Week 2

Question 1

What is organisational structure?

Answer 1

The way in which an organisation groups its employees together to co-ordinate, manage and control the elements of an organisation and focus attention towards particular objectives and activities that support organisational strategy.

Question 2

the elements of an organisation

Answer 2

Resources
People
Activities

Question 3

Types of work units 8/3

Answer 3

“I’m still a believer but I don’t know why / I’ve never been a natural / All I do is try, try, try”

Question 4

Work units are:

Answer 4

Groups of individuals who perform specific tasks or functions
Can be small (a team) or large (a business)
Are supervised by a manager

Question 5

Functional work units

Answer 5

Focus of work unit is on a specific function

Question 6

Business (Market-based) work units

Answer 6

Focus of work unit is a specific market

Defined by either geography, customer or product

Question 7

Matrix Structures (complex market-based work units)
 8/3

Answer 7

“But she wears short skirts / I wear T-shirts / She’s cheer captain / And I’m on the bleachers”

Question 8

Hybrid example: Front-End/Back-End

8/3

Answer 8

“They told me all of my cages were mental / So I got wasted like all my potential”

Question 9

When are functional structures appropriate?

Answer 9

Common technologies for all products

Standardised products

Managers are functionally skilled

When efficiency in undertaking value chain functions is a KSF

Question 10

When are market-based structures appropriate?

Answer 10

Diversity of product lines
Diversity in product technologies
Dissimilar markets
Capable managers
When market responsiveness to customers is a KSF

Question 11

Business strategy and organisational structure

Answer 11

Each type of work unit has its own benefits and limitations. These benefits/limitations allow different means of competitive advantage to be matched to different work unit types. When interdependencies between work units are important, horizontal information flows are important A well designed structure should provide incentives to share information with other divisions or work units. Fosters collaboration and avoids silo mentality.

Question 12

Benefits of market-based responsibility centres

Answer 12

Co-ordination of value chain activities is easier. Most/all activities are within one work unit

Managers tend to become more widely trained
Breadth of skills

Employees are dedicated to one product/line/service
Understand customer needs

Therefore responsiveness to customers is enhanced

Question 13

Limitations of market-based work units

Answer 13

Duplication of non-production staff
Each business unit has marketing/production function etc.

Functional economies of scale are limited

Management of work unit becomes more complex
If managers don’t have a breadth of knowledge/skills -
Information asymmetry may occur between work unit manager and employees (within the same work unit)

Can encourage competition between work units
Each are a “Mini Business” effecting a “Silo mentality”

Question 14

Benefits of functional work units

Answer 14

Limits attention to one function
focused performance objectives

All employees specialise in one function
Allows employees develop expertise

Manager is able to supervise/teach all employees
All have similar skills

Economies of scale

Therefore efficiency of the function is enhanced

Question 15

Limitations of functional work units

Answer 15

Functions of the value chain are separated
Co-ordination/integration of independent functions can be difficult for organisation s to achieve

Information flows/communication (vertically) are often restricted

Focus is often on efficiencies of operations at the expense of
creativity and learning,
customer value,
customer responsiveness

Performance measurement is problematic
How do you measure the contribution of a “marketing” function?

Not as suitable for firms with diversified products/services

Question 16

A Decentralised Organisational Structure

Answer 16

Decentralisation refers to the way decision-making is delegated to responsibility centre managers and employees. The distinction between centralised and decentralised organisations depends on the degree of decision-making power/delegation within responsibility centres

Question 17

Centralised v decentralised

Answer 17

Centralised firms
Little delegation of decision-making to lower management.
Small organisations may not necessarily have sub-units.

Decentralised firms
Work units are generally necessary.
Work unit managers have decision making power.

Question 18

Why do firms decentralise?

Answer 18

Essentially, organisations become too large. Information flows become too complex. Co-ordination of people, resources, activities becomes more complex. Specialist knowledge/skills become critical to quality decision making and therefore organisational success. Therefore effective and timely decisions cannot be made centrally.

