Organization Basics

Organizations are setups of many workplaces. Workplaces are staff with (machine-)tools. They manufacture products or services by divided labor.  Deciding what part of work is to be done on what workplace is the task of organizing.  These decisions are made in the workplace steering unit.

Products / Services

  • are delivered to customers outside the organization or to other workplaces inside the organization
  • consist of one piece or are a collection of (many) other products, parts, components
  • products/components are produced in a production process by a number of operations on workplaces.

All organizations face the intrinsic basic dilemma:

  1. they are working most efficiently handling only one or very few similar products – with increasing production they will decrease costs (economy of scale)
    on the other hand
  2. they are serving customers better by offering (very) many different products.

This dilemma leads to the internal problem of pooling and deploying workplaces – that is staff and tools. To which sub-units, divisions or departments etc. the single workplaces are to be assigned is the problem to be solved. — There is a great variety in present industry.

Four basic solutions exist to the set-up problem:

  1. sequence of production process (one / few products)
  2. function – same type of operations: highest quality and lowest costs for the finished components
  3. product line – according to main product groups: workplaces (staff and machine tools) are focused on main products of the organization. Products/services for inside workplaces of all product lines are produced in central service units (e.g. human resources, tool-, material-procurement).
  4. customer – according to customer groups (region, language): will give full focus on the needs of distinct customer groups or special markets.

The set-up of workplaces has to be changed when products and/or tools change. Over time usually changes take place in sequence from 1. to 4.

If however results show decreasing performances, further configuring possibilities are:

  1. Merging: Same levels of production processes of different companies – it will enhance economy of scale
    or
  2. Splitting up into separate companies – along product group lines – if the number of products has increased to such a degree that the number of adequate decisions by one management board are decreasing disproportionally (overextension of management).

Current events in business word are discussed in blogs on this site.
More theoretical background is depicted at :    Theoretical Background