Chapter 3 - Organisational and business structures Flashcards
What is organisational structure?
Formed by the grouping of people into departments or sections and the allocation of responsibility and authority
What are the 4 levels of managements?
- Top Management
- Middle Management
- First-line management
- Direct operation staff
What is top management?
Manage the whole business
What is middle management
Manage other managers of the business
What is direct operation staff
- Supervisors and operational staff
- Delivering the product/service
What is the Mintzberg’s building block?
Considers how organisations can be analysed into 6 building blocks
What are the 6 Mintzberg’s building blocks
I SMOTS
1. Ideology - Organisation’s culture
- Strategic Apex - Higher management - overall strat, long term planning
- Middle line - Managers linking between strategic apex and operating core
- Operating core - Basic work of the organisation e.g. shop floor
- Technostructure - Accountants, computer specialists and engineers whose role is to design procedures and standards
- Support staff - Provision of services to the organisation which support operation production
What are the coordination mechanisms of Mintzberg
D SSS M
- direct supervision (hierarchy)
- Standardisation of work (specified operating procedure)
- Standardisation of skills (identifies training needed/necessary skills base to do work)
- Standardisation of outputs (product/service specification)
- Mutual adjustment (coordination through informal contact)
What are the basic principles of organisational structure?
DUE SUC
- Division of work - making sure work is allocated rationally
- Scalar chain - Authority Goes down the chain of command
- Correspondence of authority and responsibility - Holder of the office must have enough authority to carry out their roles
- Unity of command - Subordinate should be given activities from one boss
- Unity of direction - One plan for the same direction
- Equity - Take action if they need grieve systems
What is the importance of multi-skilling in a business?
Teams where individuals are trained to perform variety of different tasks
This enables labour and other resources to be used more efficiently
What is the importance of flexibility in a business?
Flexible working hours, matrix structure and temporary project teams
Enables companies to respond quickly to changing market conditions
How can organisational structure be communicated
- Organisational charts
- Organisational manuals
- Job descriptions
What are the 5 types of organisational structure that Mintzberg building block is seperated into
SMP DM
- Simple structure
- Machine bureaucracy
- Professional bureaucracy
- Divisional structure
- Matrix structure
What are the environmental, internal factors, key building blocks and key coordinating mechanisms of Simple Structure
Simple + Dynamic
Small, simple tasks
Strategic Apex
Direct Supervision
e.g. newstand
What are the environmental, internal factors, key building blocks and key coordinating mechanisms of Machine bureaucracy
Simple + Static
Large, old regulated tasks
Techno structure
Standardisation of work
e.g. unionised company
What are the environmental, internal factors, key building blocks and key coordinating mechanisms of Professional bureaucracy
Complex + Static
Professional simple systems
Operating Core
Standardisation of skills
e.g. hospital + kaplan
What are the environmental, internal factors, key building blocks and key coordinating mechanisms of Divisional
Simple + Static
Very large, old, divisible tasks
Middleline
Standardisation of outputs
e.g. conglomerate
What are the environmental, internal factors, key building blocks and key coordinating mechanisms of Adhocracy/innovative
Complex + Dynamic
Young, complex task
Operating core/ support staff
Mutual adjustment
What is the entrepreneurial structure?
Structure is built around owner-manager usually found in small companies. Structure is centralised
What are the advantage of an entrepreneurial structure?
Fast decision making
- More responsive to market
- good control
- close bond to workforce
What are the disadvantage of an entrepreneurial structure?
- Lack of career structure
- May be too centralised
- Cannot cope with diversification/growth
What is a functional structure?
Organisation that have grown the entrepreneurial structure therefore need to organise the business on a functional basis (economies of scale)
What are the advantages of a functional structure
- Economies of scale
2.Standardisation/efficiency - Specialists more comfortable
What are disadvantages of a functional structure
- Empire building
- Slow to adapt to market changes
- Conflict between functions
- Cannot cope with diversification
What is a divisional structure
Organised in accordance with product lines/brand or geographical locations
Managers enjoy responsibility for their own resources
What are the advantages of a divisional structure
- Enables product or geographical growth
- Clear responsibility and accounting for product
- Training of general managers
What are the disadvantages of divisional structure
Potential loss of control
Lack of goal congruence
Duplication
Specialists may feel isolated
What is a matrix structure?
