Objectives of Business

The Objectives of Business are its driving force. These are the factors

that keep the business running. Let’s learn further what the Objectives

of Business are and how they are classified.

Objectives of Business

source – advancesystemsinc

The business objective is a goal, i.e. where the business wants to reach

in the future. For example, a business wants to set up its franchise in

another state in the next 3 years or it wants to increase its workforce in

the coming months.

Business needs objectives, without objectives the business is like a car

without headlights driving blind. Objectives of business are the

purpose for which the business is established and performed. We can

call objectives the cornerstone of every business.

Objectives are needed in every area where performance and results

directly affect the survival and prosperity of a business. The right

choice of objectives is critical for the success of the business. The

objectives of a business can be classified into two main categories,

which are

1. Economic objectives

2. Social objectives

Browse more Topics under Nature And Purpose Of Business

● Classification of Business Activities

● Concept and Characteristics of Business

● Comparison of Business, Profession and Employment

● Nature of Business Risks

Economic Objectives of Business

We learned in the previous topic that business is an economic activity.

Hence, its purpose is to show economic results. Let’s understand the

economic objectives of the business. They are as follows:

1] Profit Earning

Business is a set of activities undertaken with the prospect of sale for

the purpose of earning a profit. Profit is the extra income over the

expenses. The main objective of any business is to earn a profit. Just

as a plant cannot survive without water, similarly a business cannot

sustain without profit.

Profit is necessary for growing and expanding business activities.

Profit guarantee a consistent stream of capital for the modernization

and augmentation of business activities in the future. Profits likewise

show the scale of stability, efficiency, and advancement of the

business organization.

2] Market Share / Creation of Customers

In the words of Drucker, “There is only one valid definition of

business purpose; to create a customer. “ Profits are not generated out

of thin air. They are the result of the hard work of the businessman to

satisfy the needs of the customers.

In the long run, the survival of the business completely depends upon

the market share captured by the business. The creation of good and

satisfaction of the needs of the customer is a crucial purpose of the

business. So to generate profit and demand, the business must supply

premium quality and give value for money products.

3] Innovation & Utilization of Resources

Innovation normally means to change processes or creating more

effective processes, products and ideas. Nowadays, business is

ever-changing and dynamic. To keep up with the growing competition

a businessman has to introduce efficient design, latest trends,

upgraded machinery, new techniques, etc.

Large corporations invest a humongous amount of capital in their

Research & Development department to boost innovation. Whereas,

on the parallel lines, utilization of resources is a proper use of

workforce, raw material, capital and technology used in the business.

A business has limited resources and that’s why its main objective is

to put these resources to correct divisions.

4] Increasing Productivity

Productivity is a scale to measure the efficiency of the business

activity. It is usually the last objective but just as important because

productivity is measured by the output given by the activities. It is the

end result of any business activity. Each business must go for more

prominent productivity – to guarantee its survival and development.

This goal can be accomplished by decreasing wastages and making

proficient utilization of machines and supplies, HR, cash and so forth.

Social Objectives of Business

According to Dayton Hudson “The business of business is serving

society, not just making money.” Business is one of the pillars on

which the society stands. Therefore, it is a part of the society. In fact,

it cannot thrive without the resources from the society. The business

earns its income from the sale of products and services to the society.

It is mandatory on the part of the business to take care of the social

factors. The necessary social objectives of a business are as follows:

1] Providing Goods & Services at Reasonable Prices

Business exists in the first place to satisfy the needs of the society. It’s

the first and major social objective of the business. Products and

services ought to be of better quality and these ought to be provided at

sensible costs. It is additionally the social commitment of business to

keep away from misbehaviors like boarding, Black promoting and

manipulative advertising.

2] Employment Generation

One of the major problem today’s generation facing is unemployment.

Business generates employment. Therefore, it is the social objective of

a business to give chances to beneficial employment to individuals of

the society. In a nation like India, unemployment has turned into a

critical issue.

3] Fair Remuneration to Employees

The business does not run on its own but the people are responsible

for the success and failure of the business. The people on the inside of

the business are more valuable i.e. employees. They are an asset of the

business and make a ground-breaking contribution to the business.

They must be given reasonable pay for their work.

Notwithstanding wages and salary, a significant piece of profits ought

to be distributed among them in acknowledgment of their

commitments. Such sharing of benefits will expand the inspiration and

proficiency of employees.

4] Community Service

Business must give back something to the society. As a result, the

Library, dispensary, educational foundations and so on which a

business can make and help in the advancement of society are created.

