Mastering SAP: Understanding Organizational

Structure to Streamline Business

In Alex’s ongoing journey into SAP, his mentor, Mr. Jenkins, introduces a foundational element that
drives business operations in SAP: Organizational Structure. Understanding this is essential for
optimizing financial management, logistics, and HR functions in a large organization. Let’s dive
deeper into how Alex navigates this core SAP concept and its impact on businesses.

1. What is Organizational Structure in SAP?

SAP’s organizational structure refers to the hierarchy of various business units that help a company
define and manage its operations. This structure starts at the broadest level and drills down into
specific elements, enabling companies like Alex's to efficiently handle finance, logistics, and more.

• Client: The highest level in SAP, representing a self-contained unit with its data,
configuration, and users.
 • Company Code: The smallest organizational unit for which a company creates
independent financial statements (profit and loss, balance sheet). This is where Alex’s
focus lies, as it drives crucial business decisions.

For Alex, understanding that each company code represents a legal entity with its own financial
data is key to streamlining the operations for his multinational company.

2. Key Components of SAP’s Organizational Structure

2.1 Client

In SAP, the client is the umbrella entity that encapsulates all the operations within a company. It’s
a separate environment where business processes are configured and managed. For Alex’s
company, the client allows them to establish separate environments for testing, development, and
production, which ensures data integrity and security.

2.2 Company Code

A company code represents a legal entity within the SAP system. Each company code is required
for legal reporting and financial accounting purposes. Alex quickly learns that every country where
his company operates should have a distinct company code for local accounting needs.

For instance, Alex’s manufacturing company, with subsidiaries in Europe and North America, sets
up company codes for both regions, ensuring that their financial operations remain compliant with
local regulations.

• T-code to Create Company Code: OBY6

• Example: EU Subsidiary, operating in Euros, fiscal year from January to December.

2.3 Controlling Area

The controlling area serves as an internal reporting entity. It allows businesses to perform cost
accounting and manage their profit and loss from an internal perspective. Alex realizes that
multiple company codes can be linked to a single controlling area if they operate under the same
fiscal year and chart of accounts. This allows better control over budgeting, profit tracking, and
financial transparency.

2.4 Business Area

A business area in SAP is a subdivision within the organization that helps segment financial
statements. It’s useful when Alex’s company needs to generate financial reports by specific
departments or product lines. For instance, Alex’s company uses business areas to segment
reports for its manufacturing and service divisions.

2.5 Plant and Storage Location

At the operational level, plants represent production facilities, while storage locations track
inventory. For Alex, this helps in managing procurement, inventory management, and materials
planning.

Organizational Structure in SAP FI: A Deep Dive

1. Company Code: The Foundation of Financial Reporting

In SAP FI (Financial Accounting), the company code is the cornerstone of the organizational
structure. It represents a legal entity for which financial statements like the balance sheet and
profit and loss (P&L) are created. Each company code has its own financial data, which ensures
legal compliance.

For Alex, setting up separate company codes for each country where his company operates is
critical. These company codes enable him to generate localized financial statements, ensuring his
multinational company complies with the regulations of each country. Each company code within
FI is legally independent but can be linked to other modules like CO for internal management
purposes.

• T-code to create a company code: OBY6

• Example: Alex sets up a company code for his Canadian subsidiary. He configures local
currency (CAD) and fiscal year, ensuring the company code adheres to Canadian legal
requirements.

2. Chart of Accounts: Structuring Financial Transactions

The chart of accounts (CoA) is another key organizational element in FI. It is a list of all accounts a
company uses to record financial transactions. Alex must assign a chart of accounts to each
company code. This ensures that financial postings are recorded properly across his global
business.
 • Operating Chart of Accounts: Used for day-to-day financial postings.

• Group Chart of Accounts: Used for consolidating financial data from multiple company
codes for group reporting.

By standardizing the chart of accounts across all company codes, Alex simplifies his company’s
financial reporting, making it easier to analyze financial data across regions.

3. Business Area: Enhancing Segment Reporting

The business area is an optional, yet powerful, organizational unit in FI. It allows Alex to generate
financial statements for specific parts of the business (e.g., departments, products, or regions)
without creating separate company codes.

For example, Alex’s company has a manufacturing division and a service division. By assigning
business areas to each division, Alex can track revenues, costs, and profits separately, even
though they operate under the same company code.

4. Functional Areas: Detailed Cost Tracking

In addition to business areas, functional areas can be used in SAP FI to categorize expenses by
function. This is particularly useful for Alex when his company needs detailed cost tracking, such
as identifying costs related to marketing, production, or R&D.

Defining Company Code in SAP: Step-by-Step

To deepen his learning, Alex decides to set up a company code for the new subsidiary in Canada.
Here’s how he proceeds:

• Step 1: Access T-code OBY6 in SAP.

• Step 2: Enter company code details such as "Germany Company code" and specify the
local currency (DE01), fiscal year variant, and country-specific settings.

• Step 3: Review and assign the company code to the relevant controlling area.
 This hands-on experience shows Alex how each organizational unit in SAP contributes to
accurate financial reporting and cost tracking across regions.

Best Practices for Designing an Organizational Structure in SAP

1. Align Organizational Units with Business Goals: Alex learns that designing the SAP
structure should mirror the business strategy. Whether a company focuses on regional
expansion or product diversification, SAP’s hierarchy should support that.

2. Use a Single Chart of Accounts for Multiple Company Codes: For easier reporting, Alex
follows Mr. Jenkins' advice and ensures that all company codes within a region use the
same chart of accounts.

3. Leverage Business Areas for Flexible Reporting: For Alex’s growing business, setting up
business areas helps him generate more granular reports, allowing deeper insights into
different divisions.

Why SAP Organizational Structure Matters

Organizational structure in SAP directly impacts a business's ability to manage operations
efficiently, track costs accurately, and generate reliable financial reports. For Alex, it’s clear that a
well-defined organizational setup reduces errors, simplifies compliance, and improves overall
performance. This structure ensures seamless coordination between different business functions,
from logistics to accounting.

FAQs

1. What is a client in SAP?

A client is the highest organizational level in SAP, representing an independent environment where
business processes are configured and executed.

2. What is a company code in SAP?

A company code is a key organizational unit representing a legal entity for which a complete set of
financial statements can be drawn up.

3. How does the controlling area relate to company codes?

A controlling area is used for internal management reporting and can span multiple company
codes, provided they share the same fiscal year and chart of accounts.

4. What is a business area in SAP?

A business area helps in generating specific financial reports by segmenting operations into
divisions like sales, marketing, or products.
5. How does organizational structure affect SAP FI and CO modules?
The structure ensures financial transactions are recorded at the right company code level (FI) and
that costs are tracked across areas efficiently (CO).

6. What T-code is used to define company code in SAP?

The transaction code used to define a company code is OBY6.

Conclusion

Alex’s journey through SAP’s organizational structure has given him the tools to manage his
company’s operations more effectively. Whether setting up company codes, linking them to
controlling areas, or optimizing business areas for reporting, Alex now understands how this
structure supports every business function within SAP. As his company grows, this knowledge will
be essential in maintaining control over costs, profitability, and operational efficiency.