Types of Business Organizations

Business organizations can be structured in various ways, depending on their standing as legal entities, internal structure, and management processes.

Organizational chart: A military organizational chart

Pre-Bureaucratic Structures

Pre-bureaucratic (entrepreneurial) structures lack standardization of tasks. This structure is most common in smaller organizations and is best used to solve simple tasks. The structure is totally centralized and appears like a hierarchy. The strategic leader makes all key decisions, and most communication is done by one-on-one conversations. It is particularly useful for new (entrepreneurial) businesses as it enables the founder to control growth and development.

Bureaucratic Structures

Weber said that the fully developed bureaucratic mechanism compares with other organizations exactly as the machine compares with the non-mechanical modes of production. Precision, speed, unambiguity…strict subordination, reduction of friction, and material and personal costs are raised to the optimum point in the strictly bureaucratic administration. Bureaucratic structures have a certain degree of standardization.

They are better suited for more complex or larger-scale organizations, usually adopting a tall structure. The tension between bureaucratic structures and non-bureaucratic is echoed in Burns and Stalker's distinction between mechanistic and organic structures.

Functional Structure

Employees within an organization's functional divisions tend to perform specialized tasks; for instance, the engineering department is staffed only with software engineers, which leads to operational efficiencies within that group.

However, it could also lead to a lack of communication between the functional groups within an organization, making the organization slow and inflexible. As a whole, a functional organization is best suited to producing standardized goods and services at large volume and low cost.

Divisional Structure

Also called a "product structure," the divisional structure groups each organizational function into a division. Each division contains all the necessary resources and functions. Divisions can be categorized by different points of view.

One might make distinctions on a geographical basis (a U.S. division and an EU division, for example) or on a product/service basis (different products for different customers, households, or companies). In another example, an automobile company with a divisional structure might have one division for SUVs, another division for subcompact cars, and another for sedans.

Matrix Structure

The matrix structure groups employees by function and product. This structure can combine the best of both separate structures. A matrix organization frequently uses teams of employees to accomplish work, taking advantage of strengths and compensating for weaknesses of functional and decentralized forms. An example would be a company that produces two products, "Product A" and "Product B."

Using the matrix structure, this company would organize functions within the company as follows:

• "Product A" sales department,
• "Product A" customer service department,
• "Product A" accounting department,
• "Product B" sales department,
• "Product B" customer service department,
• "Product B" accounting department.

Matrix structure is amongst the purest of organizational structures – a simple lattice emulating order and regularity demonstrated in nature.

Legal Considerations

In the US and elsewhere, many business structures require a form of incorporation to register the business as a legal entity. The owner files articles of incorporation with the secretary of state's office for the particular jurisdiction. The organization may also hold meetings, select a board of directors, adopt bylaws, and report regularly. The business entity's type, its geographic span of operations, risk profile, and other factors are issues to consider when choosing what entity type to use, in what jurisdiction to incorporate, how the articles should be drafted, and if a stock form should be used.

Business Perspective

There are various forms of organizational structures from a business perspective, including sole proprietorships, cooperatives, partnerships, limited liability companies, and corporations. All of these structures are for-profit, but there are also non-profit corporations and other structures.

The differences in structures can depend on the number of entrepreneurs or owners involved and the different tax treatments. One issue dividing forms is liability. With sole proprietorships and some forms of partnership, owners can be personally liable for business losses, meaning their personal assets are not protected against the claims of creditors. These organizational structures also do not separate entities from the owners/entrepreneurs, unlike a corporation.

Organizational Behavior

Internally, organizations can also be structured differently in terms of the groupings of organizational relationships and management characteristics. Some common structures are functional, divisional, matrix, team, network, and modular.

Organizations can also behave differently and independently from their legal and internal structures. For example, hybrid organizations, which may fall under various legal categories, can mix elements, value systems, and logic of action from the private, public, and voluntary sectors.

Source: Boundless Finance, https://ftp.worldpossible.org/endless/eos-rachel/RACHEL/RACHEL/modules/en-boundless-static/www.boundless.com/finance/textbooks/boundless-finance-textbook/introduction-to-the-field-and-goals-of-financial-management-1/types-of-business-organizations-26/index.html
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