The “Functions” or “Silos”of Business
The Business Functions as Drivers of the Organization
Where and how does marketing fit in the functional strategy of the firm?
One way to understand marketing is to understand what it is not. It is not accounting, finance, economics – or the other business functions. Consider for a moment if you had to hire someone to manage your business. Why would you hire an accountant? What skills would they provide your company? How about a financier? Just what are the workday duties of an economist? How do you orchestrate the interaction and cooperation between business functions so they can all contribute to the value of the entire company. Often, dysfuctional companies find that the objectives of one function may be the exact opposite of the others. But first it is important to understand the business functions and their value to the firm.
Some theorists argue that companies would do better by not organizing into isolated departments or functional silos which place a communication barrier between managers in different functions. However, for all of these arguments businesses that grow from an entreprenual stage of formation into a larger firm most often organize into a functional structure as managers find it the most convenient means for assigning work. Most of today’s business schools are structured into departmental functions (majors) and so companies logically adopt this approach.
A firm’s core competency – that which they do best, or distinctive competency – that which no other firm does best may rest with their functional strategies. Defining a firm’s ‘ core competency’ is one of the most used strategic planning tools requested by board’s of directors. Though many firms have long ago subcontracted work out to other companies to either save on costs or efficiencies, it was not until the late 1990’s that companies took a more formal look at this as a strategy process. Forbes magazine highlighted the first printed application by United Parcel Service. UPS had paid $250,000 to a consulting company to define their core competency which was simply, ‘UPS delivers goods quickly at a reasonably low price.” Forbes critique was that this was obvious and a waste of money. However, UPS had now a formal strategy to outsource all parts of its business that did not contribute to its formalized core competency. Outsourced were sub businesses like corporate cafeterias and excess plane maintence services so the firm could concentrate future on its core competency – in this case their functional logistics and customer service departments.
Economics is considered the father of all business functions. Adam Smith wrote in “The Wealth of Nations” circa 1700’s and founded the institution of economics. Before he became the first recognized economist he was a professor of moral philosophy at the University of Edinburg in Scotland, England. Mr. Smith observed that government regulations admonished its citizens not to purchase wines from its enemies Spain and Portugal. Wine prohibition proved hard to enforce among the English. That some guiding overall behavior other then political and governmental was driving the purchase of these wines and that the ‘black sinister hand of commerce’ was behind the best intentions of government. The sinister behavior was viewed as that not approved by government. Today we see many businesses not condoned by government or considered at best regulated from businesses like pornography, street drugs to regulated pharmaceuticals. Cigarettes etc. But also consider many highly prized businesses that in some countries and economies that are still highly regulated like newspapers, media, internet etc. The friction between the macro-economics (what is good for society) and the micro-economics (what is good for the company) is unique to each culture and country. The amount of friction leads to the degree of what is known as the micro-macro delimma.
Two schools of economics exist in most large universities. One school often resides in the political science departments of universities which emphasize political economies – or utopian economies based on how a country’s economics should work. These would include the likes of Karl Marx to Kynes etc. The other perspective is found in the business schools’ economics department. More with an eye to Wall Street, business economists are trained to follow macro indicators such as interest rates, currency trades, employment rates, etc. Typically they are hired in banks and large finaincial institutions to help a business hedge financial decisions. Where best to borrow money or what country is best now to invest.
Accounting is the next function of business and is a natural outgrowth of economics. Accounting provides information based on previous financial transactions. Managers can look back on what has occurred and consider changes to what they may want to happen. Good accounting is an information system that provides feedback for managers to make actions. Is does not provides that basis to project the potential outcomes of those actions. The move from bookkeeping of individual accounts to double-entry bookkeeping in the early 1900’s created the need to establish rules for how accounts can be adjusted and kept. The FASB (Federal Accounting Standards Board) was established as a independent oversight committee to establish rules on how accounts can be transferred or consolidated. How one interprets theses rules along with the degree of government regulations and enforcement, allows for considerable leeway in how this data is presented to managers, shareholders and government. This is a man made information and tracking system as is the European (International Accounting Standards) accounting board.
Finance is a more recent function of business primarily to keep an eye more on the cash position of a company. It is hard to hide cash – either a company has it or it doesn’t. If it says it has it and it does not – then is it obviously lying. Where best to place what cash a company has is primarily the responsibility of the finance department. Financie is best used to cost out business projects and help decide on the best opportunities. It can calculate the short and long term costs and benefits in replacing a number of employees with a machine, or in investment houses, how much stock to offer at what price? Finance stills needs market data to which it often relys on marketing – but that will come latter.
