D. Shape And Structure Of The Finance Function Flashcards
What Is an organisational structure?
It’s formed by the grouping of people into departments or sections and the allocation of responsibility and authority
How did Mintzberg’s effective organisation structure suggest an organisation can be analysed?
Into six building blocks
Effective coordination will be needed to integrate the building blocks into one unit
Building blocks: operating core Middle line Techno structure Support staff Strategic apex Ideology
Draw Mintzberg’s effective organisation and describe the six different building blocks
Building blocks:
operating core-Basic work of organisation. In small or represent nearly all, in large or will require more complex arrangements
Middle line-Link strategic apex to operating core and includes lower and middle level management
Techno structure-Responsible for designing procedures and standards. Techno structure includes accountants, computer specialist and engineers
Support staff-Provide services to the organisation with support operations/production
Strategic apex– High levels of management responsible for formulating the strategy and long-term plans
Ideology-Organisations values and beliefs i.e. culture
Describe the six coordinating mechanisms used to integrate the building blocks into a cohesive unit
- Mutual adjustment – coordination through informal contact
- direct supervision – coordination through for hierarchy
- Standardisation of work processes
- Standardisation of outputs– product and service specifications
- standardisation of skills and knowledge – identifies training needs and the necessary skills base to do the work
- Standardisation of norms – cultural norms and expectations
Mintzberg converted the building blocks and coordinate in mechanisms in different ways and identified which five main structural configurations?
Entrepreneurial structure: direct supervision
Machine bureaucracy: standardisation of work excellent
Professional bureaucracy:Standardisation of skills
Divisionalised: standardisation of outputs
Adequacy/innovative: mutual adjustments
What four structural changes make up various phases of the business?
Entrepreneurial structure
Functional structure
Divisional structure
Matrix structure
What does the entrepreneurial structure and who makes all the decisions?
Built around on a data manager
All key decisions made by a strategic leader who is often the owner/entrepreneur
What are the advantages and disadvantages of the entrepreneurial structure?
Advs – quick decision-making – responsive to market – good control – close bond to work
Disads
-Lack of career structure
– dependent on owner capabilities
– cannot cope with diversification/
What is the functional structure?
Who is the most appropriate for?
Common folks that have outgrown the entrepreneurial structure, therefore need to group together employees to undertake similar tasks into departments
Board of directors and below them different departments
Most appropriate to smaller companies with a few products and locations which exist in a relatively stable environment
What are some advantages and disadvantages of the functional structure?
Advantages – economies of scale thanks – standardisation/efficiency -specialist more comfortable – career opportunities
Disadvantages -Empire building i.e. managers working on their own interest – Slow to adapt market changes – conflict between functions – cannot cope with diversification
What is the divisional structure?
Who takes leadership?
Because when an organisation is split into different divisions – each one autonomously overseeing a product line/brand or geographical location
Board of directors leading divisions which lead to different functions
The general managers take responsibility for their own resources
What are some advantages and disadvantages of the divisional structure?
Advantages
– enables product or geographical growth
– clear responsibility for divisions
– training of general managers
– easily adapted for further diversification
– top management free to concentrate on strategic matters
Disadvantages – duplication of business functions – lack of goal congruence – potential loss of control – allocation of central costs can be a problem - specialists may feel isolated
What is the matrix structure?
Which organisations are usually use it
Structure aims to combine the benefits of a divisional structure and a functional structure
Senior management leads the functional structure
Who lead the different departments for different products
Found in multiproduct and multifunctional organisations with significant interrelationships and interdependencies
What are the advantages and disadvantages of the matrix structure?
Advantages
– same advantages as functional and divisional structures
– flexibility to focus on customers, projects as less rigid than div structure
– encourages teamwork and the exchange of opinions and expertise
Disadvantages
– dual command
– dilution of functional authority I.e who to report to
– time-consuming meetings
Describe Starbucks’s matrix structure
Functional groups: split into a number of functions which are hierarchical
Geographical divisions: based on physical location and which division head has been given flexibility to adjust policies and local market. Has three geographical divisions: America, China and Asia Pacific, and EMEA
Product based divisions: focus on product development. Number of product divisions including coffee and related products, baked goods, merchandise
Teams: most visible in cafés for their organised to deliver goods and services to the customer and the optimal way
What’s the difference between a centralised a decentralised structure?
