Every organization is started with either the aim of growth or profit. Most profit-based organizations pursue both objectives, while non-profits focus more on growth. Organizational structure is instrumental in aligning the organization with its goals and objectives. Organizational structure influences fundamental aspects of organizational operations such as communication, reporting, information flow, organizational relationships, and overall behavior. The structure is the sum of components of the organization as a whole. Ahmady, Mehrpour, and Nikooravesh (2016) define organizational structure as the framework that underlines how people, systems, groups, operating processes, and jobs are designed and how these elements are conceptualized to achieve corporate goals. Structure affects all components of the organization even though it does not work as a coordination mechanism for these components. The organizational relationship often stems from the organizational structure and significantly affects employees’ behavior and productivity. Organizational structure usually manifests in the organizational chart. The planning of an organizational structure often follows three principles: the formal relationships and hierarchical levels in the organization, (2) system design which determines the coordination of units and organizational relationships, and (3) the [osiions of individuals that make up the organization.
Organizational effectiveness and efficiency significantly rely on how well these principles are interwoven in the organizational structure. On the other hand, organizational culture reflects an organization’s development pattern. Culture indicates how well an organization cultivates success out of its human resource. Organizational culture has been linked to benefits such as effective relationships between leaders and employees, effective decision-making, motivation and productivity, and ethical communication, all of which sum up to organizational efficiency and effectiveness. Kumar (2016) defines organizational culture as a set of values, behaviors, practices, and expectations that direct the actions of individuals in the organization. Organizational culture and structure are two interwoven aspects of an organization. The corporate structure defines the culture the organization stands on, while the culture determines the longevity of this structure. Organizational structure may change because some goals have not been met, and culture influences the change significantly. Organizational culture and structure are fundamental to understanding what could go wrong in the organization and help set things in the right direction. This analysis examines the organizational structure and culture of Berkshire Hathaway and Zurich Insurance Group Ltd, two publicly-traded non-health insurance companies based in the United States and Germany, respectively. Berkshire Hathaway is a global conglomerate headquartered in Omaha, Nebraska. Berkshire Hathaway majors in manufacturing and insurance. On the other hand, Zurich Insurance Group is a multinational insurance firm providing general insurance solutions on casualties and properties to small businesses and individuals. Berkshire Hathaway is ranked as the leading global insurance company with a market cap value of $714 billion, while Zurich Insurance Group has a market capitalization of $ 59.64 billion.
Berkshire Hathaway
Berkshire Hathaway is a global conglomerate holding firm headquartered in Omaha, Nebraska, United States. The company has subsidiaries and majors in insurance and manufacturing (Berkshire Hathaway, 2022). The insurance sector is its largest revenue generation. The company is currently under Warren Buffet’s leadership, the chairman and chief executive officer. As a conglomerate company, the company runs several businesses making its corporate structure quite complex. The company’s structure comprises the railroad, subsidiaries, retail, service, manufacturing, energy and utilities, and insurance segments.
The Insurance, Utilities, and Energy Segments
The insurance segment is Berkshire Hathaway’s largest generator of annual revenue. This segment comprises a list of insurance companies run. The companies are arranged hierarchically, starting with the largest to the smallest. ( Berkman Solutions, n.d)The organizational chart also shows that within these entities under the insurance are other entities run by the larger entities. For instance, Berkshire Hathaway is the parent company. Under Berkshire Hathaway is the GEICO Group, which has six other companies. Berkshire Hathaway provides an umbrella to all the subsidiaries under its subsidiaries. The hierarchical corporate structure in the insurance sector enables the company to appoint the management based on a seniority model as the structure trickles down—the Utility and energy structure local companies with a shared vision. The majority of these companies are limited liabilities.
The Rail Road and Subsidiaries Segments
Berkshire Hathaway has more than sixty subsidiaries. The operation of these subsidiaries, with most passing as legal entities, is hardly explained in the organizational chart ( Berkman Solutions, n.d). However, a critical review of the structural arrangement of these subsidiaries on the organizational chart reveals a flat corporate structure. A flat organizational structure has a limited number of managers, with one manager having a chain of command. This structure allows the subsidiaries segment to implement a decentralized management system that encourages inclusive decision-making and reduces resistance as employees work efficiently (Rishipal, 2014). This structure may, however, register low productivity if the management fails to put in the required incentives to motivate employees. The railroad segment mainly highlights the company’s acquisition. This structure is short, precise, and unilateral.
