Understanding Businesses and Their Functions

Posted on Jul 31, 2024 in Economy

What is a Business?

A business is any activity intended to produce goods and services that satisfy human needs. It’s an ongoing endeavor that combines resources or productive factors to meet its objectives.

Key Resources in a Business:

  • Material Resources: Mineral deposits, water resources, forests, raw materials.
  • Capital: Machinery, buildings, business premises, money, technology used to manufacture a product or service.
  • Human Resources: Managers, department heads, operators, vendors.

The combination of these factors depends on:

  • The nature of the product or service.
  • The technology used in the production process.

Functional Areas of a Business

Within a company, activities need to be organized. These activities can be grouped into four functional areas:

1. Marketing

This area focuses on understanding and meeting customer needs. Its key responsibilities include:

  • Identifying consumer needs.
  • Designing products and services.
  • Setting product properties.
  • Studying market potential.
  • Determining pricing strategies.
  • Managing production and advertising.

2. Production

This area is responsible for transforming raw materials into finished goods. Its tasks include:

  • Defining product designs and features.
  • Defining production processes.
  • Studying efficient working methods.
  • Selecting suitable personnel.
  • Managing supplies, storage, and inventory.
  • Implementing quality control measures.

3. Finance

This area manages the financial resources of the business. Its responsibilities include:

  • Acquiring capital for tools and machinery.
  • Managing salary costs.
  • Controlling internal and external cash flow.
  • Organizing an efficient accounting system.
  • Maintaining good relationships with financial institutions.

4. Human Resources

This area focuses on managing the human capital of the business. Its key functions include:

  • Recruitment and selection of employees.
  • Developing training programs.
  • Setting remuneration and commission levels.
  • Conducting staff performance evaluations.
  • Overseeing staff welfare.

Simplified Roles of Functional Areas

  • Marketing: Responsible for distributing and selling products, communicating the product to the community.
  • Production: Transforms raw materials into products, utilizing men and machines in the process.
  • Finance: Coordinates and organizes the company budget, manages economic resources, and secures funds.
  • Funding: Responsible for obtaining internal and external financial resources.

Business as an Economic Entity

A business is an agency or institution that produces goods and services to meet the needs of individuals and society.

Understanding Needs

A need is a feeling of lack or deprivation of something considered essential. Needs are:

  • Multiple
  • Incremental
  • Hierarchical

Maslow’s Hierarchy of Needs

Abraham Maslow’s theory presents a hierarchy of human needs:

  1. Physiological: Basic survival needs like breathing, food, water, sleep.
  2. Safety: Needs related to security, stability, and protection from harm, such as financial security, health, and property.
  3. Love and Belonging: Social needs for love, affection, belongingness, and acceptance.
  4. Esteem: Needs related to self-esteem, respect from others, recognition, and achievement.
  5. Self-Actualization: The need to fulfill one’s potential, pursue personal growth, and achieve self-fulfillment.

Goods and Services

  • Goods: Tangible objects that satisfy a need, such as food, water, or a vehicle.
  • Services: Actions or activities that satisfy a need, such as education, healthcare, or mail service.

Classification of Goods

By Character:

  • Free Goods: Abundant and not owned by anyone, like air or sunlight.
  • Economic Goods: Limited in supply and have an economic value, like vehicles or houses.

By Nature:

  • Capital Goods: Used to produce other goods and services, such as machinery or factories.
  • Consumer Goods: Directly satisfy human wants and needs.
    • Durable Goods: Long-lasting, like appliances.
    • Non-Durable Goods: Consumed quickly, like food.

By Function:

  • Intermediate Goods: Require further processing to become consumer goods, like raw wood.
  • Final Goods: Ready for consumption, like bread or a finished table.