Understanding the system of enterprise functioning

An enterprise can choose between many styles of functioning during its business activities. The key to successful company management lies in the knowledge how the inner system of an enterprise functions. However, the problem is that…..

An enterprise can choose between many styles of functioning during its business activities. The key to successful company management lies in the knowledge how the inner system of an enterprise functions. However, the problem is that every company can function according to totally different rules that change as time passes by. The gathering of these rules, their deep analysis and complete understanding are not easy things.

The main goal of an enterprise

The first important thing is to determine the main goal of an enterprise. Generally speaking, it can be stated that an active enterprise aims at achieving the highest possible income from its activities – from production or services. An enterprise is economically and financially independent. Thanks to this, it can carry out economic decisions independently; it pays the costs and takes risks, but at the same time, it gains profits without the need to share. The financial surplus developed during the enterprise’s functioning covers all costs. What is left is distributed between the owners of the enterprise or is assigned to future investments. The system of functioning of every enterprise is based on making some basic economic decisions. In order to make such decisions, the company and the employees of its particular department carry out an economic calculation. This allows for a rational and accurate estimate of every behavior and action from the point of view of costs, profitability, and income.

Legal status and the ability of an enterprise to carry out legal activities are the signs of its economic independence on the market.

Capital, work, and land

The three most important elements in every system of enterprise functioning are capital, work, and land. The lack of one or more of these elements leads to a company’s inability to carry out its activities successfully and effectively. Work, land, and capital are considered the three basic factors of every business. When all these factors are at work, it is possible to make appropriate and effective use of an enterprise’s potential on the market.

The most important person in an enterprise is its owner or the manager who is engaged in the creative processes in the company. It is up to such a person to initiate and supervise business activities, implement innovations in the field of technology and organization, and make the most important decisions connected to the company’s activities on the market. At the same time, the manager (or the owner) is the one who takes on the burden of responsibility for the company’s business activities or the introduced innovations.

Priorities in the functioning of enterprises

The systems of enterprise functioning can be very diverse. In the theory of economics, one may find at least several examples of such systems. Nowadays, the most popular one is the neoclassical model of a private enterprise. The single most important priority of this system is the maximization of profits. This model is based on the idea of perfect competition. This means that an enterprise that functions in a competitive environment has no influence whatsoever on prices. It can, however, influence the level of profits. It can maximize the profits in relation to a unit of production by the constant decrease of the costs of manufacturing. At the same time, it aims at maximizing profits through increasing production and sales rates.

A totally different model of enterprise functioning is applied when a company can, to a certain extent, influence price levels, and when it can maximize profits by increasing prices in a given period of time.

Profits function as a priority in business activities since the early days of capitalism. Even today, in modernly managed private enterprises regardless of their size, the pursuit of profits is a goal in itself. Every member of an enterprise should join the cooperative effort of generating profits. On the other hand, in huge enterprises, especially in corporations or joint stock companies which have different properties to manage, the maximization of profits might not necessarily be the main goal. Profits might not be important at all in the cases of public enterprises, like cooperative societies or local governments. Such organizations focus rather on fulfilling the needs of various social groups than generating profit. Even in the case of priorities of various enterprises or organizations we can notice significant differences in the system of enterprise functioning. In order to understand these systems, we have to thoroughly describe a given enterprise. There is no doubt that every enterprise pursues profit, to a bigger or smaller extent, however, profit need not be the biggest or the only aim of a company.

Profits should be associated with the surplus of income in relation to expenditures, however, this does not mean that we should maximize this surplus at all costs. Our actions cannot be at the cost of interests of clients or any other members of the society.

To have a single goal is not a very modern approach

Contemporary specialists in the field of management claim that an enterprise must not pursue only a single aim in its functioning. This is not profitable from the economic point of view. They say that every enterprise should work on the realization of a set of aims in a simultaneous mode. Apart from generating profits, some other aims of enterprises are as follows:

The expansion to new markets
The increasing of qualifications and motivation of employees
The improvement of working conditions
The increase of the wealth of the company
Technological advancement
The increase in the quantity and quality of production
The increase of the effectiveness of management

An enterprise should constantly and gradually develop itself in various areas. This aim makes it necessary for a manager to achieve all the effects which can be assigned to the notion of company development. This is why an enterprise cannot pursue only the maximization of profit, but should strive to achieve several goals at once (or a set of goals). What is more, these goals should be quite universal. This means that they can be applied regardless of the socioeconomic system and the model in which an enterprise functions. The universality of strategic aims of an enterprise helps us significantly – if we understand the mode of functioning of one company, it is much easier for us to understand how other enterprises work. A set of goals should include aims which ensure permanent and diverse company development.

The contents of a set of aims should change over time because the conditions of functioning of an enterprise also change. Sometimes, the realization of some aims at a given time is totally unjustified from the point of view of economy. Such aims can even stand in opposition to other goals which are also a part of the set.

The real aims of an enterprise

In its policy, a company can include a number of aims which it does not pursue or which it pursues only partially. Real aims of an enterprise are pursued depending on many factors, some of them are:

The capabilities of a given enterprise
The resources at company’s disposal
The motivation of employees
The pressure and penalties that exist in company surroundings

If such conditions appear, an enterprise can or cannot function properly depending on the level of these factors.

Popular sets of aims

Some joint aims of Polish enterprises usually cover such areas as:

The strengthening of a company’s position on the target market – this can be achieved through the export of goods and the increase in sales in relation to the national market.
The adjustment of the profile of production to the changes in the needs of the target groups of clients.
The implementation of innovative technologies and state-of-the-art management systems into the functioning of an enterprise.
The pursuit to increase the effectiveness of management, and in consequence, also the pursuit to increase financial results.
The adjustment of an enterprise to the norms and procedures of the European Union – here, we refer mainly to the norms that concern quality management, etc.
The increase of the productive wealth of an enterprise. This can be achieved by making effective investments.
The pursuit to increase safety measures.
The pursuit to increase the payments of those employed at an enterprise.
The protection of natural environment
The change in the approach of employees to the responsibility for the results achieved by their company.

We can now notice that the understanding of how an enterprise works covers mainly the establishment of its primary aims. Though some people may think that enterprises have a single goal, we have to remember that most of them have at least several aims. The most popular goal is profit, but we often fail to notice the many other aims that an enterprise pursues. These aims, when combined, form the reason for a company’s existence on the market. A set of goals introduces a lot to the system of enterprise functioning. We might even say that it defines it. Therefore, a system of enterprise functioning can be otherwise called a set of aims of a company. If we are able to identify the individual aims, it will be easy for us to understand how an enterprise functions and what its purpose is.

The problem for many Polish enterprises is that, unfortunately, they cannot effectively pursue self-development because they lack the necessary resources to do so. The generated profits are assigned to cover the current company expenditures. Little or no money is assigned to investments, even the most important ones. This is why many companies do not develop at all, and their existence on the market comes to an end. They are unable to compete with dynamically developing enterprises, they go bankrupt and seize their activities on the market. Only those enterprises which invest in innovative solutions can hope to survive on the future market along with newly established companies. The mechanisms governing the functioning of companies are complicated and in order to fully understand them one has to have specialized knowledge.