Business Definition

Everything you need to know about the various definitions of business. A business definition is a clear-cut statement of the business or a set of businesses, the organisation engages in presently or wishes to pursue in future. Then it prescribes the arena in which the organisation will play and compete.

“Business comprises all profit seeking activities and enterprises that provided goods and services necessary to an economic system. It is the economic pulse to a nation striving to increase society’s standard of living. Profits are a mechanism for motivating these activities”. – Boono & Krutz.

Learn about the definitions of business provided by various eminent authors and institutions like B. O. Wheeler, Davis and Blomstorm, Keith & Gul Bellin , Boono & Krutz, Lewis H.Haney, James Stephenson, Buskirik, Green & Robgers, Musselman & Hughes, Peterson and Plowman, F.C.Hooper, Apple Corporation of USA, Hewlett-Packard Company of USA, Hindustan Lever Limited, Nestle India Limited and Others.

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Business Definition: Given by Different Eminent Authors and Famous Institutions

Business Definitions – By Different Authors Like Keith & Gul Bellin, Boono & Krutz, Lewis H.Haney, James Stephenson, Buskirik Green & Robgers and Others

Business is a wide term and signifies all economic activities carried on with the objective of earning money or profit or gain. Economic activities involve production, exchange, and distribution of goods and services. Therefore, the term business can be explained to mean an economic activity which involves production, exchange, and distribution of goods and services with a view to earn profit or gain.

There are, moreover, many organisations, both private and public, which do not aim at profit from their business, hi short, the definition of a business as a commercial activity to make a profit or an organisation formed to make a profit is an arrow one. Yet, to a layman, business still means industry and commerce.

Some of the definitions of term business are reproduced below:

According to B. O. Wheeler, “Business is an institution organised and operated to provide goods and services to society under the incentive of private gain.”

According to Sec.2 (13), of The Income Tax Act, 1961, “Business means any trade, commerce or manufacture or any adventure in the nature of trade, commerce or manufacture.”

The above definitions emphasise that business is a wide term and includes all types of activities earned on with a profit motive. It is worthwhile to mention that business involves repeated activity and not a single or isolated activity. Moreover business involves economic activities related to production, exchange, and distribution of goods and services.

Business implies repeated sale/ exchange of goods and services and not their consumption for own use. Therefore, business means all those activities which involve production, exchange, and distribution of goods and services with a view to earn profit. Business includes wide range of activities like manufacturing, trading, transportation, banking, insurance, warehousing and finance.

As Davis and Blomstorm observed, business is “social institution, performing a social mission and having a broad influence on the way people live and work together”. As Calkins remarks – It is now recognised that the direction of business is important to the public welfare, that businessmen perform a social function.

The modern concept of business is, thus, a very broad one. Business is viewed as a subsystem of the total social system. According to Davis and Blomstorm, “our modem view of society is an ecological one. Ecology is concerned with the mutual relations of human populations or systems with their environment. It is necessary to take this broad view because the influence and involvement of business are extensive. Business cannot isolate itself from the rest of society. Today the whole society is a business’s environment.”

The term business has been defined by different authors from time to time as follows:

“A business is nothing more than a person of group of persons properly organize to produce or distribute goods or services. The study of business is the activities of the activities involved in the production or distribution of goods and services-buying, selling, financing personnel and the like. In a theoretical sense, this definition of business is incorrect. Before an activity can be considered a business, there must exist both the goal of profit and the risk of loss”. – Keith & Gul Bellin

“Business is that complex field of commerce and industry in which goods and services are created and distributed in the hope of profit with in a framework of laws and regulations”. -Arthur M. Weimer

“Business comprises all profit seeking activities and enterprises that provided goods and services necessary to an economic system. It is the economic pulse to a nation striving to increase society’s standard of living. Profits are a mechanism for motivating these activities”. – Boono & Krutz

“Business may be defined as human activity directed towards producing or acquiring wealth through buying and selling goods”. – Lewis H.Haney

