Types of organisation

You need to be aware of the characteristics of several types of organisation.

• Commercial organisations are profit-seeking. They can be sole traders, partnerships, limited liability partnerships and limited companies. The main advantage of limited liability partnerships and limited companies is that if the organisation hits hard times and has to go to liquidation, the owners of the organisation are protected. Creditors and banks can pursue only the assets which are in the company. Sole traders and partners, on the other hand, have unlimited liability for all the business’s debts.

• The second type of organisation is a not-for-profit organisation. An example of a not-for-profit organisation could be a charity, such as a charitable hospital. Instead of producing a profit and loss account, they tend to produce income and expenditure accounts. Ultimately their income has to exceed their expenditure or they will run out of money.

• Public sector organisations are owned by the state either at a national level or at a local level. Examples could be the defence department, many health services and educational systems. In some economies other industries or businesses are also owned by the state. For example, many national airlines are state-owned.

• Non-governmental organisations tend to be not-for-profit organisations but with an international brief. Many United Nations organisations will fall into this category.

• Co-operatives are owned by the people who work in the organisation. Some farmers, for example, set up co-operatives to market their products more effectively than they could on their own. Usually they seek some sort of profit, but the ownership is shared widely amongst the people who are working in the organization.

Organisation structures

Organisation structures can be described as:

• entrepreneurial,
• functional,
• divisional, or
• matrix.

Entrepreneurial structures are very simple; basically it’s a boss and the workers. They are small, often family-owned, and are not large enough to be divided into separate departments.

Once a business begins growing it will normally develop into a functional structure. This means that there are separate departments according to function – a sales and marketing department, an accounting department, a payables department, receivables department, research and development department and so on. This can be a very efficient structure as expertise is concentrated in each department and there could be great economies of scale.

If the business continues to grow it may find it worthwhile to divisionalise. This means splitting the company up, perhaps on the basis of product or geography. For example you might have a North American division and a European division. You might have a division which makes and sells paint and you might have a division which makes and sells pharmaceuticals. The rationale for splitting a company up into divisions is to achieve specialisation. If you are selling paint and pharmaceuticals it is likely that the manufacturing is very different, the markets and competition will be very different, as will the regulation of the business. There is probably not much point in keeping it all together as one, and the business is better off being divided up into different divisions which can specialise.

A matrix organisation is more complex. A good way to think of a matrix organisation is to think of a project team. A project team for project A, for example, will have a project leader or manager for project A. The members of the team report to that manager. But the members of the team also have functional responsibilities. For example, there will be a project accountant and someone who looks after the quality control aspects of the project perhaps someone who deals with the personnel involved in the project.

These people, as well as reporting to the project manager, also have to report to their functional heads. Therefore each person can have two bosses. Classical management theory suggested that this was unfair. But in fact depicting the organisation as a matrix doesn’t cause there to be extra pressure on the people who work for the project. It is perhaps simply a more honest representation of the pressures that the project members are under.