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Determining the Organizational Structure

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by amjadm

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I have a feeling that Our SAP Implementation team wants to hurriedly finalize the organizational ('to-be' structure).

They are merely focusing "How many company do you have?" sort of questions.

I have told the top management to be careful while answering such questions, hasteful answers of which may lead to handicap/bottle-neck situations in future.

Here the consultants role is very critical. They should put some efforts for orientation of their customers, tell them what are the pros & cons, they should present some frequently used models for organizational strucures being used in industry...give the chance to the top management to evaluate the diffent options before making the final decision.

Any Inputs please.

8 replies

by deadly ernest

the current organisational structure size should only be about one quarter or one third of what the final design is capable of handling. If this is not so you will have no space to grow and need to do this all again within five years or so.

by amjadm

The good thing with SAP is that it is very flexible for growth in adding new company codes. As long as you keep the same Chart of account, you can add as many company codes in future as required. Consolidation is done at the company level if all company codes are using the same chart of account.

However, to add company codes in future, you will have to do the configuration for the new company code, which can be replicated from the existing company if the process are the same or new configuration has to be done. However, if a company is inactive at the moment or does not exist at all, it is no use to configure it at the moment as processes may change when it becomes active and it will have no current master data.

by deadly ernest

structures here, and you've got the good luck to be talking to someone trained and experienced in both - I started on the accounting track years ago and shifted to IT. The basics for both are the same.

Your organisational structure should be large enough and flexible enough to allow for a major expansion of both nodes and people within a node and sub nodes. This is to allow for new units at all levels and more staff in all units. This applies to the IT structure and the accounting structure.

The system should be capable of allowing for quick and easy cross reference at unit and operational level. Especially the accounting side should allow for the easy identification and comparison of similar type operations across the organisation. For example, the operations of the administration unit in company A should be easily comparable with the administration unit of company B and company C, etc.

Accounting
From an accounting perspective the chart of accounts should be well broken up, in line with the standard chart of accounts. thus, and cost code should have the following identifiers:

Corporation - Company - Geographical Unit - Operational Unit - Activity Unit. It should also have auxiliary codes to break it down to expenditure activity types, like - admin, client, cross charge unit, overhead, utilities, etc.

All this is to allow quick and easy identification and accumulation of expenses and income for analysis in a range of manners.

One organisation I worked in had a need to identify 5 corporations - 300 companies - about 6,000 units - 90,000 sub unit - 500 activities available across all sub units; then split into the need to allow for cross charging between units and expense / revenue codes. Luckily, the figures above are the totals for each level, so when you looked at things it kind of averaged out as 1 - 6 - 20 - 15 - and most only used between 20 to 80 activities per sub unit. Thus you didn't need everything for each organisational unit, but the codes were such you COULD use any code for any unit, once it was activated. So, a transfer of operations between units at any level was easily done by changing the code or codes for the higher levels and activating the codes for that grouping.

But, most of that is accounting and any half trained accountant should be taking that into account. What's important is to include the extra codes to allow for cross charging identifies for two to five levels below the activity code.

I could go on further, but this is NOT the place for a ten thousand word detailed briefing paper on the proper handling of Activity Based Costing accounting and management.

............

Now moving over to the IT network side, your organisational structure must also break down into your network addresses, and allow for easy identification and expansion there as well. This is important with the assignment of the internal IP addresses, and you need to ensure you use a class that suits for expansion for some years to come. Some small organisations that have only a few people and don't expect to go to more than 50 people over the next several years could get by with a class C address group like 192.168.1.x - while a huge organisation would need a class A group like 10.x.x.x and most will get by with a class B group like 172.1.x.x.

As with a chart of accounts, you break up the same way by assigning company - division - branch - unit codes within the IP address. This can be done in a number of ways, and will depend upon how big you expect the organisation to grow. For example, using a class A group each company can have a different number for the second digit so you get 10.1.x.x and 10.2.x.x for two different companies within the corporation. And further breakdowns occur and the next point of 10.1.1.x and 10.1.2.x etc. Another option may be to assign numbers within a group, so the first company may be 172.1.100.x and the second is 172.1.200.x etc. Whichever you use, you need to analyse the organisation and its probably expansion process for the next several years.

The principles applied in this analysis is the same for a network as for a chart of accounts, just the depth varies.

To give an example of how a network can be laid out to show the corporate structure via IP address, I've one on display at:

www.bywater.net.au

select the business site, select Networking, and click on the network plan shown on that page.

by amjadm

Please guide me to effectively deal this issue ...

To the Implementation partner I sent the following reply:

Quote Start Here.

Mr. xyz...Please complete your statement:

When the newly created company has a different chart of account and/or a different accounting standard you will have to ??

Yesterday you verbally mentioned to me that our team will not be trained for ?How to do configuration each time a new company is added..rather they will be trained on day to day operations !!!?.

The simplest ERP Solutions (like PeachTree etc) allow you to add as many companies as possible no matter how different they may be in terms of Chart of Account.

This is the right time to make these things clear.

Of course we would not like to call Implementers for assistance each time a growth strategy is formulated. We expect from them a firm undertaking that comprehensive training will be provided not only for day to day SAP operations but also complete technical support knowledge will be provided in the form of trainings & documentation.

by deadly ernest

accounting. There are accounting standards - international and national - about how to lay out a chart of accounts. And when a new company is added, it simply requires a new duplication of the existing chart (as per the current standards) with a new high level code number.

