What is Business Organization?

   Business is an economic activity involving the regular production or purchase and distribution of goods and services with the object of earning profits through the satisfaction of human wants. Business activities are performed by different types of organizations such as sole proprietorship, partnership, company and co-operatives. These organisations are called ‘Business Organizations’. These organizations vary in nature, size and ownership.

Characteristics of Business Organization

Business is an economic activity. It is concerned with the transfer or exchange of goods and services.
Business deals with both goods and services. The goods on may be Consumer goods such as cloth, footwear, soaps etc or capital goods such as machineries, tools etc. Services may be transport, electricity, banking, insurances etc.

1.    Business includes the activities of production or purchases and distribution. The goods and services may be produced by the seller himself or he may buy goods and services from others and resell them available to the consumers.

2.    Business implies regularity of transportations. It is exchange of goods and services regularly. One or two isolated transactions does not constitute a business but there must be series of transactions.

3.    Business has the object of earning profit through the satisfaction of human wants. The seller is benefited with profit and the buyer is benefited with satisfaction of needs and wants.

4.    Business involves risk: There is always uncertainty in business operations. These uncertainties are due to ever-changing environment such as change consumers behaviour, change in technology, problems  with suppliers, labour, change in government policies etc. These uncertainties give rise to different types of risk and may end in loss.

Scope of Business organization

Business activities comprise of two broad categories namely ‘industry’ and ‘commerce’.
      Industry is that branch of business which is concerned with the production of goods and services. The important types of industry are as follows:
i)              Primary Industries:
These industries include agriculture and allied activities, rearing of animals and extractive occupations such as mining, quarrying, forestry, fishing etc.
ii)             Manufacturing Industries:
These industries manufacture products from raw – materials and semi – manufactured goods. For example, textile, steel, sugar, cement etc.
iii)            Construction Industries:
These industries include erection of new buildings or modifying existing buildings, construction of bridges, tunnels, roads etc.
iv)           Service Industries:
Service industries produce intangible goods and hence cannot be stored for future consumption. For example, transport, banking etc.

Production of Goods and Services in Business organizations

      The types of goods produced by the various kinds of industries may be divided into three:

a)    Primary goods:

The goods such as rice, wheat, fish iron-ore which are provided by the primary industries are called primary goods.

b)    Semi-manufactured goods
These goods cannot be used by ultimate consumer as such unless they are further processed. For example iron-ore is a primary product. When it is processed upto certain stage, it becomes a pig-iron. This is semi-manufactured product. It is again processed and converted into steel.

c)    Manufactured goods:
All the finished products that could be used by the ultimate consumer straightway are called manufactured goods for example, cloth sugar, oil etc.

Manufactured goods are of two types in business organization

1.    Consumer goods and
2.    Capital goods

      Consumer goods are those goods which are purchased by he consumers for their own use such as shop, footwear, cloth, television etc. The goods such as television, refrigerator etc are used by the consumer a period of time and they are called durable consumer goods. Certain goods such as soap, match box are used by consumer only for fairly a long very short period and will be bought frequency and they are called ‘non-durable consumer goods’.
      Capital goods or industrial goods are those goods which are used either directly or indirectly or in the production of other goods also be durable or non-durable. For example, machine, tools etc. are ‘durable and lubricant oil is non-durable.

Production of Services

      The services may be of two types namely commercial services and direct services. Commercial services are for example, transport, insurance, and banking etc. Direct services are rendered direct to the consumer in the satisfaction of need. For example, services of benefaction.


      Commerce includes trade and ancillary services. Trade refers to the sale transfer or exchange of goods. It involves buying and selling of goods. Trade may be internal trade when it takes place within the county or it may be international trade when it is conducted between the countries. Export or re-export trade means import of goods from foreign country and again exporting them to some other country and making a profit.
The other important component of commerce is ‘aids to trade’ also called as ‘ancillary services. These services include banking communication, transport, warehousing, insurance and advertising. Which facilitate exchange of goods and services form seller to buyer in business organization.
The trade requires sufficient finance and involves receipt and payment of huge funds between the parties. This requires a safe and convenient method. This is exactly done by banks.
This efficient conduct of trade requires vital and quick information about the market conditions, rates and other related aspects for which efficient communication service is a must. There is tremendous development in the communication technology recently. Besides post, telegraphs, telephone, at present fax, E-mail internet are largely used for exchange of required information.
The trade requires modern, quick, efficient and cheap mode of transport to take the goods to different place where they are wanted. The trade requires the services of road, rail, sea and air transport for quick movement of goods any business organization.
Sometimes, goods must necessarily be stored for long periods till the time of their sale because goods are produced in anticipation of demand. Some products such as rice, wheat are seasonal but consumed throughout the year. Some other products such as umbrella, crackers are produced throughout the year but used seasonally. Hence, ware housing is necessary for storing all these type of products and it is an important ancillary service for smooth conduct of trade.
Business means risk-taking. There are different types of risks in business organization, such as risks arising out of natural factors such as fire and risks arising out of human factors such as theft etc. Many of these risks could be covered by insurance. Thus, insurance occupies an valuable place as an aid to trade.
Similarly, advertising plays an indispensable role for promotion of trade. Advertising helps pass on information about the new products to consumers, influence them to buy the product and helps create strong image to the product and to the manufacturing institution.

Industry and commerce are interrelated and interdependent for the realization of business objectives. While Industry is concerned with the production of goods and services commerce is concerned with both buying and selling of goods with the help of services rendered by banking, insurance and transport.

Functions of business

The various functions of business are as follows:

1.    Production function
2.    Marketing function
3.    Finance function
4.    Personnel function
5.    Office function

In business organization, 
PRODUCTION function involves creation of goods and services. The various function performed in the production department are production planning, plant layout, installation, materials handling, purchasing, work measurement, work improvement, inventory management etc.
            MARKETING is the process of getting goods and services into the hands of the consumer with a view to satisfy the needs and wants of consumers and producers.
      For this, the marketing manager must make judicious decisions regarding 4 Ps of marketing mix namely Product, Price, Place and Promotion. To make marketing mix successful, the marketing manager has to study marketing environment carefully. By conducting marketing research he will be able to get true and accurate information for making right decisions.

FINANCE is the life-blood of business organization. The various functions of the financial manager relate to the estimation of financial requirements, investment of funds, determining the appropriate capital structure, identification of the various sources of capital, decision regarding retention of earnings and distribution of dividends etc.

PERSONNEL function deals with the human side of the business. The functions include determining manpower requirement, recruiting and selection the people, giving training, motivating, evolving suitable compensation, employee welfare activities and maintaining smooth industrial relations.

Efficient OFFICE is required for effective management of organisation. The major functions of the office are:

-       Information function such as receiving and collecting, recoding and presenting, arranging analyzing and providing necessary information.

-       Operational function such as office systems and procedures, records management, forms design and control, office stationery and supplies, office communication system, office machines and furniture etc and

-       Public relation function: The above functions are naturally dependent. Each function should be so organized and performed that it contributes to realization of its objectives and ultimately the overall objectives of business in business organization.