Functional Areas of Business

Even in the smallest business, several key tasks, or functions, that are to be done regularly. Stock must be bought, bills must be paid, customers must be served, and customer inquiries must be answered. In a small firm, all these jobs may be done by one or two people.

In a large organization, people specialize in different tasks. Tesco and Sainsbury’s, for example, have buyers purchase the stock, accounts staff to pay the bills, checkout staff to serve customers and customer service staff to answer queries.

Functional Areas in Business

Functional Areas in Business

In a large organization, it is usually easier to identify separate functional areas because people work together in departments. Each department carries out the tasks that relate to its particular area.

The main ones you are likely to meet in business are shown below.

The Purposes of Functional Areas

The main purpose of functional areas is to ensure that all-important business activities are carried out efficiently. This is essential if the business is to achieve its aims and objectives.

We can illustrate the situation as follows:

  1. Sales and marketing will be involved in achieving targets linked to developing new markets or increasing sales.
  2. Human resources will be involved in arranging staff training activities and supporting the continuous professional development of all staff.
  3. Finance will be expected to monitor and support aims and objectives linked to keeping costs low to improve profitability.
  4. Production will be set targets relating to quality or meeting planned production schedules.

Administrative Function

The administration is a support function required by all businesses, and this does not mean just doing keyboarding or filing.

Senior administrators carry out a wide range of tasks, from monitoring budgets to interviewing new staff for their departments.

Routine administrative tasks include opening the mail, preparing and filing documents, sending emails and faxes.

Others require more creativity and flexibility, such as arranging travel or important events, from staff meetings to visits by foreign customers.

Most administrators also deal with external customers who judge the business on the way their inquiry is handled. Poor or sloppy administration can be disastrous for a company’s image and reputation.

A lost order, badly typed letter, important message that is not passed on, or wrong date scheduled for a meeting can cause problems and may lose customers.

Efficient administration means that everything runs smoothly, and managers can concentrate on the task of running the business.

In a small organization, an administrator is often a ‘jack-of-all-trades’ who can turn a hand to anything – from checking and paying invoices to keep the firm’s website up to date.

In a larger firm administration may be carried out in every department, rather than just one. A sales administrator may make overseas travel arrangements, whereas an administrator in human resources would arrange job interviews.

Administrative Functions

  • Collecting, distributing and dispatching the mail Storing and retrieving paper and electronic records Organizing meetings and preparing meetings documents Responding promptly to inquiries
  • Preparing documents using word processing, spreadsheet and presentation packages, such as PowerPoint
  • Researching information
  • Sending and receiving messages by telephone, fax, and email
  • Making arrangements for visitors.
  • Making travel arrangements
  • Purchasing supplies for office stationery and equipment
  • Making arrangements for events, such as interviews or sales conferences

Customer Service Function

All businesses must look after customers or clients who have an inquiry, concern, or complaint.

Today, customer expectations are high. When people contact a business, they expect a prompt, polite, and knowledgeable response. Unless they get a high level of service, they are likely to take their business elsewhere in the future.

For this reason, many businesses have customer service staff or a customer service department – where trained staff handles inquiries and complaints positively and professionally.

This does not mean that other staff can ignore customers and their needs. It simply means that one group specializes in assisting customers.

Organizations that manufacture and sell complex industrial products usually employ technical specialists or engineers in customer service to give detailed advice and information.

An example is BAE Systems, which sells airplanes such as the Euro fighter and Hawk jets.

Answering queries Related to these products needs specialist knowledge. Similarly, computer suppliers like Dell or PC World, and Internet service providers like BT, have trained IT specialists to handle customer problems – whether from other businesses or individuals.

Customer Service functions

  • Answering customer inquiries about products and services
  • Providing specialist information and advice to meet customer needs solving customer problems
  • Providing after-sales service, including replacing damaged goods, arranging for repairs or for spare parts to be obtained and fitted
  • Dealing with customer complaints according to company procedures
  • Analyzing records of customer complaints to resolve problem areas
  • Using customer feedback to improve customer service and satisfaction

Distribution Function

Distribution means ensuring that goods are delivered to the right place on time and in the right condition.

Superstores may use special vehicles, which can also carry chilled or frozen items.

