E&D Hamburger Restaurant located in Cambridge will cater to the students and tourists population in Cambridge UK. E&D Hamburger Restaurant will become one of the renowned fast-food restaurants in the locality because of tastier food and affordable prices. Along with Hamburgers, the restaurants will serve other fast food items like pasta and noodles. The restaurant has the objective of becoming a unique upscale, innovative environment that will differentiate it from other local fast-food restaurants. The restaurant will provide an ambiance and food, which will ensure repeat customers. E&D Hamburger Restaurant will differentiate itself by the innovative interior, and tasty food prepared from high-quality materials. Courteous service will be another feature, which will ensure a high level of customer satisfaction. The brothers, Bob and Llyod who were running a manufacturing company in Cambridge (the UK), promote the restaurant. They have built a reputation for providing a reliable, efficient, and friendly service, which will an additional strength for the restaurant business. This business plan presents a marketing, financial and operational analysis of the restaurant.
E&D Hamburger Restaurant will focus on the needs of a well-defined target market. The identification and strategizing for a target market involves the internal and external analysis of the industry and market in which the restaurant is expected to function.
While the internal analysis takes the form of a SWOT analysis, the external analysis is carried out using a PEST Analysis model.
SWOT can be defined as a framework, which shows a company’s strengths, weaknesses, opportunities, and threats to analyze better its business operations (Statt, 2004).
Strengths: One of the strengths, that the restaurant has, is healthy meal options (Garber, 2005). This is because there has been a health trend in the United Kingdom nowadays (Marshall, 2007). On this point, the major hamburger fast-food chains such as McDonald’s and Burger King began giving importance to healthy foods, which have high-value nutrition (Garber, 2005). The location of E & D Hamburger company is a strength as well (Scribd, 2008). This is because the restaurant can attract many customers. Besides, the restaurant has enough resources such as researches on consumers’ needs to have a big market portion (Scribd, 2008).
Weaknesses: As the restaurant is new, E & D Hamburger Company does not have a variety of products (Scribd, 2008). Therefore, consumers can go to another restaurant because of a lack of product innovation (Scribd, 2008). Competition in the hamburger sector shows an increase, and so the income of the restaurant can decrease due to market saturation (Scribd, 2008).
Opportunities: The tourist number has been increasing in Cambridge (Cambridge City Council, 2009, Business and employment statistics). The student population has been in increase, together with the rise in visitors to the UK (Higher Education Statistics Agency, 2004). An increase in both the tourist number and student population in the United Kingdom can help the restaurant to increase its revenues. Internet access is also an opportunity for the restaurant because E & D Hamburger Company can attract more customers (Scribd, 2008). Although a healthy trend is a threat for the restaurant, meeting the requirements of this trend can bring some advantages to E & D Hamburger Company (Scribd, 2008). To illustrate this point, McDonald’s which is a very important fast-food chain could increase its revenues in the US market by adding salads to its menu in 2004 (Scribd, 2008). Expansion to increase profitability and to have brand recognition can be accepted as an opportunity for the restaurant as well (Scribd, 2008).
Threats: McDonald’s and Burger King can be seen as a threat for the restaurant for the reason that they are the main players in the UK hamburger sector (Anon., n. d.). Apart from the competitors, the obesity issue also threatens the revenue of E & D Hamburger Company (Scribd, 2008). To illustrate this point, there has been a recent criticism about fast food products (Marshall, 2007). The reason behind this is that fast food products such as hamburgers are seen as unhealthy food nowadays (Marshall, 2007). On this point, fast food consumption causes childhood obesity as well (Marshall, 2007). What is more, the economic slowdown may affect the hamburger sector in the UK in a negative way (Scribd, 2008). On this point, McDonald’s which is the world’s leading hamburger restaurant faces some problems which are related to its expansion to other countries due to the economic recession in the global market (Scribd, 2009). Thus, E & D Hamburger Company’s margins can be also less.
PEST analysis is a very necessary framework as PEST analysis helps companies and industries to understand the external environment, which affects their business success (Anon., 2004).
Political: The Lancet which is a very significant medical journal in the United Kingdom showed that fast food products lead children to be more distractible and hyperactive (Wallis, 2007). This is because artificial ingredients cause behavioral disorders such as lack of concentration (Wallis, 2007). Furthermore, the food safety legislation was formally presented in England in 2006 after the approval of the hygiene legislation in the European Union (EU) (Warrington Borough Council, 2009).