“Business is the sum total of those processes which are engaged in the removal of hindrances of persons (trade), place (transport and insurance) and time (warehousing) in the exchange (banking) of commodities”. – James Stephenson

“Business is a system created to satisfy society in needs and desires”. – Buskirik Green & Robgers

“Business represents the organised efforts of enterprises to supply consumer with goods and services”. – Musselman & Hughes

“Business may be defined as an activity in which different persons exchange something of value whether goods or services for mutual gain or profit”. – Peterson and Plowman

“Business means the whole complex field of commerce and industry, the basic industries, processing and manufacturing industries and the network of ancillary services, distribution, banking, insurance, transport and so on, which serve the world of business as a whole”. -F.C.Hooper

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Business Definitions – Provided by Institutions Like Apple Corporation of USA, Hewlett-Packard Company of USA, Hindustan Lever Ltd. and a Few Others

A business definition is a pithy or cogent and clear cut statement of the business or businesses the firm is engaged in or is planning to enter into. It is an elaboration of the business scope or span it will play in. It binds itself with boundaries of the firm’s business or businesses.

Business definition of an organisation pinpoints as to how the organisation is going to meet the pillars of its mission. We know that mission is externally focused and, therefore, the business definition cannot be repugnant to its mission statement.

That is why, Dr. P.F. Drucker says “What is our business is not determined by the producer but by the consumer…by the want the consumer satisfies when he buys a product or service.” That is, the very base of statement in what business the organisation “is determined by not alone the product” but by “the product market of the company.”

Let us take the case of Bombay Dyeing Limited which has a name for “Synthetic Sarees” which is defined as under:

The Bombay Dyeing Company has defined its business as textiles, though its core concern is high-priced synthetic sarees. It has to focus on the segment of synthetic high-priced and, therefore, high quality sarees. Such a kind of vivid focus on business definition helps the company to take matching actions.

Though, all products are not liked by all the customers, the company has an edge over others in Indian market in case of Synthetic Sarees on one hand and cotton (pure) on the other. The pure cotton concept is gaining ground in 1990s and 2000 as general public is fed up with synthetics and silk, they use silk as occasional wear and the rest as daily use. This changing trend should be capitalised.

Following are some of the most standard cases of business definition:

Apple Corporation of USA:

“We design develop, produce, market and service micro-processor based personal computers in United States and foreign countries.”

Hewlett-Packard Company of USA:

“Hewlett-Packard’s business is concentrated on developing high-quality products. Which make unique technological contributions and are so innovative that customers are willing to pay premium prices. Products are limited to the areas of electronic testing and measurement and to technologically related fields. Customer service, both before and after- sale, is given primary emphasis.”

Hindustan Lever Limited:

“To meet the everyday needs of people everywhere with branded products and services.”

Nestle India Limited:

“Manufacturing and marketing of nutritional foods to the public who prefer instant food.”

The above definitions make it clear that defining the business is only a part of mission. It is meant here giving clear cut description of products, activities, or functions and markets that the firm presently pursues. Products or services are the outputs of value created by the system to be sold to the customers.

The term ‘markets’ refers to classes or types of customers or the geographic regions where the products and or products and services are sold. ‘Functions’ mean the technologies or processes used to create and add value.

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Business Definitions – 3 Dimensional Business Definition Framework Developed by Harvard Professor Derek F. Abell

Understanding business is vital to answering the questions, “What is our Business? Who are our customers? What technology we should use to serve our customers?” Vision and mission statement can use the ideas generated through the process of understanding and defining business.

A business definition is a clear-cut statement of the business or a set of businesses, the organisation engages in presently or wishes to pursue in future. Then it prescribes the arena in which the organisation will play and compete. Business can be defined along three dimensions — product, customer, and technology.

However, whatever dimension is chosen for defining business, it must reflect two features- focus and differentiation. Focus of business may be defined in terms of the kind of functions the business performs rather than the broad spectrum of industry in which the organisation operates. Differentiation in business is how an organisation differentiates itself from others so that the business concentrates on achieving superior performance in the market.

