Unit 7 – Functional Areas of Management

Functional Areas of Management

In this unit we will learn about:

 What are the different functional areas of business management?

What is the objective of production management in a business?
 What is the purpose of human resource management function in a business?
 What is the significance of finance in a business?
 What is the role of marketing in business?
 What is the importance of Information Technology in business?

Introduction

The scope of a business is very broad. Although, the core work of business is to identify the
needs of consumers or other business houses and converting the inputs or factors of
production to outputs namely goods or services. The main motive is to earn profits from the
business activity being done. This is ensured by an effective management at disposal. It is the
backbone for the success of the business enterprise. Now let us understand what is
Management?

Management can be referred to as discipline of management principles and techniques. It

can also be an individual or team of who performs the business activities. It can also be called
as a process consisting of managerial activities which include planning, organising, staffing,
directing and controlling. It is basically getting work done from people.

Here are some definitions given by some popular authors: -

According to Henri Fayol “Management is conduct of affairs of business, moving towards

its objective through a continuous process of improvement and optimization of
resources” while in the words of Koontz “Management is the process of designing and
maintaining an environment in which individuals, working together in groups,
efficiently accomplish selected aims”

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A business consists of various functions which are interrelated. A business function can be
defined as a process performed on routine basis to undertake a part of the mission of an
organisation. As and when businesses have grown over a period of time, they could not be
managed by an individual or handful of individuals. Thus, this has led to evolving the way
the businesses functioned in olden times. The concept of expertise has paved the way for
division of work into different functions.

The following are the functional areas of Management:

1. Production Management
2. Financial Management
3. Marketing Management
4. Human Resources Management
5. Information Technology

These functions are specialised in themselves as they are performed by people having
specific skills and capabilities.

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Finance

Information
Technology Marketing

Business

Production Human Resources

Fig. 7.1 Functional Areas of Business

Production Management

Essentially in context of managerial economics, the production function is concerned with

converting inputs into outputs through the stages of production processes. In simple words,
production means manufacturing, creation or building.

E.L. Brech has defined Production Management as “It is the process of effective planning
and regulating the operations of that section of an enterprise which is responsible for
the actual transformation of materials into finished products”.

On the other hand, production management is responsible for production planning and
control, quality control, procurement of raw materials and storage of raw materials. It is
concerned with the management of ensuring that right good are produced, in right quantity, at
the right time and at the right cost.

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Objectives of Production Management:

1. Right Quantity

The most important objective of production management is ensuring production of right

amount of goods so there is no shortage of goods in comparison to the demand. On the other
hand, excess production leads to blockage of inventory and capital.

2. Right Quality

The quality of the product is set on the basis of customers’ needs. These needs are decoded
by the manufacturing department into measurable objectives. Besides this, the production
management has to maintain a trade-off between cost and quality.

3. Costs

The manufacturing department fixes the cost of the product prior to actual production. Hence,
it has to minimum variance between the actual cost and fixed cost of the final product.

4. Right time

The production department has to make sure that the goods should be produced in the
stipulated time limit. This requires planning the resources and scheduling of the work in
advance.

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Right Quantity

Objectives of
Right Quality Production Costs
Management

Right Time

Fig 7.2: Objectives of Production Management

Functions of Production Management:

i. Product design
Product Design is the process of creating a new product to be sold by a business to its
customers. This process leads to development of ideas and processes to design new products
in an efficient and effective manner.

ii. Location and layout of Plant

Plant Location means setting the plant at a particular place. This decision involves deciding
on the selection of geographic area, size of the area and the type of the area- urban or rural.
The business owner takes into mind various factors before deciding on the location like
proximity with the market, availability of labour, availability of facilities like transport,
electricity, water, drainage, etc.

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Plant Layout refers to the physical arrangement of equipment and facilities within a plant. A
good layout ensures a smooth flow of work, material, people and information. It also
improves productivity, safety and quality of the work processes.

iii. Procurement and storage of raw materials

This task includes procurement of all the things related to finished products- raw materials
and spare parts. The storage of raw material requires ensuring adequate arrangements like
containers, boxes, etc.

iv. Planning of factory operations

Here, the focus is on planning of instructions and duties crucial for the success of the factory
work to decrease the operating expenses and increasing the output.

v. Inventory control

This process constitutes of continuous supervision of supply, storage and availability of items in
order to ensure an adequate supply without excessive oversupply.

vi. Quality control

It refers to the set of activities which ensure that the produced items are free from any of the
defects.

vii. Research and development

Research and development processes are aimed at improving processes of factory operations
and reducing the cost of components.

viii. Maintenance of Factory equipment

Continual maintenance of factory equipment includes taking care of timely repairs, oiling and
greasing of the machinery to run it effectively for a longer duration.

