Overview of Enterprise Structures

There are a wide variety of options available to help you model your enterprise to meet your legal and management objectives. The organization structures you define 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

You implement these structures using the chart of accounts and organization hierarchies. There are many alternative hierarchies you can implement and use 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.

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.

In this figure you can see:

• How a separate card can represent a series of registered companies.

• How each company, including the public holding company, InFusion America, is registered in the countries where they do business.

• How 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 Canada legal entity represent all businesses in Canada.

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 Canada 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.