A business is normally organised by its functions, e.g. marketing department, accounts department and so on. This is because being grouped together allows the functions to benefit from specialisation and division of labour. This leads to lower unit costs and a greater efficiency. However it can mean that there is departmental rivalry.
Larger businesses might have a number of businesses within the whole company. This would be coordinated by a Head Office, where all the major decisions are made.
Other ways of organising the business could be more appropriate for different types of businesses:
Product – the functions are organised around the product – so at a business like ICI, who are the UK's leading chemical manufacturer, a product manager would have a team of functions who would answer to them, like accounting, marketing and production
Geographical – a hierarchy might be split according to different places that the product is sold into – for instance a business may have a Far Eastern division of its business, which would take into account the different cultural and supply differences of the region
Market – the organisation is based on market segments – so an airline business like British Airways could concentrate on long haul, short haul, holiday makers, business clients and freight
A business whose decision-making comes from one place only is known as a centralised organisation. Normally Head Office will decide on the major elements of strategy, no matter where the manufacturing plants and sales teams are positioned around the country or globe. This means that there are good opportunities for economies of scale.
Other businesses, especially multinationals (see below) will opt for a more decentralised organisation – where the individual businesses within the whole company group, make decisions for themselves. This means that there is more opportunity to react to the changing marketplace (one of the advantages of a small firm). However there is a possibility that these businesses (who may well be in different parts of the world) might be duplicating research or not bargaining in such as strong position as a bigger overall company.
When a business reaches a certain size then it might split into different departments. These departments will specialise, employing people with expertise in these areas.
The main departments in a well-established business are typically:
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