Structuring a Company

The word company is not strictly defined in any statute; however, it is one that is
incorporated under the Companies Act, 2013 or under any previous company law. In
common law a company is a “legal person” or a “legal entity” separate from, and capable of
surviving beyond the lives of, its members 1. From the above explanation we can infer that a
company is an independent legal entity with limited liability and perpetual succession having
the power to own separate property, transfer shares and accompanied with the capacity to sue
and be sued.

Large partnerships in the English scene paved way for the establishment of companies. These
incorporations have been prevalent for very long and have evolved immensely with time.
Colonization, globalization, urbanization to name a few have contributed extensively to the
growth of the idea and the functioning of a company. Presently, companies employ a huge
number of individuals to attain personal and organizational goals, and for them to function
smoothly, a structure ensures efficiency.

Structuring a company primarily deals with assigning roles and responsibilities to the
individuals along with the rules they will have to follow. A network has to be put in place to
facilitate flow of information and to complete communication. This must be accompanied
with a hierarchy to save time and to understand the objectives of everyone employed. The
structure of the company provides with a visual representation of all the components in the
company and their contribution to attain the goal of the Company. The various components
of an organizational structure and the different types of organizational structures are as
follows:

Chain of Command:
A company hires a number of individuals with a wide range of expertise and skillsets,
experience, and background. Their contribution to the objectives of the company is limited to
the kind of work they can assist with. This denotes that there will be employees with different
capacities, placed in various positions and thus the work that they do has to be monitored to
make sure that it is up to the standards and requirements of the company. For this very reason
1
Saloman v. Saloman & Co Ltd, 1897 AC 22 (HL)
a chain of employees has to be established in a hierarchical manner to ensure that every task,
job position and department has one person assuming responsibility for performance. The
hierarchy of reporting relationships is known as Chain of Command.

Chain of command can be created keeping the following things in mind; number of
employees in each level of management, nature of business of the company, and the
infrastructure that is feasible for efficient usage of time. A customized and well-designed
chain of command makes sure that every employee is responsible, efficient and clear with
their roles. It also boasts employee morale as there is more interaction and scope for better
performance through frequent reviews and helps in specialization and in building a sustaining
career path. However, if the chain of command isn’t in coordination with the infrastructure of
the company with requisite stratification, then it leads to unfavorable environments like;
reduced collaboration, reduced innovation, slow communication and internal
competitiveness.

Span of Control:
Once the chain of command has been established in a company it is now vital to understand
how many employees are reporting to one manager. Span of control determines how many
employees can report to one individual. The aim of is to enhance accountability for the work
completed and in turn save time.

Based on the number of employees reporting to one individual there are two of structures;
(i) Flat organizational structure: in this scheme of reporting there are very few
employees reporting to one manager. The organization is spread out as there are
numerous employees in each position to cater to the reporting system. This type of
structure is useful when close monitoring and detailed verification is needed in
each level. It is rather time consuming and discouraging due to the high level of
scrutiny.
(ii) Vertical organizational structure: there are numerous employees reporting to one
manager in this system. The structure is tall and there aren’t many employees in
every stratum. This type of organizational structure is time effective.

Some of the factors that affect span of control are as follows:

 Experience and expertise of a manager
  Personality and personal skills of a manager
 Employees’ experience, expertise and their behaviour towards each other
 Nature of work and complexity of the task assigned
 Nature of the organization and the level of communication, delegating and interaction

Centralization and Decentralization:

The flow of instructions and the autonomy over decision making in an organization
determines whether a company is centralized or decentralized. A company is said to have a
centralized structure when there is one individual making most of the prominent decisions. It
is a set up that is feasible for a small business where an individual managing and overseeing
all aspects of the business. There is less of autonomy for the other individuals working in the
company and, if not all, most of the decisions have to pass to the senior manager. This system
of organization is efficient for making decisions pertaining to the objectives of the company,
methods to achieve the goals and other business-related matters. The fact that this system is
sluggish because every other thing has to pass through that one individual cannot be
discounted.

However, on the other hand we have the decentralized organizational structure where there
are several individuals involved in decision making and have autonomy over the same. This
system is applicable to a team environment were decisions are taken collectively or level
wise. With the employment of this structure, there is room for using expertise, paving way for
knowledge, fresh thinking and new ideas. Nevertheless, the clash and difference in opinions
among the various individuals involved in decision making will hinder efficiency.

Mechanistic and Organic Organizational Structure:

A mechanistic organizational structure is one which is highly hierarchical and bureaucratic in
nature. It has an extremely centralized authority with formalized procedures and practices for
carrying out specialized functions. Setting up this kind of an organization is easier and
simpler; however, it cannot adapt to dynamic changes rapidly. Employees work separately on
the tasks assigned and there is a definite chain of command to report. Decisions are kept to
made as high as possible in the established hierarchy. This type of organizational structure is
accompanied with strict company policies and procedures with an abundance of paperwork,
making it more stable than its counterpart. Manufacturing companies are seen to use this
organizational structure.
An organic organizational structure is one which engages in horizontal communication and
interaction, specialization is confined to the required area and there is decentralization of
decision making to the extent possible. Employees work in groups and share their inputs on
the tasks assigned. Communication is rather open, and the system is adaptable and flexible to
welcome changes in the surroundings. Though the environment of the company is
unpredictable, the freedom given to the employees assists in maintaining the management. In
the present-day scenario, IT companies and startups use this type of organizational structure
in their companies.

