In a company, there are many coexisting functional areas that make business work properly: management, finances, administration, production/operations, quality, marketing, human resources, project management, process, logistics. In order to reach its organizational objectives, it is vital that all these areas have the same purpose and business strategy.
Next, we are going to delve into the Administration area: what is it, which are its main functions, its biggest challenges, etc.
Definition of the Administration area
The administration area is in charge of carrying out administrative tasks or functions in a company. Before we state what the area deals with, we want to say that it is usually associated with the bookkeeping area but they do not have the same function necessarily. In general, administrative management has an impact on the assessment of inputs and outputs, taking into account real numbers as negotiation factors and trying to lowering the costs of products. The administration area will deal with contacting suppliers and receiving their bills as well as sending bills to their customers according to their operations.
On the other hand, even though we can find specialized areas that carry out these tasks, it also usual to find administrative areas that organize daily activities, keep accounting records, make contributions to the logistics area and be at the service of the staff. Their function is crosswise, coordinating the teamwork among the different areas of the company by combining organization and planning in one place.
Efficiency and effectiveness are pillars on which hard-working administration leans. You should not lose sight of the current legislation both in the tax contribution framework and in the acquisition of products. You should also keep track of banking operations; controlling banking transactions and checking expenses are two important tasks that this area carries out.
Review and difference with the Bookkeeping Area.
As it was stated before, companies usually combine the bookkeeping and the administration areas into one. Even though some of their tasks are related, we should know that these areas can work and function separately. Bookkeeping per se is focused on financial and accounting matters, it keeps accounting records and obligations, it is in charge of preparing tax settlement and of filling out its own books with all the commercial organized activity.
On the other hand, separate but not independent from the other, the administration area will receive the documents sent by the bookkeeping area and it will handle its payments; it will then sent the bills to the correct person and it will close the operations.
Therefore, even if these areas are unified in one area or if the company has two different areas for each one, they are in constant communication and work together. Effective communication with relevant, clear information is vital to have functional areas in your company.
A short history of its beginnings and development over time
If we talk about the history of administration, we should talk about the origins of social groups, from prehistory to ancient Greece and Rome. When Greeks reached their peak, they coined the word minister, which means "towards subordination", marking the standard that we are going to find in every administrative task (past or present): the pressing need of coordinating all the activities and human processes in both a linear, hierarchical way (at present) as well as in a crosswise and iterative way.
Later, the administration went through several stages, from the Middle Age and its Feudal system (a particular administrative order) until it reached its inflection point in the Industrial Revolution (18th and 19th centuries), changing completely the production rules.
With the Industrial Revolution, decision-making became a priority in relation to a strategy designed according to planning, organization, control, monitoring, and a common goal: achieving corporate or commercial objectives.
At that point in the historical development of administration, the name of Frederick Taylor became important; he is known as the father of administration because he was the person who gave a scientific and methodological hint to it.
Taylor, who was an engineer, formulated several proposals (because of his empirical experience) through the study of the way of working in the steel industry (during the second Industrial Revolution) and completed his work known as "Four principles of administration" which changed completely the way of working and administering.
Applicable today, Taylor's principles are based on the following:
- A correct administration develops a science for each employee that replaces the empirical methods.
- It selects things scientifically, trains, and accompanies employees.
- It cooperates constantly with the employee so that every task is developed according to the principles.
- It distributes equally work and responsibility among administration and subordinates.
If these principles are seen with the eyes of today, we can verify that they are still valid: as regards the first principle, every activity must be studied and developed to be done in the most efficient way. The second principle states that each worker should be chosen according to objective criteria to get his/her best performance and he/she should be accompanied and continuously trained. The third principle can be seen as a necessity for a control system that assures that every activity is done according to previous planning. Finally, the fourth principle refers mainly to the difference between planning and execution, being administration the area responsible for the planning and the worker, the person who executes it.
This way, at present, the administration of a company has taken very precise responsibilities and some accounting tasks, in a way. However, its evolution marked by several theories shows that its role is not just about submitting bills.
