Module 6 Organizational Systems PDF

**MODULE 6** **ORGANIZATIONAL SYSTEMS** LEARNING OBJECTIVES =================== After completing this module, you are expected to: i. discuss the different types of organizational structures; ========================================================= ii. cite examples to illustrate each of...

**MODULE 6** **ORGANIZATIONAL SYSTEMS** LEARNING OBJECTIVES =================== After completing this module, you are expected to: i. discuss the different types of organizational structures; ========================================================= ii. cite examples to illustrate each of the different types of organizational structures; iii. explain the factors that may influence a company's decision to adopt a type of organizational structure; iv. assess each of the organizational components in terms of the value they contribute to the business entity; v. demonstrate the role of leadership in an organization; and vi. show the importance of organizational policies in running an organization. [**Module 6 Organizational Systems**](about:blank) LEARNING ACTIVITIES =================== **Individual Activity** ASSESSMENT/EVALUATION ===================== I. *Synchronous Test* with time limit. II. *Asynchronous Learning* To successfully implement the strategies of the organization, its structure must support its unique system while the entire machinery of the company must be aligned to the direction where it wants to go. The functional strategies of the company should be complementary to the much-desired goals; hence, there must be a fit between and among organizational elements, including its departments and small business units. **Organizational Structure** **Organizational structure** refers to the system or mode by which a group of individuals is able to achieve its desired goals. The organizational structure of an organization/company is subject to many factors like technological breakthroughs by competitors, changes in customer lifestyles, and those that are environmental in nature. Management, employees, suppliers, customers, government, and society are examples of internal factors that significantly affect organizations one way or another. Suffice it to say, servicing and product companies need to be dynamic to stay in the business mainstream. They need to possess a built-in flexibility that will enable them to adapt readily to unstable conditions. **Types of Organizational Structures** An examination of the different organizational charts of popular and successful companies will \`show a variety of organizational structures. Depending on their organizational goals and specific objectives, these built-to-last companies adopt appropriate organizational forms that may range from functional to territorial, or from product to market-centered to matrix. **Functional Organizational Structures** Organizations adopt a specific structural arrangement for a reason. Structuring an organization effectively requires that the management should know the goals of the organization, the skills of its people, the needs and goals of its subordinates, the available resources, and the time, cost, and environmental constraints that are existing. Similarly, it requires management to bring together the human, technical, marketing, and financial resources of the organization. Particularly, human resources are brought together in units, teams, or projects so that job specialization can be optimized while special skills can be best managed. There is a need for the marketing department to interact and coordinate with personnel in other major functional areas. The production/operations department follows the requirements set by the marketing department while the financial department efficiently allocates funds to achieve the organization\'s set objectives. All these departments need to act together to accomplish the organization\'s overall vision, mission, and goals. Thus, an organization should be structured effectively so that its human resources, marketing, production/operations, and finance departments can work collaboratively. **Figure 6.1 Functional Organizational Structure** **Territorial Organizational Structure** As an organization begins to serve its customers who are spread over a growing geographical area, a territorial structure becomes a viable design. In this system, the target market is divided into geographical units according to certain criteria. Territorial structural arrangements have several advantages. First, personnel familiar with the history of customers in the area, their culture, their preferences, expectations, and habits of living can cultivate the local markets. Second, the company and its sales force can respond quickly to changes in the competitive environment. Third, there is closer contact between managers familiar with the territory and their subordinates. Finally, because management is familiar with local conditions, it can make quicker strategic decisions. Adopting a territorial structure has its downsides. As the product line becomes more varied, the territory structure becomes more cumbersome. The creation of multiple territory offices results in duplication of services and possibly the appointment of less qualified individuals to supervisory positions. Thus, there is the need for competent managers. An increase in expenses is inevitable. Sometimes, having unprepared or weak managers in territories may negatively affect sales, may create a damaged public image, and may lower morale among employees. Figure 6.2 shows the department's territorial structure used by an organization. **Figure 6.2 Territorial Organizational Structure** **Product Organizational Structure** Traditionally, organizational divisions follow a product structure. In some companies, the sub-businesses are assigned to product group managers, each of them is given key operating and staff functions. As long as the product, markets, and customers are diverse and mutually exclusive, there is no limit to the number of product management systems used. When different types of products are involved, divisions are likely to include research and development and engineering departments. These allow managers to operate independently. They are responsible for both current and future decisions about the product market since the long-term goal is to increase and not just to maintain the current market. Marketing managers follow their products from conception to the time when it is made available to the consumers. They coordinate all information relating to the products with the other departments in the