The three-dimensional business definition framework, developed by Harvard Professor Derek F. Abell, is a model that can be used for defining the business of a company. The definition of a business is an issue that should not be taken lightly. In his book Defining the Business – The Starting Point of Strategic Planning, Abell says that the standard two-dimensional way of looking at a business (products and markets) has serious flaws.

He suggests a three-dimensional model, with the following three axes:

i. Served customer groups. Categories of customers, (who)

ii. Served customer functions. Customer needs, (what)

iii. Technologies utilized. The way that the needs are being satisfied, (how)

The Context of Defining Business:

An organisation must define its business in three contexts:

1. Customer segment – What is our business is not determined by the producer but by the consumer…. by the want the customer satisfies when he buys a product or service who is the customer? (Location, behaviour, how to reach).

2. Product – Every organisation defines the business it participates in and the product it offers. What does the customer buy?

3. Technology – Technology consists of equipment, machines, tools and other physical aspects, and sets of activities, methods, and processes used for the production and delivery of product. What does the customer consider value?

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Business Definitions – Dimensions and Levels of Business Definitions

Nature of business is one of the components of mission of an organization. This nature of business is expressed in the form of business definition. A business definition is a clear-cut statement of the business or a set of businesses, the organization engages in presently or wishes to pursue in future. Then, this prescribes the arena in which the organization will play and compete. This is necessary because an organization cannot operate in the entire segments of a chosen industry.

It cannot compete successfully doing the same thing and in the same manner as competitors are doing. Rather, it can do well, if it does the same thing differently or does different thing. Therefore, the business definition is a pre-requisite for further courses of action. Business can be defined along three dimensions—product, customer, and technology.

However, whatever dimension is chosen for defining business, it must reflect two features:

1. Focus and

2. Differentiation.

These two aspects need some elaboration.

1. Focus in Business Definition:

While defining a business, an organization should focus on its chosen field of business activity. Focus of business may be defined in terms of the kind of functions the business performs rather than the broad spectrum of industry in which the organization operates. For example, let us see the business of a textile company located in Surat which has defined its business as textiles.

The company actually operates in high-priced, premium synthetic sarees. In order to focus on its business strategically, it must define its business as indicated above rather the industry (textiles in this case) which is meant for public consumption and not for formulating strategy. Such a sharp focus on business definition provides direction to a company to take suitable actions including positioning of the company’s business.

2. Differentiation in Business Definition:

Another feature involved in defining business is differentiation, that is, how an organization differentiates itself from others so that the business concentrates on achieving superior performance in the market. Differentiation can be developed on several bases- quality, price, delivery, service, or any other factor which the concerned market segment values. However, a company cannot use all of these bases at a time but it depends on the organization’s strengths.

Thus, in the light of its strengths, the organization can cultivate those strengths that will contribute to the intended differentiation. For example, an organization cannot differentiate on both quality and price at the same time because both move in the same direction; it cannot keep its product quality high at low price. At the best, it can charge comparatively lower price as compared to its competitors in the same product-quality segment.

Then, price does not become a differentiating factor. As against this, if the organization is charging a much lower price in the same product group excluding quality, price becomes a differentiating factor. For example, if we take synthetic detergent market, we find such a differentiation between Hindustan Unilever and Nirma.

Such focus and differentiation are required in all dimensions on the basis of which business is defined. Therefore, let us see the dimensions of business definition.

Dimensions of Business Definition:

Business definition emphasise on two dimensions-the nature of product and the nature of customer satisfaction.

These two dimensions have been taken by Drucker when he says that in defining the business, following questions can be asked:

1. Who is the customer?

i. Where is the customer located?

ii. How does the customer buy?

iii. How can the customer be reached?

2. What does the customer buy?

3. What does the customer consider value?

Abell suggests that a business may be defined along three dimensions- customer groups, customer functions, and alternative technologies^.

Different dimensions for defining business focus on different variables. Customer groups relate to who is being satisfied; customer functions relate to what is being satisfied; and alternative technologies describe how the ends are being satisfied.

