Reading: Identify the business environment

Identify the business environment

Inside this Reading

Understanding the client business domain

Where can you find this information?

Organisational features and functions

Organisation structure

Lines of communication

What does all this have to do with technology?

Knowledge of Current Business Functions

Some common business functions

Identifying business problems

Role of Stakeholders

Who are the stakeholders?

End users

Summary

Understanding the client business domain

In order to utilise technology effectively it must fit the user’s goals. It is no good developing a database that manages stock when the requirement was for a system that manages contacts of potential customers. To ensure that you get off on the right track it is important to have an understanding of the organisation’s business domain.

What is the client’s core business? Sometimes it is apparent what the organisation’s core business is. Coca Cola for example, which has a high profile world wide, is in the business of producing non-alcoholic beverages. For other organisations it is not always straightforward. How can you find out what an organisation’s core business is?

Documents produced at a high level in the organisation are usually a good source of information for determining a company’s core business or businesses. Mission statements, strategic goals and organisation charts are good examples of these.

  • a mission statement states the main purpose of the organisation and usually incorporates its financial, social and/or environmental goals.
  • organisation charts can provide a graphical representation of the business in terms of how it is organised to fulfil its core business.

Where can you find this information?

One place might be the company’s annual report. Also, many businesses are promoted today via the Internet, where this information may be made available.

Organisational features and functions

Understanding an organisation’s core business helps to put into context the business itself. With this in mind we can begin to look at the various areas that an organisation consists of. All businesses perform basic business functions such as:

  • producing a product or service
  • selling
  • marketing
  • accounting
  • managing its human resources.

This is usually the case regardless of its size. In small operations, one person may perform all the basic business functions. Larger organisations may be organised around the business functions. Information technology is another function of business that is becoming commonplace. As well as these basic business functions some organisations perform functions that are common to a few or unique to it alone. Research and development, legal consultancyandspecial projects are some examples these.

Organisation structure

Referring to an organisation chart often provides an insight into how the business is organised and managed. Some organisations are arranged along functional lines where each business function comes under its own manager. Other organisations structure themselves along product lines or geographical areas. Management type can also be gleaned from a business’s organisation chart.

Organisations that have a lot of middle management tend to have tall hierarchical structure charts whereas flatter structure charts indicate an organisation that has few middle level managers. Middle managers in these latter types of organisations are said to have a wide span of control. This refers to the spread of authority a middle manager has over staff at an operational level.

Lines of communication

Formal lines of communication are another aspect that is depicted in an organisation chart. This has significance when analysing the requirements for a given area within an organisation and how it interacts with other departments. This needs to be interpreted from an informal perspective as well as a formal one.

Example of organisation chart

Many businesses will already have an organisation chart of their business structure which you will be able to use for this purpose. If not, one of your first tasks should be to create one.

An organisation chart can be hand drawn or a software program can be used to create it. Microsoft Word has a feature to automatically create an organisation chart in a document.

Other features of an organisation are reflected in its policies and procedures as well as the culture of the work environment. For example does it adhere to the principles of E.E.O. (Equal Employment Opportunity)? Is the dress code formal or informal? Is there a history of promoting from within the organisation or positions sourced externally?

What does all this have to do with technology?

An understanding of an organisation’s structure and functions, as well as how they interact, is essential for the organisation to be efficiently supported by available technology. It is also important to be able to investigate and select technology to support the organisation’s goals.

Knowledge of Current Business Functions

Although each type of business has functions and requirements that are specific to the industry in which it operates, there are many functions that are common to all businesses.

Some common business functions

Human Resources

This maintains information about the people who work for the company. Within the Human resources area there will be processes for handling Personnel functions and Payroll functions.

The personnel processes include keeping track of personal data about the staff, such as address, date of birth, marital information, employment record, position in the company, leave entitlements and skills details.

