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Learning methods
 TOPIC ONE

MEANING AND
NATURE OF BUSINESS
 Learning Objectives
Definition of business
Characteristics of business
Types of business
- Industry
- Commerce
Purpose of business
- Economic objectives
- Social objectives
Theory of organizations
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 DEFINITION OF BUSINESS
Any activity carried out with a view of regular
production, purchase and sell of goods and services with
the aim of earning profits and acquiring wealth through
the satisfaction of human wants.

Refer to only economic activities.

Some activities involve creation of wealth but aren't

regarded business such as occupations or employment
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 Characteristics of Businesses
Production of goods and services – goods may be
consumer or producer
Exchange motive (wealth) – must be exchange for
value (money).
- This negates barter trade and subsistence
farming as business activities
 Regularity or continuity of dealings- dealings must
be continuous. Occasional sales of items e.g. phones,
land for personal reasons etc. not business
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 Characteristics of Businesses
Profit motive – seen to be the major reason for
existence of a business. Profits earned when
revenues > expenditures

Uncertainty of returns – may make profits or

losses.

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 Types of Business
INDUSTRY - part of business that is concerned
with the production of goods and services.

Goods may be consumer or producer goods

Industry manifests itself in the following types

best described using the different categories they
fall in.

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 Classification of industry
Tertiary industries: Deal in provision of services only such as
banking, insurance, telecommunication, consultancy
Primary industries: deal in provision of natural products and
include extraction and genetic industries.
 Extraction industries - activities geared towards drawing out,
extracting or raising various forms of wealth from the soil, air and
water.
 Genetic industries - engage in reproduction and multiplication of
certain plants and animals species with an aim of earning profits
from their sale e.g. Plant nurseries and Cattle breeding firms

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 Classification of industry
Secondary industries: Deal in provision of artificial products i.e.
man made products and include capital, manufacturing and
construction industries
 Capital industries - engage in the production of heavy machinery
like those producing earth-moving equipment e.g. CAT
 Manufacturing industries - are involved in the conversion or
transformation of raw materials to semi- finished or finished
products.
 Construction industries; design, create or make a single
substantial asset like a bridge, a building, a dam and roads.

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 Types of Business
COMMERCE - covers all those activities that take
place in a community in its efforts to distribute goods
and services produced.

It includes trade and aids to trade

Trade is the actual buying and selling of goods and

services categorised as either home trade or foreign
trade.

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 Classification of Trade
Home trade - refers to the internal trade of a country which is
carried on among the people of a particular country.
Foreign trade - trade across the borders of different countries i.e.
trade between two or more countries

Divisions of Trade within both Home and Foreign Trade

Whole sale trade - channel between the producer and the retailers
who buy in bulk and selling in relatively smaller quantities e.g.
Depos, Agents etc..
Retail trade - link between the wholesalers and the final consumer or
the public who normally buy a variety but in smaller quantities
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 Aids to trade
Services that allow the smooth flow of trade
activities;
 Insurance
 Transport
 Banking
 Storage facilities / Ware housing
 Professional services e.g. Lawyers,
Secretaries, Functional heads
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Purpose of Business
Broadly categorised as

Economic Objectives
Social Objectives

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Economic Objectives

Creation of a customer
Making Profits
Survival
Growth

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Think about it….
“A business that makes nothing but money is
a poor kind of business.” Henry Ford (1863-1947)
Was he crazy? What does he mean by this?
…
Social Objectives
Fair deal to Government
Fair deal to shareholders
Fair deal to customers
Fair deal to labour
Fair deal to Creditors
Fair deal to society
Protection of the environment
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 Possible Questions
Creation of a customer leads to achievement of
all the other objectives of a business. Discuss?

Profit making is the only reason for the

existence of business organizations?

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 Introduction to Theory of
Organizations
Learning Outcomes
 Definition of organizations
 Characteristics of organizations
Types of organizations
- Profit Motivated Organizations (POs)
- Non Profit Motivated Organizations (NPOs)
Organizational Structures
- Formal Structures
- Informal Structures
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 Definition of Organizations
A set of functions, tasks and processes well
coordinated to achieve a common purpose i.e. to
produce goods and services

Social units or human groupings deliberately

constructed and reconstructed to seek specific
goals e.g. corporations, armies, schools,
hospitals, churches and prisons.
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Characteristics of Organizations
Plurality of membership
Purpose
Rules and procedures
Hierarchy of Authority
Departmentalization
Value system
Operating environment
Organizational boundary

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 Types of Organizations
Profit Motivated Organizations - exists primary to
generate profit
 Profits made, may be re invested in the business or
distributed to stakeholders (shareholders & workers) or
both.
Non Profit Organizations - set up with out a profit motive
i.e. exists primarily to provide a particular service to the
community though it may be at a fee e.g. hospitals, schools,
orphanages
 Organized under rules that forbid the distribution of profits
(surplus) to owners or employees.
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 Similarities between POs & NPOs
Both may be private, public or non-
governmental organizations (NGOs) with self-
governing boards accountable to their owners
or members.
Both must operate for lawful purposes.
Both must be efficient and effective to survive.
 All features of organizations can be used for
similarities

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 Differences between POs & NPOs
Profit Motive – NPOs are not where as POs are
Profit distribution – NPOs not allowed to distribute
surplus made to members while POs are allowed.
Source of finances – NPOs mainly from the public and
donors while POs mainly use owners’ and borrowed
funds
Distribution od surplus assets – on dissolution, NPOs’
surplus assets after payment of debts are given to an
NPO with similar objective while POs assets are
distributed to the owners or members
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 Organizational Structures
Formal Structures - intentional structures put in place
by management i.e. roles and positions.
 Identify flow of authority, functions / departments and
working relationships with in the organization.

Informal structures – working relationships not

formally defined but created as a result of
people’s interactions. E.g. employee associations
such as MUBASA
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