Structure and functions of business organizations

For a business organization to function effectively, strong connections between its components are needed. Management theory, which is based on a systems approach, considers organizations as a set connected in a certain way, which represents a single whole and is in balance with the external environment.

For an organization to exist, several requirements must be met:

  • 1. Set goals and tasks through which the goal is achieved.
  • 2. Grouping of these tasks by certain types of activities.
  • 3. The work should be so united that it corresponds to the fulfillment of the goals of the organization.
  • 4. Delegation of powers, distribution of responsibilities (usually hierarchical).
  • 5. System of communications between the individual components and the different levels (horizontally and vertically). Communications ensure that decisions are made that are appropriate to the situation, help for better control, and coordinate in the organization.
  • 6. The structure of the organization should be implemented in such a way that there is internal coherence between the individual activities for the organization as a whole to work.
  • 7. The organization should be sensitive to changes in the external environment (timely implementation of changes based on information coming from outside the organization).

Without meeting these requirements, some wholeness can be called an organization, but it is NOT because it does not contribute to a common goal.

Types of organizations


The essence of formal organizations presupposes the external setting of the goal. The overall structure is formed to support the achievement of the goal. All units in the organization (directly or indirectly) are related to the ultimate goal and the role of the unit in achieving the ultimate goal must be clear to the participants in each unit.

As the goal is set externally, some actions are needed for it to be accepted by the people working in the organization and to become the goal of every individual working in this organization. For this purpose, a stimulation system is built. Incentives should help to combine personal interest (goal) with a common interest (goal). From a psychological point of view, it is about the so-called involvement, loyalty to the organization and its goals.

Main feature

The existence of a predetermined structure (apart from the external goal), which is then filled with staff, as well as relationships and responsibilities. Social roles and norms are established, which must be fulfilled by each member of this organization. Their implementation is related to the stimulation system. Thus from the private (the separate norm) the common (the common interest) is achieved.

Informal relationships fit into any formal organization. They have their structure, norms, roles, and standards of behavior, which are not predetermined (if they are currently being built in the organization) but are built and operate independently of formal relationships. It is a mistake for a leader to think that formal and informal structures always interfere. On the contrary, a good leader knows that he must use informal relationships to unite more fully and to achieve the goal of the organization. Reference: “To be a leader means to be awake”,

Informal relationships develop at all levels in the organization. In these relationships, some leaders should not be repulsed but attracted to the goals of the organization.

The functioning of the organization is influenced by OBJECTIVE FACTORS, which are usually divided into 4 areas:

  • scientific and technical
  • economically
  • socio-political
  • impacts on the structure and organization of production (private)

Goals of the business organization

The goal set for the organization usually expresses the desired state of the organization in the future. The goals can be in different directions of the organization’s activity. This goal is considered to be the main one, which is in the direction of achieving optimal results from the main work activity. Apart from it, there are other, secondary goals, the achievement of which helps to achieve the common goal. They can be in the direction of improving production, integrating interests, raising morale, and involving people in work.

Often in the operation of an organization, there is a conflict between the individual goals in the sense that more efforts are made to achieve a secondary goal. In this aspect, the following main tasks must come first:

  • Achieving the best possible results from the main labor activity;
  • Achieving growth in production, equipment, people (morale, qualifications), which contributes to better results in the main activity for a long period;
  • Protection of the organization from unjustified risks.

Achieving these main goals and objectives depends on the strategy used (which is the way, the means used to achieve the goals). Reference: “The strategic consensus management of the organization“,
The goals and tasks are solved consistently, by updating urgent tasks.

Groups of problems of business organizations

We usually distinguish several groups of problems (from the point of view of time) that are solved in organizations:

1. Strategic.
Choosing the product of labor, consumers, and markets, which problems are solved with priority.
2. Administrative.
Allocation of powers and responsibilities (preparation of job descriptions).
3. Operational.

Organization of the specific labor operation; implementation of research programs; current planning, etc.
A very important condition is the organization to be flexible, fast-moving in the often changing conditions of social reality. Providing this flexibility should be a daily task of managers in the organization. “A crisis in organizations occurs when the traditional structure does not meet the requirements of modern conditions, and a new structure is not created” (Draker).

Types of activities of business organizations

Usually, there are two types of activities in organizations:

1. Economic (production).

It covers several stages of organization and several types of activities:
(a) organizing and improving the production process;
b) material and technical furniture (provision of the material base);
c) provision of markets and product placement (marketing).

2. Management.

It solves administrative, strategic, and operational tasks. It forms the policy of the organization and this policy means ensuring the existence of this organization in the future. Reference: “Negotiation strategies in a multicultural business environment”

An important issue in the strategy of an organization is the form of government, which can generally be divided into centralized or decentralized. Several indicators are used to determine the form of governance:
(a) the number of decisions taken by lower levels of government. The more these solutions, the greater the decentralization.
(b) the importance of the decisions taken by the lower level of government (the more important the decisions, the more decentralized the management).
c) many areas (functional) in which these decisions are made – administrative, strategic, operational. Reference: “Strategic modeling for organizations”,
(d) the degree of control exercised by the higher levels. The question is how it is carried out, how strict and consistent it is, etc. An important concept here is the so-called. delegation of rights. It is a specific concept and its essence is not always accurately assessed. Delegation of rights means that a manager trusts his subordinate, to whom he transfers (delegates) his rights. Such action was thought to stimulate activity in subordinates, but this activity should not be deprived of control over performance (it may not be systematic, but it must be present).

What form of management will be chosen depends on the specifics of the conditions in the specific organization and outside it. In principle, we can not say bad or good is a form of government – it depends on the qualities of people in the organization and the social system (external conditions). Managers can change their management style (behavior) depending on these two conditions.

