Management Structures

Question 1

Management hierarchy

Answer 1

Management hierarchy is the arrangement that provides increasing authority at higher levels of the hierarchy. This means senior managers have greater accountability, responsibility and power compared with those at lower levels.

Question 2

Chain of command/line authority

Answer 2

A chain of command or line authority is a system that determines responsibility, supervision and accountability of members of the organisation. The advantage of using a chain of command is that only one person ultimately remains in charge. Of course, one disadvantage of this model is that information flows only one way, from top to bottom, with little questioning of authority. In this type of structure, communication is said to be ‘top down’.

Question 3

Unity of command

Answer 3

Closely related to the chain of command, and central to the effective use of this structure, is the principle of unity of command, each employee should report to a single supervisor. Where an employee is expected to take orders from several people, confusion is likely to occur.

Question 4

Span of control

Answer 4

Span of control refers to the number of people for whom a manager is directly responsible. The person in charge of each division within an organisation is called the manager.

Question 5

Changes in organisational structures

Answer 5

Rapid advances in technology, coupled with the signi cant pressures on organisations from increased competition due to forces of globalisation, have resulted in organisations flattening their structures. This means that there are fewer levels of management. Such organisations can adapt quickly to meet changing consumer needs and market conditions because there are fewer managers who need to approve decisions.

Question 6

The basic types of management structure common today include:

Answer 6

Functional, divisional and matrix.

Question 7

Functional structure

Answer 7

This basic functional structure involves grouping employees according to their function (the task or job that staff do). For example, an accountant will be part of the finance department and a person who is involved in advertising will work in the marketing department. Such a structure is used by LSOs producing a small range of products.

Question 8

2 Pros of the functional structure

Answer 8

(1) Benefits of Specialisation:

The whole company is divided into many departments on the basis of major activities to be performed. Each department is headed by an expert manager. This results in more and better work being accomplished in much lesser time. Hence, the benefits of specialisation become available.

(2) Coordination is established:

All the persons working within a department are specialists of their respective jobs. It makes coordination easier at the departmental level.

Question 9

2 Cons of the functional structure

Answer 9

Each departmental head works according to his sweet will. They always give more importance to their departmental objectives. Hence, overall organisational objectives suffer. For example, to establish its image, the production department may produce quality product ignoring the fact that market trend favors accepting medium quality product.

All departmental heads may work as per their own wish. No doubt this facilitates coordination within the department but it makes interdepartmental coordination difficult.

Question 10

Divisional structure

Answer 10

A divisional structure groups employees together according to divisions that may be geographical, or customer, product or process focused. The divisional structure is commonly used by organisations producing a range of different products or services.

Question 11

Management Structure

Answer 11

Management structure is a term used to describe the ways in which the management, employees and resources of an organisation are formally arranged to achieve objectives. An organisation’s structure is usually represented diagrammatically in an organisational chart which shows the key positions of responsibility and accountability, and lines of communication.

Question 12

2 Pros of divisional structure

Answer 12

1) Development of Divisional Heads:

The head of each division looks after all the functions connected with their product that is, purchase, sale, advertisement, production, finance, etc. It helps in the development of varied skills in a divisional head.

2) Quick decision making
Every division is independent in itself. The divisional manager can take any decision regarding his division independently without consulting other divisional managers. Hence, decisions are quick and effective.

Question 13

2 cons of divisional structure

Answer 13

Conflict between Divisional Heads:

Every divisional head wants to establish his supremacy. To satisfy ego each demands maximum resources for his division. This situation leads to conflicts among the divisional heads.

Duplicity of Functions:

The entire set of functions (e.g., production, marketing, financial, personnel, etc.) is required for all divisions. It gives rise to duplicity of efforts among divisions. Hence, resources are misused and cost of operations is unnecessarily increased.

Question 14

Matrix structure

Answer 14

The matrix structure involves bringing together specialists from different parts of the organisation, based on the functions they perform and the divisions they belong to, to undertake specific projects. The purpose is to support more cross-functional communication between departments.

Question 15

2 pros of matrix structure

Answer 15

Flexible

The matrix structure is a flexible structure. It undertakes the completion of a large number of small projects. Depending on needs of environmental situations and other organizational factors, more projects could be undertaken by the organisation by forming additional project teams.

Heightened motivation and morale of employees:

Under a matrix organisation, the motivation and morale of people are heightened as they have no problem of insecurity about job assignments. Immediately after the completion of one project, people are assigned to some new project. As such, people in a matrix organisation work with enthusiasm and dedication.

