2.4. Organisational structure Flashcards
Why do businesses need organisational structure?
- 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
Define geographical organisation structures
Firm organized into geographical units (regional, national, international) that report to a central headquarter which administers the core functions such as planning and marketing.
Advantages of geographical structures
- 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
Disadvantages of geographical structures
- 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
Define product organisational structures
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.
Advantages of product organisational structure
This type of structure is ideal for organizations with multiple products and can help shorten product development cycles.
Disadvantages of product organisational structures
It can be difficult to scale, and the organization may end up with duplicate resources as different divisions strive for autonomy
Define functional organisational structures
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.
Advantages of functional organisational structures
- 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
Disadvantages of functional organisational structures
- 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
Define matrix structure
an organisational structure that creates project/product/geographical teams that cut across traditional functional departments
Advantages of matrix structure
- 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
Disadvantages of matrix structure
- 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
What are the key principles of organisational structure?
- Level of hierarchy
- Chain of command
- Span of control
- Delegation
Level of hierarchy
- 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
Chain of command
- the route through which authority is passed down an organisation
- taller organisation, longer the chain of command
Span of control
the number of subordinates reporting directly to a manager
Delegation
passing authority down the organisational hierarchy
Advantages of delegation
- 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)
Disadvantages of delegation
- 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
Define centralisation
keeping all of the important decision-making powers within head office or the centre of the organisation
Define decentralisation
decision making powers are passed down the organisation to empower subordinates and regional/product managers
Advantages of centralisation
- 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
Advantages of decentralisation
- 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
Define delayering
removal of one or more of the levels of hierarchy from an organisational structure
Factors influence structure of business
- 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
Links between level of hierarchy and chain of command
- greater levels, longer chain of command
- consequences:
- communication ineffectiveness
- smaller spans of control
- delegation likely to be limited
- reduced motivation
Links between delegation and accountability
- 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
Define line managers
managers who have direct authority over people, decisions and resources within the hierarchy of an organisation
Define staff managers
managers who, as specialists, provide support, info and assistance to line managers
Conflicts between staff managers and line managers
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
Define informal organisation
the network of personal and social relations that develop between people within an organisation