Utilities and Energy Segment
The utilities and energy segments list all the legal entities that make up this sector. At the top of the structure are individual names of the leaders and management team. Some are included as a group, while others are identified as individual leaders ( Berkman Solutions, n.d). Warren Buffet, the company’s CEO, appears at the right end of the chart. This structure is slightly different from the structure in the other segments. An in-depth review of the structure highlights a functional organizational structure. A functional organizational structure is centralized, allowing the management to group activities and tasks according to business functions (Awa, 2016). This structure also allows specialization as businesses are organized into a specific specialty allowing employees to exploit their talents and expertise in this area for maximum productivity.
Manufacturing, Retail, and Service Segment
This segment is the largest, comprising businesses from across multiple industries. The structure is hierarchical, with six entities at the top, the parent company at the center, and other subsidiaries at the bottom ( Berkman Solutions, n.d). Most legal entities at the bottom of the structure also have substructures. This structure assumes a hierarchical model.
Zurich Insurance Group Ltd
Zurich Insurance Group Ltd thrives on a three-line of defense structural format. The structure is divided into three main functions, with the board of directors assuming the top-right position (Zurich Insurance Group, 2019). At the center is the management, while the internal control functions segment lies on the other edge of the circle. The structure is circular, with these functions distributed across the circle. The company’s structure gives the board of directors independence from the Executive Committee and CEO, keeping the power balance in check. The board comprises independent non-executive individuals. The company achieves separation of power through separate roles drafted for the CEO and the board chairperson.
Similarities between Berkshire Hathaway and Zurich Insurance Group Ltd Corporate Structures
The two structures are hardly similar due to the complexity and diversity of Berkshire Hathaway’s structure. However, essential elements such as role division and hierarchy are shared between the two structures. Berkshire Hathaway’s structure is a division between flat and functional ( Berkman Solutions, n.d). In those two structures, the legal entities are arranged according to their hierarchy. The functional hierarchy places the company’s CEO at the top right corner of the structure, as other entities come at the bottom of the CEO. The flat structure has a more decentralized appeal, but the subsidiaries are anchored on the parent company. The parent company is often at the center of the structure, indicating that most power lies with the parent company’s CEO as the other subsidiaries align with the authority. In the case of Zurich Insurance Group Ltd, the structure is simple, with the CEO having the ultimate authority, imitating the structure of a flat organization. The management is only a single entity as the rest of the lines of defense fall under internal control and the board of directors. The leadership is centralized in the management segment. However, there is a power balance between the CEO, executives, and board of directors allowing the BOD to operate independently of undue influence from the management.
Differences
At Berkshire Hathaway, much of the power bulk lies with the CEO, as the rest of the subsidiaries fall below the parent company’s control. Most subsidiaries also have substructures from their subsidiaries on which they exercise power. Buffett takes both the roles of the CEO and the Board of Directors chairperson (SEC.org, n.d). This structure allows the CEO to have complete control of the board, making it possible to limit their power and delegate most of the duties across the structure. Contrarily, the Zurich Insurance Group Ltd structure separates the Board of Directors power from that of the CEO and Executive Committee. Zurich Insurance Group Ltd’s Board of directors chairperson is Tom de Swaan, while the CEO IS Mario Greco (Zurich Insurance Group, 2019). Zurich’s first structural line of defense lies with management. This defense line conducts the management activities except for group compliance, risk management, and audit. The second defense line is internal control which conducts functions such as group risk management, group audit, and group compliance. The third line of defense is the group audit which provides objective and independent assurance of the group management effectiveness. The board supervises the company’s assurance and control activities, ensuring that the company’s interests and objectives are met. At Zurich Insurance Group Ltd, the roles of the CEO are separate from those of the BOD chairperson, and these roles are distinctly highlighted. The corporate structure at Berkshire is more complex, calling for the centralization of the roles of the CEO and chairperson within one body.
Corporate Culture
An organizational culture is a tool for controlling organizational functions and driving productivity. An inclusive organizational culture that encourages employee engagement is associated with super performance, productivity, a positive work environment, and organizational effectiveness (Amah & Daminabo-Weje, 2013). Employees are an organization’s most valuable asset. Therefore, the corporate culture must promote efficiency by establishing a friendly environment through positive organizational relationships for employees to exploit their potential adequately. Culture is important to every organization’s growth. Culture is usually implied and mostly manifests in employees’ behavior, corporate values, communication, and dress code.
