For management, knowing which core and supporting business functions are important to prioritize decision-making and resource allocation. For stakeholders, such as stock investors, it also helps sharpen their insight in analyzing company performance.
Small companies might divide their business functions into four departments: operations, marketing, human resources, and finance, where operations are core business functions.
In some companies, their organizational structure may be more complex and consists not only of these four departments but is further broken down into several. Indeed, operations remain their core function, but they may categorize some departments into core functions because they are strategic, even if they do not generate revenue.
Examples of core business functions
A core business function refers to a company’s revenue-generating activities. It usually refers to an operating function related to producing goods or providing services. It is the main activity of the company.
In some other companies, core functions may also include a secondary activity but strategic activities supporting core functions. For example, a company offering a highly customized product might consider production and customer service functions as core functions. Finance, human resources, and marketing functions can also be considered core business functions because a company would not operate without them.
Examples of supporting business functions
Supporting business functions refer to business activities in which they only act to support the core functions in operation and do not generate revenue. Their output is not for sale to the market but rather for use by core functions. They can include:
- Distribution and logistics
- Sales and marketing
- Research and development
- Customer service
- Information Technology
- Finance and accounting
- Corporate strategy
- Human Resources
- Quality management
Note: Inbound logistics, research and development, procurement, and quality management may fall under the same department as the operations department, depending on how the company organizes its activities. In addition, some companies may also categorize one or two of the above functions as core business functions rather than as support functions because they are strategic for the company’s revenue stream.
Distribution and logistics
Distribution and logistics handle transportation, warehousing, and order processing activities. Incoming logistics handles various goods that will enter the production facility or warehouse, such as raw materials and components. Outbound logistics delivers the company’s output to customers, including handling its warehousing.
Some companies may sell and ship their own products directly to customers. While others rely on intermediaries such as distributors and wholesalers.
Sales and marketing
Sales and marketing activities include market research, promotion, sales, and after-sales service. In addition, the team is involved in extracting information about the market, segmenting the market, identifying target market segments, creating consumer profiles, and developing the appropriate marketing mix.
Marketing mix development involves determining the right product (quality, features, and unique selling proposition), setting prices, carrying out promotions such as advertising and sales promotions, and establishing effective distribution channels.
If the company has an online channel, the marketing department is also responsible for handling it, including developing a website, running social media ads, and search engine optimization.
Note: Some marketing-related activities such as new product development and handling distribution channels may fall under other departments such as the research and development and distribution and logistics departments. It depends on the organizational structure built by management.
Research and development
Research and development are responsible for innovation within the company, possibly related to products or business processes. If not separated, this function may fall under the operations department.
Assume research and development are separate departments. This department should be filled with open-minded individuals, have strong analytical experience, and have a deep understanding of the market and business processes. In developing product innovations, the team conducts market research, benchmarking, identifying trends, and conducting experiments to help determine the most profitable products to commercialize.
Customer service activities may fall under the marketing department. The team manages profitable long-term relationships with customers. They handle aspects such as customer complaints and inquiries, returns, and customer requirements. Therefore, they need skills in communication, handling conflicts, and patient dealing with customers.
Superior customer service keeps customers loyal to the company, thereby bringing money into the company in the long run. They can also provide support and positive reviews about the company, strengthening the company’s brand position.
Information technology handles the flow of information within the company and outside the company, including the required software and hardware. The team is responsible for installing and maintaining information systems, digital networks, the internet, information security, etc. They also provide technical assistance to other departments to use technology tools or when they encounter problems.
The team may also work with teams from customers or suppliers to integrate the company’s information systems to help smooth the flow of information between the company, customers, and suppliers.
Finance and accounting
The finance and accounting functions deal with company money, including related aspects such as budgeting, funding, supervision, control, and financial reporting, both to internal and external users. In addition, the team processes various financial transactions within the company, such as paying suppliers, employee salaries, taxes, and collecting payments from customers.
The finance and accounting departments also deal with managerial accounting, which is concerned with providing management with financial information. It presents not only financial figures but also combined operational data. At the end of the year, the team prepares financial statements, which are mandatory to be released to the public for listed companies.
This department thinks about strategy at the top level. They are usually under executive management. This function is sometimes equated with the business and development department.
The team helps top management to achieve the company’s goals and objectives effectively. They help develop sound corporate planning and informed decision-making, considering the inherent risks. They plan how to achieve business goals and build a competitive advantage to stay ahead of the competition.
The human resources (HR) department handles aspects related to individuals within the company. Its responsibilities include recruiting new employees, organizing training and development, developing compensation systems, handling conflicts, termination, and dismissal within the company, fostering organizational culture, and handling industrial relations.
The communications department deals with aspects such as corporate communications, public relations, and crisis management. For example, they hold press releases and build good relations with journalists to promote and build a good company image in the public’s eyes. That includes how to handle negative issues about the company so as not to damage the company’s image.
The procurement department deals with aspects such as purchasing, logistics, and supply chain management. Its responsibilities include handling the purchase of materials and components for the production process. Apart from that, buying other items needed by the company such as office equipment is also under this department. This department is increasingly strategic for handling large purchases, where team expertise helps companies to lower costs.
Quality management activities usually fall under the operations department. The team ensures the company’s products meet the specifications or standards set. They carry out quality management procedures, including quality planning, quality assurance, quality control, and quality improvement. They test products and review production processes to ensure the products sold meet company and customer requirements.
- Operations Department: Roles and Relationships With Other Business Functions
- Accounting and Finance Department: Roles and Links with Other Departments
- Organizational Structure by Function: Advantages and Disadvantages
- How are business functions interrelated?
- Business Function: Definition, Importance, and Types
- Human Resources Department: Roles and How it Works
- Marketing department: Functions and Responsibilities