Business enterprises can build schools, colleges, libraries, hospitals,

sports bodies and research institutions. They can help non-government

organizations (NGOs) like CRY, Help Age, and others which render

services to weaker sections of society.

Solved Question for You

Q: “The business of business is serving society, not just making

money.” Explain.

Ans: Above all, business is one of the pillars on which the society

stands. Therefore, it is a part of the society. In fact, it cannot thrive

without the resources from the society. The business earns its income

from the sale of products and services to the society.

Classification of Business Activities

Business is the buying, selling & exchange of goods & services

for-profit service or motive is commonly known as business. The term

business is derived from the word ‘busy’. In a specific sense, business

activities refer to any occupation in which people regularly engage in

an activity with a view to earning the profit. Let us take a look at the

classification of business activities.

Classification of Business Activities

Into two broad categories, various business activities can be classified-

● Industry

● Commerce

Industry

The sector where raw material gets converted into useful products is

called industry. Activities related to production & processing as well

as activities related to rearing & reproduction of animals or other

living species are all included in the industry. The purpose of industry

is to create form utility by converting raw materials into useful forms

of finished products.

An industry may produce consumer goods or capital goods. Goods

such as bread, butter, cloth, radio, etc. are consumer goods. These

goods are directly used by the consumer. Goods such as machinery,

cement etc. are called capital goods as these are used further in the

production process to make useful products.

Industry can be classified into three broad categories.

● Primary industry

● Secondary industry

● Tertiary industry

Primary Industry

This is also known as extractive industries. It includes activity

connected with the production of wealth directly from natural

resources such as water, air, & land etc. Primary industry includes

activities like extraction & processing of natural resources etc. These

industries are further subdivided as follows:

● Extractive industry: These industries extract or draw out

products from natural sources. Raw materials that are mostly

products of the soil are some basic supply of extractive

industries. Manufacturing industries transform these products

into many other useful goods. Some of the examples of

extractive industries include farming, mining, lumbering,

hunting & fishing operation.

● Genetic industry: The industries involved in the activities of

rearing & breeding of living organism i.e. birds, plants, animals

etc. are known as a genetic industry. For example, rearing of

cattle for milk, dairy farms, poultry farms, rearing of plants in

the nursery, growing fish in ponds etc. are included in the

genetic industry.

Secondary Industry

This industry is concerned with converting raw material into finishing

product. The materials which have already been extracted at the

primary stage is the concern of the secondary industry. Such materials

are processed to produce goods for final consumption or for further

processing by other industrial units in these industries. Secondary

industries may be further divided as follows:

● Manufacturing industries: These industries are engaged in the

process of conversion of raw materials or semi-finished goods

into finished goods. These industries create from the utility by

changing the form of raw materials into finished products.

● Construction industries: These industries are concerned with

the construction of buildings, dams, roads etc. These industries

use the products of manufacturing industries such as cement,

iron & steel, lime etc.

Tertiary Industry

These industries are concerned with providing those services which

facilitate a flow of goods & services. This industry helps in the

activities of the primary & secondary industry.

Commerce

We can refer to commerce as all those activities which help directly or

indirectly in the distribution of goods to the ultimate consumer. There

will be no use of producing goods unless & until these goods reach the

ultimate consumer. Goods are produced at one place & consumers are

scattered at different places. Commerce can be classified into two

broad categories:

● Trade

● Aids to trade

Trade

Trade is an integral part of commerce. It includes buying & selling of

goods & services. The trade segment of commerce brings together the

manufacturer & the consumer, i.e. it is a link between the

manufacturer & the consumer.

Trade can be classified into two types:

● Internal trade: It refers to buying & selling of goods or services

within the geographical boundaries of a country. It is also

known as home trade or domestic trade. Under internal trade,

goods & services are bought & sold in the home currency only.

The internal trade can be two types:

a. Wholesale trade

b. Retail trade

● External trade: When the buying & selling of goods & services

is beyond the geographical limits of the country it is called

external trade. It is also known as trade between two or more

countries. In external trade, the market is very wide. External

trade is of the following types:

a. Export trade

b. Import trade

c. Entrepot trade

Aids to Trade

The activities which help in the smooth flow of trade are known as

aids to trade. These activities make buying & selling of goods easier.

These help in removing various hindrances of trade which arises in

production & distribution of goods. The common aids to trade are:

● Transport & communication

● Banking & finance

● Insurance

● Warehousing

● Advertising

Solved Example for You

Q.1 What are the types of various business activity?

