Chapter 2 - Organisational Structure

Chapter 2 Organisational Structure

Part 1 Strategic, Tactical and Operational Planning Levels in the Organisation

1.1 Different Types of Structure

1. Entrepreneurial

• Someone who organized a business venture and assume the risk of it.
• It is build around the owner manager
• Small companies in early stages
• Often specialist knowledge of product of service

Advantage

-Fast Decision Making

-More responsive to market

-Goal Congruence

-Good control

-Close bond to workforce

Disadvantage

-Lack of career structure

-Dependant on the capabilities of owner

-Cant cope with growth

2. Functional Structure

• Outgrown the entrepreneurial structure
• Organise business on a functional basis
• Appropriate to small companies

-Few Products and locations

-Exist in relatively stable environment

• Ex: A business making one type of electrical component for use in a car
  manufacturing company.

Advantages

-Economies of scale

-Standardisation

-Specialists more comfortable

-People with similar skills being grouped together and so not feeling isolated

-Career opportunites

-Larger organisation, they can work way up through the function

Disadvantages

-Empire building

-Slow

-Conflicts between functions

-Cannot cope with diversification

3. Product/Division/Department

• Structured with product lines or divisions or departments
• Headed by general managers
• Divisions are seen as profit centers and strategic business units
• Departments are centralized

Advantages
- enables growth
- clear responsibility for products/divisions
- training of general managers
- easily adapted for further diversification
- top management free to concentrate on strategic matters
Disadvantages
- potential loss of control
- lack of goal congruence
- duplication
- specialists may feel isolated
- allocation of central costs can be a problem

4. Geographically structured

• Grouping activities on the basis of location
• Operate over a wide geographic area
• Departments centralized

Advantages
- enables geographic growth
- clear responsibility for areas
- training of general managers
- top management free to concentrate on strategic matters

5. Matrix

• Aims to combine the benefits of decentralisation with those of co-ordination
• Requires employees from various departments to form a group
• Dual reporting to managers

Advantages
- advantages of both functional and divisional structures
- flexibility
- customer orientation
- encourage teamwork and the exchange of opinions and expertise
Disadvantages
- dual command and conflict
- dilution of functional authority
- time-consuming meetings
- higher admin costs

6. Matrix

• A matrix structure aims to combine the benefits of decentralisation with those of co-ordination
• It usually requires employees from various departments to form a group to achieve a specific target
• They require dual reporting to managers

Advantages

-Advantages of both functional and divisional structures

-Flexibility

-Customer orientation

-Encourage teamwork and the exchange of opinions and expertise

Disadvantages

-Dual command and conflict

-Dilution of functional authority

-Time-consuming meetings

-Higher admin costs

1.2 Further aspects of organisational structure

Ownership and management of larger organisations are often separated

-Managers do not have access to sufficient funds, hence rely on banks and the market to provide the investment

This lead to formal organisational structures being set up for an organisation

Scalar Chain

-Defined as the line of authority which can be traced up or down the chain of command, and thus relates to the number of management levels within an organisation

Span of Control

-A manager's span of control is the number of people for whom he/she isdirectly responsible

-Tall Structure - has many managerial levels

-Flat Structure - has few managerial levels

Factors influencing the span of control

-Nature of the work - the more repetitive the work, the wider the span ofcontrol

-Type of personnel - the better managers and personnel are, the wider the span of control

-Location of personnel - the more widely spread the personnel the narrower the span of control

1.3 Centralisation and decentralisation

Method of analysing structures is by reference to the level at which decisions are made

• Centralised Structure - the upper levels of an organisation's hierarchy retain the authority to make decisions
• Decentralised Structure - units and people at the lower levels make decisions
• Factors affecting the amount of decentraliation :

-Management style

-Ability of management/employees

-Locational spread

-Size of the organisation/scale of activities

Advantages

-Senior management free to concentrate on strategy

-Better local decisions due to local expertise

-Better motivation due to increased training and career path

-Quicker responses/flexibility due to smaller chain of command

Disadvantages

-Loss of control by senior management

-Dysfunctional decisions due to a lack of goal congruence

-Poor decisions made by inexperienced managers

-Training costs

-Duplication of roles within the organisation

-Extra costs in obtaining information

1.4 The Informal Organisation and its Relationship with the Formal Organisation

Informal organisations:

• Evolve over time
• Are networks of relationships that exist within an organisation

The reasons for the existence of informal organisations:

• Individuals’ goals may differ from the organisations- employees with the same goals come together
• Personal relationships may arise between individuals
• A group of individuals may share common interests
• Certain members of the organisation may be natural leaders and so lead a group, even though they have no formal managerial place
• Workers find new ways of doing things which save them time

Advantages of informal organisations

• Better motivation
• Better communication

Disadvantages of informal organisations

• Inefficient organisations
• Opposition to change can be intensified
• The “grapevine effect”

1.5 The impact of the informal organisation on the business

Managers need to be aware of the informal structure and ensure that they:

• Adapt the formal structure and merge it with the informal structure
• Take the informal structure into account in decision making
• Maintain a slightly relaxed formal structure to allow the informal structure to survive alongside