Economic: There has been an economic crisis in the United Kingdom, and therefore a lot of consumers prefer to eat out less (Paskin, 2009). On this point, research carried out by Mintel which is a market research firm says that “Less than half of consumers have been personally affected by the recession, yet two-thirds are prepared to cut their spending on eating and drinking out” (Paskin, 2009). Nevertheless, food prices have risen because raw food materials show an increase recently in the UK (Kyte & Hirani, 2008). Thus, consumers may eat less in restaurants.
Social: Media in Great Britain criticizes fast food products, and therefore consumers may give up eating fast food such as hamburgers later on (Fast Food Nation, 2010). The Media in the UK also tells that fast food leads to heart disease and obesity (Fast Food Nation, 2010). Hence, people in the UK have begun seeing fast food as junk food (Fast Food Nation, 2010).
Technological: The internet brings many advantages to the hamburger business for the reason that E & D Burger Company can reach more customers through the internet (Anon., 2010). As an example, Burger King that is a very important chain of fast-food hamburger restaurants uses the internet to advertise its brand more (Anon., 2010).
- Specific: The owners of E & D Hamburger Company plans to expand the business in 5 years (Trunick, 1997).
- Measurable: The restaurant aims 7.5 % rise of its revenues in 12 months (Medcalf, 2005).
- Achievable: To be always a recognized brand although there have been many competitors in the hamburger sector (Trunick, 1997).
- Realistic: Over 2 years, the restaurant plans to have annual growth, which is by 23.3% (Trunick, 1997).
- Time Based: E & D Hamburger Company plans to enhance its brand image by the end of 2010 (Kramer, 1996).
Identification of Target Markets
The target market is identified as the students and tourists visiting Cambridge, since the location has a large student population and is an attractive tourist spot. The UK fast food and takeaway sector was approximately £8.38 billion in 2005 (Anon., 2009). On this point, the United Kingdom can be seen as a European country that has the largest fast food and take-out sector (Anon., 2009). In 2004, the burger market in Britain was around £1.86 billion (Anon., 2009). The British Meat Education Service which analyzes fast food markets says points out that “150 million beef burger meals are eaten out of home” (Anon., n. d., Secondary research).
- The restaurant’s main market segments are students and tourists. On this point, there has been an increase in the total number of foreign visitors in Cambridge (Cambridge City Council, 2009, Business and employment statistics). The total number of visitors in Cambridge was 4,540, 700 in 2003, (Cambridge City Council, 2009, Business and employment statistics). In 2004, the total number increased to 4,588, 300 (Cambridge City Council, 2009, Business and employment statistics). In addition to the total number of foreign visitors, the total student population was 22,000 in Cambridge in 2008 (Cambridge Judge Business School, 2008). In 2004, the number of foreign students who applied for university in Cambridge increased from 22.2% in 2004 to 24.6% in 2005 (MacLeod, 2006).
- Forty-four percent of American tourists who visit the United Kingdom states that they cannot quit eating burgers (BBC, 2008, UK and US ‘keenest on fast food’). In addition, the government for healthy meals at school in England in 2005 for the reason that fast food products such as hamburgers are very popular (Guardian News and Media Limited, 2005), announced an additional £220 million. What is more, nearly 2.5 million people per day in Great Britain go to McDonald’s to eat and the majority of the customers who eat from McDonald’s are young people (Anon., n. d.). Apart from McDonald’s, approximately 1.8 million meals are eaten in Burger King in the United Kingdom (Burger King, 2010).
Marketing Objective and Marketing Plan
The marketing objective for E&D Hamburger is to target the students and tourists in Cambridge.
Price: The target customer segment of students and tourists will be more concerned with the price and of course with the quality of product offering. The company will fix the price for the product keeping this in view. The company will keep the penetration of the market in mind while fixing the prices. With the penetration strategy, the company will be able to capture a higher market share by offering food of great quality.