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Procurement
Location and
Product and storage
layout of
design of raw
Plant
materials
Planning of
Inventory Quality
factory
Control Control
operations

Maintenance Maintenance
Research &
of Factory of Factory
Development
Plant Plant
Fig 7.3: Functions of Production Management

Financial Management

Finance is referred to as the lifeblood of any business. Financial Management involves

procurement of required funds and making sure that they are parked at the right place. This is
one of the crucial functions of the business activity.

According to Guthman and Dougal, “Financial management is the activity concerned with
planning, raising, controlling and administering of funds used in the business.”

Over the years, finance function has come out as a separate function of a business enterprise.
Traditionally, this function was seen as risk-averse while the new approach sees it as vision
oriented and risk taking.

Objectives of the Financial Management:

 Support all the business functions

The business needs funds for procuring raw materials, paying salaries to the
employees, bearing expenses of the administrations, etc. The funds are provided by
the finance function.
 Raising funds for the business
The business owner can raise funds from various sources classified as:

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Long term sources: These constitute term loans from banks, Owner Capital, Venture
Capital and Internal Accruals. They are raised for the purpose of making long run
capital expenditure.
Short term sources: These consist of Trade credit, commercial bank loans, lease and
overdrafts. The short-term funds are needed for meeting day to day expenses.
 Lowering the costs
The aim of the business is to earn profits for the owner. Now, this requires reducing
costs on unnecessary areas like wastage of raw materials, keeping track of labour
hours wastage, reducing overhead expenses. The person managing the finance
function should make recommendations to different business functions for reduce the
expenses.
 Increasing the profits of the business.
Profits of the business can be increased by improving the sales and decreasing the
costs. The finance manager can also perform the role of advisor to the marketing
department for increasing the sales.

Support
Increasing the
Business Raising funds Lowering costs
profits
Functions
• Day to day • Long term • Reducing • Increasing
affairs sources waste sales
• Funds to other • Short term expenses • Reducing costs
business sources • Finding
functions alternatives

Fig 7.4: Objectives of Financial Management

Broadly the financial management function of the business is entrusted with the following
tasks:

 Recording financial transactions

In this task, daily book keeping entries of the financial transactions and maintenance
of ledgers is done. This is done to find the right state of business at the end of the
accounting period.

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 Funds Management

The business owner or the person responsible for handling the finance function
ensures that the cash and the working capital are managed well. This task is also
responsible for raising funds-long term and short term for the business.

 Financial Reporting

The finance manager ascertains the financial position of the business by making profit
and loss account and the balance sheet in financial reporting. This is reported to the
owner for further planning of business.

 Preparing management Records

This is done for internal reporting purpose. E.g. making cost records, budgets,
decisions on investments, expenditures, etc.

Recording Financial Transactions

Funds Management

Financial Reporting

Preparing Management Records

Fig 7.5: Functions of Financial Management Function

Marketing Management

Marketing function is responsible for connecting customers and the business enterprise. This
function helps in for providing revenue and generating operational profitability for the
business. Marketing includes all the activities related to buying and selling of product or

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service. It also involves market research, advertising and delivering products to the
customers. On the other hand, Marketing Management is the management of the marketing
activities in an organization and includes management of the processes of planning,
organizing, directing, motivating, coordinating, and controlling.

Dr. Philip Kotler defines marketing as “the science and art of exploring, creating, and
delivering value to satisfy the needs of a target market at a profit.”

According to Philip Kotler, “Marketing management is the analysis, planning,

implementation and control of programmes designed to bring about desired exchanges
with target markets for the purpose of achieving organisational objectives”.

The American Marketing Association has defined Marketing management as ‘It is the
process of planning and executing the conception, pricing, promotion, and distribution of
ideas, goods, and services to create exchanges that satisfy individual and organizational
goals.

Scope of Marketing

The scope of marketing is very wide. Initially, it was just restricted to sale of the goods which
has shifted to focus to after sale which is generally a part of relationship management. The
competition was not stiff earlier so the producer was the king. But the concept changed in the
later years due to entry of new producers and consumer awareness whereby the consumer is
referred to as king. Marketing activities constitute lots of activities including market
research, promotion and advertisement, distribution of product, after sale services.

Objectives of Marketing Management:

Marketing management is an important function in a business enterprise. It helps in fulfilling

the following objectives which are relevant at micro (firm) as well as macro (economy) level:

1. Demand and Employment Creation

The foremost objective of marketing is to create demand as per the tastes and preferences of
the customers. This objective is the foundation for running the business. However, it also
helps in increasing in per capita income by increasing employment along with demand.

