The 9 Business Functions

1. Overview of Business Functions and Micro Environmental Challenges

1.1 Importance of Understanding Business Functions

  • Definition of Business Functions: Various segments in a business, each responsible for specific tasks contributing to the firm's success.

  • Challenges Faced: Each function encounters unique challenges impacted by the micro environment.

2. Purchasing Function

2.1 Types of Purchases in Retail

  • Goods for Own Use: Items purchased for internal use (e.g. fridges at Woolworths).

  • Goods for Resale: Products bought to sell for a profit (e.g. Coke as trading stock).

  • Goods for Processing: Raw materials or semi-finished goods required to produce final products (e.g. flour and meat for pies).

2.2 Supply Chain Management (SCM)

  • Definition: Links the purchasing function with all activities to ensure the right product arrives at the right place and time with reasonable costs.

  • Activities Included: Sourcing, processing, manufacturing, transporting, storing, and distributing goods.

  • Aim: Oversee the flow of materials and information from suppliers to consumers.

2.3 Control and Effectiveness

  • Material Control: Effective management reduces capital tied in stock.

  • Information Sharing: Critical for successful SCM, requires timely and accurate networking amongst businesses.

  • Ethical Expectations: Suppliers must act ethically (e.g. no child labor).

2.4 Challenges in the Purchasing Function

  • Political Risks: Trade agreement withdrawals.

  • Economic Risks: Fluctuations in exchange rates, inflation, interest rates.

  • Social Trends: Changes in consumer needs.

  • Environmental Risks: Resource scarcity, climate change, natural disasters.

  • Technological Changes: Current technologies becoming obsolete.

  • Supplier Power: Dependence on suppliers can create issues.

  • Stock Control Issues: Problems with obsolete or insufficient stock.

3. Production/Operations Function

3.1 Role of Production

  • Definition: Utilization of production factors (natural resources, labor, capital, entrepreneurial skills) to create products meeting market demand.

  • Goal: Transform raw materials into usable products with maintained quality.

  • Cost Management: Essential to keep production costs low without compromising standards.

3.2 Quality Control Methods

  • Sampling: Testing select items from batches; risk of unrepresentative samples.

  • Inspection: Evaluating every product against quality standards.

3.3 Advantages of Quality Control

  • Cost Reduction: Lowers production costs through efficiency.

  • Worker Motivation: Higher product expectations encourage quality work.

  • Retail Confidence: High-quality products boost retailer willingness to sell.

3.4 Challenges in Production

  • Quality Factors: Insufficient or poor-quality resources affecting production.

  • Technological Upgrades: Expensive transitions to new technology.

  • External Factors: Issues like power supply interruptions.

4. Financial Function

4.1 Objectives of the Financial Function

  1. Maximize Profits

  2. Increase Profitability

  3. Ensure Liquidity

  4. Maintain Solvency

4.2 Sources of Financial Information

  • Statement of Comprehensive Income: Details turnover, income, expenses, and taxes.

  • Statement of Financial Position: Includes investments in fixed assets, equity, and liabilities.

4.3 Profit Maximization Strategies

  • Gross Profit Improvement: Negotiate better prices and manage daily expenses.

  • Careful Pricing: Avoid pricing out of market.

4.4 Profitability Assessment

  • ROI Calculation: Assessing returns compared to alternative investments.

4.5 Liquidity Management

  • Current Capital Ratio: Current assets compared to current liabilities (ideal 2:1).

  • Acid-Test Ratio: Measures liquidity excluding inventories (ideal 1:1).

4.6 Solvency Assessment

  • Total Assets vs. Liabilities: Must ensure total assets exceed liabilities to avoid insolvency.

4.7 Financial Challenges

  • Departments not adhering to budgets.

  • Impact of economic risks like inflation and exchange rate changes.

5. Human Capital Function

5.1 Importance of Labor

  • Factor of Production: Labor alongside capital, raw materials, and entrepreneurs.

  • Workforce Motivation: Happy, motivated employees improve productivity and profitability.

5.2 Human Capital Challenges

  • Skill Gaps: Lack of specific skills in the workforce.

  • Labor Legislation Changes: Adapting to new requirements.

  • Unrealistic Union Demands: Potential for strikes.

  • Workplace Conflicts: Lead to reduced productivity.

6. Marketing Function

6.1 The 7 P’s of Marketing

  1. Product Policy

  2. Pricing Policy

  3. Distribution (Place) Policy

  4. Promotion Policy

  5. People Policy

  6. Physical Evidence Policy

  7. Process Policy

6.2 Importance of Market Research

  • Identifying Demand: Understanding consumer needs for optimal pricing and distribution.

  • Target Market Analysis: Based on demographics and interests.

6.3 Challenges in Marketing

  • Insufficient Market Research: Leading to unresponsive products.

  • Pricing Issues: Setting prices that customers find unacceptable.

  • Distribution Challenges: Using ineffective channels.

  • Promotion Effectiveness: Spending without return on investment.

7. Public Relations Function

7.1 Role of Public Relations

  • Influence Public Opinion: Continuous engagement with stakeholders.

  • Image Maintenance: Creating a favorable business image.

7.2 PR Challenges

  • Negative Publicity: Effectively managing and responding to crises.

  • Social Media Management: Addressing public concerns and building relationships.

8. Administration Function

8.1 Purpose of Administration

  • Data Collection and Processing: Essential for informed management decision-making.

  • Legislative Compliance: Adhering to regulations regarding record keeping and data security.

8.2 Administration Challenges

  • Record-Keeping Issues: Inaccurate or outdated records can lead to poor decisions.

  • Compliance: Protecting customer data as per regulations (POPI Act).

9. General Management Function

9.1 Management Responsibilities

  • Basic Functions: Planning, leading, organizing, and control, alongside delegation and communication.

  • Approach: Top-down and bottom-up management strategies.

9.2 Management Challenges

  • Poor Execution: Ineffective management practices leading to operational issues.

  • Compliance Knowledge: Lack of understanding regarding internal and external business factors.

10. Risk Management Function

10.1 Overview of Risk Management

  • Definition: Process of identifying and addressing exposures to loss to safeguard organization assets.

  • Components: Risk identification, measurement, mitigation, reporting, and governance.

10.2 Challenges in Risk Management

  • Risk Assessment Errors: Inaccurate identification of risks can lead to poor strategies.

  • Skill Gaps: Lack of ability to manage risk impacts.

11. Conclusion

  • Each business function faces unique challenges shaped by the micro environment. Understanding these functions and their interrelations helps in effective management and strategic planning for business success.