The payroll processes manages production of payslips and cheques, including calculating pay for the period, tax and superannuation contributions and storing information to meet the legal requirements of the tax office.

Inventory

This area keeps track of all the items owned by the business. It records item descriptions, quantities, locations and value.

There are two distinct types of items owned by a company:

  • assets
  • consumables

Assets are the items needed to carry out the organisation’s business, for example, the office furniture, computers, company cars. Since these assets are often located in different areas of the company, an asset register is needed to keep track of them.

Consumables can be of two different types – stock and parts - and different processes are required to handle them.

Stock Inventory

This keeps track of the products that the business has manufactured and sold. It is important to maintain accurate records of these details for analysis of what the company should produce in the future. For example, there is no reason for a car manufacturer to keep producing one hundred red four wheel drive vehicles every week if the company has only sold fifty in the previous year. It would make more sense to change production schedules to make more green four wheel drives, since the company sold five hundred green vehicles last year but currently only makes ten a week.

Parts Inventory

A parts inventory keeps track of all of the parts that are used to manufacture the company’s products. Some examples of parts that are used to manufacture a car may be the wheels, spark plugs, bolts, doors etc. It is important to keep track of what parts are available as any parts that are not available will delay production. This area is crucial to the efficient running of the production side of the business.

A typical parts inventory system would include the following:

  • A parts issue process which issues parts to the rest of the business.
  • An inquiry process to allow staff to check on current levels of inventory.
  • A stocktake process to check for discrepancies between actual and recorded inventory levels.
  • An ordering process which is responsible for ordering parts from suppliers when necessary. This involves keeping statistics on usage of parts, details of suppliers and how long it takes them to deliver the parts.
  • Once parts have been delivered to the company, the parts delivery process will add the parts received to the current stock record and provide the accounting area with details of these so that payment can be made to the suppliers.
Finance

This area keeps track of all of the financial aspects of the business. The most common processes are:

  • Accounts receivable
  • Accounts payable
  • General accounts

Accounts Receivable

This function keeps track of money owed to the business. It creates invoices when goods are sold, checks the customer’s credit limit, records payments that have been made against the invoices and sends reminders for overdue payments.

Accounts Payable

This function keeps track of the money owed by the company. This involves recording all orders raised by the business and checking the details against goods and invoices received from suppliers. Once details have been checked payment is made.

General Accounts

This function handles the funds used within a business, and generates reports detailing the use of assets and resources. It includes preparation of budgets for departments within the business, monitoring spending and producing annual income and expenditure figures.

Marketing

Marketing has two basic functions. One is to determine what products or services to sell and who to sell them to. Determining what to sell and who to sell to is termed market research, and may involve market surveys, asking people about their preferences for certain products. The second function is to identify the best place and method for selling the company’s products or services. This is also generally gathered through market research.

Sales

The sales function involves the processes required to sell the company’s products or services and may include selling in a store, by phone, by mail order or via the internet. The processes that are part of the sales function include sales enquiries, checking product/service availability, sales order entry, sales order processing, monitoring the status of the sales order and after sales processing. When an organisation is considering e-business as part of their corporate strategy it is often the sales function that is moved to the internet.

Production

This function is found in all businesses that produce a physical product. The company will usually have one or more factories where the product is manufactured using consumable items. The product is then sold to customers.

Processes involved in this area include scheduling, that is, a plan of what product or part of a product will be made by what machines at what times. This plan will then be used to determine what parts are needed, where and when they are needed. The plan can also be used to provide details of the staff that are required.

Reflect

Think about a business that you have worked for. What business functions did it have? What business functions did it have that were specific to that industry?

Identifying business problems

When trying to define a business problem, it is important to identify which business functions are involved and the links between them. For example, if you follow the path of a sale through a manufacturing business you will see that it could impact on the sales function (entering a sales order, processing a sales order), the accounting function (producing an invoice to the customer), the inventory function (getting the materials to produce the product), the production function (creating the product) and the delivery function (getting the product to the customer). And that’s if all the materials for the product are in stock. If they’re not, they would have to be ordered and this would trigger another path through the business.

