Understanding Organization PDF

I. UNDERSTANDING THE CONCEPT OF ORGANISATION never stop daring CHAPTER OUTLINE I. Understanding the concept of organisation A. What is an organisation? B. The multiple forms of organisations II. The “company” : diversity of concepts and situations A. Typology of companies...

I. UNDERSTANDING THE CONCEPT OF ORGANISATION never stop daring CHAPTER OUTLINE I. Understanding the concept of organisation A. What is an organisation? B. The multiple forms of organisations II. The “company” : diversity of concepts and situations A. Typology of companies according to their activity B. Typology of companies according to their size C. Typology of companies according to age D. Typology of companies according to their legal status III. The purposes of a company A. The company as a production unit B. The company as a distribution unit C. The company as a social unit D. The company as a societal actor 6 I. UNDERSTAND THE CONCEPT OF ORGANIZATION A. What is an organization? Organizing means: Design and implement structures and procedures (conditions of interaction). Choosing the actors and distributing the roles Define and allocate resources Set goals and monitor achievements. WHAT, HOW, WHEN, WHO, WHY, WHERE 9 I. UNDERSTAND THE CONCEPT OF ORGANIZATION A. What is an organization? Organisations are an “organized” group of people with a particular purpose, (ex. a business or government department) 1) Entities (ex. associations, companies, institutions,…) 2) that are goal-directed (have a particular purpose) 3) are designed as deliberately structured and coordinated (it is “organised”) activity systems, and 4) are linked to the external environment 12 I. UNDERSTAND THE CONCEPT OF ORGANIZATION A. What is an organization? Organisations are social entities that are goal-directed that are designed as deliberately structured and coordinated activity systems, and that are linked to the external environment 13 I. UNDERSTAND THE CONCEPT OF ORGANIZATION A. What is an organization? INFORMAL FORMAL Spontaneous Deliberate No official structure – based on Official personal relations Rules No formal rules Stable Flexible & dynamic Formal communication Informal communication Influence = legitimacy Influence = charisma, expertise… SOMETIMES A MIX ! 14 I. UNDERSTAND THE CONCEPT OF ORGANIZATION A. What is an organization? The 1st dimension used to describe an organization is its structure. Structural Dimensions : provide labels to describe the internal characteristics of an organization. They create a basis for measuring and comparing organizations. Conditions of interaction. Organizations exist when people interact to perform functions to attain goals. 15  I. UNDERSTAND THE CONCEPT OF ORGANIZATION A. What is an organization? How have organizations evolved and why ? Contextual evolutions Organisational evolutions & changes Technology changes (AI, Big Data,..) Increased focus on well-being & learning Increase globalisation Open collaboration and innovation Cultural évolutions Employee satisfaction  customer satisfaction Focus on SDGs and Sustainability Goals Increased agility Bcorps Less hierarchy (flatter) Organizational size Integration of technology / AI Organizational footprint (multinational, local,..) HR rules and processes Employee invovlement in decision making 17 I. THE CONCEPT OF THE ORGANISATION A. What is an organisation? The 2nd dimension used to describe an organization is its context. We structure the organization as a function of the context. Structure = f(Context) Contextual Dimensions : characterize the whole organization, including its size, technology, environment, and goals. They describe the organizational setting that influences and shapes the structural dimensions. 18 I. UNDERSTAND THE CONCEPT OF ORGANIZATION A. What is an organization? CONTEXT You experienced STRUCTURE this relationship in our 6 challenges game. BEHAVIOURS PERFORMANCE How could changes in technology or culture influence the structure ? If you have operations in many locations, what’s impact on structure? 19 WHAT BENEFITS DO WE GET FROM ORGANIZATIONS? WHY SHOULD ORGANIZATIONS EXIST ? never stop daring 20 I. UNDERSTAND THE CONCEPT OF ORGANIZATION A. What is an organization? In societies, organisations exist to do the following : 1. Bring together resources to achieve desired goals and outcomes 2. Produce goods and services efficiently 3. Facilitate innovation 4. Use modern manufacturing and information technologies 5. Adapt to and influence a changing environment 6. Create value for owners, customers, and employees 7. Accommodate ongoing challenges of diversity, ethics, and the motivation and coordination of employees 21 I. UNDERSTAND THE CONCEPT OF ORGANIZATION A. What is an organization? The Nature of the Firm (1937) If markets are efficient, then contract versus hiring – use external service providers vs hiring people. Don’t do it « in-house ». Coase looked at the « costs » of using the market – of making a « transaction » Transactions costs : a transaction cost is a cost in making any economic trade when participating in a market. Transaction costs are the total costs of making a transaction, including the - search, bargaining, cost of planning, deciding, changing plans, contract dispute, renegotiation, resolving disputes, and after-sales. Ronald COASE This suggests that firms (formally organized entities) will arise when they can How is technology arrange to produce what they need internally, and somehow avoid these costs impacting transactions (transaction cost economies) costs ??? BUT THERE IS A LIMIT – and we get inefficient as we get bigger. 23 CHAPTER OUTLINE I. Understanding the concept of organisation A. What is an organisation? B. The multiple forms of organisations II. The “company” : diversity of concepts and situations A. Typology of companies according to their activity B. Typology of companies according to their size C. Typology of companies according to age D. Typology of companies according to their legal status III. The purposes of a company A. The company as a production unit B. The company as a distribution unit C. The company as a social unit D. The company as a societal actor 24 I. UNDERSTAND THE CONCEPT OF ORGANIZATION B. The multiplicity of forms of organization The type of organization depends on the nature of the objectives pursued. We distinguish organizations with: Commercial (market) purpose and those with non-commercial (non-market) purposes. 25 I. UNDERSTAND THE CONCEPT OF ORGANIZATION B. The multiplicity of forms of organization 1. Organizations with commercial purposes Their goal is to produce marketable goods and services with a view, in almost all cases, to generating a profit : They include: o Private companies o But also public companies (whose capital is majority owned by the State or a public authority  SOE (state owned enterprise). 26 I. UNDERSTAND THE CONCEPT OF ORGANIZATION B. The multiplicity of forms of organization Today, some state-owned enterprises (SOEs) are among the largest and fastest expanding multinational companies. They increasingly compete with private firms for resources, ideas and consumers in both domestic and international markets. Ex. Renault and Air France compete with private companies. Looking at the 2000 largest companies in the world (Forbes Global 2000) research found that more than 10% of the world’s largest firms are state-owned (204 firms)(state own directly or indirectly more than 50% of shares) 27 I. UNDERSTAND THE CONCEPT OF ORGANIZATION B. The multiplicity of forms of organization 29 TOP COMPANIES IN FRANCE At the end of 2017, the State controlled 1,751 French companies, including 89 directly. 2018 (revenue) AXA The 767,400 employees working in these TOTAL BNP PARIBAS companies represent 3.1% of salaried CARREFOUR CREDIT AGRICOLE employment in France. EDF ENGIE PEUGEOT SOCIETE GENERALE RENAULT GROUP BPCE AUCHAN FINATIS (CASINO) CNP CHRISTIAN DIOR ORANGE VINCI SAINT GOBAIN SANOFI BOUYGUES SNCF L’OREAL AIR-FRANCE KLM VEOLIA SCHNEIDER NEXTER; 30 I. UNDERSTAND THE CONCEPT OF ORGANIZATION B. The multiplicity of forms of organization 2. Non-commercial (non-market) organizations These organizations provide services to their members or to the community, by providing their services: Free Or almost free of charge (at a price lower than the cost of production). 31 I. UNDERSTAND THE CONCEPT OF ORGANIZATION B. The multiplicity of forms of organization These include: Central public administrations (Ministries) Local public administrations (Prefectures, local authorities, town halls, regional councils, etc.) Social Security Administrations 32 I. UNDERSTAND THE CONCEPT OF ORGANIZATION B. The multiplicity of forms of organization It also concerns private administrations which includes: charitable, political, trade union, cultural or sporting associations. Their financial resources then come from: Contributions members Public subsidies and the sale of related goods or services. 33 I. UNDERSTAND THE CONCEPT OF ORGANIZATION B. The multiplicity of forms of organization Associations, foundations, mutual societies, social enterprises, fair trade organizations and cooperatives constitute what we call: The social and solidarity economy (SSE). They are private organizations that prioritize social objectives, solidarity, and sustainable development over profit maximization. 