Basic Functions

There are three basic functions.

Marketing: Markets are not created by God, nature or economic forces but by business man. The want they satisfy may have been felt by the customer before he has offered the means of satisfying it. There may have been no want at all until business action created it by advertising by salesmanship or by inventing something new.

In every case it is business action that creates the customer. It is the customer and customers alone, who through being willing to pay for a good or for a service, converts economic resources into goods. What the customer thinks he is buying, what he considers ‘value’ is decisive it determines what a business is, what it produces and whether it will prosper. Thus customer is the foundation of a business and keeps it in existence.

Innovation: The second function of business is therefore innovation, that is, the provision of better and more economic goods and services. It is not enough for the business to provide just any economic goods and services; it must provide better and more economic ones. It is not necessary for a business to grow bigger but it is necessary that it constantly grows better. Innovation may take the form of lower price the form with which the economist has been must concerned for the simple reason. That it is the only one that can be handled by his quantitative tools, but it may also be a new and better product a new convenience or the creation of a new want. It may be finding new uses for old products. To sell the Eskimos a refrigerator to keep food cold is finding a new market. To sell a refrigerator to keep food from getting too cold is actually creating a new product. Technologically there is of course only the same old product but economically there is innovation.

Innovation goes right through all phases of business. It may be innovation in design in product in marketing techniques. It may be innovation in price or in service to the customer. It may be innovation in management organization or in management methods. Innovation in distribution has been as important as innovation in manufacturing and so has been innovation in an insurance company or in a bank.

Profit Making: Profit making is an important function of a business Profit is the result of the performance of the business in marketing, innovation and productivity. Profit is ultimately the test of good performance of the business. It is the first duty of a business is to survive. In the present age of open global economy, the business must be productive and innovative to economically face competition and survive.

It is the absolute necessity for the business enterprise to produce at the very least the profit required to cover its own future risks, the profit required to enable if to stay in business and to maintain intact the wealth producing capacity of its resources. Management, in order to manage a business needs a profit objective a least equal to the required minimum profit, and yard sticks to measure its profit performance against this requirement.