Summit Business - Reaching the Top

Chapter 5: Fundamentals of Organization

5.1. What means organization in management context?

The term “organizational management” is described as the process of leading a company and effectively utilizing or controlling its assets and resources. This means more than just making decisions and guiding your employees, but requires a highly comprehensive way of analysing, researching and developing solutions to fulfil an enterprise’s goal.

Proper management requires a wide overview of everything the business gets on contact with, from employees, to supply chain, partners and accounting. The key principles of planning, organizing, leading and controlling (POLC) are the basement for successful organizational management.

Planning requires a strict method to define goals and strategies. It is also important, to clearly outline actions that must be taken to fulfil these goals. It is compulsory to repeatedly analyse your company, challenges and opportunities, to monitor the progress and steps that still must be taken. This provides a guideline for a businesses’ occupation and ensures all the resources are used expedient.
Organizing includes all the work that had to be done to split oncoming tasks effectively. By that, roles, responsibilities and structures are formed. A proper organizing can help to sort the staff according to their education and skills, so that everyone does what they can do best. This enhances the workflow and improves the employee’s satisfaction.
The term leading refers to the managerial staff. Having appropriate and skilled leaders is necessary to keep the workflow up, motivate and guide employees towards their goals and implement effective communication within the team. This not only refers to the managing itself but should also include a good relationship with the workers and be a contact person for problems or any other issues.
Controlling sometimes is a neglected factor. It means a continuous monitoring of the progress a specific team or the whole company does to be always aware of the status. When problems arise, a proper controlling can detect issues, before they are more difficult to solve.

Other factors that are not included in the POLC-Scheme are obviously also very important. An efficient working team for staffing is mandatory, as it is often time-consuming. It contains finding, inviting, persuade and binding staff to your company. Especially in a highly competitive industry, well qualified staff is often hard to find and must have necessary skills. Furthermore, a proper time management is crucial. This contains to distribute and prioritize tasks, estimate the amount of workload and the time this takes your employees to work on, and optimizing productivity. It ensures retaining deadlines and not to overwhelm your employees. Also highly underestimated is the factor of motivation. Understanding, inspiring and encouraging employees is as important as keeping them on track and monitor their progress. A positive work environment and appreciation is often more effective than simply paying a higher wage. Especially the younger generation values that more and more.

5.2. Organizational structures

Organizational structures in enterprises are crucial for efficiency and success. They provide a framework that regulates roles, responsibility and ways of communication within the business. Well-designed structures can help to use resources effectively and to enhance liaison within different departments. In this connection team structures, processes and hierarchies take in a main role. A clearly defined organization can make it easier for workers to understand their tasks und can enhance motivation and productivity. Furthermore, it eases adjustments to changes in the market and supports a strategic planning. In a modern, more and more complex business environment flexible and adaptable structures are crucial to stay competitive. Due to this fact, analysing and optimizing a business´ structure is a central part of business administration and management.

The scheme, how a company divides tasks and assigns roles to employees is called an organizational chart. In the most companies, this looks like a pyramid. On the top, there is a manager or CEO, sometimes more. Further down are the directors of different departments, followed by specialists or team leaders. On the bottom of the pyramid workers, helpers or lower qualified staff can be found. In almost all cases, the amount of responsibility and power within the company drops from top to bottom. This type of organizational chart is widespread, but not every business works outstanding with this type of chart. Depending on the company’s products, services, employee’s skill level or cultural circumstances, a different chart might be wise to use. Some of these charts will now be exemplified:

Hierarchical structure

As mentioned in the beginning, in a hierarchical structure most of the employees are at the base and become less as you go up. Every level can control and delegate tasks to the subsequent level. For better understanding it can be compared to a military class system, from a soldier up to a general. Hierarchical structures are also found within the nature, where animals live in hordes. Only one is the boss, the others follow his instructions and decisions.

