Chapter 3 - Organisational and Business Structures Flashcards
What is organisational structure?
Organisational structure is formed by grouping people into departments or sections, allocating responsibility and authority, and formally arranging functions like operations, marketing, HR, and finance.
What are the purposes of organisational structure? 5
- Link individuals in a network of relationships to control authority, responsibility, and communications.
- Allocate tasks to suitable individuals or groups.
- Grant authority to perform tasks and control behavior and resource use.
- Coordinate objectives and activities of separate groups to achieve overall aims without gaps or overlaps.
- Facilitate the flow of work, information, and resources.
What does Mintzberg suggest about organisational structure?
Mintzberg suggests that all businesses can be analysed into six ‘building blocks’.
Which of the following are part of Mintzberg’s six ‘building blocks’ of organisational structure?
A) Operating Core
B) Strategic Apex
C) Middle Line
D) Ideology
E) Support Staff
F) Technostructure
A, B, C, D, E, F
What is the function of the Operating Core?
People directly involved in obtaining inputs and converting them into outputs, i.e., direct operational staff.
What is the function of the Middle Line?
Conveys goals set by the Strategic Apex and controls the Operating Core in pursuit of those goals, i.e., middle and first-line managers. Take the goals and turn into operational plans
What is the function of the Strategic Apex?
Ensures the organisation follows its mission and manages its relationship with the environment, typically handled by top managers.
What is the role of Support Staff?
Provides ancillary services like PR, legal counsel, cafeteria, and security, functioning independently of the Operating Core.
What is the function of the Technostructure?
Standardised process. Analysts determine and standardise work processes and techniques, planners standardise outputs, and personnel analysts standardise skills through training programs.
What is Ideology in organisational structure?
It represents the values, beliefs, and traditions, i.e., the business culture.
What is the principle of Division of Work in organisational structure?
Work should be divided and allocated rationally, based on specialisation.
What is the Scalar Chain principle?
Authority should flow vertically down a clear chain of command from highest to lowest rank.
What does the Correspondence of Authority and Responsibility principle mean?
The holder of an office should have enough authority to carry out all the responsibilities assigned to them.
What is Appropriate Centralisation in organisational structure?
Decisions should be taken at the top of the organisation where appropriate.
What is Unity of Command (for people)?
For any action, a subordinate should receive orders from one boss only.
What is Unity of Direction (for the organisation)?
There should be one head and one plan for each activity.
What is the principle of Equity?
Organisational policies should be just.
What are modern management theorists’ values in organisational structure? 2
- Multi-skilling.
- Flexibility, including:
- Smaller, multi-skilled, temporary structures (e.g., project or task-force teams).
- Multi-functional units (matrix organisation), blurring the principle of ‘unity of command’.
- Flexible deployment of labour resources.
What are the three main methods of communicating the structure of a business?
- Organisation chart
- Job description
- Other related methods (not explicitly detailed in this section).
What are the advantages of an organisation chart? 3
- Need to analyse organisation detail.
- Provides at-a-glance information.
- Highlights formal relationships.
What are the disadvantages of an organisation chart? 4
- Requires frequent updating as people leave.
- Does not show informal relationships.
- May imply managers at the same level are equally important.
- May encourage bureaucracy.
What is a job description in organisational structure? 3
- A result of ‘job analysis’.
- Includes responsibilities, authority, and work involved.
- Typical descriptions include:
- Job title
- Department
- Grade/level
- Duties and responsibilities
- Limits of authority
- Superiors and subordinates.
What are the five types of organisational structure described by Mintzberg?
- Simple structure
- Machine bureaucracy
- Professional bureaucracy
- Divisionalised
- Adhocracy/Innovative
What are the characteristics of a Simple Structure?
External environment: Simple, dynamic
Internal factors: Small, young, simple tasks
Key building block: Strategic apex
Key coordinating mechanism: Direct supervision
Typical structure: Entrepreneurial
What are the characteristics of a Machine Bureaucracy?
