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Laguna University

Laguna Sports Complex, Brgy. Bubukal

Sta. Cruz, Laguna
S.Y. 2017-2018

Chapter 5

Key Aspects of Corporate Organization,

Operating Policies and Control

Paola Mae Alberto

Roxanne Caballar
Camille DelaCueva
Corporate Organization
Organization – an organized body of people with a particular purpose especially a business,
society, association, etc.
Most common factor that affects an organization is the chief executive’s style of management.
Centralization – rely on one individual to make decisions and provide direction for the company.
Small businesses often use this structure since the owner is responsible for the company’s
business operations.
Advantages – centralized organizations can be extremely efficient regarding business decisions.
Business owners typically develop the company’s mission and vision, and set objectives for
managers and employees to follow when achieving these goals.
Disadvantages – centralized organizations can suffer from the negative effects of several layers
of bureaucracy. These businesses often have multiple management layers stretching from the
owner down to frontline operations. Business owners responsible for making every decision in
the company may require more time to accomplish these tasks, which can result in sluggish
business operations.
Decentralization – often have several individuals responsible for making decisions and running
the business. Decentralized organizations rely on a team environment at different levels in the
business. Individuals at each level in the business may have some autonomy to make business
Advantages – decentralized organizations utilize individuals with variety of expertise and
knowledge for running various business operations. A broad-based management team helps to
ensure the company has knowledgeable directors or managers to handle various types of
business situations.
Disadvantages – decentralized organization can struggle with multiple individuals having
different opinions on a particular business decision. As such, these businesses can face
difficulties trying to get everyone on the same page when making decisions.
Form of Organization
1. One-man operation – the single manager may formulate vague strategies and plans,
makes all decision on the basis of experience and limited first-hand knowledge, and issue
orders to all operating personnel.

- There is no confusion
- No need for coordination
- The managers knows all the workers personally
- Information flows directly to the manager and from the manager to the workers

- Places great burden to the single manager
- If he became ill or die no one takes his place within the company

2. Father-son or manager-assistant type – either one or more sons, or one or more assistant
are used to multiply the order of “the boss” who retains all the authority and
responsibility and makes all the decision.
- The boss loses contact close contact with the workers

3. Functional organization – functional managers such as the financial manager, the

production manager, the personnel manager, the sales manager, and the purchasing
manager make all the necessary and required operating decisions.
4. Functional organization, but with a central headquarters and geographical dispersion –
extension of the third form. Each manufacturing unit has its own production manager
5. Multi-divisional firm – permits the firm to cope with disparate product lines because it
has separate decisions for each product line and/or for each graphical location.
6. Conglomerate –has different product line, the central headquarter only maintains
financial control over a number of wholly-owned companies.

- New executive
- Death and resignations


1. First step
- Ideal
- Best suited for the needs of the company
- Reevaluate the existing systems and procedures
- Construction of organizational chart
- Organizational manual (avoid overlapping functions and conflict in responsibilities
- Purpose of the organization
Operating Policies
2 Types of Policies in Business
1. Major Policies – employee standards, guidelines and expectations, benefits, work
2. Operating Policies – guidelines for standardization of a company. It tells employees on
how they should act on matters; on what their employers expect from them. This helps
organization to be effective, efficient and smooth operating.
*Set of Policies – providing a value system and a personality to an organization. Should have
evolved as just personality of an individual from experience.
*Each division or sub-unit of an organization will have its own personality which is seen its set of
policies. And In turn, reflect the personalities of the individuals in that sub-unit and the manner
in which they interact with the total organization.
*Operating Policies tell managers how they should act in specific-recurring situations.

Policy vs Rule vs Procedure

Policy – a verbal, written or implied guide setting up boundaries and directions within which
managerial decisions should take place. Hence, it is a guide to decision-making.
Ex. Accounting policy which imply how the money should be handled, recorded and
Rule – A prescribed course of action which must be followed. Hence, it is a guide to individual
Ex. Customer return calls must be returned within one (1) business day
Procedure – A series of related tasks that make up the chronological sequence and the
established way of performing the work to be done. It is also a guide to action.
Ex. Detailed steps required to perform an activity

Advantages of Written Policies

1. Greatly promote delegation of authority.
2. Senior executives are freed from a lot of repetitive, time-consuming decisions.
*lower level management is afraid to make decisions because of lack of job mobility. If
they have a fall back policy, it can justify their actions and decisions
3. Promote consistency and reduce arbitrary bases for decisions.
4. Support continuity so that the accumulated wisdom f a senior executive does not disappear
when he retires or leaves the company.
*you work for 6 mos. In a company under their policy, strictly, so you tend to retain it in
your system
5. Increase the ability of the different levels of management to better cooperate with each
*misunderstanding is reduced, morale is improved and better work can be expected
from all strata

Negative Aspects of Having Written Policies

1. Some policies are highly confidential and if distributed among many people in the form of a
policy manual, would soon be available to competitors.
2. Their effectivity remains even long after they have become obsolete. (contradicting to
advantage #4)
3. May permit insufficient discretion to the decision-maker.

2 Sets of Operating Policies

1. General Policies for Administration – all levels and in all parts of organization
2. Functional Policies – for each functional area of management
Ex. Marketing – pricing policy and how they will sell their products
*Each category of functional policy should be developed and controlled by the individual who
has the functional responsibility.
Managerial Control of Operation
I. Process of Managerial Control
All other efforts of management are wasted unless a very determined effort is made to
control the many aspects of the operating of the firm. There are four-step process of managerial
The first step, the setting of standard of performance, present no great difficulty if
management has developed an operational plan. The standards of performance will be based on
that plan, on the policies, objectives and strategies which were part of the earlier phases of
management cycle. The second step, the measurement of performance, may be done at
different levels, depending upon the company’s organization and the activity being monitored.
The third step, an information system must be established to get the performance reports
quickly into the hands of the individual who must compare actual performance against the
predetermined standard and decide whether or not corrective action is required. Unless the
fourth step of prompt, corrective action is taken, however, the whole process of control is
wasted. The individual who has control responsibility must determine the cause of the
discrepancy between the actual and desired performance. Then, he must decide on the best
corrective action.
II. Management Information System
For the large company, especially the very large public firms in developing countries- a major
problem in control is the delay in collecting and processing the enormous amount of data
required for intelligent decision making. Time is a critical factor. If a report on a prior period of
operation arrives late, it is likely to be ignored because commitments have already been made,
and it may be too late for corrective action to be useful.
However, it is very rare in a developing country that an industrial organization even the very
large public corporations can justify the installation of a computer management information
Without competent personnel, the best equipment is useless. Programmers, as well as
operators of the computer, console and machine operators and key punchers can be trained
rapidly but in most countries, programmers who understand management’s needs and can
operate imaginatively and independently are in very short supply.