Chapter 2 - Organisational Structure And Governance Flashcards
Organisational structure
Three of the common organisational structures are:
Functional
Divisional
Matrix
Functional organisational structure
This structure divides the business into specialised functions or skills such as production, sales and marketing, finance and IT.
Bringing members of staff with the same knowledge and skills together creates a pool of expertise so that other staff in the organisation know where to go if they need information relating to sales, IT, finance, or any other function in the business.
Divisional organisational structure
Larger businesses may have a divisional structure with a number of different teams that each focus on an individual product or service or on a geographical area.
Matrix organisational structure
This means that individuals will work in their own departments as well as working across teams and projects. A business that is developing a new product may set up a project team that includes members from product design, production, marketing, finance and Human Resources. This team will work together on the project until it is completed before returning to their functional team.
Span of control
The span of control of the managers within an organisation refers to the number of individuals that they are responsible for. This will vary depending on:
The size of size organisation - a manager in a smaller business will have a wider span of control
The type of work that the individuals do - it is easier to manage a larger group of individuals that complete straightforward repetitive tasks
The location of the staff - if all the individuals a manager is responsible for are located together the span of control can be wider
Tall organisational structure
A tall organisational structure will typically be organised by function. The chain of command in these types of business will have several layers of management. This type of structure means that there are clear reporting lines and that the manager has a narrow span of control. Decision making often takes longer as information must pass between several layers of management.
Governance
This means a system that provides a framework for managing organisations. It identifies who can make decisions, who has the authority to act on behalf of the organisation and who is accountable for how an organisation performs.
A business with good governance will have delegated the authority for decision making to the appropriate people and will have a structure in place to support this.
As a part of effective governance a business will have to think about:
Corporate governance - the board of directors appointed by the shareholders are responsible for governance of the business
Financial governance - this focuses on how the business collects, manages and controls financial information
Legal governance - this ensures that the business complies with legislation by implementing appropriate levels of authorisation
Centralised control
This means that decision making rests with the higher tiers of management in the business. Decisions in this type of organisation are imposed on staff who will be expected to implement them rather than contributing to the decision making process.
Decentralised control
This means authority for making decisions is given to lower levels of management in the business. These lower level managers will not need to check every decision they make with the board of directors or senior management team.
Impact of organisational structure and size on governance
A larger business will have a tall structure organised into departments. The span of control in a tall organisation tends to be narrow.
A smaller business will often be headed up by one or two owners with a large span of control. The business is likely to have a flat organisational structure with a few levels of management.
Levels of management in an organisation
Strategic or corporate level - this is where strategic decisions are made that affect the whole organisation - these decisions tend to be long term
Managerial level - here the decisions relate to the way that the business should go about achieving its goals. Which product should it produce? Should it reduce the price of a product to remain competitive?
Operational level - decisions made at this level tend to be shorter term and relate to the practical day to day operations of the business.
The role of the finance function
A business will have a variety of functions which contribute to the way in which it operates. Each function has a different role to play but all will interact with the finance function to a greater or less extent. Other than the finance function the key functions in a business are:
Operations/ production
Sales and marketing
Human resources
Information technology
Distribution and logistics
Operations/ production
This is producing goods for sale such as Sony producing televisions or providing a service for example a large accountancy firm such as pwc preparing accounts for clients.
The finance function will need to carry out certain key roles and provide financial information to allow operations/ production to function effectively.
Most businesses will have someone or a department who is responsible for purchasing. Whoever this is that is responsible for creating commercial relations with suppliers will also need input from finance. This may include agreeing prices, negotiating credit terms and agreeing discounts.
Inventory control - the finance function will work with the operations function or purchasing department in a larger business to ensure that sufficient inventory is available to maintain production.
Budgeting - the finance function will be heavily involved in setting budgets.
Sales and marketing
Sales and marketing deal with the customers or clients of the business. They will be responsible for marketing the products or services and negotiating the sales. The finance function will work with sales and marketing in the following areas:
Pricing
Setting rates for service
Budgeting
Performance indicators
Human Resources
The HR function of a business is responsible for its people and their welfare and wellbeing. Input from finance is required for:
Recruitment costs
Staff training and development
Pay and benefits
