2.3. Economic activities in organizations: Functions and business areas

Question 1

2 systems of economic activities in a firm

Answer 1

1. Functional areas
2. Business areas

Question 2

Functional area

Answer 2

subset of processes characterised by a function/specialisation. e.g. developing, manufacturing, selling and by the skills used in these processes. e.g. design, production

Question 3

Business area

Answer 3

product/market area with its own distinctive features (as well costs and revenues); it differs from the other areas in which the same firm operates

Question 4

Functions

Answer 4

organisational units that perform activities belonging to a functional area

Question 5

Divisions

Answer 5

organisational units that perform activities belonging to a business area. e.g. SEA division, South America division/ product division or geographical division

Question 6

Institutional Structure Design

Answer 6

• creation (founding the organisation)
• basic configuration (defning legal status)
• transformation
• termination of the organisation

=> how to structure equity capital

Question 7

Core operations

Answer 7

Refer to the extensive set of activities by which the firm actually carries out economic production

operating income = revenues - costs

Question 8

Types of core operations

Answer 8

• R&D
• Purchasing
• Manufacturing
• Sales and Marketing
• Logistics

Question 9

R&D

Answer 9

• establish new product features and production methods
  
  • fundamental research. e.g. technology research => get outside innovation
  • technology/competition watch (understanding trends in terms of tech)
  • evaluation of customer needs
  • new product development
  • problem solving with exisitng products and upgrade
  • quality check

Question 10

Purchasing

Answer 10

Buying long term use equipment/facilities, raw materials, services

• recognition of needs
• forecast and plan requirements
• supplier identification/evaluation/selection
• analysing quotations and bids
• placing orders
• spend analysis
• contract mgmt
• supplier relationship mgmt

Question 11

Sales and marketing

Answer 11

• selling the firm’s product while optimising economic profitability
• understand customers, competitors’ offering, define sales policies, advertising and communication campaign
• sales and marketing skills + technical skills

Question 12

Logistics

Answer 12

• Transport, store and move raw materials, semi finished or finished products
• Multidisciplinary skills

Question 13

New product development

Answer 13

• technology idea
• contact with suppliers/availability
• feasibility/prototyping/production
• customer’s need

Question 14

Debt and equity management/Finance

Answer 14

Set of activities undertaken by the firm in order to cover its financial needs

because firms have to incur expenses/payments before being able to sell products

financial needs:

increase with the size of investment, length of production cycle, length of payment period for customers

decreases with the length of payment period for suppliers

Question 15

What does debt and equity mgmt do?

Answer 15

forecasting and analysing financial need

optimal mix of equity capital and debt capital

planning and executing transactions involving capital (equity/loan)

handling contracts

Question 16

Mgmt of non core investments

Answer 16

deal with surplus of funds generated by firms

goal: generate extra revenues in addition to core operations
e. g. investment in state securities, buy other firms

Question 17

Tax mgmt

Answer 17

firms are required to pay various of taxes in exchange for the right to utilise public goods

Question 18

Insurance mgmt

Answer 18

organisations are subject to general economic risk. e.g. the chance that general economic activities generate profits/losses which promote or threaten the longetivity of the organisation

organisations are also exposed to particular risks which can be covered by insurance