What is Business Definition ?
Business definition refers to the description of products, services, activities, functions, and markets in which an organization deals. It is a component of mission statement which forms the foundation for all the strategic planning processes and shows the organisation a way to achieve success. It also helps the organisation in estimating the changes as well as their effects. Business definition outlines the current position and the desired future positions. It discusses the operations of the business but does not exactly specify the reasons behind particular operation.
Some of the questions that are needed to answer while defining a business are :
- What are the products, services, or markets in which the organisation operates?
- Who are the target customers?
- Which activities and functions are performed to satisfy the customers?
- What are the resources and capabilities utilized to satisfy the customers?
This concept applies to both the product and service organisations. Business definition is usually marketing oriented. It focuses on customers as they are the strength of the organisation. As an external stakeholder the customers have the power to make or break the organisation. Business definition outlines the scope of an organisation.
For example, some organisations like Reliance Industries Limited, Tata Group, and Birla Group have wide scope, but some other organisations like Infosys, Wipro, etc., have limited scope.
For example, three organisations and their business definitions based in four areas are as shown in Table :
Business Definitions of Well-Known Companies
|
|
Reliance
Industries |
Tata Group |
Infosys |
|
Product and
Services |
Petrochemicals,
construction, communications, energy, health care, science and technology,
natural resources, retail, textiles, and logistics. |
Agrochemicals and agricultural services, Automobile and automotive, Construction equipment, Consumer products, Financial services, Hotels and hospitality, Industrial infrastructure, services, IT and IT-enabled Logistics, Media and entertainment, Renewable energy, Retail chaina, Steel products and services, Telecom products and solutions, etc. |
Banking Suite,
Customer Service, Cloud & Big Data, Digital Commerce, Digital Marketing,
Core Banking, CRM, Digital Commerce, Mobile Banking, Payments, Wealth
Management, Management Consulting, Oracle, SAP, etc. |
|
Markets |
Organised retail market, remote and rural areas, lower, medium and upper consumer segments, industrial markets. |
Organised retailing real areas, lower, medium and upper consumer segments, industrial markets. |
Industrial
buyers. |
|
Function Served |
Exploration and
production, refining and marketing, petrochemicals, retail and
telecommunications. |
Software telecommunications, engineering, automobiles, power generation, steel and composites, hospitality business, watches and jewelry, sods ash, fertilizers, and pharmaceuticals. |
Business
consulting information technology, software engineering and outsourcing. |
|
Resource Conversion
Processes |
Refining,
manufacturing branding and marketing etc. |
Manufacturing,
buying, distribution, service, promotion and advertising. |
Software development, maintenance and independent validation independent services. |
According to Peter Drucker, the business definition should not only focus on the current position of an organisation, but should also indicate the future goal it wishes to achieve. It would allow the strategic leaders to modify or bring changes so that the organisation remains on pre-defined course of action.
Abell's Three-Dimensional Model of Business Definition
According to Abell, "a business may be defined by three dimensions - customer groups describe the categories of customers, or whom the business satisfies; customer functions describe customer needs, or what is being satisfied, technologies describe the way the firm satisfies customer needs."
As per Ansoff, it is easier to describe a business on the basis of three dimensions rather than describing it based on two dimensions Hence, in this context it can be concluded that a business can be considered as an application of technologies to fulfill the function of a particular group of customers. These three dimensions of Abell's model are shown in the diagram aside (figure) and described below :
1) Customer Groups :
The first dimension of Abell's model for business definition is the customer groups. To define this dimension, it is essential to identify the customers can be done by segmenting customers of the basis of factors such as geographic, demographic. psycho-graphic, socio-economic class, etc.
For example, if BMW wants to define its customers, then it would have to identify its customers on the basis of socio-economic class and psycho-graphic factors.
2) Customer Functions :
In this dimension, the organisation needs to define the functions of the products or services in which it deals. The products and services perform certain functions to satisfy the needs of customers. Customer functions here imply the areas in which the organisation performs business activities, but not the ways in which business operations are carried-out. Sometimes the customer functions are mistaken with the benefits provided to the customers or considered essential by the customers.
For example, communication is a function, however telephone, e-mail, fax, video call. etc. are the ways, while 24-hours access, face-to-face communication, and cell-phone or landline are attributes and benefits.
3) Technologies :
Technologies are the ways in which a function is carried-out for a group of customers. Hence, a technology can be considered as a key to satisfying the need of customers. It presents the alternative way how a function can be performed or how a problem can be solved by use of technology.
For example, if communication is a function, then social networking, e-mailing, letters, fax, etc., would be considered as technologies.
Along with the above three dimensions, the range of business activities and differentiation are also used to define a business.
Vital Aspects in Defining Business
There are three basic aspects that are needed to be inspected before defining business of any organisation :
1) Concept of Product/Service :
The concept of product or service can be defined as the way in which the organisation positions its products and services in the market. The positioning of product or service can be done on the basis of factors like product features, price, quality, distinctive factors from competitors, services, etc. Some of the most important considerations to make while defining the concept of product or service are the existing and potential competitors, the changing needs and demands of customers, and the increasing competition in the external environment. An organisation must define the concept of its products or services in a way that can show the strengths of the organisation and can assure the success by beating the competition. If the organisations define the products and services in this way, they can avoid the the problem of "marketing myopia". Marketing myopia occurs, where the tend of organisation instead looking towards the long-term goals, focuses on the short-term objectives. Here the organisation addresses its own needs rather than addressing the needs of the customers. This makes it difficult for the organisation to adapt to the changes in the competitive market.
For example, Coke entered into beverages market with its soft drinks while missed other product categories like canned fruit juices, milk beverages, etc., which were launched by other brands at the same time and coke introduced them later. Thus, a company should have a broader perspective while launching a product or service concept considering strengths of its existing competitors and substitute product too.
2) Customer Segment :
Since the buyers vary as per their needs, wants, location, and buying behavior, it becomes difficult for marketers to address the needs of every customer. Scattering the organisational efforts in various directions does not lead to success but causes wastage of resources. Therefore, marketers need to utilize their resources and efforts in only those directions that are compatible with the capabilities and resources of the organisation. This process is called "target marketing". It includes three stages:
i) Market Segmentation :
It is the process of categorizing the heterogeneous market into several homogeneous groups of customers on the basis of their needs, characteristics, purchasing patterns, etc., for which different products or services would be required.
ii) Market Targeting :
It is a process of assessing the attractiveness of every segment and choosing one or more segments that the organisation can cater. While selecting the segments, the organisation can select either a single segment, or more than one segment, or a particular product, or full market.
iii) Market Positioning :
After deciding the target segment to enter, the organisation selects a positioning strategy that best suits the product or service and positions on the basis of it. Market positions involve determining the competitive advantages required for developing a market position, selecting the competitive advantages and communicating the selected advantage to the target market. To communicate the positioning of products or services to the of target customers, organisations use various promotional techniques.
3) Value Creation :
Value can be defined as a ratio between the money given by customers and the benefits they receive in return. In value creation the organisation proposes an offer to the customer that delivers value to the customers. The value can be provided in terms of low prices. after-sales services, better delivery, high quality, etc. While defining the business an organisation should always indicate the benefits it is offering and its superiority over its competitors.