ORGANIZATIONAL

SYSTEM
CHAPTER 6
LEARNING OUTCOMES
Particularly at the end of this chapter, the students should be able to:
1. discuss the different types of organizational structures;
2. cite examples to illustrate each of the different types of organizational
structures;
3. explain the factors that may influence a company's decision to adopt a
type of organizational structure;
4. assess each of the organizational components in terms of the value they
contribute to the business entity;
5. demonstrate the role of leadership in an organization; and
6. show the importance of organizational policies in running an
organization.
 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.
0RGANIZATIONZAL 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.
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.
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.
 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.
 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: 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 BUs 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 BU structural arrangement. A group vice-president
who is directly responsible to the chief executive officer of the company heads
each BU. This type of structure places emphasis on planning and analysis of
company strategies.
MATRIX ORGANIZATIONAL STRUCTURE
 On the other hand, the creation of BUs 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.
Technical products may require a different type of salesmanship and advertising as
compared to non-technical products. This is also true with products 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. 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 his own brand If a change organizational structure proves to be successful
in an already established firm, then othe 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 o 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 Ducker (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.
THANK
YOU!
END