Similarities between Berkshire Hathaway and Zurich’s Corporate Culture
At Berkshire, corporate culture has played a significant role in cementing the organization’s position in the top market. Cunningham (2016) sums up Berkshire Hathaway’s culture as a culture of trust, autonomy, alter ego, and thrift. This culture is also associated with shared decision-making in the broader team spectrum to ensure that the company suffers limited externalities while maximizing internalities. While Buffett is the overall CEO and chairperson of the board of directors, power is decentralized chiefly in the company’s segments so that the subsidiaries managers have control and different responsibilities. The decentralization of control and decision-making creates autonomy and fosters creativity within the management and leadership structure. The decentralization of power and confinement of decision0-making within the management structure has effectively supported the company through achieving its mission of timely delivery of the right parts to customers and meeting all the internal and external customers’ expectations.
The long chain of command makes it hard for decision-making to reach employees, reducing time wastage and creating efficiency. The company has more than 300,000 employees. Similarly, Zurich Insurance Group thrives on an employee-centric culture of innovation (Zurich Insurance Group, 2019). This culture promotes inclusivity by ensuring employees are fully engaged in corporate decision-making. The focus on innovation enables the company to nurture a customer-centric culture that builds a strong positive relationship with its customers to help them understand the frequently changing customers’ needs and reflect these needs in its innovation. The company works on a mission of leading a positive impact to create a better tomorrow. The innovative and inclusive culture that supports the growth of all employees places the company on the right path to achieving this future goal. Zurich’s corporate culture is also autonomous, with a distinct power separation between the CEO, board of directors, and executive committee. The decentralization of power enables the board to be fully effective and focus on supervising the corporate functions to ensure effectiveness.
Differences
Berkshire Hathaway’s culture can be termed cost-conscious because it promotes practices that reduce the company’s expenditure. For instance, Berkshire Hathaway ensures that corporate leaders are trained and mentored within the company. The company’s succession culture limits costs by ensuring that everything is sourced from within (Cunningham, 2016). On the contrary, Zurich Insurance Group outsources its leaders. For instance, Mario Greco joined the company as the CEO and was not picked from within the company. The company only recently initiated a project to model its leaders to nurture a culture of innovation. Outsourcing leaders has allowed the company to tap into different unique talents, but this approach is less cost-effective. A cost-effective culture is a new approach the company intends to nurture but has not been fully implemented. Zurich Insurance Group’s culture is more flexible, promoting extensive employee involvement. On the other hand, the Berkshire Hathaway structure’s complexity and extensiveness make it hard to have an all-inclusive culture where employees are immediate and direct decision-makers. Power passes through a stream of managers and representatives before it reaches down to employees. The decision-making power of Berkshire Hathaway is only decentralized in the management and leadership structure and does not fall back on the employees.
Why do the Structures work best for these Companies
The Functional Corporate structure
The functional corporate structure groups the employees, products, services, or subsidiaries by roles, skills, or specialty. This corporate structure works best in organizations seeking a defined departmentalization hierarchy (Awa, 2016). Different leaders matching skills to the specialties are appointed to the different departments to maximize growth. Labor division and specialization are primarily pursued in large corporations to conduct large-scale operations at a lower cost. Berkshire Hathaway is one of the largest organizations handling several sectors. The company’s largest sectors are the manufacturing and insurance segments. The company umbrellas several companies that depend on its manufacturing efficiency. The company needs to leverage a functional structure in some of its segments to increase efficiency and reduce the cost of manufacturing. Berkshire Hathaway has nurtured a cost-effective corporate culture that helps the organization reduce unnecessary costs. For instance, the come promotes succession by grooming its leaders. Leaders are thus picked from within to minimize outsourcing costs for leaders. This cost-conscious culture thrives better in a functional organization where each party clearly understands their current and future roles.
The Flat Organizational structure
A flat organizational structure has a limited number of managers, with one manager having a chain of command. This structure allows the subsidiaries segment to implement a decentralized management system that encourages inclusive decision-making and reduces resistance as employees work efficiently (Rishipal, 2014). A flat corporate structure’s benefits are that it fosters creativity and innovation, collaboration, cost saving, and adaptability. Cost-saving is an aspiration of every for-profit organization. This corporate structure features lower management levels, which translates to lower expenses on salaries to pay managers and other top leadership positions. The flat corporate structure is only in parts of the Berkshire Hathaway segment where the complexity of the structure begins to unweave. The flat structure works better for less complex organizations like Zurich Insurance group because of the limited need for a complex management structure.