Question 16

2 cons of matrix structure

Answer 16

Confusion caused by double line of command:

The serious most limitation of a matrix organisation is the confusion caused by the double line of command; so that a project team member is always in a state of flux as to whose orders the project manager or the functional head to obey first. This feature of ‘double command system’ creates a situation of ‘shifting-loyalties’; and tells upon the operational efficiency of the project work.

Problem of adjustment:

A matrix organisation, after the completion of one project, people are assigned to some new project. Many persons may face a problem of adjustment to the new project; because of entirely new conditions surrounding the new project. A best fit in one project, may be a misfit in a second project.

Question 17

Glass Transport is a long-established bulk transport provider, which has recently taken a decision to invest in becoming a national parcel delivery service. The opportunity that CEO Catherine Glass seized on arose from fast-growing online sales. In order to build the expanded business, a significant number of new staff will be required. Some of these staff could be relocated from the bulk transport division and some will need to be recruited. Service standards will need to be set and new vehicles purchased. Further decisions will be made to determine whether parcel pick-up from residential and business premises will be offered.
The major existing competitor in parcel delivery is a government-owned postal service. Its business of delivering mostly letters is declining because of emails and texting. Its delivery infrastructure is mostly suited to letters, not parcels. The growing parcel sector is a highly profitable business opportunity for the organisation that ‘gets it right’.
As Glass Transport is becoming more complex in its service offerings, Ms Glass is considering changing the management structure of her organisation.
a. Discuss an appropriate management structure for Ms Glass’s expanding business.

Answer 17

An appropriate management structure that Ms Glass could employ would be the divisional structure. This is a structure where employees are grouped together regarding the product or service, geography or process they undertake. As Ms Glass’s company is incorporating a new aspect of parcel delivery, she can divide the organisation into the bulk transport division and the parcel delivery service. This enables each area of the organisation to focus on its own service that it provides rather than having one operations manager for two fairly different operations. This focus means greater efficiency and effectiveness is able to be delivered in each of the different operations as each division will develop expertise in their area. This will however, create some duplication of work in some areas such as finance and human resources and she also must ensure that the company remains one company as although it is separated into two major divisions they are still both part of Glass Transport.

Question 18

By nature, Ms Glass is a consultative manager.
Identify two characteristics of this management style, and explain one advantage and one disadvantage of using this style.

Answer 18

The consultative management style is where the employer asks for the employees’ opinions before an executive decision is made. It utilises a two way channel of communication as employers actively discuss with employees and ask them what they think is appropriate. However, whilst the manager does consult employees it still is a centralised approach to decision making as ultimately it is the manager who makes the final decision. One advantage arising from this will be the innovation that employees can bring. They may show a new perspective that management may not have thought about. One disadvantage is that the process may be time consuming as the employers need to ask the employees for opinions. As a result, the decision made may be delayed and thus this style is more time consuming than that of an autocratic or persuasive style.

Question 19

Glass Transport is a long-established bulk transport provider, which has recently taken a decision to invest in becoming a national parcel delivery service. The opportunity that CEO Catherine Glass seized on arose from fast-growing online sales. In order to build the expanded business, a significant number of new staff will be required. Some of these staff could be relocated from the bulk transport division and some will need to be recruited. Service standards will need to be set and new vehicles purchased. Further decisions will be made to determine whether parcel pick-up from residential and business premises will be offered.
The major existing competitor in parcel delivery is a government-owned postal service. Its business of delivering mostly letters is declining because of emails and texting. Its delivery infrastructure is mostly suited to letters, not parcels. The growing parcel sector is a highly profitable business opportunity for the organisation that ‘gets it right’.
As Glass Transport is becoming more complex in its service offerings, Ms Glass is considering changing the management structure of her organisation.
Ms Glass has identified that she will have to use the management roles of organising, leading and controlling.
Define each role and explain how the use of these roles will contribute to the success of her new national parcel delivery service.

Answer 19

Organising is the process of arranging resources and tasks to achieve objectives. Ms Glass will need to organise the division of labour, outline who will be responsible for what and she will also need to organise who will be relocated and delegate authority of various roles in the new parcel delivery service. Ms Glass will also need to coordinate all employees in the organisation and apply resource and task allocation techniques such as distribution of materials, to ensure Glass Transport is operating effectively and efficiently.
Leading is the process of influencing or motivating others towards the achievement of the organisations objectives. Ms Glass will require informational qualities to inform employees of changes and outline reasons as to why. Ms Glass will need decision making qualities to make effective decisions about the change. Ms Glass will also need interpersonal qualities in this role, to be able to relate to employees, share their concerns and support them through the change.
Controlling is the process of evaluating performance and taking corrective action where necessary. Once the service standards are set, Ms Glass must evaluate the success of the changes via financial and non-financial performance indicators and deadlines and benchmarking. She must then make changes where necessary to ensure set objectives are being achieved.