Product/Service: The restaurant has a Wi-Fi facility, and therefore the restaurant can attract many students to eat in E & D Hamburger Company (Scribd, 2009, McDonald’s: behind the golden arches). Nevertheless, the restaurant uses its network system for the promotion of its new products (Scribd, 2009, McDonald’: behind the golden arches). What is more, the restaurant has a play place facility for children (Scribd, 2009, McDonald’s: behind the golden arches). Therefore, E & D Hamburger Company will be always be seen as a fun place for children to play games (Scribd, 2009, McDonald’s behind the golden arches). Thus, young urban families will prefer E& D Hamburger (Scribd, 2009, McDonald’s behind the golden arches). The reason behind this is that when children are busy playing games, parents can spend quality time in the restaurant (Scribd, 2009, McDonald’s behind the golden arches).
E & D Hamburger has identified hamburgers as the basic product to be offered to the identified segment of the customers. In addition to the Hamburgers, the restaurant will also offer other fast food items like pastas. The product offerings will include other pastries and baked items including cookies. The pricing has been fixed based on the market standards. In order to penetrate the market, the company will offer promotional offers. The pricing strategy has been fixed keeping the target customers of students and tourists who are very conscious about the price and quality. The marketing communication strategies include printing leaflets and pamphlets and making them available in all the tourist attractions and universities and college premises. This will
position E & D Hamburger as a specialized Hamburger restaurant meeting the needs of the students and tourists.
Place: The location for E & D Hamburger has been selected keeping in view the availability of parking places and the proximity to other restaurants in the locality. The place has been chosen ideally near the City center where there is the possibility of more tourists visiting the restaurant. There are a number of educational institutions also located in the vicinity. This will enable the students to visit the restaurant for lunch and dinner.
Promotion: As a part of the promotion, the company will create a brand (logo) for the restaurant and will print all the marketing messages, and will create a website for promoting the restaurant through the Internet. The approximate cost for this promotion would be £10,000, which will be amortized over 10 years equally. The company will engage the services of reputed professional firms in developing the logo and website for the restaurant so that the brand (logo) will become attractive. Although initially, this may cost the company in the long-term, an attractive logo will symbolize the brand image of the company. The keynote for marketing is the provision of food of a great quality at competitive and affordable prices.
Anon., n. d. Chew on this: worksheet 1. Web.
Anon., 2010. How to make your foreclosure cleanup business-standard out from the competition. Web.
Anon., 2004. PEST analysis. Web.
Anon., 2009. Start and run a fish and chip shop or burger bar. Web.
Anon., n. d. Secondary research. 2010. Web.
Anon., n. d. The UK fast industry. 2010. Web.
Burger King, 2010. Burger King Commitments. Web.
BBC, 2008. UK and US ‘keenest on fast food’. Web.
Cambridge City Council, 2009. Business and employment in statistics. Web.
Cambridge Judge Business School, 2008. Cambridge Life. Web.
Donlon, P., 1998. Quinlan fries harder: an interview with McDonald’s CEO Michael Quinlan. Chief Executive (U.S.). Web.
Fast Food Nation, 2010. The Anti – junk food movement in the media. Web.
Garber, A., 2005. Fast feeders work to offset high energy costs with new promotions, strategies. Web.
Guardian News and Media Limited, 2005. School meals around the world. Web.
Howard, T., 1999. The over- arching strategy: McDonald’s global brand strategy task force. Brandweek. Web.
Higher Education Statistics Agency, 2004. UK’s student population rises by 4.3%. Web.
Internet Cello Society, 1997. Burger King Controversy: 1996-1997. Web.
Kyte, S. & Hirani, A., 2008. Food price increases and their impact on London’s lowest income groups. Web.
Kramer, L., 1996. McD targets adults with new menu line. Nation’s Restaurant News. Web.
MacLeod, D., 2006. Cambridge figures show a rise in overseas students. Web.
Medcalf, G., 2005. Eat smart be active. NZ Marketing Magazine. Web.
Marshall, D., 2007. Families, food and pester power: beyond the blame game? Journal of Consumer Behaviour, [Online] 6 (4), pp. 164- 181.
Paskin, B., 2009. Recession causes fearful diners to avoid restaurants.Web.
Scribd, 2008. Mc. Donalds SWOT analysis. Web.
Scribd, 2009. McDonald’s: behind the golden arches. Web.
Scribd, 2009. Investigation of main marketing metrics. Web.
