Key Business Key Business FunctionsFunctions

Business Functions and Business Functions and Relationship to the value chainRelationship to the value chain

• Value adding involves Value adding involves transformation. transformation. Costs are incurred when something Costs are incurred when something created by manufacturing is processed.created by manufacturing is processed.

• The addition of cost – transforming the The addition of cost – transforming the inputs into a process that will turn them inputs into a process that will turn them into finished goods – adds value.into finished goods – adds value.

• Value of pies > cost of inputs used.Value of pies > cost of inputs used.

Coordinating Business Coordinating Business FunctionsFunctions• A biz common purpose or prime A biz common purpose or prime

function is often outlined in a mission function is often outlined in a mission statement.statement.

• Specialized departments / divisions in a Specialized departments / divisions in a business include.business include.

• Operations:Operations:– Carrying out of the core business activity of Carrying out of the core business activity of

the business by sourcing supplies and the business by sourcing supplies and processing them to create output.processing them to create output.

•Employment relations– Managing labour resources employed by Managing labour resources employed by

the business including acquiring new the business including acquiring new staff, developing staff skills, providing staff, developing staff skills, providing renumeration to reward staff efforts, renumeration to reward staff efforts, and separating staff from the business.and separating staff from the business.

• Marketing Marketing

• Identifying the needs of the market and developing strategies to satisfy market demand while exceeding market expectations

• Accounting and FinanceAccounting and Finance– Ensuring the business’ financial stability Ensuring the business’ financial stability

by maintaining financial records of the by maintaining financial records of the business’ transactions and sourcing business’ transactions and sourcing appropriate types of finance to fund its appropriate types of finance to fund its operations.operations.

InputsInputs ProcessProcess OutputOutput

Operations Marketing

Accounting and finance

Employment Relations

Coordinating Business Coordinating Business FunctionsFunctions

•Planning and ControllingPlanning and Controlling– Developing a business plan.Developing a business plan.– Includes a vision statement: where the business is Includes a vision statement: where the business is

headedheaded– Mission statement: Serving stakeholdersMission statement: Serving stakeholders– Internal and external analysis of the business Internal and external analysis of the business

environment.environment.– Financial and Social goals of businessFinancial and Social goals of business– Objectives and strategies of each key business function.Objectives and strategies of each key business function.– Develop methods to monitor and control business Develop methods to monitor and control business

performance.performance.

• Strategic PlanStrategic Plan: : –Long term / holistic Long term / holistic –Capturing market shareCapturing market share–Increasing product diversityIncreasing product diversity–Changing business Changing business orientation / market etcorientation / market etc

–Developed by senior Developed by senior management.management.

•Operational planOperational plan

– – Short term goalsShort term goals– Set by middle managementSet by middle management– Break down strategic plan into Break down strategic plan into

manageable stepsmanageable steps– Makes sure each business Makes sure each business

function supports strategic function supports strategic goals of businessgoals of business

ControllingControlling

• Operational controls such as inventory, Operational controls such as inventory, management procedures and quality controlsmanagement procedures and quality controls

• Employment relations controls, such as Employment relations controls, such as interviews, productivity measures, and staff interviews, productivity measures, and staff turnover rates.turnover rates.

• Marketing controls such as market share Marketing controls such as market share analysis, sales analysis and profitability analysis, sales analysis and profitability analysis.analysis.

• Accounting and finance controls, such as Accounting and finance controls, such as budgets and interpreting financial statements.budgets and interpreting financial statements.

• Read and understand Fig. 7.13Read and understand Fig. 7.13

• Copy 7.14 from text Copy 7.14 from text

Functional StructureFunctional Structure• Refers to activities or operations organised Refers to activities or operations organised

according to key functions (work type) and according to key functions (work type) and geographic factors (location)geographic factors (location)

• Copy down Fig.7.17 as an exampleCopy down Fig.7.17 as an example• Functional Structure:Functional Structure:

– Groups similar work types togetherGroups similar work types together– Encourages specialisation of labourEncourages specialisation of labour– Reinforces power of managers over Reinforces power of managers over

subordinatessubordinates– Enable a sense of order and Enable a sense of order and

predictability.predictability.– Simple and most obvious structure.Simple and most obvious structure.

Market StructureMarket Structure

• Divides the activities of a business Divides the activities of a business into units based on different markets into units based on different markets the business serves.the business serves.– Product structure: Division according to Product structure: Division according to

products the business makes or sellsproducts the business makes or sells– Customer Structure: Different types of Customer Structure: Different types of

customers catered for ie. Retail, customers catered for ie. Retail, wholesale, manufacturing.wholesale, manufacturing.

Functional Structures (con’t)Functional Structures (con’t)

• Functional structures are often used in Functional structures are often used in manufacturing or those that have a large unskilled manufacturing or those that have a large unskilled workforce.workforce.

• Aust companies that relocate overseas set up Aust companies that relocate overseas set up functional structures to maintain tight control of functional structures to maintain tight control of production processes.production processes.

• Sometimes, functional structures are seen as too Sometimes, functional structures are seen as too restrictive and are therefore replaced with more restrictive and are therefore replaced with more flexible options. They emphasise the people flexible options. They emphasise the people involved, not the work.involved, not the work.

