Analyzing Your Functional Units

A system of corporate financial units is the cornerstone of traditional business management paradigm. Management gurus decades ago identified key functional areas of any business entity (key business functions) – and used them to structure corporate objects and personnel. Each of these areas then is divided into sub-areas; sub-areas into sub-sub-areas and so on – up to individual employees.

These key common areas are Sales, Marketing (often combined with Sales), Finance, Operations, Strategic Planning and Business Development, Human Resources (Personnel), Information Technologies, Legal, Security and Risk Management and Administration. Some of the latter can be placed into Operations functional area.

Sales can be broken down by target markets (e.g., Consumers, Corporate and Government), Marketing – into Communications, Product Management, Brand Management, Market Research and so on. You get the picture.

This is all fine and dandy; the problem only is that the fundamental objective of any business entity is to generate financial value. And this financial value (and aggregate value, for that matter) is generated not in functional areas, but in and by corporate projects and corporate processes.

Which by their very nature, are cross-functional (interfunctional) and multifunctional. Which requires highly efficient cooperation of employees from often vastly different functional areas who speak vastly different ‘corporate languages’.

Business Description Language (BDL) and corporate cockpit technologies in general provide tools that take care of the corporate ‘Babylon effect’. Cross-functional workgroups present another powerful tool to solve this problem.

Why can’t we do away with the whole functional structure thing altogether (as some management innovators boldly suggested)? Because we just can’t. At least not yet. If we try to do it, the whole business system will disintegrate into complete chaos. And fast. The system of functional units is still a powerful – and even vital glue that holds everything together in your business system – your people, projects, processes, objects, etc.

What we can – and should – do is view every functional unit (at every level of the corporate hierarchy) a resource center (conceptually similar to IVC, but without a separate location) that loans its human resources (human capital) on a temporary or part-time basis to projects and processes that actually generate financial and aggregate value. Obviously, you must develop and deploy a highly efficient corporate process for allocating these resources.

Some of these projects and processes are run by managers of the resource center in question, others – by managers from other centers. And the manager of each resource center is responsible for the most efficient utilization of his or her personnel. Obviously, in terms of financial and aggregate value generation.

Therefore, you will need to put together an optimal system of corporate functional units (CFU). You need to start with developing a comprehensive description of your CFU system – including visual diagrams, detailed description of each unit and all other supporting corporate documentation. Obviously, this description must be well-structured and match the reality (i.e., be accurate and up-to-date).

Then you will need to make sure that your CFU system itself is comprehensive (has all necessary functional units), lean (has only those units that are absolutely necessary) and well-structured. Every CFU that has sub-units, must also be comprehensive, lean, well-structure and well-documented.

You also must ensure an optimal distribution of corporate functions, objects and responsibility areas among your CFU. As well as your corporate personnel. Obviously, this personnel must be sufficiently competent and managed by a competent boss.

Each CFU is a resource center; therefore, provides services to other CFU, processes and projects. Therefore, it is sufficiently similar to internal value center (in fact, it is an IVC) to warrant a solid financial plan (developed by a competent financial analyst) and an operational plan. Which must be properly coordinated with strategic corporate plans. And – as any business (and each CFU is a business of sorts) – it must have a both comprehensive and lean KPI system in place.

Financial plan for the CFU s often called functional budget. I covered corporate budgeting process in the Financial Plan section of this guide.

In today’s world of extreme specialization and concentration on core competencies, outsourcing (even of an extreme nature) is the name of the game. You can outsource accounting, IT, market research, personnel management – just about any function and area outside of your core competencies.

Therefore, each of your CFU outside of this core can potentially be outsourced. Hence – and its financial plan must demonstrate that beyond the reasonable doubt – each ‘outsourceable’ CFU must be competitive with all outsourcing options.