Organisational Structure & Governance

AAT Level 3

Organisational Structure

The way in which work is divided and allocated. It outlines roles and responsibilities.

Entrepreneurial Structure

• Structure built around the owner manager

• Typical of small businesses or businesses in the early level of development

• Typically one level of authority

• No decentralisation

• Very little specialisation of tasks

Entrepreneurial Structure - Advantages

• Fast decision making - only one person making decisions

• More responsive to market

• Goal congruence is better as entrepreneur has more control

• Close bond to workforce - enhances motivation, staff retention and loyalty.

Entrepreneurial Structure - Disadvantages

• Lack of career structure due to small size of company

• Dependent on the capabilities of manager or owner - entrepreneur must multitask

• Cannot cope with diversification or growth

Functional/Departmental Structure

Work and employees are divided by specialisation.Often found in organisations that have outgrown an entrepreneurial structure.

Functional/Departmental Structure - Advantages

• Similar activities are grouped together. Leading to lower costs, standardisation of output, similar skills are grouped together.

• Career path for employees available

• Increased use of specialists

Functional/Departmental Structure - Disadvantages

• Managers may try to make decisions to increase their own power or for their best interests, rather than the best interests of the company

• Due to longer chain of command decisions are made more slowly

• Not suited to a structure that is rapidly growing and diversifying - lack of adaptability

Divisional - Product Structure

• Organisation is split into several divisions each one overseeing a product

• Each division is likely to also have a functional structure

• Divisions are likely to be run as profit centers, with their own revenues, expenditures and capital.

• Each division is separately identifiable part of the overall organisations, often referred to as a Strategic Business Unit (SBU)

Divisional Structures - Advantages

• A divisional structure makes it easier to grow into new markets or products

• Clear responsibility for products/divisions

• Better strategic planning - top management can spend more time on strategic matters than day to day operations

• Better performance appraisal

Divisional Structures - Disadvantages

• Potential loss of control - divisions operate as mini organisations central management can lose some control

• Lack of goal congruence

• Duplication of activities

• Specialists may feel isolated

• Allocation of central costs may be recharged to other divisions, affecting profitability

Divisional - Geographic Structure

Involves divisions covering a specific location.

Matrix Structure

• A combination of functional and divisional structures

• Common in heavily project driven organisations

• Requires dual reporting to two different managers

Matrix Structure - Advantages

• Flexibility

• Customer Orientation - bespoke products and services

• Encourages teamwork and exchange of opinions and expertise

Matrix Structure- Disadvantages

• Dual command and conflict

• Extra Administration - more detailed planning and time consuming meetings- increases costs

• Dilution of functional authority - focused on needs of product manager rather than functional manager

Span of Control

Number of people for whom a manager is directly responsible. Factors influencing control include:

• Nature of the work

• Type of personnel

• Location of personnel

Tall Organisation

Many levels of management and a narrow span of control. Tend to be more bureaucratic and take longer to make decisions.

Flat Organisation

Few levels of management and a wide span of control. Have weaker control and fewer chances for employees to be promoted.

Governance

Refers to authority structures, processes and rules.

Key components:

• Ensuring the right people have authority

• Ensuring structures supports and enhances decision making process

• Rules and controls which govern limits to authority and decision making

Commercial Governance

Ensuring the organisation can meet its commercial goals for example growing market share and developing new products

Governance - Decisions

• Specialisation

• Standardisation

• Formalisation

• Centralisation

• Chain of Command

• Span of Control

Financial Governance

Focuses on the financial viability of the organisation, ensures financial performance and risks of the organisation meets the expectations of stakeholders.

Regulatory and Legal Governance

Focuses on ensuring the organisation complies with necessary regulation

Corporate Governance

Applies to organisations that have a high level of public interest

Centralised Structure

Upper level of an organisations hierarchy retain authority to make decisions

Decentralised Structure

Authority to take decisions is passed down to units at lower levels

Decentralisation - Factors

• Management Style

• Ability of management/employees

• Geographic Spread

• Size of organisation

• Predictability of the Environment

Decentralisation - Advantages

• Senior management are freed up

• Decision making can be improved with local knowledge

• Decision making is quicker due to the smaller chain of command

• Decision making managers have more authority which can increase motivation

Decentralisation - Disadvantages

• Loss of control by senior management

• Potential for poor decisions to be made due to inexperience

• Managers may make decisions that are best for their area of authority

• Extra training for local managers to be involved in decision making

• Process is slower and more expensive

Strategic Planning

Making long term decisions for the entire organisation.

Tactical Planning

Tends to look at plans for specific divisions or departments and specifies how to use resources, compete with rivals and achieve organisational goals.

Operational Planning

Short term, detailed and practical such as considering staff delegation, operational hours and materials.

Hierarchy of Management

Each level of management within the hierarchy takes responsibility for different types of decisions.

Entrepreneurial Structure - Specialisation

Leader/entrepreneur would make most decisions and staff will not be departmentalised or expected to have specialist skills

Entrepreneurial Structure - Standardisation

Activity levels will be low and processes and rules will constantly evolve

Entrepreneurial Structure - Formalisation

Work will be performed on an ad hoc basis, lack of standardisation means a lack of formalisation

Entrepreneurial Structure - Centralisation

All decisions will be centralised around the entrepreneur

Entrepreneurial Structure - Chain of Command

Flat structure, very few levels of authority

Entrepreneurial Structure - Span of Control

Wide span of control, entrepreneur will manage the staff

Divisional Structure - Specialisation

Specialist staff dedicated to particular tasks

Divisional Structure - Standardisation

Tasks will be standardised to ensure units or services provide consistency

Divisional Structure - Formalisation

All work must be recorded and all tasks must be performed in accordance with rules and procedures

Divisional Structure - Centralisation

Too many decisions for central management and they will want to benefit from knowledge of local management.

Divisional Structure - Chain of command

Tall structure, many levels of authority and a clear career path for staff

Divisional Structure - Span of Control

Narrow span of control, staff work in smaller teams dedicated to particular tasks or customers