So as you can see, it is very important to understand the business environment so you can pin-point where a problem really lies. Be aware that businesses are unique and their structures will vary significantly. Some functions will be core business functions, which means that they are critical to the running of the business. We need to identify which are the core business functions to ensure that any proposed solution will take into account the critical nature of these functions in the overall business environment. Be aware that the business functions and the business processes within them are evolving with changing environments and some businesses may use new terms to describe the same underlying business functions.

Practise

Visit the McDonalds website ( and go to the corporate careers section. Do you know what goes on in all the different business functional areas listed?

Role of Stakeholders

A stakeholder is someone who holds an interest in something. In this topic we mean a person who has an interest in, or is affected by, the business problem that is being investigated.

Imagine that your local bank branch is being forced to close.

  • Who would be directly affected by this action?
  • Who would be indirectly affected?
  • Who would have an interest in ensuring that the branch stayed open?
  • Who would have an interest in ensuring that the branch was closed?
  • There are a lot of people who have a stake in the closure of a bank branch.
  • Some of the obvious groups of people are:
  • the bank’s customers, particularly
  • older people or people with special needs who do not like to use ATMs, phone banking or internet banking
  • local businesses who rely on a nearby branch to meet their operational banking needs
  • people without transport, and low income earners who can walk to their local branch, or who need only travel a short distance to do their banking
  • the bank’s employees, who may lose their jobs.

Some of the groups of people who are indirectly affected include:

  • local businesses often find that customers will shop in larger centres where a bank branch is still operating
  • the community often suffers when services are not available locally; the possibility exists that other essential community services may also be relocated to larger centres
  • community groups may be concerned that the sense of community is at risk, when daily interaction between residents is distributed further afield, away from local community centres.
  • Some of the groups of people who have a stake in ensuring that branches stay open are:
  • the greater community, which may be concerned that bank service levels and the needs of the community are becoming secondary priorities to bank profit and financial image
  • politicians, who represent the needs of the community and local businesses
  • government departments who deal with people who may be affected, particularly those who are disadvantaged by the closure
  • other small business centres, who see that they may be at risk of losing their banking facilities too.

Some of the groups of people who have a stake in ensuring that branches are closed include:

  • the bank’s management and board of directors
  • the bank’s investors and shareholders
  • larger shopping centres who may benefit from increased custom.

As you can see, one event can have an impact on many people.

Who are the stakeholders?

If an IT solution to the problem is being considered, stakeholders may be:

  • those who are paying for the system to be built
  • those who will build it
  • those who will use the system directly
  • those who are indirectly affected by the system operating correctly
  • those who will be involved in keeping the system running into the future.

In general you will not have to gather information from every single person involved. The key is to understand the types of stakeholder and to ensure that:

  • you don’t forget about any type of stakeholder!
  • you have a representative of each type of stakeholder that has the authority to sign off requirements for their group.

You may use a table like that shown in the example in table 1 as a checklist to ensure you are not missing any categories of stakeholder.

Category / Stakeholders / Representatives
Sponsors / Kim Woo (Head of Investment)
Project managers / Jill Anderson
External supplier / -
Internal supplier / Fran Keating (IT manager)
Infrastructure IT / Grace Lam (NSW systems manager)
Test team / Anthony Farrelly
(Investment systems test lead)
End users – Fixed interest front office / Analysts:
Avril Smith, Lidija Rossi, Michael Boynton / Avril Smith
End users – Australian Equities Front Office / Analysts:
Quinton Jones, Terrence Brown, Anthony Wong / Anthony Wong

Table 1: Categorise users as stakeholders and document representatives

Each project will have different types of stakeholders depending on the size of the project and the type of organisation. See figure 2 for an example of stakeholders in a project.