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BASIC ORGANIZATIONAL STRUCTURES

An organizational structure defines the scope of acceptable behavior within an


organization, its lines of authority and accountability, and to some extent the
organization's relationship with its external environment. More specifically, it shows the
pattern or arrangement of jobs and groups of jobs within an organization and yet it is
more than an organizational chart. The organizational structure pertains to both
reporting and operational relationships, provided they have some degree of
permanence.
Centralization
Although there are many types of organizational structures developed to meet each
organization's needs, all of them provide a hierarchy that reports to a centralized
location and group of executives. The highest ranking member of an organizational
chart is one or several top executives referred to as the president, chief executive officer
or chief operating officer.
Job Descriptions
When an organizational structure is designed, job descriptions can be developed to not
only meet an organizations goals, but allow for organizational and employee growth.
Internal equity and employee retention are a key to successful operations. Recruitment
is also one of the highest investments for organizations, so ensuring employees have
promotional opportunities and job security can assist in reducing recruitment costs
Salary
Organizational structure is also a fundamental core to create salary structures for an
organization. Once the structure is established, salary ranges can be created for each
job in the organization. In most cases, each job is aligned to a salary grade, and each
grade has a specified salary range. This allows an organization to meet its financial
goals and ensures salaries are distributed fairly within financial budgets.
Expansion
If an organization expands, the organizational structure allows room for growth. This
can include adding additional layers of management, new divisions, expanding one or
several functional areas or appointing additional top executives. When the structure is
reorganized for expansion, it provides the foundation to edit salaries and job
descriptions quickly and efficiently with minimal disruption to an organization's
operations.

Types
Although there is an
almost infinite variety of
structural forms, certain
basic types predominate
in modern complex
organizations. The
conglomerate structure is
a variant of divisional
structure and is thus not
depicted as a fourth
structure. Generally
speaking, each structure
tends to support some
corporate strategies over
others:

1. Simple structure has no functional or product categories and is appropriate for a


small,entrepreneur-dominated company with one or two product lines that
operates in a reasonablysmall, easily identifiable market niche. Employees tend
to be generalists and jacksof-all-trades. In terms of stages of development, this is
aStage I company.
2. Functional structure is appropriate for a medium-sized firm with several product
linesin one industry. Employees tend to be specialists in the business functions
that are importantto that industry, such as manufacturing, marketing, finance, and
human resources. Interms of stages of development, this is a Stage II company.
3. Divisional structure is appropriate for a large corporation with many product lines
in severalrelated industries. Employees tend to be functional specialists
organized according toproduct/market distinctions. General Motors, for example,
groups its various auto linesinto the separate divisions of Saturn, Chevrolet,
Pontiac, Buick, and Cadillac. Managementattempts to find some synergy among
divisional activities through the use of committeesand horizontal linkages. In
terms of stages of development, this is a Stage III company.
4. Strategic business units (SBUs) are a modification of the divisional structure.
Strategicbusiness units are divisions or groups of divisions composed of
independent productmarketsegments that are given primary responsibility and
authority for the managementof their own functional areas. An SBU may be of
any size or level, but it must have:
1. a unique mission
2. identifiable competitors
3. an external market focus, and
4. controlof its business functions
The idea is to decentralize on the basis of strategic elements rather than on the
basis of size, product characteristics, or span of control and to create horizontal
linkages among units previously kept separate. For example, rather than
organize products on the basis of packaging technology like frozen foods,
canned foods, and bagged foods, General Foods organized its products into
SBUs on the basis of consumer oriented menu segments: breakfast food,
beverage, main meal, dessert, and pet foods. In terms of stages of development,
this is also a Stage III company.
5. Conglomerate structure is appropriate for a large corporation with many product
linesin several unrelated industries. A variant of the divisional structure, the
conglomeratestructure (sometimes called a holding company) is typically an
assemblage of legally independentfirms (subsidiaries) operating under one
corporate umbrella but controlledthrough the subsidiaries boards of directors.
The unrelated nature of the subsidiaryprevents any attempt at gaining synergy
among them. In terms of stages of development, this is also a Stage III company.

