Organisational Structures

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Organisations

Organisations are fascinating shapes, sizes and much more …

Organisations come in all shapes and, sizes; each with a varying levels of responsibilities, authority and duties in which all the necessary resources of a business will be brought together for the achievement of a particular set of objectives that are management driven and co-ordinated.what is an organisation

In this element we will consider ‘how’ business organisations are formed, their many and various types; formal and informal styles and the legal forms of business in the United Kingdom (UK).

We will also learn about the advantages and disadvantages of each ‘formation’ from which we will be able to understand the model frameworks that support a business organisation.

The terms responsibility, authority, duty and accountability are known as the foundations in which discussion about organisations is understood within learning about the complex nature of organisations and their many types. We can consider the meaning of these areas as follows:

  • Responsibility

    An obligation for making sure that all duties are well managed, delegated, executed and functioning. Giving power to departmental leaders, supervisors is seen as delegation of responsibility. However, the burden of responsibility, to ensure that it functions at its optimum level, will always rest on the shoulders of the chief executive/managing director.

  • Authority

    Authority will in most cases exist in all organisations, especially where duties are given to others. The clear role of the delegator is always defined in the role and responsibilities of the post holder to either do the task themselves or, delegate to a team member e.g:- finance manager might pass on the invoicing to an finance officer. This authority to delegate carries the ultimate responsibility of being accountable for the ‘safe’ execution of the task delegated to his/her senior colleagues.

  • Duty

    Duty of care rests across an organisation from the lowest employee to the highest. Therefore, when orders are given by those who enjoy that level of responsibility, they would naturally expect the ‘instruction’ be it oral or written to be carried out to a high standard. For example: if a finance officer is asked to print off several completed invoices for checking by the finance manager; the copies should be presented in an appropriate quality and order (an unstated request), but a necessary duty of care to the standards set in the finance department.

  • Accountability

    Accountability clearly reflects the acceptance of responsibility for duties undertaken. Which results in employees being made ‘accountable’ for their tasks – eg: the finance officer, ensuring the invoices are completed to a professional standard before passing to the finance manager for scrutiny. Presenting the invoices in a poor quality, with mistakes, would not only cost time and money, but would also, if overlooked show poor attention to detail. Therefore, the finance officer is responsible for the ‘delegated’ task and any shortcomings, remains accountable!

Organisations: Form and Shape

Within the business world there are many different forms of organisation. In this section we will consider:

  • How organisations are set up
  • The legal forms of businesses
  • The variety of shapes

Legal Status …

Not all organisations will ever become huge, or go beyond their ‘local’ community, but, they will be required to comply with the necessary legal constraints and in most cases protections. The diagram below shows current legal entity requirements in trading with our EU partners.

legal status - organisational

Structures and Type

Whatever the business it is vital that its structure is well planned and/or agreed in principle before it becomes too large. This said, there are cases in which an organisation will ‘out grow ‘its’ original shape simply because of expansion.

In the case of a local authorities, health board and educational institutions, we have seen these organisations significantly change over the last decade, in the main, due to being constrained by boundary changes, expanded by the same factors or merged with similar sector players.

This situation often creates merging of existing organisations into one or much larger concerns or smaller units. This said, there are common features of setting up organisations that are in such circumstances. But, most organisations that are being created, new or old ones re-modelling, several common factors are critical:-

  1. The activities the business will undertake should be agreed, to ensure that its objectives will be completed. In the main, this is agreed through the function of each department/section: production, finance etc.

    In much larger organisations the customer base might be spread out by the geographical community: region, area, division etc.

  2. The then departments/sections would be appropriately sub-divided into job specific areas: finance – income, payments and salaries/wages.

  3. Leadership would also be important for each department, in that heads would be appointed with various team leaders for sectional responsibilities. (A local authority is a good example of such organisations) Each section leader holding delegation responsibilities to ensure that functions are carried out in accordance with the departmental head. The heads ultimately being ‘responsible’ to the chief executive for their department

  4. Each section would then require staffing according to the volume of sales, inputs, outputs, growth factors and so forth. Recruitment, contracting and pay agreements being set by the head of human resources and their team.

  5. Depending on the type of business the purchase of equipment to complete tasks per department will need to be sourced, in order that each staff member has the necessary equipment to carry out their tasks. EG: a desk, chair, computer etc – would be considered minimal for an office worker. While a tool box, ladder and specific health and safety wear would be appropriate for a maintenance person.

  6. The communication procedure across the organisation would need to be agreed – decisions like: electronic communication over written; who can whom – the line of command and accountability etc. Usually provided in a company handbook or manual.

  7. The core limits on responsibility per a job role and made know to those involved. Similarly the same would apply to delegation of tasks. Again this is usually for larger organisations shown in flow charts, like those in the sections below.

