Corporate Structure

Meaning of Corporate Structure

The corporate structure is the basic structure of an organization that aligns the different units and departments. This structural classification can be done based on work, products, and product lines, regions, etc. And this structure may vary from company to company, as per the individual company’s requirements. Also, it may differ even between different departments, units or offices of the same company.

Each unit or department works in close cooperation and coordination with each other. Because the end target remains is to achieve the company’s goals in the most efficient manner. There are five main departments in organizations across the world. And these departments are Marketing, finance, IT, Operations, and Human resource. Moreover, there are smaller categories under these five major departments, which may vary from company to company.

Importance of Corporate Structure

A well-defined corporate structure is of utmost importance to any organization. The structure for a company is like the pillars of a building and has to be strong to pave the way for successful operations. Also, it is pivotal to mention the roles, responsibilities, and duties of every unit or department. It is the key to the success of huge corporations. Friction, delays, and miscommunication between departments can lead to significant business losses and problems in an organization.

For example, a company can achieve high sales figures through a capable marketing team. But such sales will be useless if the right information about debtors is not available to the finance department timely. The payment of the sales can only be realized after this information is received by the finance department to complete the sales process.

Also Read: Corporation

Another instance can be the need for skillful and efficient workers in any department. Any department in need of human resources has to convey its necessity to the human resource department effectively. After studying the exact type of human resource required, the HR department can work and provide a solution. If there is friction or miscommunication about the kind of skill set needed, the entire hiring process can prove to be useless.

Therefore, an effective corporate structure can make or break a company and is the deciding factor for its success or failure.

Corporate Structure

Types of Organizational Structure

There are four basic types of organizational structures prevalent across the world.

Functional Structure

It is the most common form of structure in corporations. The categorization of employees is done based on the nature of work to be done. They have common or related skill sets and hence, lead to the creation of harmony within the department. Such structures generally have the characteristics of quick movement of information within the department and efficient decision-making process. Companies with departments like accounting, IT, etc. have such structures.

Divisional Structure

Such structures are categorized based on region, a specific market or product, or even a particular consumer base. Such divisions help in meeting the specific demand of a group or area and may help in customizations to a certain extent too. For example, many companies have divided their operations based on the geographical regions they cater to. Thus, it helps them to effectively make changes in the products, approach and policies prevalent in a particular area and increase their sales revenue.

Matrix Structure

Such a structure combines the characteristics of both functional and divisional structures. It is generally prevalent in big organizations with multiple departments and product lines. Even though such structures are costly to maintain, they offer decentralization and autonomy in day-to-day operations. Hence, they can be advantageous and useful.

Also Read: Cost Structure

Hybrid Structure

A hybrid structure, as the name suggests, is again a mix of functional and divisional structures. The difference is that unlike the matrix structure, different departments are categorized as functional or divisional within the same organization. Therefore, departments have the autonomy to choose the kind of structure they want to adopt as per their needs and requirements. This structure too is prevalent mostly in large organizations. And it is based on the concept of empowerment of the lower levels with the required transfer of power.

Management of Corporate Structure

A company requires an elaborate team of skilled human resources to function and manage any of the above stated four types of structures. A well-defined corporate hierarchy is vital to avoid any clashes and maintain absolute control. The standard structure of the management hierarchy in any organization is as follows:

Board of Directors

Shareholders of the company usually elect the Board of Directors. They can be “Inside Directors” comprising of persons from the management team like the CEO or the CFO. Then there are “Outside Directors” who are not a part of the company. And they may be people of reputation and experience. The Chairman is the leader or top-most authority of the Board of Directors. The Board elects the Chairman from its members. The Chairman can be from outside or inside or one of the promoters.

The Board of directors is responsible for the formation and implementation of business strategy and representing the company to the shareholders and outside world.

Management Team

After the Board of Directors comes the management team. It is responsible for the everyday functioning of the company and maintaining its top and bottom line.

Chief Executive Officer (CEO)

A CEO is the head of the management team and reports directly to the Board of Directors. He is responsible for the company’s operations and management. His role includes maintaining proper balance and cooperation between different departments and units, especially in the matrix and hybrid structures.

Chief Operations Officer (COO)

After the CEO comes COO, who is responsible for managing daily operations of the company like sales, marketing, production, etc. And he reports to the CEO generally.

Chief Financial Officer (CFO)

The CFO is directly responsible for the financial performance of the company. He is responsible for making and implementing budgets across departments, reviewing their business performance, and taking corrective measures when necessary. He also looks after the statutory financial reports and its reporting to the appropriate authorities and stakeholders.

The product, departmental and regional managers, and other personnel in the organization then follow the above management heads.

Sometimes, there is a possibility that no structure exists in an organization. Such organizations are termed boundaryless organizations.

Continue reading the span of control to learn more about the number of employees working under a reporting authority.

Sanjay Borad

Sanjay Bulaki Borad

MBA-Finance, CMA, CS, Insolvency Professional, B'Com

Sanjay Borad, Founder of eFinanceManagement, is a Management Consultant with 7 years of MNC experience and 11 years in Consultancy. He caters to clients with turnovers from 200 Million to 12,000 Million, including listed entities, and has vast industry experience in over 20 sectors. Additionally, he serves as a visiting faculty for Finance and Costing in MBA Colleges and CA, CMA Coaching Classes.

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