CORPORATE STRUCTURES
With the evolution and development of man through the years, follows the progression of the concept of legal personality which originally was imposed on natural persons but is now extended to artificial persons. These artificial persons include entities such as body corporates similarly known as corporations or companies.
Black’s Law Dictionary defines Corporation as ‘An entity having authority under law to act as a single person distinct from the shareholders who own it and having rights to issue stock and exist indefinitely.’[1] Despite the distinction between both natural persons who operate in the company and entity itself, it is important to note that the entity cannot function without the active involvement of the natural persons within. These natural persons include both shareholders and principal officers of the company, they are responsible for the running of the corporation, its daily activities and its regulatory compliance in the relevant sector. All these are made possible via the organization platform created within, this platform is what is popularly known as ‘Corporate structure’.
Corporate structure is simply defined as the mode and manner with which company affairs are organized so as to enable it achieve its goals and objectives set out. The structure provides for roles, rules and responsibilities of staff and other principal officers of the company.[2] These platforms or structure range and vary from corporations to corporations as each would look to implement a structure well suited to their goals, objectives and core beliefs. These varying corporate structures would be highlighted and further discussed below.
TYPES OF CORPORATE STRUCTURES
- Hierarchical Structure
- Functional Structure
- Flat Structure
- Matrix Structure
HIERARCHICAL STRUCTURE
This is a structure that takes the form of a pyramid with a chain of command from top executives to the employees of the company. The top executives take the place of the pyramid while the employees take the bottom. The chain of command is one of a vertical line with distinct reporting structures, with every party aware of their roles and functions. This structure works best in large corporations where many departments have been developed to perform different functions.[3]
In this structure, the decision-making process flows from the top to the bottom of the pyramid, it also affords employees the opportunities to specialize and develop expertise in their field and it also gives employees a clearer career paths and development prospects which can motivate employees.[4] These positives to be found within the pyramid are also latched with negatives which hinder the effectiveness of the structure. These negatives include things like, slow paced decision-making process, less flexibility to change, disconnect of the top management from the employees and also a strained relationship between employees and managers due to the lack of autonomy.[5]
Generally, the hierarchical structure is one usually practiced within large corporations so as to enable them carry on their goals and objectives.
FUNCTIONAL STRUCTURE
This structure is one which involves the grouping of employees into different departments based on their areas of expertise thus, allowing for greater efficiency and expertise in each functional area. It also assumes a vertical management structure just like the hierarchical structure.[6] In this structure employees of each department only communicate with each other and their managers, these managers in return report to the top management. This structure comes with certain pros and cons which strongly impact the corporation and its activities, they include;
Employees are benefits of specific group training which would benefit them in their area of expertise, employees are given the chance to grow and enhance their skills and it also affords employees the chance to specialize and hone their individual skill rapidly within the group.[7] This structure unlike the previous, allows for a clear reporting structure where employees simply report to their functional managers.[8]
This structure is further plagued with cons which also hinder some of the corporation’s activities, these include slow decision making as it requires input and approval from various departments, this structure further inhibits a corporation’s ability to adapt to market changes, it also limits the career path choices of the employees[9] and the isolation from other departments which in the long run affects collaboration and team building.[10]
This structure is very much similar to that of the hierarchical structure, and both mostly coexist in the sense that where a hierarchical system is practiced there is a very high tendency that a functional structure also exists.
FLAT STRUCTURE
This is a form of corporate structure that involves the reduction of a hierarchy and the decentralization of the decision-making process. In the application of this structure there ceases to exist a middle management system, thus in other words there are little or no levels of management between top level executives and the employees.[11] Very notable companies have adopted this structure so as to increase their efficiency, these companies include Google, Amazon and Hubspot.[12] However, this structure is popularly practiced amongst startups and small businesses, the reason for this is the flexibility and adaptability the structure offers them, the structure in recent time has also been adopted by larger corporations so as to enable employee engagement and to harness innovation.[13]
The popularity of this system amongst both large and small organizations is very evident as the pros of this structure definitely have a lasting effect on the company’s objectives. The advantages of this structure includes faster decision making as in recent time speed is very effective in business progress, the structure further creates room for innovation and creativity as employees are given the required autonomy for the generation of new ideas which in turn breeds the required innovation need for the business growth.[14] Furthermore the non-existence of a middle management role helps save the cost of salaries and other cost associated with training employees.[15]
As earlier noted, these structures although effective suffer from defects which at time hinder the objectives and business progress of the corporation. These range from the confusion arising from the fewer or non-existing management positions which in turn leads to the uncertainty of roles, it further creates an issue of accountability as employees would tend to avoid responsibilities and it further places more burden on the persons tasked with the role of supervision of other employees due to the lack of a management structure.[16]
MATRIX STRUCTURE
This structure comprises of teams reporting to multiple leaders within the corporation, this structure is one where open communication thrives between teams thus fostering innovation and team spirit.[17] The mode of reporting in this structure, involves a management involving both project manager and a departmental head whom the employees/team members report to, thus enabling the company to create new products and services without the realignment of teams.[18] Generally, the matrix structure is one which comprises of dual or multiple managerial accountability and responsibility, thus there are two chains of command, one which is found along the functional line and the other is found along the project, client and product line.
