MGMT20144 Management Business Context Master of Business Administration (MBA) School of Business and Law MGMT20144 Management Business Context Unit 5 The Functions of a Diverse Range of Firms . Table of Contents Introduction 3 Learning objectives 3 The Functions of Business Firms 4 Business Functions - Considerations of more Compex Organisations 6 Business Functions - The Business Model Canvas 10 Business Functions - The Service Business 11 Required Reading 14 References 16   Introduction Business functions represent the key areas of activity and resourcing within an organization which assist in developing and delivering the firm’s products and services, enables the firm to identify viable markets for its offerings, recruit and develop employees to drive business performance and the management of financial, material and other resources for business success. Business functions enable firms to develop and deliver their business goals effectively and efficiently. Business functions operate in an interdependent and integrated way to maximize the firm’s opportunities and ensure it achieves its strategy. Many of the issues covered in this topic, in particular Business Functions will be touched on again in courses such as MGMT20130 Operations Management and in looking at issues related to business models and service businesses in courses such as MRKT20052 Advanced Marketing Management and MGMT20133 Strategic Business Management. Learning objectives This unit has the following learning objectives: 1. To understand the concept of functions within a business and how these relate to the performance of the organization. 2. Examine the nature of differing functions in differing types of organisations and how these operate to enable the organization to achieve success. 3. Consider the opportunities from study of business functions through the business model canvas to perceive where new value, efficiency or effectiveness can be achieved for a firm. 4. Apply knowledge and skills gained from this unit towards resolving business challenges and issues.   The Functions of Business Firms Businesses regardless of their type (private, government, not-for-profit), size or financial position all tend to rely on four basic functions to coordinate the business. Those four functions are operations, finance, human resources and marketing. Whether the business type is manufacturing, retail, a hospital or government agency, whether the business size is small, medium or a corporation, the basic functions are the same (Tutor2u.net 2016). Operations The operations function is the key function of the business, it is concerned with the production of goods and services. Goods are tangible (physical) and are created form raw materials and or parts such as microchips or ports that are part of most laptops or tablets. Services are intangible (not physical) that provide some sort of psychological value or mixture of client based in relation to time or location. Services such as education, banking or legal advice are services built on a service mainly involving information transfer for client benefit. Daily life is filled with goods and services supplied by the operations functions of many firms. A phone call, a train journey, a coffee at a café, or reading an on line news service are all services or products that have been developed and delivered by a diverse range of firms and their differing operations functions. The aim of the business is to ensure the supply of the materials it acquires together with conversion process of the materials into a product or service meets the demand of its target customer base. Having an over supply is a waste of the firm’s resources and can lead to failure for the firm. Equally a shortage in supply can lead to customer dissatisfaction and customers seeking alternate suppliers. Again another route to potential failure for the firm. The business through the operations function needs to manage and control its supply chains, work with sales and marketing to ensure customer demand is analysed and assessed to meet demand. Although the operations function is accountable for producing goods and services, the operations function relies on information and support from other business function areas of the organization such as finance and marketing to assess seasonal trends, identify customer preference changes, ensure financial capacity to introduce planned changes to types and increases in production when required. Finance The finance function of a business is focused upon securing the financial resources and allocating those resources towards the performance activities of the business. The finance function is also concerned with with budgeting and providing the required funds to the other functions of the organization such as operations, human resource activities and marketing activities. The finance function is responsible of providing all the required materials and paying supplier expenses for operations to fulfil production of products or services and deliver these. It is also responsible for providing funds for costs relating to marketing initiatives related to advertising, promotions pricing approaches and distribution logistics arrangements whether physical related to products or related to telecommunication costs relating to service delivery or e-commerce activity. Finally, there are Human Resource costs relating to employee work rosters, payroll systems, occupational health and safety protocols, superannuation payments, taxation payments both employee and company based obligations. Finance performs many critical tasks to ensure the success of organization such as managing the cash flows, budgeting, assets