Business Functions: Definition, Importance, and Types

What’s it: A business function refers to the various activities performed by a company. These activities are divided into several functions or departments. In the most basic classification, they can be divided into core functions and support functions.

Core functions refer to income-generating activities, for example, the production of final goods or services. These functions are usually the main activities of the company. However, they may also include other activities if the company considers them part of its core function.

Support functions refer to activities within the organization to facilitate core functions. They do not produce output to sell or generate revenue, but rather they provide support services to core functions.

Importance of business function

Organizing and managing your business functions is essential because they are interrelated and interdependent on each other. Your company divides tasks and jobs into several functions or departments to allow for organizational effectiveness and efficiency. Each function plays an important role for the others. If one of the functions is missing or does not work properly, operations cannot run or are interrupted.

All business decisions taken in each department must synergize and consider other parts. It requires good communication, cooperation, and close relationships between each function. That way, each department supports each other to achieve organizational goals, not only concerned with their own goals.

Let’s take an example of why decisions in one department depend on another. For example, the operations function requires information from the marketing department about product specifications and how much to produce. Likewise, the marketing function does not sell products without the operations function.

When the product specifications demanded by the market enter the production department, the team then thinks about how to produce efficiently. For example, do they need to buy new machines or rely on existing production facilities? If it is necessary to purchase a new machine, the production department then drafts a budget for submission to the finance department.

The finance department then considers whether the currently available budget is sufficient. If it’s not enough, the team thinks about financing it, whether the company needs to raise capital, for example, by issuing debt or equity.

The decision to allocate money by the finance department is not only for the production department but also for other business functions, be it marketing and human resources. For example, the marketing department needs funds to promote products, or the human resources department needs it to recruit new workers.

Then, to carry out each function successfully, your company needs skilled and productive individuals. In this case, human resource management is at the forefront. This function recruits workers, provides training and development, sets the compensation, and motivates them to provide the best for your company.

Types of business functions

The four main business functions in a company are:

• Operation
• Human Resources
• Marketing
• Finance and accounting

Operation

The operations function is sometimes called the production function. You are probably familiar with the term production department as well. As the name implies, this function is responsible for the activities of producing goods or providing services, including:

• Converting inputs such as raw materials and components into outputs
• Ensuring adequate resources are available for production
• Maintaining production levels and output quality
• Achieving a high level of efficiency
• Providing good and consistent service if the business is a service company.

Human resources

This department is responsible for managing employees within the company, including:

• Identifying the workforce needs within your company.
• Recruiting and selecting employees with the right qualifications for your company.
• Training and developing employees to encourage them to be more productive.
• Developing and design compensation system, employment contract, and set salary for each position
• Establishing a system of rewards and incentives to motivate employees.
• Handling termination or dismissal.
• Managing industrial relations.
• Managing human resource outsourcing strategy.

Marketing

The marketing department is responsible for marketing, market research, sales, and after-sales service activities. The team identifies customer needs and wants and develops the appropriate marketing mix to satisfy them.

In general, the marketing department deals with aspects such as:

• Market research
• Product development
• Price
• Advertising
• Distribution
• Customer service
• Packaging
• Customer relationship management

Marketing obtains important information through market research to identify and collect information such as consumer needs, market prospects, and market competition. It is then used as a reference for developing marketing plans and competitive strategies.

From identifying consumers in the market, the marketing team then segment the market and select the most appropriate segments to follow up. They then develop the product, set the price, promote the product and distribute it to customers.

Other decisions to make are about customer service and customer relationship management. So, your company can offer value to customers, making them loyal to your product.

Accounting and finance

The accounting and finance department deals with managing money within the company, including monitoring the money going in and out of business. In particular, the finance function is tasked with:

• Managing the company’s financial transactions and their records, such as payment of salaries and to suppliers.
• Preparing budgets and allocating costs to other business functions.
• Disclosing financial information to external users such as creditors, investors, and the government by publishing financial statements (mandatory for listed companies).
• Providing financial information to management and other departments for decision-making.
• Dealing with compliance with legal requirements such as taxes.
• Controlling company finances to avoid errors, fraud and ensure compliance with procedures, policies, and regulations.
• Raising funds and managing them, such as for capital budgeting and working capital management.