Functional Approach

Functional approach of organizational analysis takes into account various functional areas and evaluates these for’ identifying strengths and weaknesses. The major functional areas are production/operations, marketing, finance and accounting, and human resources. Each of these major areas is divided into subareas, for example, marketing Is divided into sales promotion, physical distribution, sales volume,’ and so on. Similar is the case with other functional areas. Besides these functional areas, organization’s general management factors are also taken into, consideration. Thus, in functional approach of organisational analysis, following factors are evaluated to identify strengths and weaknesses:

  • Production/operations,
  • Marketing,
  • Finance,
  • Human resources, and
  • General management

In the discussion that follows, various features of these factors, indicating strengths and weaknesses have been presented. While using these features in respect of various factors, two points should be taken into consideration:

  • These features provide a normative and suggestive list; in actual practice, these factors may vary depending on the nature of organizations.
  • Since organizational analysis is meant to relate strategy to environment, it is always future oriented. Therefore, these factors should not be evaluated on static basis but on dynamic basis in the context of environment. In fact, in many cases, the present strengths may turn to be weaknesses because of environmental changes. Various factors have been presented, here, in a sequence for the sake of convenience in analysis and not in order of their importance.

Production/Operations Production

Operations processes are the mediating factors for converting raw materials into finished products. There are various factors which affect the internal operations of the organisation and these factors should be taken into account while appraising the organization’s capabilities in these areas.

Allocation and Use of Resources The degree of an organization’s success or failure depends on the degree of effective allocation and use of resources. Resources do not mean only money, building, and plant but also the scarce resources of management talent, capability, and technical skills. An organisation making well balanced allocation and use of its resources is in a better position to face challenges from the environment. The allocation and use of resources can be balanced by taking into account the need for various activities contributing to the objectives, their criticality, and resource requirements.

Rationalization of Resources: Another important aspect of using resources is their rationalization. This problem is more important in the context of multiunit organizations. For example, a multiunit organisation may have many plants and offices with duplication of various efforts. The extent to which the duplication is avoided, the company becomes strong as cost of duplication is a burden on the organisation.

Locational Pattern: Though locational pattern is affected by a large number of factors, both economic and noneconomic, it affects the operational efficiency of the organisation. Such locational pattern can be analyzed both for plants as well as for administrative offices. The extent to which organization’s plants and offices are located at favorable places, it stands to benefits and that is strength for it. For example, opening of plants in backward areas may offer various advantages because of incentives from the government, but opening of administrative offices may not offer the similar advantages. This is the reason why many companies go for backward areas for establishing production facilities but open offices in well developed areas, for example, Fort area in Mumbai or Chowranghee area in Kolkata.

Production Capacity and its Use: The use of production capacity affects the profitability of the organisation. High use of production capacity is strength but a low use of this is a weakness because the organization’s cost of production in this case may be very high.

Cost Structure: The cost structure of the product affects the organization’s profitability. If the cost of product is high, it is a weakness. Moreover, the extent to which cost cannot be controlled is also weakness of the organisation. Thus, low cost with high level of controllability is strength and high cost with low. Level of controllability is weakness.

Cost Volume Profit Relationship: While cost structure gives the general idea of high or low cost, cost volume profit relationship suggests the profitability of the organisation at various levels of production. If the relationship is such that it gives break even at high level of production with low margin of safety, it is weakness for the organisation; On the other hand, if breakeven point is low with high margin of safety, it is strength for the organisation.

Operation Procedures: Efficient and effective operation procedures like production design, scheduling, output, and quality control affect the internal efficiency of the organisation. As such, these are the strengths for the organisation, and opposite of these will be weakness because these will affect organisational efficiency adversely.

Raw Materials Availability: The extent to which the raw materials are critical and scarce and are supplied from very limited sources, the organisational functioning is adversely affected. In such a case, the organisation does not have any control or has very limited control over the supply of raw materials. Hence, its dependence on the limited sources of supply of raw materials is a weakness. If the company is procuring its materials from well diversified sources and the materials are easily available indigenously, its dependence is less which is strength for it.

Inventory Control System: An efficient inventory control system which pinpoints on the various aspects of materials provides strength to the organisation because it can control and regulate the procurement of materials in such a way that its cost is minimum and there is no unnecessary hindrance in the production. A defective and nonexistent inventory control system is a weakness.

Research and Development: Research and development is an important area where management should concentrate because of two reasons. First technical collaboration with any foreign organisation lasts up to five years with an extension of three years in exceptional cases. The government stipulates that local organizations, should develop its R&D during this period. Second, there are special tax benefits on the expenditure of R&D and products developed out of the organization’s R&D efforts. In order to take the advantages, the organisation must take R&D activities and must evaluate as how these are contributing to the organisational product development. R&D activities can be evaluated in terms of amount spent on them, number of products developed, or number of patents registered by inside R&D. A high score on these items is strength of the organisation.

Patent Rights: Organizations holding certain patent rights under which they can use some well established brand names have certain advantages because they have not to incur any extra expenditure for promoting the brand.

On the basis of the above discussion, the major strengths and weaknesses in the field of production/operations can be identified as depicted in Table below:

Strengths and weaknesses in production/operations
StrengthsWeaknesses
Well-balanced allocation and use of resourcesDefective allocation and use of resources
Favorable locational pattern of plants and officesUnfavorable locational pattern of plants and offices
Adequate use of production capacityInadequate use of production capacity
Low cost of productionHigh cost of production
Low break-even pointLow break-even point
Efficient and effective proceduresIneffective procedures
Abundant and multi sources of raw materials supplyScarce and limited sources   of raw materials supply
Effective inventory control systemIneffective inventory control   System
Adequate and effective  research  and developmentInadequate and ineffective research and development
Holding of well-established patent rightNo patent right

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