ORGANIZATIONAL SYSTEMS

Chapter 6

Introduction
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
refers to the system or mode by which a group of individuals is able to achieve its desired goals

subject to many factors like technological breakthroughs by competitors, changes in customer

lifestyles, and those that are environmental in nature

Types of Organizational Structures

Functional Organizational Structures
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.

Figure 6.1 Functional Organizational Structure

General Manager
Human Resources
Marketing
Production/ Operations
Finance

Types of Organizational Structures

Territorial Organizational Structure

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.

Types of Organizational Structures

Territorial Organizational Structure
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.

Figure 6.2 Territorial Organizational Structure

General Manager
Luzon
Visayas
Mindanao
National Capital Region

Types of Organizational Structures

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 are 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.

Figure 6.3 Product Organizational Structure

Marketing Manager
Buyer Products
Food
Clothing
Manufacturing Products
Manufacturing
Raw Materials
Equipment

Types of Organizational Structures

Product Organizational Structure

There are four courses of action that an organization can implement to improve or replace any
management structure. They are:
conducting training programs in forecasting, interpersonal skills, planning, motivation, and
control to improve the ability of product managers to do the job;
switching from a marketing manager to a marketing team that implements activities to market
the product effectively;

Types of Organizational Structures

Product Organizational Structure

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
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.

Types of Organizational Structures

Market-Centered Organizational Structure
 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.

Types of Organizational Structures

Market-Centered Organizational Structure

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.

Types of Organizational Structures

Market-Centered Organizational Structure

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.

Types of Organizational Structures

Market-Centered Organizational Structure

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.

Types of Organizational Structures

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.
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

General Manager
Small Business Unit A
Small Business Unit B
Small Business Unit C
Small Business Unit D

Types of Organizational Structures

Matrix Organizational Structure

The matrix structure is efficient for establishing specialist resources but is best for
integrating functions.

Figure 6.5 Matrix Organizational Structure

Types of Organizational Structures

Matrix Organizational Structure

A matrix is any organization that employs a multiple “boss― arrangement. Matrix

structures have been adopted in manufacturing, service, professional and non profit
organizations.

The matrix structure combines the idea of specialized departments with the idea of self-
sufficient and somewhat autonomous units.

Types of Organizational Structures

Matrix Organizational Structure

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. The key feature is that both the functional and
product lines of authority overlap where both product and functional manages 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.

Choice of an Organizational Structure

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.

Choice of an Organizational Structure

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.

Choice of an Organizational Structure

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.

Choice of an Organizational Structure

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 his own brand. If a change in organizational structure moves to
be successful in an already established firm, then other firms may imitate such change.

Choice of an Organizational Structure

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, d raw coordination among
the employees, provide information, compute for the costs involved, and adopt a culture of
flexibility.

Evaluation of an Organizational Structure

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.

Evaluation of an Organizational Structure

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.

Evaluation of an Organizational Structure

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.

Evaluation of an Organizational Structure

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.

Evaluation of an Organizational Structure

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, identities 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.

Evaluation of an Organizational Structure

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.

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.

Organizational Components
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.

Tasks of a Leader
Roles of a Leader
Skills of a Leader

Organizational Components
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.

The mission statement of the organization can include any or all of the following: it must express
the image the organization wants to project to the public; it must clean state the objectives of the
organization; it must reflect the fundamental values and beliefs of the organization; it must
enumerate the product/service of the organization; it must describe the customers it serves; and
it must explain the technology or the process being adopted by the organization.

Organizational Components
On the other hand, goals and objectives refer to what the organization aims to attain. Goals are
general, macro, and long-term in nature, whereas objectives are specific, micro, and short-term.
More specifically, organizational objectives should possess the following qualities: immediate or
short-term, prioritized, carefully chosen and specific, attainable, flexible, quantifiable, if possible,
consistent, aligned to the vision-mission of the organization, and realistic.

Employees
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.

Employees
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."

Employees
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.
Employees
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 at owning― where he treats the interests
and welfare of the enterprise as if he owns it.

Figure 6.6 Levels of Organization-Employee Relationship

employee commitment
employee involvement
employee satisfaction

Facilities and Equipment

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 and Equipment

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.

Facilities and Equipment

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 non-physical assets of
the organization. Information technology digitally and efficiently integrates financial, inventory,
purchasing, accounting, marketing, and other aspects of an organization.

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, increase 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.