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Organizatio n Structure Chapter VII
Organization Structure
Chapter VII
Introduction…
A business venture is undertaken by an organization formed and developed by the management to carry on day-to-day activities.
Organization – is composed of men and women who do all the work necessary so that the enterprise may achieve its objectives.
Introduction…
Because of the number of the persons who are going to work in an organization, there must be an orderly distribution of specific functions and responsibilities and each of the worker must have a clear understanding of his working area, where he stands in the organization and how he can contribute to better coordination and achievement.
What is Organization Structure?
Organization structure is the division of activities into defined functions and responsibilities for executives, departments, and group of workers
Why should there be an organization structure in an enterprise?
This is for the company to be visualized as a whole, how every department or function is properly related to the rest and in any weakness is revealed for correction.
The organization structure serves to relate supervisors to their associates.
Why should there be an organization structure in an enterprise?
Organization structure answers the question;
What’s my job?Where do I belong?
Span of Supervision…
Span of supervision refers to the area of responsibility and the number of subordinates assigned to an individual supervisor.
This is a factor in designing an organization structure which will affect to the number of supervisors required and the effectiveness of each supervisor.
Span of Supervision…
As the enterprise grows in size and as labors becomes more intensive, the organization structure gets more complex where there’s a tendency for the positions and titles to proliferate thus supervisors require higher-sounding designation and more assistants. This should be avoided.
Span of Supervision…
There is no set number of persons which one supervisor can effectively supervise. It would always depend on:Capability of the leaderAttitudes and level of education of the subordinatesComplexity of the workTime constraintsTerritorial spreadFinancial involvement
Types of Organization
Based on the nature and scope of the work of each organizational sub-division and their relationship three principal types of organization arise:
Line organizationLine and staff organizationFunctional organization
Types of Organization: Line Organization
Line OrganizationThe line organization is the simplest in form.Direct straight-line responsibility and control is
established from general manager to the department head, until the workman is reached.
Types of Organization: Line Organization
Line Organization: Its advantagesThere is centralization of authority.Simple and direct lines of authority make it easy to define
responsibility.Single accountability can be maintained and better
control is achieved.Overhead expenses tend to be lower because
functionalization is not complex.
Types of Organization: Line Organization
Line Organization: Its disadvantagesIf the organization continues to grow, the load on each
executive increases.Instructions are not given directly to the worker who is to
execute the orders, but these have to flow through channels.
The lack of managerial specialization may weaken the competitive composition of the concern.
Types of Organization: Line Organization
Line Organization: Its disadvantagesExcessive centralization of authority hampers the
development of supervisors at the lower levels.
Types of Organization: Line and staff Organization
Line and Staff Organization
As the enterprise continues to grow, the managerial functions become more complex thus, the need for specialists to assist in certain of these functions becomes pressing and the need of modification the line organization structure into Line and staff organization structure comes in.
Most large organisations belong to this type of organisational structure. These organisations have direct, vertical relationships between different levels and also specialists responsible for advising and assisting line managers. Such organisations have both line and staff departments. Staff departments provide line people with advice and assistance in specialized areas (for example, quality control advising production department).
Types of Organization: Line and staff Organization
The Staff Executive
The general functions of staff executives are to assist, to advise and to coordinate the function on a company-wide level. He is seldom responsible or the execution of line functions, these remain with the line executives.
Types of Organization: Line and staff Organization
The Staff Executive
The influence exercised by the staff executive is mainly one if ideas and recommendations, based on specialized ability, knowledge, and training whereas the leadership of the line executives is essentially one of decision and action based on a broad performance background, a knowledge of men and experience in actual operations.
Types of Organization: Line and staff Organization
The Staff Executive
The recommendations of a staff executive should have the approval of the approval of the line executive concerned before implementation.
Types of Organization: Line and Staff Organization
Line and Staff Organization: Its advantagesCommittee decisions are better than individual decisions.Better interaction between committee members leads to
better co-ordination of activities.Committee members can be motivated to participate in
group decision making.Group discussion may lead to creative thinking.
Types of Organization: Line and Staff Organization
Line and Staff Organization: Its disadvantagesEven through a line and staff structure allows higher flexibility
and specialization it may create conflict between line and staff personnel.
Line managers may not like staff personnel telling them what to do and how to do it even though they recognize the specialists’ knowledge and expertise.
Some staff people have difficulty adjusting to the role, especially when line managers are reluctant to accept advice.
Staff people may resent their lack of authority and this may cause line and staff conflict.
Types of Organization: Functional Organization
Functional StructureFrederick W. Taylor developed
the concept of functional organization I the end of the 19th century.
Functional organization divides managerial activities so that each head, from assistant superintendent down, has few functions a possible and is thus able to become an expert in these few functions.
Types of Organization: Functional Organization
Functional Structure: Its advantagesDecentralized decision making.Strong product/project co-ordination.Improved environmental monitoring.Fast response to change.Flexible use of resources.Efficient use of support systems.
Types of Organization: Functional Organization
Functional Structure: Its disadvantages1. High administration cost.2. Potential confusion over authority and responsibility.3. High prospects of conflict.4. Overemphasis on group decision making.5. Excessive focus on internal relations.
