Organization Structure Shows The Authority Business Essay


The term organization is derived from the word organism which means a structure of body divided into parts that are held together by a fabric as one organic unit. In firms, most managers and employees work together to achieve organizations goal, this binds them together by coordinating with each other. Division of work and authority and relationship building comes with the organization structure.

Organizing is creation of administrative set up for execution of business plan. It provides the framework within which management does its job. Organization facilitates efficient administration, direction and control. It avoids wastage of raw materials and human resource. There different structures which are used by various organizations. These different types of organization structure are:

Functional Structure

Divisional Structure

Product based structure

Territory based structure

Project organization

Matrix organization

Customer based structure

Network organizations

For the further study I have taken up the case of Life Insurance Corporation (LIC) which follows the Geographical or Territory Based Structure.

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Geographical structure is followed in case of service organization which have offices in different regions or geographical areas. A geographic organizational structure is typically found in companies with operations spread over a large region, such as national or international offices such as in case of LIC as it helps in concentrating on the special requirements of the customers of each region. Each location will have its own internal structure and management layers, allowing them to run as a pseudo-independent operation. Each regional office has independent functional departments to realize its objectives. LIC also has semi-autonomous divisions in different regions of the country and each division controls the LIC branches in its territory. Every branch has separate departments for operations such as new policies, collection of premium, adjustment of claims and administration.

Basic structure of LIC

Today, most of functions, nearly 90%, related to the marketing and other related activities of the insurance consumers are dealt and handled at the branch level. The branch office, depending upon its business, is headed by a manager and each function of insurance business like marketing, underwriting of policies, accounts, claims payments, staff and administration matters are identified as departments of the branch office with responsible officials such as Administration and Accounts Officers (AAO).

The managerial decisions are based on the information supplied by the AAO, the functional head at root level. All the functions of claims will be settled at the branch level. The AAO of life insurance business will deal with maturity and death claims. If the branch is smaller, all the types of claims will be dealt by one AAO and if the branch is bigger with good number of claims, they will be settled by, separate officials. At branch level, these officials have to maintain cordial relations and establish a system of sharing information with the other departments, relating to the policy documents, payment of premium and using the staff or the agents for the settlement of claims disputes. The branches maintain records relating to the claims payment and claims rejections. They wiill submit the reports to the Zonal Officer, who in turn will forward it to the Head Office or Corporate Office.

The branches report to their respective divisional office. If any branch gets a claim and there is a problem in identifying the correct claimant among the claimants, or otherwise, a dispute of risk crops up, which will be forwarded to the divisional office with its comments. The divisional office after receiving the papers, verifies them, applies legal knowledge and skills, or seeks advice from skilled persons and tries to solve the problems. The divisional office is responsible to settle the claims referred by the branch office and also report the same to the zonal office, which in turn will consolidate the data and submit the same as required by the statute or otherwise under any law to the government. The government will put the same for the approval of the both the houses.

At the division office level, the claims department generally deals with the claims, which are pending with the branches because of some disputes, or some claims which are of high value. The investment portfolio and establishment and maintenance of reserves for the purpose of claims payment or otherwise required under the law is the important function of the central office. Thus the organizational structure of the insurance business is most flexible and decided, based on the above said factors.

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Geographical functional organizations involves grouping of the activities according to regional or geographical locations.  The territorial divisions become a complete administrative unit to cater to the need of the localities. The Regional Manager will practically be the chief controller of his region.  He is given full powers of managing his own region or zone.  His office functions as a head office for all practical purposes.  The functions pertaining to finance, marketing, personnel and production development of low-level employees are completely vested in the zonal office which has separate departments of these functions to guide and control the respective activities of the zone.  The zonal office may have several divisional offices for executive functions. The area population and size of business in a zone will decide the number of divisional offices, their functional activities, and amount of authority and responsibility to be vested in the divisional managers.  The divisional managers may have several branch managers to manage the affairs of each branch in the division.  The branch managers will be the real managers to manage the affairs of the company.  The production and business are performed by the branch offices which understand the local requirements and sensitiveness of people.  They can utilize the local conditions and can capitalize on the local situations, raw materials and market.  The most effective and useful form of divisional functional organization can be observed in the case of commercial banks.  The decentralization of commercial banks have given very useful results as the efficiency, effectiveness and economy of the bank functioning have increased.  There is enough scope for utilization of the existing resources of the corporation as well as market potentials in the field. Coordination and control are exercised by the Central Office.  Each branch unit is effectively managed as per the local conditions same as in case of LIC shown in following diagram.