Production is often managed by a general manager (GM) that supervises the localized manufacturing process often being just one of many GM’s of companies with scattered production facilities. Operations managers are akin to production managers but supervise service or human knowledge work such as claims adjusting in insurance firms or hospital staff. The GM relies most on two functional areas, that of human resources to provide the labor and the purchasing department to provide the raw or supportive materials to keep manufacturing operating smoothly. Machinery maintenance is often conducted by the maintenance department but often in the process newer and better approaches to manufacturing are found. This area is often the process Research and Development department that is responsible to continually improving the production process. Money spent on new products and discoveries often flow to the product Research and Development which is often stand along function as one would see in a pharmaceutical company.
Personnel management or human resources has grown considerably with the growing amount of employment laws and regulations, more complicated employee benefits and best employment practices that have developed over time. Sometimes called organizational behavior in theory, it’s the human resources department that executes the labor concerns for the management of the company. i.e.Corning Entreprise rental. Industry leaders
Every company that offers a good or service has a production or operations management department. If this work is done in-house then these departments tend to be large as labor is one of the big expense areas to manage. Outsourcing or sub-contracting this work still leaves the firm with the some management oversight of this critical area.
The Business Functions as Drivers of the Organization
Where and how does marketing fit in the functional strategy of the firm?
One way to understand marketing is to understand what it is not. It is not accounting, finance, economics – or the other business functions. Consider for a moment if you had to hire someone to manage your business. Why would you hire an accountant? What skills would they provide your company? How about a financier? Just what are the workday duties of an economist? How do you orchestrate the interaction and cooperation between business functions so they can all contribute to the value of the entire company. Often, dysfuctional companies find that the objectives of one function may be the exact opposite of the others. But first it is important to understand the business functions and their value to the firm.
Some theorists argue that companies would do better by not organizing into isolated departments or functional silos which place a communication barrier between managers in different functions. However, for all of these arguments businesses that grow from an entreprenual stage of formation into a larger firm most often organize into a functional structure as managers find it the most convenient means for assigning work. Most of today’s business schools are structured into departmental functions (majors) and so companies logically adopt this approach.
A firm’s core competency – that which they do best, or distinctive competency – that which no other firm does best may rest with their functional strategies. Defining a firm’s ‘ core competency’ is one of the most used strategic planning tools requested by board’s of directors. Though many firms have long ago subcontracted work out to other companies to either save on costs or efficiencies, it was not until the late 1990’s that companies took a more formal look at this as a strategy process. Forbes magazine highlighted the first printed application by United Parcel Service. UPS had paid $250,000 to a consulting company to define their core competency which was simply, ‘UPS delivers goods quickly at a reasonably low price.” Forbes critique was that this was obvious and a waste of money. However, UPS had now a formal strategy to outsource all parts of its business that did not contribute to its formalized core competency. Outsourced were sub businesses like corporate cafeterias and excess plane maintence services so the firm could concentrate future on its core competency – in this case their functional logistics and customer service departments.
Economics is considered the father of all business functions. Adam Smith wrote in “The Wealth of Nations” circa 1700’s and founded the institution of economics. Before he became the first recognized economist he was a professor of moral philosophy at the University of Edinburg in Scotland, England. Mr. Smith observed that government regulations admonished its citizens not to purchase wines from its enemies Spain and Portugal. Wine prohibition proved hard to enforce among the English. That some guiding overall behavior other then political and governmental was driving the purchase of these wines and that the ‘black sinister hand of commerce’ was behind the best intentions of government. The sinister behavior was viewed as that not approved by government. Today we see many businesses not condoned by government or considered at best regulated from businesses like pornography, street drugs to regulated pharmaceuticals. Cigarettes etc. But also consider many highly prized businesses that in some countries and economies that are still highly regulated like newspapers, media, internet etc. The friction between the macro-economics (what is good for society) and the micro-economics (what is good for the company) is unique to each culture and country. The amount of friction leads to the degree of what is known as the micro-macro delimma.
