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.
Forms of Organizations
- 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 is 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 of 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 membership. 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, 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
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 inline 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 does not limit innovation and growth. Employees do not mind complying to 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
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 organisations. However, as organisations also aim, for example, to provide goods and services to customers and employment 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’ organisations comprise a large variety of organisations including charities, clubs, cooperative firms/social enterprises and public sector organisations. Public sector organisations 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 organisations exist to provide services which, for various reasons, it is considered impractical or undesirable for the commercial sector to provide.
Whereas commercial organisations, charities and social enterprises must generate sufficient funds from their activities to sustain themselves on a continuing basis, public sector organisations are funded by government. Nevertheless, constraints on government expenditure mean that resources are limited. Consequently, economic scarcity requires that virtually all organisations 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 Figure below. However, these distinctions are becoming blurred, as indicated by the overlapping circles. Commercial organisations are increasingly pursuing social responsibility objectives, while not-for-profit organisations are increasingly adopting commercial criteria to ensure the sound financial management of scarce resources.