Taking these three dimensions and Drucker’s narration of customers, an organization has to define its business in three contexts:

1. Customer segment,

2. Product, and

3. Technology.

All these elements are highly interrelated and make sense only when they are considered together.

1. Customer Segment:

In the context of present-day competitive market, Sam Walton, founder of Wal-Mart Stores, USA, has said, “there is only one boss-the customer. He can fire everybody from the chairman on down, simply by spending his money somewhere else.” Therefore, business definition must focus on customer segment.

Drucker has emphasized this point by saying:

“What is our business is not determined by the producer but by the consumer … by the want the consumer satisfies when he buys a product or service.”

Therefore, in defining business, the focus must be on the customer. However, a single organization cannot be able to satisfy all needs of all people. Therefore, it must focus on a particular customer segment and the way it satisfies the particular need of such a segment. Though there are different bases on which customers can be segmented and every text on marketing management deals with these, here, the customer segment can be defined in terms of the type of satisfaction it looks for in a product and the price it is ready to pay for that satisfaction and the location of that segment.

The basic idea behind this segmentation is to match the needs of specific group of population located in a specific geographical area. Thus, Hindustan Unilever has defined its business to cover anyone and everywhere in the country and satisfaction offered is through branded products. The company has about 110 brands in its fold which are spread across various personal and home products and foods and beverages.

The company has included in its portfolio such grocery items as wheat flour, rice, salt, etc. which appear to be commodity products. As against this, many companies do not include everyone in its customer segment. For example, Hero Cycles has defined its customer segment in terms of people in lower-income group located in semi-urban and rural areas.

2. Product:

Every organization defines, by one means or others, the business it participates in and the product it offers. The choice relates to the horizontal range of products—specializing in a single product or a narrow segment of an industry—on the one hand, or the broad diversification into a wide range of products on the other. Most businesses are characterized by a range of products that can be grouped along several dimensions, e.g., product features, quality, price, distribution, service, and so on.

Since an organization cannot compete along all these dimensions, it is better to define its business in such a way that it derives competitive advantage out of this definition. For example, a bicycle manufacturer cannot compete in the industry unless it is very much precise about what type of bicycles it produces—price, customer segment, and functional utilities being the differentiating factors.

Therefore, bicycle manufacturing is not really the business definition for the organization from strategic point of view but pinpointing some particular dimensions on which it will compete in the market. For example, Hero Cycles has defined its business not as bicycle but cheap and sturdy bicycles and offers bicycles that are low- priced, sturdy, and functionally useful rather the ones with X or Y micron layers of paint. Such a product definition has a sharper focus on managerial actions.

3. Technology:

The third dimension on which business is defined is technology which is used in production and delivery of product. Technology consists of equipment, machines, tools, and other physical aspects and sets of activities, methods, and processes for the completion of the work. Technological dimension of business definition specifies what activities are to be undertaken to produce and deliver products and/or services, and to enhance their value for customers.

Value creation is the process of enhancing the utility of a product from customers’ point of view. A customer would buy a product only when he/she perceives that the product offers value higher than, or atleast equal to, its price.

However, since the value of a product is qualitative and it is determined by the perception of the customer, the organization has to define what value the customer considers important. For some customers, it may be lower price; for others, it may be regular delivery, after-sales service, product innovation, quality, etc. The organization has to define how it would enhance the value of the product to its customers.

Levels of Business Definition:

Like the levels of strategy, business may be defined at different levels. In the case of a single- product, or closely-related products, organization, business definition is easy because it might be confining in a narrow range of business and offering limited range of products. However, such a definition becomes somewhat difficult and complex for a diversified organization offering different unrelated products.

For such an organization, business has to be defined at each SBU level or product-division level along the three dimensions. All such business definitions have to be integrated at the corporate level. For example, BHEL, a diversified electrical company which has grouped its various products under three categories—energy sector, industry sector, and transportation sector, has defined its business at the level of each product group as well as at the corporate level.

