INTRODUCTION TO BUSINESS CONCEPTS
Introduction
What is business?
According to Boone and Kurtz (2003) business consists of all
profit-seeking activities and enterprises that provide goods and
services necessary to an economic system, of course at a profit
The profit is made on behalf of the owner (Symons and Adams 1993).
Business provides people with food, clothing, housing, medical care and
transport and almost everything else that makes life easier and better.
There are businesses that will produce goods such as automobiles
(Toyota), breakfast cereals (proctor & Gamble), computers (dell),
cooking oil (Bidco) others will provide services such as insurance
(Madison, BlueShield), banking services (KCB, Equity), car rental
(Kenatco and Avis). A business is a legally recognized organization
designed to provide goods and/or services to consumers. Businesses are
predominant in capitalist economies, most being privately owned and
formed to earn profit that will increase the wealth of its owners and
grow the business itself. The owners and operators of a business have as
one of their main objectives the receipt or generation of financial
returns in exchange for work and acceptance of risk. Notable exceptions
include cooperative enterprises and state-owned enterprises. Socialist
systems involve government agencies, public ownership, state ownership
or direct worker ownership of enterprises and assets that would be run
as businesses in a capitalist economy. The distinction between these
institutions and a business is that socialist institutions often have
alternative or additional goals aside from maximizing or turning a profit.
The term “business” has at least three usages, depending on the scope —
the singular usage (above) to mean a particular company or corporation,
the generalized usage to refer to a particular market sector, such as
“the music business” and compound forms such as agribusiness, or the
broadest meaning to include all activity by the community of suppliers
of goods and services.
Business Studies, the study of the management of individuals to maintain
collective productivity to accomplish particular creative and productive
goals (usually to generate profit), is taught as an academic subject in
many schools. Profit represent the rewards that business people who have
taken the risk in starting and running the entity. This may be different
from accountant thought of profit-difference between the firm’s revenue
and expenditures. Therefore the definition leaves out the nonprofit
businesses. Nonprofit organization is an organization that serves a
specific cause and is not intended to make profits. We need to note that
even though the motive of these organizations is not to make profit they
are run like a business.
In discussing business it is important to look at the factors of
production which are the inputs required by businesses for effective
operations. There are four factors of production namely: natural
resources, capital, human resources and entrepreneurship. Each of these
factors has corresponding payment. Human resources are the people or
workers who are able to perform work for the business, they contribute
their skills and abilities and in return they get paid in form of
salaries and wages. Capital includes equipment, machinery, tools and
physical facilities that the business uses in its daily operation.
Technology, which is knowledge or tools, used to produce products or
services, falls under the capital and has revolutionized the way
business operates; it has helped achieve efficiency and speed for most
activities in business. Entrepreneurship on the other hand is the
creation of business ideas and the willingness to take risk in pursuing
those ideas.
Historical Development of Business
Business history can be traced in six eras; the colonial period, the
industrial revolution, the age of industrial entrepreneur, the
production era, the marketing era and the relationship era(Boone &
Kurtz). In the following paragraphs we discuss activities under each era.
The colonial period
This was the period prior to 1776, and emphasize was rural and
agricultural production. There were small towns that functioned as the
market place for farmers and craftspeople, in Kenya for example we had
town such as Karatina serving as such city though much later in terms of
years. The economy success was primarily dependent on the farming.
The industrial Revolution
This was around 1760-1800s’. Business started to move towards mass
production and use of semi-skilled workers as well as the use of
machines. Some of the benefits that firms were able to get include cost
savings from economies of scale and use of machines. Also business
growth meant that they could be able to purchase raw materials in bulk.
Specialization of labor also improved production a great deal. It is
during this period that agriculture became mechanized, and factories
sprang up in cities.
Key Stakeholders in a Business
Business to be successful must involve other people. These people affect
and are affected by the business and hence they have an interest in
business, we call them stakeholders. These are the company, owners,
customers (internal and external), collaboration and competitors. A
company is an arrangement for running the business. It refers to the
business itself. It is the organization of people, the buildings and
equipment and other resources need to operate a business. It is the
process or system of core activities necessary to run the business.
Companies can take many forms ranging from an individual who works on
his own to a large corporation that operates in dozen of countries.
Owners
These are the people who provide the capital to the business. If you
recall we said that an entrepreneur is the
person who come up with the business idea and is willing to take risk.
More often than not entrepreneurs may not have the capital to finance
the venture, it is at this point that they may allow other people to
invest in the business and become coowners. Stockholders/shareholders
are investors who become co-owners or partial owners of firms by buying
the firm’s stock. (Madura, 2007)
Customers
These are the people who buy companies products or services from the
business. The company exchanges goods and services for a price with its
customers. A group of customers is known as a market. Business will
attract customers by provision of quality desired goods and services at
reasonable prices. More than ever before businesses are realizing the
importance that their employees play in ensuring that their customers
are satisfied. Toward this endeavor firms are now classifying their
employees as the internal customer and giving them their deserved attention.
Collaborators
These are persons or organizations that work with the company but are
not part of it. They are often specialists who provide special services
and supply raw materials, component, parts or production equipments for
use in the production of other goods and services. They include banks,
creditors, accounting firms, retailers, personnel agents, suppliers etc.
they are often referred to as alliances, networks, informal partners etc.
Competitors
These are the rival companies engaged in the business as ones company. Competitors are
interested in selling their products and services to a company’s
existing or potential customers. All competitors who produce similar
goods and services are referred to as an industry. A company strives to
obtain an edge or a competitive advantage over industry competitors.
This implies being superior or different from competitor in a way.
Business Objectives
- Profitability- To an economist, profit is the reward for risk-taking;
to accountant it is the difference between revenue and expenditure.
Business will try to maximize profit a notion most economists hails
while there are people who goes for satisfying- i.e. the business will
decide on a profit level it considers being satisfactory. - Survival- Organizations and people faced with death will sacrifice
possible future gain for life e.g. Uchumi supermarket when it was revived. - Prestige- The businesses do seek prestige from high quality products,
from care from the environment, from the use of latest technology or
from the care of their employees. - Growth- This could be based on the fact that as the business grows it
tends to enjoy economies of scale. It could also recruit from the
owner’s desire to grow or to limit or eliminate competitors
so that there will be more scope for greater profits e.g. equity bank. - Social responsibility- A business can also exist to serve the
society, business produce their commodities to the society. There are
some businesses that exist to serve public as their sole priority.
