Chapter 6

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
breakthrough by competitors, changes in customers lifestyles ,and those that are environmental in
nature.

Managements, employees, suppliers, customers , government and society are example of external
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 structure

An examination of the different organizational chart of popular and successful companies will
show a variety of organizational structure. Depending on their organizational goals and specific
objectives , this 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 structure

Organizations adopt a specific structural arrangement for a reason. Structuring an organization

effectively requires that the management should know the goals of the organizations ,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 , team or projects so that job
specialization can be optimized while special skills can be managed. There is a need for the marketing
department to interact and coordinate with personnel in other major functional areas.

The production/ operation department follows the requirements set by the marketing
department while the financial department efficiently allocate funds to achieve the organizations set
objectives. All these departments need to act together to accomplish the organizations overall vision ,
mission, and goals. Thus , an organization should be structured effectively so that its human resources ,
marketing, productions/operations , and finance department can work collaboratively.
Territorial organizational structure

As an organization begin to serve its customer 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 into a 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 habit 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 structures becomes more cumbersome. The creation of multiple territory offices results in
duplications of services and possibly the appointment of less qualified individual 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
department’s territorial structure used by an organization.

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 system used. When different types of product are
involved , division are likely to include research and development and engineering departments. These
allow manager 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 manager follow their product from conception to the time when is made available to
the consumers. They coordinate all information relating to the product with the other department in the
company. Marketing manager are likewise involve in various company operations.

Some specific task include gathering and centralizing all information relating to the products ,
preparing product strategy alternatives, preparing forecast , defining the marketing strategies to
achieved 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 improve products.
 There are four courses of action that an organization can implement to improve or replace. any
product management structure. They are:

1. Conducting training programs in forecasting , interpersonal skills, planning, motivation, and 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:

4. Establishing division around the major company product and using functional structural arrangements
within divisions. Despite the problem 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 business to fit their markets. A market centered organizational structure
describe the wide range of structural forms that center on a group of customers needs rather then a
region, product line, or functions.

A market centered organization is decentralized by market. A market is a profit center. Organizations in

the following situations suited for the market centerd 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 market is introduced and is affecting a company to a certain extent,a market centered
approach can stimulate new ideas because the firm technical specialist 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 product or services requires the so called marketing intelligence by conducting
or implementing smart customer strategies.

When a manufacturer who has been selling product performance benefit shifts marketing strategies to
feature the financial benefits of customer profit improvement , market centering make it easier to gather
information on how customers make their profit.
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 group 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 division 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 ORGNIZATIONAL 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 the 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.

Matrix organizational structure

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

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 one for product. Matrix structure have been adopted
in manufacturing , services, professionals, 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 the temporary
home. Thus , the matrix structure combines the idea of specialized department with the idea of
specialized departments with the idea of self sufficient and somewhat autonomous unit.
 In an organization that uses a matrix structure , one must cut across departmental boundaries to
get the job done. A team working on a job is comprised of a group of specialist so that the ability to work
together is very important. Figure 6.5 illustrate how teamwork among production , marketing , and
finance specialist is required to complete projects. The key features 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 product ,
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 of their
purposes , whereas a larger firm which produces several products and sell to a wider market may opt for
a regional form of organization to maximum selling efforts.

The products

The nature of the product or product 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.

Technical products may require a different type of salesmanship and advertising as comparted to
non technical products. This is also true with product requiring wide distribution reach like soft drinks.
These are examples wherein the nature of the product can influence the choice of a marketing structure.

The market

Characteristic of the market like geographical dispersion , income class, and buyer behavior
needs to be considered in organizing the market unit. If markets are concentrated , the stakeholder may
find it easier to sell directly to the consumers. If market are dispersed , or if consumer buy in a small
quantities which does not justify direct sales , then the producer may opt to use intermediaries. Thus ,
the producer efforts will be concentrated on selecting middlemen and devising way to assist them rather
than supervising total sales operation.

Competition

A firm may find it necessary to organize its marketing effort following the requirements of
.competition . If a major competitor uses an existing pattern on 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 jeans , then the newcomer may have to strive 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 units
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. This criteria includes the ability of organizational structure to facilitate control, draw
coordination among the employees.

Facilitating Control. Control in an organization involves a comparison of actual performance with pre-
established standards or plans. If the organizational structure enables a manager to identify problem
situations and take necessary corrective actions, then 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 an 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 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 an 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.
It's 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.

ORGANIZATION POLICY
The organization 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 fuction
efficiently and effectively. Policies give direction and structure to an organizations supported by needed
financial resources.

Mission, and plans of the enterprise in accordance to set goals and objectives; a liaison officer who
serves as conduit for the employees who belong to the different business units or groups; a mediator
who settles concerns, issues, and other problems between labor and management; a facilitator who
negotiates the allocations of resources; a delegatorwho assigns responsibilities, empowers employees,
and monitors them periodically and efficiently; a problem-solver who tackles organizational concerns
and provides adequate solutions; and a decision-maker who makes appropriate decisions, both
qualitative and quantitative, and as needed by the organization.

Skills of a leader: technical skills or being competent in his respective field to play his role adequately
and to perform his tasks effectively: human relations skills or being adept in dealing with personal and
interpersonal employee relationships; and other skills required to attain organizational success.

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 explicit 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 clearly state the objectives of the
organization;it must enumerate the product/service of the organization; it must describe the customers
it serves; and it must explain the thecnology or the process being adopted by the organization.
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 pesses the following qualities: immediate or short-term,
prioritized, carefully chosen and specific, attainable, flexible, quantifiable, if possible, consistent, alligned
to the vission-mission of the organization, and realistic.

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” when he treats the interests and welfare of the enterprise as if he owns
it.
Facilities and Equipment
Another important component of the organizational environment is the facilities and equipment.
These facilities and equipmentmay be simple and crude 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 facilities, and application of technology.

Management of buildings and site maintenance needs to be appropriate for the type o 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.

Management of facilities means that amenities such as washrooms and canteens need to be in good and
healthy working conditions as thase 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.

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.