Introduction
In
any organized society, several institutions exist to serve the needs of people
in that society. Government creates
several institutions to enable it carry out its function of providing law and
order, security of life and property, regulation and control of the activities
of individuals and groups in the society, development of infrastructure and
promotion of the economic, social and cultural welfare of the nation. Institutions are also established to serve
the needs of people for goods and services.
Such institutions provide these goods and services to people with the
aim of making profit for their owners.
In many societies, these institutions are non-governmental but there are
quite a number of societies where government also engages in providing these
goods and services. A third category of
institutions exist. These are non-profit
and non-governmental institutions which are established to render certain
services which neither government nor profit-oriented establishments
render. They are usually concerned with
educational, cultural, religious, environmental, etc issues.
Institutions
whose primary goal is profit are generally known as business enterprises. A business enterprise is a decision-making
unit concerned with serving certain needs through the production and
distribution of goods and rendering services at a profit for the owners. The distinguishing feature of business
enterprises in relation to other institutions of society is profit. Other institutions may produce goods or
render services but they do not generally do so for the purpose of making a
profit. For example, a government-owned
medical laboratory may produce vaccines for controlling certain animal diseases,
but this activity is usually not carried out for the purpose of making a
profit. Similarly, a non-profit and
non-government agency may render services without the aim of making a profit.
It
is important to recognize that the term business can be used loosely. It may be used to describe a wide variety of
activities or transactions that an individual or group may engage in. a dictionary defines it as a commercial
activity engaged in as a means of livelihood; a trade; a profession; occupation
or a particular field of endeavour. From
this definition, it is obvious that the term can be applied as a general term
for most human activities. Specifically
however, business is defined as any lawful human activity which involved the
production and distribution of goods or the rendering of services for the
purpose of making a profit.
Objectives of the Business Enterprise
Our
definition of the business enterprise stresses that the primary objective of
business is to make profit by identifying and effectively serving the needs of
consumers. This is correct. Profit is the primary motive for establishing
a business enterprise. It is a reward
for investing ones savings in a venture in spite of the fact that the future
outcome of the venture is uncertain.
That is, profit is a reward for assuming the risk of establishing a
business enterprise. Profit serves other
functions. It is the principal source of
growth and continued existence of the business enterprise. Through reinvestment of profit, the business
enterprise can be expanded. Profit also
serves as a measure of performance. It
is an index by which the performance of one enterprise can be compared with
that of another or the performance of the same enterprise can be evaluated over
time. Consequently, profit is an
incentive for people to work harder and more efficiently.
There
are however secondary objectives of business which are related to and dependent
on the profitability objective. Among
the secondary objectives are:
a.
Growth Objective: The expansion of the business
enterprise is one of the objectives of business. This may take the form of increase in sales
turnover, market share, number of people employed, capital employed etc.
b.
Innovation: This is an important means of striving to
satisfy the needs of consumers better than competitors. Innovation involves introduction of new
products, new method of handling distribution, new method of production etc.
c.
Productivity: It is particularly important to the business
enterprise that productivity is improved.
Productivity is the ratio of output to input in a given period of
time. It is the extent to which a
business enterprise is able to utilize a given set of resources to achieve the
highest possible value of output.
Productivity may be measured over time in terms of output per employee,
output per unit of capital invested or output per unit of the most critical
resource invested.
d.
Employee Satisfaction: Business enterprises seek to enhance the satisfaction
of employees as a means of optimizing their contribution to the growth and
competitiveness of the enterprise.
e.
Shareholder Satisfaction: To guarantee
continued support of investors, business enterprises seek to improve the
returns to shareholders while at the same time reducing their risk.
f.
Public Image: A positive public image for the enterprise
enables it to obtain the resources it needs on favourable terms. Thus the business enterprise strives in
various ways to improve its image as a good corporate citizen involved in the
production and distribution of high quality products. It also strives to project itself as an
enterprise which is concerned about its employees and the community in which it
operates.
It
is clear that the business enterprise has multiple objectives which are related
on to another.
Structure of the Business Enterprise
The
production and distribution of goods and services involves a large number of
activities. The structure of a business
enterprise is the pattern of grouping and allocation of these activities to
people as well as the distribution of authority among them in order to achieve
the objectives of the enterprise. The
activities can be grouped in a large number of ways. Most often, they are grouped according to the
basic functions they are expected to serve.
These are marketing, production, finance and accounting and personnel
functions.
