Successful and efficient implementations of strategies need effective and efficient structures.
Different strategies require different structures. Organizational structure performs a prominent role on administrative front as to exactly how the companies organize, implement and control their undertakings. Organizational structures are important not only for administrative and effective execution of strategy but also for evaluation and control process. Formal organizational structure states the responsibility, line authority and accountability of the activities to be performed by the various departments in the organization and the employees.
Apart from providing a fundamental structure to enable working, organizational structure has following basic drives:
- Define the lines of authority
- Ensure that all vital activities are allocated and executed
- Creates lines of communication
- Offers for coordination and balance
- Offer insight into opportunities of advancement
- Economies on executive time
Developing an organizational structure
The process of designing an organization’s structure starts with
- Define organizational objectives in relation to what the organization desires to accomplish
Growth/survival
Market share
Cost & Expenses
Market leadership
Customer relations
- Define the different activities that need to be undertaken to realize these objectives
- Define the volume and costs of each of these activities
- Identify position to whom these activities may be allocated
- Categorize and congregate closely interrelated activities and allocate them to the same position
- Determine on hierarchy of activities by defining the level at which each activity will be executed
- Define the relationship between positions
- Define the nature of authority in respect of each position
- Assign personnel to positions
- Check the organization structure to make certain …
Provision for coordination and control
Provision for growth
Provision for flexibility and control
Organizations have to quickly respond to shifting market trends, evolution in both products and markets as well as the competitive necessities. While planning an organizational structure an important consideration should be for establishment of flexibility, effective coordination procedures and distinct lines of communication.
One of the strategic decision in organizational structure is related to the amount of centralization or decentralization of the number of organizational functions. In centralized systems recruitment, training compensation and evaluation are all managed from the central headquarters, while in decentralized system the managers take up most or all of these functions. The degree of centralization or decentralization in structure may depend on the size of operation, costs, effectiveness and competitive necessity.
When organizations are small with only a few employees, functioning from the corporate office may be more efficient and effective. As the size of the businesses increase, a system of branch offices gradually surfaces, to allow employees to be more responsive to local consumer needs. Decentralization of operation provides more freedom to managers permitting them to display initiative and managerial skill.
Most medium sized and large firms pool the advantages of both centralized and decentralized operations. Decentralized structures are employed to ensure better customer service while training and part of recruitment function are centralized.
Managerial viewpoint towards control and delegation is also a significant variable influencing the amount of decentralization of activities in sales organization.
A recent development, which has affected the centralization/decentralization choice is the increased use of computers to process and handle data. As computers can process large volumes of information at lower costs and much more quickly, the trend towards computerisation has encouraged centralized decision making.
Types of organizational structure
Organizations do not have very similar structures as their needs and expectations, markets and products, company size and marketing channels vary from each other.
The line structure is one of the oldest and most fundamental forms of organization structure, portrayed by a chain of command successively from the top executive down to the level of the salesperson. All executives have line authority over their subordinates who in turn are answerable only to their immediate superior. Since lines of authority run vertically in this structure, executives at each level are generally independent of all others at the same level.
Line Organization
Line organizational structure is to a large extent employed in smaller firms or those dealing in a restricted product line, or operate in a smaller geographic area.
| Structure: Line | |||
| Importance/Level of Impact | |||
| Element | High | Moderate | Low |
| Quality | ü | ||
| Quantity | ü | ||
| Quick | ü | ||
| Resources | ü | ||
| Relationships | ü | ||
However, line organizations become unsuitable in case of fast growing organizations or those with large staffs, as increasing departments demand additional layers of executives to be added. Increase in vertical levels is often accompanied by misrepresentation of directions and reduced efficiency of communication, resulting in poorer results.
Line and Staff
Line and staff organizations typically result as the size of the organization get bigger. It is typically found in medium and large firms with considerable staff dealing in diversified product lines. The line and staff department is distinguished by the presence of staff specialists or staff assistants to advise and assist the top executive. These specialists are experts in their own fields which could be training, service, analysis and planning, dealer relations, marketing, Finance, R & D, product development and so on. While staff executives and assistants do not have the line authority to command, they advise the line executives through recommendations and provide the benefit of specialization in the organization. The inclusion of the staff component liberates the line executive from the burden of detail. By delegating problem involving in depth study or detailed analysis to staff specialists, the line executive gets more time for policy making and planning. A consortium of experts becomes available for offering advice and assistance in specialized fields. The activity of planning can also be subdivided and assigned to staff specialists. More information is also made available for better decision marketing.
For instance, in the above structure, the customer service manager is essentially in-charge of providing information and enabling customer focus for the organization. He advises the line managers on the suitability of the various customer related activities and keeps them informed about the developments in the field. The sales promotion manager performs the advisory function with respect to the sales promotion activities of the organization and coordinates with the regional sales managers as to the promotional needs. The regional managers are the line executives who are accountable for the operating results in their territories and control their own field staff of sales executives and salesmen.
| Structure: Line & Staff | |||
| Importance/Level of Impact | |||
| Element | High | Moderate | Low |
| Quality | ü | ||
| Quantity | ü | ||
| Quick | ü | ||
| Resources | ü | ||
| Relationships | ü | ||
The advantages of the line and staff organization are mainly those of specialization. The pool of experts provides advice and assistance in specialized fields. Planning activities are subdivided and apportioned to staff members, and decisions and policies rests on a sounder base than in the line organization.