Ans. Various business activities may be classified into two broad

categories-

● Industry: Viewed collectively, or one of these individually,

enterprises which manufacture or are technically productive in

a particular field, country, region, or economy is an industry.

Such as the tourist industry or the entertainment industry can be

isolated from others in any general business or commercial

enterprise

● Commerce: Commerce is a branch of business. All those

activities, which directly or indirectly facilitate the exchange of

goods and services are included in commerce.

Q.2 What do you mean by internal and external trade?

Ans: Internal Trade: Buying and selling of goods within the nation is

called internal trade. The internal trade can be two types:

● Wholesale trade

● Retail trade

External Trade: Beyond the geographical limits of the country, buying

and selling of goods and services is called external trade. It is also

known as trade between two or more countries. In external trade, the

market is very wide.

Concept and Characteristics of Business

We have been amidst businesses for as long as we can remember. It is

absolutely not an overstatement to say that everything that surrounds

you is ‘business’. From your computer screen to the chair you sit on,

everything is a chain of business. Further, we will learn about the

Concept and Characteristics of Business.

Concept of Business

In Layman terms, business means to get something at low cost and sell

it at a higher cost, meanwhile, the margin produced between that is the

profit. Business’s only purpose is profit, it is driven by it. Business is

derived from the word ‘busyness’ meaning engaged in an activity.

If we were to define business in much finer terms, we can say that

“Business is any occupation which includes all activities which are

connected with production or procurement of goods for sale and

adding a profit margin to that costs for further selling it to the

customer for the satisfaction of their needs.”

Most importantly, the business aims at a profit but only through the

satisfaction of the needs of the customers. The business includes every

occupation in which people are busy in earning the income by the

means of either producing, purchasing, selling or exchanging goods or

services to fulfill needs of other people with the objective of making a

profit.

(Source – Amazon services)

Characteristics of Business

Characteristics are the features which are necessary to classify the

business. Therefore let’s have a look at them.

Economic Activity

Business necessarily has to be an economic activity. But what exactly

is an economic activity? Any activity that gives a monetary return is

an economic activity. For example, if your friend’s father picks you up

and drops you at college every day, he is doing this act out of

kindness. But if he starts a transportation service of picking up and

dropping by charging money then it’s an economic activity.

Production or Trading of Good or Services for Sale

If a business plans on selling a product, it has to either manufacture

that product or purchase it and add a profit margin to it and sell it

further. Business is interested in every activity that is concerned with

the production or purchase of goods for selling, this makes it one of

the most important characteristics of a business. Services for sale

include transportation, housekeeping, and security. Whereas, goods

are mostly consumable items.

Sale or Exchange of Goods and Services

The third and crucial one of the characteristics of business after

production or procurement is to sell that product for the money. The

way to sell a product or service is by launching it in the market or to

offer it for sale. A sale or exchange must take place between the seller

and the buyer.

Regularity in Dealings

Business is a repeatable economic activity that generates money. For

example, if you sell your old bike and it generates money. Also, it’s an

economic activity but is you doing this on a regular basis? No. As it

has no regularity in it, it cannot be accepted as a business activity.

Similarly, there is a dealer who deals in the purchase and sells of

second-hand bikes. For him, it’s a business activity as there is a

regularity in his dealing. A single transaction of purchase or sale

cannot be classified as a business.

Profit Earning

The sole purpose of business is the maximization of profit. It steps

into the market with the main objective of earning a profit. For the

survival of business in a market, generating profit is extremely

necessary. If a business can’t produce profit, it is expected of it to go

downhill financially. Therefore the businessman does all the possible

tricks to maximize its profits by increasing the volume of sales or

decreasing the costs

Risk Factor

It is well known “Higher the risks, higher the return”. Business

attracts risk. While initiating business it is not guaranteed 100% that

the business will be successful. There is an anticipation that there

might be demand for its product or service in the market. But the

market is always dwindling the subject to risk. The business may even

earn profit but the amount of profit earned may vary.

Uncertainty of Returns

Businessmen invest huge capital in their activities to sustain and

extract profit from the business. As we discussed the risk above, it is

very uncertain as to what amount the profit will be earned. Often there

are situations where is no return of profit. There are always chances of

losses in the business activities.

Legal Activity

The business has to be legal and lawful. Business is an extremely

important activity for a country but it is not above the law. Every

economic activity has to be within the limits of the law. The country’s

legislation puts clauses on the functioning of the business to control its

activities.

