Changing Concept of Business
Concept of business implies the intention of doing a business. In other words, it means the purpose for which a business is being carried on.
Since last few decades, there has been an impressive change in the concept of business. It has changed remarkably from its mere producer orientation (i.e. only profit earning attitude) to the customer orientation (i.e. giving customers maximum satisfaction). It further grew towards societal orientation (i.e. with focus on achieving welfare of the society), and now also includes the environmental orientation (i.e. now safety of environment is also a priority).
The changing concept of business over last few decades is depicted below.
Following four points analyze the change seen in the concept of business.
- First circle from the bottom shows a mere producer-oriented concept of business. Here, importance is given only to the profit and nothing else.
- Second circle from the bottom also includes the first circle. In its entire, it comprises of both producer orientation and customer orientation. Here, importance is given to both profit as well as customer satisfaction.
- Third circle from the bottom also has first and second circle within itself. As a whole, it covers producer orientation, customer orientation, and societal orientation. Here, importance is given to profit, customer satisfaction and social welfare.
- Fourth circle from the bottom includes first, second, and third circle within its domain. It comprises of four orientations viz., producer orientation, customer orientation, societal orientation, and environmental orientation. Here, importance is given to all four aspects viz., profit, customer satisfaction, social welfare and environmental-safety.
Thus, the changing concept of business went through four orientations:
- Producer orientation.
- Customer orientation.
- Societal orientation.
- Environmental orientation.
Now lets continue our discussion further to understand individually each of the above-mentioned orientations. We will also find out the main reasons why these orientations are adapted within the concept of business.
1. Producer orientation
Producer orientation is the most traditional concept of business.
In this approach, the producers interest, i.e. a profit motive is given very high importance. Business is done only for the sole purpose of earning optimum profit and nothing else. It is therefore, also called as a profit-oriented concept of business.
Producer oriented concept was in use in most parts of the world before 1950.
Assumptions of producer oriented concept of business:
- Customers tend to buy only those products which are easily available in the market and are low priced.
- A business does production and/or distribution activities only for the sole purpose of earning profit.
The manufactures following such a concept focus greatly on increasing their production efficiency and distribution coverage of produced goods. They dont give much importance to all functions of marketing.
Reasons for following a producer-oriented concept of business:
- Absence of competition in the market.
- Lack of professionalism in the business.
- Lower expectations of the consumers.
2. Customer orientation
Customer orientation highlights its main focus on customers.
In concept of business, along with earning profit, importance is also given to the satisfaction of customers who utilize the produced goods.
While buying goods, consumers pay the quoted price. As a result, they do expect and must get optimum satisfaction in return to their purchases, which are already made.
According to the customer-oriented concept, a business must first identify the wants or expectations of the customers. It must then try its level best to satisfy or fulfill these wants more efficiently and effectively than its competitors.
Customer oriented concept of business started around 1950s, and it gained more significance during 1960s and 1970s. It introduced the viewpoint of a customers satisfaction to the previous only profit-oriented approach. It made the customer a center of all business activities.
Reasons for following a customer-oriented concept of business:
- Growing expectations of the consumers.
- Increase of competition in the market.
- Growth of professionalism in the business.
3. Societal orientation
Societal orientation brought the aspect of social welfare in the concept of business.
Under a social approach, along with earning profit and giving customer satisfaction, social welfare or benefit is also given importance.
According to the social-oriented concept, every business functioning in any specific area must willingly fulfill its social responsibilities in the best interest of the people in that area.
Generally, social responsibilities of business cover following activities:
- Generation of employment,
- Providing good quality of goods and/or services,
- Charging a reasonable price on goods and services,
- Giving prompt responses to various consumer grievances,
- Contributing in the development of basic infrastructure facilities,
- Adhering to legal rules and regulations, and so on.
Social-oriented concept of business started around 1970s, and it gained more prominence during 1980s and 1990s.
Reasons for following a social-oriented concept of business:
- Sustain and create goodwill in a cut-throat competitive market.
- Adopt a higher degree of professionalism in business.
- Fulfill growing expectations of society from the business.
4. Environmental orientation
Environmental orientation bounded the safety of environment in the concept of business.
Under an environmental approach, the important areas in the business concept were re-determined. It was later decided that, along with profit earning, giving customer satisfaction, doing social welfare; even environments safety must be given a prime importance and high priority in the conduct of business.
According to environment-oriented concept, entrepreneurs shall do further research and development (R&D) to produce finished goods, which are eco-friendly in nature. If an entrepreneur implements such an environment-friendly approach in his or hers business activities, then he/she can enjoy some monetary benefits from government on a case to case basis.
Environment oriented concept of business started in early 1990s, and it has gained more significance since then. For example, establishment of Intergovernmental Panel on Climate Change (IPCC) took place during this time for environmental monitoring and impact assessment of human-induced climate change.
Reasons for following an environment-oriented concept of business:
- Minimize the environmental harm arising due to human-related economic activities and keep a sustainable development.
- Encourage research and development of environment-friendly technologies and goods.
- Inculcate worthiness of environment in minds of entrepreneurs.
The changing concept of business reveals that although profit is the sole motive of most businesses; focus must also be kept on customer satisfaction, social welfare and safety of the environment. All of these are equally important for sustainability and growth of a business in a long-run.