1Enterprise Structures

This chapter contains the following:

Oracle Fusion Applications have been designed to ensure your enterprise can be modeled to meet legal and management objectives. The decisions about your implementation of Oracle Fusion Applications are affected by your:

  • Industry

  • Business unit requirements for autonomy

  • Business and accounting policies

  • Business functions performed by business units and optionally, centralized in shared service centers

  • Locations of facilities

Every enterprise has three fundamental structures that describe its operations and provide a basis for reporting.

  • Legal

  • Managerial

  • Functional

In Oracle Fusion, these structures are implemented using the chart of accounts and organization hierarchies. Many alternative hierarchies can be implemented and used for reporting. You are likely to have one primary structure that organizes your business into:

  • Divisions

  • Business Units

  • Departments

Align these structures with your strategic objectives.

This figure illustrates a grid with Business Axis, representing the enterprise division, Legal Axis representing the companies, and the Functional Axis representing the business functions.

This figure illustrates a group of legal entities.

Legal Structure

The figure illustrates a typical group of legal entities, operating various business and functional organizations. Your ability to buy and sell, own, and employ comes from your charter in the legal system. A corporation is:

  • A distinct legal entity from its owners and managers.

  • Owned by its shareholders, who may be individuals or other corporations.

Many other kinds of legal entities exist, such as sole proprietorships, partnerships, and government agencies.

A legally recognized entity can own and trade assets and employ people in the jurisdiction in which the entity is registered. When granted these privileges, legal entities are also assigned responsibilities to:

  • Account for themselves to the public through statutory and external reporting.

  • Comply with legislation and regulations.

  • Pay income and transaction taxes.

  • Process value added tax (VAT) collection on behalf of the taxing authority.

Many large enterprises isolate risk and optimize taxes by incorporating subsidiaries. They create legal entities to facilitate legal compliance, segregate operations, optimize taxes, complete contractual relationships, and isolate risk. Enterprises use legal entities to establish their enterprise's identity within the laws of each country in which their enterprise operates.

The figure illustrates:

  • A separate card represents a series of registered companies.

  • Each company, including the public holding company, InFusion America, must be registered in the countries where they do business.

  • Each company contributes to various divisions created for purposes of management reporting. These are shown as vertical columns on each card.

For example, a group might have a separate company for each business in the United States (US), but have its United Kingdom (UK) legal entity represent all businesses in that country.

The divisions are linked across the cards so that a business can appear on some or all of the cards. For example, the air quality monitoring systems business might be operated by the US, UK, and France companies. The list of business divisions is on the Business Axis.

Each company's card is also horizontally striped by functional groups, such as the sales team and the finance team. This functional list is called the Functional Axis. The overall image suggests that information might, at a minimum, be tracked by company, business, division, and function in a group environment. In Oracle Fusion Applications, the legal structure is implemented using legal entities.

Management Structure

Successfully managing multiple businesses requires that you segregate them by their strategic objectives, and measure their results. Although related to your legal structure, the business organizational hierarchies don't have to be reflected directly in the legal structure of the enterprise. The management structure can include divisions, subdivisions, lines of business, strategic business units, profit, and cost centers. In the figure, the management structure is shown on the Business Axis. In Oracle Fusion Applications, the management structure is implemented using divisions and business units as well as being reflected in the chart of accounts.

Functional Structure

Straddling the legal and business organizations is a functional organization structured around people and their competencies. For example, sales, manufacturing, and service teams are functional organizations. This functional structure is represented by the Functional Axis in the figure. You reflect the efforts and expenses of your functional organizations directly on the income statement. Organizations must manage and report revenues, cost of sales, and functional expenses such as research and development and selling, general, and administrative expenses. In Oracle Fusion Applications, the functional structure is implemented using departments and organizations, including sales, marketing, project, cost, and inventory organizations.

In Oracle Fusion Applications, the Enterprise Performance and Planning Business Process Model illustrates the major implementation tasks that you perform to create your enterprise structures. This process includes:

  • Set Up Enterprise Structures business process, which consists of implementation activities that span many product families.

  • Information Technology, a second Business Process Model which contains the Set Up Information Technology Management business process.

  • Define Reference Data Sharing, which is one of the activities in this business process and is important in the implementation of the enterprise structures. This activity creates the mechanism to share reference data sets across multiple ledgers, business units, and warehouses, reducing the administrative burden and decreasing the time to implement.

The following figure and tablet describe the Business Process Model structures and activities.

This figure shows the Business Process Model (BPM) structures:
Enterprise Planning and Performance Management: Set Up Enterprises
Structures and Information Technology: Set Up Information Technology
Management. The figure shows BPM activities including:: Define Enterprise,
Define Enterprise Structures, Define Legal Jurisdictions and Authorities,
Define Legal Entities, Define Business Units, Define Financial Reporting
Structures, Define Chart of Accounts, Define Ledgers, Define Accounting
Configurations, Define Facilitates, and Define Reference Data Sharing.

The table describes each BPM activity.

BPM Activities Description

Define Enterprise

Define the enterprise to get the name of the deploying enterprise and the location of the headquarters.

Define Enterprise Structures

Define enterprise structures to represent an organization with one or more legal entities. Define organizations to represent each area of business within the enterprise.

Define Legal Jurisdictions and Authorities

Define information for governing bodies that operate within a jurisdiction.

Define Legal Entities

Define legal entities and legal reporting units for business activities handled by the Oracle Fusion Applications.

Define Business Units

Define business units of an enterprise to perform one or many business functions that can be rolled up in a management hierarchy. A business unit can process transactions on behalf of many legal entities. Normally, it has a manager, strategic objectives, a level of autonomy, and responsibility for its profit and loss.