Main Administration theories
Known as "the new theories", new organizational proposals came up in the 20th century in order to make efforts more efficient. Below, we will name these theories chronologically:
- Scientific Theory: it was presented in the 20th century by the engineer Taylor; it proposes the application of science to the methods and elements of work. It focuses on the formal organization through what was called "departmentalization". It goes from using empirical methods to the application of scientific standards so that the quality and productivity of workers improve because of these new practices. Workers are encouraged by salaries in accordance with their tasks.
- Bureaucratic Theory: Max Weber is who proposed this theory in German in 1905. His idea is based on a centralized hierarchy that accepts a leader that distributes tasks and responsibilities and, by giving orders to the members of the organization, they carry out the tasks in a coordinated way.
- Classic Theory: The French thinker Henry Fayol proposes this theory at the beginning of the 20th century (1916). His ideas are based on a systemic approach in which all administrative principles are used together to assure a positive outcome. Hierarchical management and the division of tasks are a key part of his model.
These principles are part of his theory: command hierarchy, centralization, hierarchy, division of work, discipline, equity, order, personal compensation, stability, people staying in their position for a long time, and team spirit. The person who works is considered as “homo economicus” and should receive a salary.
- Humanistic Theory: Its leading exponent is Elton Mayo, based in the USA. This theory is focused on the production processes and tries to achieve greater coordination among workers as well as a good relationship among them. Through this method, you can get greater productivity by humanizing and democratizing tasks. It is taken as a theory with a behaviorist approach since it takes workers as participants of a social group and their compensation will be "symbolic", which is a representative way of encouraging efficiency.
- Theory of behavior: Abraham Maslow is who proposes this theory in the USA in 1950. Using a diagram known as "Maslow's hierarchy of needs", he tries to explain that human motivations are guided by needs. Needs shape men's behavior. When basic needs are satisfied, you can achieve greater work standards. He had the goal of studying formal and informal organizations and organizational psychology sees humans as an individual and social being.
- Contingency Theory: this theory was developed in the 1980s by Burns, Chandler, Stalker, Lawrence, and others. It considers administration as an open system and its functioning will depend on its interaction with the environment. Consequences are studied according to the environment surrounding the commercial activity so that it is possible to anticipate them and achieve the company's goals. In general, this theory tries to explain that there are no absolute principles nor essential rules when administrating an organization; techniques must be applied accompanied by adequate control of the environment to achieve greater effectiveness.
- Structuralist Theory: In 1947, James Burnham develops this theory that is based on three pillars: organizational structure, surrounding environment, and the people who make up the company. By providing social and material incentives, this theory seeks workers to act in an open system and suggests the existence of three different levels within an organization: technical level, management level, and institutional level.
Benefits of having an administration area
A disciplined administration will bring about knowledge and tools to the work team; it will focus on coordinate efforts so that the available resources are taken advantage of (both material and human resources). Presenting a way of working with clear objectives and previous planning, the administration will help you overcome the obstacles that may arise and gather the information needed to avoid a negative impact in the future.
At the same time, you will be able to reduce costs, maximizing the performance of available resources. You will be able to quantify business performance and it will help every area to focus on its particular tasks: the administration area will provide a containment approach for the rest.
It is worth mentioning that the usefulness and flexibility of administration make it a branch that can be applied in both the private and public areas. This is so because it takes organizations as its most important part. For this reason, we can find administration areas in: public and private institutions, schools, churches, hospitals, and every other human work group that is correctly organized.
Responsibilities of the area in the company
When we talk about the responsibilities of the area we can say that, depending on the institution under analysis, we can find different ways of organizing its administration: financial administration per se studies and maximizes corporate finances; commercial or marketing administration seeks to create an impact on the market where the company wants to settle; and operative administration is in charge of hiring new employees, paying salaries, training and everything related to order activities.
No matter which way of working the company chooses, it will have to focus on trying to achieve high quality in the product they will deliver; also, they will have to focus on the growth of the company as an institution and look for a high position regarding the competition. It is also important to raise the utilities by either buying products strategically at a lower cost or by increasing sales. This area will be the main link on which all the organization is built.
It will be the administrator who will be in charge of making the decisions he/she finds convenient for the company. He/she will have to use his/her knowledge to control and manage the company; in order to this, he/she will have to know who his/her target audience is and the needs they have.