Statt, D., 2004. The Routledge dictionary of business management. 3rd ed. London: Routledge.
Trunick, P., 1997. It’s not just marketing. Transportation & Distribution, Web.
Warrington Borough Council, 2009. Food hygiene (England) regulations 2006- food safety act 1990: food safety intervention policy. Web.
Wallis, C., 2007. Hyper kids? Cut out preservatives. Web.
Based on the market penetration information as contained in the marketing information the following staffing requirements are identified to run the business of E&D Hamburger.
Generally, the restaurant business requires the presence of the owners to manage the business. Since the services of both Bob and Lloyd are available, they can split the shift among them to supervise the work of all employees. One of the brothers will have to look after the purchase activity, which is important to ensure profitability. Additionally, a general manager can be appointed with relevant experience in the industry, who will work closely with the executive chef. There is the need for some wait staff, runners and bussers. One accountant and a cashier will be required to take care of collections and bookkeeping. While the wait staff, runners, and bussers will work in shifts all other administrative staff will work in general shift except the cashier who will work when the restaurant is open to the public. The following table presents the information on the workforce planning for the restaurant.
|Personnel||No||Working Hours||Responsible for||Salary p.m|
|General Manager||1||General Shift||Sales and customer relations||£ 3000|
|Executive Chef||1||General Shift||Food Preparation||£ 2500|
|Wait Staff||8||Split Shifts||Serving, cleaning||£ 8000|
|Cashier||1||Split Shift||Cash Collection||£1200|
Leadership, Motivation, and Teamworking
There is a close connection among the concepts of leadership, motivation, and teamwork. To be successful the leader has to understand the relationship between team working and motivation and promote team working wherever possible. The following sections describe some of the salient aspects of these three concepts.
Although there is no consensus among scholars on the definition of leadership, the definition of leadership given by Yukl (2002) can be related to the concept of leadership. Yukl (2002) thinks that “Most definitions of leadership reflect the assumption that it involves a process whereby intentional influence is exerted by one person over other people to guide, structure, and facilitate activities and relationships in a group or organization,” (Yukl, 2002, p 2). Northouse (2004) identifies leadership as a process involving influence and occurring in a group context aimed at achieving preset goals. However, there is a complete overlap among these factors. According to Grint (2004), leadership can be claimed to be developed based on the personal qualities or traits of the leader, or the followers are inspired through the social process in which the leaders and the followers are connected. Leadership can also emerge from formal authority. Barrow (1977) defines leadership as “the behavioral process of influencing individuals and groups towards set goals” (p.232). This definition emphasizes the vision of a leader represented by organizational goals. The definition highlights the underlying interaction between the leader and the followers. “Effective leadership will encompass an understanding of motivation and is likely to minimize any loss of productivity through the development of both task and group cohesion, allowing a group to operate at, or close to its potential,” (Crust & Lawrence, 2006). According to Loehr (2005), the common theme of effective leadership is the “positive impact that individuals can have on group dynamics relative to a team objective” (p.155). Leadership uses different types of tactics like a compulsion, influence, and handling for influencing and converting individuals as followers. The essence of leadership is to have a perception of the power dynamic between the leader and the follower. The relationship of leader and follower implies that every deed in between both the parties represents a political act with possible compulsion.
Leaders who are not in a position to communicate effectively with their followers are likely to worsen problems because of a lack of perceptions from the perspectives of the employees. One of the major problems in studying leadership based on traits is that traits are difficult to be measured. Moreover, over the period traits have become numerous making the study of them comprehensive. Behavioral research has identified consideration and initiation of structures as the two important functions of leadership. Consideration is the reflection of the relationship between the leader and the followers. Initiation of structures represents the establishment of an operating procedure consisting of rules and regulations (Weinberg & Gould, 2003).
Motivation is defined as “the set of processes that determine the choices people make about their behaviors,” (Thwala & Monese, 2009). Motivation conveys inducements that involve some response on part of a person to achieve a preset objective. In business, the term motivation cannot be equated with monetary reward or salary. Salary at best can only the economic means to enable the employee to achieve his economic needs. Motivation implies an “inner wholesome desire” (Thwala & Monese, 2009) to put forth attempts without the external incentive of monetary rewards. Motivating on the part of a leader is the ability to instruct the employees with a unity of purpose and to preserve long-lasting pleasant relationships among the employees. Motivation is the power that supports and develops the eagerness of every worker to assist the other members of the organization. Motivation among the employees can be developed by creating and perpetuating the climate, which encourages cooperation and stability in the whole working team for the benefit of the entire organization (Wilbert Scheer, 1979). “Since the effective motivation comes from within, by motivating others, the manager can do more than create proper conditions that cause people to do their work willingness and enthusiasm” (Thwala & Monese, 2009).