34 I. UNDERSTAND THE CONCEPT OF ORGANIZATION B. The multiplicity of forms of organization We must also integrate supranational organizations such as: The Organization of United Nations The International Monetary Fund (IMF) The World Bank The International Labor Office (ILO) The European Commission The World Trade Organization (WTO) 35 I. UNDERSTAND THE CONCEPT OF ORGANIZATION B. The multiplicity of forms of organization NOTE : there may be a mix of commercial & non-commercial activities ! Social enterprises aim to balance profit-making with social or environmental goals. Companies like Patagonia and Ben & Jerry’s integrate their social missions into their business models and operations. Non-profit organizations may run commercial activities to generate revenue for their operational needs. (gift shop in a museum) 36 I. UNDERSTAND THE CONCEPT OF ORGANIZATION B. The multiplicity of forms of organization Commercial Non-Commercial Organizations Organizations Private Apple Inc. Bill & Melinda Gates Foundation Carrefour Amnesty International Organizations Accor Hotels Médecins Sans Frontières Emmaüs Les Restos du Coeur Public EDF Hôpitaux de Paris La Poste Universities Organizations AirFrance-KLM (about 29%) National Library Engie (about 24%) Public Museums France Télévisions 38 GO BEYOND PROFIT Privately Owned Enterprises (POE) outperform SOEs if we look at profit POE profit > SOE profit SOE have problems - corruption, innefficiency… but is profit the only goal? Social outcomes Physical infrastructure Stability in times of crisis 41 I. UNDERSTAND THE CONCEPT OF ORGANIZATION Example of Eastern, Central and Southeastern Europe Governments mandate SOEs to pursue a diverse set of policy goals. 1 Correct market failures. One 2 example of market failure is a natural monopoly, (high fixed setup costs, decreasing average cost) Another example is when it is not possible to charge individuals for use of the good (for example, street lighting. IMF Fiscal Monitor April 2020: https://www.elibrary.imf.org/view/books/089/28929-9781513537511-en/ch03.xml 42 PUBLIC GOODS never stop daring PUBLIC GOODS When it can make sense A public good has two key characteristics that make it difficult for market producers to sell the good to individual consumers. Non-excludable means that it is costly or impossible for one user to exclude others from using a good. (I can’t stop you from using the good) Non-rivalrous means that when one person uses a good, it does not prevent others from using it (My consumption does not impact your consumption) Good/service Can I Exclude others from benefitting? Does my consumption decrease benefits for others? National Defense NO NO (public) It is impossible to exclude anyone from being protected by One person's protection does not diminish the protection the country's military. available to others. Pizza YES YES (private) A person can be prevented from eating food if they do not Once the food is consumed by one person, it is no longer pay for it. available for others to eat. Groundwater NO YES (common-pool resource) It is challenging to restrict access to underground water Water drawn by one user reduces the amount available for sources. others, leading to potential scarcity. Cable Television YES NO (Club goods) Only subscribers who pay for cable service can access the One person watching a particular channel does not prevent channels. others from watching the same channel simultaneously. 44 POSITIVE EXTERNALITIES OFTEN EXIST FOR PUBLIC GOODS What can we do ? When you « consume » education …who benefits? When you plant flowers in your garden … who benefits? When you stop smoking … who benefits ? EVERYONE BENEFITS BUT the individual consumer only looks at their benefit when deciding to consume more/less. Why would societies potentially underconsume these goods if bought and sold in the market ? 45 NATURAL MONOPOLY never stop daring SUMMARY Provide public goods (non excludable, non rivalrous) Increase consumption to increase benefit (education, positive externalities) Overcome market failures Natural monopolies Offer more than just profit (social impact) 48 PERFORMANCE Impact on GDP/Debt,etc. 50 NEED GOOD GOVERNANCE 51 RULE MAKER AND PLAYER AT SAME TIME 52 PUBLIC UNDERTAKINGS – CONFLICT OF INTERESTS State-owned enterprises in the global economy: Reason for concern? Favourable treatment (conflict of interest) REGULATOR direct subsidies RULE ENFORCER state-backed guarantees preferential regulatory treatment OWNER of ASSETS exemptions from antitrust or bankruptcy rules. OK Nationally ??….OK Internationally? If their effects extend beyond borders, they may undermine the benefits from international trade and investment, which are predicated on the basis of non- discrimination and respect for market principles. 53 SUMMARY Inefficiencies & Waste Unfair advantages / preferential treatment Impact on competition 54 I. UNDERSTAND THE CONCEPT OF ORGANIZATION C. A business as an organization IS A BUSINESS FIRM AN ORGANIZATION ? Reminder of the Definition: Organisations are social entities that are goal-directed that are designed as deliberately structured and coordinated activity systems, and that are linked to the external environment 55 I. UNDERSTAND THE CONCEPT OF ORGANIZATION C. A business as an organization Every business is an organization because it brings together people whose actions must be coordinated to achieve goals. The unique character of a business comes from the commercial nature of its activities: an enterprise is defined by its primary economic objective : to make profit. 57 I. UNDERSTAND THE CONCEPT OF ORGANIZATION C. A business as an organization The business or firm : o Is an economic agent that combines raw materials, equipment, financial means and human resources in order to produce goods and / or services o These products are intended to be sold in a market such that the selling price is higher than the costs incurred. What principal markets are companies involved in ? 58 I. UNDERSTAND THE CONCEPT OF ORGANIZATION C. A business as an organization Employment Payments Investment Goods and Services Exports Trade Balance Impact Product Markets Exchange rate impact Technology change and innovation Entrepreneurs Social Change Resource Markets Community Development Productive Resources Impact on GDP Push Economic Growth Factor Payments/Income The Circular Flow 59 I. UNDERSTAND THE CONCEPT OF ORGANIZATION C. A business as an organization The enterprise or firm is driven by a profit motive (maximization principle) which leads to o The activity of the enterprise involves a number of operations ranging from the search for financing to the marketing of its production. At each stage there are optimization problems that require making choices and implementing them. Example – profit maximization requires what? Quantity choices? Labor choices? Etc. o The company is an autonomous decision-making center. Choices are made based on the environment in which it operates and the partners with which it interacts. These choices also depend on the purposes of the business (economic, social and societal). Profit maximization + Purpose  Optimization and critical choices 60 II. A “BUSINESS” : DIVERSITY OF CONCEPTS AND SITUATIONS never stop daring II. A “BUSINESS” : DIVERSITY OF CONCEPTS AND SITUATIONS Behind the word “business”, there are very different realities which lead us to segment businesses according to criteria: The activity The size The age The legal form The scope of operations (local, regional, national, international)… 62 II. A “BUSINESS” : DIVERSITY OF CONCEPTS AND SITUATIONS A. Typology of businesses according to activity Businesses activities can be classified in three ways: 1) By their sector of activity: determined by the main activity of the business (the greatest contribution to revenue). According to Colin Clark, we distinguish: The primary sector (agriculture, fishing) The secondary sector (industry) The tertiary sector (commerce, services) And we can add more precision… The quaternary sector (knowledge services) 63 II. A “BUSINESS” : DIVERSITY OF CONCEPTS AND SITUATIONS A. Typology of businesses according to activity 2) By the industry of activity: which brings together homogeneous production units. A business that participates in the production of several products belongs to several industries (branches in French). Example: A dairy company that produces yogurt, milk and cream has 3 separate production units, each belonging to a different branch of activity. In France, there are around 700 different branches of activity according to the INSEE nomenclature. 66 II. A “BUSINESS” : DIVERSITY OF CONCEPTS AND SITUATIONS A. Typology of business according to activity 3) By their position in the vertical industry structure (filière in French) : which brings together businesses in a situation of economic interdependence through customer/supplier relationships (complementary activities which contribute, from “upstream to downstream”, in the production of a finished product). Ex: Textile, wood, agri-food, electronics, automotive sectors (from steel to vehicles and equipment). 