business studies preliminary course topic 2: key business functions section 2.1 : interdependence of...

Business Studies Preliminary Course

Topic 2: Key Business Functions

Section 2.1 : Interdependence of Business Functions

Section Overview:

2.1.1 Identifying business functions — relationship to value chain

2.1.2 Coordinating business functions– Planning and controlling– Functional and market structures– Division of labour– Span of control– Chain of command

2.1.3 Interrelationship between business functions

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Section 2.1 Interdependence of Business Functions

Running any business, whether large or small, involves a number of different activities working together to satisfy the needs of customers. In a small business, the owner often has to be expert in managing the basic functions of OPERATIONS, EMPLOYMENT RELATIONS, MARKETING, and ACCOUNTING & FINANCE. In large businesses there are often specialist departments which look after each of these functions. A manager needs to have an understanding of what these functions are, and in particular, their relationship to the VALUE CHAIN.

A) OperationsThe operations function involves organizing the production of goods and services in a business. This often requires the implementation of a system which schedules, designs, operates and controls all inputs as they are converted into the finished product or service.

B) Employment RelationsThe employment relations function is responsible for organizing the business’s human resources – the people who work in the business. Employment relations is involved with ‘hiring and firing’ staff, and everything in between – acquiring the right people with the right skills, training and motivating employees for better performance, and ending employment when necessary.

C) MarketingThe marketing function is the link between the business and its customers. Marketing drives the business because it identifies what customers want and need and then plans the products and services that will satisfy customer demands, at an acceptable price. Marketing must also promote the goods and services of the business to the market.

2.1.1 Identifying Business Functions — Relationship to Value Chain

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D) Accounting and FinanceThe accounting and finance function is responsible for providing the financial resources necessary to run the business. It is also responsible for controlling how those financial resources are being used in the business by providing regular reports on various aspects of the business’s operations.

The value chain is the idea that every activity in a business should add some value to the final product or service. The value chain starts with the delivery of raw materials (inputs), and moves through a series of activities involved in marketing and producing a good or service, through to the delivery of the product to the final customer. Each stage, or link in the chain, adds value to the product. This means that all the different activities that go on in a business are INTERDEPENDENT and work together to create value for the customer (and wealth for the business).

The different functions of the business are interdependent; that is, they rely on each other and work together to achieve the objectives of the business. Within a business, it is the role of management to coordinate all the business functions and ensure that they work together for the overall success of the business. Figure 2.1.1 below is an extreme example of what could go wrong if the different business functions don’t work together.

2.1.2 Coordinating Business Functions Planning and Controlling Functional and Market Structures Division of Labour Span of Control Chain of Command

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Figure 2.1.1 The different business functions must work together if the business is to operate efficiently.

A) Planning and Controlling

PLANNINGPlanning is the key to successful management. Planning involves:

defining a business’s objectives, establishing an overall strategy for achieving these

objectives, and developing a hierarchy of plans to coordinate all the

different activities.

Planning is essential because it sets the direction for the business and establishes a pathway for the business to follow. Planning forces owners and managers to study their business and the business environment, especially their customers and competitors. It also forces managers to look into the future and think about potential opportunities that could arise, and the possible threats.

CONTROLLINGControlling the business involves measuring how well the business has been performing and whether it has been

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achieving the objectives set out by planning. It reports the progress of the business.

The control process involves three steps:

1) Measuring actual performance2) Comparing actual performance against targets3) Correcting any variations from the targets

There is no guarantee that even the best-made plans will be achieved. Control is important because it is a check on the activities of the business to make sure that they are going as planned. If things are not going as expected then changes can be made before it is too late.

B) Functional and Market Structures

The functional structure organises the business around the different functions. An example can be seen in Figure 2.1.2 below.

Figure 2.1.2 A business structure which has been organized by function.

The product structure organizes employees around specific products. An example can be seen in Figure 2.1.3 below.

General Manager

Marketing

EmploymentRelations

Accounting

& Finance

Operations

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Figure 2.1.3 A business structure which has been organized by specific product.

C) Division of Labour

DIVISION OF LABOUR separates the parts of a job to different people. The advantage is that more can be produced with the same number of people.

For Example: When manufacturing a good (i.e. dyed fabric), no one individual will be involved in each stage of its manufacture. One person will knit the fabric, another will dye it, and yet another will finish it.

This dividing up of labour brings advantages to an organisation because as people become specialists they become more efficient.

D) Span of Control

The SPAN OF CONTROL refers to the number of employees for whom a manager is responsible. It also refers to the issues that he or she has authority to act upon and make decisions over. The span of control is often classified as centralised or decentralised.

General Manager

Bank Accounts

LoansCredit Cards

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Centralised control is where one person has control over many aspects of a business. This is most prevalent in SMEs where there are only a few employees, leaving the owner responsible for many different aspects of the business.