Two schools of economics exist in most large universities. One school often resides in the political science departments of universities which emphasize political economies – or utopian economies based on how a country’s economics should work. These would include the likes of Karl Marx to Kynes etc. The other perspective is found in the business schools’ economics department. More with an eye to Wall Street, business economists are trained to follow macro indicators such as interest rates, currency trades, employment rates, etc. Typically they are hired in banks and large finaincial institutions to help a business hedge financial decisions. Where best to borrow money or what country is best now to invest.
Accounting is the next function of business and is a natural outgrowth of economics. Accounting provides information based on previous financial transactions. Managers can look back on what has occurred and consider changes to what they may want to happen. Good accounting is an information system that provides feedback for managers to make actions. Is does not provides that basis to project the potential outcomes of those actions. The move from bookkeeping of individual accounts to double-entry bookkeeping in the early 1900’s created the need to establish rules for how accounts can be adjusted and kept. The FASB (Federal Accounting Standards Board) was established as a independent oversight committee to establish rules on how accounts can be transferred or consolidated. How one interprets theses rules along with the degree of government regulations and enforcement, allows for considerable leeway in how this data is presented to managers, shareholders and government. This is a man made information and tracking system as is the European (International Accounting Standards) accounting board.
Finance is a more recent function of business primarily to keep an eye more on the cash position of a company. It is hard to hide cash – either a company has it or it doesn’t. If it says it has it and it does not – then is it obviously lying. Where best to place what cash a company has is primarily the responsibility of the finance department. Financie is best used to cost out business projects and help decide on the best opportunities. It can calculate the short and long term costs and benefits in replacing a number of employees with a machine, or in investment houses, how much stock to offer at what price? Finance stills needs market data to which it often relys on marketing – but that will come latter.
Production is often managed by a general manager (GM) that supervises the localized manufacturing process often being just one of many GM’s of companies with scattered production facilities. Operations managers are akin to production managers but supervise service or human knowledge work such as claims adjusting in insurance firms or hospital staff. The GM relies most on two functional areas, that of human resources to provide the labor and the purchasing department to provide the raw or supportive materials to keep manufacturing operating smoothly. Machinery maintenance is often conducted by the maintenance department but often in the process newer and better approaches to manufacturing are found. This area is often the process Research and Development department that is responsible to continually improving the production process. Money spent on new products and discoveries often flow to the product Research and Development which is often stand along function as one would see in a pharmaceutical company.
Personnel management or human resources has grown considerably with the growing amount of employment laws and regulations, more complicated employee benefits and best employment practices that have developed over time. Sometimes called organizational behavior in theory, it’s the human resources department that executes the labor concerns for the management of the company. i.e.Corning Entreprise rental. Industry leaders
Every company that offers a good or service has a production or operations management department. If this work is done in-house then these departments tend to be large as labor is one of the big expense areas to manage. Outsourcing or sub-contracting this work still leaves the firm with the some management oversight of this critical area.
Management Information Systems is not as responsible for the firms hardware or computers as is the overall need to manage information. Managers often complain they have too much information, the wrong information, and untimely information to make decisions. Information architecture helps determine what the information are, who need it and when. New information often is the real of marketing research which finds original data, designs it for the managers use, then transfers the methodology over to information systems to update and dessimate on a time schedule to the right managers.
Management is best defined by the guru of management himself Peter Drucker, “Management is getting others to do something for you”. Management is more art then science with a plethora of management philophies of how best to handle people and people systems which is what an organization is: a people system. Abraham Maslow had his motivation theory, Tom Peter’s in search of excellence , and B.F. Skinner with his theories of reward and reinforcement. The top skill most requested of MBA graduates is that of ‘people skills’ giving some idea as to skills needed to rum a company.
Finally we get to Marketing and sales functions. Sales is considered a part of marketing but marketing is just not sales. A sale department can be found in every company because without sales there would be NO company. Sales generates the revenue or cash the company needs to hire the accountant, employ the economist, support the financier etc. Wherever in a company the customer hands over money business you’re looking at the sales function, be it the retailer (retail sales), the pharecutical representative, the agent of broker, the bank teller, or even the busar’s office in a university – that is where the sales department meets the customer. Given the need to consistently generate revenue sales often has a short time horizon with little other sales support. Sales personnel immediately see the need for advertising, market research, promotions etc but find that the sales department by itself does not have time or organization to support those functions. This is where we see Marketing at it’s best – starting in support of the sales department of sales effort.
The business functions can easily be found on a firms internal operational income statement.
Revenue / Sales / Billings, etc.
