In corporate law, the term 'the company' or 'the corporation' are often used as though there is a standard type of corporate organization to which legal principles can be applied. Simple inquiry reveals, however, that there is a great diversity in corporate structures and the uses to which they are put. Understanding the diversity of corporate structures is an important prerequisite to approaching the impact of corporate law principles on corporate life.
What then are corporate structures?
Firstly, to understand, 'What are corporate structures?' it's simply the different departments such as IT, HR, finance and marketing, and other departments in an organization.
Corporate structure refers to the organization of different departments or business units within a company. Each of these teams works towards shared goals in accordance with shared company values. Corporate structure can differ significantly between companies, it is the company's goals and industry type that determines the kind of structure it'll operate with.
A corporate structure can be either vertical or horizontal, depending on how the company wants to build its chain of authority. A vertical structure is a traditional hierarchical organization in which entry-level employees answer to managers, who in turn report to someone else, which can include C-Level staff and the board of directors. Horizontal structures, on the other hand, may have fewer middle managers and a more democratic decision-making process. Even in a horizontal structure, it's important that each employee understands the decision-making process and who is the best person to approach various issues.
It is important to note that the corporate structure of a business is important because it determines the ownership, control, and authority of the organization, which brings me to the different types of corporate structures and how they operate.
Generally, there are four types of organizational/corporate structured that are widely used by businesses all around the world:
1. Functional Structure
Under this structure, employees are grouped into the same departments based on similarity in their skill sets, tasks, and accountabilities. This allows for effective communications between people within a department and thus leads to an efficient decision-making process. Companies with departments such as IT and Accounting are good examples of a functional structure.
2. Divisional Structure
This structure organizes business activities into specific market, product, service, or customer groups. The purpose of the divisional structure is to create work teams that can produce similar products matching the needs of individual groups. A common example of the divisional structure is geographical structure, where regional divisions are built to provide products or services to specific locations.
3. Matrix Structure
Matrix Structure is a combination of functional and divisional structures. This structure allows decentralized decision making, greater autonomy, more interdepartmental interactions, and thus greater productivity and innovation. Despite all the advantages, this structure incurs higher costs and may lead to conflicts between the vertical functions and horizontal product lines.
4. Hybrid Structure
Like the Matrix Structure, the Hybrid Structure combines both functional and divisional structure. Instead of grid organization, Hybrid Structure divides its activities into departments that can be either functional or divisional. This structure allows the utilization of resources and knowledge in each function, while maintaining product specialization in different divisions. Hybrid Structure is widely adopted by many large organizations.
Other types include;
• Flat Structure: This structure has few layers of management, emphasizing teamwork and quick decision-making.
• Hierarchical Structure: This traditional structure has multiple layers of management, with a clear chain of command.
• Network Structure: This decentralized structure is collaborative and flexible, with a focus on external partnerships.
• Team-Based Structure: This structure emphasizes cross-functional teams and collaboration.
• Virtual Structure: This structure outsources and partners with other companies to achieve goals.
• Holding Company Structure: A parent company owns and controls subsidiary companies.
• Conglomerate Structure: A company operates multiple, diversified businesses under one umbrella.
Factors Influencing Corporate Structure;
Although many things can affect the choice of an appropriate structure for an organization, the following five factors are the most common: organization size, life cycle, strategy, environment, and technology.
Some other factors include; industry and market conditions, leadership style and management philosophy, organizational culture and values. Therefore, the larger an organization becomes, the more complicated its structure.
Benefits of having a great corporate structure
There are many benefits of having a great corporate structure. One benefit is that employees understand their roles in the company. This helps the organization to run smoothly and more efficiently.
It provides hierarchy, provides balance, helps avoid duplication of work, and supports better communication.
When companies have great corporate structures, it devotes more time to increasing profits, improving processes, and increasing customer satisfaction, and less time is devoted to clearing up mistakes.
That is not to say that businesses with great organizational structure do not make mistakes, because of course they do. However, having a great corporate organization assists businesses in rebounding from those mistakes. Theorists like Alfred Chandler believed that corporate strategy affects the corporate structure and vice versa. Therefore, a great organizational structure can help companies adapt to external factors.
In conclusion, Corporate structure plays a vital role in a company's success. By understanding the different types of structures and factors that influence them, businesses can design an optimal structure that supports their goals and growth.
