dealings. It should not be partial or biased or practice any discrimination on the basis of religion, caste or social status in matters relating to employment. A proper wage structure should be there, which acceptable, adequate, fair and free from bias. 5. Ensuring balanced development of all regions If the country wants to attain overall development all the states must be developed. All states and every citizen of the country must enjoy all the privileges of a developed country.

d. Human objectives

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Business is not end in itself, but a means towards human welfare. Employees are the most valuable assets of a business and their well being is its main concern. The success of business unit depends upon the quality of its employees. The important human objectives are as follows: 1. Humane treatment: Employees should be treated as completed individuals. Every person has some good qualities and bad qualities. People want to get acceptance and recognition from their organization. They want the management to accept them as being worthwhile, so that they feel proud to work for the organization. 2. Fair deal to employees: “Similar pay for similar work” has been a demand from employees for long period of time. Proper wage structures should exist which are acceptable, adequate, fair and free from bias. The wage structure should adequately compensate the effort and contribution. 3. Worker’s participation in decision-making: Employees should be given the opportunity to participate in the decision making process. The advantage of this process is that when they are involved in decision making, they will be more motivated to implement their decision. 4. Development of human resources: Early development planners over-emphasized the rule of physical capital in economic growth. But from 1970 onwards planners recognized the development of human resources as the most crucial objective of long term economic growth. HRD is the process of increasing the knowledge, skills and capacities of all the people in society. There was a huge requirement for workers in developed countries. This gained more importance around the II world war. Hence, in 50’s the educational sector was recognized as a critical component of the growth process. This led to the discoveries of the “human factor” and development of human resources. e. National objectives: 1. Production of goods and services according to national priorities: Business organizations, instead of always working with a profit motive, should produce goods and services which are needed by the country. Any help to improve the agricultural sector is worth mentioning in this regard, because India is an agricultural economy. 2. Import substitution: The phenomenal development in the field of technology has completely changed the lives and living conditions of people. The market flooded with new e=invention every day, especially with quality products introduced by foreign firms. Our country still ACHARYA INSTITUTE OF GRADUATE STUDIES

depends a lot on imports thereby wasting our foreign exchange reserves. Hence business firms should try to produce goods which can substitute import requirement of our country. 3. Export promotion: The primary concern of our country is to become self sufficient. Every business unit must take steps to boost exports, so that we can build up the foreign exchange reserves of our country. 4. Help to small scale industries: The nationalize policy of decentralized development large business houses are responsible for encouraging the growth and development of small scale and cottage industries. Industries can be used as ancillary units and their products can be used by big business houses. 5. Development of skilled personnel: Business units must concentrate on human resource planning, which will improve the utilization of human resources. This is done by helping the management to forecast its recruitment needs in terms of number and the types of skilled required. This helps in developing ways to avoid or correct problems before they become serious and disrupt operati...