Question

What sort of business organization would you use if you went into business for yourself and why. Does any single form of business organiza­tion appear to be superior? What sorts of questions would one want to ask before select­ing a busi­ness organization?

Answer 1

The major types of business organization are

-simple structure

-functional structure

-divisional structure

-multidivisional structure

I would personally use divisional structure if i went into business because of its simplicity and low cost.The structure promotes specialization of labour , encourages efficiency minimizes the need for an elaborate control system,allows for rapid decision making .

No, All the forms of business organization have some benefits and one is better than other in some regards . We have to choose based on our requirements which structure suits our business the most and develop it accordingly.

The questions we would like to ask before selecting a business organization are

What is the size of business?

What level of specialization is required for business?

Does all the decisions require consultation with top management?

The number of employees in the organization?

Career development opportunities for employees?

How is the adaptability of new product or business?

d) Explain Multidivisional (M-form) Structure. bud i lo vidido odobre Ans a) SIMPLE STRUCTURE IN BUSINESS ORGANIZATION > Simple organizational structure is most appropriate for companies that follow a single business strategy and offer a line of products in a single geographic market. ► The simple structure also is appropriate for companies implementing focused cost leadership or focused differentiation strategies. > A simple structure is an organizational form in which the owner-manager makes all major decisions directly and monitors all activities, while the company's staff merely serves as an executor. ► Little specialization of tasks, few rules, little formalization, unsophisticated information systems and direct involvement of owner-manager in all phases of day-to-day operations characterize the simple structure. (DISADVANTAGE) ► Communication is frequent and direct, and new products tend to be introduced to the market quickly, which can result in a competitive advantage. (ADVANTAGE) - 105 -

► Competitive advantages include a broa broad-based openness to innovation, greater structural more rapidly to environmental changes. (ADVANTAGE) flexibility, and an ability to respond more rapidly to environmental change processing requirements place significant pressures >> More extensive and complicated information processing requiremente la mavera (often due to a lack of organizational skills or experience or simply due to lack of time).(DISADVANTAGE) To coordinate more complex organizational functions, companies should abandon the ai structure in favour of the functional structure. The functional structure is used by larger companies and by companies with low levels of diversification. b) Functional Structure Chief Executive Officer Corporate R&D Corporate Finance Strategic Planning Corporate Marketing Corporate Human Human Resources Finance Production Engineering Accounting Sales & Marketing Figure: Functional Organization Structure A widely used structure in business org is functional type because of its simplicity and low cost. ► The functional structure consists of a chief executive officer or a managing director and limited corporate staff with functional line managers in dominant functions such as production, accounting, marketing, R&D, engineering, and human resources. ► Besides being simple and inexpensive, a functional structure also promotes specialization of labour, encourages efficiency, minimizes the need for an elaborate control system, and allows ra decision making The functional structure enables the company to overcome the growth-related constraints of the simple structure, enabling or facilitating communication and coordination. Simple org structure is most appropriate for companies that follow single business strategy. Some Disadvantages of a functional structure are that it forces accountability to the top, minimizes career development opportunities, low employee morale, line/staff conflicts, poor delegation of authority, and inadequate planning for products and markets. Most large companies abandoned the functional structure in favour of decentralization and improved accountability. - 106 -

CABUDILUU ) Divisional Structure Nive Corporate Legal/PR General Manager Division A General Manager Division B Marketing Marketing - Production Production Personnel Personnel 1 Figure: Divisional Structure The divisional structure can be organized in one of four ways: by geographic area, by product or service, by customer, or by process. With a divisional structure, functional activities are performed both centrally and in each separate division The divisional structure by product or services) is most effective for implementing strategies when specific products or services need special emphasis. The divisional structure allows strict control over and attention to product lines, but it may also require a more skilled management force and reduced top management control. ► General Motors, DuPont, and Procter & Gamble use a divisional structure by product to implement strategies. A divisional structure by process is similar to a functional structure, because activities are organized according to the way work is actually performed. ► However, a key difference between these two designs is that functional departments are not accountable for profits or revenues, whereas divisional process departments are evaluated on these criteria. ADVANTAGE OF DIVISIONAL STRUCTURE → Accountability is clear, i.e. divisional managers can be held responsible for sales and profit levels. → Due to extensive delegation of authority, managers and employees can easily see the results of their good and bad performance. > Employee morale is generally higher in a divisional structure than it is in centralized structure. ► Creates career development opportunities. → Leads to competitive climate within an org. New business and product can be easily added. - 107

CA.BHUSHAN GUSAR MUID STANA ALAMY DISADVANTAGES OF DIVISIONAL STRUCTURE ORGANISATION & STRATEGIC LEADERSHIP It is costly Each division requires functional specialists who must be paid. There exists some duplication of staff services, facilities, and personnel for instance specialists are also needed centrally (at headquarters) to coordinate divisional activi nagers must be well qualified because the divisional design forces delegation of authority better qualified individuals requires higher salaries. ► Enquires an elaborate, headquarters driven control system. Certain regions, products, or customers may sometimes receive special treatment, and It may be difficult to maintain consistent, companywide practices. d) Multidivisional or M-Form Structure > The multidivisional or M-form structure was developed in the 1920s, in response to coordination- and control-related problems in large firms. The multidivisional (M-form) structure is composed of operating divisions where each division represents a separate business to which the top corporate officer delegates responsibility for day- to-day operations and business unit strategy to division managers. By such delegation, the corporate office is responsible for formulating and implementing overall corporate strategy and manages divisions through strategic and financial controls. ► This new, innovative structure called for • Creating separate divisions, each representing a distinct business • Each division would house its functional hierarchy; • Division managers would be given responsibility for managing day-to-day operations; • A small corporate office that would determine the long-term strategic direction of the firm and exercise overall financial control over the semi-autonomous divisions. This would enable the firm to more accurately monitor the performance of individual businesses, simplifying control problems, facilitate comparisons between divisions, improving the allocation of resources and stimulate managers of poorly performing divisions to seek ways to improve performance. Q.3) Explain Strategic Business Unit (SBU) Structure. Its Advantage and Disadvantage. Ans: SBU Structure ► The SBU structure is composed of operating units where each unit represents a separate business to which the top corporate officer delegates responsibility for day-to-day operations and business unit strategy to its managers. - 108 -