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An organization structure is a set of planned relationships between groups of related functions and between physical factors and personnel required for the performance of the functions. The organization structure is generally shown on an organization chart. It shows authority and responsibility relationships between various positions in the enterprise by showing who reports to whom. Organization structure lays down the pattern of communication and coordination in the enterprise.
Though organization structure is very important, it is not an end in itself. According to Peter.F.Drucker, "Organization is not an end in itself, but means to the end of business performance and business results. Organization structure is an indispensable means; and the wrong structure will seriously impair business performance and may even destroy it. Organization structure must be designed so as to make possible the attainment of the objectives of the business for five, ten, fifteen years hence"
Importance of organization structure:
Sound organization structure can contribute greatly to the survival continuity and stability of the enterprise. The need and the importance of organizing and the organistaional structure can be understood more precisely on the basis if the following points:
Sound organization helps in the performance of management functions like planning, staffing, directing and controlling. Inadequate organization may result in duplication of work and efforts and some of the important operations may be left out. Sound organization facilitates the performance of various managerial functions by division of labor, consistent delegation or job definition and clarity of authority and responsibility relationship.
Promoters Growth and diversification
Sound organization designed in scientific principles can create conditions conducive to planned expansion and diversification of the activities of the enterprise. It can help in keeping the various activities under control and increase the capacity of the enterprise to undertake more activities.
Organization is an important means of bringing coordination among the various departments of the enterprise. It creates clear-cut relationship between the departments and helps in laying down balanced emphasis in various activities. It also provides for the channels of communication for the coordination of the activities of different departments.
Optimum use of technological innovation
A sound organization structure is flexible to give adequate scope for the improvement in technology. It facilitates introducing changes in the enterprise by modifying the authority and responsibility relationship in the wake of new developments.
Optimum use of Human Resources
Sound organization matches the jobs with the individuals and vive-versa. It ensures that every individual is placed on the job for which he is best suited. This helps in the better use of individuals working in the enterprise.
Stimulates Creative Thinking
An organizational structure based on clear-cut demarcation of authority, higher range of responsibility, discretionary freedom granted to personnel, incentives offered for specialized work, etc. will certainly foster the spirit of constructive and creative thinking. Such an atmosphere will give an opportunity for the staff to display their hidden creative talents which in turn will lift enterprise to achieve higher goals of business.
Training and Development
An effective organization facilitates delegation of authority which is an important device for training and developing the personnel. Delegation of authority is also an important means of directing the subordinates. It prepares them to take more responsibilities whenever need arises.
Determinants of organizational structure
Organization structure provides a basis or framework within which managers and non-managerial employees perform the joins assigned to them. In other words, organization structure may be considered as the core element around which various functions are performed and several processes operate. The stricture of organization is consciously designed by the management. However, in designing the structure the following factors are to be considered:
Objectives and Strategy
Design of structure begins with the identification of organizational objectives. There is a way of designing what the main structure of the organization should be, without an understanding of what the organization is for and what it is trying to achieve.
Organization is a system and every system has its boundaries. Beyond the boundaries there exists external environment which affects not only the foundation and functioning of the organization but also is structure.
An organization is a socio technical system. Technological aspect which refers to the manner in which various activities will be performed is an important part of organizational structure.
Organizations are formed by and operated through people. Large number of people are employed for both managerial and non managerial jobs and various activities are assigned to them and finally they put in authority relationships.
There are several criteria to determine size of an organsiation such as number of persons employed, amount of capital invested, volume of turnover, and physical capacity.
Forms of organization on authority relationships are:
Line and Staff organization
Forms of organizational structure
In a functional structure activities are grouped and departments are creates on the basis of specified functions to be performed. Activities related to a function are grouped in a single unit with a view to give a well defined direction to the whole group. For instance, in an industrial enterprise, the major functions like production, finance, marketing, personnel may be grouped into different departments as shown in the figure.
Marketing researchThis type of structure is highly suitable for an enterprise engaged in production and distribution of a single product or a small number of products. It is very useful where it is desired to introduce specialization in the performance of various functions like production, finance, marketing, etc. But where it is required to handle multiple products, functional organization may prove to be insufficient.
It is formed by crating a set of autonomous units or divisions which are coordinated by the central headquarters. For example, a company may have three divisions to manage textiles, cement and shipping. But to coordinate their functioning, certain essential services such as Corporate Planning, Finance, Legal and Research and Development are organized at the headquarters as shown in the figure. This structure is popular with giant firms dealing in multiple products and operating in different geographical regions. The products are often unrelated and require different emphasis on different functions. And the territories served by the firm have their unique problems
Research and Development
Customer Based Structure
Departmentation by customers may be followed in enterprises engaged in providing specialized services to different classes of customers. Under this, customers are guide for grouping the activities. The management groups the activities on t he basis to cater to the requirements of clearly defined customer groups. For instance, a big automobile servicing enterprise may organize its departments as follows: heavy vehicle servicing division, car servicing division, and scooter servicing division. Many educational institutions follow this type of deparmentation. They offer day courses, evening courses and correspondence coursed to meet the requirements of different types of students. Similarly, a commercial organization may be divided into wholesale, retail and export departments as shown in the figure.
Research and development
Example of Coca-Cola:
Coca-ColaÂ is aÂ carbonatedÂ drink sold in stores, restaurants, andÂ vending machinesÂ in more than 200 countries. It is produced byÂ The Coca-Cola CompanyÂ ofÂ Atlanta,Â Georgia, and is often referred to simply asÂ CokeÂ (a registered trademark of The Coca-Cola Company in the United States since March 27, 1944). Originally intended as aÂ patent medicineÂ when it was invented in the late 19th century , Coca-Cola was bought out by businessmanÂ Asa Griggs Candler, whose marketing tactics led Coke to its dominance of the world soft-drink market throughout the 20th century.