Solved Question for You

Q: Which of the following is not a characteristic of a business activity

a. Manufacturing goods and services

b. The factor of risk.

c. Sale of product.

d. Wages.

Ans: The correct answer is option D. Wages is not a characteristic of a

business activity. The payment of receipt of wages is not a proof of a

business activity, so it is not one of the characteristics of business.

Comparison of Business, Profession and Employment

Economic activities are divided into three major categories, namely

business, professions and employment. While all these may seem

similar in the world of business they are distinctly different. Let us

learn about all three and also the differences amongst them.

Business

Business refers to those economic activities, which are connected with

the production or purchase & sale of goods or supply of services with

the main object of earning a profit. To earn income in the form of

profit people engage themselves in business. Examples: fishing,

mining, farming, manufacturing, wholesales etc.

Browse more Topics under Nature And Purpose Of Business

● Objectives of Business

● Classification of Business Activities

● Concept and Characteristics of Business

● Nature of Business Risks

Professions

Professions includes those activities, which require special knowledge

& skill to be applied by individuals in their occupation. Those

engaged in professions are known as professionals. Professionals are

generally subjected to guidelines or codes of conduct laid down by

professional bodies.

Examples: lawyers are engaged in the legal profession, governed by

the bar council of India & chartered accountants belonging to the

accounting profession are subject to the regulations of the Institute of

chartered accountants of India.

Employment

Getting remunerated in return for the work done for others refers to an

employee. Employees are the people who are employed by others.

Thus, people who work in factories, offices of banks, insurance

companies or government department, etc at various posts are the

employees of these organizations. They receive wages & salaries.

Examples: working in offices, banks, insurance companies, shops, as a

manager, clerk, peon, salesman etc.

(Source: keydifferences)

Business Functions at the Enterprise Level

The business includes many numbers of functions performed by many

different types of organizations known as business enterprises or

firms. To carry on any business the enterprise has to perform four

major functions namely financing, production marketing & human

resource management.

Mobilizing & utilizing funds for running a business enterprise is

meant by financing. The conversion of raw material into finished

goods comes under production. Facilitating the exchange of goods &

services from producers to the people who need them, at a place they

require, at a time they need & at a price they are ready to pay is known

as marketing. Human resource management means ensuring the

availability of working people who have proper skills to perform

various jobs in a firm.

Difference between Business, Profession, and Employment

Basis Business Profession Employment

Commencement Business may commence with the decision of entrepreneur.

The profession may commence on completion of a degree course & by getting a certificate of practice.

Employment commences on joining duty by entering into a service agreement.

Qualification No minimum qualification required before starting a business.

Prescribed & professional qualification & training required.

Qualification depends on the nature of the job.

Investment Capital requirement depends on the scale of business.

Limited capital investment is required.

No capital investment is required.

Risk In business, there is always risk & uncertainty.

In the profession, there is little risk present.

In employment, there is no risk involved.

Transfer of interest Transfer of interest is possible with some formalities.

Transfer of interest is not possible.

Not possible to transfer the service contract.

Main objective The main objective of business is to earn a profit.

The main objective of a profession is to provide service.

The main objective of employment is to earn income in the form of salary by

satisfying the employer.

Code of conduct There is no prescribed code of conduct for business.

Code of conduct is prescribed by the professional associations.

The terms & conditions of service contract are applicable to an employee.

Nature of work involved

It involves production, purchase & sale or exchange of goods & services.

It involves the rendering of personalized services of specialized nature.

It involves performing the work as assigned by the employer.

Solved Example

Q.1. Explain the following terms:

● Business

● Profession

● Employment

Ans.

● Business: Business is where goods and services are exchanged

for one another or for money.

● Profession: Requiring special knowledge & skill to be applied

by individuals in their occupation is called a profession.

● Employment: People those who work in their offices of banks,

insurance companies or government department, as managers,

assistants, clerks, peons or security guards are the employees of

these organizations

Q2. State two differences between Business and Profession?

Ans. Two differences between Business and Profession are:

Basis Business Profession

Commencement Business may commence with the decision of entrepreneur.

The profession may commence on completion of a degree course & by getting a certificate of practice.

Main objective The main objective of business is to earn a profit.

The main objective of a profession is to provide service.