The Private Sector Organisation

Features

The key objective of a private sector business is survival, in this very market driven profit orientated environment. Entrepreneurs – these are the 'risk takers' they are the business people who set their objectives to obtain maximum growth share of a market be it nation or international. They will try to obtain high profits from cutting prices and closing sales margins. Some entrepreneurs are ‘business angels’ who provide the ‘cash’ for business to expand, for a high return on their investment. Added value is a feature which gives the production price against the sales price the higher the sales price a better return is seen – this is added value. This aspect of profit encourages ‘business angels’ to take a risk in investments. Or, it can be a strong incentive for individuals, trusts and other investors to invest to invest, because they are subject to limited liability – which will shield from potential high losses. If a limited company is ‘wound up’ (ceases trading) – the shareholder, /directors only lose the amount invested through limited liability for debts.

Unincorporated

A sole trader can be seen as an unincorporated business: the local newsagent, grocers etc – which in most cases is owned by the person who serves you. Partnerships are also part of this sector – these are plentiful in the high street – solicitors, accountants, dentists etc. Sole, traders and partnerships are mainly unincorporated businesses. The risks of being unincorporated are:- No separate legal existence, this means the owners can contract in their own names – taking on the ‘liability’ should the venture fail. There are little or few formalities in setting up this business type.

Incorporated

Incorporated are limited (Ltd); unlike sole traders and partnerships; limited companies are subject to more formalities, before being established. The major difference being, the company takes on its ‘own’ existence, has legal powers as an entity in its own right. Owners/shareholders are not liable for debts.

The Sole, Traders & Partnerships Organisation

Sole, Traders

Also known as sole proprietors, these are common business type. Frequently owned by the person who has started that business and/or a family.

Some of the advantages are:-

  • Profits do not have to be shared.
  • The business is small and manageable.
  • The owner is self employed.
  • Decisions are, made easily.
  • Very easy to start.

Disadvantages:-

  • Owner has unlimited liability for failure and debts.
  • Long hours and less time out.
  • Responsibilities are difficult to share.

Partnerships

Also known in some situations as a limited liability partnership (LLP), similar to that of the full limited company but specifically arranged in law – Limited Liability Partnership Act 2000. Giving the partnership its own identity.

Some of the advantages are:-

  • Partners can divide areas of control.
  • Division of expertise is easily agreed.
  • Management of the business can be shared allowing time for other interests.
  • More capital is available for partnerships and in some situations new partners can ‘buy in’ to the business eg: legal firm.

Disadvantages:-

  • Partners who are not LLP will face unlimited liability for debts.

The Limited Company/Organisation

As we have seen in the previous examples of business type. Limited companies have ‘limited’ liabilities and the business itself becomes an entity in its own right within the law.

They have shareholders who buy into the business venture, usually the business creators are also shareholders. Although it is common practice to have shareholders who hold no ‘management’ roles within the company; there only interest being, the return on the investments made through the purchase of shares.

Like all companies, it is the directors who control the business, in a limited company the directors are elected into post by the shareholders at an Annual General Meeting (AGM).

There is a legal requirement for all limited and publically limited companies to hold an annual general meeting – where the trading of the previous year is discussed, profits, losses and future intent. This meeting also allows shareholders to vote on matters like – the board of directors.

Setting up a limited company in the UK is fairly easy; and can be done by the business creators, or by asking a ‘formations’ company who specialised in ‘setting up’ limited companies to carry out this function. But, whatever method is chosen the principles and legal requirements remain the same. The flow chart below explains how a company is formed:

the limited company organisation

company formation

Documentation for Formation

Memorandum of Association: This legal document contains all the information that explains how the business will and should related to the ‘external world’. It main clauses are:-

  1. The name clause, states the legal name, which once registered cannot be copied, or be a copy of another business entity.
  2. The objects clause states the reason or reasons for its formation (eg: sell products and services)
  3. Its situation clause states where its registered office is located.
  4. The liability clause describes the amount of capital it has and will raise.
  5. The association clause must be signed by at least one or more of the people who are forming the business

Article of Association: will govern the internal workings of the company. The articles show how directors are elected, the number at any given time, rights, duties, how meetings are called and conducted and how the profits are to be shared.

Prospectus: is an invitation to the general public to purchase shares in the given venture. This is the most important document, that; provides comprehensive details about the PLC and converts a Private limited company into a public limited company. It provides potential investors with a picture of the company’s past performance and its intent for the future.

ltd or plc

Key Features

A private limited company (LTD): as we have already seen, has ‘limited’ liabilities placed upon its owners. However, there are important factors that do make a limited company distinct from a sole trader and/or partnership.