If the current basic structure of a corporation does not easily support a strategy
under consideration,top management must decide whether the proposed
strategy is feasible or whetherthe structure should be changed to a more
advanced structure such as a matrix or network.

Application

Simple Structure: A sole proprietorship has a simple organizational structure; it is are


owned and operated by a single individual who has the final say about strategic,
financial and marketing matters. Even if a sole proprietor hires employees, a sole
proprietorship is, in effect, a benevolent dictatorship. The business owner does not have
to answer to anyone regarding decisions about business operations. He only needs to
keep business operations safe and legal and run a business that is profitable enough to
meet its financial obligations.

Fuctional Structure: The functional structure feature of Starbucks Coffees


organizational structure refers to grouping based on business function. For example, the
company has an HR department, a finance department and a marketing department.
These departments are most pronounced at the top levels of Starbucks Coffees
organizational structure, such as at the corporate headquarters. This feature relates
with hierarchy in the organizational structure of Starbucks. For instance, the corporate
HR department implements policies applicable to all Starbucks cafs. The functional
structure feature of the firms organizational structure facilitates top-down monitoring
and control, with the CEO at the top.

Divisional Structure: For an organization as big as Coca-Cola, it is vital that the


methods they adopt for the division of work among members of the organization are
effective and successful. They have achieved this through global and local strategies.
The division of labor can be unique in many organizations. It has been coined a
production process in which a worker or group of workers are assigned a specialized
task in order to increase efficiency. This is the case for the Coca Cola Company.
Primarily the company has a very tall hierarchy in place and subordinates that are then
divided up by regions. The Coca Cola Company being a truly global organization uses
the design of division of work by location. Each area/region has a certain amount of
subordinates designated to that specific area; however, the number of employees
delegated to one region may be different to another. By dividing its employees up
according to geographic location, the company benefits on many levels. For example,
being closer to a certain market allows the teams involved to work accordingly with
regards to advertising campaigns, meeting the tastes of consumers of that region etc.
Each region is then sub divided e.g. Europe divided up in to North West and South
East, Nordic and Baltic.

Strategic Business Units: P&Gs structure has removed many of the traditional
overlaps and inefficiencies that exist in many large companies.

Global Business Units (GBUs) focus solely on consumers, brands and


competitors around the world. They are responsible for the innovation pipeline,
profitability and shareholder returns from their businesses.

SBUs make you Organized The first principle of time management is to get
organized. Similarly, one of the first things you gotta do is to see your
organization clearly. And that can happen only if you are organized. If one of your
marketing managers is handling 34 different products, then definitely he is
gonna get confused with operating all of them. The strategies might be hazy,
there will be no time for creativity or innovation and all the time will be spent in
just handling the existing work rather then expansion. Thus the first thing SBUs
do is they help you get organized.

Micro manage Naturally once you are organized, you can micro manage
things. Just take an example of large companies like HUL and P&G (the best
examples of multi product organizations). They have at least 30 different
products at all times. Each of them requiring separate manpower, strategies,
expenses and returns. Thus this needs micro managing of the highest aspect.
With SBUs another factor which is very important is FOCUS. Micro managing
helps you focus on each and every product separately.

Conglomerate Structure: A conglomerate is a corporation that is made up of a


number of different, seemingly unrelated businesses. In a conglomerate,
one company owns a controlling stake in a number of smaller companies, which
conduct business separately.

The first and foremost advantage of conglomerate structure is that it helps the
company in diversification hence a company is less vulnerable to losses due to
decline in sales in one sector or industry.

It is also helpful when the company has excess cash but does not have enough
opportunities for growth investing in the same industry and hence buying a
company outside of industry is best bet for such companies which are having
excess cash as it results in good utilization of cash rather than company sitting
on idle cash.
It increases the customer base of the company and hence company can cross-
sell its products to the new customer base which in turn leads to increase in the
sales of its core products leading to higher profits for the company.