Business Structures, Strategies, and Restructuring Explained

Business Structures, Strategies, and Restructuring

Company Structure

A company is a separate legal entity, possessing the same rights as a person. This includes the ability to incur debt, sue, and be sued.

Partnership Structure

A partnership involves multiple individuals who conduct business together.

Business Strategies

A business strategy is a plan to achieve specific objectives. These strategies can be generic or competitive.

Generic Strategies

• Growth: Introducing new products or adding new features (e.g., phone companies).
• Product Differentiation: Creating a competitive advantage through superior quality or service (e.g., air purifiers with superior engineering design).
• Price-Skimming: Initially charging high prices for a product and then lowering the price to recover production and advertising costs. This strategy requires a unique selling proposition (e.g., the introduction of new technology like solar panels).
• Acquisition: Purchasing another company or one or more product lines.

Reasons for Restructuring

Businesses may restructure for various reasons:

• Change in Management: Taking on a business partner.
• Change in Ownership: Buying an existing business and changing the structure to meet new goals.
• Financial: To meet financial goals, such as improving cash flow.
• Operational: Reorganizing internal functions.
• Business Growth: Expanding overseas or expanding product functions.
• Economic Downsizing: Moving from a company to a sole trader.

Steps to Consider When Restructuring

1. Review Structure: Investigate each option and understand legal and tax obligations.
2. Understand Differences: Clearly understand the differences between potential structures.
3. Seek Professional Advice: Consult with professionals for guidance.
4. Make Plans: Review and update business, marketing, and other relevant plans.

Organizational Structures

Functional Structure

In a functional structure, performance standards are well understood, and individuals within a unit share a common language. However, this can lead to conflicting priorities between departments, with decision-making concentrated at the top.

Organizing Around Product Lines

This approach fosters a strong identification with products, enhances coordination between functions, and allows employees to see the bigger picture. However, it can result in a lack of coordination between product lines and functional experts becoming isolated.

Organizing Around Customers

This structure promotes a deeper understanding of customer needs, makes the organization more responsive to customers, and drives customer-driven innovation. However, it can lead to a lack of coordination between units and functional experts becoming isolated.

Organizing as a Business Process

This approach clarifies business outcomes at every stage of value delivery. However, it can diminish the focus on the customer, and experts in functional areas may be devalued.

Organizing as a Matrix

A matrix structure allows for simultaneous focus on external and internal business requirements. However, it can be difficult to locate the cause of organizational issues.