At the product group level, the business has been defined in terms of market segment and how a particular segment may be served, while at the corporate level, it has defined its business as engineering, as contrast to its earlier definition of manufacturing, to focus more sharply on the marketing of the products rather manufacturing custom-built products.

When an organization defines its business clearly and specifically, it acts as a focal point for determining the organization’s actions so as to create value for its customers. The organization may not take other activities unless it changes its business definition. Many companies have diversified their businesses without redefining their earlier business concept and have failed in these attempts, e.g., Voltas, Century, Metal Box, etc.

As against that, Reliance, which earlier defined its business as premium fabrics, has redefined its business as integrated petrochemicals with the result that now its major revenues come from petrochemicals and not from premium fabrics.

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Business Definitions – With Attributes of a Good Business

A clear-cut statement of the business, the firm is engaged in or planning to enter. It is elaboration of the business arena and the boundaries in which it will play. What is our business? What will it be? What should it be? Defining business involves three dimensions, namely “Customer Functions”, “Customer Groups” and “Alternative technologies”.

Business Definition sets and limits the contours of the business. It clarifies the opportunities business can pursue and the areas in which these opportunities are to be looked for. It clarifies to the firm the various sources from which threats and competition will come for. Defining customer functions and customer groups provides Blue Print and a reference point for Product-market strategy. Mission Statement provides the basic inputs for business definition and provides a broad frame work.

Examples:

i. Modi Xerox – Focus as a service organisation rather than vendor of Xerox machines.

ii. Customer focus- Office Communication with high priced and low priced equipments, marketing services of maintenance and per copy price.

Customer Function- Availability of spares, Drums, Toner, good after sales service. Technology – Collaboration with “Rank Xerox”

Helen Curtice – We are in beauty enriching business. We will pursue ideas that would generate products enhancing beauty and youthfulness of men and women.

Intel – We are in the business of computing technology and to consistently develop the artifice/building blocks of computing technology for the entire computer industry of the world is our business.

Attributes of a Good Business:

i. It must be related to human needs which the product seeks to satisfy and should not be limited to just the product.

ii. It must be related to basic benefits the product offers.

iii. It should not be narrow. A wrong and or narrow concept could reduce the life span of organisation.

iv. It must be related to the functions performed by the product and not limited to just the product.

v. It must encompass in its fold, as many related function / benefits as possible.

vi. It must go beyond the immediate product, beyond the immediate competitors, beyond the immediate market boundaries.

vii. It must be wide enough to embrace new opportunities.

viii. It must be wide enough to give a vision of latent sources of competition from say, substitute products.

ix. Business boundaries keep changing and defining Business is a dynamic situation and becomes an exacting exercise and it needs to be re-casted over time again and again.

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Business Definitions – With Dimensions, Level and Purpose of Business Definitions

Following are some popular definitions of business:

“Business may be defined as a human activity directed towards producing or acquiring wealth through buying and selling of goods”. — L. H. Haney

“All of the activities included in the production and sale of goods or services may be classified as business activities.” — W. R. Spriegel

“Economic activities performed for earning profits are termed as “Business”. — James Stephenson

Defining the business involves answering these questions- “What is our business? What will it be? What should it be?” The answers differ, depending on whether the organization is a single-business or a diversified enterprise.

While defining its business, Abell suggests, a single business company ‘should define its business in terms of three dimensions:

(a) Who is being satisfied (what customer groups),

(b) What is being satisfied (what customer needs),

(c) How are customers’ needs being satisfied (by what skills or distinctive competencies?)’

Abell emphasizes a consumer-oriented approach rather than a product-oriented business definition. ‘A product oriented business definition focuses just on the products sold and the markets served’ such an approach obscures the company’s function to satisfy consumer needs.

A product is only the physical manifestation of applying a particular skill to satisfy a particular need for a particular consumer group. In practice, the particular need of a particular consumer group may be served in different ways. Identifying these ways through a broad, consumer-oriented business definition can safeguard companies from being caught unawares by major shifts in demand.