Other businesses have to move more difficult loads or hazardous substances, such as large engineering parts, cars, or chemicals.

Distribution involves more than just arranging for goods to be collected. For it to be cost-effective, costs must be kept as low as possible. This means, for example:

  1. Planning vehicle routes to avoid back-tracking. This keeps fuel costs down and saves time.
  2. Ensuring that vehicles do not return empty. This is only possible if goods are both delivered and collected. Vehicles that only deliver goods normally operate on a regional or local basis to minimize ‘Empty journey’ time.

Working out the routes for many vehicles, with different loads – some urgent and some not – can be very complicated. Computer programs are used by staff skilled in logistics to work out the best routes.

Many organizations outsource both storage and distribution to external contractors. This means paying a specialist firm to do the work. This is often cheaper than employing experts in the business.

Distribution functions

  1. Ensuring all goods is appropriately stored before dispatch
  2. Ensuring goods for dispatch are securely packed and correctly labeled
  3. Checking vehicle loads are safe and secure
  4. Ensuring goods are dispatched at the right time
  5. Checking that all deliveries match orders precisely and notifying sales if there is a discrepancy
  6. Completing the delivery documents
  7. Planning and scheduling vehicle routes
  8. Notifying sales staff of delivery schedules so that customers can be informed
  9. Dealing with distribution problems, e.g., through bad weather or vehicle breakdown.

Finance Function

Most entrepreneurs consider this is the most important function in the business. This is because all businesses need a regular stream of income to pay the bills.

Finance staff record all the money earned and spent so that the senior managers always know how much profit (or loss) is being made by each product or each part of the business and how much money is currently held by the business.

This enables critical decisions to be made rapidly and accurately because they are based on accurate information.

In many large businesses, different types of financial experts are employed:

Management Accountants monitor departmental budgets and current income from sales, prepare cash flow forecasts, and specialize in analyzing day-to-day financial information and keeping senior managers informed.

Financial Accountants are concerned with the preparation of the statutory accounts. All companies must provide a Balance Sheet and Profit and Loss Account each year, and most produce a cash flow statement as well.

A Credit Controller monitors overdue payments and takes action to recover bad debts.

Finance staff supports the accountants by keeping financial records, chasing up late payments, and paying for items purchased.

Today, virtually all businesses use computer accounting packages to record financial transactions and prepare their accounts as well as spreadsheets to analyze financial data.

Some finance departments prepare the payroll and pay staff salaries, but other businesses outsource this to a specialist bureau.

Finally, businesses will often need money to fulfill specific aims and objectives linked to growth, expansion, or simply updating their equipment or machinery.

These items may be bought from money held back (reserved) from past profits, but usually, additional money will be needed.

If the business needs to borrow money, it will want the cheapest interest rates possible and also want good repayment terms. Deciding where to obtain these funds is a specialist job and, normally, the task of the senior financial manager.

Finance Functions

  1. Producing invoices, checking payments are received and chasing up overdue payments,
  2. Recording money received,
  3. Checking and paying invoices received,
  4. Preparing the payroll and paying staff salaries,
  5. Monitoring departmental budgets to check managers are not overspending,
  6. Issuing regular budget reports to all departmental managers producing cash flow forecasts and regular financial reports for senior managers,
  7. Advising senior managers on sources of finance for capital expenditure. Producing statutory accounts each year.

Human Resources Functions

The human resources of a business are its employees.

Wise organizations look after their staff on the basis that if they are well trained and committed to the aims of the business, the organization is more likely to be successful.

HR is responsible for recruiting new employees and ensuring that each vacancy is filled by the best person for the job. This is important because the recruitment process is expensive and time-consuming.

Hiring the wrong person can be costly and cause problems both for the individual and the firm.

Normally, new employees attend an induction programmed which, tells them about the business, their rights, and responsibilities as employees, the company rules, and the requirements of their new job.

Arranging appropriate training and assisting with the continuous professional development of stall: is another aspect of HR. Training may be carried out in-house, or staff may attend external courses.

HR aims to ensure that the business retains good, experienced staff. Analyzing staff-turnover figures will show the rate at which people leave the organization.