Accounts have to be audited on an annual basis and sent to the Registrar of Companies – these accounts become ‘public documents’ and any potential investor can for a small fee, obtain the latest annual accounts for their own scrutiny.

A public limited company (PLC): has some clear advantages over the limited company in that it is able to: raise capital from share floatation on the stock market, through advertising shares for sale.

It can grow substantially in a short space of time, benefiting from economics of scale. It is also able to easily obtain capital for investment in: plant, buildings and development because of its size and its security.

There are also several distinct disadvantages for a PLC. These include: having to publish their annual report and accounts which become open for public scrutiny on a much wider scale that a private limited company. They may become too large and unable to cope with the scale of growth. Ownership can change overnight through takeover bids being launched by competitors.

key features

Multinational Companies

The term ‘Multinational’ (MNC) is used all over the world to describe large companies that hold huge financial, managerial and marketing resources across the global market. MNCs are rather like a holding company having its headquarters in one country and its business interests spread within the country of origin and in other continents. An example of an MNC is News International – owners of a variety of new media in the UK and across the globe.

Features

Area of operation: - The MNCs operate in many countries with multiple products on large scale. A MNC may operate both manufacturing and marketing activities in a number of countries. Some MNCs operate in several countries, whereas, others may operate in a few countries. Mostly MNCs from developed countries dominate in the world markets.

Origin:-The development of MNCs can be traced back several centuries, however, real growth started after World War II. The majority of MNCs are from countries like: USA, Japan, UK, Germany and EU States. In recent years MNCs from the growing economy of Asia, like: Korea, Taiwan, India, China, etc. are operating in the global economy.

Profit Motive: - MNCs are more often, profit driven rather than socially philanthropic. MNC corporations rarely take interest in the social welfare activities of its portfolio of trading country.

Management: - The MNC headquarters works like a holding company, in which, subsidiary companies are operational control and guidance of MNC Board. The subsidiaries functions as per the policies and directions of whole organisation.

Manufacture and Marketing Activities: - MNCs are both Manufacturing and Marketing businesses and they are more often, engaged in hi-tech and consumer goods industries. Current examples of MNCs are: pharmaceutical (Glaxo), petrochemicals (BP), engineering (TATA), consumer goods (M & S), etc.

Quality & Culture: - MNCs are driven by quality, low output cost, strong profit margins, and are more often, managed by sector professionals and experts. They have their own internal organisation culture, branding, ethics and, business systems. MNCs believe in the concept of total quality management (TQM).

The Public Sector

public sector

  • Definition

    We can understand the public sector of the UK economy to be those organisations that are predominately owned, managed and financed on behalf of the taxpayer. These include among others: Local Authorities, central government, regional government, all of which provide services for and on behalf of the public.

  • Pros and, Cons of public ownership.

    The UK Government may from time to time, take a business, firm or complete industry into public ownership. Example of which are:

    • British Coal
    • The Ports Authority
    • The Post Office
    • Recent controversial examples are: Lloyd/TSB; RBS and until recently, Northern Rock.
  • Reasons for public ownership

    There are a number of controversial arguments surrounding the reason for bringing a business into public ownership from the private sector. Again, a good example are; the banks who without the financial lifeline from government, would have become insolvent. However this was an extreme example but other reasons for past inceptions were for one or more of the following reasons:

    • Control a natural monopoly/concern: eg: utilities – energy, water etc.
    • To ensure that customers of a given business are not being exploited.
    • Protect an industry – a good example is banking, steel and coal.
    • Ensure that national security is not compromised – eg: ports authority, boarder agency, prison service.
    • Ensure public finance is used successfully to ensure economic success.
    • Can become an inefficient less viable organisation – like the former British Railways and British Steel.
    • Losses are absorbed by the taxpayer
    • Political interference has also been a consistent problem.
    • De-regulation is also a constant problem.
    • Devolution is also a problematic area of concern.
  • Types

    There are two types of public sector organisation that are, common in the UK.

    • A public corporation – a good example is the BBC; NHS, or Rail track who have a board appointed by a government minister; and although devolved, are still is very accountable and influenced by government.

    • A nationalised industry – a good example is British Rail, British Coal, British Steel, these became PLC.

    • Local Authorities also undertake – ‘municipal undertaking’ which are operated on a business standard, for example: leisure services, refuse collection, homecare, after school provision – all of which have a financial implication for the customer and an income generation for that authority. The profit of which can be ‘put back’ into the service for improvements.

The focus of all business is - to provide services or make products; whatever its shape, size or shape; it’s is an entity in its own right. Therefore, the investment an individual or individuals put into a business venture, will be the hallmark of its success or failure – as the old maxim states – “Nothing ventured, nothing gained”!

Source: ChinaStones - http://china-stones.info/free-essays/business/organisational-structures.php



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