The smaller hierarchy within the flat structure makes it easier for employees to adapt and directly participate in decision-making. Open communication in the structure facilitates collaboration between different critical and functional bodies (Rishipal, 2014). Berkshire Hathaway is a conglomerate corporation with multiple structures and players. The company relies on successful collaboration among the subsidiaries, leaders, and managers to achieve cohesion and sustain its growth. The flat corporate structure works for Zurich Insurance Group because it promotes creativity and innovation. Zurich has ventured into a long-term innovation intended to change the future of insurance and service to individuals and companies (Zurich Insurance Group, 2019). The company can directly tap ideas from different employees because of its direct touch with its employees.
Inclusive Culture of Innovation, Autonomy, and Cost-saving
The adequate involvement of employees characterizes an inclusive organizational culture. The inclusive culture fosters trust among managers, executives, and leaders. The cost-conscious corporate culture is effective at saving on cost while maximizing profit. Employees in these organizations are trained to develop a mindset that is value-addition oriented that ensures value accumulation is an ongoing process in the organization. One way of achieving cost reduction is by an organization grooming its leaders so that the company’s inherent skills are passed down. The succession approach saves companies from training leaders when hired from outside to align them with the corporate skills and expectations. An autonomous corporate culture allows each department to have autonomy over corporate decisions. Managers find it easier to delegate duties to junior employees without relying on the CEO to make all the crucial decisions and task delegations. An organization like Berkshire Hathaway is extensive in structure. The company CEO cannot delegate and make all the decisions in the conglomerate. Autonomy enables leaders to share responsibilities to foster efficiency. The autonomous culture at Zurich Insurance Group has ensured power separation in the management, executive, and board of directors. The CEO cannot limit the powers of the board of directors to weaken their roles in the organization. Effective supervision of corporate goals achievement is easier when the board has independent power. Companies are currently facing stiff competition fostered by advancement. A culture of innovation helps companies to remain unique and afloat in the volatile and highly competitive business environment.
Strategic ways a manager could improve the interface of structure and culture
Decentralization of Power
Corporate power is primarily seen in the decision-making and delegation of duties. Research shows that corporate structure and culture are strongly interwoven facets of an organization (Masters, 2022). Structure affects culture, and culture can potentially affect the structure negatively. Centralization of power often results in a hierarchical corporate structure that limits freedom and autonomy. Managers must model, mentor, and prepare other employees for their responsibilities. Decentralizing power can help create an independent, accountable, and personalized corporate culture that supports collaboration, creativity, and innovation.
Strengthening the recruitment, Selection, Training, and or of Employees
Human resources managers’ decisions on recruitment, selection, orientation, and training of employees play a fundamental role in shaping corporate structure and culture. The applicants selected and recruited to take on various organizational roles must share the corporate values, goals, aspirations, and beliefs (SHRM, n.d). The performance, training, and orientation management programs managers develop must outline, emphasize, and reinforce the company’s core values to become ingrained in the employees. The managers must act as role models to the employees by promoting and emphasizing these values. The nature of the corporate structure is mainly implied but becomes explicit in how the management handles its responsibilities. The structure should foster the culture. In this case, managers set themselves as the pioneers and models who promote a culture that interfaces with the corporate structure.
Constantly Assessing the Organization’s Need
Corporate needs are bound to change with the changing business environment. The organization’s performance strengthens its structure, supporting a productive and positive corporate culture (Elsaid, Okasha, & Abdelghaly, 2013). The corporate structure may begin to fall when the organization is underperforming. The underperformance may result in constant conflicts and disputes that disrupt the structure and culture. With the help of other leaders, managers must constantly assess the corporate needs to give them a clear blueprint to work for corporate effectiveness. Assessing corporate needs frequently allows managers to run events and programs that encourage and maintain a productive workplace for a sustainable organizational structure. A strong, flexible, and effective organizational structure results in a strong, effective, and flexible organizational culture.
Conclusion
Organizational structure and culture are two closely interlinked facets of an organization. In most cases, structure designs the culture, influencing the latter. This analysis examined the corporate structures and cultures of Berkshire Hathaway and Zurich Insurance Group Ltd. Both companies thrive on a flat corporate structure that facilitates easy management and decision-making. However, Berkshire Hathaway has a complex structure sustained by more than one type of corporate structure. The company also uses a functional corporate structure that facilitates specialization and efficiency. An inclusive corporate culture is shared between the two organizations. However, decision-making at Berkshire is centralized in leadership and management, while at Zurich, the decision is decentralized to employees. A culture of innovation allows Zurich to maximize creativity and innovation for a better future, while a cost-conscious culture allows Berkshire to groom its leaders and lower organizational costs. Managers can frequently assess organizational needs, strengthen human resource activities, and decentralize power to strengthen the interface between organizational structure and culture.
References
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