The effectiveness of the organizational structure

The effectiveness of the organizational structure is determined by several requirements:

1. Existence of a well-understood and formulated goal.
2. Simplicity of the organizational structure (to be simpler and clearer, to be known to the staff so that everyone knows who to turn to).
3. Accuracy of powers and responsibilities (everyone should know their obligations). To this end, there must be aware of what is at stake. Information should flow both from management to staff and vice versa (providing feedback to management).
4. Do not allow double command (each employee to receive orders from only one boss).
5. Each manager should not work with more than 7-9 people to better cover their activities, to be informed, and to control them. The number of units in the structure should also not be very large.
The functions of the management and the individual services should be precisely defined and coordinated. Coordination and the highest responsibility are exercised by the top management (senior management) of the organization.

The organization of the activity in companies and organizations presupposes the existence of several functions

1. Forecasting.
2. Planning (given the purpose and conditions).
3. Organization of the activity.
4. Control over implementation.
5. Evaluation.
6. Stimulation.

The performance of all these functions requires the competence of all staff, information, and coordination between all units performing the function.
Coordination is weak when:

  • The objectives are insufficiently coordinated;
  • There is no synchrony (it is allowed to achieve goals that are not in harmony with the overall goal);
  • The obligations are not marked;
  • The control is ineffective (and there are no consequences in case of violations); Reference: “Effective management of organizations”,
  • There are unresolved conflicts between units and individuals occupying key positions in management (do not pass information, lie, have their personal goals, etc.);

Coordination is carried out through specially trained people with precise instructions – organizational operational plans, which specify how the information is received (at what frequency), how the control is carried out and what follows from it.

Situational theories

It is known that there are three situational theories:
– Theory X (man is lazy by nature, etc.);
– theory Y (back);
– Theory Z (Japanese model – one must be attached to the organization) by William Ouchi, 1981
Taken separately, these theories seem to contradict each other, but in fact, they complement each other and only prove that in any situation, the organization must take into account the characteristics of the people it works with and create its policies and structure so that respond to the situation and the people. There is nothing that is always good, always, under all conditions.

Working together on one activity

In each organization, a combination of activities is required (joint work of people on one activity). Therefore, to optimize the activity, a static analysis of the structure of the organization, its goals, objectives, planned results, real results is needed. There is also a need for a dynamic analysis of all activities carried out in the organization, considered as processes (motives, goals, interactions between individuals and units in the structure).

There are also several signs to clarify the type of activity:

1. Existence of one goal for the different participants in the activity.
2. Existence of individual motivation for the fulfillment of the common goal (regardless of whether the goal has already become internal, internalized).
3. Distribution of the labor process into separate, functionally related actions and operations and their distribution among the participants. Reference: “Reorganization of business processes in the organization”,
4. Consolidation of individual activities, determination of connections, and compatibility between participants.
5. Coordination and coordination in the implementation of the individual activities.
6. Existence of management – a function that is necessary for the joint activity (out of three participants in a joint activity, one must be a leader).
7. Existence of a single end product, because the joint activity arises precisely for its creation.
8. Unified spatial and temporal functioning of the participants in the activity.
According to Daisy, “joint activities create conditions for changes in individual motivation, awareness of the importance of the common goal and unification around it.” Those who fail to do so are not sufficiently involved in the joint activity, declare themselves insufficiently loyal to the organization, and have no place in this joint activity in the future. to have a system of internal rules for loyalty assessment!). Important in joint activities is the principle of interchangeability, ie. the same activity in the organization can be performed by more than one person (in the absence, for example). This ensures a competitive start, maintains motivation, increases responsibility, self-critical and critical attitude to work.


There are several types of organizational structures. Each species has both positive and negative sides.

1. Linear structure.

It is carried out in two directions:
(a) production (concerning employment as a process);
b) realization of the product of the activity.
The information is transmitted hierarchically. The links between the different levels are usually short because this structure is typical for small organizations (with 2-3 levels). The management functions are clear. Operational decisions are made faster.
Not suitable for large organizations or organizations engaged in complex activities.

2. Linear-staff.

Kind of a linear structure, but headquarters (specialized services) are created for the individual managements, which assist in decision-making by the management.
This structure creates conditions for the use of qualified specialists (eg by the Institute of Psychology), but shortcomings may also arise when tensions arise between specialists and management (and, for example, specialists may undermine the authority of the manager).
It is typical for small organizations. Close liaison between the various services and management is required.

3. Centralized functional.

With the presence of unification of production and economic functions. The main principle in this structure is “grouping of management” in 1) planning; 2) organization; 3) financing; 4) supply; 5) marketing. There is a division of labor and functions, and specialization of workers. Provides high efficiency of organizations. Disadvantage: this structure is usually not flexible enough, because each service is autonomous and there is a danger of separating the services from the final destination. That is why coordination between units is very important.

4. Decentralized functional.

Existence of separate grouping of the separate types of production. Goals are formulated for each direction, they are given full confidence and they can make their own decisions. The responsibility is great and is related to the stimulation system. This is how corporations are built.
This structure allows maneuverability, flexibility. Disadvantage: it is usually suitable for large organizations, but it may be difficult to be aware of the different areas, there may be a conflict between their interests (the development of the organization as a whole is more difficult).

5. Innovation structure.

It can be any of the previous structures, but with a special unit related to new technologies, new product development, and more.
Very progressive structure because it ensures the development of the organization in the future. Disadvantage: the negative attitude that other units have towards the innovation unit.

Therefore, we must work to eliminate contradictions and negative attitudes (through more information from the innovation unit to others; by implementing innovation in production, etc.), so that this unit is not isolated from others.