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Math 12 Abm Org MGT q1 Week 8
Math 12 Abm Org MGT q1 Week 8
NATURE OF ORGANIZATION
AND TYPES OF
ORGANIZATION STRUCTURES
for Organization and Management
Senior High School (ABM)
Quarter 1 / Week 8
FOREWORD
OBJECTIVES:
K: Identify the nature of organization and types of
organizational structures.
S: Analyze the nature of organization and explain the
three common types of organizational structure.
A: Appreciate the importance of organization analysis and
design in determining the appropriate hierarchical
structure of the company.
LEARNING COMPETENCY:
I. What Happened
REVIEW:
Sole proprietorship is a business owned by one person, hence the word sole,
meaning one and only.
One advantage of a sole proprietorship is that the owner makes all
the decisions. The owner is not obligated to confer with anyone when it
comes to deciding the location of the business, who to hire, what to sell,
etc. Another advantage to an owner of a sole proprietorship is that he or
she is the recipient of all profits generated by the business. The owner is not
legally bound to share the profits with anyone else.
While there are benefits to being a sole proprietorship, there are also
drawbacks. One huge drawback is if the owner is sued, the owner is held
personally liable. Personal liability means if the person or entity wins the
lawsuit, the court can make the owner sell business and personal assets to
satisfy the debt. Another disadvantage of this type of business organization
is that when the owner dies, the business will become defunct or terminate.
Now, let us see if a partnership can remedy some of these disadvantages.
PRE-TEST:
1. Lebron and Davis are long-time friends who plan to open a consulting
service in Chicago next year. Lebron specializes in personal finance, whereas
Davis specializes credit management, making them a great team. Both wish
to keep their tax filing requirements as simple as possible.
2. Kuzma is a 52-year old teacher who has no children and is not married. He
plans to start a business this summer to mow people’s lawns in the
neighborhood to earn some extra income while school is on summer break. His
clients sign a legal waiver claiming that Kuzma has no liability for any mishaps
on the lawn.
3. Ronda and Green are a married couple who wish to begin operating a
chemical plant since they are both chemists. The couple would be working
with highly toxic substances, but they are comfortable with this given their
experience and the profit opportunity is great. Ronda and Green also own an
8-floor apartment building in Manhattan.
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Nature of Organizations
Definition of an Organization
An organization is a collection of people who work together and
coordinate their actions to achieve a wide variety of goals.
Nature of Organizations
An organization is a social arrangement which pursues collective
goals, which controls its own performance, and which has a boundary
separating it from its environment.
To illustrate:
Let us assume now that Mr. Tiongco’s grocery business has grown by
leaps and bounds. He is planning to open a branch in more strategic place
near busy Cubao. This will be handled by his son whom he has already
trained in running his grocery business.
Mr. Tiongco has reached the crossroad of his business. Like any
entrepreneur who started small but suddenly saw the growth of his business,
he began to wonder how he should get organized to face the challenges
of the future. Shall he remain as a single proprietor-owner or dilute his
ownership by asking some of his trusted relatives and friends to be part
owners and contribute more money for his expansion plans?
First option: Single Proprietor. In this form, Mr. Tiongco as a single person
holds the entire operations as his personal property, managing it on a day-
to-day basis. Most businesses are of this type.
Advantages:
1. Formation: Less complicated in preparation of documents and
cheaper compared to starting a formal corporation. The
proprietorship can be named after the owner, or a fictitious name
can be used to enhance the business.
2. Tax benefits: no requirement to file a separate business report. One
will list the business information and figures within his/her individual
tax return. The business will be taxed at the rates applied to personal
income, not corporate taxes.
3. Decision making: Business decision remains the responsibility of the
owner. The owner can also fully transfer the sole proprietorship at any
time as he/she deems necessary.
Disadvantages:
1. Liability: The business owner will be held directly responsible for any
losses, debts, or violations coming from the business. For example, if
the business must pay any debts, these will be satisfied from the
owner’s own personal funds. The owner could be sued for any
unlawful acts committed by him/her or the employees.
2. Taxes: While there are many tax benefits to sole proprietorships, a
main drawback is that the owner must pay self-employment taxes.
3. Lack of <continuity=: The business may discontinue if the owner
becomes deceased or incapacitated. Since the business and the
owner are treated as one and the same, upon the owner’s death,
the business maybe liquidated and becomes part of the owner’s
personal estate, to be distributed to beneficiaries. However, this can
result to heavy tax consequences on beneficiaries due to
inheritance taxes and estate taxes.
4. Difficulty in raising capital: Generating the capital or the initial funds
is usually provided by the owner. Sole proprietorships do not issue
stocks or other money-generating investments unlike corporations.
