A Line Organization


A line organization is one in which there are direct two-way lines of responsibility, authority, and communication running from the top to the bottom of the organization, with all people reporting to only one supervisor. The most obvious example is the army, which has a clear line of authority going from general to colonel to major to lieutenant to sergeant to corporal to private. A private reports to a corporal, the corporal to a sergeant, and so on back up to the generals. A line organization has the advantages of having clearly defined responsibility and authority, of being easy to understand, and of providing one supervisor for each person. The principles of good organizational design are met.

Disadvantages include for being too flexible, of having few specialists or experts to advise people along the line, of having lines of communication that are too long, and of being unable to handle the complex decisions involved in an organization with thousands of sometimes unrelated products and literally tons of paperwork.

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, and my Lectures.

Basic Organizational Structures


Although there is an almost infinite variety of structural forms, certain basic types predominate in modern complex organizations. There are three basic organizational structures. The conglomerate structure is a variant of divisional structure and is thus not depicted as a fourth structure. Generally speaking, each structure tends to support some corporate strategies over others.

  • Simple Structure has no functional or product categories and is appropriate for a small, entrepreneur-dominated company with one or two product lines that operates in a reasonably small, easily identifiable market niche. Employees tend to be generalists and jacks of all trades.
  • Functional structure is appropriate for a medium-sized firm with several related product lines in one industry. Employees tend to be specialists in the business functions important to that industry, such as manufacturing, marketing, finance, and human resources.
  • Divisional structure is appropriate for a large corporation with many product lines in several related industries. Employees tend to be functional specialists organized.
  • Strategic business units (SBU)are a recent modification to the divisional structure. Strategic business units are divisions or groups of divisions composed of independent product-market segments that are given primary responsibility and authority for the management of their own functional areas. An SBU may be of any size or level, but it must have 1) a unique mission, 2) identifiable competitors, 3)an external market focus, and 4) control of its business functions. The idea is to decentralize on the basis of strategic elements rather than on the basis of size, product characteristics, or span of control and to create horizontal linkages among units previously kept separate.
  • Conglomerate structure is appropriate for a large corporation with many product lines in several unrelated industries. A variant of the divisional structure, the conglomerate structure (sometimes called a holding company) is typically an assemblage of legally independent firms (subsidiaries) operating under one corporate umbrella but controlled through the subsidiaries’ boards of directors. The unrelated nature of the subsidiaries prevents any attempt at gaining synergy among them.

If the current basic structure of corporation does not easily support a strategy under consideration, top management must decide if the proposed strategy is feasible or if the structure should be changed to a more advanced structure.

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, and my Lectures.

 

Concentric Diversification


Grand strategies involving diversification represent distinctive departures from a firm’s existing base of operations, typically the acquisition or internal generation (spin-off) of a separate business with synergistic possibilities counter-balancing the strengths and weaknesses of the two businesses. Diversifications occasionally are undertaken as unrelated investments, because of their high potential and their otherwise minimal resource demands.

Concentric diversification involves the acquisition of businesses that are related to the acquiring firm in terms of technology, markets, or products. With this grand strategy, the selected new businesses possess a high degree of compatibility with the firm’s current businesses. The ideal concentric diversification occurs when the combined company profits increase the strengths and opportunities and decrease the weaknesses and exposure to risk. Thus, the acquiring firm searches for new businesses whose products, markets, distribution channels, technologies, and resource requirements are similar to but not identical with its own, whose acquisition results in synergies but not complete interdependence.

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, and my Lectures.

 

Types of Business Acquisitions


An acquisition can be classified as one of the four types, as follows:

  1. Horizontal Acquisition is a form of business combination in which one company buys another that is in the same industry and performs the same function.
  2. Vertical Acquisition is a business combination in which one company buys another that is in the same industry but performs a different production or distribution activity.
  3. Congeneric Acquisition is a business combination in which one company buys another that is in a different industry but performs a related activity.
  4. Conglomerate Acquisition is the type of business combination in which one company buys another that is in a different industry and performs an unrelated activity.

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, and my Lectures.

The Role of Diversification


Corporate diversification is everywhere. Virtually all of the Fortune 1,000 (the largest 1,000 corporations in the US) are diversified, many of them to a great extent. Some corporations consist of dozen—even hundreds—of different businesses. Besides such corporate giants, many smaller firms, some with only a handful of employees, also diversify.

What is the strategic role of diversification? Popular answers to this question have changed dramatically over the last several decades. During the 1960s, diversification fueled tremendous corporate growth as corporations bought up dozens of businesses, regardless of the good or service sold. Managers based this diversification on unrelated businesses on the assumption that good managers could manage any business, allowing the formation of huge conglomerates of completely unrelated businesses. In the 1970s, managers began to emphasize diversification based on balancing cash flow between businesses. Corporate managers attempted to diversify so that the resulting portfolio would offer a balance between businesses that produced excess cash flows and those that needed additional cash flows beyond what they could produce themselves. The 1980s brought a broad-based effort to restructure corporations, as managers stripped out unrelated businesses and focused on a narrower range of operations. Restructuring usually also involved downsizing, and the largest corporations shrank in relation to the rest of the economy. In the 1990s, corporations have once again taken an interest in using diversification to grow. But unlike the unrelated diversification that took place in the 1960s, the trend in the 1990s is to diversify into related businesses, or at least into businesses in which the strengths of a popular managerial team fit the needs of the new business being added to the corporation.

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, and my Lectures.