Organizational Structure and Corporate Performance

Over time, there has been debate about if organizational structure has any effect on performance. We are going to consider below four different types of structure and four performance variables and suggest the ideal structure organization should adopt to make efficient use of her resources. First of all, what is organizational structure? Simply put, organizational structure is how the organization is divided to enhance communication and coordination

What are the four different types of structure that would be consider?

1. Functional structure

2. Geographical structure.

3. Matrix structure

4. product structure.

Functional structure is a type of structure where organization is sub-divided into sub-unit base on duty they perform. Example is accounting/Finance, Engineering, Manufacturing, Marketing etc. In this structure, people performing similar kind of operation are grouped together into a department.

The second type of structure we are considering is the Geographical structure. In this structure, operation is sub-divided based on the Geographical location the organization serve. Operation is put together based entirely on the Geographical location they serve. The unit may have all other Functional areas being active serving a particular Geographical area.

The third type of organizational structure we are going to consider is the matrix structure. This organizational lately has gained popularity partly due to need for devolving more power to employees and reducing the unnecessary need for bureaucracy. This type of system allows an employee to report to not only one boss but in some cases more than two bosses. Its typically sometimes called a project structure where a project team is put together with members drawn from all the functional department to execute a project. During the period of the project. The project team member is required not only to report to their functional managers but also to the project manager. This system of structure is mostly employed by project company with project team drawn from all the functional department and disbanded on the completion of the project.

The last type of structure we are going to consider is the product structure. This structure divides the company into sub-unit based on the product and market they serve

The organization may be divided into the product that they serve their market and each product categories may have their functional department very active. Example of this is Toyota where they have different product and specific people with their skills serve only a particular market through their product. Toyota is offering different vehicles to the market. They have land cruiser prado, land cruiser, Toyota camry and different other product categories. They can therefore divide their operation based on the product and the market they are serving.

Now, we are done with types of organizational structure. We are going to look at performance.

What is corporate performance you may ask?

Corporate performance in simple terms can be refers to as the efficiency with which company turn its input into output.

Four performance variables are considered thus:

1. Profitability

2. Revenue

3. Market share

4. Return on investment ROI

Profitability is the ability of the company return revenue more than expenses. There are two measure of profitability; gross profit and net profit. Gross profit measure profit from trading activity without adding other overhead to the expenses head while net profit takes into account trading profit less all other expenses.

Revenue is the net sales made by the organization. It’s actually the sales of value that the organization has created in period under review

Revenue arise as a result of exchange of value between the organization and its customers

Market share measure the percentage of the market that is under the firm control of the organization. This covers the actual percentage of the total market that is owned by the organization.

Return on investment

Is the actual profit that is Return to the providers of capital. Investors are the ones that provided their capital expecting they would be able to get enough profit in term of Return on their investment. It measures how efficient the company has been in using the capital provided by the investors to make profit.

ideal structure to be adopted by organization is therefore dependent on certain factors: the market, industry, size of the organization, nature of its operations and the stability of the economy in which its operates.