2.4. Organisational structure

Question 1

Why do businesses need organisational structure?

Answer 1

• indicates who has overall responsibility for decision making
• formal relationships
• the way in which accountability and authority may be passed down
• number of subordinates reporting to each senior manager
• formal channels of communication - vertical or horizontal
• identity of supervisor and managers

Question 2

Define geographical organisation structures

Answer 2

Firm organized into geographical units (regional, national, international) that report to a central headquarter which administers the core functions such as planning and marketing.

Question 3

Advantages of geographical structures

Answer 3

• Communication within a geographical organizational structure is much more personal and easily carried out since there is no language barrier => unlikely for misinterpretation/misunderstanding to occur
• Advantage of having leaders who are completely familiar with the local business environment, culture, and legal climate
• easier to coordinate with one another to meet the unique challenges of their geographical location
• Tracking the performance of individual markets and work groups is simplified under this structure, as metrics such as revenues, profit margins, costs, and performance improvements can be tagged to specific regions

Question 4

Disadvantages of geographical structures

Answer 4

• Geographical divisions duplicate both activities and infrastructure => uses resources while sacrificing economies of scale
• Different divisions might have to compete with one another for resources from the parent company
• Makes it more difficult to be consistent in core company beliefs from one area to the next

Question 5

Define product organisational structures

Answer 5

has managers reporting to the president or head of the company by product type. The grouping of the production and sales efforts of a business according to a particular line of goods or services. A business might prefer to use a form of product organization when its product lines are quite different and require specialized expertise in making and distributing them.

Question 6

Advantages of product organisational structure

Answer 6

This type of structure is ideal for organizations with multiple products and can help shorten product development cycles.

Question 7

Disadvantages of product organisational structures

Answer 7

It can be difficult to scale, and the organization may end up with duplicate resources as different divisions strive for autonomy

Question 8

Define functional organisational structures

Answer 8

A functional organization is a common type of organizational structure in which the organization is divided into smaller groups based on specialised functional areas, such as IT, finance, or marketing.

Question 9

Advantages of functional organisational structures

Answer 9

• Offers high level of specialisation
• A worker who is an expert in his functional area can perform tasks with a high level of speed and efficiency, which enhances productivity
• Encourages healthy competition among functional experts. In the present day of competitive business environment, every manager wants to demonstrate a better performance. Obviously, this spirit of healthy competition brings out efficient executives.
• Manager has to work in one line of activity where he has functional specialization => not overburdened with work

Question 10

Disadvantages of functional organisational structures

Answer 10

• Different functional groups may not communicate with one another, potentially decreasing flexibility and innovation
• Needs more administrative cost because there are more functional specialists/experts
• There is no possibility of quick decisions. It is essential to take suggestions and guidance from experts before taking a decision
• Narrow of departmental specialists creates problems in functional organizations to achieve overall objectives of the enterprise

Question 11

Define matrix structure

Answer 11

an organisational structure that creates project/product/geographical teams that cut across traditional functional departments

Question 12

Advantages of matrix structure

Answer 12

• Allows total communication between all members of the team, cutting across traditional boundaries between departments
• There is less chance of people focusing on just what is good for their department. This is replaced with a feeling of what is good for the project and business as a whole
• Crossover of ideas between people with specialist knowledge in different areas tends to create more successful solutions
• This system is well designed to respond to changing markets or technical conditions

Question 13

Disadvantages of matrix structure

Answer 13

• Less direct control from the top => this passing down of authority to more junior staff could be difficult for some managers to come to terms with
• Team members may have two leaders if business retains levels of hierarchy but allows cross departmental teams => cause conflict of interests which can result in inefficiency
• Workers are frequently chosen to participate on cross-functional teams because they possess a broad and diverse skill set. However, in general, the wages earned by an individual increase in relation to the skills he or she possesses

Question 14

What are the key principles of organisational structure?