(Received) (Shipped) (Paid)
- Adjustment to sales
o 2/10 net 30 etc.
o Volume sales Sales Function
o Delivery Agreement
o Returns
o SPIFS (Special Promotion Incentive Funds)
o Slotting Allowances, etc
Net Sales (Adjusted Sales)
——————————————————————–
– Cost of Goods Sold:
Purchasing Production
Production Function
Handling
Inventory etc.
Gross Profit (Gross Profit Margin or Operating Profit Margin)
——————————————————————–
- Marketing Expenses
o Promotions
o Advertising
o Trade
o Sponsorships
o Branding
Operating Income (Net Profit Margin or Contribution to Sales)
———————————————————————-
- Administrative Costs
o Overhead
o Taxes
o Depreciation
o Investments etc
Net Income
————————————————————————
Shareholders (investor) Returns
Return on Equity
Price/ Earnings
The responsibility of each of the major functions can be seen on the income statement. The sales department is responsible for the revenues generated and each of the adjustments to sales carefully accounted to determine the optimal form to best generate more revenue. Each one of the many forms of adjustments basically reduces the amount of profits from the ‘top line’ sales. Whether sales are defined as received, shipped or paid for is necessary to determine so as the company can determine its cash flow or cash on hand.
The main responsibility of purchasing is to keep costs down while increasing the production of goods. GMs are often compensated for their reduction of costs or labor and increases in productivity.
Management Information Systems is not as responsible for the firms hardware or computers as is the overall need to manage information. Managers often complain they have too much information, the wrong information, and untimely information to make decisions. Information architecture helps determine what the information are, who need it and when. New information often is the real of marketing research which finds original data, designs it for the managers use, then transfers the methodology over to information systems to update and dessimate on a time schedule to the right managers.
Management is best defined by the guru of management himself Peter Drucker, “Management is getting others to do something for you”. Management is more art then science with a plethora of management philophies of how best to handle people and people systems which is what an organization is: a people system. Abraham Maslow had his motivation theory, Tom Peter’s in search of excellence , and B.F. Skinner with his theories of reward and reinforcement. The top skill most requested of MBA graduates is that of ‘people skills’ giving some idea as to skills needed to rum a company.
Finally we get to Marketing and sales functions. Sales is considered a part of marketing but marketing is just not sales. A sale department can be found in every company because without sales there would be NO company. Sales generates the revenue or cash the company needs to hire the accountant, employ the economist, support the financier etc. Wherever in a company the customer hands over money business you’re looking at the sales function, be it the retailer (retail sales), the pharecutical representative, the agent of broker, the bank teller, or even the busar’s office in a university – that is where the sales department meets the customer. Given the need to consistently generate revenue sales often has a short time horizon with little other sales support. Sales personnel immediately see the need for advertising, market research, promotions etc but find that the sales department by itself does not have time or organization to support those functions. This is where we see Marketing at it’s best – starting in support of the sales department of sales effort.
The business functions can easily be found on a firms internal operational income statement.
Revenue / Sales / Billings, etc.
(Received) (Shipped) (Paid)
- Adjustment to sales
o 2/10 net 30 etc.
o Volume sales Sales Function
o Delivery Agreement
o Returns
o SPIFS (Special Promotion Incentive Funds)
o Slotting Allowances, etc
Net Sales (Adjusted Sales)
——————————————————————–
– Cost of Goods Sold:
Purchasing Production
Production Function
Handling
Inventory etc.
Gross Profit (Gross Profit Margin or Operating Profit Margin)
——————————————————————–
- Marketing Expenses
o Promotions
o Advertising
o Trade
o Sponsorships
o Branding
Operating Income (Net Profit Margin or Contribution to Sales)
———————————————————————-
- Administrative Costs
o Overhead
o Taxes
o Depreciation
o Investments etc
Net Income
————————————————————————
Shareholders (investor) Returns
Return on Equity
Price/ Earnings
The responsibility of each of the major functions can be seen on the income statement. The sales department is responsible for the revenues generated and each of the adjustments to sales carefully accounted to determine the optimal form to best generate more revenue. Each one of the many forms of adjustments basically reduces the amount of profits from the ‘top line’ sales. Whether sales are defined as received, shipped or paid for is necessary to determine so as the company can determine its cash flow or cash on hand.
The main responsibility of purchasing is to keep costs down while increasing the production of goods. GMs are often compensated for their reduction of costs or labor and increases in productivity.
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May 22, 2016 @ 9:20 pm
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