Question 19

Potential benefits of delegating decisions to lower management (decentralising)

Answer 19

Improves decision-making timeliness

Improves access to relevant decision information

Provides opportunities to gain experiences and skills

Empowers employees

Tends to improve managerial motivation

Question 20

Decision making and decentralisation

Answer 20

In a centralised organisation, decision making authority and responsibility resides with top management. In a decentralised organisation, decision making authority and responsibility is given to lower levels of management. Usually, top management has general knowledge about the operations of business segments. However, decision making often requires specific knowledge which is more likely to reside with business segment managers

Question 21

Decentralisation Potential problems

Answer 21

Communication of strategic objectives may be difficult

Control over decision-making may be problematic
Information asymmetry

Lack of goal congruence

Performance measurement and evaluation difficult

The role of an MAS is to provide information to minimise these problems

Question 22

Requirements for successful decentralisation

Answer 22

Clear identification and communication of boundaries of responsibility between work units and managers.

Ability to measure accurately the performance of individual work units.

Limitations on the interference of central management in local decision making

Question 23

The MAS supports the establishment of these requirements through:

Answer 23

Development of Responsibility Centres

Use of Responsibility Accounting

Question 24

Responsibility centres

Answer 24

Responsibility centres are decentralised sub-units or work units in which managers are accountable for specific types of operating activities. They are important part of management control. Activities and performance should be clearly defined. Activities and performance should be limited. Managers should have decision-making power over activities and performance for which he/she is responsible.

Question 25

Responsibility accounting

Answer 25

Responsibility accounting assigns authority and responsibility to managers of sub-units and then measuring and evaluating their performance

Question 26

Performance measurement in decentralised units 8/3

Answer 26

“You held your pride like you should have held me”

Question 27

Types of Responsibility Centres

Answer 27

Cost centre
Two types
Engineered or
Discretionary

Revenue centre

Profit centre

Investment centre

Question 28

Cost centres

Answer 28

Manager is responsible for costs associated with work unit responsibility centre. Cost centres tend to be functional work units. Two types of cost centres
Engineered
Discretionary

Question 29

Engineered cost centres Examples

Answer 29

Manufacturing units, some data entry and administration units

Question 30

Engineered cost centres characteristics

Answer 30

Input /output relationships are well understood
optimal amount of input required to produce one unit of output can be determined

Once desired output is known, inputs can be determined

Performance measurement is relatively easy
Use of standards, flexible budgets, variance analysis

Question 31

Discretionary costs centres examples

Answer 31

R & D, Marketing, Staff Training

Question 32

Discretionary costs centres characteristics

Answer 32

Difficult to measure output – it’s often qualitative

Even if outputs can be measured, the input-output relationship is difficult to observe
Sometimes a lag between inputs and outputs

Costs incurred are often caused by management discretion

Question 33

Performance measurement and control in discretionary cost centres is difficult

Answer 33

No standards can be determined

Input-output relationships cannot be identified

No “optimal” level of expenditure can be determined

Performance evaluation requires judgement
Qualitative measures

Question 34

Profit centres

Answer 34

Managers given control of both inputs (costs) and outputs (revenue). Manager evaluated in terms of effectiveness in controlling costs and revenues. Often used in business work units. Performance measures tend to be quantitative

Question 35

Investment centres

Answer 35

Managers of investment centres are held responsible for the revenues, costs and investments under their control. Because investment centres include revenues, costs and investment, performance measures need to address all of these factors. Objectives emphasise generation of profit, for a given level of assets– i.e. profitability, not just profit is important.

Question 36

Most common performance measures for investment centres

Answer 36

ROI or ROA
Residual income
Economic Value Added (EVA)

Question 37

Choice of types of responsibility centres depends on:

Answer 37

size of organisation
nature of organisation
organisational structure.

Question 38

Functional work units tend to be?

Answer 38

Cost or revenue centres
Production department
Sales department

Question 39

Business (market-based) work units tend to be?

Answer 39

Profit or investment centres

“mini businesses”

Question 40

Responsibility centre and management control

Answer 40

Ideally, responsibility centres should reduce agency costs by holding managers accountable for their decisions. However, responsibility centre accounting may lead to suboptimal decision making because managers act in their own best interests rather than for the entity as a whole. To address agency problems, appropriate performance measures and reward systems must be implemented

Question 41

Influencing behaviour

Answer 41

Organisational structure directly provides a form of management control as it determines a manager’s Span of control, Span of accountability and Span of attention. These “spans” define a manager’s role and behaviours These “spans” influence individual behaviour by providing direction for behaviour and decision-making

Question 42

Controlling management actions

8/3

Answer 42

“Time won’t fly, it’s like I’m paralyzed by it / I’d like to be my old self again, but I’m still trying to find it / After plaid shirt days and nights when you made me your own / Now you mail back my things and I walk home alone”