Unit 1Company Structure

What is company structure?

• The way in which the parts of a company are connected together, arranged or organized.

How are most organizations structured?

• They are structured in several ways that best suit their plans and objectives such as where to locate the factory, what products should be manufactured, how those products should be made, who should be responsible to whom and how the company’s resources are to be used to achieve the best results.

How many types of structure are there?

1. Pyramidal structure

• This is sometimes called a hierarchical or line structure with final approval on decisions affecting the operations of the company still coming from the top down and it shows the direct lines of authority or chain of command in a pyramidal shape.

• It is most often used in small organizations – such as small accounting offices, law firms, hair salons, and “mom-and-pop” stores …

Advantages

• Line structures are clear and easy to understand for those working in them.

• The president or CEO can easily provide information and direction to subordinates, thus allowing decisions to be made quickly.

• Lines structures are fairly informal and involve few departments, making the organizations highly centralized.

Disadvantages• People in the company become

‘departmentalized’.• Line structures would not suitable for large

companies.• The president is often responsible for wearing

many “hats” and being responsible for many activities, but she/he cannot be an expert in all areas.

• People at lower levels are unable to make important decision, but have to pass on responsibility to their boss.

2. Functional structure

• The company is divided into departments such as production, finance, marketing, human resources.

• Employees within the functional divisions perform a specialized set of tasks.

• A functional structure is best suited as a producer of standardized goods and services at large volume and low cost.

Marketing department

• Assess the type of product the consumers desire and how much they are prepared to pay…. by doing market research

• Develop new products or services• Inform customers of new products or services

available by advertising, launching promotion campaigns…

• Consider different forms of transport, costs, convenience and reliability to distribute products.

Production department• Responsible for changing the raw materials or

assembling the components into finished products.

• Manufacture goods• Decide the type of factory and machinery they

have at their disposal and the level of skilled labour required.

• Ensure that the finished products are properly stored and that the stocks do not become too large.

Purchasing department

• Responsible for buying the raw materials and everything needed for the company from office supplies to production machinery.

Sales department

• Responsible for selling the product or service.• Closely linked to the marketing department by

providing them with important information about the new products that competitors are introducing and any changes in the tastes of consumers.

• Form a link between the company and the customer.

• Build up a network of customers.

Personnel department• Responsible for the human resources of the

company.• Recruit the right people for the firm’s

departments, help to organize them and make sure there is adequate staff development.

• Staff training, staff appraisal, promotions and routine matters like employees’ taxation forms, sickness benefit, holiday pay and pensions.

• Deal with the rates of pay, salary structure and all negotiations with the staff over such matters as working conditions and dismissals.

Finance department

• Deal with all the monetary aspects of the company.

• Monitoring the inflow and outflow of payments, such as the invoices sent for the products sold and for the costs of raw materials, new machinery and wages.

Advantages of the functional structure

• Functional structures provide order and accountability to an organization.

• By creating specific job categories for specific task the efficiency of the labor needed to accomplish the task increases.

• It is easy for the development of professional expertise by clustering specialists in the present function as a single unit.

• Human resource abilities are constantly nurtured by concentrated tutoring, leadership and guidance.

• Coordination and specialization of tasks are centralized, which makes producing a large number of products efficient, predictable and inexpensive.

Disadvantages of the functional structure

• The lesser interaction between the other departments and people belonging to other department often lead to a lack of communication, making the organization slow and inflexible.

• Functional structures encourage internal competition or battles among departments which have incompatible goals.

• Separating functions is unlikely to encourage innovations.

• It is difficult to motivate employees because of similar nature of tasks.

3.Matrix structure• Matrix structures are arranged according to

project and group employees by both function and product.

• Matrix organizations combine both vertical authority relationships (where employees report to their functional manager) and horizontal, or diagonal work relationships (where employees report to their project supervisor) for the length of the project.

• In matrix structure, an employee works as a team member and reports to two bosses.

Advantages• Better coordination on shared technologies across the

organization.• Faster decentralized decision.• Improve global and regional projects.• Broader and more multi-skilled people development.• Increase communication and coordination across the

business.• Reflect the needs of global to regional customers.• Flexibility of tasks; greater learning. • Easy to organize and motivate because individuals

working on the project could operate as a team.

Disadvantages• High level of internal complexity and some

additional people management challenges.• Chaotic situations when two bosses present

opposing points of views.• Insecurity to the project members because the

project will only be for a period of time.• Difficult to manage because of conflicting roles

and especially shared authority.• Not very good for decision-making within the

project or team unit.

4. Staff position• A staff department has employees who advise and assist

– making sure that the product gets advertised or that the customer service representative’s computer is working and so on.

• Staff position is applicable when the chain of command of an organization that has the responsibility of providing information and advice to personnel in the line position.

• This structure helps to identify a set of guidelines for the people directly involved in completing the organization’s work.

• This type of structure combines the flow of information from the line structure with the staff departments that service, advise and support them.

Advantages

• This structure is necessary to provide specialized, functional assistance to all managers, to ensure adequate checks and balance, and to maintain accountability for end results.

Disadvantages

• The decision-making process is slow because there are more layers and presumably more guidelines to follow.

• The structure is generally more formal in nature and has many departments.

Questions to answer:

1. What is chain of command?2. A short chain of command may be the

most desirable. Why?3. What is centralization?4. What are advantages of centralization?5. What is decentralization?6.What are advantages of decentralization?

• Chain of command: the chain of command is from the managing director and board of directors to the sales manager, then on to the area manager and finally the sales representative. Decisions will be passed down the chain.

• Question 2:A short chain of command may be the most

desirable. Why?

• Because the fewer links there are in the chain, the easier it is for the management and workforce to communicate.

Question 3:What is centralization?

• It means that there is a great deal of control from the top (whether it be from the managing director or board of directors) in one location such as headquarters .

Question 4:What are advantages of centralization?

• A strong corporate image• Decisions made by experienced managers

who see the whole picture, not just one part of the business

• Standardized procedures which could lead to economies of scale (lower costs) and simpler distribution channels

• Question 4:What is decentralization?

Decentralization means delegation of authority or responsibility, with decisions being taken at all levels of the company.

Question 5What are advantages of decentralization?

• Lower-level managers are more familiar with local conditions and can therefore give a stronger customer focus.

• The delegation of decision-making is likely to lead to a higher level of morale at the grassroots.

• Decentralization improves personal accountability for better business decisions and performance.