This chart defines clear roles and responsibilities within a company, so everybody knows their position and tasks.

By that, misunderstandings or double work can be avoided. It is clear, who is subordinated by whom and with whom specific projects can be addressed. This also can motivate employees with chances of getting promoted.

Negatively spoken this structure suits not every business model. Innovation and important changes can be prevented these hierarchic levels which can act as barriers. It can cause employees working in interest of their group, but not as an entity. Furthermore, especially employees on a low level can develop a feeling, that they have no responsibility to take and cannot express their ideas.

Functional structure

The functional structure is one of the most common. Its principle is also built hierarchically, but less strict. Another similarity is the distribution of power, which increases as you climb up the pyramid. Every organisation is divided based on their functions. Departments such as marketing, finances or human resources are formed into different units. This can be compared to school, where the department take in the roles of subjects, such as Mathematics, History or Art lessons. This attempt of structuring opens a clear separation into different roles and eases a concentration of knowledge.

It can help employees to focus on their specific part and enhances specialisation. Another positive outcome can be a developing team spirit within the departments.

A huge advantage is the scalability, as this structure is applicable by almost every size of a company, from the small start-up to the multi-million enterprises.

But of course, there are also disadvantages. This chart has a risk of causing a so called “Silo-mentality”, which means that departments start functioning only on their own and become isolated, which complicates communication impedes the performance of the company. More issues can occur, when different strategies or products for different markets are implemented, as communication across the borders of the teams are more difficult.

Divisional structure

Looking at the chard of a divisional structured business, it seems alike the functional structure. But that is not true. The cluster looks similar, with a little difference. Within those companies, departments are divided either market-based, product-based or geographical.

In this structure, each department has their own marketing team, IT-consultant or finance-specialists and is responsible for a specific target-group, product or region. They act like an own business within the bigger business. This model is very suitable for big enterprises, as it allows to make decisions, without being dependent to just a few executives.

Geographical departments are separated by regions, countries or areas. A car manufacturer for example could split the map and assign a region for each department. The first one could be responsible for Northern America, the second one for Asia, and so on.

In a product-based structure the departments are assigned to specific kinds of output. One team can supervise product A, whereas the other team is responsible for product B.

In a tech company could that be team A for a smartphone, and teams B and C for accessories or software.

Market-based departments are usually separated by customer or industry. For an international operating warehouse business, it can be helpful to assign teams for foods and beverages, whereas other teams are responsible for consumer goods, such as clothes or electrical devices.

With assigning each department a different field, huge enterprises can still be flexible. This also enables a quicker reaction time to change in the industry or different customer demands. But it can also cause resources to be done twice, as that there is an IT-consultant in every department. There is also a chance that a company starts to compete with itself.

Matrix structure

The matrix structure connects elements of the functional and the divisional chard. It can be compared with a grid, where the employees are sorted into. Verticals are roles, and horizontal are project- or product teams. Each employee can be subordinated by a group- or a project manager. It can help finding the perfect employee for the requirements of a project and enables a more dynamic view onto it. But it can also cause confusion, who an employee is subordinated to.

Flat vs. Hierarchical structures

Flat and hierarchical structures represent two different approaches to company organisation, each of which has specific advantages and disadvantages. Flat structures are characterised by few administrative levels and a large span of control. This promotes an open flow of communication, as employees can interact directly with managers. Decisions can be made more quickly, which increases the company's ability to react to changes in the market.

This contrasts with hierarchical structures, which involve several levels between employees and management. This structure often leads to a narrow span of control, which means that managers have less direct supervision over a larger number of employees. The flow of communication can be slower, as information must be passed through different levels, which can also affect the speed of decision-making.

The choice between flat and hierarchical structures depends on the specific goals and culture of an organisation. While flat structures can promote innovation and agility, hierarchical models often offer more stability and clear responsibilities. The choice which one of these models will be implemented should be made wisely.

