Understand organizational hierarchies and operating units
This unit helps you understand what organizational hierarchies and operating units are, and how they are used.
Watch this video to learn about organizational hierarchies.
Organizational hierarchies
Organizational hierarchies represent the relationships between the organizations that make up a business. Therefore, the most important consideration when you model organizations is the structure of your business. You should define organization structures based on feedback from executives and senior managers from functional areas, such as finance and accounting, human resources, operations, purchasing, sales, and marketing.
For example, you can set up a hierarchy of legal entities for tax, legal, or statutory reporting. Or, you can set up a hierarchy that is based on operating units to report financial information that is not legally required, but is used for internal control. For example, you can create a purchasing hierarchy to control purchasing policies, rules, and business processes.
When you are planning hierarchies, it is also important to consider the relationship between the organizational hierarchy and financial dimensions. You can set up multiple organizational hierarchies to represent different views of your business. By using financial dimensions, you can create reports based on these views. You can create hierarchies that address both organizational and statutory reporting needs.
Operating units
An operating unit is an organization that is used to divide the control of economic resources and operational processes in a business. People in an operating unit have a duty to maximize the use of scarce resources, improve processes, and account for their performance.
The operating units in finance and operations apps are:
Cost center - An operating unit in which managers are accountable for budgeted and actual expenditures. It is used for the management and operational control of business processes that span legal entities.
Business unit - A semi-autonomous operating unit that is created to meet strategic business objectives. It is used for financial reporting that is based on industries or product lines that the organization serves independently of legal entities.
Value stream- An operating unit that controls one or more production flows. It is commonly used in lean manufacturing to control the activities and flows that are required to supply a product or service to consumers.
Department - An operating unit that represents a category or functional part of an organization that performs a specific task, such as sales or accounting. It is used to report on functional areas. A department can have profit and loss responsibility and consist of a group of cost centers.
Retail channel - An operating unit that represents a brick and mortar store, an online store, or an online marketplace. Used for the management and operational control of one or more stores within or across legal entities.
Branch - An operating unit that represents a branch location, outside of the main location of the business. This is as part of Fleet management sample module and is not installed as part of production environment.
Rental Location - An operating unit that represents a rental location of the business. This is as part of Fleet management sample module and is not installed as part of production environment.
Region - An operating unit that represents a geographical area of the business. This is as part of Fleet management sample module and is not installed as part of production environment.
Teams - A team is an organization in which the members share a common responsibility, interest, or objective. Teams cannot be used in organizational hierarchies.