67 II. A “BUSINESS” : DIVERSITY OF CONCEPTS AND SITUATIONS A. Typology of business according to activity Why is NACE important? The NACE framework provides a reliable data structure for collecting and presenting a large range of economic statistical data. Allow companies to target sales efforts to specific industries, sub-industries, industry branches, that they might not be familiar with yet. Subsidy assessment – qualifications for assistance by NACE, etc. Gather macro level statistics about your industry or market. 70 II. A “BUSINESS” : DIVERSITY OF CONCEPTS AND SITUATIONS B. Typology of businesses according to their size The size criterion is often favored for statistics and in labor law to define certain obligations. Two criteria are used to measure size: The size of the workforce Turnover or revenue (sales price × quantity sold) 71 II. A “BUSINESS” : DIVERSITY OF CONCEPTS AND SITUATIONS B. Typology of businesses according to their size Between a sole proprietorship without employees and a multinational managing several thousand employees of different cultures, the only common point is the objective of profit. Size is an essential factor in the diversity of companies since it will influence: Specialization and division of labor (enough people to specialize?) The extent of the customer and partner network Access to financial and technological resources (easier access if big?) Reassure investors – risk taking? Access to certain types of assistance (ex. SME assistance) Research and development policy (resources but also Mgmt - Big/Small ?) Under scrutiny (safeguard image) Or access to foreign markets. Scale economies (bigger = lower costs) The size criterion is often favored for statistics and in labor law to define certain obligations. Several criteria are used to measure size: workforce and turnover... 72 II. A “BUSINESS” : DIVERSITY OF CONCEPTS AND SITUATIONS B. Typology of businesses according to their size In Europe The definition of an SME is important for access to finance and EU support programmes targeted specifically at these enterprises. 73 II. A “BUSINESS” : DIVERSITY OF CONCEPTS AND SITUATIONS B. Typology of businesses according to their size Turnover is a good indicator of the growth and importance of a company. It allows you to estimate the weight of a business on a market compared to its competitors. Some businesses generate more money than the States themselves. Ex: Ranking of French businesses according to turnover in 2022. https://www.pappers.fr/classements/entreprises-chiffre-affaires 74 II. A “BUSINESS” : DIVERSITY OF CONCEPTS AND SITUATIONS B. Typology of businesses according to their size A short exercise to think about. Do you think each of these companies is adding the same value to the economy? How is each impacting the economy? Company A : Dan’s Dropshipping Company B : Caroline’s Clothing Dan sells products directly to consumers without holding Caroline manufactures, and sells its own line of products (e.g., any inventory. When a customer places an order, the apparel for men and women) product is shipped directly from the supplier to the customer. Dan has marketing costs and IT systems. Revenue : 10€ million Revenue : 10€ million Costs : 8€ million to pay suppliers Costs : 4€ million raw materials 1€ million in marketing 2€ million labor / production 0,5€ million operations (IT) 1€ million operations Revenue – Cost Of Goods Sold (COGS) = 10 – 8 = 2 Revenue – Cost Of Goods Sold (COGS) = 10 – 4 = 6 75 II. A “BUSINESS” : DIVERSITY OF CONCEPTS AND SITUATIONS B. Typology of businesses according to their size Economists prefer to replace turnover with the criterion of value added (or added value). = Annual Revenue – Intermediate consumption (COGS) or Cost of Goods Sold Example: certain activities such as trading or distribution are characterized by a very high turnover and a relatively low VA. The Value Added more correctly reflects the real activity of companies. Reminder: The sum of value added = GDP of the country 76 II. A “BUSINESS” : DIVERSITY OF CONCEPTS AND SITUATIONS B. Typology of businesses according to their size 77 II. A “BUSINESS” : DIVERSITY OF CONCEPTS AND SITUATIONS B. Typology of businesses according to their size Other criteria Market capitalization, defined as the value of To classify and compare companies we also use: all outstanding shares of a corporation. Earnings. It makes it possible to compare the Large-cap corporations US$10 billion + profitability of companies (it is still necessary to tend to grow more slowly than mid-cap know what type of result to take into account companies. (current, operating, exceptional, before or after Mid-cap companies $2 and $10 billion, tax, etc.). This indicator only makes sense when Small-cap corporations $300 million and $2 compared to another indicator such as turnover, billion. market capitalization. S&P 600, on the other hand, covers the small- Surface area: relevant variable for comparing cap range of US stocks. commercial companies. S&P 500 index is a gauge of 500 large companies in the USA. The importance of equity (fonds propres) or market capitalization: to assess the autonomy and Russell 2000 (small cap) financial potential of companies. Russell 3000 (large cap) 78 II. A “BUSINESS” : DIVERSITY OF CONCEPTS AND SITUATIONS B. Typology of businesses according to their size Enterprise statistics by size class and NACE Rev.2 activity (FRANCE, 2021) Eurostat (sbs_sc_ovw) (aggregate NACE) SIZE Total 0 to 9 persons 10 to 19 persons 20 to 49 persons 50 to 249 persons 250+ persons Enterprises - number Persons employed - number EXERCISE IN TEAMS – CONNECT AND FILL IN THE TABLE Value added - million euro 79 II. A “BUSINESS” : DIVERSITY OF CONCEPTS AND SITUATIONS C. Typology of businesses according to their age Oldest company in the world was founded in 578 (Kongo Gumi in Japan) Oldest company in Europe was founded in 803 (St Peter Stifts Kulinarium – Austria) 80 II. A “BUSINESS” : DIVERSITY OF CONCEPTS AND SITUATIONS C. Typology of businesses according to their age the average lifespan of companies today is 15 to 20 years. The falling average lifespan of companies is a reflection of a rapidly changing business environment characterized by technological innovation, intense competition, evolving consumer preferences, and economic pressures. Many of the longest-lasting of these companies share an ability to effectively anticipate, prepare, respond and adapt to change whether through product evolution, diversification or acquisition. 81 II. A “BUSINESS” : DIVERSITY OF CONCEPTS AND SITUATIONS Many of the longest-lasting of these companies share an ability to effectively anticipate, prepare, respond and adapt to change whether through product evolution, diversification or acquisition. As seen earlier, structure must adapt to the context. 82 II. A “BUSINESS” : DIVERSITY OF CONCEPTS AND SITUATIONS C. Typology of businesses according to age Number of business creations in France (Thousands) The global financial crisis of 2008-2009 led to economic challenges, including increased unemployment. The auto-entrepreneur status, created in 2009 in France, provided an opportunity for individuals who were affected by the crisis to create their own jobs by starting small businesses, either as a primary source of income or as a supplementary one. Minimal paperwork No upfront capital required Simplified tax reporting 85 II. A “BUSINESS” : DIVERSITY OF CONCEPTS AND SITUATIONS C. Typology of businesses according to age The year 2022 marked a new record for business creation in France (21,400 more than in 2021). 86 SCHUMPETER Capitalism... is by nature a form or method of economic change and not only never is but never can be stationary. The process of Creative Destruction is the essential fact about capitalism. It is what capitalism consists in and what every capitalist concern has got to live in. [... Capitalism requires] the perennial gale of Creative Destruction. In Schumpeter's vision of capitalism, innovative entry by entrepreneurs was the disruptive force that sustained economic growth, even as it destroyed the value of established companies and laborers that enjoyed some degree of monopoly power derived from previous technological, organizational, regulatory, and economic paradigms. 91 II. THE “BUSINESS” : DIVERSITY OF CONCEPTS AND SITUATIONS C. Typology of businesses according to age Business failures can be explained by various reasons: Insufficient capital brought at the start. The choice of sector of activity ( household services, construction and industry companies have a greater chance of survival than hotels, cafés and restaurants). The creator's profile : Former business leaders, craftsmen or traders, are better placed, because of their experience, to succeed than employees. Long professional experience of the creator is also an asset. Consequently, the age of the creator has an impact on the chances of survival : if he is over 50 years old, he has a 2 in 3 chance of making it past his 3rd birthday; if he is under 25 he only has a 1 in 2 chance. Unemployed creators are particularly vulnerable. 92 II. THE “BUSINESS” : DIVERSITY OF CONCEPTS AND SITUATIONS C. Typology of businesses according to age Special case of business: Start-ups Definition : “ New, innovative company, with strong growth potential and speculation on its future value” (Bpi France). In 2021 , INSEE estimates the number of Start-ups in France at 1 million which employ 1.5 million employees. 