Ch.9 - Strategy and structure Flashcards
What are main types of structures of business?
- entrepreneurial structure
- bureaucratic (functional) structure
- divisional structure
- complex (matrix) structure
- flexible structure
What are Mintzberg main configurations?
- entrepreneurial structure
- bureaucratic (functional) structure
- divisional structure
- complex (matrix) structure
- flexible structure
What are attributes of entrepreneurial structure?
Nature = owner-managed - typical of small companies
Key building block = strategic apex
Key coordinating mechanism = direct supervision
Benefits:
- Fast decisions, responsive to market, good control, close bond to staff
Risks:
- Lack of structure, too centralised, cannot cope with diversification
What are attributes of bureaucratic (functional) structure?
Nature = smaller companies with few products, relatively stable environment
Key building block = technostructure
Key coordinating mechanism = standardisation of work
Benefits:
- Economies of scale, standardisation/efficiency
Risks:
- Empire building, slow to adapt, conflicts between functions, cannot cope with diversification
What are attributes of divisional structure?
Nature = organisation structured in accordance with product lines/brands
Key building block = middle line
Key coordinating mechanism = standardisation of outputs
Benefits:
- Enables growth, clear responsibility, mgmt training
Risks:
- Loss of control, lack of goal congruence, duplication, specialist feel isolated
What are attributes of complex (matrix) structure?
Nature = combination of divisional and functional structure
Key building block = operating core/support staff
Key coordinating mechanism = mutual adjustment
Benefits:
- Improved cross-functional communication, flexibility, useful for projects and temp teams
Risks:
- Dual command, dilution of authority, time consuming meetings functions, cannot cope with diversification
What are attributes of flexible structure?
- allow firms to adapt to changing circumstances
- different forms include:
o virtual organisations (operating through electronic communication)
o hollow organisations (non-essential activities are outsourced)
o modular organisations (production processes become separate modules and are outsourced
Benefits:
- increased flexibility, reduced premises cos, access to specialist skills
Risks:
- lack of control, difficult to create consistent culture
What is Handy’s shamrock organisation?
Flexible firm
Professional core – permanently employed key staff
Flexible labour force – temporary and part-time staff to cover peak demand
Contractual fringe – outsourced staff performing non-core services (cheaper)
Customers – may perform some tasks themselves (e.g. booking online)
What are Mintzberg’s building blocks (structural configurations)?
- Operating core – basic work of the organisation
- Strategic apex – higher management
- Middle line – managers linking between strategic apex and operating core
- Technostructure – accountants, computer specialists and engineers whose role is to design procedures and standards
- Support structure – provision of services to the organisation which support operations/production
What are benefits and risks of narrow span of control?
Benefits: • Promotion opportunities • More supervision • Smoother progression • More personal contact
Risks:
• Inhibits delegation
• More expensive
• Slow down decision-making
What are benefits and risks of wide span of control?
Benefits:
• Encourages delegation
• Lower costs
• Better communication
Risks:
• Managers may be overworked
• Less central control (due to delegation)
What is decentralisation?
- degree of autonomy/decision-making ability diffused through organisation
- Pros – senior management free to concentrate on strategy, better local decisions (expertise), better motivation, quicker responses, training
- Cons – loss of control by senior management, dysfunctional decisions due to lack of congruence, poor decisions by inexperience mgmt., extra cost re information
What are traits of effective divisionalisation?
o Autonomy – local level managers to effectively run the division
o Control – divisional managers are held accountable for factors that they control
o Goal congruence – important that divisional manager feel that they are fulfilling personal objectives as well as corporate aims
What are measures of performance and their benefits and risks?
- ROI (Return on investment) = Controllable profit/ Capital employed (CE)
- Advantages: widely used and accepted, should facilitate comparisons
- Risks: relative measure, different accounting policies may make comparisons difficult, increases with the age of the assets (may discourage investment in assets, assets are kept for too long), can lead to dysfunctional decision-making
- RI (Residual income) = Controllable profit – (Capital employed * target % return)
- Absolute measure, will increase with the age of assets, less likely to lead to dysfunctional decisions
What does transfer pricing impact on?
o Divisional profitability
o Taxation (if operating in different countries)
o Decision making (decisions may not be goal congruent)
o Customer selling prices (high transfer prices will increase overall costs hence selling price)