management and financial statements. Heizer, Render and Munson (2012) commented that finance/accounting, which tracks how well the organization is doing, pays the bills, and collects the money. Human Resources The human resources function of a business is engaged in all things related to people aspects of the business. This includes employee relations which involves managing and ensuring the correct payments and conditions of service for the differing awards or enterprise agreements and contracts that each employee and manager in the business is employed under. It includes ensuring payroll payments are fulfilled at the due dates for employees and contract workers by the due dates and that these are correct. The human resource function is responsible for ensuring that the organization complies with Occupational Health and Safety requirements for the type of business that it it is, also Workplace Safety. Depending on the jurisdiction and country there may be an Equal Employment Opportunity Act or Anti Discrimination legislation. This will have impact on recruitment and selection protocols, and codes of workplace behavior. The human resources function is also in charge of record keeping for employee leave and personal details and training and development requirements generally as well as ensuring that specific qualifications related to operations requirements by personnel are maintained. The human resource function needs to work very closely with the finance function in relation to matters of cash flows for various times of year especially employee leave. The main connections between human resources and finance functions relate to payroll salaries, employee taxation contributions and superannuation contributions, as well as correct details related to staff numbers impinging on any government related taxes such as payroll tax. Marketing The marketing function of a business is involved with promoting products and services to the targeted customer segments for the business. The marketing function pursues numerous roles, one role is research and understanding the needs and requirements of key customer groupings to confirm that the organisation’s goods and services meet the ongoing and often changing customer needs. Making the organization’s goods and services well-known in the target market as well as meeting the required standard of the target market is another role of marketing function. The marketing function has to develop regular marketing strategies to increases brand and specific product or service awareness such as promoting products during community events, advertising the products using advertising media, sponsoring charity events, engaging in significant campaigns aimed at target markets Business Functions – Considerations for more complex organisations The basic four function view of an organization would probably hold for many small to medium sized business enterprises. As outlined in topic one of this course the emergence of the organisation, a business structure for a Sole Trader or Partnership may require only the organization functions of operations, marketing and finance with potentially a focus of skill and effort in that order. Mainly operations with some marketing in advertising and promotions and financial management supported by an external accountant or bookkeeper. For a small to medium sized Proprietary Company the human resources function may be needed to aid with an array of employee coordination tasks and employment regulatory requirements. In moving to larger and more complex organisations there are further functions that may need to be considered. Dependent upon the complexity of both internal characteristics of the firm and its systems and processes for developing, producing and delivering products and services as well as the complexity of arrangements in the firm’s external environment an array of business functions may be necessary. Internal functions are those which are part of the organization whilst External functions are those which are supplied by an outside agency (Woodcock, 2016) Figure 1 Diagram of Business Functions in an Organisation. Adapted from Woodcock, 2016. The diagram above is a simplification. According to Woodcock (2016) not all companies can be easily categorised, and some will have specialist functions which are not included in the diagram above. The array of functions above though not exhaustive provides a valuable overview of the extensive level of functions that any business organization may need to develop to fulfill its business aims. Furthermore, specialised businesses will have functions not mentioned here, for example retailers will have staff working as merchandisers. Some companies will not have all the functions listed, for example some service and finance companies will not normally have Research departments. Some functions such as Market Research and Public Relations could be internal or external. A small company will probably hire an external agency when it needs these functions. A large company may well have in-house market research and corporate PR staff, but will still outsource much of the work that is of a specialist nature. In considering each business function presented in the diagram there are two contexts, either internal functions to the firm or external functions to the firm (that is functions provided as a service by agents. This has been an ongoing trend in the early part of this century for large organisations and multinational corporations which seek to outsource some functions to specialist firms to contain costs but also accrue expertise and depth of operational processes and effectiveness. Or at least that has