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Marketing involves lots of functions like buying, selling, warehousing, packaging, etc. These
functions are performed by different set of people which enables increase in employment.

2. Increasing market share

To ensure long term continuity and profitability of the business enterprise, marketing
management should aim at growing its marketing share. This can be achieved by constantly
be in touch with market trends and researching about customer needs.

3. Profit Generation

The marketing department is responsible for generating revenue for the business enterprise
and hence profits for its long-term survival and growth.

4. Goodwill

The marketing department has a direct role in increasing the goodwill of the firm by
providing goods at best quality to the customers at reasonable prices.

5. Customer Satisfaction

Customer satisfaction is the degree of satisfaction provided by the goods or services of a

company as measured by the number of repeat customers. The marketing department is
responsible for customer satisfaction.

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Demand Creation

Increasing Market Share

Profit Generation

Goodwill

Customer Satisfaction

Fig 7.6: Objectives of Marketing

Functions of Marketing Management

The functions of marketing management in a business enterprise are as follows:

1. Functions of Exchange: It includes all the activities that are concerned with the
transfer of goods and services from producers to users. It involves following
functions:
1.1 Buying
This function includes procuring raw materials to make products, knowing how much
to keep in surplus and selecting suppliers.
1.2 Selling
This function is responsible for creating possession utility by transferring the title of
product from seller to customer.
2. Functions of Physical Supply: This function facilitates buying and selling processes
of goods. It includes:
2.1 Transportation
It involves finding out mode of transport that provides an acceptable delivery of
goods schedule at an acceptable price.
2.2 Storing

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This function takes care of storage of products to sell them at the best-selling price.
3. Facilitating Functions: These functions have a direct association with the market
process. The following sub-functions are included:
3.1 Market Research
It means gathering, recording and analysing all the information related to issues of
marketing which becomes base for marketing functions.
3.2 Product Planning and Development
Product planning is concerned with the products’ design, name, colour, size, etc.
Development consists of all the activities from generation of new products to
introducing product for sale.
3.3 Standardisation and Grading
Standardisation is a process of setting standards for a product on the basis of its
required qualities. Grading is dividing the products into lots, groups or classes as per
the prior set standards.

3.4 Packaging
It is the act of designing and producing package for a product. This ensures protecting
the product from risk of spoilage, leakage, etc.
3.5 Branding
This process facilitates identifying product with a name or trademark.
3.6 Pricing
It is the task of assigning value of a product or service which is expressed in terms of
money.
3.7 Promotion
It constitutes of the activities of informing the customers about the product or service
by the business to create, sustain and increase the demand.

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Functions of Physical Facilitating

Functions of Exchange Supply Functions
• Buying • Transportation • Marketing Research
• Selling • Storage • Product Planning &
Development
• Standardisation &
Grading
• Packaging
• Branding
• Pricing
• Promotion

Fig 7.7: Functions of Marketing Management

Human Resources Management

A business enterprise has to get work from people. They are needed for effective utilisation
of all the resources. Therefore, people are the most important resource for business. People
alternately called manpower are referred as Human Resources.

According to Megginson, human resources mean “the total knowledge, skills, creative
abilities, talents and aptitudes of an organization’s workforce, as well as the values,
attitudes and beliefs of the individuals involved.”

A business performs the function of human resource management. It is the process of

bringing people and organisations together to attain the objectives of each. Flippo defines
human resource management as “the planning, organising, directing and controlling of
the procurement, development, compensation, integration, maintenance and
reproduction of human resources to the end that individual, organisational and societal
objectives are accomplished.”

Objectives of Human Resource Management in business

 To assist the business organisation to achieve its goals by providing well-trained

employees.
 To utilise human resources effectively.
 To enhance job satisfaction of employees by encouraging them.
 To develop and retain healthy relations amongst employees.

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 To maintain quality of work life for employees

Functions of Human Resource Management

In a business enterprise, the human resource management is performed by either the owner
himself or human resource manager depending on the size of the business. The following
functions come under human resource management: -

