Understanding the Modern Business: A Deep Dive
What is a Business?
Economic Perspective
A business is a fundamental production unit. Its core function is to create or enhance value using inputs coordinated by management. Key functions include:
- Managing and coordinating inputs.
- Creating or increasing the utility of goods.
- Assuming risks.
- Generating wealth and employment.
Organizational Perspective (Company as a System)
Business organization involves designing and maintaining an operating system. This includes defining tasks, assigning personnel, establishing relationships between them, and implementing control processes to monitor objective achievement. A firm is a set of interconnected elements (human, technical, financial, etc.) operating within a specific environment and pursuing specific goals. Each element contributes to the overall objectives of the enterprise system. Key characteristics:
- Open system, influenced by and influencing its environment.
- Synergistic organization where the whole is greater than the sum of its parts.
- Interconnected system where changes in one element impact others and the entire system.
- Self-regulating system with feedback mechanisms for adjustment and maintaining balance.
Three key subsystems:
- Steering Subsystem: Planning, organization, management, and control.
- Real Subsystem: Sourcing, production, and marketing.
- Financial Subsystem: Financing and investment of funds.
Components of a Business
- Human Group: Employees, owners, and managers.
- Assets: Permanent and temporary economic resources.
- Organization: The structure and processes.
- Environment: The external context surrounding the company.
Business Objectives
Traditionally, the primary goal was maximizing profit (BFO: bfos / capital employed x 100). Modern objectives include profit maximization, growth, value creation, social responsibility, and environmental adaptability.
Environmental Factors
General Environment
Factors and circumstances affecting all firms within a specific society or geographical area (e.g., Spanish companies). Examples include changes in disposable income or new labor laws.
- Political-Legal Factors: Regulations and laws impacting business operations.
- Economic Factors: Economic indicators and their influence on business activity.
- Socio-Cultural Factors: Community values, beliefs, demographics, and cultural conditions.
- Technological Factors: Scientific and technological advancements, innovation, and obsolescence.
Specific Environment
Factors influencing companies with shared characteristics within the same industry (e.g., car manufacturers). A sector comprises firms offering similar products to satisfy similar consumer needs. Sector structure is defined by factors like firm size and number, entry barriers, product differentiation, technology, and production costs. Market share represents a firm’s sales proportion of total industry sales.
Business Strategies
Competitive strategies aim to secure a favorable position within a sector by achieving a competitive advantage.
- Cost Leadership: Producing at lower costs than competitors while maintaining quality, enabling lower prices and increased market share.
- Differentiation: Offering unique or exclusive products, justifying higher prices.
- Segmentation/Niche Markets: Specializing in a specific market segment for increased effectiveness.
Social Responsibility
Commitments and ethical obligations a company undertakes to address and improve the social, employment, and environmental impacts of its activities.
- Commitment to society
- Trust with workers
- Credibility with customers
- Respect for the environment
Disadvantages: High energy and resource consumption, pollution, and waste generation at scale.