Business Studies
Topic 2:
Section 2.1:
Preliminary Course
Key Business Functions
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.
2.1.1 Identifying Business Functions — Relationship to Value Chain
A)
Operations
The 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 Relations
The 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)
Marketing
The 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.
D)
Accounting and Finance
The 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.
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Section 2.1
Interdependence of Business Functions
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).
2.1.2 Coordinating Business Functions





Planning and Controlling
Functional and Market Structures
Division of Labour
Span of Control
Chain of Command
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.
Figure 2.1.1
The different business functions must work together if the business is to
operate efficiently.
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Section 2.1
A)
Interdependence of Business Functions
Planning and Controlling
PLANNING
Planning 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.
CONTROLLING
Controlling the business involves measuring how well the business has been
performing and whether it has been achieving the objectives set out by planning. It
reports the progress of the business.
The control process involves three steps:
1)
2)
3)
Measuring actual performance
Comparing actual performance against targets
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.
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Section 2.1
Interdependence of Business Functions
General
Manager
Operations
Employment
Relations
Marketing
Accounting
& Finance
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
Credit Cards
Bank
Accounts
Loans
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.
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Section 2.1
D)
Interdependence of Business Functions
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.
E)

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.
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.
2.1.3 Interrelationship Between Business Functions
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?
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Section 2.1
Interdependence of Business Functions
Operations
Employee
Relations
Marketing
Accounting
& Finance
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 the 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.
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Section 2.1
Interdependence of Business Functions
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.
Marketing
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.
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Section 2.1
Interdependence of Business Functions
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?)
Activity 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 socalled 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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