Question 20

Glass Transport is a long-established bulk transport provider, which has recently taken a decision to invest in becoming a national parcel delivery service. The opportunity that CEO Catherine Glass seized on arose from fast-growing online sales. In order to build the expanded business, a significant number of new staff will be required. Some of these staff could be relocated from the bulk transport division and some will need to be recruited. Service standards will need to be set and new vehicles purchased. Further decisions will be made to determine whether parcel pick-up from residential and business premises will be offered.
The major existing competitor in parcel delivery is a government-owned postal service. Its business of delivering mostly letters is declining because of emails and texting. Its delivery infrastructure is mostly suited to letters, not parcels. The growing parcel sector is a highly profitable business opportunity for the organisation that ‘gets it right’.
As Glass Transport is becoming more complex in its service offerings, Ms Glass is considering changing the management structure of her organisation.
Describe Locke’s theory of motivation and explain how Ms Glass could use this theory to motivate staff.

Answer 20

Locke’s goal setting theory is the belief that clear, specific, challenging (but not overwhelming) goals will motivate employees. It focuses on the process of setting and attaining goals as well as receiving feedback regarding achievements. It includes two aspects; goal difficulty (to a certain extent as goal difficulty increases, motivation will increase) and goal specificity (clear, explicit goals will motivate employees). Ms Glass can use this as a form of performance appraisal, set goals in conjunction with employees on the Glass Transport changes which according to Locke would lead to increased effort, persistence, and task focus. Ms Glass can then review the goals and provide feedback to employees, allowing them to develop a sense of purpose, motivation and thus improved performance as a result. Locke’s theory would also allow Ms Glass to add clarity and altering the level of difficulty to goals so the Glass Transport expansion can be successfully achieved and employees will be motivated to achieve their goals as part of the expansion.

Question 21

Define ‘market share’

Answer 21

Market share is the proportion of sales belonging to an organisation out of the total sales in the industry or market, often measured as a percentage figure. For example, the four large scale organisations have 92% market share in the chocolate industry.

Question 22

In the chocolate industry, four large-scale organisations dominate the market, collectively accounting
for 92% of all chocolate sales. Currently these four organisations compete on price. The smallest of the
four organisations, Websters, is less able to take advantage of economies of scale than the three larger organisations. As a result, Websters has decided to focus on competing on quality rather than price to ensure its long-term success.
Sam Webster, grandson of the founder of the business, is currently the CEO and has identified that numerous changes must be made.
As the focus of Websters shifts to quality, it will need to measure quality as part of its operations management. A human resources audit has identified that the current staff do not have the necessary capabilities to implement this change. To allow the staff to develop the necessary capabilities, Mr Webster has identified two preferred options.
• improve the capabilities of the current staff
• purchase and import state-of-the-art equipment from Belgium
While the purchase of equipment will be more expensive initially, it will improve productivity and reduce waste and carbon emissions in the longer term.
Identify and explain two methods from the strategy of managing quality that Websters could use to ensure a high-quality chocolate product.

Answer 22

The management of quality can be done through the strategy of quality assurance or total quality management. Quality assurance involves gaining quality certification from an external body that has set predetermined quality standards which the organisation must meet. These are often known as ISO standards. If Websters uses quality assurance it guarantees all products produced in the operations system are of a high quality or they are not allowed to be sold.
The other strategy Sam could employ is known as total quality management where all employees in the operations system are encouraged to be continually striving for high quality in all they produce. Sam could organise groups known as quality circles where they discuss options on how to make their products even better. This approach is also viable to ensure that Websters produce high quality chocolate products, which is necessary to improve their competitiveness.

