Chapter 3: Organisational and Business Structures

Question 1

What are the modern principles of organisational structure?

Answer 1

Multiskilling: Teams where individuals are trained to perform a variety of different tasks and this enables labour and other resources to be used more efficiently.

Flexibility: Flexible working hours, matrix structure and temporary project teams and this enables companies to respond quickly to changing market conditions

Question 2

How can you communicate organisational structure?

Answer 2

Organisational structure can be communicated in several ways, including:
 organisational charts
 organisational manuals
 job descriptions.

Question 3

What are Mintzberg’s building blocks?

Answer 3

 Strategic apex – higher management – overall strategic, long-term planning
 Middle line – managers linking between the strategic apex and operating core
 Operating core – the basic work of the organisation – e.g. the shop floor.
 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
 Ideology – organisation’s values and beliefs (culture)

Question 4

What are Mintzberg’s coordinating mechanisms?

Answer 4

This considers how the building blocks are integrated into a cohesive unit:

 direct supervision (hierarchy)
 standardisation of work (specified operating procedures)
 standardisation of skills (identifies training needed/necessary skills base to do work)
 standardisation of outputs (product/service specifications)
 mutual adjustment (co-ordination through informal contact)

Question 5

What is the entrepreneurial structure? What are the building-blocks and the coordinating mechanisms?

Answer 5

• Simple
• Small, simple tasks
• Strategic Apex
• Direct Supervision

Question 6

What is the functional/bureaucratic structure? What are the building-blocks and the coordinating mechanisms?

Answer 6

• Complex/Static structure
• Large/ old regulated tasks
• Techno structure (Key building block)
• Standardisation of work

Question 7

What a professional bureaucracy? What are the building-blocks and the coordinating mechanisms?

Answer 7

(Hospital, Kaplan)

• Complex/Static environment
• Professional/Simple systems
• Operating core
• Standardisation of skills

Question 8

What is a divisional structure? What are the building-blocks and the coordinating mechanisms?

Answer 8

• Simple/ Static Diverse structure
• Very large/ old/ divisible tasks
• Middle Line (Operating building block)
• Standardisation of output

Question 9

What is the matrix structure? What are the building-blocks and the coordinating mechanisms?

Answer 9

Adhocracy/Innovative e.g. advertising agency

• Complex/dynamic environment
• Young/complex tasks
• Operating core/support staff (building block)
• Mutual adjustment

Question 10

How do you structure an entrepreneurial business?

Answer 10

Manager leads subordinates
 Structure is built around the owner-manager – typical of small companies (early stages of development).
 The structure is totally centralised with all key decisions being made by the strategic leader (often owner in an owner-managed business).

Question 11

What are the advantages and disadvantages to an entrepreneurial business?

Answer 11

Advantages
 Fast decision making
 More responsive to market
 Good control
 Close bond to workforce 

 Disadvantages
 Lack of career structure
 May be too centralised
 Cannot cope with diversification/
growth

Question 12

How do you structure a functional business?

Answer 12

 Common in organisations that have outgrown the entrepreneurial structure, therefore need to organise the business on a functional basis (economies of scale/specialisation).
 Most appropriate to smaller companies with few products and locations and which exist in a relatively stable environment.

eg. ,:
- Board of Directors supported by a HR Dept., Finance Dept., Marketing Dept, Production Dept.

Question 13

What are the advantages and disadvantages to a functional structure?

Answer 13

Advantages
 Economies of scale
 Standardisation/efficiency
 Specialists more comfortable

Disadvantages
 Empire building
 Slow to adapt to market changes
 Conflicts between functions
 Cannot cope with diversification

Question 14

How do you structure a divisional organisation?

Answer 14

 Organisation structured in accordance with product lines/brands or geographical locations.
 Headed by general managers who enjoy responsibility for their own resources.

Board of Directors in charge of divisions

Question 15

What are the advantages and disadvantages of a divisional structure?

Answer 15

Advantages
 Enables product or geographical growth
 Clear responsibility and accounting for products
 Training of general managers

Disadvantages
 Potential loss of control
 Lack of goal congruence
 Duplication
 Specialists may feel isolated

Question 16

What does a Matrix structure aim to do? Who does it suit?

Answer 16

 Matrix structure aims to combine the benefits of the divisional structure and the functional structure.
 Usually found in multi-product and multi-functional organisations – significant interrelationships and interdependencies.

For example, a person works within a department and then within a certain area so has two bosses

Question 17

What are the pros and cons of the matrix structure?

Answer 17

Pros
 Flexibility – focus on customers, projects, etc.

Cons
 Dual command
 Dilution of functional authority
 Time consuming meetings

Question 18

What are the pros of decentralisation?

Answer 18

 Senior management free to concentrate on strategy
 Better local decisions due to local expertise
 Better motivation
 Quicker responses/flexibility
 Training/career path

Question 19

What are the cons of decentralisation?

Answer 19

 Loss of control by senior management
 Dysfunctional decisions due to a lack of goal congruence
 Poor decisions made by inexperienced managers
 Extra costs re information (e.g. multiple management
accounts)

Question 20

What are some factors affecting the degree of decentralisation?

