2.6: Functional Areas of Business

Functional areas in a business refer to different departments or sections that perform specific tasks, such as human resources, operations, accounting, and finance. Each functional area has a unique role in achieving the overall business objectives, and they need to work in cooperation to ensure that the company operates smoothly and effectively. Depending on who you ask, you may receive different answers about how many functional areas there are in a business.  It really depends on how the business is structured (more on this later).  Some people will say there are four functional areas, some say five, some say six or even seven. Examples of functional areas include human resources, operations, marketing, accounting, finance, information technology, strategy, leadership, team, marketing and sales, production and operations, research and development, insurance and risk management, and so on.

Let us briefly explore each of the six functional areas listed below (shown in Figure 2.2). When we look at the functional area of business, we organize the work according to the type of work. In small businesses, the owner may perform the finance, accounting, and human resource functions along with overseeing the operations. In large businesses, these functions are often broken down into departments that have large groups of people working within each function.

Human Resources

The Human Resources (HR) functional area is an organizational function that is about searching for, selecting, training, and maintaining workers. HR managers are responsible for ensuring that the organization has all of the skills and capabilities necessary to run the business. HR managers develop staffing plans, recruit and select new employees, monitor the performance management process, and develop succession plans for advancement and replacement. They develop standards for compensation and benefits and assist managers with staff issues.

Operations

Operations is the organizational function that is focused on producing the goods and/or services of the business. Operations involve managing the processes and resources that create goods and services in a business. It is responsible for ensuring efficiency, quality, and cost-effectiveness in production, distribution, and delivery to meet customer demand and achieve organizational objectives. All companies must convert resources (labour, materials, money, information, and so forth) into goods or services. Some companies, such as Apple, convert resources into tangible products — iPads, iPhones, etc. Others, such as hospitals, convert resources into intangible products, e.g., health care. The person who designs and oversees the transformation of resources into goods or services is called an operations manager. This individual is also responsible for ensuring that products are of high quality. In many organizations, operations management includes managing the supply chain, which controls the delivery of raw materials and the distribution of finished goods.

Marketing

Marketing plays a crucial role in a business by helping to identify, create, and satisfy customer needs and wants through the promotion of products or services. Effective marketing strategies can help businesses differentiate themselves from competitors, build brand awareness and loyalty, increase sales and revenue, and ultimately, achieve their business goals. Marketing consists of everything that a company does to identify customers’ needs (i.e., market research and consumer analysis) and ensure that products are designed to meet those needs. Marketers develop the benefits and features of products, including price and quality. They also decide on the best method of delivering products and the best means of promoting them to attract and keep customers. They manage relationships with customers and make customers aware of the organization’s desire and ability to satisfy their needs.

Accounting

Accounting is the organizational function that is focused on recording, keeping, analyzing and communicating financial information. Managers need accurate, relevant and timely financial information, which is provided by accountants. Accountants measure, summarize, and communicate financial and managerial information and advise other managers on financial matters. There are two fields of accounting. Financial accountants prepare financial statements to help users, both inside and outside the organization, assess the financial strength of the company. Managerial accountants prepare information, such as reports on the cost of materials used in the production process, for internal use only.

Finance

The financial functional area of a business is responsible for managing the company’s financial resources, including budgeting, accounting, financial reporting, cash flow management, and investment decisions. Its role is to ensure the financial stability and growth of the organization by optimizing financial performance and minimizing risks. Finance involves planning for, obtaining, and managing a company’s funds while maintaining the financial health of the business.

A financial manager addresses such questions as:

• How much money does the company need?
• How and where will it get the necessary money?
• How and when will it pay the money back?
• What investments should be made in the company’s plant and equipment?
• How much should be spent on research and development?
• Good financial management is particularly important when a company is first formed because new business owners usually need to borrow money to get started.

Information Technology

Information technology is the organizational function that aims to understand the information and data needs of the company in terms of obtaining, analyzing, and protecting information. Information is one of the critical assets of most businesses. Businesses such as Facebook are entirely information-based businesses. Information technology (IT) managers are concerned with building computer and network infrastructure, implementing security and privacy protocols, and developing user interfaces and apps for customers. Usually, there is a high level of integration between the business’s website or application and other departments within the business, such as finance, marketing and operations. Often, businesses must develop interfaces to send and receive information from other companies, including suppliers, and logistics and shipping providers. The global pandemic has also made it necessary for businesses to establish and improve their virtual presences. As the use of technology increases, so do the number of threats and vulnerabilities. The number of potential risks involved in using information technology is rising, creating a security gap between the expectations of users and the ability of technology suppliers to meet those expectations. Data privacy concerns, protection and security now play an important role. Cybersecurity is changing the way things are done today more than ever before.

Media Attributions

“Figure 2.2: Six Functional areas of business: human resources, operations, marketing, accounting, finance, and technology” is adapted from Chapter 2: Business Concepts and Teamwork in Business Fundamentals, 1st Edition, © Kerri Sheilds, licensed under CC BY-NC-SA.