The Nature Of Business


A business is an organization that strives for a profit by providing goods and services desired by its customers.
Businesses meet the needs of consumers by providing medical care, autos, and countless other goods and

Nature of Business

Business and nature of Business

A business is an organization that strives for a profit by providing goods and services desired by its customers.
Businesses meet the needs of consumers by providing medical care, autos, and countless other goods and
services. Goods are tangible items manufactured by businesses, such as laptops. Services are intangible
offerings of businesses that can’t be held, touched, or stored. Physicians, lawyers, hairstylists, car washes, and
airlines all provide services. Businesses also serve other organizations, such as hospitals, retailers, and
governments, by providing machinery, goods for resale, computers, and thousands of other items.

Take a moment to think about the many different types of businesses you come into contact with on a typical
day. As you drive to class, you may stop at a gas station that is part of a major national oil company and grab
lunch from a fast food chain such as Taco Bell or McDonald’s or the neighborhood pizza place. Need more
cash? You can do your banking on a smartphone or other device via mobile apps. You don’t even have to visit
the store anymore: online shopping brings the stores to you, offering everything from clothes to food,
furniture, and concert tickets.

Thus, businesses create the goods and services that are the basis of our standard of living. The standard of
living of any country is measured by the output of goods and services people can buy with the money they
have. The United States has one of the highest standards of living in the world. Although several countries,
such as Switzerland and Germany, have higher average wages than the United States, their standards of living
aren’t higher, because prices are so much higher. As a result, the same amount of money buys less in those
countries. For example, in the United States, we can buy an Extra Value Meal at McDonald’s for less than $5,
while in another country, a similar meal might cost as much as $10.

Businesses play a key role in determining our quality of life by providing jobs and goods and services to
society. Quality of life refers to the general level of human happiness based on such things as life expectancy,
educational standards, health, sanitation, and leisure time. Building a high quality of life is a combined effort
of businesses, government, and not-for-profit organizations. In 2017, Vienna, Austria, ranked highest in quality
of life, followed by Zurich, Switzerland; Auckland, New Zealand; and Munich, Germany. It may come as a
surprise that not one of the world’s top cities is in the United States: seven of the top 10 locations are in
western Europe, two are in Australia/New Zealand, and one is in Canada. At the other end of the scale,
Baghdad, Iraq, is the city scoring the lowest on the annual survey.1 Creating a quality of life is not without
risks, however. Risk is the potential to lose time and money or otherwise not be able to accomplish an
organization’s goals. Without enough blood donors, for example, the American Red Cross faces the risk of not
meeting the demand for blood by victims of disaster. Businesses such as Microsoft face the risk of falling short
of their revenue and profit goals. Revenue is the money a company receives by providing services or selling
goods to customers. Costs are expenses for rent, salaries, supplies, transportation, and many other items that

a company incurs from creating and selling goods and services. For example, some of the costs incurred by
Microsoft in developing its software include expenses for salaries, facilities, and advertising. If Microsoft has
money left over after it pays all costs, it has a profit. A company whose costs are greater than revenues shows
a loss.

When a company such as Microsoft uses its resources intelligently, it can often increase sales, hold costs down,
and earn a profit. Not all companies earn profits, but that is the risk of being in business. In U.S. business
today, there is generally a direct relationship between risks and profit: the greater the risks, the greater the
potential for profit (or loss). Companies that take too conservative a stance may lose out to more nimble
competitors who react quickly to the changing business environment.

Take Sony, for example. The Japanese electronics giant, once a leader with its Walkman music player and
Trinitron televisions, steadily lost ground—and profits—over the past two decades to other companies by not
embracing new technologies such as the digital music format and flat-panel TV screens. Sony misjudged what
the market wanted and stayed with proprietary technologies rather than create cross-platform options for
consumers. Apple, at the time an upstart in personal music devices, quickly grabbed the lion’s share of the
digital music market with its iPods and iTunes music streaming service. By 2016, Sony restructured its business
portfolio and has experienced substantial success with its PlayStation 4 gaming console and original gaming


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Not-for-Profit Organizations

Not all organizations strive to make a profit. A not-for-profit organization is an organization that exists to
achieve some goal other than the usual business goal of profit. Charities such as Habitat for Humanity, the
United Way, the American Cancer Society, and the World Wildlife Fund are not-for-profit organizations, as are
most hospitals, zoos, arts organizations, civic groups, and religious organizations. Over the last 20 years, the
number of nonprofit organizations—and the employees and volunteers who work for them—has increased
considerably. Government is our largest and most pervasive not-for-profit group. In addition, more than 1.5
million nongovernmental not-for-profit entities operate in the United States today and contribute more than
$900 billion annually to the U.S. economy.

Like their for-profit counterparts, these groups set goals and require resources to meet those goals. However,
their goals are not focused on profits. For example, a not-for-profit organization’s goal might be feeding the
poor, preserving the environment, increasing attendance at the ballet, or preventing drunk driving. Not-for-profit organizations do not compete directly with one another in the same manner as, for example, Ford and
Honda, but they do compete for talented employees, people’s limited volunteer time, and donations.

The boundaries that formerly separated not-for-profit and for-profit organizations have blurred, leading to a
greater exchange of ideas between the sectors. As discussed in detail in the ethics chapter, for-profit
businesses are now addressing social issues. Successful not-for-profits apply business principles to operate
more effectively. Not-for-profit managers are concerned with the same concepts as their colleagues in for profit companies: developing strategy, budgeting carefully, measuring performance, encouraging innovation,
improving productivity, demonstrating accountability, and fostering an ethical workplace environment.
In addition to pursuing a museum’s artistic goals, for example, top executives manage the administrative and
business side of the organization: human resources, finance, and legal concerns. Ticket revenues cover a
fraction of the museum’s operating costs, so the director spends a great deal of time seeking major donations
and memberships. Today’s museum boards of directors include both art patrons and business executives who
want to see sound fiscal decision-making in a not-for-profit setting. Therefore, a museum director must walk a
fine line between the institution’s artistic mission and financial policies. According to a survey by The
Economist, over the next several years, major art museums will be looking for new directors, as more than a
third of the current ones are approaching retirement.

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