The company producesÂ concentrate, which is then sold to licensed Coca-Cola bottlers throughout the world. The bottlers, who hold territorially exclusive contracts with the company, produce finished product in cans and bottles from the concentrate in combination with filtered water and sweeteners. The bottlers then sell, distribute and merchandise Coca-Cola to retail stores and vending machines. Such bottlers includeÂ Coca-Cola Enterprises, which is the largest single Coca-Cola bottler in North America and western Europe. The Coca-Cola Company also sells concentrate forÂ soda fountainsÂ to major restaurants andÂ food serviceÂ distributors.
The Coca-Cola Company has, on occasion, introduced other cola drinks under the Coke brand name. The most common of these isÂ Diet Coke, with others includingÂ Caffeine-Free Coca-Cola, Diet Coke Caffeine-Free,Â Coca-Cola Cherry,Â Coca-Cola Zero,Â Coca-Cola Vanilla, and special versions with lemon, lime or coffee.
Since Coca-Cola is the leading soft drink brand it has to serve a large market. Coke was previously using a simple functional structure which wa not so effective to meet the increasing demand. Like any other company it started off on a small scale and then became the masters of the beverage industry. It has long chains spread all over the world. The Coca-Cola realizes that it needs to be able to meet the ever changing demands of its customers. This is why the company pushed towards decentralization in the nineties, and even more so recently. The organization has two operating groups called Bottling Investments and Corporate. There are also operating groups divided by different regions such as: Africa, Eurasia, European Union, Latin America, North America and Pacific. Each of these divisions is again divided in geographical regions. By allowing decisions to be made on a more local level, the organization can quickly respond to the changing market demands, and the higher level management can focus more on long term planning.
Certain divisions of the company like Finance, human resource, marketing, innovation and strategy and planning are centrally located within the corporate division of the company. Some of these functions takes place at lower levels in each of the regions of the company; however most of the decisions are made at the top of the hierarchy. For example in 2002 the decision to sponsor the world cup was done at the corporate level. Corporate headquarters, however, allowed the local divisions to make the advertising decisions.
The Coca-Cola Company currently employs approximately 94,800 employees. According to aÂ general organizational chart obtained from theÂ company's website, there areÂ more than 5hierarchical levels at the corporate level. For example: the head of the Canadian division reports to the president and COO of the North American Group. That president reports to the CFO, who reports to the Office of the General Counsel. The General Counsel then reports to the CEO. It is fair to assume that there are at least a few more steps in the hierarchy at the local level.
Due toÂ its tallÂ structure, theÂ organization hasÂ experienced communication problems.Â One ofÂ the problems discovered through a survey, was that the people and the company lacked clear goals. Tall hierarchies also cause motivation problems, which is why the organization is attempting to get employees more engaged. The increased usefulness of the company's intranet will greatly increase the communication between every level of employees, and allow upper management to effectively communicate to the front line employees
The Coca-Cola Company realizes that a divisional structure gives the organization the best opportunity to react to the changes in its uncertain environment, but also allow it to maintain a level of stability.
The multidivisional structure is beneficial for the organization for a variety of reasons. The division basedÂ on geographic region allows certain aspects ofÂ the company's operations to beÂ tailoredÂ toÂ theÂ individualÂ market.Â One advertisingÂ campaignÂ orÂ sloganÂ may notÂ be appropriate for another market, so decisions about specific ads are made closer to the individual markets.Â Multidivisional structures allowÂ divisional managersÂ toÂ handleÂ daily operations while corporate managers are free to focus on long-term planning
There are also problems associated with this type of structure. If the company creates divisional competition, coordination may decrease because each division wants to have an advantage over everyone else. Communication problems may also exist because information can become distorted when it has to travel up and down tall hierarchies. A Multidivisional matrix structure may be better suited for Coca-Cola Company. This would increase coordination between corporate and divisional levels, and managers at each level would work together to create solution to problems. While such a structure may be too complex for a global organization, the company may want to look into it.
The following steps can be adopted to make better organizational structure for the company :
Identify business conditions that cause operational problems due to your current organizational structure by distributing an employee survey to gather input and suggestions from the people experiencing challenges.
Identify current roles and responsibilities to assess your organization's ability to deliver on commitments and set expectations accordingly. For example, if you determine your development team is also responsible for providing customer support, you must prioritize activities so that project milestones and customer service level agreements are both met.
Analyze employee feedback to identify gaps in the organizational structure that prevent effective work flow. For example, employees may lack training on the use of new equipment, software or procedures. Poor organizational structure can prevent employees from describing their operational needs effectively. Once you have identified these gaps, you can respond by proposing possible alternatives to your executive management team.
Focus your organization on a common vision and strategic goals. Implement business processes that support these goals to compensate for the poor organizational structure.
Align all work to your company's strategic goals, rather than the organizational structure. When tasks align to your company's goals, increased productivity and reduced waste leads to better financial performance for the company as a whole.
Ensure employees have clear performance goals and development plans in place. When people understand their responsibilities, they are more likely to express commitment and loyalty to the company mission.
Monitor your new processes and improve them as directed by employee (and customer) input.
Adjust your organizational structure to reflect the best way to achieve business goals. Establishing a flat hierarchy (one without too many levels), decentralized reporting, shared responsibilities and open communication that enables employees to respond rapidly to situations tends to yield the best results.