Advantages:
1. Easy and Inexpensive: Partnerships are generally an inexpensive
and easily formed type of business structure. Most of the time spent
starting a partnership often focuses on developing the partnership
agreement between or among few people and its shared
ownership will expresses.
2. Shared Financial Commitment: Each business partner has equally
invested in the success of the busines. Partnerships have the
advantage of pooling resources to obtain significant capital. This
could be beneficial in terms of securing credit, or by simply doubling
your initial money or capital in the business.
3. Complementary Skills: A good partnership should be able to utilize
the strengths, resources, and expertise of each partner.
4. Partnership Incentives for Employees: Partnerships have an
employment advantage over other entities if they offer employees
the opportunity to become a partner. Partnership incentives often
attract highly motivated and qualified employees.
Partnership arrangements are mostly formed in Law, auditing, and some
consultancy firms.
Disadvantages:
Advantages:
1. Separate legal personality: A corporation, once registered with the
Securities and Exchange Commission and is issued a certificate, has
acquired a legal personality separate and distinct from its
stockholders. It can sue and be sued. Shareholders of a corporation
are not liable to obligations the corporation’s contracts into like
debts, negligence, or wrongful acts of the corporation. The
maximum lost of money a shareholder can incur is just the amount
of his/her investment in the corporation-the value of his/her stock.
2. Ease of raising funds: In a corporation, it is easy to raise additional
funds since it has the option to sell shares of the corporation.
Advantages:
1. Tends to simplify and clarify authority
2. Promotes responsibility and accountability relationships
3. Promotes fast decision-making
4. Precise and simple to understand
Disadvantages:
1. Neglects specialists in planning
2. Overloads tasks on key personnel
3. It becomes more ineffective as the organization becomes bigger
4. Managers become experts in too many fields or area
5. Tendency to become overly dependent on the few key people who
are performing numerous jobs
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FUNCTIONAL STRUCTURE
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DIVISIONAL
MATRIX STRUCTURE
A matrix structure is a hybrid of two structures namely, divisional, and
functional structure. Typically used in a large multinational company, the
matrix structure allows for the benefits of functional and divisional
structures to exist in one organization. However, this can create power
struggles because most areas of the company will have a dual
management- a functional manager and a product or divisional
manager working at the same level and covering some of the same
managerial territory. Study Chart 4 as indicated.
Unlike the other structures, it does not follow the traditional
hierarchical model. Instead, all employees (represented by the green
boxes) have dual reporting relationships. Typically, there is a functional
reporting line (shown in blue) as well as a product-based reporting line
(shown in yellow).
When studying a matrix structure organization chart, the solid lines
represent strong and direct reporting relationships; on the contrary, dotted
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One advantage point of the matrix structure is the flexibility and the
balanced decision-making (as there are two chains of command instead
of just one).
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DEPARTMENT OF EDUCATION
SCHOOLS DIVISION OF NEGROS ORIENTAL
ROSELA R. ABIERA
Education Program Supervisor – (LRMS)
MARICEL S. RASID
Librarian II (LRMDS)
ELMAR L. CABRERA
PDO II (LRMDS)
JOVIT A. TIONGCO
Writer
ALPHA QA TEAM
LITTIE BETH S. BERNADEZ
MERCYDITHA D. ENOLPE
RONALD TOLENTINO
DIDITH T. YAP
BETA QA TEAM
ELIZABETH A. ALAP-AP
EPIFANIA Q. CUEVAS
NIDA BARBARA S. SUASIN
VRENDIE P. SYGACO
MELBA S. TUMARONG
HANNAHLY I. UMALI
ENHANCEMENT TEAM
BB. BOY JONNEL C. DIAZ
JEE LIZA T. INGUITO
SALVADOR G. AGUILAR JR
DISCLAIMER
The information, activities and assessments used in this material are designed to provide accessible learning modality to the teachers
and learners of the Division of Negros Oriental. The contents of this module are carefully researched, chosen, and evaluated to comply with the
set learning competencies. The writers and evaluator were clearly instructed to give credits to information and illustrations used to substantiate this
material. All content is subject to copyright and may not be reproduced 1
in any form without expressed written consent from the division.
AUTHOR
JOVIT A. TIONGCO completed his bachelor’s degree in Business Administration
Major in Management Accounting at Foundation University. He is currently
pursuing his master’s degree in Business Administration at St. Paul University
Dumaguete City and presently the Teacher of ABM in SHS Department of Maria
REFERENCES
Macahig National High School, Siaton IV District. He has significantly contributed
to the craft of sports in the said school as one the winning coach in volleyball
during the municipality meet in Siaton. He is also the Career Guidance
Coordinator and GAD coordinator-SHS of the District of Siaton IV.
REFERENCES