Functional areas of a business


Published on

  • Be the first to comment

No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide

Functional areas of a business

  1. 1. There are variety of ways of dividing the functional areas of a business. The most popular and commonlyused classification is as follows. • Finance • Marketing • HR • ProductionIn addition to this Communication also plays a major important role within the organisation. Though thisis not usually advocated as a separate function, communication plays a very important cross functionalrole.There is no fixed rule in setting what the functional areas of a business are. For instance in certainorganisations IT, Transportation, Logistics, Consultancy and Analysis can be considered as an importantfunction.Functions essential to develop the goods or services and making it reach the final consumer are calledTask Functions. These are the basic activities of the organisation which are related to the actualcompletion of the productive processes and directed towards specific and definable end results.There are other functions which are not directed towards specific and definable end results. These arereferred to as Element Functions. This usually includes human resource management, IT, maintenance,quality control etc.There are several key factors which determine the basis in which an organisation could be grouped. • Nature of the product or service offerings – For instance if the company is into IT services, IT essentially becomes a main functional area • Location – If the organisation has multiple locations communication can become a separate functional area. • Customers – If the organisation is looking at a set of few key customers, Account management or customer care can be considered as a separate function.Though a business has functional areas, a business cannot be viewed as a set of functions. The reasonsare as follows. • There are overlaps in functional areas. For instance production managers may do a considerable amount of marketing activities though marketing is a separate functional area.
  2. 2. • There needs to be communication between the functional areas and there are set of activities which are done by the functions collectively. Therefore the organisation is a more complex setup.Finance FunctionThree key areas of the finance function can be introduced. • Management Accounting o Management accounting is the use of accounting techniques for management purposes. In general, management accounting takes current and past data and looks to the future. • Budgeting and financial control o A budget is a planning tool, based on the finances coming in and the amounts expected to be paid out. Each item of cost is ‘budgeted for’ within the overall plan by allocating it a part of the available funds. The aim is to prevent overall losses by sticking to the budget. A budget is therefore also a controlling tool. • Financial reporting o Financial reporting relates to the presentation and reporting of financial information. The financial statements that a business will produce are partly determined by the law of that country. Depending on this law and the type of organisation, some of these reports may need to be made available to the public. o Two main tools used by financial reporting are the balance sheet and the PnL.Marketing FunctionMarketing involves identifying or creating a ‘need’ or desire, and then fulfilling it to the satisfaction ofthe customer.Following are the key aspects which a marketing function of a business needs to look into. • Identify the needs of the customer, and to segment the potential customers according to their needs • Input into the design of the products and services that will meet those needs • price the products and services, taking into account the costs involved, the competitors’ pricing and the customers’ ability to pay
  3. 3. • Communicate to the prospective customer, giving information about the products and services • Involved in marketing the products and services, ensuring that they are available at the place and time to suit the customer • Provide the after sales service, etc. to ensure the satisfaction and loyalty of the customer Marketing literature has put forward few main orientations or approaches to marketing. • Production Orientation – This aims to satisfy consumer desires that are already established and so would not concentrate effort on promoting the desirability of the product. In short, the organisation will concentrate on production efficiency and high volumes. • A product orientation relies on the product ‘selling itself’. The customer will favour those products that offer high quality and performance features. • A selling orientation assumes that, once the product is created, the consumer just has to be convinced that they need it. There will have to be a substantial selling and promotion effort. • A marketing orientation, though, tries to establish the desires of customers and then satisfy them. The organisation will try to deliver more effectively than its competitors. • This last approach, in particular, will require market research to discover what customers think they want, or what they like or dislike about existing products. Marketing Mix is a set of tools marketers use to achieve their marketing objectives. • Product – This includes the actual product and the factors associated with producing them such as product features, new product development, product life cycle • Price –This is related to ways of making money from the business. There are variety of pricing strategies such as skimming prices (charging high prices at the beginning), penetration pricing (charging very low prices), predatory pricing (setting prices to get rid of a competitor), prestige pricing (setting the prices artificially high) • Place – the means of getting the goods and services to the customer • Promotion – the ways of making the customer aware of the product (advertising, public relations, direct marketing, sales promotions)Marketing Planning Process Marketing planning process includes the following steps. • Strategy Process – Understanding what the customers need • Analyse the market environment
  4. 4. • Segmenting the market – dividing the markets into several homogeneous groups • Target the market segment – out of the segments pick one or more segments • Positioning – position the product in the minds of the selected target market • Implement the marketing mixThere are some myths about marketing. Some of the common myths are as follows. • Marketing is about advertising • Marketing is about selling • Marketing is done at the beginning • Marketing is needed only for large corporations with significant budgets • Marketing is about creating a brand • Marketing costs cannot be recovered unless the firm grows bigHuman Resource ManagementHRM is literally about managing the people in an organisation as a resource. This includes planning andforecasting organizational requirements in the future, the staffing levels, types of staff and types ofcontracts, staff training and development, appraisal and promotion, working conditions, incentiveschemes, pensions and benefits.Personnel Management to HRM is a major shift in the management field. Personnel Management is nowtreated as a component of HRM while HRM looks at things from a broader perspective treating staff ashuman capital.This is connected to the division of HRM into Soft HRM and Hard HRM.Hard HRM places emphasis on the resource part of the term and aims to increase efficiency by control.It has its roots in the scientific management school.Soft HRM places emphasis on the human element of the term and aims to increase efficiency throughemployee commitment. It has its roots in the human relations school.When approaching workers as a resource to be controlled, production is thought to increase by gainingcompliance. This can be linked to ideas about strict rules for individual tasks and control over how theseshould be done and the time they should take.