93 II. THE “BUSINESS” : DIVERSITY OF CONCEPTS AND SITUATIONS C. Typology of businesses according to age One in 2 start-ups has its headquarters in Ile de France. Only 11.7% of startup founders in the French Tech class of 2022 are female founders. The failure rate of start-ups is, according to sources, between 60 and 90%! 94 II. THE “BUSINESS” : DIVERSITY OF CONCEPTS AND SITUATIONS C. Typology of businesses according to age Like any newly created business, Start-ups have difficulty financing themselves. Banks and investors are reluctant when there are no figures covering several years to study. However, the rapid growth of start-ups generates a significant need for financing. French Tech startups raised €13.5 billion in 2022 (+17% compared to 2021). The year 2023 promises to be more difficult. 95 II. THE “BUSINESS” : DIVERSITY OF CONCEPTS AND SITUATIONS C. Typology of businesses according to age Possible sources of funding initially: o Contributions from founders and loved ones: Love Money (money from the heart: brought for emotional or family reasons). o Participatory financing (crowdfunding and lendfunding) : contributions of equity or loans via platforms reaching a wide audience. o Angel investors : individuals who take stakes in young companies in order to support their growth and recover their capital increased by added value after a few years... or not. 96 II. THE “BUSINESS” : DIVERSITY OF CONCEPTS AND SITUATIONS C. Typology of businesses according to age o Venture capital funds : investment funds (capital entrusted by investors) specialized in investing in newly created companies with strong growth potential. o Tax measures (Research tax credit…) 100 II. THE “BUSINESS” : DIVERSITY OF CONCEPTS AND SITUATIONS C. Typology of businesses according to age Sources of financing in a more advanced phase: o Self-financing o Subsidies, public financing (BPI) o Bank loans (access sometimes difficult because guarantees must be provided) o Opening of capital (investment funds, other companies or even individual shareholders) but this poses a problem of dilution of the founders' control. o Initial Public Offering (IPO: Initial Public Offering) 101 II. THE “BUSINESS” : DIVERSITY OF CONCEPTS AND SITUATIONS D. Typology of businesses according to their legal status In French law, the first element of legal distinction between companies concerns the nature of the ownership of the companies : private or public. Public companies are most often SAs: held by a public shareholder (State or local authority) of the majority of the share capital. The second level of distinction concerns the divide: individual enterprise (including micro-entrepreneur) and company. See the law course. 102 II. THE “BUSINESS” : DIVERSITY OF CONCEPTS AND SITUATIONS D. Typology of businesses according to their legal status There are other specific forms of business: SCOPs: Cooperative and Participatory Companies Employees have associate status and are necessarily majority shareholders of the company (they own at least 51% of the share capital and 65% of the voting rights on the board of directors). Each associated employee has one vote , regardless of their status, seniority and the amount of capital invested. Power is exercised democratically. In a SCOP, there is a manager as in any company but he is elected by the associated employees. 105 II. THE “BUSINESS” : DIVERSITY OF CONCEPTS AND SITUATIONS D. Typology of businesses according to their legal status SCIC: Cooperative societies of collective interest They bring together natural or legal persons around a common project combining economic efficiency, local development and social utility. Employees decide alongside other partners: customers, suppliers, volunteers, local authorities, associations, private partners, etc. Each partner has equal voting rights, regardless of the capital held. The partners decide together on strategic orientations, investments and the distribution of results. Each year, at least 57.5% of profits (up to 100% in practice) are put into so-called “unshareable” reserves to consolidate the company's equity. 107 II. THE “BUSINESS” : DIVERSITY OF CONCEPTS AND SITUATIONS D. Typology of businesses according to their legal status The beginnings : The Park Slope Food Coop: participatory supermarket launched by hippies in the early 1970s in Brooklyn. https://www.youtube.com/watch?v=RwRG6stOIOI 108 II. THE “BUSINESS” : DIVERSITY OF CONCEPTS AND SITUATIONS D. Typology of businesses according to their legal status This model was transposed to France in 2016 with the creation of La Louve (Paris), SuperQuinquin (Lille), La Cagette (Montpellier), Scopéli (Rezé), Super Cafoutch (Marseille). 109 II. THE “BUSINESS” : DIVERSITY OF CONCEPTS AND SITUATIONS D. Typology of businesses according to their legal status Other examples: Car sharing, catering, coworking space, workshops, shared gardens, etc. 110 II. THE “BUSINESS” : DIVERSITY OF CONCEPTS AND SITUATIONS D. Typology of businesses according to their legal status In 2022, cooperative companies will generate a turnover of €8.4 billion (+11% compared to 2021). 111 III. THE PURPOSES OF A BUSINESS never stop daring I. DEFINITION AND ELEMENTS OF BUSINESS STRUCTURE never stop daring CHAPTER OUTLINE I. Definition and elements of business structure A. Definition B. The fundamental elements that define the structure C. Factors that influence the choice of a structure II. The main structures A. The simple or entrepreneurial structure B. The functional structure (Taylor, 1881) C. The divisional structure D. The matrix structure (Galbraith, 1970) E. The project structure F. The extended enterprise G. And tomorrow the liberated company? 5 I. DEFINITION AND ELEMENTS OF STRUCTURE A. Definition Structure can be defined as: The set of mechanisms by which a company Distributes (who does what) Organizes (how we work together) Coordinates & (performance) Controls (results) its activities in order to achieve its strategic objectives. An organizational chart is used to understand some of the formal elements. 6 I. DEFINITION AND ELEMENTS OF STRUCTURE A. Definition The organization chart: schematically represents the distribution of activities and the relationships that exist between the actors. Vertical reading of the organization chart allows you to understand hierarchical links in the company. Horizontal reading highlights functional links between employees. 10 I. DEFINITION AND ELEMENTS OF STRUCTURE A. Definition Example : The human resources director has functional relationships with other departments (administrative personnel management) and a hierarchical position in relation to the members of the HR department. 11 I. DEFINITION AND ELEMENTS OF STRUCTURE A. Definition The shape of the organization chart allows you to better understand the company: A vertical organizational chart (pyramid with a large number of levels) reveals a very hierarchical structure. A flat organizational chart (few intermediate levels) reveals a flexible structure. Boundaries : the organization chart describes the organization but does not reflect informal relationships and all real power relationships. 12 I. DEFINITION AND ELEMENTS OF STRUCTURE B. The fundamental elements that define the structure The design of a business structure imposes choices in terms of: Work division Distribution of authority Degree of centralization Coordination 13 I. DEFINITION AND ELEMENTS OF STRUCTURE B. The fundamental elements that define the structure 1. Division of tasks (or specialization) This is the distribution of activities between different entities of the company. Each actor is assigned one or more tasks in the company. 14 I. DEFINITION AND ELEMENTS OF STRUCTURE B. The fundamental elements that define the structure There are 2 types of specialization: Horizontal specialization reveals the width of the position: the number of tasks it contains. Vertical specialization reveals the depth of the position: the degree of control that the incumbent exercises over his work (execution, control, etc.). 15 I. DEFINITION AND ELEMENTS OF STRUCTURE B. The fundamental elements that define the structure Specialization Enlargement Horizontal Ex. Specialization in assembly Ex. Doctor that also manages (Doing the task) Ex. Specialization by function (HR, her office and does the Marketing,..) accounting. Ex. A sports team Division of Labor (Smith) Focus and get good at one task Vertical Only perform the task Perform task (Administering (ex. take notes in class) Fix objectives the task – define how Expert focuses on act of doing (not Control process work should be done) managing, controling, etc.) Define standards (ex. learn through projects) 16 I. DEFINITION AND ELEMENTS OF STRUCTURE B. The fundamental elements that define the structure No Vertical Specialization Vertical Specialization No Horizontal Specialization Horizontal Specialization A General Practictioner A Restaurant Manage Manage Administrate Administrate Supplies Heal Accounting Cleaning Reception Cook Mgmt patients 17 I. DEFINITION AND ELEMENTS OF STRUCTURE B. The fundamental elements that define the structure It improves work productivity It limits flexibility and opposes versatility (repetitive tasks). Staff. It facilitates staff training. Monotony of tasks who can create a It simplifies the identification of disinterest for work, a lack of involvement responsibilities. and demotivation. It can increase job security for It compartmentalizes functions – silos employees (hard to replace) emerge May decrease employability of employee (few job opportunities, less flexible) 18 I. DEFINITION AND ELEMENTS OF STRUCTURE B. The fundamental elements that define the structure 2. The distribution of authority It determines the attribution of rights attached to a hierarchical position and how responsibilities are shared. The line of authority or reporting chain helps employees answer the following questions: Who should I contact if I encounter a problem? Who do I report to? 19 I. DEFINITION AND ELEMENTS OF STRUCTURE B. The fundamental elements that define the structure Authority is linked to the place occupied in the organization and takes no account of the personal characteristics of the manager. Example: “the king is dead, long live the king”: anyone who is a king exercises the rights specific to this title. Authority belongs to the position and therefore to its new occupant. The granting of rights also requires assuming one's obligations and responsibilities: the holder of authority must be held responsible for the results obtained. 