If these are high, it is important to identify and remedy any problem areas.

While people may leave for justifiable reasons, such as moving to another area or for promotion elsewhere, dissatisfaction with the job or the company should be investigated.

Some organizations hold exit interviews to find out staff views on the business when they leave. Employees normally have the basic expectations of their employers.

They expect to be treated and paid fairly, to have appropriate working conditions, to have training opportunities, which will improve their promotion prospects, and support if they are ill or have serious personal problems.

They also want a varied and interesting job and praise when they have worked particularly hard or well. These factors help motivation, which means the staff is keen to work hard, and this benefits everyone.

HR can help this process by monitoring working conditions, having staff welfare policies, and ensuring that company pay rates are fair and competitive.

Many organizations have staff associations, which monitor the views and conditions of staff and make these known. In other businesses, trade unions may represent the workers, especially on pay and conditions.

Senior HR staff liaises with these organizations, keeps them informed of changes and developments, and is also involved in any negotiations with senior management.

Today all employees and employers have legal rights and responsibilities about health and safety, data protection (which restricts the type of information which can be held on employees and customers and how it is used) and employment.

HR staff must ensure that the business complies with current laws and stays up to date with legal changes and developments.

Human resources functions

  1. Advertising job vacancies
  2. Notifying staff of promotion opportunities
  3. Receiving and recording all job applications, arranging interviews and notifying candidates of the result
  4. Sending a contract of employment and other essential information to new staff
  5. Arranging staff training and encouraging continuous professional development
  6. Monitoring the working conditions of staff
  7. Checking health and safety and keeping accident records
  8. Recording sick leave and reasons for absence
  9. Carrying out company welfare policies, e.g., long-service awards and company loans
  10. Advising managers on the legal rights and responsibilities of the company and its employees
  11. Keeping records of grievances and disciplinary actions and their outcome monitoring the terms and conditions of employment, including wage rates maintaining staff records
  12. Liaising with staff associations or trade unions which represent the workforce

ICT Function

Today, even the smallest businesses need someone who understands ICT and what to do if something goes wrong.

This is vital because the number of crucial business tasks now carried out on a computer, and the importance of the data stored in the system means that any system failure can be catastrophic.

Most organizations have a computer network where staff computers are linked through servers. Maintaining the servers, installing new (communal) software and additional hardware, such as printers and scanners, is all part of the ICT function.

ICT staff may also be involved in the purchase or issue of computer supplies, such as cabling and network cards and consumables such as printer cartridges – to ensure that they are compatible with the system.

ICT specialists will be expected to update senior managers on technological developments that would benefit the company. Also, current equipment will need replacing and software upgrading at regular intervals.

Above all, ICT is responsible for system security.

Making sure that only authorized users have access to the system, protecting the system against viruses and hackers, and ensuring there is a full back-up system to restore critical data in an emergency is vitally important.

Finally, ICT specialists will help and assist other users from repairing problems and glitches to advising on the use of new software or updating the company Intranet.

The business website is likely to be technically maintained by the ICT staff, but the content will normally be devised by marketing staff – as you will see below.

ICT functions

  1. Recommending new/updated systems and software to keep abreast of technological developments and the needs of the business
  2. Buying and installing new hardware and software and providing information or training as appropriate
  3. Assisting users who have computer problems
  4. Repairing the computer system when required
  5. Advising on/obtaining/issuing computer supplies and consumables
  6. Connecting new or additional equipment to the system
  7. Installing a security system which limits access to authorized users and protects against hackers and viruses
  8. Technically maintaining the company website
  9. Monitoring staff computer use for compliance with the company IT policy operating a back-up system for critical data so this can be recovered quickly in an emergency

Marketing Function

Marketing is all about identifying and meeting customer needs. Many businesses consider this so important that they are said to be marketing-led.

In this case, everyone in the organization is trained to put the customer first from the production worker, who has to produce high-quality goods, to the accounts clerk, who must respond to a customer inquiry promptly and accurately.

Another way to understand marketing is through the marketing mix, which consists of four Ps.


