Corporate structure

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A typical corporate structure consists of various departments that contribute to the company's overall mission and goals. Common departments include Marketing, Finance, Operations management, Human Resource, and IT. These five divisions represent the major departments within a publicly traded company, though there are often smaller departments within autonomous firms. Many businesses have a CEO and a Board of Directors, usually composed of the directors of each department, potentially with the addition of one or more non-executive directors. There are also company presidents, vice presidents, and CFOs. However, there is a great diversity in corporate forms, as enterprises range from single company to multi-corporate conglomerate. [1] The four main corporate structures are Functional, Divisional, Geographic, and the Matrix.

Contents

Many corporations have a “hybrid” structure, which is a combination of different models with one dominant strategy. [2]

Importance

Choosing a structure for a company is an important decision and must be strategically thought out because it could either aid or harm the making of business. The structure must also be a good fit for the type of activities, goals, and vision of the company. [3] The organizational structure is a reflection of how conveniently business is conducted.

Models

Functional structure

This model is commonly used in single-program organizations. It is basically the standard structure mentioned earlier, which is organized around departments. This structure is most appropriate for all small organizations.

Divisional structure

Divisional structures are also called cstructures because they are based on a certain product or project. This structure is most common in multi-service organizations. Normally, it is based on the departments divided in the firm.

Geographic structure

Geographic structures are used in multi-site organizations and are frequently used by networks across different geographic areas.

Matrix structure

A matrix structure is probably the most complex of these models, as it is organised around multiple dimensions (e.g. geography and product), typically with more than one supervisor. This structure is commonly used in very large organisations because a greater volume requires greater co-ordination. However, this structure is very difficult to manage so it is usually better to reconsider its use and replace it with a different type of structure, then compensate for the tradeoffs.

Classifications

In addition to those models, there are other factors that make up the structure of an organization. Depending on the chain of command, a company's structure could be classified as either vertical or horizontal, as well as centralized or decentralized. A vertical structured organization or a "tall" company describes a chain of management, usually with a CEO at the top delegating authority to lower-level managers through mid-level managers. Horizontal or "flat" companies, however, have fewer middle-managers, which implies that high-level managers are more involved in daily tasks and interact with customers and front-line personnel. [4] A centralized organizational structure describes how a company's direction and decisions are set by one individual only. [5] Centralization complements companies with "tall" structures to create bureaucratic organizations. Decentralized organizational structures allow individuals some autonomy at each level of the business, because they join the decision-making process. Evidently, classifying organizations as centralized or decentralized is linked to them being "tall" or "flat".

Technology

There is an emerging trend in the way companies shape their organizational structures. More businesses are moving towards a much flatter, decentralized organizational structure. Technological developments accelerate these organizational changes as they improve the efficiency of business, causing it to restructure departments, modify position requirements, or add and remove jobs. [6]

Books / authors / theorists

See also

Related Research Articles

Decentralization or decentralisation is the process by which the activities of an organization, particularly those regarding planning and decision-making, are distributed or delegated away from a central, authoritative location or group and given to smaller factions within it.

In the field of management, strategic management involves the formulation and implementation of the major goals and initiatives taken by an organization's managers on behalf of stakeholders, based on consideration of resources and an assessment of the internal and external environments in which the organization operates. Strategic management provides overall direction to an enterprise and involves specifying the organization's objectives, developing policies and plans to achieve those objectives, and then allocating resources to implement the plans. Academics and practicing managers have developed numerous models and frameworks to assist in strategic decision-making in the context of complex environments and competitive dynamics. Strategic management is not static in nature; the models can include a feedback loop to monitor execution and to inform the next round of planning.

A cross-functional team (XFN), also known as a multidisciplinary team or interdisciplinary team, is a group of people with different functional expertise working toward a common goal. It may include people from finance, marketing, operations, and human resources departments. Typically, it includes employees from all levels of an organization. Members may also come from outside an organization.

<span class="mw-page-title-main">Centralisation</span> Process by which control becomes more concentrated

Centralisation or centralization is the process by which the activities of an entity or organization, particularly those regarding planning, decision-making and control of strategies and policies, become concentrated within a particular group, sector, department or region within that entity or organization. This creates a power structure where the said group, known as head or core group, occupies the highest level of hierarchy and has significantly more authority, prestige and influence over the other groups, who are considered its subordinates.

An organizational structure defines how activities such as task allocation, coordination, and supervision are directed toward the achievement of organizational aims.

Departmentalization refers to the process of grouping activities into departments. Division of labour creates specialists who need coordination. This coordination is facilitated by grouping specialists together in departments.

