Math 12-ABM Org - Mgt-Q1-Week-8
Math 12-ABM Org - Mgt-Q1-Week-8
AND TYPES OF
ORGANIZATION STRUCTURES
for Organization and Management
Senior High School (ABM)
Quarter 1 / Week 8
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FOREWORD
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OBJECTIVES:
K: Identify the nature of organization and types of
organizational structures.
S: Analyze the nature of organization and explain the
three common types of organizational structure.
A: Appreciate the importance of organization analysis and
design in determining the appropriate hierarchical
structure of the company.
LEARNING COMPETENCY:
I. What Happened
REVIEW:
Sole proprietorship is a business owned by one person, hence the word sole,
meaning one and only.
One advantage of a sole proprietorship is that the owner makes all
the decisions. The owner is not obligated to confer with anyone when it
comes to deciding the location of the business, who to hire, what to sell,
etc. Another advantage to an owner of a sole proprietorship is that he or
she is the recipient of all profits generated by the business. The owner is not
legally bound to share the profits with anyone else.
While there are benefits to being a sole proprietorship, there are also
drawbacks. One huge drawback is if the owner is sued, the owner is held
personally liable. Personal liability means if the person or entity wins the
lawsuit, the court can make the owner sell business and personal assets to
satisfy the debt. Another disadvantage of this type of business organization
is that when the owner dies, the business will become defunct or terminate.
Now, let us see if a partnership can remedy some of these disadvantages.
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Partnership is a business owned by two or more people. One major
advantage of a partnership is funding. Each owner can help with financing,
start-up costs, or ongoing business expenses. Another advantage is shared
knowledge and experience.
However, one main disadvantage is that it would need to share any
profit with the partner. The percentage split would be agreed upon by each
partner or may equal a percentage of what they put in to start the business.
This same percentage would be applied if the business were sued; each
partner would be liable to the percentage of ownership. Starting a
corporation solves the personal liability issue of a sole proprietor and
partnership.
Corporation, chartered by the state in which it is headquartered, is
considered by law to be a unique entity, separate and apart from those
who own it. A Corporation can be taxed; it can be sued; it can enter into
contractual agreements. The owners of a corporation are its
shareholders. The shareholders elect a board of directors to oversee the
major policies and decisions. The corporation has a life of its own and does
not dissolve when ownership changes.
PRE-TEST:
1. Lebron and Davis are long-time friends who plan to open a consulting
service in Chicago next year. Lebron specializes in personal finance, whereas
Davis specializes credit management, making them a great team. Both wish
to keep their tax filing requirements as simple as possible.
2. Kuzma is a 52-year old teacher who has no children and is not married. He
plans to start a business this summer to mow people’s lawns in the
neighborhood to earn some extra income while school is on summer break. His
clients sign a legal waiver claiming that Kuzma has no liability for any mishaps
on the lawn.
3. Ronda and Green are a married couple who wish to begin operating a
chemical plant since they are both chemists. The couple would be working
with highly toxic substances, but they are comfortable with this given their
experience and the profit opportunity is great. Ronda and Green also own an
8-floor apartment building in Manhattan.
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II. What You Need to Know
DISCUSSION:
Nature of Organizations
Definition of an Organization
An organization is a collection of people who work together and
coordinate their actions to achieve a wide variety of goals.
Nature of Organizations
An organization is a social arrangement which pursues collective
goals, which controls its own performance, and which has a boundary
separating it from its environment.
To illustrate:
Let us assume now that Mr. Tiongco’s grocery business has grown by
leaps and bounds. He is planning to open a branch in more strategic place
near busy Cubao. This will be handled by his son whom he has already
trained in running his grocery business.
Mr. Tiongco has reached the crossroad of his business. Like any
entrepreneur who started small but suddenly saw the growth of his business,
he began to wonder how he should get organized to face the challenges
of the future. Shall he remain as a single proprietor-owner or dilute his
ownership by asking some of his trusted relatives and friends to be part
owners and contribute more money for his expansion plans?
