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

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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.

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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.

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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.

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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 "project-
oriented" focusing on market, product and/or service, and infrastructure-
related 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.

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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.

***

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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

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 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.

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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

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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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For more information...

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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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