External environment: Simple, static
Internal factors: Large, old, regulated
Key building block: Technostructure
Key coordinating mechanism: Standardisation of work
Typical structure: Functional
What are the characteristics of a Professional Bureaucracy?
External environment: Complex, static
Internal factors: Professional, simple systems
Key building block: Operating core
Key coordinating mechanism: Standardisation of skills
Typical structure: Not specified
What are the characteristics of a Divisionalised Structure?
External environment: Simple, static, diverse
Internal factors: Very large, old, divisible tasks
Key building block: Middle line
Key coordinating mechanism: Standardisation of outputs
Typical structure: Divisional
What are the characteristics of an Adhocracy/Innovative Structure?
External environment: Complex, dynamic
Internal factors: Young, complex tasks
Key building block: Operating core
Key coordinating mechanism: Mutual adjustment
Typical structure: Matrix
What are the advantages of a Simple/Entrepreneurial structure? 3
- Quick decisions can be made with skill and flair.
- Goal congruence – the entrepreneur’s objectives are pursued exclusively.
- Flexible and adaptable to change.
What are the disadvantages of a Simple/Entrepreneurial structure? 4
- Cannot expand beyond a certain size.
- Cannot easily cope with diversification into new products or services.
- Lack of career structure for lower-level employees.
- May be too centralised.
What are the advantages of a Functional structure? 3
- Good career opportunities, allowing employees to progress ‘up through the ranks’.
- Efficient, as functional tasks are well-known and understood by individuals.
- Exploits specialist functional skills.
What are the disadvantages of a Functional structure? 4
- Very rigid and unsuitable for growth or diversification.
- Tendency towards an authoritative, non-participative management style.
- Poor or slow decisions due to passing along a line of authority.
- Functional heads may build empires, leading to inter-functional disputes.
What is divisionalisation?
Divisionalisation is the division of a business into autonomous regions (geographic divisionalisation) or product businesses (product/brand divisionalisation), each with its own revenues, expenditures, and capital asset purchase programmes, with each having its own profit responsibility.
What are the key conditions for successful divisionalisation? 6
- Each division must have properly delegated authority.
- Each division must be large enough to support the quantity and quality of management it needs.
- Divisions must not rely on head office for excessive management support.
- Each division must have potential for growth in its own area of operations.
- There should be scope and challenge in the job for the management of each division.
- Inter-divisional dealings should occur as ‘arm’s length’ transactions.
What are the advantages of a divisional structure? 7
- Flexible in adapting to growth and diversification.
- Good for developing managers.
- Reduces the number of levels of management.
- Encourages attention to efficiency, lower costs, and higher profits.
- Better decisions on performance made by managers ‘in the know’.
- Releases top management to focus on strategic issues.
- Reduces the likelihood of continuing unprofitable products and activities.
What are the disadvantages of a divisional structure? 3
- Squabbles over allocation of central costs can occur.
- Interdivisional trading problems, such as determining transfer prices.
- It may be impossible to identify completely independent products or markets for establishing separate divisions.
What are the features of a matrix structure? 3
- Formalises vertical and lateral lines of communication.
- Managers are appointed for projects or customers, liaising with functional managers.
- May be temporary, such as for one-off contracts.
What types of organisations is the matrix structure most suitable for? 3
- Complex or high-tech industries.
- Educational establishments where lecturers report to both subject and course heads.
- R&D departments.
What are the advantages of a matrix structure?
- Reflects the importance of projects or customers, improving relationships and sales.
- Business is coordinated with regard to technology, information, and other factors.
What are the disadvantages of a matrix structure? 3
- Conflicting demands on staff time, as staff have to serve two bosses.
- Conflicting demands over the allocation of other resources.
- Dilution of the authority of functional heads.
What is a centralised organisation?
A centralised organisation is one in which decision-making authority is concentrated in one place, typically the strategic apex.
