MOI UNIVERSITY INF 212: BUSINESS SYSTEMS MODELLING

LESSON: BUSINESS ORGANIZATIONS

INTRODUCTION
Business organizations can be structured in various ways, both as legal entities and in terms of
internal management processes. In any business whether large or small there are many different
jobs and the business or organization has to find a way of helping individuals within the business
understand their roles and responsibilities. Some businesses have a set of business principles that
demonstrate its commitment to operating ethically and responsibly. These principles help
everyone understand where his or her role contributes to overall performance and enables the
whole workforce to work together to achieve the business' aims and objectives.
Ideally within each area, there are three main levels of staff:
 Managers - organize and plan their departments to exceed the expectation of internal and
external customers. They work closely with other managers across the company to
promote a range of benefits, including; continuous process improvements, improving
accuracy, reducing the need to repeat work and driving up efficiency year on year.
 Supervisors - work with managers to ensure that operators apply procedures and
practices consistently. This involves using best practice to create value-added services
across the business.
 Operators - are responsible for day-to-day operations of the business. This is the level at
which a university graduate might enter the organization in order to learn all aspects of
the business. The role requires accuracy, efficiency and a high level of individual
responsibility.
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.
ORGANIZATIONAL FUNCTIONS AND STRUCTURES
Business's functions are the things it does for example production, sales, marketing, research and
billing. In most cases the business structure are set around the organizational functions and the
two will influence each other.
The term organizational structure refers to how the people in an organization are grouped and to
whom they report. One traditional way of organizing people is by function. Some common
functions within an organization include production, marketing, human. An organizational
structure defines how activities such as task allocation, coordination and supervision are
directed towards the achievement of organizational aims. It can also be considered as the
viewing glass or perspective through which individuals see their organization and its
environment. A functional organizational structure is a structure that consists of activities such as

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coordination, supervision and task allocation. The organizational structure determines how the
organization performs or operates.
FUNCTIONS OF ORGANIZATION STRUCTURES
Businesses function most efficiently when all employees understand their jobs and the proper
procedures. Setting up an organizational structure helps employees understand what their roles
are within the company and who to address when decisions must be made. A strong
organizational structure keeps your business running smoothly with a clear plan for overcoming
obstacles.
Some of the functions of organization structures include:
1. Define Hierarchy and Distribute Authority: The basic function of an organizational
structure is to provide a clear chain of command and define which employees report to which
managers and determining each position's responsibilities and relationships to others.
Authority can be centralized, where managers or supervisors make the majority of decisions,
or decentralized, which includes many positions in the decision-making process.
2. Creating teams and departments: As organizations grow, it becomes necessary to divide
tasks and responsibilities. This process, known as departmentalizing, can be carried out in a
variety of ways. Departments can be created based on function, product, geographic location,
or even by customer. Creating an organizational structure usually helps define teams who
work closely together. These teams can be organized by department type, such as accounting
or marketing, or by geographic region, such as all sales and administrative staff serving the
Southeast. A team can also include all staff working on a specific project or product. The
structure sets the teams, which typically report to the same manager or director. This helps
ensure that all the staff members on the team are working toward the same goal, have well-
defined job duties and can get to know each other to help balance each others' strengths and
weaknesses.
3. Decision Making: Employees understand to take important decisions to their managers, who
might escalate them up the ladder if necessary. A structure helps define who is the correct
decision maker, for each level of employee, although some businesses allow employees more
decision-making abilities than others. The organizational structure helps clearly define which
decisions need management approval and who to go to for those decisions. Also, it shows
who that manager reports to when decision appeals are necessary.
4. Advancement Potential: Employees often are motivated by the opportunity to advance
within the company for more responsibility and higher pay. An organizational structure
provides that advancement opportunity with higher-level positions and a clear understanding
of what those positions are responsible for. A successful structure assigns job duties to
positions instead of people. As the people advance or change positions, the new person filling
the vacancy takes on the same duties as the previous employee. This allows people who