Decentralised control is often known as employee empowerment, where many employees have control over different aspects of the business.

E) Chain of Command

The CHAIN OF COMMAND is the line of authority from the top of the business to the bottom. The chain of command filters information both up and down so that only the relevant people in the firm receive the relevant information. This is crucial in larger organisations to avoid people being overwhelmed with information that is not relevant to their specific function.

The different business functions are there to support the main goals of the business. They are very dependent on each other, and it is very important to understand the interrelationships between them. The way that one function might decide to achieve its goals could affect the whole business, so considerable cross-functional coordination is required.

Let’s assume that the marketing department has suggested a new strategy that will help the business achieve a goal of increasing sales and profit. The marketing department has researched the needs of consumers, and has revealed the need for a completely new product. What are the implications of this new strategy on the other business functions?

2.1.3 Interrelationship Between Business Functions

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Figure 2.1.4 The interrelationships between business functions.

Firstly, any new strategy will have the most effect on the area of operations. This is because operations includes all the activities related to the making and distributing of a product or service. To make a completely new product, the business may have to install new equipment, or rearrange the product line. New raw materials will need to be bought and stored, and changes in how the goods are distributed may need to be made.

Employment relations will also be affected because the new strategy may need extra workers with special new skills and experience. Present employees may need to be trained in new production methods and safety issues. Some existing workers may even lose their jobs.

The development of a new product will also affect the whole marketing program. The product will need to be designed according to consumer needs, it will have to be packaged correctly, priced at the right level and distributed to the right places at the right time.

The accounting and finance function would be required to arrange the extra finance needed to develop the new product, and to buy or lease

Operations EmployeeRelations

Marketing Accounting & Finance

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Section 2.1 Interdependence of Business Functionsthe new equipment. The accountants will need to create budgets for the extra resources, including raw materials and employees, as well as develop various financial forecasts to keep the new strategy under control.

DEFINITIONS:

Accounting A business function which provides the necessary financial information about a business so that management can make effective decisions.

Business Functions Support services such as accounting, operations and marketing, which assist the business in achieving its prime function; also known as key business functions.

Chain of Command The flow of authority from the top of an organisation to the bottom.

Controlling A management function which assesses the performance of a business.

Division of Labour The breakdown of jobs into tasks.

Employment Relations A business function which is aimed at finding, attracting, rewarding and motivating employees who have the skills and knowledge to help achieve the prime function of the business.

Finance A business function that provides and manages the funds which enable goods and services to be produced.

Interdependence Involves the different functions of the business working together in order to achieve something.

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Section 2.1 Interdependence of Business FunctionsMarketing A system of business activities designed to

plan, price, promote and distribute goods, services and ideas in order to satisfy the wants and needs of the customer.

Operations Refers to the process of planning and controlling all the activities necessary for production.

Planning A management function which provides the business with goals and objectives, and the strategies needed to achieve these goals and objectives.

Span of Control The number of workers for which a manager is responsible.

Value Chain A set of linked activities that add value to a product or service.

HOMEWORK ACTIVITIES:

Activity 1: In groups of four, summarise the planning you are undertaking in your preparation for the HSC.

Activity 2: List the sequence of events that is necessary for the strategic organisation of an overseas rugby tour for university students. 40 people will be going on tour, and they will be away for seven nights. Using a diagram, indicate who is in charge, who is involved and how the planning is being controlled.

Activity 3: Define the concept of controlling and explain why controlling is an important function of management.

Activity 4: You are asked to reorganize the structure of your school. Start by identifying the present structure of the school. Design what you believe would be the best structure. (You will need to ask yourself questions such as: Who are the clients? What are the goals of the school? What structure would best serve the clients? What are the different functions going on in the school?)

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Section 2.1 Interdependence of Business FunctionsActivity 5: Explain the meaning of the term ‘division of labour’ and

explain how it can benefit a business.

Activity 6: Complete Activities on p.103 and p.112 of Longman Text.

Activity 7: Vocabulary Exercise and Chapter Review

The process of a business acquiring resources, adding value and producing output is known as the _______ chain. However, these prime function activities cannot be used effectively or efficiently without the presence of so-called business ___________. __________ ___________ play a role in any organisation’s __________. There are a number of business functions. These are ____________, ____________ ___________, ___________, and ____________ _____ _________. In order to coordinate these business functions an ________________ structure has to be established. Within this structure there is a ______ ____ _________, which is a flow of authority from the top of an organisation to the bottom. There are levels of management which are determined by the extent of the __________ ____ ________.

functions, chain of command, division of labour, employment relations, marketing, operations, accounting and finance, planning, value, organizational, business functions.

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