20 I. DEFINITION AND ELEMENTS OF STRUCTURE B. The fundamental elements that define the structure Authority can take two forms: Hierarchical authority: which allows a superior to direct the work of an employee. Functional Authority: authority assigned to certain positions and intended to relieve, assist and advise holders of hierarchical authority. 21 I. DEFINITION AND ELEMENTS OF STRUCTURE B. The fundamental elements that define the structure 3. Centralization or decentralization? Centralization means that the Decision-making power is concentrated at the top level of the hierarchy. In this type of structure, the hierarchical line is small (or even non- existent). In a highly centralized structure, top management makes most of the key decisions in the organization, with very little input from lower-level employees (ex. Young startups) 22 I. DEFINITION AND ELEMENTS OF STRUCTURE B. The fundamental elements that define the structure Clear chain of command (no Employees do not participate in the confusion about who should make decision-making process (decrease in the decision). performance and demotivation). Speed of decision-making. Rigidity of work and control from superiors. Quick implementation. Less worker loyalty. 23 I. DEFINITION AND ELEMENTS OF STRUCTURE B. The fundamental elements that define the structure When a company grows, it is often necessary to decentralize decisions: delegate decision-making power to lower levels to gain responsiveness. There are 2 types of decentralization: Vertical : Power is distributed along the hierarchical structure. Decisions are made at lower levels. Horizontal : Power is attributed to functions. Decisions are made be experts. 24 I. DEFINITION AND ELEMENTS OF STRUCTURE B. The fundamental elements that define the structure Decisions taken as close as Increase in the number of strata which possible to the action complicates management (costs + poor circulation of information, etc.) Faster adaptation to market developments The transfer of responsibilities can create Optimal exploitation of friction between employees stakeholders’ skills (demotivation for some)... Motivation of actors 25 I. DEFINITION AND ELEMENTS OF STRUCTURE B. The fundamental elements that define the structure 4. Coordination mechanisms The division of labor between company stakeholders requires the establishment of coordination mechanisms in order to establish coherence in all actions. Henry Mintzberg, distinguishes 5 coordination mechanisms : 26 I. DEFINITION AND ELEMENTS OF STRUCTURE B. The fundamental elements that define the structure Mutual adjustment: it consists of communicating directly between employees without having to resort to a hierarchy. Coordination is based on informal communication (very common in VSEs, SMEs, or in companies that operate in project mode). 27  I. DEFINITION AND ELEMENTS OF STRUCTURE B. The fundamental elements that define the structure large /small Easy and simple in _________________ oranizations where people have similar / different mental models. « Integrators » may be required in __________________ MUTUAL ADJUSTMENT large /small __________________ organizations to share information across functions or routine /non-routine activities. Mutual adjustment is good for ______________________ tasks time consuming / quick This often where discussion is helpful. It is often ____________________. needs / does not need people that can easily adjust and adapt to others. _____________________ increase/decrease engagement. Participant participation in process can ________________ 28 I. DEFINITION AND ELEMENTS OF STRUCTURE B. The fundamental elements that define the structure Mutual Adjustment Advantages Disadvantages Simple May be difficult in large firms and requires Easy in small firms « integrators » to coorindate across activities Increases flexibility or « boundary spanners » that share Good for non-routine tasks information across activities/functions Good for simple AND complex tasks Time consuming Works well when people can easily adapt to Heterogeneity of solutions across others organization Can result in engagement of participants Requires strong ability to adapt It's especially useful when nobody really All stakeholder needs may not be knows ahead of time how to do what they're considered doing. Not effective if mental models are very different 29 I. DEFINITION AND ELEMENTS OF STRUCTURE B. The fundamental elements that define the structure Direct supervision: coordination is done by a person who gives instructions and who controls the achievements (common in medium-sized, highly hierarchical companies). 30  I. DEFINITION AND ELEMENTS OF STRUCTURE B. The fundamental elements that define the structure important/not important We see this emerge as organizations Role clarity is _______________________. less / more complex and agreement on ways forward becomes become ____________ DIRECT SUPERVISION easy / hard Even when the line of command or authority is clear, managers ___________. few / many people which may result in ___________ often supervise ____________ few / many layers of management. The organization’s reaction time to customer needs will be slow / fast This is seen when _____________ _________. weak / strong heirarchies exist and people are comfortable / not comfortable ___________________________ giving or receiving orders. This can result in increased /decreased learning by individual contributors. ____________________  I. DEFINITION AND ELEMENTS OF STRUCTURE B. The fundamental elements that define the structure Direct Supervision Advantages Disadvantages Role clarity is required – who does what is clear There are limits on how many people you can As complexity of organization evolves and manage – so levels of managers are required agreement on how to advance becomes tough, A slow process that decreases reaction time direct supervision will be required Not everyone is comfortable either telling For Henri Fayol (early 20th century) this was the people what to do or receiving “orders” best mechanism of control – formal chain of Potential for decreased learning through error command Good when authority is clear Effective where strong hierarchies (ex. Medium sized companies) exist Reward and coercive power can also be used One decider = one way of doing things 32 I. DEFINITION AND ELEMENTS OF STRUCTURE B. The fundamental elements that define the structure Standardization of processes and work: consists of defining the tasks to be carried out, the order in which to carry them out and how to carry them out (widely used in large companies where it is necessary to rationalize the work). 33  I. DEFINITION AND ELEMENTS OF STRUCTURE B. The fundamental elements that define the structure are / are not easy to describe, standardization of work can be When tasks ____________ TANDARDISATION OF PROCESS AND WORK lower /higher levels of stress. This is good for used, resulting in ______________ experienced / new employees. It can ________________ _________________ increase/decrease risk of errors. increase/decrease costs vs direct supervision. Standardization of work may __________________ fewer/more errors, there Although the specific task may be completed with ____________ less/more may be __________concern of how well later process tasks by others are little / sufficient room for completed. Standardization of work leaves _______________ increase/decrease its effectiveness in some deviations, something that may ________________ situations (for example in solutions selling – which is very ambiguous).  I. DEFINITION AND ELEMENTS OF STRUCTURE B. The fundamental elements that define the structure Standardization of Processes and Work Advantages Disadvantages When activities are too complex or numerous Not good in ambiguous situations (solution for direct supervision but understood selling) Good for simple and routine tasks that can be Not possible for some complex tasks that can’t described easily be described (where tacit knowledge is Decreases stress of worker used) Easy follow and eventually use for new No room for maneuvering/adjusting to the employees (ex. Like IKEA instructions) situation – people will avoid deviating when Decreases risks of poor execution they “should” No direct supervision required (saves costs) Requires that task can be explicitly defined No need to communicate with others to know Decreased interest in quality impact of next what to do steps 37 I. DEFINITION AND ELEMENTS OF STRUCTURE B. The fundamental elements that define the structure Standardization of results: consists of defining a performance and achievement objective (widely used in international companies). 