Indeed, by helping anticipate demand shifts, a consumer-oriented approach can assist companies in capitalizing on the changes in their environment and seek answer to the question, what will our business be?

A business definition is a pithy, clear-cut statement of the business(s) the firm is engaged in or is planning to pursue. It is an elaboration of the business arena it will play in. It prescribes the boundaries of the firm’s business (s).

We will better understand the nature of business definition, if we look at it in conjunction with corporate mission.

Dimensions of Business Definition:

Abell suggests defining business along three dimensions:

1. Customer groups

2. Customer functions and

3. Alternative technologies

Customer groups refer to ‘who’ is being satisfied. Customer function (needs) relate to what is being satisfied. Alternative technologies describe’ how’ the need is being satisfied.

The identity of the customers creates customer groups. Customer functions originate from the products or services provided to the customers. Alternative technologies explain the manner in which a particular function can be performed for a customer.

A clear business definition helps strategic management in the following ways:

1. Indicates the choice of objectives.

2. Helps in exercising a choice among different strategic alternatives.

3. Facilitates functional policy implementation.

4. Suggests appropriate organizational structure.

Levels of Business Definition:

In a diversified company, the activity of defining the business may take place at two levels: the business level and the corporate level. At the business level, the focus should be on a consumer-oriented definition. At the corporate level, the business definition should focus on how the corporate level adds value to the constituent businesses of the company.

If the corporate level of a diversified company cannot identify how it improves the efficiency of business units within the company, it would be better for those units to do this activity on their own.

This was the main reason behind the divestment trend of the 1980s and 1990s. During this period the business units realized that the corporate level does not add value to the constituent business units of the company. Consequently, many of the conglomerates such as ITT, Textron and Gulf and Western broke up and downsized.

Purpose of Business Definition:

The business definition identifies for the firm opportunities it can pursue and the areas in which these opportunities are to be sought. It also clarifies to the firm the various sources from which threats and competition can emanate and the firm understands its limits and industry better.

Business definition provides the guidelines for the choice of product-market and changes thereof. “By delimiting the boundaries of the business(s), the business definition serves as the reference point for product-market choices and corporate strategy of the firm. Generation of strategy alternatives and subsequent strategy choices gain better focus and clarity when the firm has specified the businesses it will pursue. Strategists, especially those at the business/product-market level, will not have to travel haphazardly when they have clear indications of the boundaries of their firm’s interest and pursuit.”

The mission should contain the substance of business definition to indicate the nature of the business the firm will pursue. Thus the mission gives the clues for the business definition.

The business definition, in turn, would provide a framework for product-market choice from which a variety of decision alternatives will emerge during the journey of the firm. It will help in deciding issues such as the level of firm’s operations, the strategies to be evolved, kind of investment to be made and the major competitors to combat.

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Business Definitions

The term ‘Business’ means busy-ness or a ‘state of being busy’. A person may be busy in playing computer games or watching TV. However, in such cases, he will not be doing any business as ‘Economic Element’ is missing in these activities. So, business means a state of being busy in economic activities.

In the words of Lewis H. Haney, “Business may be defined as human activity directed towards producing or acquiring wealth through buying and selling goods”. In the words of Peterson and Plowman, “Business may be defined as an activity in which different persons exchange something of value, whether goods or services for mutual gain or profit”.

In the words of Prof. L. R. Dicksee, “Business refers to a form of activity pursued primarily with the object of earning profits for the benefit of those on whose behalf the activity is conducted”.

In the words of Wheeler, “Business is an institution organised and operated to provide goods and services to society under the incentive of private gain”.

Based on above definitions, business may be defined as:

Business refers to those economic activities, which are connected with production, purchase and sale of goods or supply of services with the main object of earning profit. People engaged in business earn income in the form of profit. For example, Farming, Manufacturing, Fishing, etc.

Thus, business is sum total of all gainful human activities, which aim to create, exchange and possess wealth in the form of physical output and useful services.

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