Understanding Business Structure and Organization
1.1 The Economic Function of Businesses
Businesses play a crucial role in the economy by combining production factors like capital, labor, natural resources, and technology under the direction and control of entrepreneurs. Their primary objective is to produce goods and services for the market, aiming for maximum profit. While private businesses dominate market economies, public and mixed-ownership enterprises also exist, often prioritizing social benefits or services over profit maximization.
Production and Economic Cycles
The production cycle involves acquiring raw materials, transforming them into finished or semi-finished products, storing them, and ultimately utilizing them in manufacturing. The economic cycle consists of two flows: revenue from sales and expenses related to suppliers, employee wages, and other costs.
1.2 Business Classification
Businesses can be categorized based on various criteria:
By Sector
- Primary sector: Involves extracting natural resources (e.g., agriculture, mining).
- Secondary sector: Focuses on processing raw materials into finished goods (e.g., manufacturing, construction).
- Tertiary sector: Provides services (e.g., retail, healthcare, transportation).
- Quaternary sector: Involves knowledge-based activities (e.g., research, information technology).
By Geographic Scope
- Local
- Regional
- National
By Ownership
- Private: Owned by individuals (e.g., Carrefour, Ford, BBVA).
- Public: Owned by the government (e.g., RNF, FV, RTV).
- Mixed: Shared ownership between private and public entities.
By Legal Form
- Sole proprietorship: Owned and run by one person.
- Partnership: Owned and run by two or more individuals.
1.3 Business Organization
Effective business organization involves establishing a structure that defines responsibilities, authority levels, and functions for each member. Departments are created to divide work into smaller, manageable units, each focusing on a specific activity. Coordination among departments is crucial and typically overseen by managers with hierarchical and organizational authority.
Department Functions
- Technical: Handles product manufacturing, research, development, and technological innovation.
- Financial: Manages capital flow, investments, and profitability analysis.
- Administrative: Oversees general administration tasks.
- Commercial: Conducts market research, purchasing, sales, storage, and marketing.
- Social: Deals with personnel and labor relations.
Informal Organization and Culture
The informal organization refers to relationships and interactions among employees that occur outside the formal structure. Corporate culture defines a company’s identity, encompassing leadership style, employee relations, and interactions with clients and suppliers. It shapes the company’s values and distinguishes it from others.
1.4 Organizational Charts
Organizational charts visually represent a company’s internal structure and relationships, including:
- Line relationships: Direct lines of authority from managers to subordinates and vice versa.
- Staff relationships: Advisory or support roles provided by individuals or departments (e.g., legal, tax).
- Supportive relationships: Partnerships with external agencies.
1.5 The Commercial Department
The commercial department handles the company’s interactions with the market through marketing functions. Common organizational structures include:
- Functional: Activities are grouped by function (e.g., sales, marketing, customer service).
- Product-based: Separate departments for different products or product lines.
- Geographic: Departments based on geographic regions.
- Customer-based: Departments cater to specific customer groups.
- Mixed: Combines elements of different structures to suit the company’s needs.
Large companies often adopt mixed structures, incorporating geographic divisions with further subdivisions based on customers or products, all within a functional framework.