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Functions of Business - Internal, External, and Support

Functions of business

The following image depicts the core functions of the business.

functions of business

Image credits © Gaurav Akrani.

Following three groups classifies the major functions of a typical business:

  1. Internal functions are primary activities happening inside or within the premises of an organisation and lay down its main foundation or base.
  2. External functions are mainly promotional activities performed out of the premises of a business institution.
  3. Support functions are ancillary (assisting) activities that aid the functioning of internal and external activities of a business establishment.

Internal functions of business help to lay its preliminary foundation (base). These mainly include primary activities like:

  1. Acquiring the necessary finance (funds) to initiate and run a business,
  2. Purchasing raw materials required to manufacture goods,
  3. Hiring labour force for work-related support,
  4. Handling and managing overhead expenses incurred while operating crucial business activities,
  5. Producing goods by converting raw materials into finished goods.

External functions facilitate promoting products produced by the business. These consist of outside activities like:

  1. Researching a market and carefully studying it.
  2. Running advertising campaigns to attract potential customers or clients,
  3. Promoting products in the market to increase sales,
  4. Appointing sales agents to collect consumers' data,
  5. Directing selling and distribution of products.

Support functions continuously aid both internal and external functions. These usually cover ancillary activities such as:

  1. Keeping record of accounts or financial transactions,
  2. Appointing Public relation (PR) officers as the official representatives of a business,
  3. Strictly controlling the quality of produced goods,
  4. Outsourcing non-productive activities to a BPO agency,
  5. Using Human Resource (HR) services to hire skilled personnel that qualifies and suits to do a particular job.

Note: Above functions don't cover all business activities since the scale of operation and requirement of every firm varies. However, these are considered as essential or primary functions of the majority of organisations.

These three groups of business functions are categorised based on their fundamental and immediate requirements needed to carry on the ancillary (supportive) business processes.

We cannot independently perform these three groups or categories of business functions. In other words, these are mutually dependent on each other to execute their respective tasks or jobs.

Now let's discuss in detail each category of business functions.

1. Internal functions of business

Internal functions consist of all those essential and crucial business activities that help to lay a business foundation:

  1. These are required to carry on the business objectives. It's the business promoters who decide such objectives. Objectives get determined at the time of business establishment.
  2. These are also required to carry on regular business activities.

The key internal functions of a business organisation:

internal functions of business

Image credits © Gaurav Akrani.

  1. Acquisition of finance is a process of acquiring funds for the establishment of the business. Here, the funds are obtained from various sources like banks, investors, and other financial institutions. Once finance is acquired, the funds are then allotted and subsequently channelized to initiate important preliminary activities of business such as purchasing of fixed assets like land, buildings, machinery, vehicles, so on.
  2. Purchasing of raw materials takes place once essential fixed assets become ready for use in the commercial production of goods. While buying raw materials, purchase manager has to take care of three main things:
    1. Quality,
    2. Price, and
    3. Delivery time of raw-materials.
  3. Hiring of labour is required to convert the purchased raw materials into finished goods. To achieve this task, the production manager has to hire labour contractors. Each hired labour contractor then provides (supplies) the required number of workers (manpower) to the production department. Once labour is employed, production manager administrates factors like:
    1. Labours' working hours,
    2. Their Pay-rate, and
    3. The idle (non-productive) time consumed by them.
  4. Overhead expenses are costs incurred (sustained) while operating essential business activities. These costs are incurred to run a business smoothly and on a continuous basis. Costs incurred on the consumption of electricity, fuel, water, gas, etc., fall under overhead expenses.
  5. Production of goods involves conversion, transformation or processing of raw materials into finished goods, which are ready to get sold. The process of production is very extensive and comprehensive in nature. Production process adds utility (usefulness or ability to satisfy a need) to the finished goods. It fulfils the demand of end-customers and hence considered as the most important internal function of the business.

2. External functions of business

External functions consist of all those business activities happening outside the premises or precincts of an organisation:

  1. These facilitate the promotion of goods produced by the company.
  2. These are required to carry on the business of the organisation at its best in the competitive markets.
  3. These are usually forecasted, planned and controlled by the concerned sales manager. He initiates these functions when he seeks profitable business opportunities in the market.
  4. These are necessary to take business decisions in scenarios such as:
    1. Introduction of new product in the market,
    2. Discontinuation of an old product from the market,
    3. Determining the selling price of an existing product, etc.

The external functions of a business are depicted and explained below:

external functions of business

Image credits © Gaurav Akrani.

  1. Marketing Research helps to explore and find the market demand for the goods produced by the organisation. It collects information about the manufactured goods with respect to its consumers, competitors, government policies, etc. This information is then studied by the top-level of management to ascertain the future scope of the product in the market.
  2. Advertisement is a way to inform, educate, and make people aware of any particular goods or services. It helps to lure (attract) the consumers to purchase a product. Advertisements are propagated towards people through mass media such as:
    1. Newspapers,
    2. Magazines,
    3. Television channels,
    4. The Internet,
    5. Radios, etc.
  3. Sales promotion means to promote a product in the market. It is a technique whose purpose is to increase the sales of the product. It covers:
    1. Providing free samples,
    2. Offering discounts,
    3. Giving gifts,
    4. Offering cash back schemes, etc.
  4. Appointment of sales agent helps the organisation to represent itself in front of consumers. The sale agents communicate in person with consumers. They inform and demonstrate various functions of the product and convince customers to buy their quality product. They also collect feedbacks from them and report it to their organisation.
  5. Selling and distribution covers of all those activities which direct the flow of goods from producer to the consumers. The sales manager led such activities, and he must make a timely delivery of goods to the customers. He must also ensure that goods get properly supplied to all targeted (advertised) areas on time.

3. Support functions of business

Support functions include all those ancillary (assisting) activities that facilitate and ensure smooth working of both, internal and external business functions.

Usually, managers of respective support teams operating within an organisation handle these functions. Their role is to provide the available information as and when required by the management. The management then utilises such information to take strategic decisions regarding the further implementation of internal and external functions of the business.

Some significant support functions of business:

support functions of business

Image credits © Gaurav Akrani.

  1. Accounting operations are necessary for recording the day-to-day financial transactions of a business related to:
    1. Purchases and Sales,
    2. Expenses and Incomes, etc.
    It helps the organisation to know about their sales turnover and profitability. For example, if the company wants to fund a new product, then the accounting operation shall provide information of the available money.
  2. Public relation officers (PROs) are the authorised (official) representatives of the business:
    1. They link their organisation with customers, shareholders, media, government, and others.
    2. They also support in providing the correct information with respect to activities like production of goods, selling and distribution, etc. of the organisation as and when required.
  3. Quality Control (QC) is a process through which we assess the inputs and outputs with some pre-determined standards:
    1. It helps to ensure and control the purchase of quality raw materials.
    2. It takes care to see that the productions of goods happen as per standards set by the organisation.
    3. Furthermore, it also helps in distribution of quality (QC passed) products to consumers.
  4. Business process outsourcing (BPO) contributes to outsource the non-productive works of the organisation. Usually, this includes:
    1. Taking customers' complaints,
    2. Preparing payroll accounts,
    3. Calculating sales agents' commission, etc.
    It also helps to focus on income-generating activities of business such as:
    1. Selling and distribution,
    2. Acquiring finance,
    3. Production of goods, so on.

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