What are the factors affecting the amount of decentralisation in a business? 8
- Local knowledge needed.
- Leadership style.
- Size of organisation.
- Geography of locations.
- Activity diversification.
- Technological advancement.
- Ability of management.
- Effectiveness of communication.
Which is better: centralisation or decentralisation?
Centralisation offers greater control and coordination, while decentralisation provides greater flexibility as authority is delegated.
What are the advantages of centralisation? 7
- Decisions are made at one point, making them easier to coordinate.
- Senior managers can take a wider view of problems and consequences.
- Senior managers keep control.
- Quality of decisions is theoretically better due to senior managers’ skills and experience.
- More likely to produce congruent decisions, as decision-makers pursue the same objectives.
- Potentially cheaper by reducing the number of managers needed, lowering overhead costs.
- Crisis decisions are made more quickly without needing to refer back.
What are the advantages of decentralisation? 5
- Avoids overburdening top managers in terms of workload and stress.
- Improves motivation of junior managers by giving them responsibility and authority.
- Greater awareness of local problems by decision-makers (useful for geographically dispersed organisations).
- Faster decision-making and responsiveness to changing events without referring decisions upwards.
- Helps develop the skills of junior managers, supporting managerial succession.
What is the span of control?
The span of control is the number of people (subordinates) reporting to one person.
What did Urwich propose about the span of control? 4
- There needs to be tight managerial control from the top of a business downwards.
- The span of control should be restricted to allow maximum control, typically between three and six subordinates.
- If the span of control is too wide, the manager’s time is consumed by routine problems and supervision, leaving less time for planning.
- If the span of control is too narrow, the manager may fail to delegate or may over-supervise the work of subordinates.
What is the scalar chain?
The scalar chain is the chain of command from the most senior to the most junior.
What is a tall business?
A tall business has a large number of levels in its management hierarchy, typically because of narrow spans of control.
What is a flat business?
A flat business has a small number of hierarchical levels, usually because of wide spans of control.
What are the advantages of a tall business? 3
- Narrow control spans.
- Small groups enable participation.
- Assists management training and career planning.
What are the disadvantages of a tall business? 5
- Inhibits delegation.
- Rigid supervision blocks initiative.
- The same work passes through too many hands.
- Increases administration and overhead costs.
- Slow decision-making and response.
What are the advantages of a flat business? 3
- More opportunities for delegation.
- Relatively cheap.
- In theory, speeds up communication.
What are the disadvantages of a flat business? 4
- Requires that jobs can be delegated.
- Managers may only get a superficial idea of what goes on.
- Sacrifices control.
- Middle managers are often necessary to convert the strategic apex’s vision into operational terms.
What are mechanistic and organic structures? 2
Mechanistic and organic structures, coined by Burns and Stalker, describe:
1. Mechanistic businesses (‘bureaucracies’): Stable, efficient, and suitable for slow-changing operating environments.
2. Organic businesses: Flexible, adaptive, and suitable for fast-changing or dynamic operating environments.
What is bureaucracy, according to Weber?
Bureaucracy is ‘a continuous organisation of official functions bound by rules.’
What are the characteristics of bureaucratic (mechanistic) structures?
- Continuous organisation: The business continues even if people leave; new people fill their roles.
- Official functions: The business is divided into areas (e.g., operations, marketing) with specified duties, and authority is given to managers in charge.
- Rules: A rule defines and specifies actions to be taken under given circumstances.
What are the characteristics of bureaucracy? 8
- Hierarchy of roles: Each lower office is under the control of a higher one.
- Specialisation and training: High degree of labour specialisation.
- Professional nature of employment: Managers are promoted by seniority and achievement, with pay scales tied to positions.
- Impersonal nature: Employees follow impersonal rules and regulations.
- Rationality: Authority and office structure are clearly defined, with duties and performance measures established.
- Uniformity in tasks: Tasks are executed uniformly regardless of who performs them.
- Technical competence: Managers are highly competent in their expertise.