Organizational structure is the formal layout of a company's personnel. Structure clearly defines reporting relationships, decision-making authority, and the physical location of employees from various departments. Geographical organizational structure groups representatives from each functional department into units formed to serve a specific market or region. Geographical units can be highly effective if they are located within the regions they serve and employ workers from the local labor pool.

Communication and Collaboration

Communication between representatives of the different business functions is much more personal in a geographical organizational structure. Rather than having to establish working relationships with people on the other side of the world through email and telephone, employees in a geographical structure often work side by side with personnel from various departments. Grouping employees this way encourages the formation of strong, collaborative teams that work well together, engage in planning and decision-making together, and understand each other's personalities and work styles. An added advantage of this close working proximity is the ability of the team to adapt quickly to changes in divisional goals and processes, and to bring everyone on board with new strategic initiatives.

Local Managers

The ability to hire local management offers companies the advantage of having leaders who are completely familiar with the local business environment, culture, and legal climate. Local marketing managers understand exactly what drives local purchase behavior; local accounting managers understand the tax structure and financial reporting requirements of the region; and local staffing managers understand the management practices that are most effective in the region. Decision-making effectiveness can be enhanced by relying on the knowledge and experience of local talent. Placing a mix of local and home office leaders at the helm of a geographical unit has the advantage of melding local culture with company culture, ensuring that the company is sufficiently adaptable to local conditions, while still being true to its core business methodologies.

Geographical Focus

According to, customer service quality can be enhanced by implementing a geographical structure. Customers can feel more at ease when speaking with local representatives who fully understand their language and idiomatic expressions. Customer support representatives will also have greater access to representatives from other functions, as mentioned before, which can allow them to handle customer issues much more efficiently. For example, in a functional structure, a customer support representative in India might speak with a customer from England, then call an account manager in Germany to obtain the information to help the customer. In a geographical structure, the support representative in India would speak with a customer from India, then ask an account representative down the hall for the needed information. Focusing all functions on one geographical area allows each department to operate with precision: product attributes can be altered to suit local tastes; workplace policies can be altered to fit local workers; marketing can be tailored to the specific market; sales practices can stay within culturally acceptable boundaries; and pricing schemes can fit local trends.

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Performance Measurement and Strategy

Aside from operational advantages, a geographical structure offers strategic advantages as well. Tracking the performance of individual markets and work groups is simplified under this structure, as metrics such as revenues, profit margins, costs, and performance improvements can be tagged to specific regions. Home office executives have an invaluable strategic resource in their pool of local management talent; local managers from various departments can be consulted when making decisions, such as which new products to introduce, where to concentrate research efforts, and on which products or services to focus in different regions.

Coordination and Expansion

A regional division can achieve better coordination and supervision also becomes easy in particular area. This helps in reducing transportation and distribution costs. This form of structure helps in expansion of business in various regions in systematic manner.


Companies may find it difficult to run a geographic organizational structure because it does not allow for centralized decision-making. Business owners must rely on other individuals to take corrective actions and improve operations rather than giving a directive from the company's main office or headquarters.

There is multiplication of physical facilities which leads to uneconomical operations.

There may arise the problem of integration between various regional offices. They may compete in certain areas with each other which is not healthy for the organization.

Conflict between local and central management

Duplication of resources and functions

There will also be problems in providing centralized services to various departments which are located in different regions.

If any attempts are made to enforce uniform marketing and personnel policies in all the regional units may be contrary to the local needs of some units.

Every organization needs a structure in order to operate systematically. The organizational structures can be used by any organization if the structure fits into the nature and the maturity of the organization. In most cases, organizations evolve through structures when they progress through and enhance their processes and manpower.