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First option: Single Proprietor. In this form, Mr. Tiongco as a single person
holds the entire operations as his personal property, managing it on a day-
to-day basis. Most businesses are of this type.
Advantages:
1. Formation: Less complicated in preparation of documents and
cheaper compared to starting a formal corporation. The
proprietorship can be named after the owner, or a fictitious name
can be used to enhance the business.
2. Tax benefits: no requirement to file a separate business report. One
will list the business information and figures within his/her individual
tax return. The business will be taxed at the rates applied to personal
income, not corporate taxes.
3. Decision making: Business decision remains the responsibility of the
owner. The owner can also fully transfer the sole proprietorship at any
time as he/she deems necessary.
Disadvantages:
1. Liability: The business owner will be held directly responsible for any
losses, debts, or violations coming from the business. For example, if
the business must pay any debts, these will be satisfied from the
owner’s own personal funds. The owner could be sued for any
unlawful acts committed by him/her or the employees.
2. Taxes: While there are many tax benefits to sole proprietorships, a
main drawback is that the owner must pay self-employment taxes.
3. Lack of “continuity”: The business may discontinue if the owner
becomes deceased or incapacitated. Since the business and the
owner are treated as one and the same, upon the owner’s death,
the business maybe liquidated and becomes part of the owner’s
personal estate, to be distributed to beneficiaries. However, this can
result to heavy tax consequences on beneficiaries due to
inheritance taxes and estate taxes.
4. Difficulty in raising capital: Generating the capital or the initial funds
is usually provided by the owner. Sole proprietorships do not issue
stocks or other money-generating investments unlike corporations.
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Second option: Partnership
A partnership is a single business with two or more people sharing its
ownership. Each partner contributes to all aspects of the business,
including money, property, labor, or skill. In return, each partner shares in
the profits and losses of the business.
Advantages:
1. Easy and Inexpensive: Partnerships are generally an inexpensive
and easily formed type of business structure. Most of the time spent
starting a partnership often focuses on developing the partnership
agreement between or among few people and its shared
ownership will expresses.
2. Shared Financial Commitment: Each business partner has equally
invested in the success of the busines. Partnerships have the
advantage of pooling resources to obtain significant capital. This
could be beneficial in terms of securing credit, or by simply doubling
your initial money or capital in the business.
3. Complementary Skills: A good partnership should be able to utilize
the strengths, resources, and expertise of each partner.
4. Partnership Incentives for Employees: Partnerships have an
employment advantage over other entities if they offer employees
the opportunity to become a partner. Partnership incentives often
attract highly motivated and qualified employees.
Partnership arrangements are mostly formed in Law, auditing, and some
consultancy firms.
Disadvantages:
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2. Disagreements Among Partners: With multiple partners, in the
business, there can disagreements like management styles, salary
schemes, etc. That is why it is important to consult each other on all
decision making having to compromise and resolve disputes.
3. Shared Profits: Because partnerships are jointly owned, each
partner must share the successes and profits of their business with
other partners. An unequal contribution of time, effort, or resources
can cause dispute among partners.
Advantages:
1. Separate legal personality: A corporation, once registered with the
Securities and Exchange Commission and is issued a certificate, has
acquired a legal personality separate and distinct from its
stockholders. It can sue and be sued. Shareholders of a corporation
are not liable to obligations the corporation’s contracts into like
debts, negligence, or wrongful acts of the corporation. The
maximum lost of money a shareholder can incur is just the amount
of his/her investment in the corporation-the value of his/her stock.
2. Ease of raising funds: In a corporation, it is easy to raise additional
funds since it has the option to sell shares of the corporation.
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3. Continuity: It can have perpetual existence, which means it can
outlive its owner because it is a separate person in the eyes of the law.
This means investors do not have to worry about untimely demise of
the owners. It is also allowing the corporation to plan for the long term.
4. Ease of transfer of ownership: It is easy to transfer ownership interests
in a corporation. The board of directors can authorize the issue of
shares of stock in exchange for investor’s capital infusion into the
company.
5. Credibility: A business with an Incorporation or “Inc.” sign after its
name often sounds more credible in the business context. One most
likely attracts more partners, customers, and attention from the
community.
