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An organisation is a set of planned relationships between groups of related functions and between physical factors and personnel required for the performance of the functions. It shows authority and responsibility relationships between the various positions in the enterprise by showing who reports to whom. Organisation structure lays down the pattern of communication and co-ordination in the enterprise. "Organisation is not an end in itself, but is a means to the end of business performance and business results. Organisation structure is an indispensable means; and the wrong structure will seriously impair business performance and may even destroy it."
Importance of Organisation Structure
Sound organisation structure can contribute greatly to the survival continuity & stability of the enterprise. The importance is as follows:
Facilitates Administration: Inadequate organisation result in duplication of work & efforts & some of the important operations may be left out. Sound organisation facilitates the performance of various managerial functions by division of labour, consistent delegation or job definition & clarity of authority & responsibility relationship.
Co-ordination: Organisation is an important means of bringing co-ordination among the various departments of the enterprise. It creates clear-cut relationship between the departments & helps in laying down balanced emphasis on various activities.
Optimum Use of Human Resource: Sound organisation matches the job with the individuals & vice-versa. It ensures that every individual is placed on the job for which he is best suited i.e., putting right pegs into right wholes.
Training & Development: An effective organisation facilitates delegation of authority which is an important device for training & developing the personnel. Delegation of authorities is also an important means of directing the subordinates. It prepares them to take more responsibilities whenever arises.
Determinants of Organisation Structure
Organisation structure may be considered as the core element around which various functions are performed and several processes operates. In designing the structure, following factors are considered:
Strategy: Design of structure begins with the identification of organisational objectives. An organisation is s goal-oriented, it is quite legitimate that its goals have decisive role in designing its structure. There must be a 'fit' between an organisation's strategy and structure for its success.
Environment: It includes all those economic, social, cultural, political, legal & technological factors which directly or indirectly affect the functioning of an organisation. Organisation being a sub-system of environment interacts with the environment on regular for getting inputs and supplying outputs. Diverse and more complex changes in environment have rendered traditional structures ineffective.
Technology: An organisation is a socio-technical system. Technological aspect which refers to the manner in which various activities will be performed, is an important part of organisational structure. Every activity to be performed requires
some kind of technology, the type of technology being used in the organisation for performing different activities would also affect the structure directly & indirectly.
People: Large number of persons are employed for both managerial & non-managerial jobs and various activities assigned to them, and finally they are put in authority relationships. These people carry some goals, values, perceptions, beliefs & attitudes which have direct reflection on the structure of organisation.
Forms of Structural Design
There are many structural designs like functional, divisional, geographical & customer based:
Under functional structure each major function is organised as a separate department. Basic functions are those functions which are vital for the performance of an enterprise. The process of functional differentiation may take place through successive levels in a hierarchy.
Board of Directors
Production Manager Marketing Manager Finance Manager
Repairs Quality Purchase Factory Sales Advertising Chief Auditor
Manager Manager Manager Manager Manager Manager Accountant
Store Foremen Sales Media Section Sub-Auditor
Keeper Officer Officer Officer
It is most logical, time proven form of organisation structure.
It provides specialisation & enables performance of all activities in an organisation.
It facilitates supervision & permits effective control over performance.
It avoids duplication of efforts, enable co-ordination of efforts & makes recruitment easier.
The specialist mayn't be able to see the other aspect of business.
It becomes difficult to hold a particular department responsible for any problem.
As the organisation grow it leads to delays in decision making.
Managers may try to build up their own empire based on functions leading to rivalry & conflicts.
Under divisional structure the activities of the organisation are grouped into a number of divisions. These divisions are created on the basis of a product. Every major product is classified as a separate department.
It reduces the problem of coordination between departments & focuses on individual product line.
It leads to specialisation & the responsibility of each product can be fixed on a manager.
It is more flexible & adaptable to change therefore decision making is faster & effective.
It is an excellent training ground for managerial personnel because each product division is semi-autonomous.
There is a duplication of physical facilities & functions.
The advantages of centralisation of certain activities are not available.
There is underutilisation of resources in case when there is inadequate demand.
Managers focus on their own products without thinking of the whole organisation.
GEOGRAPHICAL BASED STRUCTURE
Geographical structure is followed in case of service organisations which have offices in different regions or geographical areas. Each regional office has independent functional departments to realise its objectives.
The company can meet the demands of various regions more effectively.
The department based on territories can function as autonomous units.
It facilitates the expansion of business in various regions.
It is also beneficial from the point of view of country's economic development.
There is multiplication of physical facilities. It leads to uneconomical operations.
There may be lack of talented personnel to take charge of regional departments.
There will also be problems in providing centralised services to various departments which are located in different regions.