company. Marketing managers are likewise involved in various company operations. Some specific tasks include gathering and centralizing all information relating to the products, preparing product strategy alternatives, preparing forecasts, defining the marketing strategies to achieve planned objectives, ensuring the profitability of the product, monitoring its life cycle, monitoring the accomplishments of programs previously drawn up, and suggesting ways to improve or create new or improved products. **Figure 6.3 Product Organizational Structure** There are four courses of action that an organization can implement to improve or replace any product management structure. They are: 1. control to improve the ability of product managers to do the job; 2. switching from a marketing manager to a marketing team that implements activities to market the product effectively; 3. eliminating product managers of minor brands and consolidating them with other products. This is feasible when the product line appeals to similar consumers or industrial users; and 4. establishing divisions around the major company products and using functional structural arrangements within divisions. Despite the problems involved in the product structure, this organizational form can be successful. The key to good performance is top management support with reasonable budget, planning, and resource allocation. Without top management support, product/brand managers will experience difficulty in gaining the cooperation of those from the advertising, marketing research, and sales divisions. **Market-Centered Organizational Structure** Companies can structure their businesses to fit their markets. A market-centered organizational structure describes the wide range of structural forms that center on a group of customer needs rather than a region, product line, or function. A market-centered organization is decentralized by market. A market center is a profit center. Organizations in the following situations are suited for the market-centered structure.  - When a competitor threatens market leadership, market centering can restore a competitive advantage by improving knowledge on customer, distributor, and retailer needs. - When a new product is introduced and is affecting a company to a certain extent, a market-centered approach can stimulate new ideas because the firm\'s technical specialists receive more information about market needs. - When a product manufacturer can achieve high profit by diversifying into services with larger margins of returns. - When marketing-related products or services requires the so-called marketing intelligence by conducting or implementing smart customer strategies. - When a manufacturer who has been selling product-performance benefits shifts marketing strategies to feature the financial benefits of customer profit improvement, market centering makes it easier to gather information on how customers make their profits. - When a marketer wants to attract more entrepreneurial managers, market-centering offers managers wide responsibilities and a variety of supervisory duties.  A market-centered organizational structure groups company activities around important and relevant criteria and forms SBUs that will formulate marketing strategies, among others. Each unit is responsible for profits. In many cases, large divisions have their own marketing departments. Division marketing may also be structured by product, market, customer, or any combination of these factors. Often, a new division starts with a functional organization, but changes to one that is structured by product, customer, or market as the business increases. **SBU Organizational Structure** This division structure raises the issue of whether any marketing functions should be performed at the corporate staff level. Some companies maintain a minimum marketing services structure at the corporate level. For example, market research, advertising, and media planning services are provided to each territorial division in Luzon, Visayas, and Mindanao from a corporate staff group in Manila. The decision, whether to maintain some corporate-level marketing staff services or otherwise, depends primarily on the size of the division. If a division is large enough to afford its own marketing structure, it will usually have one. Figure 6.4 shows an SBU structural arrangement. A group vice-president who is directly responsible to the chief executive officer of the company heads each SBU. This type of structure places emphasis on planning and analysis of company strategies. **Figure 6.4 SBU Organizational Structure** **Matrix Organizational Structure** The matrix structure is efficient for establishing specialist resources but is best for integrating functions. **Figure 6.5 Matrix Organizational Structure** On the other hand, the creation of SBUs introduces effective integration at the expense of resources specialization. The matrix organizational structure seeks the best of both. Firms such as Unilever, Shell, Dow Chemical Company, and Texas Instruments use various forms of the matrix organizational structure. A matrix is any organization that employs a multiple "boss" arrangement. For example, a person can have two bosses, one for functional and the other for product. Matrix structures have been adopted in manufacturing, service, professional, and non-profit organizations. A marketing specialist is a member of two units, one of which is more or less a permanent home and the second is a temporary home. Thus, the matrix structure combines the idea of specialized departments with the idea of self-sufficient and somewhat autonomous units. In an organization that uses a matrix structure, one must cut across departmental boundaries to get a job done. A team working on a job is comprised of a group of specialists so that the ability to work together is very important. Figure 6.5 illustrates how teamwork among production, marketing, and finance specialists is required to complete projects. The key feature is that both the functional and product lines of authority overlap where both product and functional managers share managerial authority over the people in each cell.  **Choice of an Organizational Structure** Some of the factors which may influence the firm\'s decision to adopt the type of organizational structure appropriate to its needs include: size of the firm, product offerings, market of its products, prevailing competition, and management philosophy. - **Size of the Firm.