This structure was developed as means of evolution of the organizational structures so as to adapt to the definite real-world need, these needs was for the corporations to be able to manage complex programs, projects and problems.[19] The structure was also developed so as to attend to specific tasks and projects, to attend to these tasks teams of personnel are formed from both the functional or disciplinary organizations.[20] This structure is practiced in notable companies such as ‘Nike’ as the company makes use of functional teams like the Human Resource and Merchandising as well as divisional teams based on both product and geographic region.[21]
This structure greatly benefits the corporation as it allows for flexibility between departments and result shared knowledge, the open communication also leads to better and informed decision making and the collaboration of employees’ boosts engagement and moral. Further down the cons of this structure include uncertainty of roles and responsibilities and potential conflicts as a result of multiple managers.[22]
CONCLUSION
Corporate structure is very important to the survival of any artificial entity as it is the platform through which their goals, objectives and visions are achieved. These structures, vary and are very much peculiar to various corporations, their effectiveness is based upon the type of corporation and its business as one effective structure would be ineffective if not detrimental to another.
[1] B A Garner, Black’s Law Dictionary (9thedn, Minnesota: West Publishing Co. 2009) 365
[2] Will Kenton ‘Organizational Structure for Companies With Examples and Benefits’ (Investopedia, 22 June, 2024) https://www.investopedia.com/terms/o/organizational-structure.asp accessed 26 August, 2024
[3] Indeed Editorial Team ‘Hierarchical Structures: Definition, How it Works and Examples’ (Indeed, 17 May, 2024) https://uk.indeed.com/career-advice/career-development/hierarchical-structure#:~:text=A%20hierarchical%20structure%20is%20an,the%20positions%20at%20the%20bottom. Accessed 26 August, 2024
[4] Nibussiness ‘Business organisational structure’ https://www.nibusinessinfo.co.uk/content/hierarchical-organisational-structure accessed 26 August, 2024
[5] ibid
[6] Tim Vaughan ‘Functional Organisational Structure: Pros and Cons’ (Poppulo, 15 April 2022) https://www.poppulo.com/blog/functional-organizational-structure-pros-and-cons accessed 26 August, 2024
[7] ibid
[8] Academy To Innovate HR ‘Functional Organisational Structure’ https://www.aihr.com/hr-glossary/functional-organizational-structure/ accessed 26 August, 2024
[9] ibid
[10] Greg Bennet ‘When to Use a Functional Organisational Structure’ (Onedirectory, 8 December, 2023) https://www.onedirectory.com/blog/functional-organizational-structure/ accessed 26 August, 2024
[11] Skye Schooley ‘Is It Time to Fire Your Managers?’ (Business.com, 27 June, 2024) https://www.business.com/articles/flat-organization/ accessed 26 August, 2024
[12] Nathan Mahr, Carol Woods ‘Flat Organizational Structure | Definition, Chart & Examples’ (Study.com, 21 November, 2023) https://study.com/learn/lesson/flat-organizational-structure-hierarchy-examples.html accessed 26 August, 2024.
[13] Skye Schooley ‘Is It Time to Fire Your Managers?’ (Business.com, 27 June, 2024) https://www.business.com/articles/flat-organization/ accessed 26 August, 2024
[14] ibid
[15] Use Motion ‘What Is a Flat Organizational Structure? (Pros, Cons, Tips, and FAQs)’ https://www.usemotion.com/blog/flat-organizational-structure accessed 26 August, 2024
[16] Skye Schooley ‘Is It Time to Fire Your Managers?’ (Business.com, 27 June, 2024) https://www.business.com/articles/flat-organization/ accessed 26 August, 2024
[17] Team Asana ‘What is a matrix organization and how does it work?’ https://asana.com/resources/matrix-organization accessed 26 August, 2024
[18] ibid
[19] Project Management Institute ‘The Matrix Organization’ https://www.pmi.org/learning/library/matrix-organization-structure-reason-evolution-1837 accessed 26 August 2024.
[20] ibid
[21] ChartHop ‘6 Advantages and Disadvantages of a Matrix Organizational Structure’ https://www.charthop.com/resources/advantages-disadvantages-matrix-org-structure accessed 26 August, 2024
[22] Tim Vaughan ‘Matrix Structure of Organization - Advantages and Disadvantages’ (Poppulo, 15 April 2022) https://www.poppulo.com/blog/matrix-structure-of-organization accessed 26 August, 2024