Answer 20

 Management style and ability.
 Size of the organisation.
 Range of products/services/brands.
 Geographic location.

Question 21

What are the advantages of a tall organisation (many managerial levels/hierarchies)?

Answer 21

 More promotional opportunities
 Narrow spans of control means more supervision (can be good if work is complex)
 Smoother progression from one level to another
 Small spans of control lead to more personal contact with line manager

Question 22

What are the disadvantages of a tall organisation (many managerial levels/hierarchies)?

Answer 22

 Inhibits delegation
 More expensive in terms of management overheads
 Extra levels of management slow down decision making and communication

Question 23

What are the advantages of a flat organisation? (less managerial levels/hierarchies)

Answer 23

 Wide span of control encourages more delegation
 Lower management costs
 Better communication between top management and the workers

Question 24

What are the disadvantages of a flat organisation? (less managerial levels/hierarchies)

Answer 24

 Managers may be overworked as they have more people to supervise
 Greater delegation means less central control

Question 25

What are the factors influencing span of control?

Answer 25

The following factors can affect the span of control:
 Complexity of work
 Degree of change
 Management’s ability
 Assistance received (e.g. how much does head office help with IT/HR issues
etc.)
 Amount of non-supervisory work undertaken by the supervisor
 Level of knowledge and experience of staff
 Level of cost associated with mistakes
 Level of danger
 Physical proximity of subordinates/geography (e.g. easier to manage people in
one office than worldwide).

Question 26

What are Burns and Stalker’s two extremes of structure?

Answer 26

Mechanistic: Rigid and Formalised. 
 formal
 hierarchical
 authority and control based
 focuses on efficiency 

Organic: Fluid and Flexible
 informal
 flat
 project teams
 power based on expertise

Question 27

What are the advantages to being a sole trader?

Answer 27

 No need to share profits – usually low cost – often work from ‘home’.
 Self-sufficiency and independence.
 Little or no regulation, e.g. no requirement for an audit.
 Own boss – success of business depends on your efforts.

Question 28

What are the disadvantages to being a sole trader?

Answer 28

 The sole trader carries unlimited liability → personally responsible for business
obligations incurred.
 High risk: about 75% of small businesses cease trading in first 4 years.
 Problems raising finance: extensive personal debt and assets offered as
collateral.
 ‘Small’ → Hard to negotiate competitively with suppliers.
 Totally dependent on health/presence of proprietor.
 Can’t use floating charges.

Question 29

What are the different forms of partnership?

Answer 29

(i) General partnerships – no separate legal identity.
(ii) Limited liability partnerships – a separate legal identity exists. This means
the partners’ liability is limited to their investment in the partnership.

Question 30

What are the advantages and disadvantages to a general partnership?

Answer 30

Advantages (for general partnerships)
 Few regulatory obligations.
 Bring together range of skills and experience.
 More owners to put finances into the business.
 Business not dependent on health/presence of one individual.

Disadvantages
 Each partner has unlimited liability for the business debts (general
partnership).
 Potential disagreements between partners.

Question 31

What are the two main forms of limited companies?

Answer 31

A company is a separate legal entity from its owners (shareholders).
Two main forms:
 private limited company (‘Ltd’).
 public limited company (‘plc’).

Question 32

What are the advantages to a limited company?

Answer 32

 The liability of shareholders to business debts is limited to initial investment in
company shares.
 Ownership transferred easily by selling shares.
 Companies can find it easier to raise new capital (particularly plc quoted on
stock exchanges and companies with good relations with financiers).
 Can use both floating and fixed charges.

Question 33

What are the disadvantages to a limited company?

Answer 33

 Legal burdens – complying with CA 2006 (e.g. need company audit).
 Quoted companies can suffer from short-termist pressure from city investors.
 Financial statements open to public scrutiny.

Question 34

What is a group?

Answer 34

A number of companies under common control.
The parent company will own shares in subsidiary companies to an extent that the owners of the parent company will also have control over the subsidiary

Question 35

What are the advantages and disadvantages to operating as a group?

Answer 35

Advantages of operating as a group
 Different companies can be responsible for different products.
 Easy to sell off part of business.
 Economies of scale through vertical integration, e.g. car manufacturer
acquires tyre manufacturer.
Disadvantages of operating as a group
 Consolidated accounts must be prepared.
 Many acquisitions add negative shareholder value.

Question 36

What are the different forms of alliance?

Answer 36

There are various ways in which businesses can work together, regardless of their
legal form.
 Joint ventures:
a separate joint-owned company (e.g. Sony Ericsson).
 Licensing/franchising
one company allows another to manufacture/market its product or service
(e.g. Guinness, Kia motor car sales agencies).
 Strategic alliances
‘loose’ collaboration (Virgin Atlantic Airways and Malaysia Airlines).
 Agency agreements
one party distributes another’s products (e.g. Dorling Kindersley book parties).

Question 37

What are some issues to consider in an alliance?

Answer 37

 Sharing risks and returns
 Splitting out costs
 Potential conflicts over decisions
 Potential to gain expertise from the other party
 Allowing the third party access to your information and skills.