** Generally speaking, the size of the firm will indicate the complexity of its organization. A firm producing and selling in a restricted territory may find the functional organization the best form for their purposes, whereas a larger firm which produces several products and sells to a wider market may opt for a regional form of organization to maximize selling efforts. - **The Products.** The nature of the product or products to be sold is another factor that influences the choice of an organizational structure. Consumer and industrial goods may require different types of services from the producer. Some products require extensive after-sale servicing to customers and the marketing organizational structure can take care of this task.  - **The Market.** Characteristics of the market like geographic dispersion, income class, and buyer behavior need to be considered in organizing the marketing unit. If markets are concentrated, the stakeholders may find it easier to sell directly to the consumers. If markets are dispersed, or if consumers buy in small quantities which does not justify direct sales, then the producer may opt to use intermediaries. Thus, the producers\' efforts will be concentrated on selecting middlemen and devising ways to assist them rather than supervising total sales operation. - **Competition.** A firm may find it necessary to organize its marketing efforts following the requirements of competition. If a major competitor uses an existing pattern of distribution, the firm may find it necessary to accommodate such a pattern. If brand name merchandising is an established feature of a particular industry, like ready-to-wear denim jeans, then the newcomer may have to strive to establish to establish his own brand. If a change in organizational structure proves to be successful in an already established firm, then other firms may imitate such change. - **Philosophy of Management**. A final factor that affects the structure of an organization is the management philosophy prevailing in the company. In each case, the structure of the business unit differs. Some companies are more business-oriented than others and will have a business unit that is involved in a wider scope of activities. In addition, if management firmly believes in centralization rather than in decentralization, then most of the responsibilities will be borne by the home office rather than by district or regional offices. **Evaluation of an Organizational Structure** A number of criteria may be used in evaluating organizational structures. These criteria include the ability of the organizational structure to facilitate control, draw coordination among the employees, provide information, compute for the costs involved, and adopt a culture of flexibility.  - **Facilitating Control.** Control in an organization involves a comparison of actual performance with pre-established standards or plans. If the organization structure enables a manager to identify problem situations and take necessary corrective actions, then the firm may be said to have a control mechanism. If each person clearly understands the scope of his authority and areas of responsibility, and if the organization provides suitable channels for communication, then the company has a solid framework for management control. - **Coordination.** The coordination of individual actions is often called team effort. A firm employing several specialists and line officers at different levels may still produce ineffective results if efforts are not properly coordinated. The presence of effective teamwork is usually indicative of an efficient and well-organized marketing operation. - **Providing Information.** Because markets are dynamic and subject to change, it is essential for managers to gather information in order to anticipate changes and make decisions accordingly. A good organization should have an adequate information system and proper channels through which information flows. - **Cost of the System**. A firm can choose from the simplest to the most complex type of organization. However, it has to strike a balance among three important factors-the organizational information it desires, the organizational control it wishes to employ, and the costs of organizing its personnel. The number of people employed in marketing management is not a criterion of the efficiency of the organization. Theoretically, an optimum size produces the greater efficiency for the marketing management team for each firm. Inefficiency may result from overstaffing, as well as from understaffing. It is the responsibility of the top management in the company to continually evaluate the performance of the organization. A basic procedure in this evaluation is to weigh the  performance against its costs. - **Flexibility.** To be able to cope with the dynamic and changing environment, the firm should have an organization that can adjust to changes. Flexibility is necessary to attain good performance. Peter Drucker (1954) in his book The Practice of Management, identifies criteria for evaluating organizational strategies. These criteria are clarity which reflects the individual\'s needs to understand his tasks and the group\'s tasks, personal relationships within the group, and the availability of information. Economy, in the effort to control, supervise, and motivate people, will minimize the allocation of resources to management activities. When possible, self-control and self-motivation need to be used. The direction of the organization needs to be toward the goals of the entire enterprise and not toward the goals of functional areas. Understanding one's tasks in relation to common tasks requires communication that helps individuals relate their efforts to common organizational goals. In summary, organizations provide the mechanism for the implementation and control of plans. The organizational structure may be organized according to functional, territorial, product, market-centered, SBU, and matrix structures. Each of these organizational structures has strong and weak points. However, the actual choice of a company structure will depend on a number of considerations like size of the firm, nature of products, market, competition, and management philosophy. The effectiveness of an organizational structure may be assessed according to the ability of the organizational structure to facilitate control, draw coordination among the employees, provide information, compute for the costs involved, and adopt a culture of flexibility. Additional criteria include clarity of tasks and relationships, economy, ability to provide direction and facilitate decision-making, stability, and