The organization of a company: definition, importance and process

The organization of a company allows a more effective allocation and a more efficient use of its resources, as well as better coordination between its organic units.

In this article we tell you what the organization of a company is, what is its importance, and what are the stages that make up its process.

What is the organization?

The organization of a company (business organization) is an administrative function that includes the organization, structuring and integration of the organic units and resources (material, financial, human and technological) of a company, as well as the establishment of its attributions and the relationships between these.

We can also define the organization as the process through which a company is organized or divided into organic units, the hierarchical relationships that will exist between them are established, and the jobs that each one will have are defined.

Organization is the second administrative function after planning and before direction and control.

The organization determines how a company is divided, and indicates who does what and who reports to whom.

Importance of organization

The organization allows a more effective allocation and more efficient use of the company’s resources necessary to carry out the activities and tasks necessary, in turn, to develop and apply the strategies and achieve the objectives established in the planning.

But in addition to this, an adequate organization also allows:

  • Better goal setting.
  • Better formulation of strategies.
  • Better coordination between the different organic units of the company.
  • Greater commitment and, therefore, greater motivation in workers.
  • Better control of worker performance, as well as results.

Due to these benefits, well-organized companies tend to perform better than loosely organized companies, even when the latter are larger.

Organizational process

The process of organizing a company begins by dividing it into divisions, departments or areas that group activities and tasks with a certain homogeneity, as well as the establishment of hierarchical relationships that will occur between them.

There are several types of divisions that a company can adopt, the main ones being the following:

Division by functions

In the division by functions, the company is divided into divisions, departments or areas that group activities and tasks necessary to perform a certain basic function.

The main advantages of this type of division are:

  • allows you to take full advantage of the technical skills of the members of the company as it groups them according to their specialization.
  • It allows to obtain economies of scale since it uses the resources of the company in an integral way.

This type of division is the most used by companies (especially by SMEs) at its highest levels, due to its simplicity and the easy control it allows.

Division by products

In the division by products, the company is divided into divisions, departments or areas that group activities and tasks necessary to produce or market a specific product or service.

The main advantages of this type of division are:

  • It facilitates coordination between members of the company since it allows them to focus first of all on the product.
  • It allows flexibility to the production units since they can vary in size without interfering in the general structure of the company.

This type of division is usually used by large companies that have a wide variety of products or few types of products, but well differentiated from each other.

Division by geographic location

In the division by geographical location, the company is divided into divisions, departments or areas that group activities and tasks necessary to operate in a specific geographical area.

The main advantages of this type of division are:

  • allows to improve the efficiency of the activities and tasks necessary to serve a certain market, and to better understand and adapt to the conditions and needs of this.
  • allows to establish clear responsibilities since each division operates as if it were an independent company.

This type of division is usually used by large companies that serve large geographically dispersed markets.

Division by customers

In the division by customers, the company is divided into divisions, departments or areas that group activities and tasks necessary to serve a specific type of customer.

The main advantages of this type of division are:

  • It allows the members of the company to better understand the needs, tastes, preferences and other characteristics of customers.
  • Allows company members to focus first and foremost on customer satisfaction.

This type of division is usually used by companies that serve different types of clients with well-differentiated needs and characteristics.

Division by process

In the division by process, the company is divided into divisions, departments or areas that group activities and tasks necessary to carry out the stage of a certain process.

The main advantage of this type of division is that it allows greater efficiency in carrying out the process involved since it allows concentrating and making more efficient use of the resources necessary to carry out each of its stages.

This type of division is usually used by manufacturing or industrial companies at the lower levels of their production areas or operations.

Division by projects

In the division by projects, the company is divided into divisions, departments or areas that group activities and tasks necessary to carry out a certain project.

The main advantage of this type of division is that it allows greater efficiency in carrying out the projects it involves, as it allows concentrating and making more efficient use of the resources necessary to carry out each of these.

This type of division is usually used by large companies that develop complex projects that require large amounts of resources and time to execute.

In practice it is difficult to find a company with only one type of division.

The common thing is that companies have a main division at their highest level according to their predominant activities and tasks (for example, a company that produces several types of well differentiated products is common to be divided by products, and a company that operates in broad and geographically dispersed markets is common to be divided by geographic location), but with other divisions at other levels.

For example, a company at its highest level might have a division by functions, but within the production department have a division by products, and within the department of a certain product have a division by process.

Once the company has been divided and identified the divisions, departments or areas that it will have, we proceed to specify the jobs that each of these units will have, the functions and tasks that each one will perform, their obligations and responsibilities, and the relationships they will have with other positions in the company.

For example, a function manual specifies the positions or positions that the marketing area will have, as well as the functions that each of these will have.

And once the jobs and corresponding functions have been specified, we proceed to define the different work processes or procedures that the company will have.

For example, through a flow chart or a process manual, the process that the production area will have to produce a certain product is specified, or the process that will carry out a certain activity or task.

Posted by: Abdul Rimaaz

Published by Abdul Rimaaz

Abdul Rimaaz business consultant is trained to advise your marketing plan. It can advise, for example, improvements in terms of your company's Internet presence, position one of its brands or implement new strategies to win customers. Being a business consultant is not an easy task and I have thought to summarize, for this entry in Business United Kingdom.

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