Question 23

In the chocolate industry, four large-scale organisations dominate the market, collectively accounting
for 92% of all chocolate sales. Currently these four organisations compete on price. The smallest of the
four organisations, Websters, is less able to take advantage of economies of scale than the three larger organisations. As a result, Websters has decided to focus on competing on quality rather than price to ensure its long-term success.
Sam Webster, grandson of the founder of the business, is currently the CEO and has identified that numerous changes must be made.
As the focus of Websters shifts to quality, it will need to measure quality as part of its operations management. A human resources audit has identified that the current staff do not have the necessary capabilities to implement this change. To allow the staff to develop the necessary capabilities, Mr Webster has identified two preferred options.
• improve the capabilities of the current staff
• purchase and import state-of-the-art equipment from Belgium
While the purchase of equipment will be more expensive initially, it will improve productivity and reduce waste and carbon emissions in the longer term. Identify and justify two performance indicators that Websters could use to measure the success of the business’s change in focus.

Answer 23

Performance indicators are specific criteria used to measure effectiveness and efficiency of performance.
Websters could use the number of sales which looks at the number of chocolates sold in a particular time. This is done by comparing the new numbers with some old statistics taken. If the numbers have increased it shows that Websters are using the right methods to increase competitiveness. If there are not, it means Websters needs to identify where they can continue to fix it.
Secondly, customer complaints are often made when the quality of a product is quite poor. As quality improves you would expect the number of customer complaints to drop significantly. By comparing previous numbers with the number after the implementation of the quality management strategies the organisation will be able to notice if quality of product has increased as customers are happier with the product.

Question 24

In the chocolate industry, four large-scale organisations dominate the market, collectively accounting
for 92% of all chocolate sales. Currently these four organisations compete on price. The smallest of the
four organisations, Websters, is less able to take advantage of economies of scale than the three larger organisations. As a result, Websters has decided to focus on competing on quality rather than price to ensure its long-term success.
Sam Webster, grandson of the founder of the business, is currently the CEO and has identified that numerous changes must be made.
As the focus of Websters shifts to quality, it will need to measure quality as part of its operations management. A human resources audit has identified that the current staff do not have the necessary capabilities to implement this change. To allow the staff to develop the necessary capabilities, Mr Webster has identified two preferred options.
• improve the capabilities of the current staff
• purchase and import state-of-the-art equipment from Belgium
While the purchase of equipment will be more expensive initially, it will improve productivity and reduce waste and carbon emissions in the longer term. Describe and justify one management practice or process from each of the three phases of the employment cycle that could apply to Websters as it changes its focus to compete on quality.

Answer 24

In the establishment phase, a selection process must be used to ensure the best employees are hired. Websters could use this to measure the desirability of those who apply for the job and how appropriate they will be, especially regarding the new focus on quality. The selection process involves receipt of applications, they then screen and short list (Websters should select those applicants who will be most focussed on the quality of the organisation), interviews (specific questions about quality should be asked), testing, reference checking and finally offering the job to the best applicant, who in this case, should be focussed on quality.
The maintenance phase involves development, which has a forward looking focus in improving the skills of an employee. Websters could use this to best develop the employees involved in quality and in improving the capabilities of the current staff they will be able to better compete regarding quality.
The final stage of the employment cycle is termination, when the employee is no longer employed at the organisation. Due to some staff lacking capabilities they may be subject to dismissal on notice due to not being able to perform their role to the appropriate standard. This occurs after a period of training. This enables the manager to make room for new more skilled employees, hence being able to improve quality and thus the competitiveness of Websters.

Question 25

In the chocolate industry, four large-scale organisations dominate the market, collectively accounting
for 92% of all chocolate sales. Currently these four organisations compete on price. The smallest of the
four organisations, Websters, is less able to take advantage of economies of scale than the three larger organisations. As a result, Websters has decided to focus on competing on quality rather than price to ensure its long-term success.
Sam Webster, grandson of the founder of the business, is currently the CEO and has identified that numerous changes must be made.
As the focus of Websters shifts to quality, it will need to measure quality as part of its operations management. A human resources audit has identified that the current staff do not have the necessary capabilities to implement this change. To allow the staff to develop the necessary capabilities, Mr Webster has identified two preferred options.
• improve the capabilities of the current staff
• purchase and import state-of-the-art equipment from Belgium
While the purchase of equipment will be more expensive initially, it will improve productivity and reduce waste and carbon emissions in the longer term. Describe one difference between the operations management of a manufacturing organisation, such as Websters, and a service organisation.

Answer 25

Manufacturing organisations provide outputs which are tangible and can be stored. For example, chocolate can be touched and stored to eat later (as in Webster’s). Conversely, service organisations produce outputs which are intangible and cannot be touched or stored. They are created at the same time of consumption, such as receiving a flight service whilst on board the plane.

