Strategy illustration Strategy theory

Internal organisation

The internal organisation of a business is the way in which it is structured to carry out its various activities. A lot of attention needs to be given to structure. The structure needs to be determined by the organisation's objectives and the communications networks that need to be built up both internally and externally. For example, a customer focused organisation may need a structure which is based on meeting the needs of different categories of customers. A manufacturing company, may need a structure based on different production lines.

The main ways of structuring an organisation are by:

1. function

2. product

3. process

4. geographical area

5. type of customer

1. By function

This is the most common way of grouping employees, particularly in manufacturing companies. Functional organisation meant that a company is divided into broad sectors each with its own particular specialism or function, for example, marketing, accounts or human resources. Every company will have its own way of structuring its functions. Traditionally, functional organisation is hierarchical, with some form of line management, e.g. in a factory:

2. By product

When a large organisation produces a range of different products, it might find it convenient to create an organisational structure based on product lines. For example, a firm in the publishing industry might have a newspaper division, a magazine and periodicals division and a book publishing division. Each division will then contain a mixture of all the specialist ingredients required to enable it to work independently. A great advantage of this form of structure is that divisions can concentrate on their own market areas. It also becomes possible to assess the profitability and effectiveness of each sector. At the same time it is still possible to share expertise between divisions and to share combined services such as a combined transport fleet. By identifying the various parts of a business organisation it becomes possible to cut out loss making divisions and to amalgams divisions by merging them with similar divisions in other companies.

3. Grouping by process

Where a product requires a series of processes, departments will be set up to perform each process. To take the example of the publishing company, within each of the divisions departments are responsible for carrying out the various stages for example the editing of copy, page layout and design, buying of print, etc. The illustration below shows the way in which process departments might take the responsibility for each stage:

The advantages of organising on a process basis are that:

  • it is possible to set up teams of similar minded specialists
  • it becomes easy to identify points in the production process at which things go well or badly
  • it is easy to introduce new technology at a given stage of production (i.e. a given process).

4. Grouping by geographical area

Many companies will have branches spread throughout the country and sometimes overseas. Multiple retailing companies are a good example. A company like Marks and Spencer will have shops on most High Streets in the United Kingdom, groups of shops will be organised into a regional division which will have overall supervision of such features as training of staff and distribution policy. The illustration below shows a company with five domestic divisions and two overseas divisions:

There are a number of advantages of organising on a geographical basis:

  • Setting up distinct regional divisions makes it possible to respond quickly to local needs, issues and problems. The organisation thus becomes more sensitive to customers, employees and other groups. At the same time it might be able to cut through a lot of red tape if the regional groups are allowed to make their own decisions.
  • Setting up national and regional divisions makes it possible to tailor the operation of an organisation to local conditions. Differences would include those of language, law and custom. Local knowledge is best gained by hiring local specialists.

5. Grouping by type of customer

Organisations will often set up different structures to deal with different sets of customers. This is because they will often give some groups more time and attention than others. An obvious example would be in a hospital where casualty patients would require a different type of attention to those requiring a routine X-ray.

In a department store the restaurant department will operate in a different way and have different procedures to a department selling underwear. The furniture department will need to set out a process of documentation and make arrangements for delivery to customers which contrast with purchase procedures for toys. In a bank, new customers opening accounts will be dealt with separately from existing customers, etc.

Many businesses will have different procedures for dealing with large and small customers. Separate departments might handle these accounts, using different types of paperwork, offering different rates of discount, and treat customers in different ways.

The advantages of organising in a pattern based on having different sets of customers are:

  • Different types of customers can be dealt with by separate departments.
  • Customers will be more inclined to deal with a business with departments concentrating on their particular needs.
  • It is easier to check on the performance of individual products.

A matrix structure

Many organisations today employ what is known as a matrix structure where individual employees may report to two or more line managers at the same time. This is common when organisations are made up of teams, drawing on individuals from a range of specialisms. BIC is a good example, of an organisation employing a matrix structure - an individual employee may be part of their French (geographical) division, and the razors manufacturing division at the same time.

Distribution: Getting products from the point of production into the hands of the end-user with the help of various transport modes, together with the cooperation of wholesalers and retailers.

Matrix: A personnel structure based on 'teams' across specialist boundaries, with upward reporting reduced to a minimum. Individuals take responsibility for improving their own work and helping fellow team members improve the quality of their work. The role of senior management is to guide and integrate rather than direct.

Supporting Documents

These downloads will help to put strategy theory into context using real world examples from real businesses.

Meeting customers' needs in growth markets - online gaming
BT logo

Find out how BT used strategy theory to succeed in the telecommunications industry by downloading our premium case study.

Using the marketing mix in the fashion industry
Ben Sherman logo

Learn how Ben Sherman used strategy theory to succeed in the fashion industry by downloading our premium case study.

Sponsorship as part of the marketing mix
Ford logo

Discover how Ford used strategy theory to thrive in the automotive industry by downloading our premium case study.

The use of the marketing mix in product launch
NIVEA  logo

Discover how NIVEA employed strategy theory to succeed in the manufacturing industry by downloading our premium case study.

Leading a revolution in banking
Intelligent finance logo

Find out how Intelligent finance applied strategy theory to thrive in the financial services industry by downloading our premium case study.

Newsletter

Subscribe to our newsletter for current business news including lesson plans and activity ideas.

Share this website