38  I. DEFINITION AND ELEMENTS OF STRUCTURE B. The fundamental elements that define the structure increase/decrease Standardization of results can __________________autonomy of workers and TANDARDISATION OF RESULTS increase/decrease self intititive. Outcomes or results __________________ ________________ must be /may not be does / does not require that people measureable to be effective. Obvioulsy this _____________ do / do not __________want low/high to take responsibility and that expertise is __________. However, because the focus is on the results, people may do things that decrease / increase personal results at the expense of overall organizational __________________ may / may not performance. Also, empoyees ______________be motivated to go beyond fixed « hard » outcome targets.  I. DEFINITION AND ELEMENTS OF STRUCTURE B. The fundamental elements that define the structure Standardization of Results Advantages Disadvantages Opens up initiative and autonomy Not applicable to all – people have to be ready Measurable (makes management easier) to define how work is done (responsibility) Good for making connections/interface with Assumes some degree of expertise (people need next steps of a process (when you have to know how to execute tasks and reach the synchronized interdependence – the output of goal) one task is the input for the next) Risk of « doing whatever it takes » to achieve the goal – risk of creating problems for others (ex. achieve sales objectives by lying about product – results in decreased loyalty in long term) Once goal is achieved, maybe no interest to ‘do more 40 I. DEFINITION AND ELEMENTS OF STRUCTURE B. The fundamental elements that define the structure Standardization of skills specifying the training required for tasks (widely used in companies where the knowledge is specific: medical field, law firms, etc.). 41  I. DEFINITION AND ELEMENTS OF STRUCTURE B. The fundamental elements that define the structure skill / output Standardization of skills requires _____________validation and that TANDARDISATION OF SKILLS ___________________ employees / employers maintain certification as skills evolve – something often easy /tough ______________to implement for employees and organizations. It is OK / dangerous __________________ to consider that skills are certified « for life ». Having a certificate ______________guarantee does / does not effective application or skill execution. It easy / hard is realtively ________________to deploy across large organizations. Employees must / do not need to _______________________ have the desire and the ability to self manage the activity.  I. DEFINITION AND ELEMENTS OF STRUCTURE B. The fundamental elements that define the structure Standardization of skills Advantages Disadvantages Assumes coherent and standard skill certification Certificaton processes may not update as quickly or validation as needs progress Employees have to maintain certification – so Many certifications are « lifelong » – and skills are always updated competence can be lost over time (does a Transparency of requried skills certificate obtained 20 years ago say anything Easy to deploy across a large organization about the skill level today) – may need to validate skill level again. Does not garantee effective use of skill set (execution) (knowing what to do doesn’t mean it is actually done) Assumed desire and capability of worker to self- manage the activity 43 I. DEFINITION AND ELEMENTS OF STRUCTURE C. Factors that influence the choice of a structure There is no single, ideal structure. Many factors can influence the way a company is organized: these are called contingency factors. Example : 1) Age : a young company often has a simple structure with few hierarchical levels. The older a company is, the more formalized and complex the structure will be. 44 I. DEFINITION AND ELEMENTS OF STRUCTURE C. Factors that influence the choice of a structure 2) Size : the larger the company , the more specialized the tasks, the more differentiated the units, the more elaborate the structure. 45 I. DEFINITION AND ELEMENTS OF STRUCTURE C. Factors that influence the choice of a structure 3) The technical system : The standardization of production pushes the adoption of mechanistic structures, centralized and rigid. The need for innovation pushes the adoption of organic structures, decentralized and flexible. 46 I. DEFINITION AND ELEMENTS OF STRUCTURE C. Factors that influence the choice of a structure Mechanistic - Most common structure - Typically used in a manufacturing environment - Bureaucratic - Little interaction vertically - Status is linked to position and title - Specialized employees tend to work separately on their own narrowly defined tasks defined by their superior - Employees use formalized procedures and processes - Written communication dominates 47 I. DEFINITION AND ELEMENTS OF STRUCTURE C. Factors that influence the choice of a structure Organic - Significant interaction is needed across functions to perform effectively - Decision making is often shared - Teams, groups are used and responsiblities are shared - Vertical and horizontal communications are prevalent - Easily adapt to changing context - Status is linked to skills and aptitude 48 I. DEFINITION AND ELEMENTS OF STRUCTURE C. Factors that influence the choice of a structure Mechanistic Organic Coordination Procedures, Direct Results, skills Span of Control Narrow Wide Specialization High Low Distribution of Authority Strong Line Mix (Dotted line) Degree of Centralization High Low Height (chain of command) Tall (long) Short (short) 49 I. DEFINITION AND ELEMENTS OF STRUCTURE C. Factors that influence the choice of a structure Mechanistic Organic Business environment Stable, Certain Uncertain Input required to take effective decisions One or few people Many people Relations of functional activities independent dependent Required speed of adaptation slow fast Competition Low rivalry High rivalry Changing needs of stakeholders Low (low variance) High 50 I. DEFINITION AND ELEMENTS OF STRUCTURE C. Factors that influence the choice of a structure 4) The environment : the structure must adapt to external and internal influences (globalization, digitalization, demand for quality and faster delivery, mentalities, social relationships). In an unpredictable environment, a flexible structure must be favored. 51 I. DEFINITION AND ELEMENTS OF STRUCTURE C. Factors that influence the choice of a structure 5) Strategy : the relationships between strategy and structure are reciprocal. When a company changes strategy, the structure of the company is often modified (e.g. if the company decides to outsource one of its functions the structure evolves). Structure can also influence strategy (e.g. an organic structure favors the diversification strategy. Conversely, a mechanistic structure which implies stability and efficiency is better suited to a cost domination strategy). 52 II. THE MAIN STRUCTURES never stop daring II. THE MAIN STRUCTURES A. The simple or entrepreneurial structure Most businesses starting out adopt a simple structure: The management of the company is heart of the organization. It is related to the whole of the actors and holds all powers. 54 II. THE MAIN STRUCTURES A. The simple or entrepreneurial structure ADVANTAGES DISADVANTAGES Low specialization of work The functioning of the business depends on Lack of formal rules and procedures: the personality and skills of the business coordination occurs through mutual owner. adjustment She can be overwhelmed and fail to A sharing of responsibilities and a climate of coordinate and control the activity of trust employees. Low cost operation She may lack skills in some areas. Flexibility and the ability to adapt to changes If she encounters problems, the information and decision-making center disappears with him. 55 II. THE MAIN STRUCTURES B. The functional structure When the company develops it adopts a so-called functional structure : Related or similar tasks are grouped within functions (marketing, production, sales, accounting, etc. ) and supervised by a director. In France, almost one in two companies has a functional structure (48%). It is very present in small companies (especially single-product companies). 56 II. THE MAIN STRUCTURES B. The functional structure 57 II. THE MAIN STRUCTURES B. The functional structure ADVANTAGES DISADVANTAGES Provides for a high degree of specialization Isolation of departments from each other (Taylor) since they tend to form “silos,” Simple and straightforward reporting system Closed mindsets (diluted responsibility - within departments concern for one’s department) Intra-functional communication is easy (same Poor communication across departments, skills and “language”) Slow decision-making and poor coordination Offers economies of scale of tasks across departments Not difficult to scale if and when the Competition for power and resources organization grows. Monotony (routine tasks) Direct supervision of tasks 58 II. THE MAIN STRUCTURES B. The functional structure Advantages : The specialisation (basic principle of the Taylorian conception : Organization Scientist of Work ). A strong hierarchical line. Coordination is done from the top through direct supervision ( formal instructions, strict procedures, control of compliance with procedures, etc.: centralized and pyramidal structure). Communication is facilitated within units because members share the same skills. 