Question 26

In the chocolate industry, four large-scale organisations dominate the market, collectively accounting
for 92% of all chocolate sales. Currently these four organisations compete on price. The smallest of the
four organisations, Websters, is less able to take advantage of economies of scale than the three larger organisations. As a result, Websters has decided to focus on competing on quality rather than price to ensure its long-term success.
Sam Webster, grandson of the founder of the business, is currently the CEO and has identified that numerous changes must be made.
As the focus of Websters shifts to quality, it will need to measure quality as part of its operations management. A human resources audit has identified that the current staff do not have the necessary capabilities to implement this change. To allow the staff to develop the necessary capabilities, Mr Webster has identified two preferred options.
• improve the capabilities of the current staff
• purchase and import state-of-the-art equipment from Belgium
While the purchase of equipment will be more expensive initially, it will improve productivity and reduce waste and carbon emissions in the longer term.
Analyse the ethical and social responsibility issues associated with the two options (as stated on page 2) that Mr Webster is considering to develop the capabilities of the staff.

Answer 26

Business ethics is the moral standards that govern the organisation’s practices and social responsibility is how the organisation intends to benefit the environment and the community at large, beyond the minimum legal requirements.
Mr Webster’s decision to focus on improving the capabilities of the current staff is both socially and ethically correct as he is showing value for his staff and not downsizing them for better options, instead giving them the chance to undertake training and improve their skills. This shows Mr Webster to respect his employees and will create a positive corporate culture amongst Webster’s staff.
Option two, to purchase and import machinery from Belgium may have some negative social responsibility issues attached. By importing machinery from other countries it means loss of business for Australian companies and workers and Websters may be reflected in a negative light for this outsourcing of materials. Another negative social responsibility issue that may occur is the consumer uncertainty in the manufacturing of the machine and whether it was done using environmentally friendly practices. However, a major positive ethical and socially responsible issue from the new technology is that it reduces waste and carbon emissions. This shows Websters to be actively limiting their negative impact on society and the environment and this may be an important factor in deterring customers from other brands to purchase Websters therefore social responsibility and ethical practices, while expensive initially, are often beneficial in the long run.

Question 27

Ms West has just purchased a designer clothing and manufacturing company. She would like to expand the company and start exporting.
Compare and contrast two potential management structures that would assist Ms West to achieve these aims. Which management structure would you recommend to Ms West? Justify your choice.

Answer 27

A management/organisational structure is the way in which managers, employees and functions are arranged within an organisation. One management structure is a functional structure, this is where employees are divided by function (Human Resources, Financial management, Marketing etc) and each function has a manager. A different management structure is a matrix structure, this is a horizontal and vertical structure where teams are formed across functional/departmental lines to work on a project or solve a problem. The two structures are similar in that they both have functional departments with managers at the’ top’ of the structure. They are also similar as they have functional departments which allow for specialisation.
The two structures are different in that a matrix structure involves teams across functions, where a functional structure does not. A matrix structure will also have more managers than a functional structure as there will be a manager for each team as well as each department.
I would recommend that Ms West use a ‘matrix’ structure at her designer clothing company. This is because a matrix structure is more flexible than a functional structure, it also has a greater organisation focus, rather than purely a functional focus, which means employees, will strive to achieve both function specific and organisation –wide objectives. Additionally, Ms West could form a team to discuss the expansion of the company and a team to focus on how and where the company should export. For any problem that arises, or any new venture Ms West would like to do, Ms West can for a team to work on specifically that task.

Question 28

Wonderful Toys Company manufactures wooden blocks that were found to contain small amounts of lead paint that can be poisonous to children. The company recalled all of this product.
What management style could Wonderful Toys use in this crisis? Explain why you have chosen this management style. Refer to two features of this style in your explanation.

Answer 28

I believe an Autocratic management style would be most appropriate in this situation.
An Autocratic management style is one where management make all decisions with no/little (very little) input from employees. It has a strict top down, one-way communication where managers make the decisions and pass them down to employees. Authority and control are also centralised where management have all the control and power over employees and employees strictly follow their manager’s rule. This management style would be most appropriate for the situation at the ‘Wonderful Toys Company’ because the lead paint can be poisonous to children and therefore a quick decision needs to be made before anyone is harmed which best suits the autocratic management style. Also, all employees will therefore know exactly what is expected of them, their role and responsibilities in the recall of the products. This ensures that without question, the company is able to immediately fix the crisis as efficiently and effectively as possible by using the autocratic management style.