Strategy and Governance - Organizational structure

Question 1

What are the three main types of business ownership

Answer 1

Three main types of business ownership are: Sole proprietorship, partnership, and corporation
- Not a onesie fit, CPAs are required to observe, critique, and recommend appropriate structure

Question 2

Provide the four influences of organizational structure

Answer 2

1. Economic environment - an organization may be under pressure to be known, a declining economy
2. Competition/ industry - the organization will look to align themselves to address characteristics of industry and competition
3. Product/ service - The product or service may require special alignment to support the offering, such as after-market services and financing
4. Regulatory environment - Regulations may dictate certain departments or positions are required
   Formal organizational structure

Question 3

Why must companies be successful when a formal organizational structure is implemented

Answer 3

It can effectively implement strategies, allow for timely decisions, complete clarity in roles and responsibilities

Question 4

Explain the difference between centralized and decentralized organizational structure. Provide advantages and disadvantages

Answer 4

Centralized structure - it is appropriate when there are only a few leaders, many managers feel that their compensation is based on arbitrary metrics. Innovation not rewarded

Advantage - Decisions tend to be quick and efficient
Disadvantage - Centralized nature can lead to “group think”

Decentralized - Used when there are several individuals responsible for company decision-making
-Decentralized groups growth because when the group is too big, another sub-group can spin
Advantage - Empowering employees, the decentralized structure can result in job satisfaction
Disadvantage - Individual groups can become competitive with one another. Can be detrimental to the company

Question 5

Explain the 5 structure of an organization and advantage/ disadvantage

Answer 5

1. Simple Structure - Owner/ Sole shareholder or small group of senior managers make decision
   Advan - Decision made quickly, adaptive to change
   Disadvan - Employees do not feel empowered in the role, increasing employee turnover
2. Functional structure - For specialized departments defined by purpose and staff accordingly
   Accounting/ H/R, processing, sales
   Advan - Promotes learning and facilitates economics of scale, entry-level staff can develop knowledge
   Disadvan - Interdepartment communication may be limited, and top management difficulty controlling
3. Divisional structure - Each division has its own resources, managing separate business
   Advan - Divison allows employees to focus on product service and development culture
   Disadvan - Can create a culture of competition, and incompatibilities, between product and service
4. Matrix structure - Function and business units combined in one employee have a supervisor to report to
   Advan - promotes multiple employees and communication
   Disadvan - Communication can be unclear, and poor employee morale
5. Network structure - structure is virtual, no need for formal office. Activities are outsourced
   Advan - Decrease overhead expenses lack of formal office
   Disadvan - Reliant on technology so internal connectivity is important