Answer 14

• Level of hierarchy
• Chain of command
• Span of control
• Delegation

Question 15

Level of hierarchy

Answer 15

• A stage if the organisational structure at which the personnel on it have equal status and authority
• Problems of having large number of levels:
  
  • communication can become slow and distorted
  • spans of control to be narrow
  • greater sense of remoteness among those on lower levels from the decision making power at the top

Question 16

Chain of command

Answer 16

• the route through which authority is passed down an organisation
• taller organisation, longer the chain of command

Question 17

Span of control

Answer 17

the number of subordinates reporting directly to a manager

Question 18

Delegation

Answer 18

passing authority down the organisational hierarchy

Question 19

Advantages of delegation

Answer 19

• gives senior managers more time to focus on important, strategic roles
• shows trust in subordinates and this can motivate and challenge them
• develops and trains staff for more senior positions
• helps staff to achieve fulfilment through their work (self-actualisation)

Question 20

Disadvantages of delegation

Answer 20

• if the task is not well defined or if inadequate training is given, delegation is unlikely to succeed
• delegation will be unsuccessful if insufficient authority is given to the subordinate who is performing the tasks
• managers may only delegate boring jobs that they do not want to do - this will not be motivating

Question 21

Define centralisation

Answer 21

keeping all of the important decision-making powers within head office or the centre of the organisation

Question 22

Define decentralisation

Answer 22

decision making powers are passed down the organisation to empower subordinates and regional/product managers

Question 23

Advantages of centralisation

Answer 23

• A fixed set of rules and procedures in all areas of the firm should lead to rapid decision making - there is little scope for discussion
• The business has consistent policies throughout the organisation. This prevents any conflicts between divisions and avoids confusion in the minds of consumers
• Senior managers take decisions in the interest of the whole business
• Central buying should allow for greater economies of scale
• Senior managers at central office will be experienced decision makers

Question 24

Advantages of decentralisation

Answer 24

• More local decisions can be made that reflect different conditions - the managers who take the decision will have local knowledge and are likely to have closer contact with customers
• More junior managers can develop and this prepares them for more challenging roles
• Delegation and empowerment are made easier and these will have positive effects on motivation
• Decision making in response to changes should be quicker and more flexible as head office wil not have to be involved everytime

Question 25

Define delayering

Answer 25

removal of one or more of the levels of hierarchy from an organisational structure

Question 26

Factors influence structure of business

Answer 26

• The style of management or the culture of the managers. Theory X - hierarchial structure, Theory Y - matrix structure
• External changes such as economic recession or increased competition might lead to delayering to reduce overhead costs
• Corporate objectives. E.g. expand in other countries => geographical organisational structure
• Adopting new technologies can reduce middle managers

Question 27

Links between level of hierarchy and chain of command

Answer 27

• greater levels, longer chain of command
• consequences:
  
  • communication ineffectiveness
  • smaller spans of control
  • delegation likely to be limited
  • reduced motivation

Question 28

Links between delegation and accountability

Answer 28

• Delegation gives subordinates the authority to perform certain tasks => have power to undertake jobs and make decisions necessary for these jobs to be completed
• If job is done poorly then the worker is accountable to his or her immediate manager - they can be held to account and be disciplined for inadequate performance
• However, responsibility for the work of the department (including subordinates performance) rests with the manager
• Control of work is achieved by means of appraisals, monitoring against targets
• Manager delegates AUTHORITY not RESPONSIBILITY

Question 29

Define line managers

Answer 29

managers who have direct authority over people, decisions and resources within the hierarchy of an organisation

Question 30

Define staff managers

Answer 30

managers who, as specialists, provide support, info and assistance to line managers

Question 31

Conflicts between staff managers and line managers

Answer 31

Staff managers can be economists, special market researchers,…etc. Due to their professional status and experience, they can be well paid but often accused of having less loyalty as their services might be demanded by other firms. Line managers, thus, might resent them

Question 32

Define informal organisation

Answer 32

the network of personal and social relations that develop between people within an organisation