Marketing
includes activities involved in ascertaining the needs of consumers, developing
suitable goods to meet the needs and distribution of the goods to consumers.
Production
function incorporates all activities through which raw materials are procured,
and converted into needed products.
Finance involves activities needed to obtain the required funds,
allocate and control and utilization of the funds while all activities by which
financial transactions are recorded, summarized, analysed and interpreted for
business decision-making are included under accounting. Personnel function encompasses all activities
by which human resources are procured and utilized in the business enterprise.
The
distribution of authority among people performing various functions in the
enterprise is also an aspect of the structure of the business enterprise. As with all human institutions, authority is
unevenly distributed. Some people are
given more authority than others.
However, the basis of distribution of authority is the responsibility
that a person has for people, money, materials and information needed to
produce and distribute goods and services.
The higher the responsibility that a person has in the business
enterprise, the more the authority that is assigned to such a person so that
he/she can carry out the responsibilities.
Hence there is a hierarchy of authority in the business enterprise as
shown in figure 1.1
Managing
Director |
Marketing Production
Finance Personnel
Manager
Manager Manager Manager
The structure of a typical business enterprise
The
diagram shows that the person with the highest level of authority in this
business enterprise is the Managing Director.
The managers in charge of the functional areas each have the same level
of authority over activities assigned to them but their authority is, in turn
higher than that of their subordinates.
Stake-holders in the Business Enterprise
A
stake-holder is a person or group of persons who have committed something to
the business enterprise and therefore has expectations from it. There are different stakeholders in the
business enterprise. These are owners,
managers, employees, consumers, suppliers, distributors, creditors,
competitors, government and the community.
Below are the commitments of some stakeholders and their expectations
form the business enterprise.
a.
Owners: Those who have committed their savings to
provide capital for the business enterprise and assume the risk associated with
it are the owners of the enterprise.
They expect to make profit so that they can have a satisfactory return
on their investment. Owners also expect
the business enterprise to expand and minimize the risk of failure of the
enterprise.
b.
Managers: The managers are those who have been
entrusted with the responsibility of directing the affairs of the business
enterprise so that it realizes its objective of profitability. Managers expect the owners to give them a
free hand to use their professional skills in the pursuit of the objectives of
the enterprise. They also expect the
business enterprise to expand and provide them with better remuneration and
prospects.
c.
Consumers: These are individuals, households and firms
who have needs that they want to satisfy.
Consumers are important to the business enterprise because their
patronage or lack of patronage of the goods and services of the business
enterprise determine the success or failure of the business. Consumers expect the business enterprise to
provide them with goods and services that are designed to suit their
taste. They want high quality products
that they can afford and which are readily available.
d.
Employees: Employees:
Employees contribute their skills, ideas and energy to carry out the
various activities and transactions of the business enterprise. They are interested in having better career
opportunities in the enterprise, better remuneration, job security and dignity.
e.
Suppliers: The business enterprise depends on suppliers to
provide it with raw materials and services in order to have an uninterrupted
flow of production. Suppliers too depend
on the survival and growth of the enterprise for their own survival and
growth. They expect the business
enterprise to pay for goods and services supplied according to the terms agreed
upon.
f.
Distributors: The main role of distributors is to
facilitate the delivery of goods produced by the business enterprise to
consumers. Distributors invest in
facilities that will enhance their capability of delivering goods to consumers
efficiently. They however expect the
business enterprise to support them with promotional materials and suitable
pricing policies.
g.
Government: It is the responsibility of government to
create a conducive environment in which the business enterprise thrives. Government here means Federal, State, and
Local Governments. The programmes and
policies of government are expected to facilitate, not hinder, the operations of
the business enterprise. On its own
part, the business enterprise is expected to obey the laws and regulations of
the country, pay taxes promptly and generally contribute, as a good corporate
citizen, to the total development of the society.
h.
The Community:
The community consists of the people and groups in the immediate vicinity of
the area of operations of the business enterprise. The community and the business enterprise and
interdependent as each enjoys the natural and human resources available in the
locality. The business enterprise uses
land, water resources and other social infrastructural facilities of the
community. The community depends on the
business enterprise to promote the quality of life of the community by
providing jobs, involvement in the social and cultural life of the community
and protecting the environment.
Classification of Business Enterprises
There
are different ways of classifying business enterprises. They may be classified according to the
economic sector/industry to which they belong or according to their location in
the production process. Because
enterprises may also be classified by size, type of customer, type of goods
produced, etc. the method of
classification adopted depends on the purpose it is intended to serve.
