Functional Areas of Business Concept & Groups | What is a Functional Area? – Video & Lesson Transcript | Study.com

Importance of the Functional Areas of Business

The primary purpose of functional areas of business is to guarantee efficiency in all organizational activities. Companies organize by functional units to dedicate specific resources and personnel towards accomplishing a given function, project, or objective. For example, the human resource department is a functional area solely dedicated to recruiting, training, assigning roles, and developing employees.

Functional areas allow a clear description and distinction of duties and responsibilities. Each division clearly understands its specific obligations, which increases accountability across the organization. Although each unit operates distinctively with its specialized manager and staff, all functional areas must cooperate in pursuing organizational goals and objectives.

Functional managers possess the same expertise and skills exhibited by their subordinates. It allows them to assess the work done by members of their functional area and ensure departmental/unit operations align with the overall strategic objectives. For example, an IT manager knows and understands the functions of the IT department. This puts them in a better position to offer assistance and guide employees in that functional area.

Another importance of functional areas is increasing management efficacy. It is easier to manage different organizational departments, activities, and employees when grouped according to their functions. For example, monitoring marketing functions within a marketing functional area is easier. This grouping increases departmental accountability, making it easier to determine which unit is not meeting organizational targets. Furthermore, since employees working on similar functions are grouped into one functional area, it simplifies training and knowledge-sharing.

Functional Departments of an Organization

Businesses have different functional departments depending on the size of the organization and the nature of the market. Nonetheless, typical functional areas include:

• Sales
• Marketing
• Finance and accounting
• Customer service
• Human resource
• Research and development
• Production
• Distribution

Sales Functional Area

The main objective of businesses is to generate profit. This profit is generated from the sale of goods and services. As such, the goal of the sales functional area is to help the business achieve its sales and revenue targets. The sales department exploits market leads created by the marketing department to target potential customers and drive sales.

This functional area works closely with the marketing department to leverage market opportunities, stimulate sales, and increase revenue. Employees in the sales department work directly with prospective clients to help them determine the best product for their needs and place orders.

Marketing Functional Area

The marketing functional area works closely with the sales department to create demand for the company’s products and services. Employees within this organizational unit are responsible for identifying and addressing customer needs. In other words, the marketing department conducts research to determine what consumers want and design products that meet these needs. Marketing functions also include:

• Promoting the company’s products and services
• Delivering products to the final consumer
• Developing pricing strategies
• Creating and implementing strategies that strengthen the business’s competitive advantage
• Building and maintaining an online presence, an important business strategy in this digital marketing era

Finance and Accounting Functional Area

The finance functional area definition alludes to the management of company funds. In business, finance and accounting departments are responsible for planning, procuring, and managing finances. This department analyzes the company’s capital needs to determine how to acquire and allocate funds. Finance managers oversee all financial decisions, including whether to borrow or sell stocks to raise money.

The finance and accounting division deals with all functions pertaining to capital, budgeting, assets, and costs. This department informs the allocation of financial resources. Accounting professionals analyze and represent financial transactions to key stakeholders such as investors and the government. Accountants also prepare financial statements, painting a clear picture of the organization’s financial position.

Customer Service Functional Area

The customer service functional area is dedicated to ensuring a high level of customer experience and satisfaction. As a core functional area, customer service deals with customer inquiries, complaints, or concerns. As more companies recognize the value of customer satisfaction, the importance of this department is growing. Businesses must take care of the interests of their clients to:

• Remain competitive
• Maintain their market share
• Increase customer loyalty
• Improve customer experience
• Encourage repeat sales

Expectations of the modern customer are high, which is why many companies have a customer service department explicitly dedicated to handling issues, complaints, questions, and requests. Staff in the customer service department work directly with customers to solve problems. For example, in case of a product defect, the customer service functional area engages with the affected customer to arrange for refunds or replacements.

Human Resources Functional Area

The human resource functional area is important because it handles all issues related to the employees. The role of this department includes:

• Conducting the hiring process
• Recruiting employees to fill available job vacancies
• Advertising available job vacancies
• Preparing employment contracts
• Monitoring staff and the working environment
• Employee training and development

Research and Development Functional Area

The research and development functional area compliments all other organizational departments. Research in functional areas of business exposes decision-makers to valuable information, which facilitates strategic decision-making. The research and development (R&D) department contributes to developing new products, designing products to meet customer needs, and improving existing products. R&D functions are founded upon innovation, customer feedback, and market research.

Production Functional Area

Functional areas of production deal with the manufacture of products. Staff within the production functional area are accountable for production timelines and product quality. Important duties of this department include:

• Procuring raw materials and inputs necessary to produce the finished product
• Scheduling production activities
• Manufacturing finished products
• Carrying out machinery inspection, maintenance, and repairs
• Ensuring compliance with quality standards

Distribution Functional Area

The distribution functional area ensures that finished products are delivered to final customers on time, at the right place, and as required. Employees in this department package and ship company products to the buyers. Distribution functions include appropriately packaging the products, transporting goods, matching deliveries with customer orders, and solving distribution problems.

Lesson Summary

A functional area is a unit, department, or team tasked with specific organizational functions. Functional areas comprise staff members with similar skills and expertise. Organizations organize by functional units to enhance operational efficiency and ensure that managers with the same skills and expertise assess the work done by employees in their units. Functional areas also facilitate training, development, and knowledge-sharing, because employees working on related functions are grouped together. Organizations have different functional departments depending on size and the nature of the market. Employees in the sales functional area work directly with potential clients to assist them place orders and determine the best products to satisfy their needs.

The marketing functional area is responsible for promoting and delivering products to the final customer. Meanwhile, the finance functional area specializes in planning, procuring, and managing funds. Accountants also prepare financial statements. Improving customer experience and satisfaction is the specialized role of the customer service functional area. Employees in this department work directly with customers to solve problems. The human resource functional area recruits, manages, and develops employees, while the research and development functional area facilitates strategic decisions related to product design, development, and improvement. Manufacturing activities are the responsibility of the production functional area. Lastly, employees in the distribution functional area package and ship company products to the buyers.