Disadvantages:
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TYPES OF ORGANIZATION STRUCTURE
They come in different shapes and sizes. They can be “tall,” those that
have many tiers between the common worker and the owner of the
company, or they can be “flat,” meaning there are very few levels between
the common worker and the owner.
A basic organization framework is called the line structure. A line
structure organization has only direct, vertical relationships between
different levels in the firm. Take note that there are line departments inside
a line structure. Line departments are directly involved in accomplishing the
primary goals of the organization. For example, in a typical firm, line
departments include production and marketing. In a line organization
authority follows the chain of command. Chart 1 shows a single line
organizational structure.
Advantages:
1. Tends to simplify and clarify authority
2. Promotes responsibility and accountability relationships
3. Promotes fast decision-making
4. Precise and simple to understand
Disadvantages:
1. Neglects specialists in planning
2. Overloads tasks on key personnel
3. It becomes more ineffective as the organization becomes bigger
4. Managers become experts in too many fields or area
5. Tendency to become overly dependent on the few key people who
are performing numerous jobs
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Before we proceed further, we should distinguish between line and staff
functions.
A line function, as discussed, is a position that has a direct chain of
command that is responsible for the achievement of an organization’s
goals.
A staff function, on the other hand, is intended to provide expertise, advice,
and support for the line positions. An example of staff functions are HR,
Quality Assurance, and Corporate Planning.
FUNCTIONAL STRUCTURE
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DIVISIONAL
MATRIX STRUCTURE
A matrix structure is a hybrid of two structures namely, divisional, and
functional structure. Typically used in a large multinational company, the
matrix structure allows for the benefits of functional and divisional
structures to exist in one organization. However, this can create power
struggles because most areas of the company will have a dual
management- a functional manager and a product or divisional
manager working at the same level and covering some of the same
managerial territory. Study Chart 4 as indicated.
Unlike the other structures, it does not follow the traditional
hierarchical model. Instead, all employees (represented by the green
boxes) have dual reporting relationships. Typically, there is a functional
reporting line (shown in blue) as well as a product-based reporting line
(shown in yellow).
When studying a matrix structure organization chart, the solid lines
represent strong and direct reporting relationships; on the contrary, dotted
lines indicate that the relationship is secondary or not as strong as that on
the solid lines.
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Chart 4. Sample of Matrix Structure
One advantage point of the matrix structure is the flexibility and the
balanced decision-making (as there are two chains of command instead
of just one).
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IMPORTANCE OF ORGANIZATIONAL ANALYSIS AND DESIGN
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Organizational Analysis and Design (OAD)
Organization analysis and design includes careful examination of
detail staffing levels and hierarchy, spans of control, and repetitions of
roles in the context of the business’s strategy. This implies that all work is not
created equal- there are some tasks that are more strategically important
to a company than others.
It is important to understand that even if a company creates an
elegant and elaborate organizational design but fails to recruit the right
composition of talent and skill; it would be meaningless. In an organization
diagnostic study, its states on the focus on the ability of the current talent
to do the critical work and the effect of the current structure (job design)
on engaging that talent.
An organization is a dynamic and constantly changing force;
hence, organization structure should be flexible and ready to adapt and
respond to a new and emerging needs and to the requirements of the
present as well as to the future conditions and demands of business.
According to the “The Organization of the Future”, a book by the
Drucker Foundation of New York, claims that, “Redesigns have poor track
record. Many of the companies that restructure will restructure again a
few years later. Some of these repeated redesigns are the result of external
change; the first restructuring loses its relevance and power.”
Organizational Analysis and Design (OAD) is undertaken in the context
of changing situations and conditions. Each study is done with specific
objectives such as:
• To develop a structure by which the objectives and policies of the
company can best realized, and the supporting plans
implemented.
• To develop a structure that is responsive to environmental conditions
(competition, regulations, and technology).
• To develop a structure that clearly delineates duties, responsibilities,
and working relationships of people.