The difficulty that arises with line and staff organization is fundamentally coordination. The work of the staff specialists needs to be vigorously coordinated with the operations of the line department and usually a lag develops, as reports and recommendations take time to compile.
Line and staff organization also occasionally cause problems of interpersonal relations. The staff executives incline to go beyond their advisory authority and try to undertake and occasionally succeed in undertaking the authority to issue orders and directions. This poses difficulties of dual subordination and may lead to confusion. The fact that staff specialists do not share direct responsibility for results is also resented by some line executives. Events have shown that to a great extent these difficulties can be decreased if all areas in which line and staff executives have to share authority and responsibility are precisely written down as constituents of the job description.
The functional organisation
The functional organisation is intended at exploiting the benefits of specialization to its maximum extent. In the functional organizational structure, all personnel receive direction from, and are accountable to different executives, on different viewpoints of their work. To some extent in breaking to the principle of unity of command, the functional organizational structure gives all executives, each a specialist in his own field, a direct authority to command and issue orders to his functional authority therefore, simply means that at any given time; a sales person could be under instruction from a number of executives. The top executive has coordinating responsibilities in respect of the actions of functional heads. Functional organizational structures have not been found to be a very appropriate structure for sales organization. In larger organizations where the size of the sales force is substantial, the degree of centralization compelled by the functional organizational structure, renders the operational inefficiencies. Smaller and medium sized firms on the other hand find the system expensive because of the high degree of specialization. Another flaw of the structure is that problem of coordinating the activities of highly diverse specialists is placed on a single individual. In case that individual is not capable enough in this regard, the whole structure is likely to become cumbersome and ineffective.
The major advantages of functional structure are that it is logical and has proved the test of time. It is also the best way of making certain that the power and prestige of the basic activities of the organization will be defended by the top managers. Since the structure follows occupational specialization it facilitates efficiency in the utilization of manpower. The main advantage of a functional organization is its administrative simplicity.
The disadvantages are, the structure tends to de-emphasize overall organizational objectives. Specialized departments often have problems seeing the business as a whole, and co-ordination among them is frequently difficult to achieve. Adapting to changing environment is difficult. There is inadequate planning for specific products and markets, since no one has full responsibility for any product or market. Products that are not favoured by anyone are neglected. Each functional group competes to gain more budget and status vis-à-vis the other functions.
| Structure: Functional | |||
| Importance/Level of Impact | |||
| Element | High | Moderate | Low |
| Quality | ü | ||
| Quantity | ü | ||
| Quick | ü | ||
| Resources | ü | ||
| Relationships | ü | ||
Geographic Specialization
A company selling in a national market often organizes its sales force along geographical lines. The extremely usual form of organizing a structure is geographical. The country or region is divided into four (or more depending upon the size of the region) geographical areas and put in charge of zonal managers. These areas representing North, East, West and South. These major zones are further divided into smaller geographical territories which are covered by Regional Sales Managers followed by Areas Sales Managers and Sales Representatives.
The structure places responsibility at a lower level of the organization as well. The foremost benefit of geographic structure is that the personnel usually have a smaller area of operation than in the other organization structure and over a period of time get to know their customers and markets personally which can lead to intensive market development. Structure places emphasis on the local markets and problems. Organizations turn out to be quicker to respond to local needs. The geographic organization is usually a flat rather than tall organization and the diminutive lines of communication make for superior effectiveness of direction and control. Another advantage that come along is that travel time and expenses can be cut down. Geographic organization is normally more effective when the product line is not widespread or consists of relatively simple, non-technical products. The structure also furnishes measurable training ground for general managers.
The disadvantage with geographic specialization is that it requires more persons with general manager’s abilities. The sales persons need to be responsible for the entire product line in their territory and they may not be equally knowledgeable about all products.
| Structure: Geographic | |||
| Importance/Level of Impact | |||
| Element | High | Moderate | Low |
| Quality | ü | ||
| Quantity | ü | ||
| Quick | ü | ||
| Resources | ü | ||
| Relationships | ü | ||
Product specialization
The product specialization is usually employed when the product line is large and varied or when the products are technical enough to warrant specialized applications knowledge, or when adequate technical knowledge is an important element of successful selling. Product specialization is usually blended with geographic territorization at the higher levels, while at the level of the field operators, different salesmen may be designated to specific product lines. Instead of selling entire product line in a specific territory, a salesperson assigned to a particular product/product group, will sell only that product to the customers in that area.
