ACA BTF 3.1 - Organisational and business structures

What is an organisational structure

Formed by the grouping of people into departments of sections and the allocation of responsibility and authority

Organisational structure is a framework intended to

Link individuals in an established network of relationships for control

Allocate the tasks to be done

Give each individual the authority required to perform the allocated task

Co-ordinate the objectives and activities of separate groups

What did Mintzberg suggest

All businesses can be analysed into six building blocks

1. Operating core
2. Middle line
3. Strategic apex
4. Support staff
5. Technostructure
6. Ideology

What is operating core

People directly involved in the process of obtaining inputs and converting them into outputs e.g. direct operational staff

What is the middle line

Conveys the goals set by the strategic apex and controls the work of the operating core in pursuits of those goals i.e. middle and first line managers

Explain strategic apex

Ensures the organisation follows its missions

Manages the organisations relationship with the environment. Top managers

Explain support staff

Ancillary services such as PR, legal consul, support staff do not plan or standardise operations

They function independently of the operating core

Explain technostructure

Analysts determine and standardise work processes and techniques

Planners determine and standardise outputs e.g. must achieve a specified level of quality

Explain Ideology

Values, beliefs and traditions i.e. the business culture

What is the basic principles of organisational structure

Basic theories state that organisations are based on management hierarchy

- Division of work
- Scalar chain
- Correspondence of authority and responsibility
- Appropriate centralisation
- Unit of command
- Use of direction
- Equity

What is the division of work

Work should be divided and allocated rationally. based on specialisation

Scalar chain

Authority should flow vertically down a clear chain of command from highest to lower rank

Correspondence of authority and responsibility

The holders of an office should have enough authority to carry out the responsibilities assigned to them

Appropriate centralisation

Decisions should be taken at the top of the organisation where appropriate

Unity of command (for people)

For any action, a subordinate should receive orders from one boss only

Unit of direction (for the organisation)

There should be one head and one plan for each activity

Equity

Organisational policies should be just

Modern management theorists emphasise values such as

Multi skilling - More than a particular role

Flexibility :
- Smaller, multi skilled, temporary structures such as project teams
- Multi functional units (matrix organisation). Blurs the principle of 'unit of command' , one boss for work and one for work
- Flexible development's of the labour resource

What are the two main methods of communicating the structure of the business

Organisation chart

Job description

Advantages and disadvantages of organisational chart

Advantages :
- Need to analyse organisational detail
- Provides an at a glance information
- Highlights formal relationships

Disadvantages :
- Frequent update as people leave
- Informal relationships not shown
- May imply managers at the same level are equally important
- May encourage bureaucracy

Explain job description

- A result of 'job analysis'
- Includes responsibilities, authority and work involved

Typical descriptions :
- Job title
- Department
- Level
- Duties and responsibilities
- Limits of authority
- Superiors and subordinates

Name the types of organisations

Simple structure

Machine bureaucracy

Professional bureaucracy

Divisionalised

Adhocracy / innovative

Name the characteristics of a simple structure (small entrepreneur)

External environment - Simple and dynamic

Internal factors - Young, small and simple tasks

Key building blocks - Strategic apex

Key coordinating mechanism - Direct supervision

Typical structure - Entrepreneurial

Name the characteristics of machine bureaucracy (Civil service or bank)

External environment - Simple and static

Internal factors - Large, old and regulated

Key building blocks - Technostructure

Key coordinating mechanism - Standardisation of work

Typical structure - Functional

Name the characteristics of professional bureaucracy (Hospitals or education providers)

External environment - Complex and static

Internal factors - Professional and simple systems

Key building blocks - Operating core

Key coordinating mechanism - Standardisation of skills

Typical structure -

Name the characteristics of Divisionalised (Chains)

External environment - Simple, static and diverse

Internal factors - Very large, old and divisible tasks

Key building blocks - Middle line

Key coordinating mechanism - Standardisation of outputs

Typical structure - Divisional

Name the characteristics of adhocracy / innovative (Consultancy firms e.g. film company)

External environment - Complex and dynamic

Internal factors - Young and complex tasks

Key building blocks - Operating core

Key coordinating mechanism - Mutual adjustment

Typical structure - Matrix

Advantage's and disadvantages of simple structure

Advantages :
- Quick decisions can be made with skill and flair
- Goal congruence (the entrepreneurs objectives are perused exclusively)
- Flexible/adaptable to change

Disadvantages :
- Cannot expand beyond a certain size
- Cannot easily cope with diversification into new products / services
- Lack of career structure for low level employees
- May be too centralised

Advantages and disadvantages of functional structure

To note - It is possible that the entrepreneur will want to develop their business and develop a functional structure

Advantages :
- Good career oppurtunities, employees can progress up the ranks
- Can be efficient as functional tasks are well known and understood by individuals
- Exploits specialist functional skills

Disadvantages :
- Structure is very rigid thus unsuitable for growth and diversification
- Tendency towards authoritative non participative management style as clear levels of authority are enforced
- Poor decisions / slow decisions as have to pass down line of authority
- Functional heads may build empires and inter functional disputes may result

What is divisionalisation as an organisational structure

The division of a business into autonomous regions , geographic or product businesses, each with its own revenue, expenditure, capital assets and therefore its own profit responsibility

