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Organizational unit – definition and meaning

An organizational unit, in business, is basically one of several organizational groups that accomplish a specific function. In other words, it is one of many vital business functions in an organization. An organizational unit, in computing, is a subdivision within an archive directory. In that archive directory, we can place users, computers, groups, and other organizational units.

The first half of this article explains the meaning of the term in a business environment. The second half explains its meaning in computing.

Organizational unit – in business

In business, an organizational unit or OU is one of several functions within a company. Businesses, in fact, create organizational units to boost efficiency. Efficiency is all about getting as much as you can out of the available resource.

Organizational units are the result of the division of labor. The division creates different units for IT, accounting, sales, marketing, HR, finance, etc. IT stands for Information Technology while HR stands for Human Resources.

How people divide up the different tasks within a corporation varies. For example, some companies create organizational units according to groups, while others focus on project teams or functions.

Departments, companies, teams, and enterprises could be units. Companies create each organizational unit based on a definition of the features and attributes of that unit.

Organizational unit - image with explanation of meaning
In this image, the Parent Corporation may be the holding company. The Business Units 1, 2, and 3 may be subsidiaries. Each business unit is an organizational unit with several other organizational units below them.

Additionally, for every unique value of the characteristics, there may be several units.

For example, let’s suppose a company has several design departments. The company may have a Design Department, under which there is a Product Layout Department, Product Design Department, etc.

MBASckool.com says the following regarding organizational units:

“Mostly, each organizational unit has a considerable degree of freedom and flexibility in its nature of operations and decision making.”

“This facilitates efficient allocation and utilization of resources coupled with a faster decision making process.”

Organizational unit – in computing

In computing, an organizational unit provides us with a way of classifying objects within directories. It is also a way of classifying names in a digital certificate hierarchy.

We often use organizational units to differentiate between objects with the same name. For example, Paul Smith in OU ‘customer service’ versus John Smith in ‘marketing.’

We may also have OUs to parcel out authority to create and manage objects.

In the majority of systems, each organizational unit appears within an organizational certificate or top-level organization grouping.

In many systems, in fact, there might be one OU inside another OU. We call them the child OU and parent OU respectively.

According to Wikipedia:

“OUs are used to create a hierarchy of containers within a domain. Only OUs within the same domain can have relationships. OUs of the same name in different domains are independent.”

Video – organizational unit

This GeneXus video explains how and why people set up organizational units within organizations. It talks about a travel agent that has expanded. The speaker uses the term with its meaning in computing, however, in a business environment.