Organizations

We explain what an organization is, and discuss its characteristics. In addition, we explore the types of organizations and their operating models.

What is an organization?

An organization is a group of people that work in coordination to achieve a particular objective. Management is responsible for the performance of the members of the organization, and is in charge of the use of resources, infrastructure, and daily tasks that must be performed.

An organization is a social institution, i.e. a group of people, which requires certain rules and order to coexist in a proper way and achieve its objectives. These aspects are established through the organizational culture, which allows an organization to operate and endure over time.

• See also: Organizational climate

Characteristics of an organization

The main characteristics of an organization include:

• Organizational culture. It is the system of rules and behaviors that shape the organization, giving it its identity.
• Staff. It may consist of two or more members who work in coordination to meet an objective, and encompasses all human resources, such as employees and collaborators.
• Hierarchical structure. It can be defined vertically, whereby management is in charge of all decision-making, or horizontally, with management delegating certain responsibilities to other areas.
• Objectives. They can be commercial or non-profit, short-term or long-term. They must be clear and real, since they are what keeps an organization on track.
• Mission and vision. The mission of an organization is the purpose that gives it meaning, and is where the company wants to be in the long run. For example: To be the leading national brand of sustainable garments with no negative environmental impact. The vision defines the path the organization will take to achieve its purpose. For example: To work on continuous improvement to remain at the forefront of innovation as a company that preserves biodiversity and society.
• Activity or sector. The organization may conduct a single or several activities. For example: providing goods and services. Activity must always follow specific and stated objectives to endure over time.
• Geographic scope. It can be local, national, international or multinational, depending on several factors: its place of origin, productivity, expansion capacity, and business partnerships.
• Legal personality. It determines whether it is a civil association, or a corporation, among other legal forms. Every organization must be legally registered, so it has rights and obligations.
• Resources. These can be: economic resources (available capital, which includes investments or credit capacity), human resources (employees), and material resources (infrastructure, equipment, and supplies so that every employee can perform their tasks).
• Size. It can be small or medium (i.e. SMBs or Small and Medium- sized Businesses), or large (i.e. organizations with over 200 employees). The hierarchical structure will depend on the available resource capacity.

Types of organizations

There are three main types of organizations according to their purpose:

• For-profit organizations. They are companies with the purpose of generating profit for owners and shareholders. Their aim is to increase the capital invested.
  For example: private companies, holdings groups, corporations, or cooperatives.
• Non-profit organizations. Their goal is to provide a specific service for the community, for which they receive contributions from members and donations. While they may raise capital, it is not distributed to the owners and members of the organization.
  For example: non-governmental organizations (NGOs), civic organizations, and foundations.
• State organizations. They are public bodies that implement the administrative management of a country.
  For example: ministries, secretariats, and revenue agencies.

In addition, there are state-owned enterprises (SOEs), also called public sector undertakings, which are owned by the state, and operate to earn profit to provide basic services and improve the quality of life of citizens. For example: public transportation companies, electricity companies, drinking water, or postal services companies.

Operating models

The main operating models in which an organization can be run include:

• Linear or vertical model. It is the oldest model and is still in force in certain bureaucratic entities. Management is exercised formally through orders from a superior directed to all areas of the organization, which do not participate in decision-making.
• Functional model or Taylorism. It is a model based on Frederick Taylor's scientific theory on the division and specialization of tasks, aimed to achieve greater efficiency in the production process.
• Line-staff model. This model combines certain aspects of the vertical and functional organization. Management is centralized in upper management, while certain departments have freedom and responsibility in decision-making concerning their areas’ tasks.
• Committee model. In this model, key decision-making is carried out by a group of shareholders who decide based on the choice of the majority. In addition to the committee, the organization may be run by management and other area leaders to whom it delegates the responsibilities of daily tasks.

Importance of organizations

Organizations must make a positive contribution to society, in addition to achieving goals and obtaining results in order to endure over time.

It is not only non-profit organizations, which seek to solve a specific problem, that must have a positive impact in the world. For-profit companies, whose aim is to make profits, should also create a positive impact on society in order to last over time.

For example: a private company whose sole aim is to obtain profit at the expense of natural resources generating a high level of pollution cannot flourish over time, or should not do so for the well-being of biodiversity.

• See also: Successful organization

Examples of organizations

Some real-life examples include:

For-profit organizations

• América móvil. It is a private multinational company based in Mexico. It provides telecommunications services, such as telephony and internet, to 18 countries around the world.
• Tiendas Soriana S.A. It is a private Mexican company that is the country's leading supermarket and department store chain.
• Novey. It is a private Guatemalan company that produces construction materials.

Non-profit organizations

• Aquae Foundation. It is a Spanish non-profit organization that works in education and information dissemination. It promotes the human right of access to drinking water in Latin America.
• Doctors Without Borders. It is a non-profit organization that provides medical and humanitarian services internationally. It provides assistance and supplies to victims of natural and man-made disasters.
• Crew Foundation. It is a Spanish non-profit organization that works and fights for the conservation of ecosystems and endangered species in various parts of the world.

State organizations

• Ministry of Economy of El Salvador. It is a public body of the Republic of El Salvador that collects information on the country's trade policy and the development of trade negotiations with foreign countries.
• Secretary of Culture of Mexico. It is a public institution responsible for promoting and disseminating the artistic and cultural expressions of the nation. It also works towards awareness-raising and the preservation of cultural heritage.
• Ministry of Education of Peru (MINED). It is a public agency that promotes equal educational opportunities and solutions for all citizens of the nation.

State-owned enterprises

• Pemex. It is an oil and natural gas company, owned by the Mexican state.
• Postal Services of Ecuador. It is a national postal logistics services company, owned by the Ecuadorian state.
• CEL Group (Executive Hydroelectric Commission of the Lempa River). It is an energy-producing company and electric power trader, owned by the state of El Salvador.

Related articles: 

• Corporate social responsibility
• Multinational corporation
• Organizational behavior
• Intelligent organization
• Company vision

References

• "Fundamentos del comportamiento organizacional" Robbins, S. P., & Judge, T. A. (2009).  13ra. Edición. Pearson. México.
• Tipos de organización y estructura organizacional" Castellanos, M., C., A., (2014). Gestiopolis.
• " Two basic types of organizations: For-profit (business) and Nonprofit" McNamara, C. (2022). Management help.