Nature of Business Risk

Business risk can be defined as uncertainties or unexpected events,

which are beyond control. In simple words, we can say business risk

means a chance of incurring losses or less profit than expected. These

factors cannot be controlled by the businessmen and these can result in

a decline in profit or can also lead to a loss.

Nature of Business Risk

Business risk is the possibilities a company will have lower than

anticipated profits or experience a loss rather than taking a profit.

Business risk is influenced by numerous factors, including sales

volume, per-unit price, input costs, competition, and the overall

economic climate and government regulations.

(Source: fortune)

1. Arises due to Uncertainties

Uncertainties mean when you are not sure of what is going to happen

in future. Common examples of uncertainties are: change in demand,

government policy, technology etc. Business risk is due to these

uncertainties.

Browse more Topics under Nature And Purpose Of Business

● Objectives of Business

● Classification of Business Activities

● Concept and Characteristics of Business

● Comparison of Business, Profession and Employment

2. Essential part of any Business

A risk is an important characteristic of business. No business can

avoid risk although the degree of risk may vary Risk can be reduced

but cannot be eliminated.

3. Degree of Risk Depends upon the Nature and Size of Business

The degree of risk depends upon the type of business; for example, a

business involved in fashion items bears more risk as compared to the

business involved in standardized goods. Similarly, a business

operating at large scale bears more risk as compared to small-scale

business houses.

4. Profit is the Reward for bearing the Risk:

The business earns a profit because they are bearing risk.”No risk no

gain” larger the risk more is the profit. An entrepreneur bears risk with

the expectations of earning a profit.

Causes of Business Risk

Natural Causes

Nature is an independent phenomenon and human beings have no

control over it. Natural calamities like earthquake, flood, drought,

famine etc. Affect a business a lot and can result in heavy losses. The

natural causes are such type of uncertain factors that human beings

cannot make any preparation against.

Human Causes

Human causes are related to a chance of loss due to human being or

employees of the organization. The dishonesty of employees can bring

heavy losses for business e.g., the employees may leak a business

secret to a competitor and may commit fraud also bring heavy losses

by wastage of resources.

The employees may hamper the production by going on strikes, riots

etc. This can also lead to heavy loss of business condition. There can

be price fluctuations in the market, there can be a change in fashion,

taste, preferences, and demands of customers

Economic Causes

Economic causes are related to a chance of loss due to change in the

market. There can be a change in the degree of competition. All these

have a direct impact on the earnings of the business.

Even change in Government policy affects the business a lot. For

example, in 1971 when Janata government came to power the

Coca-Cola Company and many other foreign companies were sent

back to India

Physical Causes

All the causes which result in damage of assets are considered as a

physical cause, for example, change in technology may result in

machinery being outdated, use of old technology, mechanical defects

may also result in damage of assets such as the bursting of a boiler,

accident to employee etc.

Types of Business Risk

The business risk can be classified into two major categories:

Insurable Risk

The risks which can be recovered are called insurable risks. The losses

which can be made good or losses for which company can get

compensation from the insurance company are called Insurable Risks.

Generally, the natural and physical risks are insurable risks, e.g.,

businessmen can take a fire insurance policy to get protection from

flood, earthquake or from the damage of assets such as the bursting of

boiler etc.

Non-insurable Risks

The risks for which no protection is available are called Non-insurable

risks. The businessmen cannot get compensation for a change in

demand or loss due to negligence or carelessness of employees.

Whether the risk is insurable or non-insurable, only the loss can be

shared but the risk remains

Minimization of Risk

Business has many risks but it can also be avoided by adopting some

measures. Management can adopt the technique to minimize the

chance of occurring any particular event which form may cause the

loss. All the risks cannot be avoided but these can be minimized.

So such policies are adopted which reduce the loss. For example, there

is a greater risk to send the product by air then by train. So the risk can

be reduced by sending the product by train. Similarly, when you

introduce a new product, there is a greater risk, so you may refuse to

avoid the risk.

Though a firm can never escape from a presence of any risk it can still

employ methods to avoid them. For instance, the firm can:

1. Avoid itself from entering into a risky transaction;

2. Preventive measures can be taken like firefighting;

3. Transfer the risk to an insurance company by taking a policy:

4. Share risk with other enterprises by making the manufacturers

agree to compensate the losses in the case of falling prices.

Solved Example for You

Q: The business environmental factors are _________.

a. Static

b. Dynamic

c. Both of the above

d. None of the above

Ans: The answer is B. Business environment is a mix of a lot of

factors and changes in some or the other factor is always taking place.

Therefore these factors are dynamic.