been the stated aim. For some outsourcing of functions this has been highly successful for these larger corporations. In other instances, these corporations have elected to bring once outsourced functions back into the core organization to control quality and coordinate customer strategy more effectively. Key functions such as service, particularly after sales service have been outsourced to specialists, but in some instances are now being brought back into the organization when quality in terms of responsiveness and effectiveness have not been met. Looking at Figure 1 the functions covering Producing for the organisation include the following: Research and Development – This functional area designs and develops products. Designs and conducts experiments and tests. Interprets data. Manages projects. Prepares product and design reports. Keeps up to date with new industry and related industry developments. Production and Quality - Manages the production process. Plans production schedules. Ensures that machinery, staff & materials are efficiently utilised. Monitors health and safety and environmental issues. Liaises with marketing, research and finance on issues impacting supply, quality and cost. Distribution and Logistics - Manages all the supply chain processes from raw materials to where the end product is used. Coordinates supply, distribution & storage of goods. Manages transport and distribution centres including organizing transportation and wharehousing. Again looking at Figure 1 the functions covering Selling for the organisation include the following: Sales - Demonstrates and presents products to customers. Manages budgets. Learns about new products. Makes sure that the product meets the clients’ requirements. Writes tenders and proposals. Marketing - Coordinates all the elements involved in successfully promoting andselling a product: market research, pricing, packaging, advertising, sales, distribution. Involves forecasting, budgeting & planning, implementation of plans. From Figure 1 the functions covering Support Functions for the organisation include: Finance Management Accounting - Provides the information required for the financial protection & planning of companies. Prepares accounting records and management information. Information Technology - Designs, implements & maintains computer systems to meet requirements of users. Provides computing support for staff. Maintains databases and networks. Human Resources - Recruits and selects new staff. Involved with contracts of employment, job descriptions, training, management development, industrial relations and disciplinary matters. Purchasing - Locates and maintains relationships with suppliers, of products. Negotiates prices, delivery dates and product specifications. Works with managers to anticipate future demands. As evidenced by Figure 1 a range of Business Functions which generally provide services and professional advice to the firm can also be positioned outside the organization. A number are listed below: Chartered Accountants - Visits clients as part of an audit team; reviews their business operations & financial records to establish the validity of the company's accounts. Advises on tax liability and other matters. Management Consultants - Identifies and investigates, problems concerned with policy, organisation, procedures and methods of organisations. Recommends appropriate action and helps to implement this. Recruitment Consultancy - Matches job-seekers with employers' vacancies. Assesses candidates' skills & employers' requirements. Advertising - Liaises with and advises clients on all aspects of marketing communications; presents proposals to clients; manages advertising spend budget; keeps clients up-to-date on their own & competitors activities. Market Research - This can be done by the marketing department inside a company, or by an external market research agency. Plans market research projects on behalf of the client. Analyses the problem. Drafts proposals. Prepares questionnaires & survey methods. Briefs interviewers. Analyses data & presents it to client. Prepares reports. Public Relations - All aspects of media and public relations for clients: e.g. corporate brochures and exhibition stands. Answers enquiries. Prepares press releases, organises press briefings, conferences and PR campaigns. It also assists with any crisis management regarding adverse publicity or adverse client reaction to any activity or product or service related to the company. Finally, a few functions not listed might include a Legal and Regulatory Function, particularly for corporations operating in the Utility, Mining, Shipping, Transport or Property industries. In essence starting with considerations small business the functions of the organization can be limited to three to four, however dependent on the nature of the complexity of the business and type of industry in which the firm operates, corporations can involve many interdependent functions. The nature of which functions best serve a business need to be assessed in relation to the type of product or service the business provides, the industry in which it operates, its target market in terms of clients and its aspirations in terms of difference between itself and competitors and its general strategic aspirations for the future of the firm.   