- Stability: The business rarely changes in response to environmental pressures.
What are the advantages of bureaucracies? 4
- Ideal for standardised, routine tasks.
- Highly efficient in stable environments.
- Rigid adherence to procedures ensures fairness, law adherence, safety, and security.
- Structured, predictable environments suit some individuals.
What are the disadvantages of bureaucracies? 5
- Slow decision-making.
- Uniformity creates conformity, suppressing innovation.
- Hard to learn from mistakes.
- Slow to change.
- Communication is restricted to established channels.
What are the control mechanisms of organic organisations? 3
- Status: Organic businesses are not hierarchical, but status differences exist based on expertise and experience.
- Commitment: Employees have a high degree of commitment to business goals and teamwork, more so than in mechanistic systems.
- Shared values and culture: Hierarchical control is replaced by shared beliefs and values, with corporate culture guiding behavior.
What are the features of a sole tradership? 8
- No legal distinction between the proprietor and the business.
- The proprietor is wholly liable for the business’s debts, borrowing in their own name.
- Business is usually financed by a mixture of owner’s capital, loans, and short-term credit.
- Cannot use floating charges over all business assets as a company can.
- Sole traders take drawings from the business.
- Proprietors often take an active, ‘hands-on’ role in managing the business.
- The business can be sold as a going concern by its owner.
- If the sole trader dies, the business ceases to exist; there is no perpetual succession.
What are the advantages of a sole tradership? 4
- Flexibility.
- ‘Being your own boss.’
- Quick decision-making.
- No publicity regarding financial statements.
What are the disadvantages of a sole tradership? 5
- Limited skills.
- Limited time.
- No one to share the load.
- Difficult to expand.
- Unlimited liability.
What are the features of a partnership? 6
- Legal distinction from owners depends on the type of partnership; partners are usually jointly and severally liable for debts.
- Financing issues similar to sole traders.
- Partners take drawings from the business.
- Partners can specialise or ‘take a back seat.’
- A share in a partnership is not considered property, making it hard to sell.
- No perpetual succession: partnerships dissolve if a partner dies.
What is a general partnership?
A general partnership, regulated by the Partnership Act 1890, has no separate legal identity, and all partners are jointly and severally liable for debts.
What is a limited partnership?
A limited partnership, regulated by the Limited Partnerships Act 1907, has no separate legal identity. One or more partners may have limited liability, but at least one must be fully liable.
What are the advantages of a limited partnership? 6
- Flexibility.
- Being your own boss.
- No publicly available financial statements.
- Multiple skills.
- More time.
- Shared workload.
What are the disadvantages of a limited partnership? 2
- Unlimited liability for debts created by others.
- If partners fall out, continuing the business may be difficult.
What is a limited liability partnership (LLP)?
An LLP, regulated by the Limited Liability Partnership Act 2000, has a separate legal identity from its owners, relaxing some funding restrictions faced by general and limited partnerships.
What is a company?
A company is a legal entity registered under the Companies Act 2006. Its shareholders have limited liability for its debts beyond any amount owed for their shares, but the company itself has unlimited liability for its own debts.
What are the features of a limited company? 5
- The company is legally distinct from its owners.
- Can offer a floating charge over changing assets as security for lending.
- Shareholders take dividends, not drawings, from the business.
- Directors run the company, while shareholders typically do not manage the business unless they are also directors or employees.
- Shares are property that can be sold or transferred without affecting the company.
- If a shareholder dies, their shares transfer to another person without any effect on the company, ensuring perpetual succession.
What is a public company?
A public company is a company whose memorandum states that it is public and has complied with registration procedures. It may offer its shares and securities for sale to the public at large.
What is a private company?
A private company is a company that has not been registered as a public company under the Companies Act 2006. It cannot offer its securities to the public.
What are the advantages of companies? 5
- Separate legal personality of the company.
- Limited liability of its members (shareholders).
- Perpetual succession: Ownership changes do not affect the company’s existence.
