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:
- geographical area
- type of customer
- By function
This is the most common way of grouping employees, particularly in manufacturing companies. A 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, a functional organisation is hierarchical, with some form of line management, e.g. in a factory:
- 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 amalgam divisions by merging them with similar divisions in other companies.
- 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 similarly 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).
- 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, and 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.
- 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 than those requiring a routine X-ray.
In a department store, the restaurant department will operate in a different way and have different procedures than a department selling underwear. The furniture department will need to set out a process of documentation and make arrangements for delivery to customers which contrasts 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 treating 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 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.