Nature
of Business
A. Business
is a Social System:
A system conveys the idea that everything
is inter-related and inter-dependent. The human body is a good example of
system, which consists of a number of body organism, parts, or subsystems,
which act together as a system to perform a certain bodily function
independently yet in perfect harmony with other sub-systems. Each subsystem is
dependent on another sub-system. Thus, system is a combination of interrelated
parts operating as a whole; and the parts form a sub-system of the system. The
system becomes a social system when it relates to people. A business is a
complex economic and social system, which interacts with other parts or
sub-systems in the society. It normally aims to earn profit and provide social
service to the community. Every action of business is related to external
forces, which have a bearing on the functioning of business. The social systems receive inputs from its
environment. Business is a social system having production, marketing,
financing personnel, R&D and its sub-systems. A product must be produced,
and this is accomplished by the production function (or the production
sub-system). The product must be sold and distributed and the marketing
sub-system performs this job. Each of these sub-systems, in turn, is composed
of few other sub-systems. For example the marketing sub-system would have
advertising, marketing sales, research, inventory, consumer relations
sub-systems. For a firm it is essential that all its sub-systems operate in a
coordinated way so that the whole system operates in a balanced and integrated
manner.
Main
Characteristics of Business as a Social system:
a. Sub-systems
make a system: business
is a system that consists of various sub-systems. It can be compared with human
body in which different organs performs different functions e.g. eyes perform
the function of seeing while the hands do work. However, various parts are
interrelated, affecting each other in various ways through their inputs and
outputs among themselves. Similarly, business is also a part of larger system,
which again is a part of the complete industrial system and so on, until all
related parts, makes a larger known system. Thus, what is a whole system from
one angle is a sub-system from the other angle. The sub-system is also called a
“lower order system” compared with a “higher order system”[1].
b. Social
system is dynamic in nature: The social system is not static but dynamic in nature. The
dynamism is due to the fact the social system relates to the human beings that
are living, thinking and always active. This characteristic of social system
makes it variable and uncertain making social system difficult challenge for
the managers. One should not draw conclusion that everything in business is
uncertain and unstable. With this dynamism is found equilibrium among its
various parts and its external environment. Keith and Blostorm[2]
compare this equilibrium with a quite ocean filled with moving sea life and
waves-all of which operates in a balanced manner. In the dynamic set-up, a
business needs to maintain satisfactory equilibrium, both internally and
externally, in order to survive and make reasonable progress to achieve its
objectives. If this harmony does not exist, business may not achieve its
objectives.
c. Business
viability: Viability
implies the drive to live and grow. Business viability means adaptability to
change as per circumstances. The change may be in the business environment,
technology, working condition, or raw material combination. Business has to
respond, change and adjust so that it continues for a long period.
d. Public
visibility; Business
should be visible to the society. The idea of public visibility is that
business activities are subject to public examination, discussion and judgement
by the society. If any of the activity do harm to the society it is subject to
face criticism in press and media. The activities of the organisation may be
directly observed, such as polluted atmosphere when smoke is seen coming out of
a mill chimney or polluted water due to discharge of industrial waste in the
nearby water bodies. Sometimes the government keeps an eye over such industrial
units and enacts laws to protect the society from the harmful effects of the
business.
e. Social
values: Business
normally operates in an environment of social values both of society and those
of business itself. For business, such values are derived from various sources
such as the mission of the business as a social institution, the country in
which the business is located, the type of industry in which it is active and
the nature of its employees. After some time these, become official policy of the
business. Social values perform certain important functions. One, they become
guides for the employee decisions in the interest of business and its
environment; and two, they become strong motivators for people in the business.
Thus, they become a key factor in the system relationship of business with
society[3].
f.
Interface with external
environment: Business
maintains an effective equilibrium by keeping a cooperative relationship
between the internal and the external factors. An individual business cannot work
in isolation and is, therefore, related to other business and social groups.
This area of contact between one system and another system has been termed as
interface. Areas of interface are of vital significance because they are
sources of inputs into the systems. These systems help in producing outputs.
The business interacts with external agencies as well to receive regular
inputs, information and feedback, which enables it to take corrective actions
to maintain equilibrium with its environment. Thus, it should be noted that
business organizations are open systems interconnected with such external
groups as customer, trade unions, employee associations’ government and other
agencies.
Business is a product of the
technological, political-legal, economic, social, cultural global and natural
factors.
B. Business as an economic activity:
Although during recent time,
the nature of business has undergone change and it is being looked at as a
social institution but still mainly, it is an economic activity as it relates
to earning profit. The following are the characteristics of business as an
economic activity;
a. Economic
activity: Economic
activity relates to the satisfaction of human wants by utilising and
coordinating the scarce resources and multiple wants. Economic activity may
take various forms such as consumption, production, distribution, and exchange.
Depending on these the nature of business may also differ e.g. business may consist of a manufacturing or
production unit, marketing unit or a service unit. All these activities have
one thing in common and that is profit motive.
b. Business
adds Utility: Business
is a transformation Unit that utilise various inputs such as labour, land,
technology, capital, skill, energy, etc. and transforms various inputs into
final output for consumption. Thus, it adds utility to a product or service and
sell it on profit. This transformation helps him to keep surplus value with
him. The transformation process has been shown in Figure 1.2.
a.
Business resources are limited
and scarce: Business
has to take decisions and fix priorities. The aim of business is to earn
profit. As the resources available are scare or limited, the moat beneficial
alternative is selected.
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