1. Human Resource Planning: This task entails estimating the current and future
manpower requirements of the business. The process depends on projected sales of
the business, number of people leaving the organisation, technological changes, etc.
2. Job Analysis: A job analysis is a detailed process whereby information regarding
duties, responsibilities, skills and work environment for a particular job is collected.
This helps in making job descriptions.
3. Recruitment and Selection: Recruitment means searching for people to work for the
business enterprise. Selection implies choosing the suitable candidates with right
skills for a job.
4. Performance Appraisal: It is the task of assessing or rating individual performance
and abilities of the workers. This helps in identifying the potential in employees for
their further development.
5. Training & Development: Training is a process of imparting knowledge and skills in
an employee for making him perform a job. On the other hand, development brings
about the activities which facilitate growth of employees in all respects.
6. Compensation Management: The business enterprise should make sure that fair and
equitable compensation is paid to the employees. This is one of the crucial functions
as it is responsible for productivity and motivation of employees.
7. Motivation: The employees of the organisation should be adequately motivated for
the achieving their own goals along with the business enterprise’s goals. The business
should have a system of financial and non-financial rewards for motivating the
employees.
8. Maintenance: This aspect is related to protecting and promoting the physical and
mental health of employees. This includes designing of health, safety and welfare
measures for the employees.

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Performance Training &

Appraisal Development
Recruitment & Compensation
Selection

Job Analysis Motivation

Human Functions of
Resource Maintenance
Planning HRM

Fig 7.8: Functions of Human Resource Management

Information Technology

Information Technology in common parlance is known as IT. It consists of all types of

technology used to exchange, store, use or create information. IT has become essential and
integral part of any business. In the age of globalisation to survive in the stiff competition and
growth of the business, IT has become imperative.

Objectives of Information Technology:

 IT enables information exchange amongst different stakeholders of the business.

 IT helps in improving business processes.
 IT helps in enhancing customer service.
 IT helps in boosting business efficiency.
 IT facilitates improvement in business productivity.
 IT drives competitive advantage.

Information technology performs various functions across all the business processes which
can be discussed as follows:

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Finance

Informati
Human
Productio on
Resource
n Technolog
s
y

Marketing

Fig 7.9: Functions of Information Technology

IT in Production

Technological advances play a vital role in improving productivity by introducing new

techniques. Technology is used to maximise product quality and decrease production costs.
For e.g. Inventory management systems provide an automated track of quantity required
when it falls below a predetermined level.

IT in Finance

IT helps a lot to the people in finance department. It helps in various activities like keeping
automated recordkeeping, financial forecasting and budgeting. For e.g. Enterprise Resource
Planning software in Finance helps in gathering financial data and generating reports.

IT in Marketing

Technology has proliferated in the different tasks of marketing including market research,
customer relationship management, etc. Business owners can use online search engines to

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research about consumer buying trends and identify profitable marketing opportunities.
Information technology also helps in selling the products on online platforms. Businesses are
using IT to improve the way they design and manage customer relationships for managing
consumer interactions including order placing to after sale services.

IT in Human Resource

Human resource management employs information technology for recruitment, payroll,

training and development of its employees. Nowadays, Human resource information system
is extensively used by business houses for collecting, storing, maintaining and retrieving the
data on its human resources and personnel activities.

Summary:

 Business Management is integrated by various processes namely Production, Finance, Human

resources, Marketing and Information Technology.
 Production management concerned with converting inputs to outputs.
 Financial management involves raising funds for business and putting them into right places to
create profits.
 Human resource management function includes recruitment of people at the business and
maintaining relations thereof.
 Marketing management includes all the activities related to buying and selling of product or
service.
 Information Technology helps in information exchange and automation of processes of the
business.

Keywords: -Business, Management, Production, Finance, Human Resources, Marketing, IT

Self-Test Questions

I. Choose the correct answer:

1. ..................... is the life blood of business.
a) Finance b) Goods c) People d) Owner
2. .................. function is responsible for converting inputs to outputs.
a) Marketing b) Selling c) Production d) Finance
3. Information Technology enables.................. exchange.

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a) People b) Market c) Information d) Automatic

4. .................. estimates the current and future manpower requirements of the business.
a) Market Planning b) Human Resource Planning c) Budgeting d) Financial
Analysis
II. Fill in the blanks:
1. Technology helps in improving ................ quality.
2. ................ is a detailed process whereby information regarding duties, responsibilities,
skills and work environment for a particular job is collected.
3. ................is the task of assigning value of a product or service which is expressed in
terms of money.
4. .................... refers to the physical arrangement of equipment and facilities within a
plant
III. True or False
1. The business should ensure fair and adequate compensation to all the employees.
2. IT does not improve competitive advantage.
3. Finance function raises money for the business.
4. Owner’s capital is long term source of capital.
IV. Answer the following briefly:
1. What is Job Analysis?
2. Why marketing is a relationship management function?
3. Why finance is called the life blood of a business?
4. How can IT help in marketing for a business?
V. Answer in detail:
1. What is the significance of Human resource management in business?

VI. Activity
1. Visit a factory or an office outlet near your locality. List down the processes of the
business visited.

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