59 II. THE MAIN STRUCTURES B. The functional structure Limits : Lack of flexibility and relative rigidity : slowness in decision- making depending on the length of the hierarchical line. Routine tasks Partitioning between services Poor flow of information Diluted responsibilities : each actor will tend to favor their function to the detriment of the overall coherence of the company. 60 II. THE MAIN STRUCTURES C. The divisional structure When a company develops several activities (diversification) it adopts a divisional structure : It is divided into specialized divisions (units): By Products / Services Regions / Sales areas Types of customers / Markets In France, 22% of companies have a divisional structure. Ex. Engie is divided into divisions: natural gas transport, gas distribution, liquefied natural gas terminals and natural gas storage. 61 II. THE MAIN STRUCTURES C. The divisional structure In this structure the general management: Develop the overall strategy Monitors divisional performance Distributes resources between divisions Provides common services (legal, etc.) However, each division is autonomous: it has its director and brings together most of the resources (human, infrastructure, etc.) necessary for its activity. Divisions often operate on a functional model and standardization is the preferred mechanism for coordinating activities. 64 II. THE MAIN STRUCTURES C. The divisional structure ADVANTAGES DISADVANTAGES Customer contact and service can be quicker Divisions can easily become isolated and Proximity of divisions to their market insular from one another – eventual (responsiveness). competition Decentralized decision-making means that Incompatibility of systems (technology, headquarters does not have to micromanage accounting, advertising, budgets) can occur, all the divisions. which creates a strain on company strategic Flexibility of the company in the context of goals and objectives. (coordination) organizational changes (integration or Job or resource redundancy, (many people in elimination of a division). organization doing same thing) diseconomies Coordination within a divisional grouping is of scale easier. Different systems, such as accounting, or Everyone can more easily know their finance, may suffer from poor and infrequent responsibilities and accountability communication and coordination of 65 expectations enterprise mission, direction, and values. II. THE MAIN STRUCTURES C. The divisional structure Advantages : Proximity of divisions to their market (responsiveness). Flexibility of the company in the context of organizational changes (integration or elimination of a division). Management can optimize the distribution of resources between divisions ( economies of scale resulting from the centralization of part of the support functions). 66 II. THE MAIN STRUCTURES C. The divisional structure Limits : Risk of dispersion of resources between divisions ( diseconomies of scale : risk of redundancies in positions and activities: purchasing, finance, accounting, etc.). Risk of conflicts and coordination difficulties between divisions which may find themselves in competition. 67 II. THE MAIN STRUCTURES D. The matrix structure (Galbraith, 1970) The matrix structure is adopted when a segmentation criterion (function or product) is not sufficient to organize the activities. In this structure, we juxtapose 2 segmentation criteria. It combines the advantages of structures: Functional (one specialist per function) and Divisional (one specialist per division) It is particularly suitable for large multi-activity and / or multi- market companies. 68 II. THE MAIN STRUCTURES D. The matrix structure (Galbraith, 1970) This structure combines the advantages of structures: Functional (one specialist per function) and Divisional (one specialist per division) Each employee therefore has 2 superiors (duality of command): a functional head (permanent) and a divisional manager (project manager who can evolve according to needs). 69 II. THE MAIN STRUCTURES D. The matrix structure (Galbraith, 1970) Boeing was one of the first companies to adopt this type of structure. The work teams belong to both: A specialty : wings, guidance system… And to their program department corresponding to the type of aircraft: 727, 737, 747… 70 II. THE MAIN STRUCTURES D. The matrix structure (Galbraith, 1970) 71  II. THE MAIN STRUCTURES D. The matrix structure (Galbraith, 1970) Product or Project Dimension 72 II. THE MAIN STRUCTURES D. The matrix structure (Galbraith, 1970) It is based on a principle of dual command/reporting: each employee has 2 superiors: One of the often referred to as “dotted line” management as it is probably weaker) Breaks rule of “unity of command” 73 II. THE MAIN STRUCTURES D. The matrix structure (Galbraith, 1970) There are 3 types of matrix structures , giving more or less authority to the department head and the project manager: The strong matrix (the project manager holds a greater part of the decision-making power compared to the department head). The balanced matrix (authority is shared between the department head and the project manager). The weak matrix (the project manager has less authority compared to the department head). 74 II. THE MAIN STRUCTURES D. The matrix structure (Galbraith, 1970) ADVANTAGES DISADVANTAGES It promotes decentralization, the circulation of information, Risks of conflicts relating to the distribution of decision- participation and motivation. making power. Personal development Power struggles between functional and product managers that may have different goals It is scalable and adapts flexibility to environmental and organizational changes: entire sections of the organization A risk of role confusion. Report to who? Priorities? are born and die with products or projects. Team members from different functional areas may find it Synergy effects through the mobilization of specialized skills difficult to work together. and transversality within the company. Makes control and coordination difficult. Efficient use of resources (resources should flow to where Critical skills (ex. negotiation) required of managers they are most valued) Teamwork – increase innovation – pooled skills. Sense of ownership can improve productivity. Use conflict resolution (product vs function) as a source of improvement 75 II. THE MAIN STRUCTURES D. The matrix structure (Galbraith, 1970) Advantages : It promotes decentralization, the circulation of information, participation and motivation. It is scalable and adapts to environmental and organizational changes : entire sections of the organization are born and die with products or projects. Synergy effects through the mobilization of specialized skills and transversality within the company. 76 II. THE MAIN STRUCTURES D. The matrix structure (Galbraith, 1970) Limits : Slow decision making Risks of conflicts relating to the distribution of decision-making power. A risk of confusion in the hierarchy of priorities. The matrix structure is therefore complex and makes control and coordination difficult. In France, 25% of companies have a matrix structure. 77 II. THE MAIN STRUCTURES E. Project structure The project structure (team structure) is based on the occasional creation of teams intended to initiate and implement time-limited projects. Example: launching new products, improving quality, reducing costs, customer satisfaction, etc. 78 II. THE MAIN STRUCTURES E. Project structure Organization by projects works very well in a company that has adopted a matrix-type structure. Examples of companies using this structure: NASA, Google, start-ups, advertising agencies, consulting firms, etc. 79 II. THE MAIN STRUCTURES E. Project structure ADVANTAGES DISADVANTAGES Very flexible structure perfectly suited to Lack of consistency between projects changing environments. Poor combination of individual skills within The role of managers in this type of project teams organization is to act as a facilitator, mentor The permanent dissolution of teams can and coach. They support the teams and hinder the accumulation of knowledge... provide the necessary resources to get the job done efficiently. 80 II. THE MAIN STRUCTURES E. Project structure Advantages : Very flexible structure perfectly adapted to changing environments. The role of managers in this type of organization is to act as a facilitator, mentor and coach. They support teams and provide the necessary resources to accomplish the work efficiently. Motivation of employees. 