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advance to know what duties will be expected in their new positions and to train the people
who take over their old positions.
5. Determine the Span of Control: How many employees each manager supervises is also part
of an organizational structure. The span of control can vary greatly between organizations,
even between different levels of the same organization. A narrow span of control means
managers only supervise a few employees while those who manage a large number of
employees wield a wide span of control.
6. Organizational Height: An important characteristic of organizational structure is its height,
the amount of layers from bottom to top. Tall organizations have many layers, with each
working like a cog in a complex machine. They tend to have a narrow span of control. Flat
organizations, which usually have a wide span of control, have few layers and are capable of
adapting quickly.
7. Line or Staff Structure: Determining and highlighting line and staff positions is part of an
organizational structure. Line positions are those directly involved in the organization's
primary purpose. In a manufacturing company, for example, line positions participate in the
production of its goods. Staff positions, such as marketing, provide support to the line
positions. While some organizations are comprised exclusively of line positions, most use
both line and staff positions.
TYPES OF ORGANIZATIONAL STRUCTURE
Following are the types of organizational structures that can be observed in the modern business
organizations.
1. Bureaucratic Structures
Bureaucratic structures maintain strict hierarchies when it comes to people management. There
are three types of bureaucratic structures:
a) Pre-bureaucratic structures: This type of organizations lacks the standards. This
structure is most common in smaller organizations and is best used to solve simple tasks.
The structure is totally centralized and there is only one key decision maker and appears
like a hierarchy. The strategic leader makes all key decisions and most communication is
done by one-on-one conversations. It is particularly useful for new (entrepreneurial)
business as it enables the founder to control growth and development. The
communication is done in one-on-one conversations. This type of structures is quite
helpful for small organizations due to the fact that the founder has the full control over all
the decisions and operations.
b) Bureaucratic structures: These structures have a certain degree of standardization.
When the organizations grow complex and large, bureaucratic structures are required for
management. These structures are quite suitable for more complex or larger scale
organizations tall organizations. Precision, speed, unambiguity, strict subordination,
reduction of friction and of material and personal costs are raised to the optimum point in
the strictly bureaucratic administration

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c) Post-bureaucratic Structures: The organizations that follow post-bureaucratic

structures still inherit the strict hierarchies, but open to more modern ideas and
methodologies. They follow techniques such as total quality management (TQM), culture
management, etc.
2. Functional Structure: The organization is divided into segments based on the functions
when managing. This allows the organization to enhance the efficiencies of these functional
groups. Employees within the functional divisions of an organization tend to perform a
specialized set of tasks; As an example, take a software company. Software engineers will
only staff the entire software development department. This way, management of this
functional group becomes easy and effective. Functional structures appear to be successful in
large organization that produces high volumes of products at low costs. The low cost can be
achieved by such companies due to the efficiencies within functional groups. In addition to
such advantages, there can be disadvantage from an organizational perspective if the
communication between the functional groups is not effective. In this case, organization may
find it difficult to achieve some organizational objectives at the end.

3. Divisional Structure: It is also called a "product structure”. These types of organizations

divide the functional areas of the organization to divisions. Each division is equipped with its
own resources in order to function independently. There can be many bases to define
divisions. Divisions can be defined based on the geographical basis, products/services basis,
or any other measurement. As an example, take a company such as General Electrics. It can
have microwave division, turbine division, etc., and these divisions have their own marketing
teams, finance teams, etc. In that sense, each division can be considered as a micro-company
with the main organization.

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4. Matrix Structure: When it comes to matrix structure, the organization places and groups the
employees based on the function and the product. The matrix structure gives the best of the
both worlds of functional and divisional structures. A matrix organization frequently uses
teams of employees to accomplish work, in order to take advantage of strengths and make up
for weaknesses of functional and decentralized forms. In this type of an organization, the
company uses teams to complete tasks. The teams are formed based on the functions they
belong to (ex: software engineers) and product they are involved in (ex: Project A). This
way, there are many teams in this organization such as software engineers of project A,
software engineers of project B, QA engineers of project A, etc.

5. Project Organization Structure: In a project-organizational structure, the teams are put

together based on the number of members needed to produce the product or complete the
project. The number of significantly different kinds of tasks is taken into account when
structuring a project in this manner, assuring that the right members are chosen to participate
in the project.

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