The Structure and Shape of the Finance Function Flashcards
Mintzberg five components of an organisation
Strategic apex
Technostructure - Middle line - Support staff (admin)
Operating core
Centralised organisation structure advantages and disadvantages
Adv
Experienced people make the decisions
Consistent policies throughout the company
Quick decisions without consultation
Standardised procedures (leading to EOS)
Disadv
Reduces input of day to day exports in decision making
Demoralising branch managers by making their opinions unheard
Decentralised organisation structure advantages and disadvantages
Adv
Reduces burden on senior management
Empowers local managers
Subordinates have better knowledge of local conditions
Middle management are groomed to take higher positions
Disadv
Reduction in uniformity will unsettle customers
Local managers may not see the bigger picture like head office does
Span of control definition
Refers to the number of direct reports or subordinates controlled by a manager
Scalar chain definition
The number of layers of management from the bottom of the organisation to the top
Tall organisation triangle = long scalar chain
Flat organisation triangle = short scalar chain
Tall organisation features
Long scalar chain
More managers with narrow span of control
Suffer from too many managers
Expensive to run
Decisions take long time to reach the bottom of the organisation
Good promotion opportunities
Managers do not have to spend a lot of time managing staff
Flat organisation features
Relatively few managers with a wide span of control
Quick decisions
More susceptible to fraud and error
What is an open system?
Connected and interacts with its environment (between organisation and outside world)
Both controllable and uncontrollable inputs and can produce predictable and unpredictable outputs
Open systems can also exist within organisations
Most organisations are open systems
What is a closed system?
Isolated from and independent of is environment
Organisation and environment is separated
Relatively closed systems may exist within an organisation - eg R&D and security (aim to protect sensitive information)
Features of entrepreneurial structure
(Spider in a web)
New or small organisation
Little specialisation or formalisation
Founder has power and creates the culture
Informal work environment
Reacts quickly to challenges
Features of functional structure
Organised around different business functions - often categorised as departments or divisions
Departments are based on specialised functions - eg R&D, finance, marketing
Emphasis on roles rather than individuals who fill those roles
Bureaucratic and slow in distributing information
Features of matrix structure
(A net)
Organised around projects such as designing, building, marketing and selling
Communication tends to be horizontal
Built upon principles of flexibility and dual authority, goes against classical theory of management that advocates unity of command
Increasing popularity due to recognition that functional versatility is the key to flexibility.
Horizontal structure
Features of divisional structure
Each division is largely autonomous with its own subculture - eg Mars has confectionary division and pet food division
Central HQ or head office will be limited but typically retains some functions - eg planning, finance, legal services (or some of these services may be outsourced)
Hierarchical shape finance function
Triangle shaped with a large number of less qualified people towards the lower end of the triangle carrying out basic processing and interpreting work tapering to the top at CFO
Diamond shape finance function
Geared less towards stewardship and more towards growth strategies and providing financial insight to add value. Automation of routine processing has reduced the number of less skilled staff at the lower end of the function with a large band of multi skilled individuals in the middle interacting with the rest of the business
Financial accounting role
Bookkeeping and preparation of financial statements
Management accounting role
Record current costs and revenues then analyse this information to identify trends
This information is then reported up through the organisation
Budgets are prepared to translate the organisations objectives into a financial plan and actual performance is then compared to this budget and control action is taken when deviations are identified
Treasury role
In charge of the cash flow management of the company
Plans to minimise total tax liabilities
Identify most suitable ways to raise finance
Manage risks - interest rate and foreign currency risk managed using derivatives such as futures and options
Management of working capital making sure the company has the liquid funds it needs
Internal audit role
Reports to the audit committee on the efficiency of operations, reliability of financial reporting, deterring and investigating fraud, safeguarding assets, commenting on compliance with laws and regulations
Financial planning role
Uses the information provided by finance departments to support planning and analysis
Taxation role
Provide expert tax planning, alternative tax solutions, or provide analysis relating to the taxation impact of different strategies by drawing information from available sources
Project management role
Uses the information provided by finance department to support internal decision making
Stages in project management process:
Initiation
Planning
Executing
Controlling
Review and close
Finance likely has a role in controlling (to track costs) and initiation (project appraisal and financial viability)
What is a shared service centre (SSC)?
A separate business unit created within a company to deliver a specific service or suite of services across the company
Features of SSC
Operate like independent businesses
View other departments in organisation as customers
Aim to gain efficiencies through continuous improvement that results in more efficient standardised processes
Utilise technology to bring efficiencies
Heavily focused on value creation. And held accountable to agreed service levels