81 II. THE MAIN STRUCTURES E. Project structure Limits : Lack of consistency between projects. Poor mix of individual skills within project teams. The permanent dissolution of teams can hinder the accumulation of knowledge… In France, 6% of companies operate in project mode. 82 II. THE MAIN STRUCTURES F. The extended enterprise The rise of ICT to give rise to new forms of organizations: 1. The unstructured company (boundaryless organization ) : Organization which is not determined by boundaries linked to a predefined structure. The president of General Electric, Jack Welch was the first to speak of a destructured company to improve performance (Work-out program). We eliminate: horizontal boundaries (between departments) and vertical boundaries (between hierarchical levels) The external boundaries between the organization and its customers, suppliers and other stakeholders. 83 II. THE MAIN STRUCTURES F. The extended enterprise 2. The virtual company: It is made up of a small core of permanent employees supplemented by external experts who are recruited temporarily depending on current projects. By working with independent contractors: the company benefits from a network of skills without having to endure administrative burden and structural complexity. 84 II. THE MAIN STRUCTURES F. The extended enterprise 3. The network organization: is based both on its own collaborators and on a network of external members ( suppliers, transporters, financiers, competitors, etc. ). The units remain independent of each other but are linked by partnership and contractual relationships. The network business has no defined border. Its size and number of units fluctuate depending on the projects developed. 85 II. THE MAIN STRUCTURES F. The extended enterprise Advantages : Pooling of skills Pooling of costs It is an evolving structure : the partners change depending on the projects. 86 II. THE MAIN STRUCTURES Organisational Complexity Environmental Uncertainty 87 II. THE MAIN STRUCTURES G. And tomorrow the liberated company? The objective is to put people at the heart of the company's operations. The principles : Let employees take individual initiatives rather than following directives imposed by their superiors. The hierarchy is removed : the pyramidal hierarchical structure is replaced by a flat structure where each employee directs themselves or organizes themselves into small teams (controls and surveillance are a thing of the past). 88 II. THE MAIN STRUCTURES G. And tomorrow the liberated company? Advantages : Employees are more productive and efficient : by improving their quality of life , their well-being at work and their personal involvement , employees are more motivated. Internal cohesion is stronger : by highlighting collaborative work and collective intelligence , employees form a strong and united collective. 89 II. THE MAIN STRUCTURES G. And tomorrow the liberated company? The organization becomes more agile : decision-making is faster and the structure can adapt almost instantly to changes in the markets. The company becomes more innovative : the autonomy of the teams allows everyone to express their ideas and take initiatives without going through months and months of internal research. 90 II. THE MAIN STRUCTURES G. And tomorrow the liberated company? Limits : French employees are not ready : the pyramid hierarchy is strongly anchored in the culture of French companies. A risk of anarchy An increase in pressure : with the increase in everyone's responsibilities there is increased stress and the risk of burn-out. 91 CONCLUSION There is no ideal structure. A structure is effective when it adapts to a particular situation. Organizations are therefore not fixed in a structure. They constantly evolve and adapt (in a more or less brutal way). 92 III. THE PURPOSES OF A BUSINESS Today’s business must have a triple purpose: o Economic o Social o And societal (especially environmental). 114 III. THE PURPOSES OF A BUSINESS A. Economic (Production & Distribution) The economic role of the business is to produce wealth (added value) which ensures its sustainability. To do this, it transforms factors of production (inputs) into goods or services intended to be sold on the market (outputs). 115 III. THE PURPOSES OF A BUSINESS A. Economic (Production & Distribution) The economic role of the company is essentially to produce income & wealth which ensures its sustainability and remunerates the agents who made this production possible. The company transforms factors of production (inputs) into goods or services intended to be sold on the market (outputs). The production function is a representation of this transformation. 116 III. THE PURPOSES OF A BUSINESS A. Economic (Production & Distribution) The factors of production are: Labor : Hours of work provided by qualified employees Fixed Capital (Investment) : Land, machines, buildings, trademarks, patents Intermediate Goods & Services : Energy, Primary goods,.. Residual factors : Know-how, technology, … By themselves the factors of production are useless. Only the combination of these factors makes it possible to create products which are useful to people and which will be traded in the market at a price that covers their cost. 117 PRODUCTION Example of Pizza Labor (L) Pizzaiolo, Order Taker Fixed Capital (K) Oven, Kitchen tools, Building, Intermediate Goods and Services (IGS) Flour, yeast, Water, Tomatoes, Herbs, Cheese, Toppings, … Electricity Residual Factors (RF) Process to transform the ingredients. Know- The Production Function : how in making pizza. 𝑄 = 𝑓 (𝐿, 𝐾, 𝐼𝐺𝑆, 𝑅𝐹) 118 III. THE PURPOSES OF A BUSINESS A. Economic (Production & Distribution) To these factors we add natural resources. The objective being for the business to choose the most efficient productive combination. It seeks to achieve productivity gains. Example : Produce more wealth with the same production factors. Produce as much wealth with fewer production factors … Some firms achieve greater productivity by substituting capital for labor. 119 III. THE PURPOSES OF A BUSINESS A. Economic (Production & Distribution) These factors of production being capital labor Method Value complementary, the company must choose an Created efficient productive combination. 100 100 A 1000 It thus seeks to achieve productivity gains. 100 100 B 1200 This is the case when it: 100 90 B 1000 Produces more wealth with the same factors of production. Produces as much wealth with fewer factors of production. Example: some companies obtain better productivity by substituting capital for labor.. 120 III. THE PURPOSES OF A BUSINESS A. Economic (Production & Distribution) By producing, the company creates income = added value (VA). VA = (Value of production) – (value of intermediate consumption) VA represents the wealth created by the business. VA measures the creation of income by the company and thus its contribution to general economic activity. VA allows the company to remunerate its factors of production and start its production cycle over again. 121 III. THE PURPOSES OF A BUSINESS A. Economic (Production & Distribution) Farms Juicing Distributors Retailers 1€ 1,50€ 2,25€ 3,50€ Value added = 1,00€ Value added = 0,50€ Value added = 0,75€ Value added = 1,25€ TOTAL VALUE ADDED = 3,50€ 122 III. THE PURPOSES OF A BUSINESS A. Economic (Production & Distribution) Activity Cost of Inputs Price of Output Value Added by Activity Growing Oranges 0 1€ Making Orange Juice 1€ 1,50€ Distributing Juice to Stores (Wholesale) 1,50€ 2,25€ Selling Juice to Consumer (Retail) (final good) 2,25€ 3,50€ TOTAL 123 III. THE PURPOSES OF A BUSINESS A. Economic (Production & Distribution) Activity Cost of Inputs Price of Output Value Added by Activity Growing Oranges 0 1€ 1€ Making Orange Juice 1€ 1,50€ 0,50€ Distributing Juice to Stores (Wholesale) 1,50€ 2,25€ 0,75€ Selling Juice to Consumer (Retail) (final good) 2,25€ 3,50€ 1,25€ TOTAL 4,75 8,25 3,50€ Total Production – Intermediate Consumption = Value Added 8,25 – 4,75 = 3,50 124 III. THE PURPOSES OF A BUSINESS A. Economic (Production & Distribution) The VA measures the creation of wealth by the business and its contribution to economic activity: In 2022: Agriculture: 2.1% Industry: 13.3% Construction: 5.5% Merchant services: 56.9% Non-market services: 22.2% 125 WHERE DOES THE VALUE GO ? never stop daring III. THE PURPOSES OF A BUSINESS A. Economic (Production & Distribution) The added value therefore makes it possible to remunerate economic agents who have participated directly or indirectly in the production activity: Employees (salary, profit sharing) PO (prélèvements obligatoires): compulsory contributions from the State, local communities, social organizations Capital providers: lenders (interest), partners (dividends) Self-financing (reserves) The company: to finance its future investments (self-financing) 127 III. THE PURPOSES OF A BUSINESS A. Economic (Production & Distribution) Net profit Reserves profit = EBIT Operating Dividends Dividends = 30 to 50% Corp Taxes Corporate taxes = 25% Interest Social fees Value Added = = Salaries Value of Production Payment to suppliers Payment to suppliers for intermediate for intermediate goods and services goods and services (inputs) (inputs) 128 III. THE PURPOSES OF A BUSINESS A. Economic (Production & Distribution) VALUE ADDED Total Gross Compensation Operating Surplus Social Net Retained Dividends Interest Taxes Fees Salaries Earnings 129 III. THE PURPOSES OF A BUSINESS A. Economic (Production & Distribution) So there are two ways to calculate VA SUBTRACTIVE METHOD (distribution to ADDITIVE METHOD (distribution to stakeholders) stakeholders) COST of - intermediate G&S TURNOVER EMPLOYEE COMPENSATION (SALES) VALUE ADDED + INTEREST + PROFIT TAX