Strategy and structure

Question 1

What is organisational structure?

Answer 1

It defines how the various functions of an organisation are arranged

Question 2

What is Entrepreneurial structure?

Answer 2

Structure built around the owner-manager- typical for small companies
Centralised with all key decisions made by the strategic leader

Question 3

Advantages and disadvantages of entrepreneurial structure

Answer 3

Adv- fast decision-making, more responsive to market, good control, close bond workforce
Disadv - lack of career structure, too centralised, can’t cope with growtg

Question 4

What is functional structure?

Answer 4

Common when outgrown entrepreneurial- need to reorganise on a functional basis (economies of scale)

Question 5

Advantages and disadvantages of functional structure

Answer 5

Adv - economies of scale, efficiency, specialists more comfortable
Disadv - empire building, slow to adapt to change, conflicts between functions e.g. communication

Question 6

What is divisionalised structure?

Answer 6

Structure in accordance with product lines or divisions
Headed by general managers responsible for their own resources

Question 7

Advantages and disadvantages of divisionalised structure

Answer 7

Adv- enable product growth, clearly responsible and accountable for products, training of managers
Disadv - Loss of control, lack of goal congruence, duplication of effort, may feel isolated

Question 8

Advantages and disadvantages of divisionalised structure (geographically based)

Answer 8

Adv - enables geographic growth, clear responsibility for areas, training of general managers
Disad -same for divisionalised (loss of control, duplicate, goal congruence)

Question 9

What is matrix structure?

Answer 9

Aims to combine benefits of divisionalised & functional structure
Usually in multifunctional organisations with intertelationships

Question 10

Advantages and disadvantages of matrix structure

Answer 10

Adv - improves communication, useful for projects, flexible
Disadv - conflicts between managers over individuals commitments, dilution of authority, time-consuming meetings

Question 11

What are flexible structures?

Answer 11

Allow firms to adapt to changing circumstances
Network structures can be applied within and between organisations

Question 12

Advantages and disadvantages of flexible structures

Answer 12

Adv - increased flexibility, reduces premises cost, access to specialist skills
Disadv - lack of control, difficult to create consistent culture

Question 13

What are Mintzberg’s six components of an organisation?

Answer 13

Operating core - basic work
Strategic apex - higher management
Middle line - managers linking apex
Technostructure - accountants, IT etc
Support structure - eg catering, legal
Ideology- the values and beliefs

Question 14

What are tall and flat organisations?

Answer 14

Tall - many layers of management, who oversee few subordinates
Flat - few layers of management, who oversee a large no. subordinates

Question 15

What is decentralisation?

Answer 15

It refers to the degree of autonomy/decision making ability diffused through the organisation

Question 16

Pros of decentralisation

Answer 16

Senior management free to concentrate on strategy
Better local decisions
Better motivation
Quicker responses/flexibility
Training/career path

Question 17

Cons of decentralisation

Answer 17

Loss of control by management
Dysfunctional decions due to lack of goal congruence
Poor decisions by inexperience
Training costs
Duplication of roles/resources

Question 18

What is the calculation for Return on Investment (ROI)?

Answer 18

Annual profit controllable my manager ➗️ Capital employed in the division

Question 19

What is Return on Investment (ROI) and Residual Income (RI) used for?

Answer 19

To assess the performance in a divisional business

Question 20

Advantages and disadvantages of ROI

Answer 20

Adv - widely used & accepted, should facilitate comparisons
Disadv - relative measure, different accounting policies make comparisons difficult, ROI increases with age of asset, can lead to dysfunctional decisions

Question 21

How is Residual Income (RI) calculated?

Answer 21

Controllable profit -
(Capital employed x target % return)

Question 22

Advantages of RI

Answer 22

Absolute measure
RI will increase with age if asset
Less likely to lead to dysfunctional decisions

Question 23

What is transfer pricing?

Answer 23

The price at which one division in a group sells its product/services to another division in the same group

Question 24

What methods cna be used to set a transfer price?

Answer 24

Cost plus pricing - marginal/full cost plus mark-up
Opportunity cost
Negotiated prices - decided by managers
Market prices - currently market rate

Question 25

What is corporate governance?

Answer 25

Set of rules which governs the structure and determines objectives of an organisation

Question 26

What are the general principles of good corporate governance in the UK Corporate Governance Code?

Answer 26

Appropriate balance of power - e.g. not too much for CEO
Independent NEDs
Established committees
Effective risk management

Question 27

What are the general principles of good corporate governance in the UK Corporate Governance Code?

Answer 27

Appropriate balance of power - e.g. not too much for CEO
Independent NEDs
Established committees
Effective risk management