Association of Chartered Certified Accountants (ACCA) Certification Practice Test

What type of organization relies on service-oriented external vendors for critical operations?

1. Functional organization

2. Hollow organization

3. Virtual organization

4. Divisional organization

The correct answer is: Hollow organization

A hollow organization is characterized by its reliance on external vendors to perform critical operations while retaining a lean internal structure. This approach allows the organization to focus on core competencies and strategic functions, outsourcing non-core activities to specialized service providers. As a result, the organization can maintain flexibility, reduce costs, and benefit from the expertise of its partners in the areas it chooses to outsource. Looking at the other types mentioned, functional organizations are typically structured around specific functions (such as marketing, finance, and production) and do not primarily rely on external vendors. Virtual organizations also collaborate with external entities but are more focused on temporary alliances or partnerships to achieve specific goals, whereas divisional organizations are structured around product lines or geographical areas, usually maintaining more control and less reliance on external vendors for their operations. Thus, the hollow organization stands out distinctly in its strategic approach to outsourcing critical operations.