  • Who are our customers?
  • What do they want to buy?
  • Are their needs changing?
  • Which products are we offering, and how many are we selling?
  • What new products are we planning?
  • In which areas are sales growing – and how can we sustain this?
  • For which products are sales static – and how can we renew interest?
  • Which sales are falling, and what, if anything, can we do?


  • How much should we charge?
  • Should we reduce the price at the start to attract more customers – or charge as much as we can when we can?
  • Can we charge different prices to different types of customers?
  • What discounts can we give?
  • What services or products should we give away or sell very cheaply – and what benefits would this bring?


  • How can we tell people about our products?
  • Should we have a specialist sales staff?
  • Where should we advertise to attract the attention of our key customers?
  • How else can we promote the product – should we give free samples or run a competition?
  • Where and how can we obtain free publicity?
  • Should we send direct mailshots, and, if so, what information should we include?


  • How can we distribute our product(s)?
  • Should we sell direct to the customer or through retailers? Do we need specialist wholesalers or overseas agents to sell for us?
  • What can we sell over the telephone?
  • How can the Internet help us to sell more?

All these questions are considered by the marketing staff. They start by identifying future customer needs.

Products are then developed (or adapted) or services offered to meet these needs. If this is done well, it gives the company an edge over its competitors. This happened when Apple introduced the iPod.

It is no use for developing new products or services if no one knows about them.

Marketing is therefore responsible for the promotional activities which tell the customer what is available, such as by advertising, sales promotions, and publicity campaigns.

The company website is a major way of communicating with prospective and actual customers, and the style and content are usually the responsibility of marketing staff that ensures it is kept up to date.

They may also send regular newsletters to registered users of their site by email.

Monitoring the popularity of the website and obtaining information on the customers who use it may be undertaken by the company or outsourced to a specialist agency.

Marketing Functions

  1. Carrying out market research to obtain feedback on potential and existing products and/or services
  2. Analyzing market research responses and advising senior managers of the results and implications
  3. Promoting products and services through a variety of advertising and promotional methods, e.g., press, TV, online, direct mail, sponsorship, and trade shows or exhibitions
  4. Obtaining and updating a profile of existing customers to target advertising and promotions appropriately
  5. Producing and distributing publicity materials, such as catalogs or brochures
  6. Designing, updating and promoting the company website

Sales Function

Sales are a crucial function for all businesses.

It is pointless having superb products or services if no one buys them. For that reason, most businesses have sales targets as part of their aims and objectives. Meeting these is the responsibility of the sales staff or sales team.

The job of the sales staff varies, depending upon the industry.

Shops that sell basic products, such as chocolates or magazines, do not need to do much selling. Most customers call in to buy something, choose the

Goods they want, pay, and leave.

Customers expect more help and advice if they want to buy a complex or expensive item, such as a television or car.

Stores that sell these types of products, therefore, need trained sales staff who are friendly, knowledgeable, and can describe and/or demonstrate their products and link these to the customer’s specific needs.

Business buyers also expect high-quality service and in-depth advice and information.

They may want to buy highly complex and expensive industrial equipment and need to negotiate special finance arrangements, particularly if they are overseas buyers.

Business buyers will also expect discounts for bulk purchases.

Sales representatives often travel to meet potential customers, as well as routinely visiting existing customers to ensure their needs are being met.

Employing a skilled sales force is expensive, especially if they are paid bonuses or commission.

However, there are many benefits as an effective salesperson can convert many inquiries into firm sales and build strong links with customers to encourage repeat business.

There are strong links between marketing and sales, and in many businesses, this may be a ‘joint’ department.

All sales staff should know several laws protect customers and understand which type of sales activities are legal and which are not.

Sales Functions

  1. Organizing sales promotions
  2. Responding to customer inquiries
  3. Selling the product or service to customers, either over the telephone or face to face
  4. Preparing quotations or estimates for customers
  5. Negotiating discounts or financial terms for business customers
  6. Providing technical advice
  7. Keeping customer records up to date

Production Function

Production refers to the manufacture or assembly of goods. Production staff must ensure that goods are produced on time and are of the right quality. Quality requirements can vary considerably.

Whilst an error of 0.5 mm would not matter much for a chair or table, for an iPod or DVD player, it would be critical.

