Business Organisation, Structure and Strategy

Syllabus Guide Detailed Outcomes

Having studied this chapter you will be able to: Understand the essence of good corporate governance. Appreciate why corporate governance and social responsibility have grown in significance. Understand the role of directors in corporate governance.

Exam Context
Business organisation, structure and strategy is an issue for all organisations both public and private sector. So despite the 1 question allocated to this area it is still a very important aspect of understanding business and has relevance throughout the course.

Business Context
By understanding structure we have a better idea of the like implications on motivation, contingency planning and development of staff.

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5: BUSINESS ORGANISATION, STRUCTURE AND STRATEGY

Overview

Business, structure and strategy

Anthonys hierarchy The Informal organisation

Structural forms

Mintzberg

Scalar chain & Span of control Flexibility

Centralisation v decentralisation

Shamrock

Types

Entrepreneurial

Functional

Matrix

Divisional

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1
1.1

Informal Organisation
An informal organisation always exists alongside the formal one. This consists of social relationships, informal communication networks, behavioural norms and power/influence structures, all of which may 'by-pass' formal organisational arrangements. This may be detrimental or beneficial to the organisation, depending how it is managed. Benefits of the informal organisation

1.2

Employee commitment. Knowledge sharing. Speed Responsiveness. Co-operation.

1.3

Managerial problems of informal organisation

Cutting corners Not acting in a goal congruent manner Time consuming Informal information may lack accuracy Danger of Cliques forming, de-motivating those not in the group

1.4

Managers can minimise problems by:

Meeting as many employee needs through the formal organisation Using the informal, charismatic leaders to motivate workers Managers working as part of the informal organisation

2
2.1

Organisational structure
Henry Mintzberg believes that all organisations can be analysed into five components, according to how they relate to the work of the organisation and how they prefer to coordinate.

Strategic Apex

Technostructure

Support Staff

Middle Line
Operating Core

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5: BUSINESS ORGANISATION, STRUCTURE AND STRATEGY (a) (b) (c) Strategic apex Drives the direction of the business through control over decision-making. Technostructure Drives efficiency through rules and procedures. Operating core Performs the routine activities of the organisation in a proficient and standardised manner. Middle line Performs the management functions of control over resources, processes and business areas. Support staff Provide expertise and service to the organisation.

(d)

(e)

2.2

Note that the Strategic apex, Middle line and Operating core make up the basic triangle often used to depict an organisations structure.
Group exercise

Lecture example 1
Required Match the following staff/departments to one of Mintzberg's five components. (a) Manager of a retail outlet supervising 40 staff. (b) A salesman responsible for twenty corporate accounts. (c) The owner of a start-up internet company employing two staff. (d) The HR department which provides assistance to business managers. (e) The IT department seeking to harmonise internal systems.

Solution
Write solution next to question above

3
3.1

Organisational structures
Entrepreneurial A fluid structure with little or no formality. Suitable for small start-up companies, the activities and decisions are dominated by a key central figure (the owner/entrepreneur).

There are 4 structures: Entrepreneurial, Functional, Matrix and Divisional.

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Owner and manager (eg a small decorators)

plasterer

painter

electrician

3.2

Functional This structure is created via separate departments or 'functions'. Employees are grouped by specialism, and departmental targets will be set. Formal communication systems will be set up to ensure information is shared.

Board of directors Sales team

3.3 Matrix A matrix organisation crosses a functional with a product/customer/project structure.
Production Dept Area Manager A Area Manager B Area Manager C Sales Dept Finance Dept Distribution Dept R&D Dept Marketing Dept

Marketing function

Finance department

This structure was created to bring flexibility to organisations geared towards project work or customer-specific jobs. Staff may be employed within a hierarchy or within specific functions but will be slotted into different teams or tasks where their skill is most needed. The matrix structure is built upon the principles of flexibility and dual authority.

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Lecture example 2
Required Identify two advantages and two disadvantages of each structure.