<span class="mw-page-title-main">Matrix management</span> Organizational structure

Matrix management is an organizational structure in which some individuals report to more than one supervisor or leader—relationships described as solid line or dotted line reporting. More broadly, it may also describe the management of cross-functional, cross-business groups and other work models that do not maintain strict vertical business units or silos grouped by function and geography.

The theory of the firm consists of a number of economic theories that explain and predict the nature of the firm, company, or corporation, including its existence, behaviour, structure, and relationship to the market. Firms are key drivers in economics, providing goods and services in return for monetary payments and rewards. Organisational structure, incentives, employee productivity, and information all influence the successful operation of a firm in the economy and within itself. As such major economic theories such as transaction cost theory, managerial economics and behavioural theory of the firm will allow for an in-depth analysis on various firm and management types.

Organizing or organising is the establishment of effective authority-relationships among selected works, which often improves efficiency.

Intrapreneurship is the act of behaving like an entrepreneur while working within a large organization. Intrapreneurship is known as the practice of a corporate management style that integrates risk-taking and innovation approaches, as well as the reward and motivational techniques, that are more traditionally thought of as being the province of entrepreneurship. Corporate entrepreneurship is a more general term referring to entrepreneurial actions taking place within an existing organization whereas Intrapreneurship refers to individual activities and behaviors.

A flat organization is an organizational structure with few or no levels of middle management between staff and executives. An organizational structure refers to the nature of the distribution of the units and positions within it, and also to the nature of the relationships among those units and positions. Tall and flat organizations differ based on how many levels of management are present in the organization and how much control managers are endowed with.

Economic planning is a resource allocation mechanism based on a computational procedure for solving a constrained maximization problem with an iterative process for obtaining its solution. Planning is a mechanism for the allocation of resources between and within organizations contrasted with the market mechanism. As an allocation mechanism for socialism, economic planning replaces factor markets with a procedure for direct allocations of resources within an interconnected group of socially owned organizations which together comprise the productive apparatus of the economy.

Business economics is a field in applied economics which uses economic theory and quantitative methods to analyze business enterprises and the factors contributing to the diversity of organizational structures and the relationships of firms with labour, capital and product markets. A professional focus of the journal Business Economics has been expressed as providing "practical information for people who apply economics in their jobs."

An operating model is both an abstract and visual representation (model) of how an organization delivers value to its customers or beneficiaries as well as how an organization actually runs itself.

The organizational life cycle is the life cycle of an organization from its creation to its termination. It also refers to the expected sequence of advancements experienced by an organization, as opposed to a randomized occurrence of events. The relevance of a biological life cycle relating to the growth of an organization, was discovered by organizational researchers many years ago. This was apparent as organizations had a distinct conception, periods of expansion and eventually, termination.

<span class="mw-page-title-main">Shared services center</span> Entity responsible for the execution and the handling of specific operational tasks

A shared services center – a center for shared services in an organization – is the entity responsible for the execution and the handling of specific operational tasks, such as accounting, human resources, payroll, IT, legal, compliance, purchasing, security. The shared services center is often a spin-off of the corporate services to separate all operational types of tasks from the corporate headquarters, which has to focus on a leadership and corporate governance type of role. As shared services centers are often cost centers, they are quite cost-sensitive also in terms of their headcount, labour costs and location selection criteria.

A transnational corporation is an enterprise that is involved with the international production of goods or services, foreign investments, or income and asset management in more than one country. It sets up factories in developing countries as land and labor are cheaper there.

Multi-divisional form refers to an organizational structure by which the firm is separated into several semi autonomous units which are guided and controlled by (financial) targets from the center.

<span class="mw-page-title-main">Director (business)</span> Title given to the senior management staff of a large organization

The term director is a title given to the senior management staff of businesses and other large organizations.

DLMA analysis is a new business model devised to create insight into where time and energy is being spent within corporations. It consists in a quadrant based matrix which evaluate companies’ performance and is intended to do for organisational design what SWOT analysis does for strategy.

References

  1. ↑ Roman Tomasic, Stephen Bottomley, Rob McQueen, Corporation Law in Australia , Federation Press, 2002, pp.167-173
  2. ↑ "Designing an Effective Organization Structure". Bain & Company organizational toolkit and Bridgespan analysis. Archived from the original on 23 April 2014. Retrieved 1 April 2014.
  3. ↑ "Organizational Structure: An Overview". Community Tool Box. Retrieved 1 April 2014.
  4. ↑ Huebsch, Russell. "The Vertical Structure Vs. the Horizontal Structure in an Organization". Demand Media. Retrieved 1 April 2014.
  5. ↑ Vitez, Osmond. "Organizational Structure". Demand Media. Retrieved 1 April 2014.
  6. ↑ Archer, Clare. "Technology's Impact on Organizational Changes". Demand Media. Retrieved 1 April 2014.
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