8: Strategy and structure Flashcards
What are the types of business structure?
- Entrepeneurial structure (simple)
- Functional structure (bureaucracy)
- Matrix structure
- Divisionalisation
What is entrepeneurial structure?
All decisions run through the entrepreneur, who has total control over the running of the business.
The structure offers flexibility and, assuming they are available, swift decision making.
Dependency on the entrepreneur creates limited ability to expand or cope with diversification.
Typically, if successful, will devlop into functional bureaucracy
What is functional structure?
Specialisms mean that the firm is more efficient in terms of process and can benefit from economies of scale
Departments may have a tendency to silo, which can hamper cross functional innovation and creativity. Communication may need to go up to the board and down again to the functions, via functional managers, which is slow.
Such a rigid structure is usually unsuitable for highly dynamic environments.
What is a matrix structure?
A matrix structure seeks to overcome the effect of siloing through improved communication across functions. It does this by divorcing functional managers from the control of the work coming into their departments.
The matrix structure is most suitable for complex and hi-tech industries where collaboration is key.
Advantages of matrix structure
- big picture view of products and progress of work across functions
- Rotate product members within teams for experience, opportunity and variety
Disadvantages of matrix structure
- Functional managers may feel demoted and become demotivated as they lose responsibility of controlling work in their departments.
- individual may suffer stress from having two bosses
- More costly to implement due to number of managers
Give other uses of matrix structure
Large projects that have multiple production teams contributing to the whole e.g. designing and building an aeroplane (wings, fuselage, engines, cockpit etc.).
Geographical arrangements where territories and products may form the axes, such that consistency of production and sale of products is achieved globally.
What is divisionalisation?
A business can be divided into autonomous units based purely on:
geography e.g. USA and Europe divisions
product or market e.g. frozen food, canned food
type of operation e.g. manufacturing, retail and export divisions
Each division will be grouped under a Head Office that retains overall authority. Each division will be organised itself on a functional basis
What are mintzbergs 5 configurations
Strategic apex - decision making
Support staff - non revenue earning support functions
Middline line - turns strategy into operational plans
Technostructure - standardises procedures
Operating core - executes the revenue generating work
what is span of control
refers to the number of people reporting to one person. A number of factors can affect this:
Location of subordinates
Complexity/nature of the work
Level of organisational support
What are the effects of a too tall/narrow hierachy
- Cost excessively in terms of payroll
- Cause delays in decision making as have to pass up and down chain of command
Complications of too wide/flat hierachies
- Managers have control over too many people to manage effectively
- Demoralisation if lack of attention from superiors
- Formation of subgroups with unofficial leaders
Centralisation/decentralisation
Centralisation/decentralisation refers to how much authority/decision-making ability is diffused throughout the organisation.
Centralisation: upper levels retain authority to make decisions.
Decentralisation: ability to make decisions is passed down to lower levels of the hierarchy.
What factors affect the amount of decentralisation
Management style
Size of organisation
Extent of activity diversification
Effectiveness of communication
Ability of management
Speed of technological advancement
Geography of locations
What are the advantages of decentralisation?
- Senior management can focus on strategy and delegate day-to-day decisions to lower levels of management
- Motivation for lower managers
What are disadvanvatages of decentralisation
- More difficult to co-ordinate organisation as lots of people making decisions.
- Incongruent decisions if different levels of management have different objectives
- Loss of control for senior management
What is a shared service centre
a single site within an organisation that carries out processing activities that were previously conducted by a number of different departments or the same kind of department found in a number of business units.
What are the advantages of a SSC?
- Cost savings from reduced headcount and EOS resulting from operating from single lcoation
-Knowledge sharing
- Standardised processes, consistent services
What are the disadvantages of a SSC?
- Loss of knowledge in departmental and/or business specifics
- Weak relationshios between ssc and the local business.
Explain outsourcing
the use of external suppliers as a source for finished products, components or services, previouslt provided in house.
- Can increase quality, decrease cost
What must be considered when outsourcing?
Whether to outsource?
- Firms competence to carry out activity itself
- Risk can be managed better by outsourcing?
- Financial cost
Whom to?
- Track record of potential outsourcer
- Strategic goals
- Quality of relationship on offer
What are the types of structure identified by Burns and Stalker?
Mechanistic: Rigid, bureaocratic and applicable to stable environments
Organic: Fluid and applicable to changing circumstances
Orgs may adapt either or both depending on needs
What are the types of boundary-less organisations
Network organisations - functional structure with organic working methods
Virtual organisations - Virtual teams/firm
Hollow org: all non-core activites outsourced to specialists
Modular org: all non corea nd extends outsourcing to production of components
What is the shamrock organisation?
a core of essential executives and workers supported by outside contractors and part time help
Professional core - Permanently employed staff that provide the core competences of org
Flexible labour force - temporary and part time workers deployed at peak demand
Contractual fringe - External providers that undertake non-core activities more economically than in if done in house
Customers - enabled to execute tasks that may once have been carried out by employee.
How can orgs make thier workplace more flexible?
Zero hour contracts
Outsourcing
Part time contracts
Job sharing
What is a transfer price?
The price at which one division in a group sells its products or services to another division in the same group.
What are the implications of transfer pricing?
Transfer pricing can determine the profits of divisions
The ‘profits’ made by divisions affect performance evaluation.
Transfer pricing can determine taxes to be paid: if divisions are in different countries, they will be taxed according to the rates in that country
Adding incremental margins could influence the final sales price of the product.
Sometimes, dysfunctional decisions can be made: if either division believes it can get a better deal from the market, they may take it.
What are considerations in transfer pricing?
- Dysfunctional behaviour for bonuses
- How much the system costs to run
Explain the multinational business structure
4 Structures:
International division - Domestic business sells to overseas market
Local subsidiary - formation of legal entity in overseas terriority
Global product divisions - global products that do not need to be modified for global consumption
Transnationaol corporations - global brand localised for each territory e.g. mcdonalds
Define corporate governance
set of principles which govern structure and determines objecctives of an organisation and regulates the relationship between the organisation’s management , directors and shareholders
What are the key principles of the UK corporate governance code?
Leadership - effective board
Divison of responsibilities - chair, CEO, non-executives
Composition, succession and evaluation - board should have right balance of skills, subject to re-election and annual evalutation
Audit, risk and control - board should present a balanced assessment of company’s position, audit committee should be made up of 3 independent non-executives. Address going concern
Remuneration - designed to promote long term success of company
What are 5 roles of the board of directors
Accountability: a director is accountable to the shareholders.
Supervision: monitoring and overseeing management performance.
Direction: formulating the strategic direction in the long term.
Executive action: involvement in implementing and controlling strategy.
Risk assessment and management: determining the nature and extent of the risks the company is willing to take to achieve its objectives and ensuring good practices in risk management.
Cyber security board responsibilities
- Aware of cyber risks
- Set Security focused culture
- Promote Transparency and accountability
- Improve IT environment
Governance of government, public and not-for-profit organisations
Accountability
Stakeholders
Openness and transparency
Monitoring performance
What are nolan’s seven principles
Selflessness
Integrity
Objectivity
Accountability
Oppeness
Honesty
Leadership