Checking quality does not mean just examining goods after they have been produced. Today quality is ‘built-in’ at every stage of the process, starting with the raw materials.

Many buyers set down a detailed specification for the goods they order, such as Marks and Spencer, which sets down precise standards for all its producers.

For clothing, this includes the type and weight of the material and the thread and fastenings too.

Buying raw materials is done by specialist purchasing staff, which takes out contracts with regular suppliers and makes sure that the terms of the contract are met, about a delivery, cost, quantity, and quality.

They also ensure that all items are checked on delivery and refer any problems back to the supplier. The materials must be purchased at a competitive price.

This is not necessarily the lowest price but takes account of other factors, such as the reliability of the supplier, the quality required, and the delivery date.

Raw materials will be stored near the production area in a separate area.

If a manufacturer uses a large number of parts – such as a car producer – storage can be very expensive, in terms of the space required and the manpower to oversee the stock.

For this reason, many manufacturers today operate a just-in-time (JIT) system.

This involves having an agreement with specific suppliers to provide small quantities, quickly, when they are needed. This benefits both parties. The suppliers know that they have a regular buyer.

The manufacturer no longer needs to store large quantities of goods or worry about having sufficient stocks on the premises all the time.

Today, many production processes are automated. This means that machines or robots do all routine or dangerous jobs.

At a bottling plant, for example, the cleaning, filling, and labeling of the bottles are all done as a continuous process by machines.

Operators check that the production ‘line’ is functioning correctly by checking consoles and computer screens, as well as by watching the work as it progresses.

Some industries use Computer Integrated Manufacturing, where the control of the process is done by a computer.

When a process cannot be automated, teams of operators may work together and take responsibility for a sequence of operations. This makes the job more interesting and makes it easier to ensure high quality.

This system is also more flexible because changes can easily be introduced at any stage by giving instructions to specific teams. It is therefore used by many car manufacturers who often want to vary certain models.

Production planning involves deciding what will be made, when, and which machines and operators will be used. A realistic timescale must be predicted, bearing in mind other jobs that are in progress.

Production control means constantly checking progress to make sure that production plans are met – and taking remedial action if problems occur.

This could be because of machinery breakdown, substandard raw materials, or labor shortages.

Machine utilization control is concerned with minimizing problems by keeping all the equipment and machinery in good working order.

This involves checking to ensure none is overloaded or overused, without being routinely checked and maintained. This is important because if a machine malfunctions, it may produce damaged goods.

If it breaks down altogether, then the production of that product will cease.

Because this aspect is so important, many organizations have a maintenance plan, which shows the dates on which machines will be out of operation for inspection and servicing.

These dates are then taken into consideration when production plans are made.

Staff utilization control concentrates on making sure all the staff is working effectively and efficiently and concentrating their efforts on key production areas and targets.

This is very important in industries that are labor-intensive and use more people than machines, such as assembling circuit boards or sewing jeans.

Final quality checks make certain that the product is of the correct standard.

This can be done in several ways. Each item may be examined by hand – or passed through a machine that checks that the size and tolerance are correct.

Alternatively, items may be selected for inspection on a random sampling basis. This will be the case if a large number of identical items are being produced, such as cups or biros.

Production is also involved in preparing items for dispatch. This may involve simply packing the finished items – such as household goods or clothing – and transporting them to the dispatch section.

In other cases, it may involve various finishing processes.

For example, the paper is produced in huge rolls. These may be transported intact, but usually, the paper is cut, boxed, and packaged. It then looks like the paper you see in a stationery store.

Production Functions

  1. Ordering (often buying) stocks of raw materials from approved suppliers
  2. Storing and checking the stocks of raw materials
  3. Planning production schedules to maximize machine capacity and staff levels
  4. Producing or assembling the finished product
  5. Checking the quality of th3 product throughout the production process checking production is on schedule and resolving delays or problems parking and storing the final products before distribution
  6. Scheduling routine machinery inspections and maintenance
  7. Carrying out repairs to machinery and equipment as required

Research and Development (R & D) Function

This function is concerned with new product developments as well as improvements to existing products or product lines. In many industries, it also involves product design as well.

Improvements to existing products are often ongoing as a result of market research or customer feedback.