Taken this into account, we can say that the administration (or the person in charge of it) must have the following four qualities or "elements":
- Planning: he/she has to analyze the strategies and tactics used by his/her co-workers. Depending on the current needs of the company, plans could be long-term or short-term; it should also analyze the socioeconomic situation the company is in.
- Organization: it distributes the tasks to each of the workers. It is important to keep in mind the efficient use of time. Usually, it is accompanied by specific software that helps you achieve an effective organization.
- Management: it is related to leadership. The managing area will have to focus on influencing every member of the company so that they are comfortable and efficient. It has to make useful and accurate decisions.
- Control: by comparing the information and the monitoring of the staff, the administrator can be aware of the mistakes that they have to correct in the future, their performance in every area of the company, the goals achieved according to the planning and how time was used.
The importance of the administration of SMEs
Before stating the importance of the correct administration of SMEs, we need to describe their role in our society.
It is widely known that the economic driving force is not in the hands of a few companies but it is small-scale production (more varied production) which means a great economic movement. That is why the United Nations acknowledged that SMEs are the "backbone" of the modern economy; they provide between 70% and 90% of the global GDP.
Without going any further, in Latin America, SMEs produce 61% of the labor demand (as was revealed by the United Nations Economic Commission for Latin America and the Caribbean), so it is vital that we support them to keep the source of income in the different social areas that benefit from them. The fifth Latin American and the Caribbean States Business Summit (CELAC) with the participation of the European Union (held in Brussels) was held under the slogan "Europe, Latin America and the Caribbean: encourage an integrating and sustainable growth through the efforts of SMEs."; here, the European Commission (E.C.) made public its support to the cause: a donation of U$S 102 million to encourage this sector, destined to benefit Latin America and the Caribbean. Following the same line of thought, FUNDES (a financial support organization) announced several economic support plans for countries that are members of it such as Argentina, Chile, Mexico, Guatemala, among others.
Now, we previously listed the benefits of having a diligent administration. The principles and tasks are the same for SMEs but the difference relies on that they are very important in their survival and success (because of their vulnerable situation for being small companies or because of not having strong economic support to resist inflation)
The person in charge of the administration of SMEs will have to plan thoroughly and control data constantly to keep a profitable business; it will also be very helpful that he/she:
- Analyzing the competition: it is very difficult to find a company that offers a 100% innovative product that nobody has designed before; that is why the administration should answer these questions: what are the advantages that your company has to offer compared to the competition? who is the target audience? what other company offers the same products as your company?. If the answer is "yes", at what cost? These and other questions are going to emerge when you analyze the market and here is where marketing becomes important. By using it correctly, you can take advantage of it to focus your resources to advertise products to the target audience directly, which will produce greater sales.
- Planning: a business plan thoroughly designed must be accompanied every SME with an expansion project. The main pillars of strategic planning are the following questions: what do I offer? what are the costs I can incur? what are my short-term and long-term goals? among other.
- Take care of resources: Maximizing the care of resources and taking advantage of them (both human and economic) will be vital to keep a balanced economy. Taking up loans or any other financing method that may seem convenient at first but that can harm the economy are decisions that a diligent administration must make beforehand.
- Manage your time correctly: software tools that automate processes and shorten the time of constant operations such as billing and communication with the customer will add great value to the company since the economic resources are not the only ones that have value; time of response and order processing on the part of the customers will produce better quality in their experience which, eventually, will lead to increase sales.
- Look for support programs: Countries are aware that SMEs move their economy. This is why constant training opportunities, financing and external support become available both in the public and in the private fields. It is important to be up to date with the available plans or programs to take advantage of them.
- Think like your customer: The goal of every company is to provide a solution to the needs of your target audience, so thinking like your customer may be the answer. Understanding what or how the company can satisfy the needs, what cost is willing to take, when does it need it for? and thinking about all the problems that may arise eventually will help you provide a more customized experience.
No matter if your company is a small, medium, or large size, having an administration area duly prepared will help you carry out tasks, focus resources, organize the division of labor and, eventually, increase your sales, as well as positioning your company higher than your competitors.