Organizational Structure and Controls
In most companies, executives trusted in vertical and horizontal linkages to develop an organizational structure that will correspond to the companies' strategy. Whether a company uses a vertical or horizontal structure, no two patterns of strategy and organizational structures are precisely the same. Companies commonly use one of the three major organizational structures: simple, functional, or multidivisional to execute their strategies (Hitt, Ireland, & Hoskisson, 2014). Although throughout a life-cycle of some prosperous companies, often they started from a simple structure, when companies grow, they transform themselves to functional than to the multidivisional structure in order to support changes in their growth strategies (Hitt, Ireland, & Hoskisson, 2014).
When business owners or executives formulating a structure for their company, they choose one of the three types of organizational structures and adapt it to accommodate the company's distinct requirements. As they are implementing an organizational structure, business owners or executives should acknowledge that the option of structure they choose will affect their company's strategy in the foreseeable future. Once a structure is established, it can limit future strategic actions. For example, suppose the company's structure is created to optimize its performance and productivity. In that case, the company could perhaps miss the adaptability and versatility needed to interact with external change or exploit new opportunities.
In most cases, small businesses usually start with a simple structure due to the simplicity of one individual or a small group of individuals share the responsibilities of accomplishing the company's objectives with the little-structured division of labor. In these simple structured organizational controls, no organizational chart is needed because simple structures do not depend on divisional labor systems. Especially if the company is a sole proprietorship, a single individual carries out all the duties is what he/she needs to achieve. Conversely, if the company comprises more than a sole proprietorship, duties and responsibilities typically carry out among the senior members of the company in a casual manner as opposed to each individual developing a narrow area of specialization. As a result, strategical decision-making in a simple structure is inclined to be very centralized. In fact, the company's proprietor typically makes all the strategical decisions mainly because of the slight emphasis on hierarchy within a simple structure. A company that uses this type of simple structure frequently has limited rules and regulations.
When a small company grows and expands, the individual responsible for the company usually realizes that a simple structure and control do not fulfill the company's needs. As the company grows, it will become more elaborate and complicate. For this reason, the company demands a more structured division of labor. Oftentimes, in this type of scenario, the company grows from operating a simple structure to depending on a functional structure. Functional structures emphasize a division of labor in which a particular group of professionals is responsible for a specific function of the overall business. Throughout a functional structure, staff members are divided into different divisions or departments to handle specific duties related to the specified area of the business, such as production, human resources, marketing, customer service, and information technology. (Hitt, Ireland, & Hoskisson, 2014; Ketchen & Short, 2011).
In a case of 50-partner accounting firm that wants to expand its service offering management consulting services to its smaller clients. Although functional structure would make sense to implement from a firm that solely focuses on accounting and wants to expand its offer to management services, the nature of accounting services and management consulting services is entirely different. It needs a different group of professionals to services its clients. Therefore, a multidivisional structure approach is the ideal organizational structure and controls for an accounting firm to expand to management services.
Many accounting firms provide a wide range of products and services. Many of such firms sell their products and services throughout a wide range of geographic regions. These form of strategies necessitate the firms for being extremely receptive to their clients' demands. However, functional structures tend to slow to change (Edwards, 2014). As a result, many firms do not consider the use of the functional structure as they expand. Alternatively, the multidivisional structure is often a choice to use for expansion. In this type of multidivisional structure, staff members are divided into divisions based on product areas and/or geographic regions. When the 50-partner accounting firm operates its business, it is crucial to consider the formal structure before choosing the multidivisional structure approach. The structure of the firm will affect the way how workplace functions, as well as impact the way staff members do their work. The multidivisional structure and control can be simple and straightforward to set up that provides a distinct organizational structure fit for the accounting firm. Before choosing this structural approach, accounting should examine its advantages and disadvantages.
Inside a multidivisional structure, a company comprises a corporate office and operating divisions; each operating division represents a separate business unit. The divisional executive is responsible for daily functions and provides a business strategy for divisional managers (Hitt, Ireland, & Hoskisson, 2014). In other words, the accounting firm will have a management consulting services division that operates as a separate business despite the fact that it will share the same client list. Thus, legally, the accounting firm owns a management consulting services division, but the firm gives the division considerable self-reliance, enabling the management services division to act independently.
One of the significant advantages in a multidivisional structure is allowing the accounting firm to act quickly. For example, suppose the accounting firm wants to make a strategic move such as acquiring another division (either through expansion or acquisition). In that case, only the appropriate division needs to involve integrating the new unit into the firm's hierarchy. On the contrary, if the accounting firm is set up as a functional structure, the changeover may be more ponderous due to all other divisions in the firm needing to incorporate. Furthermore, staff members in a multidivisional structure typically have better control over tasks within its divisional unit. This enables the division unit to operate its business more efficiently and flexibly. When internal or external changes arise, each division unit can adjust to changes by taking immediate action. The multidivisional structure also makes it possible for staff members to focus on a specific business area, dividing highly specialized in their area of expertise.
On the other hand, a multidivisional structure can present a significant challenge, especially for small businesses. The most prominent obstacle for small businesses is the cost to transform their structure to being multidivisional. In addition, establishing various divisions will likely be steep due to the same functions within the company. Establishing a multidivisional structure for the first time can also be challenging to maintain optimum communication among divisions, making it difficult for staff members to share information and collaborate.
In conclusion, establishing an organizational structure is not an easy task. The accounting firm executives board members must choose among the three types of structure (simple, functional, and multidivisional) available to take charge of. Each structure has its distinct advantages and disadvantages. The choice of each structure involves a series of trade-offs. Once the structure is established, the accounting firm's executive board members must revisit the firm's structure over time and make modifications and adjustments if certain danger signs arise. For example, a structure might need to be adjusted if the firm's decision-making is too slow or if a particular division is under perform.
References
Edwards, J. (2014). Mastering Strategic Management. (1st Canadian Edition). BCcampus.
Hitt, M., Ireland, R., & Hoskisson, R. (2014). Strategic management: Concepts: Competitiveness and globalization. (11th Ed). Stamford, CT: Cengage.
Ketchen, D. J., & Short, J. C. 2011. Separating fads from facts: Lessons from "the good, the fad, and the ugly." Business Horizons, 54, 17–22.