adaptability. **Organizational Components** An **organization** is an entity composed of people that is structured and managed in such a way that it is able to achieve its set goals and objectives. An organization generally consists of elements that act and work together through coordinated activities. The organizational components are the management, employees, facilities and equipment, financial resources, and organizational policies. **Management** refers to the administrative supervision of an organization. It includes leadership, the organization\'s vision-mission, goals, and objectives to attain organizational success. - **Leadership** is foremost in the management of any business. A good leader, regardless of whether he owns or works for the organization, is someone who inspires his employees and stretches them to their optimum productivity. He is the prime mover and is expected to lead his employees in the attainment of the organization\'s set goals. - **Vision** refers to the image that the organization aims to establish and project to both its employees and the public while mission refers to the purpose of the organization. This is explicitly stated in the mission statement of the organization. **Employees** Aside from the management, employees constitute a significant part of the organizational milieu. They are the very people who work, support, and earn profits for the organization. They are found in all levels, performing tasks ranging from the sophisticated to the difficult, practical, and odd ones. They work in the different functional areas of marketing, finance, and production whether formally or informally structured. Employees are expected to give their best in performing their assigned tasks. Several factors affect their productivity. A simple definition describes productivity as the ratio of the output with respect to input. Certain variables affect productivity. They include salary, fringe benefits, work environment, and organizational climate. Generally, management expects employees to experience and graduate through three levels of relationships, as shown in Figure 6.6. They are employee satisfaction, employee involvement, and employee commitment. - **Employee Satisfaction.** It is an emotional state where the employee experiences a feeling of content in the workplace. Any or all of the following generally bring employee satisfaction: acceptable salary, fringe benefits and incentives, positive interpersonal relationships between and among management and employees, and acceptable conditions in the workplace. Thus, an employee is generally said, \"to be satisfied with his job.\" - **Employee Involvement.** Satisfied with his work conditions, an employee may graduate to a higher level of organizational relationship called employee involvement. He becomes more participative in company activities and essentially aims to contribute to the growth of the company. - **Employee Commitment.** This degree of employee relationship is further heightened when the employee reaches the highest level that is employee commitment. Here, the employee cultivates within himself an attitude and a "sense of owning" where he treats the interests and welfare of the enterprise as if he owns it.  **Figure 6.6 Levels of Organization-Employee Relationship** **Facilities and Equipment** Another important component of the organizational environment is the facilities and equipment. These facilities and equipment may be simple and crude as long as they are functioning and producing the desired output. On the other hand, organizations with sufficient capitalization, use the most sophisticated and the latest machinery and technology. Facilities include management of buildings and site maintenance, management of machinery and facilities, and application of technology. - **Management of buildings and site maintenance** needs to be appropriate for the type of business the organization is engaged in. Physical structures have to be maintained properly, secured for safety, and optimized when it comes to layouts. - **Management of machinery** means making sure that the right types of equipment or machinery are in place and including the right quantities as needed by the organization. This is another important aspect of facility management. Regular maintenance scheduling and replacement of old and dysfunctional equipment are part of efficiently increasing productivity. - **Management of facilities** means that amenities such as washrooms and canteens need to be in good and healthy working conditions as these are important to the workforce. - **Application of technology** has become the unifying force in facilities and equipment management. Technology asset management refers to the business processes and enabling information systems that support the management of both physical and nonphysical assets of the organization. Information technology digitally and efficiently integrates financial, inventory, purchasing, accounting, marketing, and other aspects of an organization. **Financial Resources** In addition to facilities and equipment, organizations need sufficient financial resources. The financial resources of the organization determine the direction the organization will take and affect its capability to realize its set business goals and objectives. These business goals and objectives include spending on other promotional strategies, upgrading or purchasing new facilities and equipment, experimenting and developing new products, hiring additional manpower, increasing salaries and wages, training employees, and most significantly, ensuring continued existence of the organization. **Organizational Policies** The organizational milieu includes company policies, which are the lifeblood of an organization. They put organizational structure and system in place. They ensure order, hierarchy of authority, clear delineation of functions, efficiency, productivity, and good interpersonal relationships. They make possible the smooth actualization of operations and functions and facilitate the attainment of set goals and objectives, whether measurable or otherwise. In summary, entities include organizational components that collaborately synergize to achieve desired goals and objectives. Guided by a vision and a mission statement, management sets the direction of the organization. Employees working together and facilities and equipment enable organizations to function efficiently and effectively. Policies give direction and structure to an organization supported by needed financial resources. **END OF MODULE 6 Organizational Systems**