  5. 5. In contrast to this, approaching workers as a different kind of resource is more in line with the softerHRM approach. The need for motivation is recognised, as people are not seen to respond to stimuli inthe same way that other resources would do. Gaining commitment is seen as the most beneficialapproach and so this can be related to the human relations school.Therefore Personnel Management is more ‘workforce centred’ while Human Resource Management isresource centred.Further Personnel Management is often seen as a management activity aimed at non managers whileHRM focuses on the non managers as well as managers.Personnel Management is not fully integrated with organizational development models while HRMtreats organisations culture as the central activity for senior management and is more closely associatedwith organizational values and strategies.The role of a HR Manager has two levels, at the organizational level and at the departmental level. Atthe organizational level HR manager is concerned mainly with broader aspects of policy and procedureswhich affect the organisation as a whole or staff generally. This includes activities such as humanresource planning, induction and training, recruitment policies, employee development etc.At the departmental level HR mangers are more concerned with day to day personnel matters such asorganisation of work, allocating job roles, standards of worker performance, safety, on the job training.In one aspect every line manager is a HR Manager at the departmental level.HRM is important due to few main reasons. • People management is not only important for key business performance but also for quality, technology, competitive strategy or research and development which affects the bottom line. • Superior HRM results in higher employee satisfaction which in turn has resulted in improved financial performance. • HR practices have explained nearly one fifth of the variation between companies in productivity and profitability.Training and development is another key area in HRM. Some of the benefits of training are as follows. • Increase the commitment, motivation and confidence of staff • Provide recognition, enhanced responsibility and the possibility of increased pay and promotion • Give a feeling of personal satisfaction and achievement and broaden opportunities for career progression • Help to improve the availability and quality of staff
  6. 6. Training has two broad areas, on the job training and off the job training.In order to reap the full benefits of training there has to be planned and systematic approach to theeffective management of training. Some of the prerequisite factors are as follows. • Clear commitment to training through out the organisation • An objective assessment of training needs • Staff should feel a sense of involvement in the training management • Clearly set objectives and defined policy for training • Selecting the most appropriate method for trainingPerformance appraisal is another key area within HRM. Performance appraisal refers to a process inwhich the organisation attempts to identify the levels of performance of different individuals.Performance appraisal systems could take both quantitative and qualitative formats. More often thannot the schemes are a combination of the two.An effective appraisal scheme therefore offers a number of potential benefits to both the individualsand the organisation. • Identifying the strengths and weaknesses of employees and allows to focus on the strengths more. • It reveals problems which may restrict progress and cause inefficiencies. • Helps to develop a degree of consistency through regular feedback on performance and discussion about potential. • Provides information for HR planning to assist succession planning to determine suitability for promotion and for particular types of employment and training • Improves communications by giving staff the opportunity to talk about their ideas and expectations and how well they are progressingThere are few questions which needs to be answered on who should be appraised and who shouldundertake appraisal.The conventional notion is to use a senior person to do the appraisal on a junior individual. Howeverthere are issues on whether the senior manager has the professional skills to conduct an appraisal orwhether appraisals should be done for senior managers as well.
  7. 7. There are different HR practices across the world. Multinational corporations which have a parentcountry but are in operational in different other countries have four main approaches to understandingits HRM practices. • Ethnocentric approach – This is where the approaches used in the home country is used elsewhere as well • Polycentric approach – This is where each subsidiary develops its own HRM practices • Regiocentric approach – This is similar to the polycentric approach but the differences lie at the regional level as opposed to local countries • Geocentric or Global approach – This is where HRM is practiced at a global level. HRM practices are therefore generally consistent across subsidiaries.Production FunctionThe production and operations function is an important one because it is through this that the output isprovided for the customer, from which the business makes revenues for continued survival. Themanagement of this function is heavily dependent on the type of product because very differentproduction methods exist and different products also require different emphases in the organisation ofoperations. For example, if the product is an expensive sports car, then attention to quality and safetywill be very important. If the product is crude oil, rate of flow from the oil wells is important.As in the other functions, production function is also interrelated with the other functions. For instanceif the production function proposes to upgrade the production equipments in order to achieve higherproduction outputs, this decision has to be coordinated with the finance function in terms of doing aninvestment appraisal. Further any changes in production technology have an impact on the work forceand therefore this has to be coordinated with the HRM function.There are few main concepts in the production function. • Inventory Management - refers to the process of planning and controlling the levels of materials stored in relation to the demands of the production process. One approach to this is the just-in- time (JIT) system, which aims to provide the exact quantities to each stage of the production
  8. 8. process at the exact time that they are needed. The benefit of this system is that less storage space is required and also less of the business’s money is tied up in materials. • Material Resource Planning –This refers to the use of a computerized system to plan and manage inventories as well as to order new materials when needed. • Quality Management - controlling the quality of production for goods or services can be vital to retain competitive advantage and the loyalty of the customer. To ensure this the practice of benchmarking is used to apply best practice to the production process a comparisons are made with other production systems within and outside the organisation, to maintain the highest standard possible. • Total Quality Management - TQM relates to the idea that a focus on quality should pervade the whole organisation. It is not just about checks made on random products as they leave the production process; instead, the drive for quality is concerned with all processes, materials and work practices, and enters into every level of the organisation.HRM / Production and Communication