Class discussion

Solution
Advantages Entrepreneurial Disadvantages

Functional

Matrix

4
4.1

Divisional structures
When organisations reach a certain size it may be appropriate to structure it into divisions or 'semi-autonomous' blocks. These divisions may focus on a particular geographic area or a particular product.

Board of directors or holding company

UK division or soup division US division or sauces division China division or beans division

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Lecture example 3
Required Which structure would suit these companies? (a) (b) (c) (d) A family run restaurant with 10 staff. A small manufacturing company with 250 staff. Johnson and Johnson who have 197 strategic business units. BPP Professional Education

Group discussion

Solution
Write answer next to question above

Role of head office in divisions

4.2 Divisions will normally report to head office on a range of performance-related matters. The level of autonomy given to divisional heads is dependant on the level of centralisation required. Centralised organisations retain much of the power and decision-making at head office. Decentralised organisations delegate more business decisions to divisional heads.

4.3

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Lecture example 4
Required Suggest two benefits and two drawbacks of both centralisation and decentralisation.

Group exercise

Solution
Benefits Centralised Drawbacks

Decentralised

5
5.1 5.2

Flexibility in modern organisations

Modern management writers such as Charles Handy and Tom Peters rate flexibility as a key critical success factor for competitive organisations today. Flexibility can be achieved by: (a) (b) (c) (d) (e) (f) Flat structures Output focused structures Delayering Outsourcing Flexible working conditions/patterns Information technology
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5: BUSINESS ORGANISATION, STRUCTURE AND STRATEGY 5.3 Handys 'Shamrock' organisation to encourage flexibility:

Professional Core Self employed specialists (paid for results) Contingent workforce (paid by their time)

5.4

A fourth element of organisations today is the consumer who may do part of the work themselves. This is evidenced in supermarkets where we can now checkout ourselves or at IKEA where you are the one who has to arrange delivery (on the majority of their products) to its destination

6
6.1

Anthony's hierarchy
Robert Anthony classified management activities into three categories

6.2

Strategic Tactical Operational 6.3 Each level of the organisation differs in terms of: (a) (b) (c) (d) The role/tasks performed The decisions taken The nature of the working environment The nature of the information required (see chapter 2).

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7
7.1 7.2

Structural forms for organisations

Scalar chain and span of control
As organisations grow in size and scope, different organisational structures may be suitable. The Scalar chain and Span of control determine the basic shape. The scalar chain relates to levels in the organisation, and the span of control the number of employees managed. Tall organisations have a: (a) (b) (c) Long scalar chain (via layers of management) Hierarchy Narrow span of control. Flat organisations have a: (a) (b) Short scalar chain (less layers) Wide span of control.

7.3

MD Divisional directors Department managers Section managers Supervisors Charge hands Workers Tall

MD Department managers Supervisors Workers Flat

Class discussion

Lecture example 5
Required

Identify factors which may contribute to the length of the chain and the span of control.

Solution

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Chapter summary
Section 1 Topic What is the informal organisation and what are the benefits and drawbacks Structural forms Summary Consider the informal organisation, what is the informal organisation and what are the advantages and disadvantages of such a group. How can managers deal effectively with this set up Structural forms include hierarchical and matrix structures. Henry Mintzberg described organisational forms that show the elements of the organisation including strategic apex, middle line, operating core, technostructure and support staff. Charles Handy described flexible firms that have a smaller core of permanent staff and make use of peripheral workers on a more casual basis. Robert Anthony defined the organisation into three levels which are strategy, tactics and operations. The different departments and functions that exist in many organisations include marketing, finance, purchasing and operations. Many organisations operate at a detailed level and/or make decisions and drive policy through committees.

3 4

Business hierarchy Departments and functions

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Overview

Business, structure and strategy

Anthonys hierarchy The informal Organisation

Advantages vs disadvantages

Strategic Tactical Operational Structural forms

Mintzberg
Strategic Apex Technostructure Operating core Middle line Support staff

Scalar chain & Span of control Flexibility

downsizing outsourcing delayering

Centralisation v decentralisation

Shamrock
core specialist contingent and now Customer

Types

Entrepreneurial

Functional

Matrix

Divisional

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