What is an Organization?

An organization is a group of people who work together to achieve common goals and objectives. Organizations can take many forms, including businesses, non-profit organizations, government agencies, and social clubs.

Organizations typically have a defined structure, with roles and responsibilities defined for each member of the organization. This structure can be hierarchical, with a clear chain of command, or it can be more decentralized, with decision-making shared among different levels of the organization.

Organizations also typically have a culture, which is the shared values, beliefs, and behaviors that define the way that works is carried out within the organization. Culture can have a significant impact on the performance and effectiveness of an organization.

Organizations play a central role in society, as they provide a structure for people to work together to achieve common goals. Organizations can be small or large and can be found in a wide range of sectors, including business, government, and the non-profit sector.

Effective organizations are well-organized, with clear roles and responsibilities and a strong culture. They are able to set and achieve goals and are adaptable and able to respond to change.

Managing an organization effectively is a complex task that requires strong leadership, effective decision-making, and the ability to build and maintain relationships with employees, stakeholders, and the community. It requires a deep understanding of the organization's goals, values, and culture, as well as the external environment in which it operates.

Common Definition of Organization

Business Dictionary defines an Organization as "A social unit of people that is structured and managed to meet a need or to pursue collective goals." All organizations have a management structure that determines relationships between the different activities and the members and subdivides and assigns roles, responsibilities, and authority to carry out different tasks. Organizations are open systems--they affect and are affected by their environment.[1]

Forms of Organizations[2]

Formal organizations

An organization that is established as a means for achieving defined objectives has been referred to as a formal organization. Its design specifies how goals are subdivided and reflected in subdivisions of the organization. Divisions, departments, sections, positions, jobs, and tasks make up this work structure. Thus, the formal organization is expected to behave impersonally in regard to relationships with clients or with its members. According to Weber's definition, entry and subsequent advancement are by merit or seniority. Each employee receives a salary and enjoys a degree of tenure that safeguards him from the arbitrary influence of superiors or powerful clients. The higher his position in the hierarchy, the greater his presumed expertise in adjudicating problems that may arise in the course of the work carried out at lower levels of the organization. It is this bureaucratic structure that forms the basis for the appointment of heads or chiefs of administrative subdivisions in the organization and endows them with the authority attached to their position.

Informal organizations

In contrast to the appointed head or chief of an administrative unit, a leader emerges within the context of the informal organization that underlies the formal structure. The informal organization expresses the personal objectives and goals of the individual members. Their objectives and goals may or may not coincide with those of the formal organization. The informal organization represents an extension of the social structures that generally characterize human life – the spontaneous emergence of groups and organizations as ends in themselves. In prehistoric times, the man was preoccupied with his personal security, maintenance, protection, and survival. Now man spends a major portion of his waking hours working for organizations. His need to identify with a community that provides security, protection, maintenance, and a feeling of belonging continues unchanged from prehistoric times. This need is met by the informal organization and its emergent, or unofficial, leaders. Leaders emerge from within the structure of the informal organization. Their personal qualities, the demands of the situation, or a combination of these and other factors attract followers who accept their leadership within one or several overlay structures. Instead of the authority of position held by an appointed head or chief, the emergent leader wields influence or power. Influence is the ability of a person to gain cooperation from others by means of persuasion or control over rewards. Power is a stronger form of influence because it reflects a person's ability to enforce action through the control of a means of punishment.

Characteristics of a Healthy Organization[3]

Healthy organizations have certain characteristics ingrained in their corporate culture. Recognizing and understanding the characteristics of healthy organizations can help you detect problems in your company if it is unprofitable and take corrective steps to operate a successful business.