Louis Allen (1986) observes that motivation is an activity undertaken by managers to encourage people to act under different circumstances. The leader must have a complete understanding of the intricacy of the metal frame of the workers so that the workers can be reached. Although motivation has the objective of improving the company’s functioning, it should also prove to be beneficial to the employees. Motivation can be achieved in its best form when the leader can make the employees merge their personal goals with those of the organization. Robbins & DeCenzo (1995 p 271) define motivation as “the willingness to exert a high level of effort to reach organizational goals, conditioned by the effort’s ability to satisfy some individual need.” Campbell & Pritchard (1976) view motivation as a set of dependent and independent relationship variables, which could describe the course, breadth, and determination of the actions of an individual in the context of his ability, talents, and perceptions of a task and the restraints in functioning under a work environment. Research has identified the evidence for supporting the nexus between the degrees of motivation an employee and the individual working level.
Katzenbach & Smith (1993) define a team as “A small number of people with complementary skills who are committed to a common purpose, performance goals and approach for which they hold themselves mutually accountable.” According to Hackman (2002), a team is defined to include the features of “a team task, clear boundaries, clearly specified authority to manage their work processes, and membership stability over some reasonable period of time.”
These definitions from two different sources signify various common factors like a task or common purpose. The definitions also indicate mutual agreements entered into over management and accountability. Hackman (2002) is of the opinion that teams with stable members would be able to perform better. Entrekin & Court (2001) identify two major advantages that an organization can derive from the team working. First, the motivation of the employees and their cohesiveness is enhanced by a team working through empowering people to make the best use of their abilities. Secondly, team working enables managers to concentrate on strategic issues rather than monitoring the activities of individual members. According to Katzenbach & Smith (1993), team working has the following advantages:
- Teams assemble those skills and experience, which the individual team members may not possess. This enables the team to perform effectively in the areas of innovation, quality, and customer service and to meet multi-faced challenges
- Team working facilitates the establishment of communications supporting the generation of real-time solutions to problems and initiatives. It also helps the development of clear goals and approaches, as they are developed jointly among the team members
- Working in teams makes the jobs more fun for the employees and teams provide social dimensions enhancing the economic aspects of work.
The above discussion on leadership, motivation, and team working has far-reaching implications on the successful running of the proposed restaurant. Therefore, it is essential that both Bob and Lloyd understand the implications and practice better leadership qualities to form a successful team and motivate the workers to accomplish the objectives of the restaurant business.
Barrow, J., 1977. The variables of leadership. A review and conceptual framework. Academy of Management Review, 2, pp.231-51.
Campbell, D. & Pritchard, R., 1976. Motivation theory in industrial and organizational psychology. In M. D. Dunnette (Ed.), Handbook of industrial and organizational psychology. Chicago: Rand McNally.
Crust, L. & Lawrence, I., 2006. A Review of Leadership in Sport:Implications for Football Management. Web.
Grint, K., 2004. What is Leadership? From Hydra to Hybrid. Oxford, Said Business School, and Templeton College: Oxford University.
Hackman, J., 2002. Leading Teams. Boston MA: Harvard Business School Press.
Katzenbach, J. & Smith, D., 1993. The Wisdom of Teams: Creating the High-Performance Organisation. New York, NY: McGraw-Hill.
Loehr, J., 2005. Leadership: Full engagement for success. In S. M. Murphy (Ed.), The sport psych handbook. Champaign, IL: Human Kinetics.
Northouse, P., 2004. Leadership: Theory and Practice. London: Sage Publications Ltd.
Robbins, S.P. & DeCenzo, D.A., 1995. Fundamentals ofmanagement. Essential concepts and applications. Englewood Cliffs, NJ: Prentice-Hall.
Thwala, W.D. & Monese, L.N., 2009. Motivation as a tool to improve productivity on the construction site. Web.