Business Functions – The Business Model Canvas A very recent addition to the manner in which organisations are now analysed and managers and consultants can now assess opportunities to create value or craft innovation for the business has been the development of the Business Model Canvas (Osterwalder & Pigneur, 2010). The Business Model Canvas is comprised of nine building blocks, these are: Customer Segments, Value Propositions, Channels, Customer Relationships, Revenue Streams, Key Resources, Key Activities, Key Partners, Cost Structure. The video below explains these building blocks in more detail. The important aspect of the Osterwalder and Pigneur (2010) Business Model Canvas is that it describes all the fundamental functions of a performing business from the perspective of interaction of action and resourcing with a key focus on interdependence between the nine building blocks and the necessary flows between them. This is a new approach to considering the functioning and ‘functionality’ of the business towards efficiency and effectiveness improvements as well as potential for innovation The important aspect of the Osterwalder and Pigneur (2010) Business Model Canvas is that it describes all the fundamental functions of a performing business from the perspective of interaction Business Functions – The Service Business Frei (2008) points out that service businesses need to focus on four key functions to achieve success. These functions are: The offering – so the service offer itself and the functions supporting design, development and delivery of the service. Frei (2008) advises that to create a successful service offering, managers need to establish which attributes to target for excellence and which to target for inferior performance. Such decisions should be heavily informed by the needs of the client. Managers need to determine the relative importance clients place on attributes and then match the investment in excellence with those identified priorities. The funding mechanism - In a service business, developing a method to fund excellence is usually more complicated than for a product. This aspect of the finance function needs careful consideration. In relation to product offerings tangible benefits related to materials and features command premium price in the transaction. Many times, in service businesses pricing is not transaction based but involves the bundling of various elements of value or entails some kind of subscription, such as a monthly fee. The funding mechanism needs to be simple to engage with and also reflect the value accrued from the level of service. Employee management system – This system is part of the human resource function and entails identifying the levels of attitude and aptitude required from employees to deliver and sustain the excellence aimed for in a service business. Frei (2008, p. 2) points out that ‘Companies often live or die on the quality of their workforces, but because service businesses are typically people intensive, a relative advantage in employee management has all the more impact there.’ The business needs to give attention to the human resources function in relation to; recruiting and selection processes, training, job design, performance management, and other elements that comprise an employee management system. The Customer Management System - Client involvement in operations has profound implications for a firm because it alters the traditional role of the business in value creation. The classic product-based business buys materials and adds value to them. The enhanced-value product is then delivered to customers, who pay to receive it. In a service business, however, employees and clients are both part of the value-creation process. A main benefit is that customer labor can be far less expensive than employee labor. It can also lead to better service experiences as both client insights and control are embedded in the service delivery. Frei (2008, p. 1) argues that: Any of these four elements—the offering or its funding mechanism, the employee management system or the customer management system—can be the undoing of a service business. This is amply demonstrated by my analysis of service companies that have struggled over the past decade. What is just as clear, however, is that there is no “right” way to combine the elements. The appropriate design of any one of them depends upon the other three. It is the integration of these four elements of the service business that allow it to develop excellence in service provision.   The following activity – The Business Functions Game – is a simple game which lists most of the main functions that any new recruit to an organization would encounter when starting their business career. The concept is to match up the job titles (functions) with their (function) descriptions by dragging the label onto the correct cards. Required Reading References: Frei, F.X. 2008. The four things a Service Business must get right, hbr.org website at https://hbr.org/2008/04/the-four-things-a-service-business-must-get-right accessed 18 July 2016. Heizer, J., Render, B. & Munson, C. 2012. Operations Management: Sustainability and Supply Chain Management, 12th Edn, Pearson Hall, Upper Saddle River, NJ. Hickey, M. Nader, T, & Williams, T. 2011. Cambridge HSC Business Studies, 2nd Edn. Cambridge University Press, Melbourne. Osterwalder, A. 2013. A better way to think about your Business Model,hbr.org website at https://hbr.org/2013/05/a-better-way-to-think-about-yo/ accessed 18 July 2016. Osterwalder, A. & Pigneur, Y. 2010. Business Model Generation, Wiley & Sons, Hoboken, NJ. Sykes, D. & Crawford, K. 2007. Preliminary Business Studies, Red Peg Publishing, AUS. Tutor2u 2016 website functions in a business at http://www.tutor2u.net/business/reference/functions-in-a-business accessed 20 July 2016. Woodcock, E. 2016. University of Kent, Careers and Employability Service website at https://www.kent.ac.uk/careers/workin/business-functions.htm accessed 18 July 2016.