  • Effective Sharing of Goals: A healthy organization shares its business goals with employees at every level of the organization. Management shares goals with employees and gets them on board with the mission and vision of the organization. Employees and managers understand what is required to reach these shared goals and make every effort to achieve them.
  • Teamwork: Another characteristic is teamwork. Healthy companies know how to develop teams that collaborate to achieve common goals. Employees and managers readily offer their assistance to each other to meet corporate objectives.
  • High Employee Morale: Healthy organizations possess high employee morale. Employees value their positions in the organizations and desire to work there for a long time. Productivity is high and organizational events are enjoyable and successful.
  • Offers Training Opportunities: Companies provide on-the-job training and opportunities for employees to enhance their work-related skills. Organizations bring in other individuals to provide necessary departmental and corporate-wide training. Companies also offer opportunities to pursue certification and continual education.
  • Leadership: Good leadership is one of the main characteristics of a healthy organization. Employees have good relationships with management that are based on trust. Managers know how to get employees to function together. When correction is needed, employees readily accept the constructive criticism offered by leaders.
  • Handles Poor Performance: Companies confront poor performance instead of ignoring it. Organizations take corrective actions to improve performance. Upper-level management values the input of employees who make suggestions on how to improve productivity and achieve high-performance rates. Companies may even bring in specialists to detect problems and offer solutions.
  • Understanding Risks: Healthy organizations understand the risks they are open to and take the necessary steps to protect themselves against them. When an event happens due to organizational risks, a healthy organization learns from the event. Companies use precaution but understand that risks are necessary to facilitate growth.
  • Adapts to Opportunities and Changes: Healthy organizations know how to recognize and seize good opportunities. Healthy organizations always look for opportunities to grow. They also know how to adapt to technological or operational changes. They try to stay ahead or in line with changes in the industry and business environment.
  • Clearly Defined Structure: Companies possess a sense of order and organizational structure. The structure and order of the organization do not limit innovation and growth. Employees do not mind complying with the company's order because they understand it and see the benefits of its implementation.
  • Well-Known Company Policies: Organizations create and implement company policies that are readily available to their employees. Healthy organizations follow the policies and regulations of local, state, and federal governments. When employees or managers break policies, the issue is dealt with immediately and in a professional manner.

Types of Organizations[4]

Organizations can be classified in different ways. One way is according to their over-arching purpose, or primary objective. Broadly, organizations may be classified as

  • ‘for-profit’ (i.e., commercial) or ‘not-for-profit’ entities. ‘For-profit’ (commercial) organizations may have several different objectives. For a very long time, it was generally accepted that maximizing the wealth of the owners and continuing in existence were the primary objectives of profit-seeking organizations. However, as organizations also aim, for example, to provide goods and services to customers and employees to employees, it is perhaps more reasonable to suggest that increasing, rather than maximizing the wealth of owners, is a more fitting objective.
  • ‘Not-for–profit’ organizations comprise a large variety of organizations including charities, clubs, cooperative firms/social enterprises, and public sector organizations. Public sector organizations are owned, funded, and run by central or local government. They include:
    • public hospitals
    • the armed forces (military)
    • most schools and universities
    • government departments.

These organizations exist to provide services that, for various reasons, it is considered impractical or undesirable for the commercial sector to provide.

Whereas commercial organizations, charities, and social enterprises must generate sufficient funds from their activities to sustain themselves on a continuing basis, public sector organizations are funded by the government. Nevertheless, constraints on government expenditure mean that resources are limited. Consequently, economic scarcity requires that virtually all organizations be run effectively and efficiently. As a result, many of the management principles employed by the commercial sector are also employed in the not-for-profit sector, requiring extensive use of management accounting in all sectors.

Maximization of shareholder value has long been the publicly stated objective of most business enterprises. It is likely, however, partly as a result of the global financial crises that began in 2008, that the publicly stated objectives will be expanded to embrace more stakeholders, such as employees and the local community.

A traditional view of differences between sectors is illustrated in the Figure below. However, these distinctions are becoming blurred, as indicated by the overlapping circles. Commercial organizations are increasingly pursuing social responsibility objectives, while not-for-profit organizations are increasingly adopting commercial criteria to ensure the sound financial management of scarce resources.

Types of Organization
source: OpenLearn

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