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Functional Areas of a Business: Definition & Groups

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  • 0:01 What Are Functional Areas?
  • 0:18 Why Would a Company…
  • 1:32 What Are Common…
  • 3:43 Lesson Summary
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Lesson Transcript
Instructor: Carol Woods

Carol has taught college Finance, Accounting, Management and Business courses and has a MBA in Finance.

Many companies organize their employees into functional areas. Read on to learn what a functional area is, why a company might organize into functional areas, and descriptions of some common functional groupings.

What Are Functional Areas?

Functional areas are teams of employees who have similar skills and expertise. For example, a company's sales department is a common functional area, and the staff in this area would all be focused on selling the company's products.

Why Would a Company Organize by Functional Area?

Companies organize by functional areas for many reasons. First, it's more efficient to have staff with similar skills grouped together. They can easily team up on projects requiring their expertise and will have backup expertise if one staffer is unable to complete their work. For example, a company is going to set up a new server in their data center and they'll likely need several different staffers from the information technology department involved in the project. Since all work in the same functional area, it is possible for a single manager to assign them all to the project and to make sure the project is completed on time.

Organizing by functional area also allows a manager with similar skills and expertise to review the work done by the members of the function. To use the new server example from above, the IT manager who is in charge of the project will have significant knowledge of the skills being used on the project and can offer assistance and guidance when needed.

Finally, this organizational scheme makes training and knowledge sharing easier, since employees working on similar functions work together and can share their expertise.

What Are Common Functional Groupings?

There are several groups that are commonly organized into functions.

Sales: Sales members generally work directly with prospective customers to help them determine the best product for their needs and to place orders.

Marketing: Marketing team members prepare materials used by the sales function, such as brochures and price lists, and manage outside advertising and promotional activities.

Finance and accounting: This function includes the team members who report on the business results and plan for the future. Accounting team members take the company's sales and cost information and create financial statements and reports. The accounting function includes those who invoice customers, pay bills, and calculate payroll amounts. Finance team members analyze the results, prepare budgets, and manage cash flow.

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