Basic Functions of the Business World

Defined business as all those activities involved in providing the goods and services needed by people: In order to provide goods and services, businesses must first acquire raw materials; then use them to manufacture products; and then distribute products to consumers who desire them. Thus, it's clear that the most basic functions of business are:

1.  Acquiring raw materials
2.  Manufacturing raw materials into products
3.  Distributing products to consumers

          Some examples will illustrate these three basic functions of business. For instance, before we can buy a pair of tennis shorts, raw material - either natural or synthetic - have to be acquired; the raw materials have to be manufactured first into cloth and then into tennis shorts; and then the shorts have to be distributed to our local stores. Or consider automobiles. Before we can buy one from our local dealer, raw materials must be gathered and manufactured into steel, aluminum, plastic, glass, and so on; then these materials must be manufactured into an automobile; and then completed car must be shipped to local dealers.
          This analysis of the basic functions of business applies to services as well as to material products. For example, the raw material that produces doctors, engineers, lawyers, and accountants is their education; they convert that education into services by opening offices to the public; and from those offices they distribute their services to those who need or desire them.
          These examples show that the production of people or services is not necessarily all done by a single firm. Cloth may be manufactured by one firm and then sold to another firm that manufactures tennis shorts. Automobile companies buy finished steel and other products from manufacturers that have already converted raw materials, such as basic ore, into usable products. And even the services of a doctor require a series of steps - from one school to another, from one area of training to the next - until the final service is "manufactured" and made available to patients. In all these examples, the three basic functions of business are carried on until a final product is made and is delivered to consumers.
          But the basic functions don't tell the whole story. Even though every type of business can be identified with achieving the main goal of providing goods and services needed or desired by people, we still must identify the key segments of the business word in order to get an overview of its total operation.

Key Segments of the Business World

Our total business world is made up of many different industries, institutions, and professions. By performing the three basic functions of business, these many parts of the business world provide the goods and services we need. For our purposes, we can divide the total business world into ten key segments:

• Raw material-producing industries
• Manufacturing and construction industries
• The transportation industry

                Number of Employees by Industry

______________________________________________

Industry                 Number of Employees (in thousands)
______________________________________________

Raw material Mining                                           700.0

Manufacturing

     Durables goods

          Ordinance and accessories                            157.0

          Lumber and wood products                           645.5

          Furniture and fixtures                                   528.8

          Stone, clay, and glass products                     649.7

          Primary and fabricated metals                    2,691.6

          Machinery, electrical, and transportation

               equipment                                           6,114.3

          Instruments and related products                  536.3

     Nondurable goods

          Food and kindred products                         1,663.0

          Tobacco                                                        69.2
          Textile and

               apparel products                                  2,250.3

          Paper and allied products                              700.1

          Printing and publishing                               1,125.6

          Chemicals and allied products                     1,058.7

          Petroleum and coal                                       208.9

          Rubber and plastic products                           686.6

          Leather and leather products                         256.5

Construction

     Transportation

          Railroads, passenger transit, trucks, air, etc.          

          air, etc.                                                      3,024.7  
     Banking and financial market services                1,547.7

     Real estate                                                         853.2

     Product distribution services

          Wholesale trade

               Motor vehicles, drugs, hardware, etc.       4,454.0

          Retail trade

               Department, furniture, food stores, eating

                    and drinking places, etc.                   14,111.0

     Public utilities and other power industries               748.8

     Communications                                                1,182.9

     Insurance industry                                             1,543.6

     Educational institutions and professional

          training programs                                         1,350.8

     Research and development programs                     170.0

     Services

          Hotel/other loading places                                 974.6

          Laundries/dry cleaning plants                            343.2

          Advertising                                                      137.8

          Motion pictures                                                190.3

          Medical/health services                                  4,886.9

          Legal                                                               421.7

          Engineering/architecture                                   456.3

_________________________________________________

• Banking and financial market services
• Distribution systems
• Public utilities and other power industries
• The communications industries
• The insurance industry
• Educational institutions and professional training programs
• Research and development programs

These ten key segments of the business world are dependent on each other in performing the basic functions of business. The rest of this chapter describes each of the key segments to provide an overview of our total business world.

Business needs all kinds of raw materials in order to provide the products needed to satisfy our demands. The following list summarizes our sources of raw materials and identifies how they are used.

The Communications Industry

          The extent of the commnications industry in the United States is a modren phenomenon; it includes newspapers, television, radioo, telephone and telegraph services, magazines, the Postal Service, private postal companies, duplicating equipment, and any other means of conveying messages.
          To appreciate the importance o our communications industry we need only ask ourselves how often we use the telephone, watch television or listen to radio, read a newspaper or magazine, go to a movie or concert, notice an advertisement, or prepare messages for distribution to others. Can you imagine the business world operating without the U.S mail or the telephone? The American Telephone and Telegraph Company is considered a public utility because it is subject to regulation by the various states and the federal government. All other communications firms are private companies, except the government Postal Service. The huge employment provided by these various communications firms is obvious.
          The vast entertainment industry comprises many individual firms as well as individual performers and is generally considered a communications medium. Although its services represent the satisfaction of a demanded service. It is not normally considered essential to the basic needs of most people. It is often used, however, to pursue business objectives by other firms.
          It is obvious that this tremendous communications industry has many facets. Its services are essential to the modern business world. Communications cuts across all facets of the business community and affects the internal operations of each individual firm.

Public Utilities and Other Power Industries

          All business activities depend on the services of public utilities oil companies, and other power sources. Although natural gas, electricity, gasoline, and other water supplies are taken for granted in our business world today, other power sources are also used. In recent years, atomic energy plants have begun to generate electricity for business, though oil-burning generators are still more common. In the western United States, Hydroelectric dams are prominent.         
          Because of competition, most companies that supply power services have become privately owned but regulated public utilities. (The oil industry remains a notable exception, privately providing gasoline, heating oils, and oil products to businesses and homes.) Some utility companies are owned and operated by governmental units, a situation which may feel provides a measure of the efficiency found in privately owned utilities. A well-known example is the Tennessee Valley Authority, a system of federal dams that generates electricity and provides other by-products for a larger section of the southeastern United States.
          Today's business world could not operate without the services of utility companies. These industries represent investments difficult to grasp. They employ thousands of people and generally have a good record of service to business as well to homes. Besides powering our manufacturing plants and fueling the distribution of products, the utilities make many other aspects of business possible, including the essential one of communications, another key segment of business.