What Is A Business? It's Not Obvious To Many.

Copyright © 2007, Barry L. Linetsky, All Rights Reserved

If we are going to talk about business ethics, we need to begin by understanding what business is. While it may seem intuitively obvious that everybody knows what business is, this isn’t the case. In fact, much of the controversy and confusion about business ethics takes place because business ethics advocates don't know what business is. Often what they are ranting about has very little to do with business ethics. That’s why it is important to begin at the beginning.

To get a good sense of what business is and pertains to, the dictionary is always a good place to start.

The pertinent definition of business from The Shorter OED is: “Trade, commercial transactions or engagements,” and “A commercial enterprise as a going concern.”

Commercial is defined as: engaged in commerce, trading; Of or relating to commerce or trade; Viewed as a matter of profit and loss.

Commerce is defined as: Exchange between men of the products of nature and art; buying and selling together; exchange of merchandise, especially on a large scale between different countries or districts.

Profit is defined as: The advantage or benefit of or resulting from something; The pecuniary gain in any transaction; the excess of returns over the outlay of capital.

Loss pertains to losing and to lose, and in the context of business, to spend unprofitably; to waste, get no return or result for (one’s labour or effort).

So from these definitions we may glean that business as an activity pertains to commercial trade through buying and selling as an ongoing concern to derive a profit. A business is an entity the purpose of which is to engage in this activity.

To demonstrate that there is a broad fundamental lack of understanding of what business is among the educated segments of our society, here are a couple of examples.

The first is from the University of Minnesota College Of Liberal Arts. They write in answer to the questions What is business?:

What is business?
A business can be defined as an organization that provides goods and services to others who want or need them. When many people think of business careers, they often think of jobs in large wealthy corporations. Many business-related careers, however, exist in small businesses, non-profit organizations, government agencies, and educational settings. Furthermore, you don't need a degree in business to obtain many of these positions. In short, every sector of our economy needs people with strong overall skills that can be applied to business-type careers. (http://www.class.umn.edu/business_and_cla_degrees/what_is_business.html)

The fundamental concept of business here is the provision of goods and services to others who want or need them. What is missing is any notion of commerce, trade, being an ongoing concern, and the motivation to earn a profit. Therefore, according to this concept, non-profit organizations and governments are businesses. This is an example of the error of defining a concept without reference to its essential differentiating characteristics, which for business, are commercial trade and profit seeking. It is precisely these attributes that differentiates business in kind from not-for-profits and government agencies.

Here’s another one from the U.S. Army CPI Resource Center. CPI stands for Continuous Process Improvement.

What is Business?
We define a business as any organization (commercial or government) whose aim is to satisfy a set of customer requirements and is required to deliver results and provide value to the receiving customers, organizations and/or institutions. This is obviously a simplistic view of an organization, but in order to grasp the importance of processes it is critical to understand the importance of business processes to business success. It is also important to realize that regardless of the nature of an organization (e.g., commercial, government or others) your operations and processes have to provide value to someone outside of your organization. Starting from the business's place in the world will help you understand how an organization must behave to serve its purpose and ultimately its external customers. (http://www.army.mil/ESCC/cpi/biz1.htm)

Once again, the concept of business advocated here pertains to any organization that has a purpose. The characteristics of commercial trade and profit seeking are not deemed to be essential aspects differentiating business from other forms of organizations.

These examples were the first two that I found by Googling “what is business.” Perhaps it is a coincidence that both are from organizations that are not businesses, and therefore the equivocation between “business” and “organization”. I have no grounds to speculate why they have a problem recognizing that while all businesses can be considered organizations, not all organizations can be considered businesses, nor why they wish to portray non-profit and government organizations as businesses. Whatever the reason, it stands as proof that when discussing matters of business and business ethics, it cannot be assumed that just because someone is using the word “business” that they have a proper understanding of what a business is.

If you require more evidence, go to Google and type in "define:business" for a page of definitions of business that Google has compiled from the web. Many of them are guilty of getting the definition of business wrong.

In addition to non-profits and governments, there is one other category that is commonly confused as a business but is not, namely hobbies. One organization that correctly recognized the distinction between businesses and non-businesses, was a free legal advice web site called FreeAdvice. While they draw attention to this point from a tax perspective, nonetheless the distinction is valid and worth keeping in mind:

What is a business?
A business is an activity performed for profit.
The difference between carrying on a business and a hobby is that a business has an expectation of profit, is run in a systematic, continuous and regular businesslike manner, and has ordinary commercial principles governing it (such as business and accounting records). A person who collects and sells baseball cards on a regular basis from a store is engaged in a business, while a casual collector, who will occasionally trade a card or two with friends is probably engaged in a hobby. The distinction is important for tax purposes as losses from a business are tax-deductible, while losses generated from a hobby are not. (http://business-law.freeadvice.com/business-law/profit_business.htm).

The most concise definition of business I was able to find, and which will serve as my definition in this blog, was this one from the Credit Research Foundation: "An organization engaged in producing goods and services to make a profit." (http://www.crfonline.org/orc/glossary/b.html).