We study organization structure for the main reason that it is innate to
an organization as skeleton is to the human body. If the structure is weak,
disjointed, and poorly developed, then no amount of planning will
change the “qualitative to quantitative.” All the planning for
development will be in vain, for the plans will remain just as they are – mere
plans.
In a “Professional Practice Manual on Organization Studies,” authorized
by Zorilla, he defined the scope, approach and methodology involved in
the conduct of an OAD.
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III. What Have I Learned
POST TEST:
1. One advantage of running a business as a corporation is ____.
A. YOU can be influential to the government regulatory bodies
B. You, as shareholder, are not personally liable for the contractual
obligations, debts, negligence, or wrongful acts of the corporation
C. You can easily be elected president of the corporation
D. You are not required to file a separate business report
2. A line function is _______.
A. A position in the direct chain of command that is responsible for the
achievement of an organization’s goals.
B. Purely advisory and has no authority
C. Paid higher than a staff function
D. Indicated in the organization chart in dotted lines
3. Organizational design is _________.
A. THE process of aligning an organization’s structure with its vision and
mission
B. A process that determines the salary structure of the company
C. A process to help you decide whether you will organize your business
as a single proprietorship, partnership, or corporation
D. A method that forecasts the revenues and profits of the company
4. A basic organization framework is called.
A. Staff function C. Line structure
B. Matrix structure D. Divisional structure
5. A function intended to provide expertise, advice, and support.
A. Functional Structure C. Divisional function
B. Staff function D. Line function
6. A set up wherein each department of the organization is grouped according
to its function or purpose.
A. Divisional structure C. Functional structure
B. Matrix structure D. Line structure
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DEPARTMENT OF EDUCATION
SCHOOLS DIVISION OF NEGROS ORIENTAL
ROSELA R. ABIERA
Education Program Supervisor – (LRMS)
MARICEL S. RASID
Librarian II (LRMDS)
ELMAR L. CABRERA
PDO II (LRMDS)
JOVIT A. TIONGCO
Writer
ALPHA QA TEAM
LITTIE BETH S. BERNADEZ
MERCYDITHA D. ENOLPE
RONALD TOLENTINO
DIDITH T. YAP
BETA QA TEAM
ELIZABETH A. ALAP-AP
EPIFANIA Q. CUEVAS
NIDA BARBARA S. SUASIN
VRENDIE P. SYGACO
MELBA S. TUMARONG
HANNAHLY I. UMALI
ENHANCEMENT TEAM
BB. BOY JONNEL C. DIAZ
JEE LIZA T. INGUITO
SALVADOR G. AGUILAR JR
DISCLAIMER
The information, activities and assessments used in this material are designed to provide accessible learning modality to the teachers
and learners of the Division of Negros Oriental. The contents of this module are carefully researched, chosen, and evaluated to comply with the
set learning competencies. The writers and evaluator were clearly instructed to give credits to information and illustrations used to substantiate this
material. All content is subject to copyright and may not be reproduced 1
in any form without expressed written consent from the division.
SYNOPSIS AND ABOUT THE AUTHOR
This SLK (Self-Learning Kit) is ANSWER KEY
about analyzing the nature of
organizations and types of
organizational structures. Here, you
will learn and understand the
nature of the organization and its
structures which is very vital in the
process of appraising the growth,
personnel, operations, and work
environment of an entity.
As you go over with the discussion
and different examples, you will
appreciate the importance of
organization analysis and design in
determining the appropriate
hierarchical structure of the
company.
Let us go and find enjoyment in
learning this SLK and go over the
discussion and examples if you
have not yet mastered a concept.
AUTHOR
JOVIT A. TIONGCO completed his bachelor’s degree in Business Administration
Major in Management Accounting at Foundation University. He is currently
pursuing his master’s degree in Business Administration at St. Paul University
Dumaguete City and presently the Teacher of ABM in SHS Department of Maria
REFERENCES
Macahig National High School, Siaton IV District. He has significantly contributed
to the craft of sports in the said school as one the winning coach in volleyball
during the municipality meet in Siaton. He is also the Career Guidance
Coordinator and GAD coordinator-SHS of the District of Siaton IV.
REFERENCES