Define Financial Reporting Structures

Define financial reporting structures, including organization structures, charts of accounts, organizational hierarchies, calendars, currencies and rates, ledgers, and document sequences which are used in organizing the financial data of a company.

Define Chart of Accounts

Define chart of accounts including hierarchies and values to enable tracking of financial transactions and reporting at legal entity, cost center, account, and other segment levels.

Define Ledgers

Define the primary accounting ledger and any secondary ledgers that provide an alternative accounting representation of the financial data.

Define Accounting Configurations

Define the accounting configuration that serves as a framework for how financial records are maintained for an organization.

Define Facilities

Define your manufacturing and storage facilities as Inventory Organizations if Oracle Fusion tracks inventory balances there and Item Organizations if Oracle Fusion only tracks the items used in the facility but not the balances.

Define Reference Data Sharing

Define how reference data in the applications is partitioned and shared.

Note: Some product-specific implementation activities aren't listed here and depend on the applications you're implementing. For example, you can implement Define Enterprise Structures for Human Capital Management, Project Management, and Sales Management.

Organization classifications define the purpose of the organization, whether it's a department, a division, or a legal entity. In some enterprises, organization classifications overlap, which means that the same organization can be assigned multiple classifications. For example, one organization within an enterprise might be both a project organization and a department. The classifications of organizations vary according to business objectives, legal structure, industry, company culture, size and type of growth. You can create organizations in Oracle Fusion with one or more classifications to reflect your enterprise structure.

Defining an Organization with One Classification

Define each organization in your enterprise as a separate organization with a single classification to reflect your enterprise structure and provide flexibility for expansion. The advantage of setting up separate organizations is the ability to add further organizations to expand the enterprise easily. For example, if your enterprise acquires another company which has a different line of business in a country in which you employ people, you can create a division, a legal entity, and additional departments. Classify the new legal entity as a legal employer and payroll statutory unit for the company's payroll tax and social insurance.

Defining an Organization with Multiple Classifications

Define an organization with multiple classifications if the organization has multiple purposes. For example, use an organization within the sales applications as a department that employs salespeople and classify it as a department and a sales organization. Or, if your enterprise operates and employs people in multiple countries, create a legal entity for each country using the Manage Legal Entity task. Then use the Manage Departments task to classify the legal entity as a department.

Configuration Workbench

The Oracle Fusion Enterprise Structures Configurator is an interview based tool to help you analyze how to represent your business in the Oracle Fusion Applications. The interview process poses questions about the name of your enterprise, legal structure, management reporting structure, and primary organizing principle for your business. Based on your answers, the applications suggest the best practices to use to implement business units in your enterprise. You can use or modify these answers to ensure that both your reporting and administrative goals are met in your Oracle Fusion deployment.

Start your global enterprise structure configuration by discussing what your organization's reporting needs are and how to represent those needs in the Oracle Fusion Applications. The following are some questions and points to consider as you design your global enterprise structure in Oracle Fusion.

  • Enterprise Configuration

  • Business Unit Management

  • Security Structure

  • Compliance Requirements

Enterprise Configuration

  • What is the level of configuration needed to achieve the reporting and accounting requirements?

  • What components of your enterprise do you need to report on separately?

  • Which components can be represented by building a hierarchy of values to provide reporting at both detail and summary levels?

  • Where are you on the spectrum of centralization versus decentralization?

Business Unit Management

  • What reporting do I need by business unit?

  • How can you set up your departments or business unit accounts to achieve departmental hierarchies that report accurately on your lines of business?

  • What reporting do you need to support the managers of your business units, and the executives who measure them?

  • How often are business unit results aggregated?

  • What level of reporting detail is required across business units?

Security Structure

  • What level of security and access is allowed?

  • Are business unit managers and the people that report to them secured to transactions within their own business unit?

  • Are the transactions for their business unit largely performed by a corporate department or shared service center?

Compliance Requirements

  • How do you comply with your corporate external reporting requirements and local statutory reporting requirements?

  • Do you tend to prefer a corporate first or an autonomous local approach?

  • Where are you on a spectrum of centralization, very centralized or decentralized?

Model Your Enterprise Structure

This example uses a fictitious global company to demonstrate the analysis that can occur during the enterprise structure configuration planning process.

Your company, InFusion Corporation, is a multinational conglomerate that operates in the United States (US) and the United Kingdom (UK).

Scenario

InFusion Corporation has 400 plus employees and revenue of $120 million. Your product line includes all the components to build and maintain air quality monitoring systems for homes and businesses. You also provide financial services to your customers through a separate division.

The following figure illustrates the InFusion enterprise structure.

The enterprise legal and management structure example
shows InFusion's four divisions, two regions, and the assigned personnel
for each strategic business unit..

The upper part of the figure illustrates a legal company organization for companies in various political regions held by a public company. They enter into transactions initiated by two business divisions, Air Quality Control and Financial Services.

The lower part of the figure illustrates the management structure, which reflects the two businesses, Air Quality Management and Financial Services in strategic business units. The corporate administration is centralized and serves both businesses and all companies.

Regional managers have direct reporting lines to worldwide business managers, and dotted line responsibility to Regional Vice Presidents serving as general managers.

The Corporate Services strategic business unit provides common administrative, payroll, and procurement services.

The companies that enter into the transactions on behalf of the strategic business units are linked to the strategic business units by double-headed arrows. Other facts:

  • Three companies enter into transaction for the AQM division.

  • One company enters transactions for Financial Services exclusively.

  • The holding company enters into transactions on behalf of both divisions and the corporate headquarters.

  • Each company accounts for itself in the Oracle Fusion General Ledger.

  • The companies in the same jurisdiction share the ledger using balancing segments.

  • The company that's in another jurisdiction uses a different ledger.

  • All the companies share the chart of accounts.