Centralised: upper levels of an organisation’s hierarchy retain the authority to make decisions e.g franchises
Decentralise: authority to make decisions is passed down to units and people at lower levels
What factors affect the amount of (de)centralisation?
Management style – how much control management want to retain
Ability of management/employees – more able, greater level of decentralisation
Geographical spread – central control more difficult
Size of organisation -small organisations can retain the level of central control easily
AdVantages of decentralisation
Senior management free to concentrate on strategy
Better local decisions due to local expertise
Better motivation due to increased empowerment of employees and a more defined career path
Quicker responses/flexibility due to reduce bureaucracy and increased autonomy
Disadvantages of deCentralisation
Loss of control by senior management and lack of standardisation
Dysfunctional decisions due to a lack of goal congruence
Poor decisions made by an experienced managers
,
Training costs
Duplication of roles within organisation
Extra costs in obtaining information since it stored in several locations
What is the scalar Chain?
Line of authority Which can be traced up or down the chain of command
Therefore relates to the number of levels of management within an organisation
What is the span of control?
How many people report to one superior
What influences the span of control?
Nature of the work – more repetitive equals wider span
Type of personnel – more skilled means wider span
Location of personnel– located locally means wider span
What’s the difference between a tall organisation and a flat organisation?
Tall
- long scaler chain
- many levels of management
- narrow span of control
Flat
- short scalar chain
- few levels
- wider span of control
Are organisations becoming flatter or taller?
Flatter
Encourages initiative
Collaborative environment
What are the disadvantages of talll organisations?
More bureaucratic
Takes longer to make decisions
What are the disadvantages of a flat organisation?
Weaker control
Fewer chances for employees to progress
What did the chairman of General Electric mean by a ‘boundaryless’ organisation
Modern environment is fast changing
Firms need a more flexible managerial approach
Achieved competitive advantage by replacing vertical hierarchies with horizontal networks; linking departments and functions
What is RPA and how is it used in the finance function?
RPA: software based approach that replicates user actions to reduce human intervention in repetitive tasks
Previously used in manufacturing
Now used for data entry, formatting, recs
Finance can refocus on value creation
What did the World Economic Forum ‘future of Job’ 2018 report conclude?
By 2022, each individual within finance will require an extra 101 days of learning
More competencies needed around:
Tech
Business skills
Leadership skills
How has the shape of the finance function changed over the past few decades?
Hierarchical triangle
- traditional shape
- broad base of finance workers
- reporting up to narrower levels
Segregated triangle
- last 20 years
- globalisation/tech meant use of SSC
- bottom half represents service carried out at SSC
Diamond shape
- today’s digital age
- eroded base due to automation
Explain in detail the roles within the traditional hierarchical triangle
Bottom of triangle: broad base carrying out ‘enabling’ roles
Middle: Arrows set of mgmt level who carry out ‘shaping how’ roles
Top: senior finance staff who concentrate on ‘narrating how’
How did the traditional hierarchical triangle evolve into a diamond shape?
Tech automation eroded bottom 2 corners
Central level bulge due to many of the higher value services being offered by centres of excellence
Flat top to show mor collaborative leadership I.e CEO and CFO work together
What are the four levels of the diamond shape?
Level 1 is the top quarter and Level 4 is the bottom
Senior finance team
-lead team to achieve desired org impact
Strategic business partnering
-work with stakeholders to influence and shape how the org creates/preserves value
Digital centres of excellence
-specialists generate further insight about creation/preservation of value in areas of specialism
Smart finance ‘factories’
-assemble and extract data to provide info and preliminary insight
What are the three main reasons that the shape of the finance function is changing?
