Understanding Business Fundamentals: Production and Objectives

The Company as an Economic Unit

A company is a collection of items organized and conditioned by specific, oriented objectives, acting under conditions of risk. Because human needs are endless while resources to meet them are limited, the company serves as the fundamental economic unit of production. Production is defined as any process intended to create or make available to the public the goods and services required to meet those needs. Consequently, consumption and production are the two key activities in all exchange relations within the economic system, with the company acting as the focal point of all system activity.

Business Objectives

• General Objective: Expresses the long-term goals the company wants to achieve. This serves as the starting point for business activity.
• Specific Objectives: These are the goals the company pursues without losing sight of its ultimate purpose. The primary objective is to maximize profits while minimizing costs. Note that there is often a separation between the ownership of the company and its management.
• Subtypes: These are the concrete, short-term goals developed to attain the broader objectives.

Trade-offs and Strategic Planning

When establishing objectives, a company must consider all stakeholder groups, the type of business, and its environment. To ensure satisfaction, objectives must be realistic and communicated to all internal elements of the company, as these are the individuals responsible for execution.

Elements of a Company

• Human Factors: Natural or legal persons involved in the business.
• Material Factors: The economic assets of the company. We differentiate between:
  • Fixed Capital: Assets that last longer than a fiscal year.
  • Working Capital: Assets that are renewed every year.
• Organization: The structure of authority and internal relations.
• Environment: External factors that influence the performance of the employer and the company.

Functions of the Company

• Commercial Area: Includes activities needed to reach consumers, analyzing needs, and designing appropriate trade policies.
• Production Area: Controls the procurement of raw materials and manages the production of goods and services.
• Investment and Financing Area: Responsible for raising funds for operations and leading the investment policy.
• Human Resources Area: Handles the selection and contracting of workers, as well as organizing all staff.