Aims to combine both divisional and functional structure
Usually found in multi-product and multi-functional organisations - significant interrelationships and interdependencies
What are the advantages of a matrix structure
Flexibility - focus on customers
What are the disadvantages of a matrix structure
- Dual command
- Dilution of functional authority
- Time consuming meetings
What is decentralised allocation of authority
Degree of autonomy/decision making ability through the organisation e.g. geographical areas
What are the advantages 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 disadvantages of decentralised
- Loss of control by senior management
- Dysfunctional decisions due to a lack of goal congruence
- Poor decisions made by inexperienced managers
- Extra costs reinformation (multiple accountants)
What factors affect the degree of decentralised
- Management style and ability
- Size of organisation
- Range of products/ services/brands
- Geographic location
What is the span of control
Considers how many people report to one superior
Difference between Tall and Flat organisations
Tall: Many managerial levels
Flat: Fewer
What are the advantages of tall organisations
- More promotional opportunities
- Narrow span of control means more supervision
- Smoother progression from one level to another
- Small span of control lead to more personal contact with line manager
What are the disadvantages of tall organisations
- Inhibits delegation
- More expensive in terms of management overheads
- Extra levels of management slow down decision making and communication
What are the advantages of Flat organisations?
- Wide span of control encourages more delegation
- Lower management costs
- Better communication between top management and the workers
What are the disadvantages of Flat organisations
- Managers may be overworked as they supervise more people
- Greater delegation means less central control
What factors affect the span of control
- Complexity of the 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
- Levels of costs associated by mistakes
- Level of danger
- Physical proximity of subordinates/geography
What are Burns and Stalkers summary of two extremes of structure
Mechanistic
Organic
What is the difference between Mechanistic and Organic
- Mechanistic is rigid and formalised
- Organic is fluid and flexible
What are the characteristics of mechanistic structure
- Formal
- Hierarchical
- Authority and control based
- Focuses on efficiency
What are the characteristics of Organic structure
- Informal
- Flat
- Project teams
- Power based on expertise
What is a sole trader?
Single person owning a business taking all risks
What are the advantages of a sole trader?
- No need to share profits - low costs and often work from home
- Self-sufficiency and independence
- Little to no regulation e.g. no requirement for an audit
- Own boss - success of business depends on own efforts
What are the disadvantages of sole traders
- Sole trader carries unlimited liabilities
- High Risk: 75% of small businesses cease trading in first 4 years
- Problem raising finance: extensive personal debt and assets offered as collateral
- Small so harder to negotiate
- Dependent on the owner
- Cant use floating charges
What is a partnership?
Two or more people who own a business taking all the risks
What are the two types of partnerships and definitions
- General partnership: No separate legal identity
- Limited liability partnership - Separate legal identity exists. This means the partner’s liability is limited to their investment in the partnership
What are the advantages of general partnerships
- Few regulatory obligations
- Bring together range of skills and experience
- More owners to put finances into the business
- Business is not dependent on health/presence of one invidiual
What are the disadvantages of a general partnership
- Each partner has unlimited liability for the business debts
- Potential disagreements between partners
What are limited companies
Separate legal entity from its owners (shareholders)
What are the two forms of limited companies
- Private LTD - One or few owners but not registered public
- Public Limited company PLC -Listed on stock exchange
What are the advantages of limited companies
- Liability of shareholders is limited to initial investment
- Ownership transferred easily be selling shares
- Companies can find it easier to raise new capital (particularly plc quoted on stock exchanges and companies with good relations with financers)
- Can use both floating and fixed charges
What are the disadvantages of limited companies
- Legal burdens - complying with CA 2006
- Quoted companies can suffer from short-termist pressure from city investors
- Financial statements are open to public scrutiny
What are alliances and name the 4
Different ways a business can work together
1. Joint ventures
2. Licensing/franchising
3. Strategic Alliances
4. Agency Agreements
What are joint ventures
Separate joint-owned company e.g. Sony Ericson
What is Licensing/franchising
One company allows another to manufacture/market its product or service e.g. Mcdonalds
What is strategic alliances
Loose collaboration e.g. virgin atlantic airways and malaysia airlines
What are agency agreements
One party distributes another’s product
What is important to consider when forming alliances?
- Sharing risks and returns
- Splitting out costs
- Potential conflicts over decisions
- Potential to gain expertise the other party
- Allowing a third party access to your information and skills
What are groups?
Parent company will own shares in subsidiary companies to the extent that owners of parent company owns the subsidary
What are the advantages of working as a group
- Different companies can be responsible for different products
- Easy to sell part of business
- Economies of scale through vertical integration e.g. car manufacturer acquires tyre manufacturer
What are disadvantages of operating as a group?
- Consolidated accounts must be prepared
- Many acquisitions add negative shareholder value