The change of mandate for finance
– better and able to finance function to focus on ‘strategic business partnering’
Technology
– automation of management information processes
-Increased need for skills at ‘strategic business partnering ‘and ’digital centres of excellence’ levels
Finance function capability
– level to his focal point of tech and competency changes which is another reason for the central bulge
Will the shape of the finance function continue to evolve?
Increasing emphasis on professional level roles requiring support and mgmt skills
Continues emphasis on specialist knowledge leading to formation of interdisciplinary teams
What is outsourcing?
Contracting out aspects of the work of the organisation previously done in house, to specialist providers
Often non-core service outsourced e.g HR, cleaning, catering
What is a Shared service centre I.e internal outsourcing ?
Established for a particular activity of the organisation
A usually large, multinational organisation with processing centres in several countries chooses to consolidate these activities at one site
What are the advantages of outsourcing?
Cost advantages Quality advantages Supplier has specialist knowledge Can focus on core business activities exercise buying power Greater flexibility to switch supplier
Disadvantages of outsourcing?
Cost issues Loss of core competence Transaction costs Finality of decision Risk of loss of confidential info Supplier continuity Agreeing/negotiating terms Damaging to morale if redundancies happen
What is a Service level agreement?
An SLA is a negotiated agreement between the supplier and customer and is a legal agreement regarding level of service
Can help control outsourcing disadvantages
What factors should the SLA include?
A detailed explanation of the service supplies offering
Targets/benchmarks and consequences of failing them
Expected response time to queries
Expected time to recover operations in the event of a disaster
Procedure for dealing with complaints
Information and reporting procedures
Procedures for cancelling the contract
What is the transaction cost theory?
The indirect costs (i.e. non-production costs) incurred in performing a particular activity excellent
E.g. the expenses incurred through outsourcing
Are the three main types of transaction costs?
Search and information costs
– e.g. cost of determining which supply is cheapest
Bargaining costs
– cost of agreeing on acceptable SLA
Policing and enforcement costs
– cost of making sure the other party stick to the terms of the condition
How can you resolve high transaction costs?
By bringing the outsourcing in-house
For low transaction cost for outsourcing it encourages outsourcing
What are the two methods of obtaining control over resources that organisations need to choose between?
What is the decision based on a comparison of?
The ownership of assets i.e. hierarchy solutions
buying in the use of assets i.e. the market solution
Make vs buy
The decision is based on a comparison of the transaction costs of the two approaches
What three dimensions determine transaction costs?
Uncertainty
Frequency with which their transactions occur
Assets specificity
What do you Williamson and Coes argue is the third dimension?
What are the first two?
Third dimension :asset specificity
- most important determinant of transaction
- non specific asset means contracting is more efficient as transaction cost will be low
Other two: in house or buy in
What is asset specificity?
An asset is said to be transaction specific if its value to a given transaction is greater than its value to its best alternative use
The greater the gap, the greater the degree of specificity
I.e. the degree to which it can be adapted for other purposes
What did Williamson and Coase suggest the six main types of asset specificity are?
Site specificity: once sited they might be immobile
Physical assets specificity: may have lower value in alternative uses
Human assets specificity: training needed for particular transaction
Brand-name specificity: becoming associated with a particular brand name e.g. type because
Dedicated asset specificity: investments General-purpose plant made at the behest of a particular customer
Temporal specificity: timing of performance is critical e.g. harvesting
Which finance function activities should be outsourced?
Transactional processes
– e.g. Accounts Payable/receivable, travel and entertainment and cash management
Improvements in provider capabilities have also resulted in outsourcing —statutory and regulatory accounting, forecasting, budgeting
I.e assembly and analysis activities
What are some benefits of outsourcing the finance functions activities?
Cost reduction:Economies of scale
Radical transformation: allowing shift of internal resources
Access to superior capabilities, expertise and resources
Business partnering: balance can focus on business partnering and decision-making
What are some drawbacks of outsourcing the finance functions activities?
Loss of control Managing the outsourced services Cause disruption Risk of intellectual property theft and data breaches Erosion of internal knowledge and skills
