Organizational hierarchies and purposes


The following image shows the Hierarchy designer page, which is located under Retail and Commerce > Channel setup > Organization hierarchies in the page’s View button for the Retail Stores by Business Unit record.

Screenshot of the Hierarchy designer page

A legal entity is a type of company and follows the same concept of the Dynamics 365 legal entity. Typically, a legal entity is the first node in the hierarchy, but it does not have to be.

An operating unit is an organization within a legal entity that segments operational processes and economic resources within a business, be it manufacturing, accounts receivable, budgeting, or retail sales. For instance, a store or e-commerce channel can be an operating unit. A geographical region of retail stores can be an operating unit. A list of the main types of operating units and their purposes is described in the following table. Virtually every node on an organizational hierarchy will be an operating unit, which means that the operating units need to be created first.

Operating unit type Description Purpose
Cost center An operating unit in which managers are accountable for budgeted and actual expenditures. 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. 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. 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. Used to report on functional areas. A department might have profit and loss responsibility and might consist of a group of cost centers.
Commerce 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.

More than one organizational hierarchy can exist, and business requirements can be established to view organizations differently for different purposes or processes.

For instance, it might be easier to run financial reports on one hierarchy but easier to manage retail stores and staff on a separate one.

Each hierarchy is assigned a purpose. The purpose of a hierarchy determines the types of organizations that can be included in the hierarchy. The purpose also determines which application scenarios that a hierarchy can be used in. When creating hierarchies for purposes, you don't need to create one hierarchy for each purpose. Multiple purposes can be assigned to a single organizational hierarchy.