Chapter 3: Organisational and Business Structures Flashcards
What are the modern principles of organisational structure?
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
How can you communicate organisational structure?
Organisational structure can be communicated in several ways, including:
organisational charts
organisational manuals
job descriptions.
What are Mintzberg’s building blocks?
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)
What are Mintzberg’s coordinating mechanisms?
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)
What is the entrepreneurial structure? What are the building-blocks and the coordinating mechanisms?
- Simple
- Small, simple tasks
- Strategic Apex
- Direct Supervision
What is the functional/bureaucratic structure? What are the building-blocks and the coordinating mechanisms?
- Complex/Static structure
- Large/ old regulated tasks
- Techno structure (Key building block)
- Standardisation of work
What a professional bureaucracy? What are the building-blocks and the coordinating mechanisms?
(Hospital, Kaplan)
- Complex/Static environment
- Professional/Simple systems
- Operating core
- Standardisation of skills
What is a divisional structure? What are the building-blocks and the coordinating mechanisms?
- Simple/ Static Diverse structure
- Very large/ old/ divisible tasks
- Middle Line (Operating building block)
- Standardisation of output
What is the matrix structure? What are the building-blocks and the coordinating mechanisms?
Adhocracy/Innovative e.g. advertising agency
- Complex/dynamic environment
- Young/complex tasks
- Operating core/support staff (building block)
- Mutual adjustment
How do you structure an entrepreneurial business?
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).
What are the advantages and disadvantages to an entrepreneurial business?
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
How do you structure a functional business?
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.
What are the advantages and disadvantages to a functional structure?
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
How do you structure a divisional organisation?
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
What are the advantages and disadvantages of a divisional structure?
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
What does a Matrix structure aim to do? Who does it suit?
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
What are the pros and cons of the matrix structure?
Pros
Flexibility – focus on customers, projects, etc.
Cons
Dual command
Dilution of functional authority
Time consuming meetings
What are the pros of decentralisation?
Senior management free to concentrate on strategy
Better local decisions due to local expertise
Better motivation
Quicker responses/flexibility
Training/career path
What are the cons of decentralisation?
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)
What are some factors affecting the degree of decentralisation?
Management style and ability.
Size of the organisation.
Range of products/services/brands.
Geographic location.
What are the advantages of a tall organisation (many managerial levels/hierarchies)?
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
What are the disadvantages of a tall organisation (many managerial levels/hierarchies)?
Inhibits delegation
More expensive in terms of management overheads
Extra levels of management slow down decision making and communication
What are the advantages of a flat organisation? (less managerial levels/hierarchies)
Wide span of control encourages more delegation
Lower management costs
Better communication between top management and the workers
What are the disadvantages of a flat organisation? (less managerial levels/hierarchies)
Managers may be overworked as they have more people to supervise
Greater delegation means less central control
What are the factors influencing span of control?
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).
What are Burns and Stalker’s two extremes of structure?
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
What are the advantages to being a sole trader?
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.
What are the disadvantages to being a sole trader?
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.
What are the different forms of partnership?
(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.
What are the advantages and disadvantages to a general partnership?
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.
What are the two main forms of limited companies?
A company is a separate legal entity from its owners (shareholders).
Two main forms:
private limited company (‘Ltd’).
public limited company (‘plc’).
What are the advantages to a limited company?
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.
What are the disadvantages to a limited company?
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.
What is a group?
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
What are the advantages and disadvantages to operating as a group?
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.
What are the different forms of alliance?
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).
What are some issues to consider in an alliance?
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.
