CHAPTER 6 ORGANIZATIONAL SYSTEMS
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 desired goals; hence, there must
be a fit between and among organizational elements, including its departments and small business units.
 Organizational 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 organizational
structure
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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
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.
Figure 6.1 Functional Organizational Structure
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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, may lower morale among
employees. Figure 6.2 shows the department's territorial structure used by an organization.
Figure 6.2 Territorial Organizational Structure
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Product Organizational Structure
Traditionally, organizational divisions follow a product structure. In some companies, the subbusinesses 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.
Figure 6.3 Product Organizational Structure
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
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.
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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.
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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 SBIJs 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.
This division structure raises the issue of whether any marketing functions should be performed
at the corporate staff some companies maintain a marketing services structure at the level. For
example, market research, advertising, and media planning services are provided to each
territorial division in and Mindanao from a corporate staff group in Manila. The decision, to
maintain some corporate-level marketing staff services or otherwise, depends primarily on the
size of the division.
If division is large enough to afford its own marketing structure, it will usually have one. Figure6.4
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
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Matrix Organizational Structure
The matrix structure is efficient for establishing specialist resources but is best for integrating
functions.
Figure 6.5 Matrix Organizational Structure
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 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.
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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 aftersale 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.
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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
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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 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 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, draw coordination among the employees,
provide information, compute for the costs involved, and adopt a culture of flexibility.
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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
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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 Drucker (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.
Questions 6.1
1 Define organizational structure.
2. What are some of the factors that may influence a company's decision to adopt a type of organizational
structure? Explain your answers.
3. What are the criteria used in evaluating organizational structures? Give the importance of each criterion.
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.
 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.
o Tasks of a Leader: planning where he sets the objectives to be attained and the
means to achieve them; organizing where he identifies, divides, groups, and
coordinates various activities to achieve set goals; staffing where he recruits, selects,
hires, and develops human resources; directing where he leads and communicates
with his employees to attain objectives; controlling where he monitors processes and
functions; and institutes corrective actions when needed.
o Roles of a Leader: a strategist, a facilitator, and an administrator; a leader who
inspires and motivates his employees to attain quality and productivity; an
information man who understands critical facts, issues, problems, and other concerns
about the industry and the business environments; a conceptualizer who concretizes
the vision, mission, and plans of the enterprise in accordance to set goals and
objectives: a liaison officer who serves as conduit for the employees belong to
different business units or groups; a mediator who settles concerns, issues, and other
problems between labor and management; a facilitator who negotiates the
allocation of resources; a delegator who assigns responsibilities, empowers
employees, and monitors them periodically and efficiently; a problem-solver who
tackles organizational concerns and provides adequate solutions; and a decisionmaker who makes appropriate decisions, both qualitative and quantitative, and as
needed by the organization.
o 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.
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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 clearly 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.
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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
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.
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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 or employee relationship is further heightened when the
employee the highest that is employee commitment. Here, the employee cultivates Within
himself an attitude and "sense of owning" where he treats the interests and welfare or the
enterprise as if he owns it.
Figure 6.6 Levels of Organization-Employee Relationship
 Facilities and Equipment
Another important component of the organizational environment is the facilities and equipment.
These 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 include management
of buildings and site maintenance, management of machinery and facilities, and application of
technology.
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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.
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
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 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, increasing 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. 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 function
efficiently and effectively. Policies give direction and structure to an organization supported by
needed financial resources.
Questions 6.2
1. Define organizational leadership. What competencies and skills should a leader possess? Give examples.
2. What are the role/s of employees in an organization?
3. When is an employee described as satisfied? Is money always a satisfier for an employee?
4. What are the ways to increase employee involvement?
5. Is employee commitment attainable? How?
6. In starting an organization, how important is having modern facilities and equipment? Explain your
answer.
7. Are projected financial figures always accurate and therefore, reliable? Explain your answer.
8. Why are organizational policies needed in running an organization?
World's Greatest Strategists
Miles White: Abbot Laboratories
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Strategies
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