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Key Business Functions. Business Functions and Relationship to the value chain. Value adding involves transformation. Costs are incurred when something created by manufacturing is processed.

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Key Business Functions

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Key business functions l.jpg

Key Business Functions

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Business Functions and Relationship to the value chain

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

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

  • Value of pies > cost of inputs used.

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Coordinating Business Functions

  • A biz common purpose or prime function is often outlined in a mission statement.

  • Specialized departments / divisions in a business include.

  • Operations:

    • Carrying out of the core business activity of the business by sourcing supplies and processing them to create output.

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  • Employment relations

    • Managing labour resources employed by the business including acquiring new staff, developing staff skills, providing renumeration to reward staff efforts, and separating staff from the business.

  • Marketing

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

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  • Accounting and Finance

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

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Accounting and finance

Employment Relations

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Coordinating Business Functions

  • Planning and Controlling

    • Developing a business plan.

    • Includes a vision statement: where the business is headed

    • Mission statement: Serving stakeholders

    • Internal and external analysis of the business environment.

    • Financial and Social goals of business

    • Objectives and strategies of each key business function.

    • Develop methods to monitor and control business performance.

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  • Strategic Plan:

    • Long term / holistic

    • Capturing market share

    • Increasing product diversity

    • Changing business orientation / market etc

    • Developed by senior management.

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  • Operational plan

    – Short term goals

    • Set by middle management

    • Break down strategic plan into manageable steps

    • Makes sure each business function supports strategic goals of business

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

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

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

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

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  • Read and understand Fig. 7.13

  • Copy 7.14 from text

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Functional Structure

  • Refers to activities or operations organised according to key functions (work type) and geographic factors (location)

  • Copy down Fig.7.17 as an example

  • Functional Structure:

    • Groups similar work types together

    • Encourages specialisation of labour

    • Reinforces power of managers over subordinates

    • Enable a sense of order and predictability.

    • Simple and most obvious structure.

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Market Structure

  • Divides the activities of a business into units based on different markets the business serves.

    • Product structure: Division according to products the business makes or sells

    • Customer Structure: Different types of customers catered for ie. Retail, wholesale, manufacturing.

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Functional Structures (con’t)

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

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

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

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

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Division of Labour

  • Allocating tasks to workers in which they have specialist skills and abilities. Efficient resource allocation is essential for the prime function to perform effectively.

  • Levels of organisation include:

    • Senior Management – directors, CEO, general manager, key function managers ie CFO.

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

    • Supervisors – assistant managers, team leaders, factory overseers

    • Subordinates – A category which includes the general workers

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Allows employees to concentrate solely on areas where they are most efficient

Fewer training expenses

Easier replacement of employees as skills clearly defined


Employees can lose sight of their role in overall process.

Specialisation may reduce flexibility of production.

Absences of workers may delay process.

Jobs may lack variety

Advantages and Disadvantages of Division of labour

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Span of Control

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

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

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

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

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Chain of Command

  • The line of authority from top level of management down through the business to the subordinates, similar to the rungs on a ladder. The chain of command is measured by it’s length.

    • Long chain of command: many different levels of management from top down.

    • Short chain of command: Only a few tiers of management from top to bottom.

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Types of business structures

  • Unitary Structure

Higher Management

Sales Staff

Service Staff

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  • Multidivisional Structure

Higher Management

Individual customer products

Business customer products

Sydney CBD








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Hierarchical Structure







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Flat Structure

General 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.

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New and emerging structures

  • Since the 1980’s there has been a trend towards flatter organisational structures

  • A common method of improving business practice is to remove middle management / supervisory levels (delayering).

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

  • Inclusive and democratic management practices:

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

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

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

  • Lean business that use hotelling or hot-desking.

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Relationship between business functions

  • Synergy – The whole is greater than the some of its parts.

  • Examples of the interdependence of business functions

    • Employment relations function to provide labour to complete tasks necessary to produce the output

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

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