Chapter 3 Organisational and business structures Flashcards
1.1 What is an organisational structure
Organisational structure is formed by the grouping of people into departments or sections and the allocation of responsibility. The rules of managerial conduct are division of work, scalar chain, correspondence of authority and responsibility, centralisation, unity of command, unity of direction, initiative, subordination of individual interests, discipline, order, stability of personnel, equity, remuneration and esprit de corps.
1.2 Modern principles
These have accentuated the important of multi-skilling (teams where individuals are trained to perform multiple tasks, labour and resource used more efficiently) and flexibility (flexible working hours, matrix structure and temporary project teams, companies respond quicker to changing market conditions).
Organisational structure can be communicated by organisational charts, organisational manuals, and job descriptions.
1.3 Mintzberg’s building blocks and co-ordinating components
- Strategic apex: higher management, overall strategic, long-term planning
- Middle line: managers linking between the strategic apex and operating core
- Operating core: basic work of the organisation
- 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
- Ideology: organisation’s values and beliefs (culture)
The co-ordinating mechanisms below considers how the building blocks (above) are cohesively integrated: - Direct supervision (hierarchy)
- Standardisation of work (specified operating procedures)
- Standardisation of skills (identified training need and skills base to do work)
- Standardisation of outputs (product or service specifications
- Mutual adjustment (co-ordination through informal contact)
2.1 Allocation of responsibility – entrepreneurial structure
Structure is built around the owner-manager and is centralised with all key decisions made by the strategic leader. This means fast decision making, is more responsive to market, good control, and close bond to workforce. The disadvantages is a lack of career structure, may be too centralised and cannot cope with diversification and growth.
2.2 Functional structure
Common when the entrepreneurial structure is outgrown, and the business is organised on a functional basis with a board and directors and different departments such as production and finance. This means greater standardisation and efficiency and specialists in roles. However, it can be slow to adapt to market changes, can create conflicts between functions and cannot cope with diversification.
2.3 Divisional structure
Organisation structured in accordance with product lines, brands, or geographical location. This enables product or geographical growth, a clear responsibility for products and training of general managers. The disadvantages is loss of control, lack of goal congruence and duplication.
2.4 Matrix structure
This aims to combine the divisional and functional structure. This is usually found in multi-product and multi-functional organisations. A person can work in one area and be accountable to that boss and also work in a department and have another boss. This allows for greater flexibility, but means dual command, dilution of functional authority and time consuming meetings.
3.1 Allocation of authority
(De)centralisation refers to the degree of autonomy ability diffused through the organisation. The advantage of decentralisation is senior management can focus on strategy, better local decisions, quicker responses, and a better career path. The cons are loss of control by senior management, dysfunctional decisions due to lack of goal congruence and extra costs.
Management style, organisation size, range of products and location can impact the degree of decentralisation.
4.1 Span of control
This considers how many people report to one superior. Tall organisations have a narrow span of control with many managerial levels. Flat organisations have a wide span of control with fewer managerial levels.
Tall organisations leads to more promotional opportunities, narrow spans leaders to more supervision and more personal contact with managers. The cons are it inhibits delegation, more expensive and slows decision making and communication.
Flat organisations leaders to more delegation, lower management costs and better communication. The cons are managers can be overworked and greater delegations means less central control.
4.2 Factors influencing the span of control
Complexity of work, degree of change, management’s ability, assistance received, 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 and physical proximity of subordinates all impact span of control.
5.1 Mechanistic versus organic
Mechanistic is rigid and formalised. It is formal, hierarchical, authority and control based and focuses on efficiency. Organic is fluid and flexible. It is informal, flat, project team and power based on expertise.
6.1 Business structures: sole trader
The advantages of a sole trader is they do not share profits, are self-sufficiency and independence, little or no regulation (no requirement for an audit) and you are the boss. The disadvantage is they carry unlimited liability, high risk (75% of small businesses cease trading in first 4 years), problems raising finance (personal debt and assets offered as collateral), can be hard negotiating with suppliers, dependent on health of proprietor and can’t use floating charges.
6.2 Partnership
Two or more people owing a business. A general partnership has no separate legal identify, a limited liability partnership is a separate legal identify and the partners’ liability is limited to their investment in the partnership.
The advantages of a general partnership are few regulatory obligations, bring together range of skills, more owners to put in finances and the business is not dependent on one individual. The disadvantage is each partner has unlimited liability for the business debts and disagreements between partners occur.
6.3 Limited partnerships
A company is a separate legal entity from its owners. There are both private and public limited companies. The advantage is the liability of shareholders is limited, ownership can be transferred by shares, companies can raise capital and can use floating and fixed charges. The disadvantages are the legal burdens (complying with CA 2006), quoted companies can suffer from pressure from investors and financial statements are open to public scrutiny.
6.4 Groups
A group is a number of companies under common control, the parent owns shares in subsidiary companies to an extent that the owners have control. The advantage of a group is companies can be responsible for different products, it is easy to sell off parts of the business and economies of scale through vertical integration. Disadvantage is consolidated accounts must be prepared and many acquisitions add negative shareholder value.
