3. The Structure and Shape of the Finance Function Flashcards
What is meant by “organisational structure”?
Organisational structure is formed by the grouping of people into departments or sections and the allocation or responsibility and authority
Draw Mintzberg’s effective organisation diagram
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In Mintzberg’s effective organisation diagram what is the “operating core”?
This is the basic work of the organisation
In Mintzberg’s effective organisation diagram what is the “strategic apex”?
This is the higher level of management responsible for formulating the strategy and long-term plans
In Mintzberg’s effective organisation diagram what is the “middle line”?
These is the lower and middle management layer linking the operating core and strategic apex
In Mintzberg’s effective organisation diagram what is the “technostructure”?
Those responsible for designing procedures and processes. Accountants, computer specialists, engineers
In Mintzberg’s effective organisation diagram what is the “support staff”?
These provide services which support operations. Sales and marketing, HR, etc
In Mintzberg’s effective organisation diagram what is the “ideology”?
The organisations values and beliefs. It’s culture.
What are the 6 co-ordinating mechanisms of Mintzberg’s effective organisation model?
Mutual adjustment (infomal co-operation)
Direct supervision (Formal hierarchy)
Standardisation of work processes (SOP’s)
Standardisation of outputs (Product/service specifications)
Standardisation of skills/knowledge (Training skills base)
Standardisation of norms (Cultural norms and expectations)
What are the 5 structural configurations in Mintzberg’s effective organisation model?
Simple structure (Block=Strategic apex, Mechanism=Direct supervision)
Machine bureaucracy (Block=Techno structure, Mechanism=Standardisation of work)
Professional bureaucracy (Block=Operating core, Mechanism=Standardisation of skills)
Divisionalised (Block=Middle line, Mechanism=Standardisation of outputs)
Adhocracy/Innovative (Block=Operating core, Mechanism=Mutual adjustment)
What is the entrepreneurial structure?
Built around the owner-manager
Centralised
All key decisions taken by the leader
What are the advantages of the entrepreneurial structure?
Fast decision making
Good control
More responsive to market
Close bond to workforce
What are the disadvantages of the entrepreneurial structure?
Success depends on capabilities of one person
Lack of career structure
Can’t cope with growth
What is the functional structure?
Group employees together who undertake similar tasks into departments.
What are the advantages of the functional structure?
Economies of scale
Chain of command
Standardisation
Specialists more comfortable
Career opportunities
What are the disadvantages of the functional structure?
Empire building and conflicts between functions
Slow to adapt to market changes
Cannot cope with rapid growth
What is the divisional structure?
Organisation split into several autonomous divisions which each look after a separate product or location
Headed by general managers
What are the advantages of a divisional structure?
Enables product growth
Clear responsibility
Training of general managers (wider view)
Decision making (speed and quality)
Frees up top management
What are the disadvantages of a divisional structure?
Duplication of business functions
Lack of goal congruence
Potential loss of control
Allocation of central costs problematic
Specialists may feel isolated
What is the matrix structure?
Combines benefits of divisional and functional
What are the advantages of a matrix structure?
Advantages of both functional and divisional structures
Flexibility
Encourages teamwork
What are the disadvantages of a matrix structure?
Dual command
Dilution of functional and divisional authority
Lack of individual accountability
Time-consuming meetings
What is a centralised struture?
Where the upper levels of management retain the authority to make decisions
What is a de-centralised structure?
Authority to make decisions is passed down to units and people at lower levels
What are the advantages of decentralisation?
- Senior management free to concentrate on strategy
- Better local decisions due to local expertise
- Better motivation due to increased empowerment of staff
- Quicker responses
What are the disadvantages of decentralisation?
- Loss of control by senior management
- Lack of standardisation
- Dysfunctional decisions
- Lack of goal congruence
- Training costs
- Duplication of roles
- Extra costs
What is the scalar chain?
The scalar chain is the line of authority which can be traced up or down the chain of commmand.
Number of levels of management in an organisation
What is the span of control?
This is how many people report to one superior
What is meant by a tall organisation?
One with many layers of management and a narrow span of control
What is meant by a flat organisation?
One with few levels of management and a wide span of control
What qualifies the finance function to meet the changing needs of the business?
- End to end view of the organisation
- Trusted and credible
- Existing framework for performance management
- Brings objectivity to decision making
What are the 3 shapes in the evolution of the finance department?
Hierarchical
Segregated
Digital age
What are the 4 levels in the diamond shape?
Senior finance team
Strategic business partnering
Digital centres of excellence
Smart finance factories
Explain level 1 of the diamond shape
Senior finance team
Lead the finance team to achieve the desired organisational impact
Explain level 2 of the diamond shape
Strategic business partnering
Work with internal and external stakeholders to influence and shape how the organisation creates and preserves value
Explain level 3 of the diamond shape
Digital centres of excellence
Specialists generate further insight about value creation and preservation in areas of specialism
Explain level 4 of the diamond shape
Smart finance factories
Assemble and extract data to provide information and preliminary insight
Why has the lower level of the traditional triangular shape of the finance function shrunk?
Lower level assembly and processing tasks have been eroded by technology
Why is there a ‘central bulge’ in the modern finance function?
Higher value services still performed by finance professionals as part of multi-disciplinary teams
What does the ‘flat top’represent?
This shows a move to a collaborative approach in leadership of the company with the CFO working alongside the CEO to lead the company.
Draw the diamond shape diagram
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What are the three main reasons driving change in the finance function?
- Changing mandate
- Technology
- Finance function capability
How will the finance function continue to evolve?
- Need more support and management skills
- More emphasis on specialist knowledge leading to a more multi-disciplinary team
What is the definition of outsourcing?
Outsourcing means contracting out aspects of the work of the organisation previously done in-house, to specialist providers
What is a shared service centre?
This is where an organisation chooses to centralise activities currently performed by separate teams in multiple locations into one site
What is meant by an organisation’s ‘core competencies’?
These are the activities that an organisation can perform that give a competitive advantage and are very difficult for a competitor to emulate.
What are the main advantages of outsourcing?
- Cost advantages
- Economies of scale
- Reduced capital expenditure
- Reduced headcount
- R+D savings
- Quality advantages
- Supplier may have superior skills and expertise
- Solve skills shortage issues
- Other
- Management can focus on core business activities
- Buyer power can acquire favourable terms with supplier
- Can switch suppliers
What are the main disadvantages of outsourcing?
- Supplier wants to make a profit, this suggest could be cheaper to do the work in-house
- Future price increases
- Loss of core competence
- Transaction costs (effort of monitoring and setting up the arrangement)
- Finality (hard to bring back in-house once outsourced)
- Risk of loss of confidential information
- Risk of supplier failing
- Difficulty agreeing/enforcing contract terms
- Damage to staff morale
What is a service level agreement?
A negotiated agreement between the supplier and the customer and is a legal agreement regarding the level of service to be provided
What are ‘transaction costs’ in the context of outsourcing?
These are the indirect costs of outsourcing.
- Search and information costs (working out which supplier is cheapest)
- Bargaining costs (the costs of agreeing an acceptable SLA)
- Policing and enforcement costs (costs of making sure the other party sticks to the agreement)
What two factors have driven the change to a ‘segregated triangle’ structure?
- Globalisation
- Improved technology
