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 distrib​uted 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

The profession may

Employment
Business may commence on
commences on
commence with the completion of a
Commencement joining duty by
decision of degree course & by
entering into a
entrepreneur. getting a certificate
service agreement.
of practice.
 Qualification
depends on the
No minimum Prescribed & nature of the job.
qualification required professional
Qualification
before starting a qualification &
business. training required.

Capital requirement Limited capital No capital

Investment depends on the investment is investment is
scale of business. required. required.

In business, there is In the profession, In ​employment​,

Risk always ​risk​ & there is little risk there is no risk
uncertainty. present. involved.

Transfer of interest Not possible to

Transfer of interest
Transfer of interest is possible with transfer the service
is not possible.
some formalities. contract.

The main objective The main objective The main objective

Main objective of business is to of a profession is to of employment is to
earn a profit. provide service. earn ​income​ in the
form of salary by
 satisfying the
employer.

The terms &

There is no Code of conduct is
conditions of service
prescribed code of prescribed by the
Code of conduct contract are
conduct for professional
applicable to an
business. associations.
employee.

It involves It involves the

It involves
production, rendering of
Nature of work performing the work
purchase & sale or personalized
involved as assigned by the
exchange of goods services of
employer.
& services. specialized nature.

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

The profession may

Business may commence commence on completion
Commencement with the decision of of a degree course & by
entrepreneur. getting a certificate of
practice.

The main objective of
Main objective
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.