Types of Organization: Functional Organization
Functional StructureAuthority is delegated according to functions. The
workers take orders from more than superior, but only in that aspect of the worker over which each particular supervisor has control.
Because of the serious problems of overlapping authority and conflicts in supervision, the functional organization has remained largely a theoretical concept.
Any questions?
Financing the Enterprise
Chapter VIII
Introduction…
Most of the problems encountered by different businesses is because of insufficiency of capital or inadequate financing.
Financing the Enterprise: Capital
Capital
Capital is referred as the total productive assets which can be utilized to produce or attain the desired business objectives.
Financing the Enterprise: Capital
Types of CapitalFixed Capital – refers to land, buildings, machinery,
transport vehicles and other assets having a relatively long existence ; they are needed to carry on the normal operations of the business.
Working Capital – is the amount necessary to provide for the regular flow and orderly marketing goods and services from producers to consumers an for the day-to-day conduct of business.
Fixed Capital
Working Capital
Financing the Enterprise; Capital
Types of CapitalCapital reserves – this type is for the enterprise that has
already established. This is for the meeting of unusually large money payments or periods of possible operating losses.
Capital for expansion – this is for the business’ future plans of expansion.
Financing the Enterprise; Sources of Capital
Capital may come from two (2) sources:The owners of the enterpriseLenders of capital
The smaller enterprises may depend entirely on owned capital but among the bigger enterprises it is usual that regular use is made of borrowed capital.
Financing the Enterprise: Sources of Capital
Sole proprietorship – the owner is the sole source of owned capital.
Partnership – the various partners contribute the owned capital.
Corporation – the owned capital is contributed by the stockholders.
Cooperative association – the owned capital comes from the members.
Financing the Enterprise: Sources of Capital
Because modern business has grown in volume and complexity, the amount of fixed and working capital needed by many enterprise is such that the owners can meet only a part of the total requirement, the balance of the needed capital must be borrowed.
Financing the Enterprise: Sources of Capital
It is not a financial weakness if a certain enterprise has to borrow money or other productive assets for business purposes for borrowing has become a normal business procedure.
Financing the Enterprise: Capital Requirements
For a business enterprise, there must be enough capital for the following: Equipment Merchandise Supplies Payment for operating expenses
Financing the Enterprise: Capital Requirements
The following are some of the disbursement regularly incurred and for which there must be enough cash on the dates at which payment be made: Wages and Salaries Rent expenses Taxes and license fees Supplies Telephone service Postage Advertising
Financing the Enterprise: Capital Requirements
The following are some of the disbursement regularly incurred and for which there must be enough cash on the dates at which payment be made (con’t.): Interest expense Mortgage payments Installment payments Inventory purchases Light, power and water Printing and stationery Repairs
Financing the Enterprise: Capital Requirements
For such periods when cash receipts cannot suffice cash disbursements, money from other resources will have to be provided. Working capital insufficiency may be averted or solved by: The owner himself investing enough cash from or investing
additional capital as needed. Borrowing the amount of cash required, if the enterprise is still
within its borrowing capacity. Inviting others to contribute capital by becoming partners or
stockholders.
Financing the Enterprise: The Use of Borrowed Capital
The practice of borrowing money for interim use as capital has become general.
Such loans my be for short terms, as working capital needed for a few day for months, or may extend for longer terms, to finance the acquisition of fixed assets.
When the part of funds employed is borrowed, the business is said to be “trading on the equity” since the owner’s capital is involved.
The use of borrowed capital involves interest expense, greater risk, and less flexibility than equity capital.
Financing the Enterprise: The Use of Borrowed Capital
Creditors usually impose conditions such as the rendering of reports and limitations on further borrowing.
Failure to pay interest or principal when due could lead to foreclosure or reorganization by action of the creditors.
Borrowing is said to be “trading on the equity magnifies profits and losses”.
Financing the Enterprise: Types of loan
Considering the basis on which the loan is given, loans may classify into: Those based entirely on confidence in the borrower. Those based both on the confidence in the borrower and
pledged collateral. Those based on the endorsement of another person either as
co-maker or guarantor.
Financing the Enterprise: Types of loan
An applicant for a loan is considered an acceptable credit risk if he possesses the three (3) C’s of credit: Character Capacity Capital
Financing the Enterprise: Types of loan
Character is the borrower’s reputation as one who honors his obligations and who can be depended upon to live up to his word.
Capacity refers to the ability of the borrower to utilize the money properly and to earn the amount needed to repay the loan within the loan period.
Capital applies to assets which the borrower is able to pledge as security or which could answer for the obligation in the event of non-payment.
Financing the Enterprise: Types of loan
If the conditions for a loan are very favorable, meaning to say that: The applicant has excellent credit standing. The purpose if the loan is meritorious. The amount applied for can easily be repaid by the
applicant.
Financing the Enterprise: Types of loan
The creditor may not insist on collateral but may approve the loan entirely on confidence in the borrower.
Conservative lenders, particularly some older commercial banks, usually require collateral before giving the loan.
The property pledged may be taken over by the creditor to protect itself in case the borrower is unable to liquidate the loan on due date.
In other instances, the lender may request a co-maker or guarantor for a loan.
Commercial loans often have mortgage on real property as security.
Any questions?
Thank you!Geneveve I. Magpatoc BSF-4F1