Weinberg, R.S. & Gould, D., 2003. Foundations of sport and exercise psychology (3rd ed). Champaign, IL: Human Kinetics.
Yukl, G., 2002. Leadership in organizations. 5rd edn. Englewood Cliffs, NJ: Prentice-Hall.
In the first year of operation, E&D Hamburger Restaurant will focus on establishing a brand name for the quality of the food so that it can capture a sizeable market share from the second year of operation. It is assumed that the entire sales will be done on a cash basis and therefore there will be no book debts to be collected. All the supplies will be purchased on a cash basis so that the company can get the advantage of better prices. The company proposes to obtain a bank loan of £ 150,000 at 6% interest per annum on diminishing balances. There will be no repayment of the loan during the first year of operation and thereafter the loan is to be paid every month on equated monthly installments together with interest. Salaries have been worked out at current market standards. It is assumed that the owners will not draw any money during the first year of operation and the company will be subjected to corporate tax at 30% of the earnings.
Forecast Income Statement of E&D Hamburger |
for the year ending 30thJune 2011
|Particulars||Expenses £||Revenue £|
|Less: Cost of Sales|
|Materials for food preparation||436,450.00|
|Total Cost of Materials||436,450.00|
|Electricity and Heating||24,000.00|
|Rates and Taxes||1,800.00|
|Fuel and vehicle maintenance||12,000.00|
|Profit before tax||215,350.00|
|Less: Corporate tax (30%)||64,605.00|
Forecast Balance Sheet of E&D Hamburger |
As at 30thJune 2011
|Utensils and Equipments||175,000.00|
|Furniture and Fixtures||20,000.00|
|Brand Equity Creation||10,000.00|
|Total Fixed Assets:||216,000.00|
|Total Current Assets||184,745.00|
|Source of Fund:|
|Net Profit for the year||150,745.00|
|Forecast Monthly Cash Flow Statement for the Year 2010-11|
|Revenue per customer||25||25||25||25||25||25|
|No. of Customers||1800||2000||2200||3000||3900||4200|
|Rates and Taxes||1800|
|Fuel /Vehicle Maint.||1000||1000||1000||1000||1000||1000|
|Net cash flow(A-B)||10,000||-5,550||-720||-3,530||12,210||37,400||26,570|
Report on the Financial Information
With the projected turnover of £ 1,015,000 during the first year, the company will be able to make a profit before tax of £ 215,350. The gross profit at £ 578,550 produces a gross margin of 57% on total revenue. The net profits of the company after tax for the first year will be £ 150,745, which is 14.85% of the turnover. The company expects to achieve a turnover growth of 15 to 18% from the second year onwards. With close monitoring of the price and quality of the material purchases by the owners, the restaurant will produce better returns for the owners. The company is expected to generate cash of £ 184,745 at the end of the first year, out of which the company should start repaying the bank loan from the second year and the repayment is to be completed within 36 months. The initial capital of £ 100,000 and the bank loan of £ 150,000 will be utilized to purchase the utensils and equipment and the materials required for the first week of operations. The assets will be written off at the rate of 10% per year. With the kind of cash generation and the profitability of the business, the entire investment including the bank loan will be paid back within two years.
The financial accounting information of an entity is presented in the form of an income statement, a balance sheet, and a statement of cash flows. An income statement reveals a summary of an entity’s results of operation for a specified period. The objective of the income statement is to provide complete information on the revenues generated during the period and the expenses incurred to earn the revenue (Walther, 2010). “Revenue is recognized on an income statement when the earnings process is virtually completed and an exchange of goods or services has occurred,” (Ross et al., 2005).
The balance sheet of a company presents information on the resources owned by an entity at a particular point in time and the obligations of the entity at the same point in time. Assets of the company have potential future economic value, the firm can generate revenue by the use or sale of such assets, and the assets usually are associated with a prior transaction entered into by the entity. On the other hand, liabilities represent future economic sacrifices and are unavoidable in nature. The balance sheet also presents the information on the content of the owners’ equity, which is the net value of the total assets fewer liabilities of the company (Knol, 2009).
