Chapter 6

Organisational departments and functions

1 Organisational departments and functions
1.1 Research and development (R&D)
The main role of R&D department is to improve product or process . and there is a need for sound
cooperation between R&D and other departments especially marketing to ensure the outputs meet
customers’ expectations.
1.2 Purchasing
The main function of purchasing department is to acquire all necessary inputs (materials)
for business operations. In order to make the best purchasing decisions, the purchasing
manager need to weigh factors involved in purchasing mix.
1.2 Purchasing Quantity Price
Quantity When and how much quantity of the purchasing are determined
by the following two factors:
Stockout risk
a)
Quality Delivery
b) Holding costs arising from storage, insurance and etc.
In order to improve the efficiency of the purchasing activities, it
is sensible to develop a sound inventory management system and
determine the optimum reorder level and economic order
quantities (EOQ).

Quality The purchasing department need to communicate with

production and marketing department first to ensure the quality of
the final products could meet the customers’ requirement

Price Ensure goods are purchased at competitive prices with

reasonable quality
Delivery An appropriate leading time should be fixed to reduce
additional costs (arising from stockout or over-storage)
1.3 Production
Production is a value-added process to transfer inputs (e.g. raw materials) into outputs
(e.g. finished goods). It is essential for us to note that production is an important
function in the network of the whole organisation, which should cooperate with other
functions closely. For example:
(a) The quantities of production should be discussed with sale department, which is the
front line of the market;
(b) The requirement of property, plant and equipment should be communicated with
finance department, which is responsible for the use of organisation’s funds.
(c) The design of products need to cooperate with R&D department.
(d) Training and career development of personnel needs the help of human resource
department.
1.4 Marketing
The UK’s Chartered Institute of Marketing states the definition of marketing is ‘the management process
responsible for identifying, anticipating and satisfying customer needs profitably’ .
1.4.1 Marketing – The basic marketing mix (4Ps)
The marketing mix is a model used when considering the range of activities necessary to construct
and implement a comprehensive marketing strategy.
The marketing mix is product, price, place and promotion.

Product Place

Price Promotion
1.4.1 Marketing – The basic marketing mix (4Ps)
A) Product issues
a) Size/brand name/package
b) Core product & augments (installation/warranties/after-sales service)
c) product life cycle: a product may be expected to go through the stages of
introduction, growth, maturity, decline and senility, this is product life cycle.
Product might show different profitability in different life cycle.
1.4.1 Marketing – The basic marketing mix (4Ps)

B) Price issues
There are different pricing tactics that companies could make a choice and they
should take costs, customer acceptance, competition and company’s strategy into
consideration before implementation.
Common pricing tactics including:
a) Penetration pricing: setting a low price when a new product is introduced to the
public in order to capture substantial customers quickly. 渗透定价
b) Skimming pricing: setting a high price oppositely with the aim to skimming high
profits of the market from customers who are insensitive of prices. 撇脂定价
1.4.1 Marketing – The basic marketing mix (4Ps)
B）Price issues
• Cost plus pricing: setting the price after adding a certain percentage mark-up
on the costs
• Perceived quality pricing: setting a high price to form a perception of quality
product of customers.
• Price discrimination: setting different prices for different customer groups.
• Going rate pricing: setting a same price of the prevailing price of the market.
• Loss leaders: setting an unprofitable price with the aim to attract and stimulate
customers to buy more products and the previous loss could be covered finally.
• Captive product pricing: setting a low price with the core product but a high
price of the captive (complementary) product.
1.4.1 Marketing – The basic marketing mix (4Ps)

C) Place
This refers to all activities related to moving the product from the
producer to the consumer. It is concerned with distribution through
the producer’s channels to market. In brief, they are issues about
where and how the products are sold.
1.4.1 Marketing – The basic marketing mix (4Ps)
D) Promotion
Promotion refers to all activities that are intended to inform the
customer and influence the purchasing decision (e.g. advertising,
sales promotion, public relations). .
Promotion activities are usually carried out follows the sequence of
raising awareness, arousing interest, stimulating desire and
promoting actions of customers (AIDA).
1.4.1 Marketing – The basic marketing mix (4Ps)
The additional marketing mix (3Ps):
E）People - matters on how to improve employees’ services to meet
customers’ expectations.
F）Processes - considerations about how to improve effectiveness of
delivering benefits to the customers.
G）Physical evidence -matters on how to design and implement
physical cues to which the customer may respond positively
1.4.2 Marketing orientation

a) Market orientation means a business philosophy that focuses on

identifying customer wants or needs and then meeting.

b) Product orientation approach lays emphasis on a totally different

direction compared to the market orientation approach. Companies
with product orientation put more efforts on exploring their own
advantages in product design rather than responding to customer needs
to improve products.

• Production orientation

• Sales orientation: persuade

Example question 1
ABC Ltd produces different products and focuses its efforts and resources on

persuading customers to buy them.

