ENTERPRISE FUNCTION MODEL
NIGEL A.L. BROOKS THE BUSINESS LEADERSHIP DEVELOPMENT CORPORATION
ENTERPRISE FUNCTION MODEL The Enterprise Function Model is generic and applies to all enterprises in every industry, both product-driven and service-driven. It represents the highest level functions within an enterprise. This material provides background on the model and includes: Overview of functions Background article: Organizing functional knowledge and technical skills to deliver value Functional responsibilities Terminology
Overview of functions
The Enterprise Function Model is generic and applies to all enterprises in every industry, both product-driven and service-driven. It represents the highest level functions within an enterprise. A function is a group of knowledge-related (subject area) activities that have a purpose. The model includes a manufacturing function, for which there is usually an equivalent in non-manufacturing industries. In its de minimis form, it consists of assembling and packaging. In its most significant form, it comprises fabrication, with all of the related processes, such as cutting, milling, and machining of metals, glass, plastics, and wood. For example, the equivalent in the food services industry is the food preparation function. The equivalent in the construction industry is the project management function. Even the gift wrapping activity within a department store, with both assembly and packaging activities, is equivalent to a manufacturing function.
The equivalent in non-product industries is delivering the service itself. For example, in airline industry, the equivalent is providing the transportation, and all of the support that accompanies it, such as managing baggage and serving meals. In the hospitality industry, the equivalent is providing the accommodation, with all the support, such as room service, newspapers, internet, etc. In both product-driven and service-driven industries, there is always a service function within the business development activities related to the sale itself, such as handling complaints, exchanges, returns, etc. It makes no difference whether the functions are insourced or outsourced – they are all represented within the Enterprise Function Model. The scope of the functions varies by industry. Whereas all enterprises have a research and development function to some extent, those in industries that are heavily dependent upon intellectual property will have a more extensive function than those that don't. For example, in a lifestyle business enterprise, the owner may perform most research on their own or with limited assistance; in an upwardly mobile enterprise in the pharmaceutical industry, entire departments will perform research. Nevertheless, for the enterprise to be sustainable, there must always be some form of research and development. The Enterprise Function Model is intended to provoke thoughts on how functions should be deployed.
Background Article: Organizing functional knowledge and technical skills to deliver value A frequent issue facing entrepreneurs and executives alike is how to organize an enterprise. There are many options including those based upon product lines, business lines by markets, and business units by industry. However the process starts by properly identifying the functions - areas of subject matter expertise that are relevant to earning value. The domain competencies of individual employees represent the specific knowledge and technical skills that are required to perform activities. Domain subject matter areas include legal, finance, human resources, information technology, program management, engineering, operations, and business development. These knowledge-related activities can be grouped together to form the first level of organizational structure within an enterprise – the Enterprise Function Model. Processes and functions are components of the infrastructure of an enterprise. Functions house the knowledge and technical skills of an enterprise; processes represent the activities to turn knowledge and skills into value. Processes are horizontal, flowing through the enterprise, and functions are vertical. Macro processes cross functions whereas micro processes are contained within functions. Enterprise function model... Every enterprise has three macro functions: Governance, Administrative, and Operational, whether management chooses to specifically identify them or not. They form the basis for the enterprise function model. Each macro function decomposes into micro functions, which in turn can further divide into subfunctions. The Governance function, which consists of the board of directors and the chief executive of a corporation, the members of a limited liability company, or a sole proprietor, has the ultimate responsibility for the enterprise to its investors. The Administrative and Operational functions are headed by top-level executives. The Administrative functions include legal, finance, human resources, and information technology; the Operational functions include operations and business development. 5
The finance function includes the treasury (funds management) and control (financial, managerial, and regulatory accounting and reporting). The operations function includes procurement, manufacturing (or its equivalent in non-manufacturing enterprises), and distribution. The business development function includes marketing, sales, and service. There are two additional functions that must be considered in any organizational design – the "enterprise" function and the research and development function. The enterprise function (Administrative) is where activities such as support for planning and policy development and performance measurement, brand management, facilities management, relations (community, government and investor), ombudsman, and internal audit are housed. It provides support to the Governance function. It may be consolidated as one, or split into many. It is rarely called the "enterprise" function, so that term is purely descriptive. The research and development function (Operational) houses program management and engineering expertise. It relies upon "cross-functional" participation from elsewhere in the enterprise. It is heavily "projectoriented" focusing on market, product and/or service, and infrastructurerelated activities. Employees should be rotated in and out of the research and development function so that a real-world orientation is always present, as opposed to purely a laboratory environment. Any of these functions can be insourced or outsourced depending upon the core competencies of the enterprise, although the ultimate responsibility must remain in-house. An argument can be made that the responsibility for marketing must always be in-house, because without marketing, nothing else in the enterprise matters. This is why there is a tight relationship between strategy and marketing. Organizational structure... A functional organization is suitable for emerging enterprises and small businesses. As an enterprise grows into multiple markets and product lines, more complex organizational structures are required. As organizational structures become more complex, so does the risk of the formation of "silos." Silos create barriers to communication and teamwork between functions.