Attempts to enforce uniform marketing and personnel policies in all the regional units may be contrary to the local needs of some units.
CUSTOMER BASED STRUCTURE
Departmentation by customer may be followed in enterprise engaged in providing specialised services to classes of customers. Under this, customers are the guide for grouping the activities.
Customer departmentation can focus on the special needs of different kinds of customer.
It employ's personnel with special abilities for meeting different customer requirements. It leads to greater satisfaction of customers which enhances the reputation of the enterprise among the public.
It creates the difficulty of co-ordination between the departments organised on this basis & those organised on other basis.
Greater emphasis on the need of the customers may lead to less than optimum utilisation of space, equipments & specialised personnel.
Authority in Organisation
Authority in organisation is defined as the sum of rights & powers to the person to make decisions, to issue orders, to use organisational resources & to hire & fire the employees. According to Henry Fayol authority is defined as "the right to give orders & the power to exact obedience."
Responsibility in Organisation
Responsibility is referred to the obligation to perform the assigned task or duties to the best of one's ability. Responsibility is always in relation to living things because non-living things can't be assigned to a task. It always flows upward, i.e., from subordinate to superior. It arises only when a task is assigned by a superior to a subordinate.
A hierarchical organisation is an organisational structure where every entity in the organisation, is subordinate to a single other entity. This arrangement is a form of a hierarchy. In an organisation, the hierarchy usually consists of a singular or group of power at the top with subsequent levels of power beneath them. This is the dominant mode of organisation among large organisations; most corporations, governments, and organised religions are hierarchical organisations with different levels of management power or authority. A hierarchy is typically visualised as a pyramid, where the height of the ranking or person depicts their power status and the width of that level represents how many people or business divisions are at that level relative to the whole-the highest-ranking people are at the apex, and there are very few of them; the base may include thousands of people who have no subordinates. These hierarchies are typically depicted with a tree or triangle diagram, creating an organisational chart. Those nearest the top have more power than those nearest the bottom, and there being fewer people at the top then at the bottom. As a result, superiors in a hierarchy generally have higher status and command greater rewards than their subordinates.
Factors Influencing Organisational Structure
Organisation structure is the framework which is used by the companies to outlinde their authority & communication processes. This framework includes policies, rules & responsibilities for each individual in the organisation. Many factors affect the organisation structure of a company. These are can be internal factors or external factors. Small business owners must be responsible for framing their company's framework. Business owners may use management consultants or review information from the Small Business Administration.
SIZE: Many times size is the driving factor for a company's organisation structure. As the business owner is responsible for all the tasks therefore small and home-based business usually don't have a vast structure. Larger business organisation requires a more intense framework for their organisational structure. The companies having more employees usually require more managers for supervising these individuals. Highly specialised business operations can also require a more formal organisational structure.
LIFE CYCLE: In developing company's organisation structure life cycle also plays a vital role. The business owners who are attempting to grow & expand their company's operations develop an organisational structure outlining their company's goal & missions. Business reaching peak performances become more mechanical in their organisational structure. Mature companies focus on developing an organisational structure to improve efficiency & profitability which can be a result for entry of more competitors in the market place.
STRATEGY: This can also be a vital factor in developing company's organisational structure. High growth companies can react to changes in business environment quicker than other companies because they have smaller organisational structure. Small business still looking to define their business strategy can often delay in creating their organisational structure. Business owners are more interested in setting business strategy rather than implementing an internal business strategy.
BUSINESS ENVIRONMENT: The external business environment can also be vital factor in organisational structure. Dynamic environment with constantly changing consumer desire is often turbulent than stable environment. Companies attempting to meet consumer demand can struggle when an organisational structure is in a dynamic environment. More time & capital can also be spent in a dynamic environment to create an organisational structure.
ABB limited is multinational corporation which has its headquarters in Zurich, Switzerland. It is the company operating in robotics & mainly in the power & automation technology. It has been ranked 143rd in Forbes Ranking (2010). It is one of the largest engineering companies in the world. ABB Limited has approximately 1, 45, 000 employees & has operations in around hundred countries in June 2012 & reported global revenue of $ 40 billion for 2011. ABB is treated on the Six Swiss Exchange in Zurich & the Stockholm Stock Exchange in Sweden since 1991, & the New York Stock Exchange in the United States since 2001.
Products of ABB Limited
The key components for the transmission & distribution of electricity are known as power products. ABB's manufacturing network is incorporated by the division of transformers, switchgears, circuit breakers, cables, & associates high &medium voltage equipments like Digital Protective Relays. The division is sub-divided into three divisions---High Voltage products, Medium Voltage products & Transformers.
The system that offers turnkey systems & service for power transmission & distribution grids & for power plants is power system. The key areas are Electrical Substations & substation automation systems. Additional highlights include Flexible AC Transmission System (FACTS), high-voltage direct current (HVDC) systems and network management systems.