5.3. Leadership styles

Leadership means the process, in which a person (the leader), is motivating, inspiring and educating employees to reach common goals. It contains the ability of creating visions, making decisions and guiding teams. Effective and well-trained leaders are characterized by emotional intelligence, empathy, a strategic thinking and high communication skills. Although every leader is different and has his own style, there are clearly defined leadership styles which can be used as a guide.

Autocratic leadership

The autocratic leadership style was formed by the German Maximilian Weber, a sociologist and economist who published many works in the beginning of the 20th century. It stands for a central and superior leader, who makes all the decisions without binding other employees into this process. There is only one directive, which makes decisions easy and faster. Misunderstandings and double work can be avoided. On the other hand, the missing involvement of the employees to decisions can lower their motivation and affect the work environment negatively, which can also increase the danger of a missing bond towards the company and a higher rate of resignation. If employees are not bond into decision-making or other aspects, the chance to discover hidden talents gets lost.

Democratic leadership

A high contrast brings the democratic leadership style. It is characterized by a clearly wanted participation of the staff member into decision-making. It encourages teamwork and communication while valuing feedback and ideas of the team. This can lead to an increasing employee satisfaction and lower conflicts about ranks within the company. Furthermore, a stronger team can result in applying this style. On the contrary, different opinions with equal rights can hinder the decision-making process and insecurity can rise among the employees, when clear instructions are missing.

Laissez-Faire leadership

This style, promoted by Kurt Lewin, a social psychologist who was very active in the 1920s to 1940s, can be translated into “let it be done”. With employees working highly autonomous, there is a great chance of self-realization and free design of how to fulfil a given task. This gives the opportunity for highly motivated staff with a higher willingness to performance. Although a leader exists in this leadership style, he stays in the background and only gives directions, or the goal aimed at. The employees themselves are responsible for distributing the tasks among each other, which requires them to be highly qualified and experienced. This high amount of latitude can also bring disadvantages, such as lacking coordination or balancing, along with missing orientation or conflicts within the team. Therefore, a highly educated and skilled leader is crucial to be able to counteract.

(Baumgarten, 2019)

5.4. Management

Top-Level management

This level of management is responsible for setting specific goals and overall, the company´s politics. It creates the required budgets, timetables, guidelines and procedures and is responsible for stakeholders, such as partners or regulators. Furthermore, it appoints new managers for the middle level and sets or controls Key Performance Indicators (KPI´s) to check and measure the departments.

Typical positions found in this level are the Chief Executive Officer (CEO), Board of Directors (BOD´s), Chief Financial Officer (CFO), Chief Operations Officer (COO), and the Chief Marketing Officer (CMO).

Middle-Level management

Middle managers duties are creating plans and drawing up hiring processes and requirements for the first-line management. On the same hand, they collect and analyse date to provide updates for the top-level. They act as the connection between the first-line and the top-level and are directly responsible for implementing the plans of the top-level. Moreover, they gather and prepare feedback to optimize and motivate the team.

Typical positions in middle-level management are a Department Manager, Project Manager, Regional Manager, Team Leader or Branch Manager.

First-Line management

In the lowest level of management, the employees are trusted with the task of supervising the all-day workload of the workers. They delegate tasks and orders, instruct the staff, supervise compliance with quality standards, help employees with issues, and most importantly maintain a good working climate. It is also desired, that they have an eye for efficient resource utilization to reduce waste. Employees in this level play a crucial role in maintaining operational processed.

Common jobs in this level are Supervisors, Shift Managers, Floor Manager, Crew Chief or Junior Manager.

As already mentioned in previous chapters, management contains the process of planning, organizing and control over resources, to achieve a company’s goal efficient and effective. It aims to optimize the personnels performance and the strategic alignment of the company. To achieve that, many companies created different levels of management and defined clearly outlined specific skills, a manager should possess.