- Transferability of interests.
- Security for loans includes floating as well as fixed charges.
What are the disadvantages of companies? 5
- Separation of ownership and control.
- Shareholders have no direct rights to company-owned assets due to separate legal personality.
- Companies must follow stringent legal rules for accounting records, filing financial statements, and annual returns, and may require audits.
- Publicity: Third parties, like competitors and creditors, can obtain company information.
- Regulations and expense: Strict rules under the Companies Act 2006 increase complexity and costs.
What is the difference in entity status between a company and a partnership?
Company: A legal entity separate from its members.
Partnership: Has no existence outside of its members.
What is the difference in liability between a company and a partnership?
Company: Members’ liability can be limited.
Partnership: Partners’ liability is usually unlimited.
What is the difference in succession between a company and a partnership?
Company: Perpetual succession; changes in ownership do not affect existence.
Partnership: Dissolved when any of the partners leaves.
What is the difference in owners’ interests between a company and a partnership?
Company: Members own transferable shares.
Partnership: Partners cannot transfer their interests.
What is the difference in asset ownership between a company and a partnership?
Company: The company owns the assets.
Partnership: Partners own assets jointly.
What is the difference in management between a company and a partnership?
Company: Must have at least one or two directors.
Partnership: All partners can participate in management.
What is the difference in constitution between a company and a partnership?
Company: Must have a written constitution.
Partnership: May have a written or verbal partnership agreement.
What is the difference in financial statements between a company and a partnership?
Company: Must deliver financial statements to the Registrar.
Partnership: Does not have to send financial statements to the Registrar.
What is the difference in security between a company and a partnership?
Company: May offer a floating charge over its assets.
Partnership: May not give a floating charge on assets.
What is the difference in capital withdrawal between a company and a partnership?
Company: Strict rules concerning repayment of subscribed capital.
Partnership: Easier for a partner to withdraw capital.
What is a joint venture?
A separate business (usually but not always a limited company) formed where businesses take a financial stake and agree on management.
What are the benefits of a joint venture? 4
- Less capital required, reducing risk.
- Reduces competition.
- Enables access to restricted markets.
- Access to the skills of each party.
What are the disadvantages of a joint venture? 2
- Disputes over management, costs, or charges.
- If it breaks down, a business’s special skills may be used against it by its former partner.
What is a license in the context of alliances?
A licensing agreement permits another company to manufacture or sell a product, or use a brand name.
What is a strategic alliance?
An informal or weak contractual agreement, often involving cross-shareholding, to collaborate without forming a separate company.
What are the additional benefits and disadvantages of strategic alliances compared to joint ventures? 1, 2
Benefits:
1. Looser arrangement is easier to break.
Disadvantages:
1. May contravene competition laws (e.g., illegal cartels).
2. Less commitment than a joint venture, so benefits are smaller.
What are agents used for in business?
Agents act as a distribution channel where local knowledge and contacts are important, e.g., exporting, marketing, or product support.
What are examples of situations where agents are used? 3
- Sales of cosmetics (e.g., Avon) and clothing (e.g., Ann Summers).
- Holidays.
- Financial services (e.g., insurance brokers).
What is the main disadvantage of using agents?
The business is cut off from direct contact with the customer.
What is a group of companies?
A group of companies is formed when a parent company owns shares in one or more subsidiaries. In its simplest form, the parent company owns 100% of the shares in the subsidiary, though groups are often much larger and more complex.
What are the advantages of groups of companies? 5
- Allows transfer of funds, people, and tax losses.
- Enables development of different structures and cultures.
- Spreads the risk of failure.
- Minority shareholdings can be retained.
- Skills, expertise, equipment, and administrative matters can be shared and/or centralised.
What are the disadvantages of groups of companies? 3
- Financial reporting for groups can become extremely complex.
- Groups require significant administration for tasks like annual returns.
- While risk is legally spread, the failure of one group company can have detrimental effects on others in the group.