The structure places attention and efforts on product line. Product specialization lets the sales personnel to specialize in their corresponding product lines which in turn would result in more result oriented performance. Permits growth and diversity of products and services. Customer objections and sales resistance can be handled more effectively on account of intensive product knowledge. Improves coordination of functional activities. In certain cases, even if the product line is not quite technical but the product range is widespread, organizations find dividing the sales assignment product wise for more effective coverage. The company divides its product line into two or more major product groups for effective promotion. Even if two or more salesmen are assigned to the same territory, each will be responsible for only the product group assigned to him.
Product specialization structure creates additional expenses which should be sensibly evaluated against the benefits of such a structure. There is an understandable escalation in travel and administrative expenses. There is some duplication of work also as two salesmen from the company selling different products in the same territory may call on the same customer to which many customers may complain.
On the other hand, each salesman in the organization would have to travel the entire state, which would result in higher travel time and expenses.
| Structure: Product | |||
| Importance/Level of Impact | |||
| Element | High | Moderate | Low |
| Quality | ü | ||
| Quantity | ü | ||
| Quick | ü | ||
| Resources | ü | ||
| Relationships | ü | ||
Customer specialization
Customer specialization is employed in situations when almost identical products are marketed to consumers each of which may exhibit a diverse set of selling problems. In this kind of organizational structure each sales person sells the entire product line to the selected buyers.
Customer specialization empowers the sales persons to become additionally knowledgeable about the unique problems and needs of each cluster of customers. A customer oriented structure is in harmony with the marketing concept with its higher prominence on consumer satisfaction. The greater market specialization developed as a result of constantly working with the same set of consumers imparts a degree of professionalism to the sales task and has been found to result in lower turnover of sales personnel.
The main weakness of this form of specialization is that geographical territories may characteristically overlap. There may be a large number of the company’s representatives covering the same geographical area, but serving different customers, often resulting in higher costs.
Customer specialization encourages concentration on customer needs, feelings and develops expertness in customer area.
The disadvantages are it may be difficult to coordinate operations between competing customer demands, requires managers and staff expert in customer’s problems and customer groups may not always be clearly defined.
Geographic, product and customer specialization present the basic approaches to organization structure. Quite a high proportion of organizations use a combination of these basic types. In order to achieve a sales organization that most efficiently serves the need of their target customers.
| Structure: Customer | |||
| Importance/Level of Impact | |||
| Element | High | Moderate | Low |
| Quality | ü | ||
| Quantity | ü | ||
| Quick | ü | ||
| Resources | ü | ||
| Relationships | ü | ||
A matrix or grid structure
A matrix or grid structure normally is the combining of two basic structures. For instance, combination of geographic and product, or functional and product or geographic and functional etc.
The reasons for the existence of a matrix organization is a single structure may not be feasible. Highly trained professionals generally prefer to be allied organizationally with their professional group than being allied with a geography. The functional competencies of these professionals can be leveraged across product categories and geographies.
Matrix Structure
VP Production VP Marketing VP Finance
Group Product
Manager A
Group Product
Manager B
Group Product
Manager C
Group Product
Manager D
A production manager may look after the production schedule of all the products with a line structure under him. As organizations, Like FMCG, cannot have multiple production units at all the geographical location it serves. Similarly, a uniform promotional strategy for national brands can be developed for the product lines and categories the organization has. A specialist in product promotion can look after all the promotional strategies for the various product lines.
Organization can make effective use of the matrix structure by following certain principles. Stewart, Knight, Galbraith, Hoffmann[i] gave guidelines for making Matrix Management effective…
Define the objectives of the project or task.
- Clarify the roles, authority, and responsibilities of managers and team members.
- Ensure that influence is based on knowledge and information, rather than rank.
- Balance the power of functional and project managers.
- Select an experienced manager for the project who can provide leadership.
- Undertake organization and team development.
- Install appropriate cost, time, and quality controls that report deviations from standards in a timely manner.
- Reward project managers and team members fairly.
| Structure: Matrix | |||
| Importance/Level of Impact | |||
| Element | High | Moderate | Low |
| Quality | ü | ||
| Quantity | ü | ||
| Quick | ü | ||
| Resources | ü | ||
| Relationships | ü | ||
Depending upon the need of the organization a structure should be developed. There is no mandate that once the structure is developed it should not be changed. Nevertheless, the structure should not be changed very frequently. Yet, depending upon the size of the organization, and organizational objectives, the structure should be finalized.
Reference:
Stewart, in Management (1968); Knight, in Management (1980); Jay Galbraith, Designing Complex Organizations (Reading, Mass: Addison-Wesley Publishing Company, 1973), chap. 5. William H. Hoffmann, “Strategy Matrix,” Managerial Planning (May-June 1985), pp 4-9, 75
Discussions in this chapter are based on the work of Philip Kotler in the book Marketing Management Analysis, Planning, Implementation, and Control, published by Prentice HallIndia; Richard R. Still, Edward W. Cundiff, Norman AP. Govoni in Sales Management Decisions, Strategies and Cases, Prentice Hall India, and Heinz Weihrich, Harold Koontz in the book Management Global Perspective published by McGraw-Hill