When a company presents the financial information to the public knowledge, it is mandated to follow the Generally Accepted Accounting Principles (GAAP) in preparing the financial statements. The financial statements need to be audited by an external auditor where the shares of the company are listed in a stock exchange. “Both the company’s management and the independent accountants must certify that the financial statements and the related notes to the financial statements have been prepared in accordance with GAAP,” (Accounting Coach, 2004)
“Accounting concepts are the universally accepted rules which guide the actual recording of transactions.” (NOS, 2000) The purpose of accounting concepts is to help the reader of the financial statements understand the transactions recorded, whenever the reader reviews the statements. Accounting concepts have been evolved over the period based on the experience of accountants and accounting professionals. There are four important concepts recognized internationally in the preparation of financial statements. They are:
- matching concept,
- accrual concept,
- realization concept,
- dual aspect concept.
There is another way of categorizing the accounting concepts. They are:
- going concern,
- matching (Tutor2U, 2009).
Under the matching concept “Income and expenses for a period are correlated to ensure that the accounts project an accurate picture. Therefore:
- when an income is recorded, all expenses incurred to earn that income must be recorded.
- related income and expenditure must be recorded during the same reporting period.” (TCS, 2008)
Accounting Coach, 2004. Accounting Principles. Web.
Knol, 2009. Accounting Principles: Income Statement & Balance Sheet. Web.
NOS, 2000. Accounitng Concepts. Web.
Ross, S.A., Westerfield, R.W. & Jaffe, J., 2005. Corporate Finance Seventh Edtion. New Delhi: Tata McGraw Hill.
TCS, 2008. Accounting Fundamentals. Web.
Tutor2U, 2009. Accounting concept and conventions. Web.
Walther, L., 2010. Principles of Accounting Chapter 1. Web.
Relationships between People, Finance and Marketing
Roles and Functions of HR
HR is emerging to occupy a prominent role in the functioning of any corporate or other business entity by virtue of its position to assess human performance and to contribute to the competitive strengths of the organization. Lawler & Mohrman (2003) identify the strategic role HR plays in the operations of a firm. The role of HR includes the selection of the right people for the organization and training them to perform the intended functions efficiently. The role of HR is to support the personal professional growth of the employees and to respect their needs of them. This enhances the contribution of the employees towards achieving the strategic goals of the organization. According to a study conducted by Pietersen & Engelbrecht (2005), there is a close and positive connection between the business related competencies and the strategic role of HR people. The interrelationship between business-related competencies and the strategic roles of HR underlines the importance of HR in any business organization. From the traditional responsibilities of personnel management involving the administrative functions of looking after individual employees and their job routines, HR has emerged as a strategic function in which, employee selection, recruitment, training, compensation, performance appraisal have become closely intertwined. Each of these HR functions has its influence on the overall organizational performance, with the result that the role of HR cannot be underestimated. According to Ulrich (1997) HR can improve organizational performance by adopting four methods, in which HR should:
- become a partner in the management of the entity,
- contribute to the effectiveness of the employee performance to enable the entity to reduce cost and maximize profit,
- represent the apprehensions of the employees to the senior management and work with employees to help them perform better
- contribute continuously to the process of organizational change.
Role and Functions of Finance
Finance has an important role to play in a business organization especially in the present-day context, because of the increase in the size and volume of business operations, a wide range of ownership in corporate entities, and exclusion of ownership from management. The role of finance function has emerged from the traditional conventional perspective to a modern innovative perspective in the current globalized and competitive business world. The objective of the finance function has changed from a mere number crunching to a vision-oriented activity steering the organization towards growth and prosperity. Finance typically includes the functions of the treasury, risk management, and taxation, which are vital areas in sustaining the growth of an organization. The modern finance function has assumed the following key roles in the operations of a business organization.
- Steward – Has control over assets of the organization with meeting all compliance standards to mitigate business risks involved in the process
- Operator – Create a strategic framework to monitor the efficiency of the finance process which in turn will drive cost-effectiveness factor across the organization
- Strategist – Acting as a strategic advisor to align the organizational goals in tandem with achieving the operational realities by means of measuring and analyzing organization performance with the interpretation of financial information in the organization.