You can see these improvements around you all the time, such as ring-pull cans, microwavable containers for ready meals, transparent jug kettles, and memory sticks for computers.

New products may be developed because of scientific or technological scientific advances, such as mobile phones, new drugs, and satellite navigation systems.

Or they may occur because someone has a good idea – such as Google or the Apple iPod.

The word ‘research’ may conjure up ideas of scientists peering into microscopes, but this is not always appropriate because research can be divided into two types.

Pure research aims to help us to learn and understand more about anything – from outer space to DNA. It is mainly carried out by universities and scientific establishments.

Applied research is focused on the investigation into how discoveries can be used to improve products – such as non-stick pans, which were developed from space research. This is the type of research done in business organizations.

R & D staff aim to work with designers to develop a usable product that can be manufactured at a reasonable cost, sold at a competitive price, and is safe to use.

The activities are undertaken, however, can vary considerably, depending upon the industry.

Trying to discover new, safe drugs is very different to improving car performance.

For that reason, R & D attract staff who are very experienced in their industry and also in their field from software developers to food technologists.

Many organizations aim to continually improve both product design and performance. Industrial design relates to the appearance of a product;

  • From a computer to a car, or even the packaging of a standard product
  • From perfume to soap. Designers want their product to stand out from its competitors and to look attractive, such as the iMac. Today, most products are designed using Computer-Aided Design (CAD) packages, which enable a designer to sketch a basic shape and then vary the dimensions, angles, and sizes of certain parts. The product can even undergo stress testing by computer. Engineering design relates to product performance; for example, for a computer, this means more memory and greater operating speed.

Technological advances through R & D not only affect our lives but also how businesses operate.

New developments in computer software and hardware have changed the way all departments create, store and share data and communicate with their customers, and new types of machinery and equipment have revolutionized many production processes.

Research and Development Functions

Note that the exact activities will depend upon the industry.

  1. In the pharmaceutical industry, scientists research and develop new medicines and drugs.
  2. In the food industry, technologists work with chefs to prepare new products such as ready meals, sauces, or flavorings.
  3. Electronic and IT companies concentrate on new technology products and software, such as HD televisions, the X-box 360, and iPod accessories.
  4. In the aerospace and car industries, engineers focus on improving performance and safety whilst reducing emissions or noise. Designers concentrate on the shape and look, both internally and externally.

Relationships Among Different Functional Areas

No functional area in a business organization can work in isolation. In a small firm, links and interactions between people responsible for different functions are usually informal and continuous

Salespeople know which customers still owe money and must not be sold any more goods on credit until a bill has been paid; the manager knows which members of staff are keen and hardworking, without being told, and a customer query can quickly be solved by asking everyone in the office for advice.

The situation is different in a larger organization because people may work in separate areas or departments and rarely meet each other.

However, all areas still need information and support from each other for the organization to operate effectively. Constant communication and cooperation are essential for the business to achieve its aims and objectives.

This often means that joint decisions have to be made between departmental managers, or their staff, to take account of everyone’s needs.

Some of the reasons why departmental links are essential are shown in the table below, which identifies some of the key issues over which functional areas need to communicate.

Functional AreaLinks
Sales and Production

Sales must know production schedules and agree on delivery dates of orders with

Production so customers are not promised dates that cannot be met. Production must tell Sales about production problems which will affect customers.

Sales and Finance

Finance must know about customer inquiries to check their credit rating before sales are made.

Finance will be involved when discounts are agreed upon or when there are problems with customer payments.

Distribution and FinanceFinance must know when goods have been dispatched so that invoices can be sent out.
Distribution and SalesSales must be able to inform customers when deliveries are due and be aware of any problems.
Sales and MarketingMust liaise over sales promotions and adverts so that sales staff can expect/handle inquiries.
Finance and all other departmentsFinance monitors departmental spending and the achievement of financial targets.
Human Resources and FinanceWill liaise over salary increases and bonuses.
Customer Service, sales and marketingCustomer Service must pass on customer feedback that could affect future product developments or future sales.
R & D and ProductionLiaise over new product developments and methods of production.
Human resources and other functional areasHR handles job vacancies, promotion opportunities, training courses, and CPD for all areas/staff.

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