Here's a web site with a basic chart of accounts layout

http://www.netmba.com/accounting/fin/accounts/chart/

Now, for accounting software and recording keeping, you need to identify organisational structure either above or below the account code. So, a full account code would show

Company - Division - Branch - Account

123 - 356 - 147 - 51876

This would be a cost of goods sold expense in branch 147 of division 356 in company 123 or set out another way Bing Group - Retail Division - Bombay Branch - Cloth purchases.

Any accounting software MUST be capable of easy expansion in any category or sub category. There are dozens of accounting software programs that do all this, it's basic accounting. In a well developed accounting package you also have activity codes that go across cost centre so you could end up with something like this:

123 - 356 - 147 - 51876 - - 75 - 87

the last two numbers are to indicate the cloth was purchased to be made into shirts (75) for a special sale (87).

Any accounting package should come with full documentation and be capable of easy expansion. One thing to watch out for in getting recommendations from consultants is they ALWAYS steer the early discussion and final written requirements to end up specifying one of the products they sell, regardless of how well it suits your actual business model. If the consultant actual sells any products, don't have them write your requirements. If an off the shelf product does what you want, study it an buy it without the extra expense of a consultant.

For accounting software, your corporate accountant should be evaluating what the various available product provide that meet the existing laws and needs.

by amjadm

but know very little about IAS, IFRS etc.

Actually the issue started when I found that the Implementation team is building up a organizational structure based on merely a short meeting with accountants of our company. And these accountants do not have any ERP exposure at all.

I went through the following official site of SAP
http://help.sap.com/saphelp_nw2004s/helpdata/en/4b/6a43cccafe11d2b49d006094b9c9b4/frameset.htm

The information there matches the structure which you have talked about.

Please have a look of the abovementioned site and do comment, I look forward to receive your guideline particularly for the powerpoint slides (filename is J02_Scen_Overview_EN_UK). It's wonderfull presentation of flexible organizational structure with great scalability...

by deadly ernest

J02 file you mentioned. Anyway, this looks like very standard Organisational Structure type stuff and HR type software set up - of which there are many around the world.

An organisational structure is called by other names to, like Organisation Table, Table of Operations, Force Structure, Organisation Chart, etc. Most are based on the military Table of Operations, most of which are laid out in either a vertical or horizontal layout, such as shown here:

http://en.wikipedia.org/wiki/File:1st_US_Marine_Division.png

What is interesting is when you patch in lower unit structures to higher unit ones, such as this one:

http://en.wikipedia.org/wiki/File:Marine_Air-Ground_Task_Force_Organization.png

Notice they are two different styles of layout that still say the same basic thing. However, where I'm headed here is the US military at its highest levels have a number of major streams, three of which are Marines, Navy, Air Force - each of which are independent of each other, yet, when you get down several levels to the Marine Expeditionary Forces, units of the Air Force and Navy are assigned to the Marines (across the rest of the organisational structure) under the command of the Marine Force Commander; as well as that, at all combat levels, Navy personnel are assigned to every Marine combat unit as the Navy provide all the medical support and medical personnel for the Marines. Thus, you have people who have an overall administrative responsibility to high level groups outside the unit they are operationally responsible to. This sort of cross connectivity allows for maximum flexibility, but is very hard to deal with in an accounting and general organisational structure - but it should be provided for in some manner.

In a business perspective, you may have a need for a couple of manufacturing staff and a few retail staff to be 'loaned' to a the company research and development area for input on new products under development. Your set up should allow for this to happen, while still showing who they really 'belong' to and who they are currently working for.

It's a bit hard to get into more detail without being closely involved with the actual organisational structure you're involved in a then setting it down on paper properly, but it MUST be set out on paper properly before you can even attempt to do it in a database of some sort.

...............

One unit I was personally involved with fine tuning the organisational and accounting structure for was an Australian Military base where we the base was managed by an Air Force unit and it had three other Air Force units on it (from three different AF sub-groups), two units from Defence Force Headquarters, two Army units, and a civilian unit from the Department of Defence Headquarters. To add to the mix, four of these units had personnel on loan from other areas, the civilian unit had Air Force, Army, and Navy people as well as civilians - and most of the others had other service people loaned to them as well.

My unit managed the base itself and we often approved expenditure of funds belonging to the other units on the base, expenditure of our on funds for operational activities of the other units, and funds for our own operations, plus also funds and services to many units transiting the area and calling on us for support. When I took over we had no way to identify who in the base support unit did things for other people or what money was spent in supporting who. By the time I'd reorganised the way positions in our Table of Operations were identified, we could see who was doing what for whom, and the changes I made to the Chart of Accounts (using Activity Based Costing principles) allowed us to better identify what costs were related to what unit and what type of activities - we were also able to better fine tune budgets and funds management. The process took a few years to get perfect, and some fights with people who didn't like the changes to the record systems, but it improved management and allowed us to identify where we could safely cut back to meet funding cuts, and better use what resources we had - money, people, and equipment.

This is the sort of end result you need, as once I could lay out on paper what I wanted, the changes to the departmental database were dead easy, and other units followed our lead once they saw what was possible. A well set up arrangement is ready for expansion and growth in any manner - but it must be set up properly to start with, and that requires you to properly identify where you are today, and where you think you're going tomorrow, worry about next week later.

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