8: Strategy and structure

Question 1

What are the types of business structure?

Answer 1

• Entrepeneurial structure (simple)
• Functional structure (bureaucracy)
• Matrix structure
• Divisionalisation

Question 2

What is entrepeneurial structure?

Answer 2

 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

Question 3

What is functional structure?

Answer 3

 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.

Question 4

What is a matrix structure?

Answer 4

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.

Question 5

Advantages of matrix structure

Answer 5

• big picture view of products and progress of work across functions
• Rotate product members within teams for experience, opportunity and variety

Question 6

Disadvantages of matrix structure

Answer 6

• 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

Question 7

Give other uses of matrix structure

Answer 7

 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.

Question 8

What is divisionalisation?

Answer 8

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

Question 9

What are mintzbergs 5 configurations

Answer 9

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

Question 10

what is span of control

Answer 10

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

Question 11

What are the effects of a too tall/narrow hierachy

Answer 11

• Cost excessively in terms of payroll
• Cause delays in decision making as have to pass up and down chain of command

Question 12

Complications of too wide/flat hierachies

Answer 12

• Managers have control over too many people to manage effectively
• Demoralisation if lack of attention from superiors
• Formation of subgroups with unofficial leaders

Question 13

Centralisation/decentralisation

Answer 13

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.

Question 14

What factors affect the amount of decentralisation

Answer 14

 Management style
 Size of organisation
 Extent of activity diversification
 Effectiveness of communication
 Ability of management
 Speed of technological advancement
 Geography of locations

Question 15

What are the advantages of decentralisation?

Answer 15

• Senior management can focus on strategy and delegate day-to-day decisions to lower levels of management
• Motivation for lower managers

Question 16

What are disadvanvatages of decentralisation

Answer 16

• 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

Question 17

What is a shared service centre

Answer 17

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.

Question 18

What are the advantages of a SSC?

Answer 18

• Cost savings from reduced headcount and EOS resulting from operating from single lcoation

-Knowledge sharing

• Standardised processes, consistent services

Question 19

What are the disadvantages of a SSC?

Answer 19

• Loss of knowledge in departmental and/or business specifics
• Weak relationshios between ssc and the local business.

Question 20

Explain outsourcing

Answer 20

the use of external suppliers as a source for finished products, components or services, previouslt provided in house.

• Can increase quality, decrease cost

Question 21

What must be considered when outsourcing?

Answer 21

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

Question 22

What are the types of structure identified by Burns and Stalker?

Answer 22

Mechanistic: Rigid, bureaocratic and applicable to stable environments

Organic: Fluid and applicable to changing circumstances

Orgs may adapt either or both depending on needs

Question 23

What are the types of boundary-less organisations

Answer 23

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

Question 24

What is the shamrock organisation?

Answer 24

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.

Question 25

How can orgs make thier workplace more flexible?

Answer 25

Zero hour contracts
Outsourcing
Part time contracts
Job sharing

Question 26

What is a transfer price?

Answer 26

The price at which one division in a group sells its products or services to another division in the same group.

Question 27

What are the implications of transfer pricing?

Answer 27

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.

Question 28

What are considerations in transfer pricing?

Answer 28

• Dysfunctional behaviour for bonuses
• How much the system costs to run

Question 29

Explain the multinational business structure

Answer 29

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

Question 30

Define corporate governance

Answer 30

set of principles which govern structure and determines objecctives of an organisation and regulates the relationship between the organisation’s management , directors and shareholders

Question 31

What are the key principles of the UK corporate governance code?

Answer 31

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

Question 32

What are 5 roles of the board of directors

Answer 32

 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.

Question 33

Cyber security board responsibilities

Answer 33

• Aware of cyber risks
• Set Security focused culture
• Promote Transparency and accountability
• Improve IT environment

Question 34

Governance of government, public and not-for-profit organisations

Answer 34

Accountability
Stakeholders
Openness and transparency
Monitoring performance

Question 35

What are nolan’s seven principles

Answer 35

Selflessness
Integrity
Objectivity
Accountability
Oppeness
Honesty
Leadership