This is an example of which type of “orientation”?

A. Production

B. Sales

C. Marketing

D. Purchasing
1.4.3 Market segmentation
Market segmentation involves analysis of the market which enables companies to divide the
market into sub-sets according to different characteristics of different customer groups.
Commonly used segments include:
• Age.

• Gender.

• Geographical location.

• Socio-economic groups.

• Psychological factors, such as risk appetite, desire to conform or be different, and so on.
1.4.3 Market segmentation
Segmentation provides insights into strategic opportunities and options.
a) Mass (undifferentiated) marketing: the most convenient strategy as there would be only
one product applies in all sub-markets.
b) Targeted marketing: a highly focused approach by targeted marketing aimed at very
specific market segments.
c) Differentiated marketing: address several segments deploying different marketing
mixes.
 1.5 Services
Services are rather different from goods, the most obvious difference is that
services are intangible, while goods are possessed with physical existence. This is
called as intangibility. In addition, there are three other features of services due to
intangibility:
(a) Inseparability. The inseparability means the provision and consumption of
service cannot be separated. Simply speaking, service is consumed when it is
provided, and it cannot be stored.
(b) Variability. Due to lack of physical existence, it is difficult to exert clear
standards on services. which is dependent on variety of factors, for example, the
person who delivers it, the place where it is provided, and so on.
(c) Ownership. Provision of services does not result the transfer of ownership, and
customers just pay for the process of consumption, which also distinguishes
services from goods.
1.6 Administration
Administration includes the range of activities concerned with organising and
supervising methods that organisations operate with. In this chapter, we focus on the
function of monitoring, controlling and updating office documents, to ensure the
availability of them when there is the need of presentation, reporting in organisations.
Administration function is often centralised to enjoy better control and consistency,
and also economies of scale.
1.7 Finance function
(a) Transaction recording: accounts should be recorded according to
daily operation;
(b) Money controlling: finance department should keep close eye on
movement of money;
(c) Fund raising: A company might raise new funds from the following
sources (using the expertise in its treasury department if it has one):
Capital markets, money markets, retained earnings, bank borrowings,
government sources and the international markets.
(d) Information provision: information should be prepared to both
internal and external users.
1.8 Human resources
Human resources or HR is the company department charged with finding,
screening, recruiting, and training job applicants, and administering
employee-benefit programs. As companies reorganize to gain a competitive
edge, HR plays a key role in helping companies deal with a fast-changing
environment and the greater demand for quality employees.
Example question 2
Which of the following is the MAIN function of marketing?
A To maximise sales volume
B To identify and anticipate customer needs
C To persuade potential consumers to convert latent demand into expenditure
D To identify suitable outlets for goods and services supplied
Example question 3
Neill works as the procurement manager of JL Company, a large services company.
Information provided by Neill is most relevant to which of the following elements of the marketing mix?
A Physical evidence
B Distribution (or place)
C Price
D Processes
 2 Shared services approach

The shared services approach is a medium through which defined services can be provided across the
organisation by a dedicated unit. This differs from outsourcing, in that the shared services provider is a part
of the organisation.
 2 Shared services approach

a) Shared services organisations reduce the level of duplication of

tasks. For example, instead of each part of the organisation
employing human resources or information technology specialists,
these services can be provided centrally through a single team.
b) In this way, they can reduce costs significantly and standardise the
policies and processes across the business.
c) While the use of shared services organisations is increasing, the
model is not suitable for all. For example, if the business units are
very diverse, a centralised model may not be appropriate.
 3 Committees – 3.1 Types of committee

Executive committees ü Have the power to govern or administer

ü Formed for a particular purpose on a permanent basis

Standing committees
ü Deal with routine business

ü Formed to complete a particular task on a temporary

Ad hoc committees
basis
ü Appointed to relieve the parent committee of some
Sub-committees
routine work
ü Formed to coordinate the activities of two or more
Joint committees
committees on either permanent or short basis
3.2 Purposes of committees

a) Facilitating new ideas through brainstorming

b) Improved ability of problem solving by combining abilities and skills

c) Co-ordination

d) Making recommendations
3.3 The roles of Chair of committee

(A) The committee chair

a) Ensure committee operates efficiently and effectively

b) Promote regular attendance and full involvement in discussions

c) Decide the scope of each meeting

d) Be responsible for time management of meetings

3.3 The roles of secretary of committee

(B) The committee secretary

a) Prepare agendas in liaison with the chair, monitor the progress and schedule

b) Ensure the committee operates with guidelines

c) Advise the chair and ensure the chair is well informed

d) Take the minutes of the meeting and follow up action

 3.4 Appraisals of committees

Combination of authority and skills Slower decision-making & high

costs
Blurring responsibility Compromised decisions due to
blurring responsibility
Committees

Motivating junior managers Operations may be jeopardized

Delay Delay