Types of Organizational Structure:

A company is distinct from another when it comes to its size, culture and mission. The formal
relationships give rise to the organizational chart based on job description. Keeping in mind
the intricacies of the company, it can set up an organizational structure based on the ones
mentioned below or a tailormade combination to suit.
1. Functional organizational structure: the company is divided based on the functions
carried out, skills equipped and the knowledge present.
Grouping similar skills increases efficiency and as the roles and tasks are fixed, little
time is spent on learning and accountability is clear. This structure has a simple
hierarchy, initiating streamlined communication. The standardized tasks make the
employees more confident and boast their morale enhancing productivity.
However, it gives room to get bored and less enthusiastic about the work given. The
challenges of inter department communications make this a less flexible model. The
departments are autocratic in nature, hindering innovation and fostering a rigid
structure.
This type of organizational structure is feasible for large companies that produce
limited types of goods.

2. Product-based divisional structure: in this type of structuring the company is divided

based on the product being worked on. Multiple small structures are functioning
under the company.
This structure manages risk efficiently as failure in one division does not affect the
others. There is more flexibility and opportunity to employee specialists as required
 for a particular product. Ensures faster marketing and thus will be beating the
competition faced.
Companies that are extremely diversified with their products will benefit from this
organizational structure.

3. Market-based organizational structure: the company is organized on the lines of

markets, market segments, industry and customer types. The method of structuring the
company is based on the target consumer.
The advantages of this structure are that it helps in focusing on the needs and wants of
the customer and develops expertise in handling the respective type of customers. It is
a flexible set up that encourages healthy competition among departments.
Nonetheless, it complicates coordination between divisions, and makes a division
focus on its objectives rather than that of the company. The fact that the customers
can overlap cannot be discounted as well.
When a company is manufacturing goods with different target consumers this is a
viable type of organizational structure.

4. Geographical divisional organizational structure: this structure brings together the

workers in a geographical location. The divisions are made based on the location of
the employees and infrastructure set up.
Geographical division facilitates quick response adding to the efficiency, it has all
specialties under the same room and makes coordinating easy. Since focus is on one
division, the results are better and favorable.
It brings down the overall profitability as there is duplicity in activity and
infrastructure. The usage of the resources sacrifices the economies of scale. It even
leads to competition with the parent company for resources.
Large, multinational companies, especially in the fast-food industry benefit from this
structure.

5. Process-based structure: the company is divided into levels based on the end-to-end
flow of the different processes that take place within the company. Employees
carrying out the work related to the completion of one process within the company are
grouped together to form one division with hierarchy as well.
 The advantages of this structure are that it is efficient and rapid. The structure is
flexible and adaptable to the dynamic changes in the industry. However, erecting
barriers between different process groups hinders communication.
Multidimensional companies with process ownership as the prominent dimension find
this structure favorable.

6. Matrix structure: a matrix organizational structure is one in which the reporting

relationships are set up as grid or matrix, rather than in the traditional hierarchy.
This structure enables sharing of resources and skills accompanied with open
communication and a more integrated system. The company can adapt to dynamic
changes and fosters employee specialization and growth. On the other side, it leads to
confusion and conflict between managers. It impacts the company’s bottom line as
there are numerous mangers and the workload is rather heavy on the employees.
Starbucks is a popular chain employing this method.

7. Circular structure: in this structure the higher level of employees occupies the inner
circles and the other positions are spread around this circle. The inner circle spreads
out the vision outward like ripples rather than sending directives down the chain of
command.
It promotes communication and free flow of information between the different
positions and all divisions are a part of the whole. Nevertheless, it is a confusing setup
if not managed rightly and the reporting relationships are hard to understand.

8. Flat structure: the company has limited levels of management, hence all staff are a
few steps away from the leadership.
The structure is extremely detailed and more productive as there is less hierarchical
pressure. It also fosters a good network of communication. However, reporting
relationships aren’t very clear and can lead to disagreements while making decisions.

9. Network Structure: one company works with another to share resources or if it has
multiple locations with different functions and leaderships.
A few advantages of this structure are that, everything is consolidated under one roof,
the processes are agile and there is open communication. It is disadvantageous ehen
 you consider the complex reporting relationships and the decentralization that reduces
company’s control.

Navigating Organizational Structure:

An individual who is either a part of the company or an outsider trying to understand the
working of the company has to navigate through the structure to get a clear idea of the
functioning. For this reason, they will have to carefully decode the structuring to identify the
positions, levels of management, flow of information and reporting relationships.
One will have to recognize the traditions of the company, how things are done, the details
that are catered to while working, and finally how they can get ahead strategically. For a new
employee in a company, he will have to develop good relationships, empathize and respect
opposing views, ask for advice and have a purpose for every conversation. He will have to
realize that everyone in the company has a value. Only on understanding the organizational
landscape, he can steer through the company.
When a company goes through a major change, for instance a merger acquisition or
something on similar lines, the organizational structure is distorted, the company will have to
proactively set up a working model that inspires the employees and investors keeping their
confidence intact. It will have to focus on integrating the divisions by providing adequate and
clear guidelines for communication and solve challenges as they come.

In conclusion, a company is a complex entity, surviving on its own and housing numerous
individuals and their aspirations. Only a schematic and clear arrangement of the employees
will enhance efficiency and aid in achieving the objectives of its inception. The management
and its working are just as important as everything else in the company, it has to be well
thought and meticulously designed to ensure that the company grows and doesn’t succumb to
the industry.