5.5 Management levels

5.6. Management skills

Technical skills

This skill is, as the name already states, about techniques required to accomplish specific goals or objectives. It not only applies to machines, technique in common or equipment, but also abilities necessary to increase production or service. Especially first-line managers are required to have industry-specific, practical technical skills to handle operational tasks, do quick and small repairs or for professional use of tools, software and equipment. This is not necessary at all for top-lever manager, but on the other hand they must have efficient techniques for decision-making and vision-building, what is not quite important for the first-line.

Human skills

Working with people can be extremely stressful. Human skills are crucial to handle a team effectively. But managers must acknowledge, without employees there would be no need for their job. Therefore, they must have high communication skills, verbal as well as non-verbal. Being adaptive, flexible and a team player is not easy, but highly necessary. However, the ability to compromise and mediate is crucial to keeping a team together; conflicts can arise at any time, so a socially strong and sensitive manager is a win-win situation.

Conceptual skills

Conceptual thinkers are particularly in demand in top-level management, where long-term planning is required. They comprehend complex relationships faster than others, weigh up options and are therefore perfectly suited to making well-considered, long-term decisions that affect the well-being of the company. Creative approaches often allow old problems to be solved in new ways. In addition, conceptually gifted people are characterised by their ability to deal with the unforeseen and to coordinate work between different specialist areas. It can therefore be worth investing in conceptual thinkers, especially in high-paid positions.

(Luthans, 1998)

5.7. Team productivity

Imagine, you are the manager of a company that sells tractors. Your business is doing well, and you have a faithful customer base, but you want to expand and attract new customers. To keep track of your goal, the SMART scheme can help you. It states that your goal must be specific, measurable, achievable, relevant, and time-based.

Specific

Relevant

Only writing “attracting new customers” is unspecific and leaves unanswered questions. How many new customers could make a difference, or how many do you want?

Our specific goal could be:

I will acquire 20 new customers.

Here the focus lies on setting up realistic and possible goals. If your company only sells 50 tractors a year, a goal of 500 more sold machines is unrealistic and unlikely to reach. And it should be a reasonable, why this goal would help you.

Our relevant goal could be: Acquiring 20 new customers is realistic for the size of my company and would allow me to grow my business and increase my revenue.

Measureable

Time-based

In this case, new clients can be counted good, so it is excellent measurable.

Our measurable goal could be: I will measure my progress on how many new clients are coming, while keeping an eye on my present customer base.

It is advantageous, to phrase a goal within a specific time frame. It should not be postponed when missed or forgot. But it also must comply with the previous paragraph, thus realistic. Gaining 20 new customers within a single day is hardly reachable.

Our time-based goal could be: I will acquire 20 new customers within the next six months.

Attainable

This section is about how to achieve your goals. Without a specific plan, you can quickly lose track. You could brainstorm or ask a marketing team for help.

Our attainable goal could be: I will gain 20 more customers by asking current customers to recommend my tractors to other farmers and giving an order to my marketing team to organize exhibitions on different trade fairs.

Performance metrics

To get reliable data about the performance of your business, you should implement Key Performance Indicators (KPI´s). These are measurable values to assess progress or realisation of previous set goals. They can help you to evaluate the success of strategies, room for improvement and decisions made. They should also meet the SMART scheme.

Commonly used Key Performance Indicators are:

Sales growth (comparing sales from 2023 and 2024)
Customer satisfaction (often measured by surveys)
Profit margin (ratio pf profit to sales and shows how profitable a business is)
Market share (proportion of a specific business compared to global market)
Average processing time (how fast can a customer’s request or problem be solved)
Return on investment (measures profit compared to investment to show how profitable it was)

With these and many more Indicators a KPI dashboard can be created, which is a visual depiction of the most important key figures of a business. It collects data and visualises them in clear tables or graphs. This helps the manager to keep and overview of his enterprise and to see if his plans can be achieved as scheduled.

(Losbichler, 2021)

continue with the next chapter: Human Rescources

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