In larger enterprises, organizational units may be made up of divisions, departments, branches, and plants. Units may be further be organized into product lines, business lines by geographic and demographic markets, and business units by industry. Domestic geographies include North, East, South, West, and Central; and global geographies include Americas; Europe, Middle East and Africa; and Asia-Pacific. Demographics include individuals (consumers) and enterprises (commercial, corporate, industrial, financial, and government). Industries include (but not limited to) manufacturing, merchandising, credit, and services. In general, it is better to keep a segregation of duties between the Administrative functions and the Operational functions to avoid conflicts of interest. The exception is the research and development function, which should involve cross-functional participation. Whereas the program management and engineering subfunctions may be staffed permanently, all other employees should be rotated in and out to encourage the sharing of experience across the enterprise. Every employee should have the opportunity to rotate among functions over time so to broaden knowledge and skills, and build cross-functional teamwork. For example, the activities of the finance function should be kept separate from the operations and business development functions, so that all payables and receivables processing is kept separate from the individuals that generate the transactions. Enterpriship... A key success factor in designing the enterprise function model is to ensure that it embraces the knowledge and skill requirements to deliver value in compliance with all laws, regulations, and best practices, and that there is no redundancy. Designing and deploying the enterprise function model is an enterpriship (entrepreneurship, leadership, and management) competency and is usually performed in conjunction with enterprise process model design to ensure that value is earned effectively and efficiently. *** 7
Functional responsibilities Governance (board of directors and chief executive offer or equivalents in business entities other than corporations) Administrative functions Enterprise (support to the Governance function) ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ Planning and policy development Performance measurement Investor relations Government affairs Brand management Community relationships Real estate Philanthropy Ombudsman (segregated duty) Internal audit (segregated duty)
Legal Finance ♦ ♦ Treasury – liquidity and capital management Controller – accounting and reporting
Human resources Information technology
Operational functions Research and Development (market, product, infrastructure) ♦ ♦ Program management Engineering
Operations ♦ ♦ ♦ Procurement Manufacturing (or industry equivalent) Distribution
Business Development ♦ ♦ ♦ Marketing Sales Service
The research and development activity is both a process and a function. It is a process because it has end-to-end activities; it is a function because of the depth and breadth of functional knowledge and technical skills necessary within the discipline. Research and development is a cross-functional activity that involves stewards from all disciplines. The only full-time members of a research and development function are program/project managers and engineers. Note: the terms “engineer” and “engineering” are generic. In some industries, such as the pharmaceutical industry, the engineers include doctors and scientists. All other participants are loaned from other areas within the enterprise. An assignment in the research and development should be part of any career development plan that involves rotation through various functions of the enterprise. Large information technology projects should always be performed in the research and development Function because they affect markets, products, and infrastructure, and hence require cross-functional involvement.
In the early stages, the leadership of such projects can be a representative from an administrative function or an operational function depending upon scope and objectives. In the latter stages, as the emphasis shifts to more technological disciplines, the leadership can shift to a representative from the Information Technology Function. The leadership of such projects, should always include a cross-functional steering committee, that acts as a board of directors, and a program/project office that acts as a controller. Very large initiatives, such as programs resulting from strategic plans, may have substantive market, product, and infrastructure components, of which information technology is only one component. If systems development is not a core competency of the enterprise, which in most cases it is not, it should be outsourced to a systems integrator that has the pre-requisite knowledge and skills. Terminology:“operating,” “operations,” and “operational” As in so many cases, terminology is not used consistently in business between one discipline and another. In this material, the term “operations” means the function that procures materials and supplies, manufactures products (or equivalent), and distributes them to channels. In this material, the term “operational” means the activities of three functions: Research and Development Operations Business Development
Consistent with accounting convention, the term operating is used in conjunction with cash flows from all activities except financing and investing – this includes all operational activities and all administrative activities. Cash flows from financing and investing activities relate to the funds flows, not the cost of the activity associated with generating the funds flow. The Chief Operating Officer has responsibility for the operational activities (versus the administrative activities) of the enterprise. The Chief Operations Officer has responsibility for the procurement, manufacturing, or equivalent, and distribution activities of the enterprise. Terminology:“distribution” and “delivery” The term “distribution” means the movement of products between suppliers and plant and warehouse facilities of the enterprise, and channels. The term “delivery” in the context of product and service delivery means providing products to customers and rendering service at the point of sale (or shortly thereafter).
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About Nigel A.L Brooks... Nigel A.L Brooks is a management consultant to entrepreneurs, business enterprise owners, executives, and managers, and the enterprises they serve. He specializes in developing the entrepreneurial, leadership, and managerial competencies that build sustainable advantage from vision to value. He is an author and a frequent speaker. He obtained his professional experience as a partner at Andersen Consulting (now Accenture, Ltd.), as a vice president at Booz Allen Hamilton, Inc. (now Booz and Company), as a senior vice president at the American Express Company, as president of Javazona Cafes, Inc., and as president of The Business Leadership Development Corporation. He has been a contributing editor for the Bank Administration Institute magazine, and has served on boards of entrepreneurial networks. He was educated at the University of Exeter, Devon, United Kingdom. His clients are in the financial services, food services, high-tech, manufacturing and distribution, pharmaceuticals, oil and gas, professional services, retail and wholesale, transportation, and government industries. He has experience in North and Latin America, Europe and Asia-Pacific. www.nigelalbrooks.com About The Business Leadership Development Corporation (BLD)... The Business Leadership Development Corporation is a professional services firm that works with entrepreneurs, lifestyle business enterprise owners, executives, and managers, and the enterprises they serve. BLD develops entrepreneurial, leadership, and managerial competencies that achieve performance excellence by building sustainable advantage from vision to value through: Strategic Management Consulting Executive Coaching and Mentoring Professional Training via The Center For Business Leadership Development (CBLD) Motivational Speaking www.bldsolutions.com
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