Low Voltage Products
The low voltage product division manufactures low-voltage circuit breakers, switches, control products, wiring accessories, enclosures and cable systems to protect people, installations and electronic equipment from electrical overload.
To provide customers with systems for control, plant optimisation, & industry- specific automation is the main focus of ABB. The industry serves oil & gas, power, chemical, pulp & paper, metal & mineral.
Organizational Structure of ABB Limited
ABB Limited operate in 100countries approximately, it has structured its global organisation in four regions---Europe, the Americas, Asia & the Middle East & Africa ("MEA"). It has a divisional structure. Each division manages some business areas which is subdivided into business units. Its core business consists of two divisions, Power Technologies and Automation Technologies, and its management intends to continue to focus its attention on & future investments. In addition, certain of its operations are classified in Non-core activities and Corporate. Non-core activities comprise businesses and activities that are not integral to its focus on power and automation technologies. Effective January 1, 2003, some business areas within its business divisions were reorganised. Consequently, the results of operations in 2002 for certain of the affected business areas are not directly comparable to its results in 2003. When its results of operations in 2003 on a business area basis are not directly comparable to its results of operations in 2002, it combines the results of the affected business areas to create an aggregated basis on which it can compare and discuss its results of operations. The following table sets forth the amount and percentage of ABB Ltd. revenues derived from each of its business divisions for the fiscal years ended December 31, 2004, 2003 and 2002, based on its current organizational structure:
Year ended December 31,
Percentage of Revenues
Year ended December 31,
(U.S dollars in millions)
Corporate/Other and Eliminations
For a breakdown of its consolidated revenues derived from each geographic region in which it operate describe Operating and Financial Review and Prospects-Analysis of Results of Operations-Revenues."
PROCTER & GAMBLE
The Procter & Gamble Company is a multinational consumer goods company headquartered in USA. It includes foods, beverages, cleaning agents & personal care products. It is one of the leading consumer products company in India. P&G India has entered seven new categories, in last three years via brand launches like "OLAY", "Pampers", " Gillette". At present P&G is leading in- baby care (PAMPERS), fem care (WHISPER), health care (VICKS), anti-ageing skin care (OLAY), air care (Ambi-Pure), blades & razors (GILLETTE), oral care (ORAL-B), shampoos (HEAD&SHOULDERS, PANTENE) Brands:
Beauty & Groom
Health & Wellbeing
Organisational Structure of Procter & Gamble
Its structure is a consciously coordinated social entity, which functions on a continuous basis to achieve a common goal with a relatively identifiable boundary. The current & main structure of Procter & Gamble is partial organisation structure & specific structure which is shown as below in the figure:
Global Business Units (GBU's)
The unit responsible for product development, brand designing, designing business strategy, & new business development is called Global Business Units (GBU's). There are seven GBU's each with profit maximizing responsibility focused against product-category competitions. Each unit operates autonomously focusing on different products like baby care, air care, health care beauty & grooming etc. Each unit is led by a president who directly reports to CEO & is a member of global leader council who determine overall company's strategy.
Market Development Organizations (MDO's)
It was designed to take responsibility for using their knowledge of local consumers & retailers to help P&G to develop its market strategies to guide the business& tailoring the company's global programs to local markets. Each MDO is led by a president who directly reports to CEO & like GBU's is a member of global leader council.
Global Business Services (GBS)
Its function is to standardize, consolidate, streamline, & ultimately strengthen business processes. Global Business Service was organized as a cost centre. GBS is led by the head who directly reports to CEO but like GBU's & MDO's is not a member of global leader council. The structure is both a divisional & functional as chief financial officer, corporate new venture president & other president makes it functional & the GBU's & MDO's which are responsible for different products makes it divisional.
Contingency Factors of P&G's Current Structure
The factors like strategy, technology, size & environment are the contingency factors on which the best structure for a firm depends. P&G's strategy is similar to the strategy of distinguishing one's product from those of competitors through leading in complex product & service innovations. This strategy is called strategy of innovation. In case of P&G's structure in which it has diversified its product in many types like cleaning, shampoos, toothpastes & into hundreds of brands a matrix structure fits into it. Partly owing to technology is another factor in determining P&G's structure.
Another Perspective to Analyze P&G Structure
There are five basic perspectives which are as follows:
The operating core- employees, who perform the basic work related to the production of products & services.
Strategic apex- top- level managers who are charged to overall responsibility of the organisation.
Middle line- managers who connect operating core to strategic apex.
Techno structure- analysts, who have the responsibility for effecting forms of standardization in organisation.
Support staff- people who fill the staff units that provide indirect support services for organisation.