Definitions of the three core principles of business
When a company is in business it is engaged in (1) a cycle of methodical identification and satisfaction of its customers’ desires, (2) by way of planned and coordinated efforts of employees and teams, (3) for a reasonable profit.
When these three interdependent and inseparable elements are put in motion together they constitute the fundamental venture of being in business. The three elements are defined in more detail below.
Satisfying Customers’ Desires
The desires of a company’s target markets are derived, in an economic sense, from the needs of the society in which the business is operating. The principal objective of every firm is to research, successfully identify, and produce to satisfy the desires of its customers. Guidance toward this objective is provided by the company’s mission or vision which helps to define and direct the core competencies the company hones, as well as the target markets it pursues.
Understanding the specific and often nuanced needs of the company’s target markets, and how they are changing, is one of the most critical efforts undertaken by the firm. This effort has a direct bearing on the generation of sales, and therefore potential profitability of the company. When a company understands its customers’ desires and works to satisfy those desires, it has a much higher probability for success.
Coordinated Effort of Teams
The planning and coordination of the effort of employees and teams within a company is focused on the combination and effective use of the five key resources available to every company: Human, Information, Financial, Material, and Time. These five resources are the only resources that a company can fully manage, manipulate, and control.
This resource is composed of the people who furnish their time, labor, skills, talent, brain-power, and entrepreneurship to a company in return for wages or salaries, and benefits. The Human resource is the single most important resource available to any company. It embodies the sometimes indefinable creative spark that powers an organization. The use of the remaining four resources is analyzed and controlled by the company’s employees, and every decision is made by an employee. Therefore the quality of any business is only as good as the quality of its people, their contributions, and the decisions they make.
This resource involves any data, information, or knowledge available internally or externally to the company that employees and teams can use to determine (a) the strategic and tactical directions for the company, (b) how effectively and efficiently the other four resources are being utilized, and (c) what is happening, and expected to happen, in the Business Environment. More information is available to a company than can be practically utilized in any given decision-making scenario. The company must plan how it will use the information available to it by defining the scope, breadth, depth, and timing parameters, as well as the process of analysis and synthesis. The utilization and application of the Information resource has a direct bearing on the quality of the decisions made by employees and teams, and the company overall.
This resource includes the money, and any other financial instrument, required to pay employees, invest in research and development, promote the company and its products, purchase materials, invest in its future, and to keep the business operating on a daily basis. Smart use of this resource can support and enable the business to grow in inventive ways. However, leading a business with financial gain as the primary or singular goal is detrimental to the long-term prospects of any business as short-term gains are generally favored without regard to long-term consequences. The financial resource should be utilized to leverage and foster the four other resources, the collective effective of which will usually result in stable and reliable performance.
This resource includes all of the physical, technological, as well as intangible assets needed to operate the company, such as raw materials used in a manufacturing process for a product; office space, equipment, and machinery; office technology such as computers and printers; brand collateral such as business cards and a web site; as well as intangible materials such as licenses or copyrights. Any asset that contributes to the design and delivery of the company’s products, or the business’ operations, is a material resource necessary for the business to function, and must be managed.
This resource is wholly intangible and perishable, and therefore cannot be stored or manipulated directly. It is actually an inherent component to each of the four previous resources, but must be managed separately and uniquely. The adage “time is money” was coined not for lack of accurate understanding. The time resource can only be spent, and therefore it can be managed to be spent as wisely as possible, or wasted. Because time is perishable, time wasted is very much energy and money wasted. Therefore, time management is an important component of how each of the other four resources are utilized and applied. As the pace of business continually increases, the effective use of time can make the difference between success and failure.
Profit is what is available to the owners of a company after all of the business’ expenses have been deducted from its sales revenue. A company must give priority to successfully meeting the desires of its target markets as the primary means for generating sales revenue, and thereby earning a profit.
Fundamentally, profit serves two purposes. In one regard, it is the reward business owners receive for taking on many forms of risk and devoting significant effort to produce products that the company’s target markets desire. Additionally, earning a profit is not only necessary to cover the costs of operating a business, but a share of the surplus of financial capital must also be reinvested in the company in order to perpetuate the business cycle of satisfying the evolving desires of the company’s target markets.
The company must continually invest in basic functions that include tracking consumer trends, monitoring and analyzing the Business Environment, developing new products, and bringing them to market. In addition, the company must also generate new ideas and innovate. The process of innovation is often not a financially self-sustaining enterprise within a business venture and therefore must be funded with the profit generated from past successes.
Finally, the profit earned by a company must also be reasonable. As a reward to the owners, the profit earned must be commensurate with the risks taken and the efforts made in the process of achieving the company’s objectives. Profit must also be accepted by the customer and the market as a basic economic function of supply and demand.
Focus on the Fundamentals
Business is most fundamentally about systematically, reliably, and successfully satisfying the needs of a company’s target markets. Without this focus, any other consideration is of little value since all other business functions, including the generation of profit, are derived from this primary aim.