• A globalised economy often requires businesses to A globalised economy often requires businesses to structure themselves according to geographical structure themselves according to geographical location (a factory close to where the raw materials location (a factory close to where the raw materials come from or labour is cheaper)come from or labour is cheaper)

Division of LabourDivision of Labour– Allocating tasks to workers in which they have Allocating tasks to workers in which they have

specialist skills and abilities. Efficient specialist skills and abilities. Efficient resource allocation is essential for the prime resource allocation is essential for the prime function to perform effectively.function to perform effectively.

– Levels of organisation include:Levels of organisation include:• Senior Management – directors, CEO, general manager, key Senior Management – directors, CEO, general manager, key

function managers ie CFO.function managers ie CFO.

• Middle Management – area managers, department heads, Middle Management – area managers, department heads, product managersproduct managers

• Supervisors – assistant managers, team leaders, factory Supervisors – assistant managers, team leaders, factory overseersoverseers

• Subordinates – A category which includes the general workersSubordinates – A category which includes the general workers

Advantages and Disadvantages of Advantages and Disadvantages of Division of labourDivision of labour

• AdvantagesAdvantages– Allows employees to Allows employees to

concentrate solely concentrate solely on areas where they on areas where they are most efficientare most efficient

– Fewer training Fewer training expensesexpenses

– Easier replacement Easier replacement of employees as of employees as skills clearly definedskills clearly defined

• DisadvantagesDisadvantages– Employees can lose Employees can lose

sight of their role in sight of their role in overall process.overall process.

– Specialisation may Specialisation may reduce flexibility of reduce flexibility of production. production.

– Absences of workers Absences of workers may delay process.may delay process.

– Jobs may lack varietyJobs may lack variety

Span of ControlSpan of Control

• Refers to the number of people whom a Refers to the number of people whom a manager is directly responsible as well as manager is directly responsible as well as the ratio of managers to subordinates the ratio of managers to subordinates across levels of the organisation.across levels of the organisation.

• Narrow span of control – only a few people Narrow span of control – only a few people reporting to a managerreporting to a manager

• Wide Span of control – many people Wide Span of control – many people reporting directly to a manager.reporting directly to a manager.

• Span of control is worked out as a ratio. A Span of control is worked out as a ratio. A General manager with 5 supervisors General manager with 5 supervisors underneath her has a span of control of 1:5underneath her has a span of control of 1:5

Chain of CommandChain of Command• The line of authority from top level of The line of authority from top level of

management down through the management down through the business to the subordinates, similar business to the subordinates, similar to the rungs on a ladder. The chain of to the rungs on a ladder. The chain of command is measured by it’s length.command is measured by it’s length.– Long chain of command: many different Long chain of command: many different

levels of management from top down.levels of management from top down.– Short chain of command: Only a few tiers Short chain of command: Only a few tiers

of management from top to bottom.of management from top to bottom.

Types of business structuresTypes of business structures

• Unitary Structure Unitary Structure

Higher Management

Sales Staff Service Staff

•Multidivisional StructureMultidivisional Structure

Higher ManagementHigher Management

Individual customer productsIndividual customer products Business customer productsBusiness customer products

Sydney CBDSydney CBDGreater Greater Sydney Sydney MetroMetro

Large Large BusinessBusiness

Small Small BusinessBusiness

Hierarchical StructureHierarchical StructureGeneral Manager

Line Manager Line Manager Line Manager

Supervisor Supervisor Supervisor Supervisor Supervisor Supervisor

workers workers workers workers workers workers

Flat StructureFlat Structure

General ManagerGeneral Manager

Workers workers workers workers workers workers

• A common management structure for SME’s.

• Becoming more common in larger companies as it gives employees greater control over work decisions.

New and emerging New and emerging structuresstructures• Since the 1980’s there has been a trend Since the 1980’s there has been a trend

towards flatter organisational structurestowards flatter organisational structures• A common method of improving business A common method of improving business

practice is to remove middle management / practice is to remove middle management / supervisory levels (delayering).supervisory levels (delayering).

• A way to improve productivity is to give A way to improve productivity is to give employees a sense of ownership. This can be employees a sense of ownership. This can be done by offering a small number of shares. As done by offering a small number of shares. As shareholders, employees stand to gain a shareholders, employees stand to gain a financial share of the business’ profits.financial share of the business’ profits.

• Inclusive and democratic management Inclusive and democratic management practices:practices:

• A trend has emerged that businesses structure A trend has emerged that businesses structure around the needs of employees, such as around the needs of employees, such as choosing working hours around ones needs and choosing working hours around ones needs and allowing working teams to set their own goals.allowing working teams to set their own goals.

• Home based businesses (using internet to trade Home based businesses (using internet to trade globally if desired)globally if desired)

• Telecommuting: staying at home for part or full Telecommuting: staying at home for part or full time doing the work for a business. Uses the time doing the work for a business. Uses the internet / network / fax / phone etc to send in internet / network / fax / phone etc to send in work.work.

• Lean business that use hotelling or hot-desking.Lean business that use hotelling or hot-desking.

Relationship between business Relationship between business functionsfunctions• Synergy – The whole is greater than the Synergy – The whole is greater than the

some of its parts.some of its parts.

• Examples of the interdependence of Examples of the interdependence of business functionsbusiness functions– Employment relations function to provide Employment relations function to provide

labour to complete tasks necessary to produce labour to complete tasks necessary to produce the outputthe output

– Accounting functions to provide funds so that Accounting functions to provide funds so that required machinery to produce output can be required machinery to produce output can be purchased.purchased.