The
International Standard of Industrial Classification (ISIC) is a common method
of classification of establishments into various economic sectors. This method adopts a numbering system that
makes it possible to classify establishments precisely into divisions, then
into major groups and then into subgroups.
The numbers used for divisions and major groups are shown below:
No Industry Division/Group
01-09
Agriculture,
Forestry and Fishing.
10-14
Mining
15-19
Construction
20-39
Manufacturing
40-49
Transportation,
Communication, Electric, Gas and Sanitary Services
50-51
Wholesale Trade
52-59
Retail Trade
60-67
Finance, Insurance,
Real Estate
70-89
Services
91-97
Public
Administration
99 Non-classifiable
Establishments.
The
division is indicated by the first digit and the major group of the
establishment is indicated by the second digit.
Examine the ISIC classification of the food manufacturing group shows
below. Note that there are other groups
in the manufacturing industry.
Food Manufacturing
No Industry Products
0001 Meat Product Sausages,
Edible Fats
0002
Diary Products Milk, Yogurt, Butter
0003 Canned Fruit and Juice Fruit Drinks
0004 Oils and Fats Palm Oil, Margarine
0005 Grain Mill Products Rice-Milling, Floor
0006 Bakery Products Biscuits, Bread
0007 Sugar Factories Sugar.
The
first two digits of ISIC number 0001 indicates that the establishment is in the
manufacturing sector and in the food-manufacturing group. The last two digits indicate the
establishment is involved in meat products preparation such as sausages, edible
fats etc.
Business
enterprises can be classified according to whether they are largely owned by
government and its agencies or by private individuals and firms. When a business enterprise is owned by
government or it agencies, the enterprise is regarded as a public sector
enterprise. If it is owned by private
individuals/firms, it is regarded as a private sector enterprise. The extent to which government owns business
enterprises in an economy is of public interest. As we shall see later in this chapter, government
ownership and control of business enterprises determine the nature of the
economic system in operation in the country.
When
business enterprises are classified according to their location in the
production process, we have extractors, processors, assemblers and
facilitators. This classification may
simply be collapsed into two – primary producers and secondary producers. Extractors are primary producers while
processors, assemblers and facilitators are secondary producers. Extractors consist of those business
enterprises whose primary activities involve mining, quarrying, fishing,
lumbering or generally obtaining useful items from land, sea, forest, etc.
The
items in their crude state are then moved to other business enterprises called
processors to clean, shape, refine or generally convert to more useful
state. Assemblers are those enterprises
that put together or combine various components to make a new product. Facilitators are those that provide support
services to the others. Examples of
facilitators are banks, insurance companies, brokerage firms etc.
Another
useful method of classifying business enterprises is according to size. There are various ways in which the size of
an enterprise can be measured. Size may
be measured by the total sales of an enterprise during a given period of time,
the number of people employed on full-time basis, the total capital employed I
the enterprise or the value of total fixed assets employed. The type of measure adopted depends on
convenience but the most popular measures of size are total fixed assets
employed and number of full-time employees.
The
Federal Ministry of Industry has four categories into which business
enterprises may be classified by size.
These are micro enterprises, small-scale enterprises, medium-scale
enterprises and large-scale enterprises.
Micro enterprises have value of total fixed assets (excluding land) not
exceeding N400,000.00 while for small-scale enterprises, the value of fixed
assets range between N400,000.00 and N5 million. Medium-scale enterprises have value of fixed
assets exceeding N5 million but not more than N10 million are considered to be
large-scale enterprises.
It
must be noted that the categories noted above and their definitions are not
stable over time. As the economy
develops and with inflation, the definitions are adjusted to reflect the
prevailing conditions. For example in
the sixties, small-scale enterprises were defined as establishment whose fixed
assets (excluding land) did not exceed N150, 000.00. Compare this figure with the latest
definition of small-scale enterprise in which the corresponding value is N5
million.
There
are a large number of unregistered and unincorporated businesses engaged in
retail and wholesale trade, craft industries, manufacturing, services etc. Most of them are owned and operated by one
person, occasionally with the support of members of his/her family. Many do not have permanent or fixed addresses
and the capital employed is usually small.
Enterprises with these characteristics are said to belong to the
informal sector of the economy. Those that
are duly registered with the appropriate agencies of government or are
incorporated are classified as belonging to the formal or organized sector of
the economy.
Paul Ikele M.Sc, MBA,
FBDI PhD (In view)