- Catalyst –Acting as a change agent to execute and monitor necessary changes to achieve the overall strategic objectives of the organization by means of aligning all the above 3 key roles in tandem.” (AltiusDirectory, 2006)
The modern role of finance function thus includes enabling the making of well-informed business decisions by the senior management and ensuring the existence of strong internal control systems and procedures based on the leadership role taken by the finance professionals (RockPayne, 2009). The contribution by the finance function is enhanced by the knowledge and experience gained by the finance professionals from their exposure to environments outside the finance function.
Role and Functions of Marketing
To the extent that an organization is oriented towards marketing, the marketing function has a large influence on the financial performance of the firm and the introduction of new products by the firm. The marketing function includes:
- identification of the important components within the market,
- identification of the specific target customer group,
- developing market communication,
- undertaking the carrying out of the transactions,
- gathering the opinion of the consumers of the product marketed.
The most critical of these functions is that of developing appropriate marketing communication for the target market segment so that the customers can be attracted towards the product of the organization. The responsibility of the marketing function extends beyond order processing to ensure that timely delivery of products to the customer is effected so that it helps to establish a positive attitude among the consumers. This will help the repeat purchases of the products by the customers, and result in a word-of-mouth promotion of the products of the company to other consumers. Obtaining feedback from the customers is another important function of marketing, as it helps the organization to take corrective measures if there are deficiencies in any process or system of the organization in reaching the products to the consumers. “Although marketing was originally conceived as including activities related to demand creation (personal selling, advertising, sales promotion) and demand-supply (physical distribution), the discipline has evolved to focus primarily on-demand creation (product management, promotional activities),” (Mollenkopf, 2000). Marketing concentrates on-demand creation using the four Ps of the marketing mix. There is a close association of marketing with other functions in a business organization.
Interaction among HR, Finance, and Marketing
Among the three functions of HR, finance, and marketing the role of HR can be said to be critical “because the role of HR is so all-encompassing. HR not only needs to make sure there are enough employees available to do a company’s work, but that those people have the right skills, are placed in the right jobs, are paid competitively, and receive the proper motivation and rewards.” (Caudron, 1996) The finance function provides the necessary help to HR to achieve its objectives because in many of the organizations the information and data gathered by the finance department on different business aspects like earnings, productivity, and consumer satisfaction provide the necessary inputs for the HR department to assess the staffing and development needs of the organization correctly. In a way, this information also helps the marketing department to pull up its personnel where there is a dip in the customer satisfaction level. It may, in turn, reflect on the efficiency of the HR department in training the new marketing staff or wrong people have been appointed in the marketing department. Therefore, there is the need for close interaction among all three functions. However, in many organizations, the relationship between finance and HR is always not harmonious.
Boudreau & Ramstad (2002) assert that the HR function currently has measures that are similar to finance and marketing functions. However, the function currently does not possess decision science standards similar to those of finance and marketing. More specifically finance and marketing functions use measures that concentrate on delivering firm-level strategic outcomes rather than focusing on delivering the outcomes of the respective departments.
All three functions are vital to the success of an organization. Only a few firms can survive without integration, among these three vital functions. It is sure that firms cannot be successful without effective professional decisions and practices in the areas of finance and marketing. “The HR function creates tangible value in organizations by focusing primarily on the delivery of HR practices (staffing, development, compensation, labor relations, etc.), based on professional and often research-based principles” (Bourdreau, 2005). These practices are considered important as, when they are performed well they add tangible value for the firm.
The employees are to be considered as the first customers of the firm. If the employees are made to understand the marketing goals of the firm, they will be in a position to ensure that the customers of the firm are taken care of. Research evidences a close link between customer satisfaction and employee satisfaction. For this reason, firms are interested in making their employees happy and at this point, the role and functions of HR become important. HR should ensure that the employees are well motivated by providing them opportunities for professional development and career advancement apart from training them to discharge their functions efficiently.
From the above discussion, it may be observed that the interconnection and relationship among HR, finance, and marketing functions are vitally important for the efficient functioning of any business organization. Because it is the role and responsibility of the HR department, it is imperative that the HR department functions in close coordination with both finance and marketing departments. Selection and recruitment of suitable personnel for these departments depend on the selection criteria provided by the respective departments to HR. For this purpose, the HR department should depend on the finance and marketing departments for developing job descriptions, screening the candidates during the selection processes, and providing orientation programs to the new employees. The performance evaluation of the employees is another important area where close coordination of HR with other functional departments is important.
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