Advantages and disadvantages of divisionalisation

To note - Each division must have properly delegated authority and large enough to support the quantity and quality of management

Advantages :
- Flexible in adapting to growth
- Good development for managers
- Reduces the number of levels of management
- Encourages greater team efficiency

Disadvantages :
- Squabbles over allocation of central costs can occur
- Interdivisional trading problems
- It may be impossible to identify completely independent products of markets for which separate divisions can be set up

Features of a matrix structure

Derives from the functional structure

- Formalises vertical and lateral lines of communication
- Managers appointed for projects
- Suitable for complex / high tech industries

Advantages and disadvantages of a matric structure

Advantages :
- Reflects importance of project or customer so may improve relationships and sales
- Business co ordinated with regard to technology, information etc

Disadvantages
- Conflicting demands on staff time
- Conflicting demands over allocation of other resources
- Dilution of authority of functional heads

What is a centralised organisational

One in which decision making authority is concentrated in one place, that is the strategic apex

Factors affecting the amount of decentralised

1. Leadership style - Trust
2. Size of organisation - Too big to centralise
3. Activity diversification - Keep on top of so many activities
4. Effectiveness of communication - Speed / clarity
5. Ability of management - Experience / trust
6. Technological advancement - could miss opportunities`
7. Geography of locations - Countries operating in
8. Local knowledge needed

Reasons for centralisation

- Decisions are made at one point so easier to co ordinate
- Senior managers can take a wider view of problems
- Senior managers keep control
- Quality of decisions is better due to managers experience
- Possibly cheaper by having less managers
- Crisis decisions taken more quickly

Reasons for decentralisation (delegation of authority)

- Avoids over burning managers
- Improves motivation of junior managers as more responsibilities
- Greater awareness of decision makers and local problems
- Greater speed in decision making and response to changing events
- Helps develops skills of junior managers

Span of control

The number of subordinates reporting to one person

The classical theorist Urwich held that

- There needs to be tight managerial control from top of business

- The span of control should therefore be restricted usually 3 to 6 subordinates

- If the span of control is too wide, managers time will be taken up

- If the span of control is too narrow the manager may fail to delegate

Scalar chain definition

The chain of command from the most senior to the most junior

What is a tall business

One which, in relation to its size, has a large number of levels in its management hierarchy, normally because narrow spans of control

What is flat business

One which, in relation to its size, has a small number of hierarchical levels, normally because there are wide spans of control

Advantages and disadvantages of a tall business

Advantages :
- Narrow spans of control
- Small groups enable participation
- Assists management training and career planning

Disadvantages :
- Inhibits delegation
- Rigid supervision blocks initiative
- Same work may pass through to many workers
- Increases administration and overhead costs
- Slow decision making and response

Advantages and disadvantages for a flat business

Advantages
- More opportunity for delegation
- Relatively cheap
- In theory, speeds to communication

Disadvantages
- Requires that jobs can be delegated
- Managers may only get a superficial idea of what goes on
- Sacrifices control
- Middle managers are often necessary to convert the grand vision of the strategic apex into operational terms

What are mechanistic organisations

Stable, efficient and suitable for slow changing operating environments (mechanistic business or bureaucracies)

What are organic structures

Flexible, adaptive and suitable for fast changing or dynamic operating environments (organic business)

Define Beureaucracy

A continuous organisation of official functions bound by rules

Continuous organisations

The business does not disappear if people leave, people fill their shows

Official function's

The business is divided into areas e.g. operations, marketing with specialised duties

Authority to carry them out is given to the managers

Defines rules

A rule defines and specifies a course of action that must be taken under given circumstances

State the characteristics of bureaucracy

1. Hierarchy of roles
2. Specialisation and training
3. Professional nature of employment
4. Impersonal nature
5. Rationality
6. Uniformity in the performance of tasks
7. Technical competence
8. Stability

Explain hierarchy of roles

Each lower office is under the control and supervision of a higher one

Explain specialisation and training

There is a high degree of specialisation of labour

Explain professional nature of employment

Managers are employees - Promotion is according to seniority and achievement, pay scales are prescribed according to the position or office held in an organisation

Explain Impersonal nature

Employees work within impersonal rules and regulations and act accordingly to formal, impersonal procedures

Explain rationality

The hierarchy of authority and office structure is clearly defined. Duties are established and measures of performance set

Explain uniformity in the performance of tasks

Procedures ensure that, regardless of who carries out tasks, they should be executed in the same way

Explain technical competence

All managers are technically competent

Their competence within the area of their expertise is rarely questioned

Explain stability

The business rarely changes in response to environmental pressures

Advantages and disadvantages of bureaucracy

Advantages :
- Ideal for standardised, routine tasks
- Can be very efficient
- Rigid adherences to procedures may be necessary for fairness, adherence to the law
- Some people are suited to the structured predictable environment

Disadvantages :
- Slow decision making
- Uniformity creates conformity
- The y suppress innovation
- Slow to change

Organisation structures have their own control mechanisms

State them

Status

Commitment

Shared values and cultured

Explain status as a control mechanism

Although organic businesses are not hierarchical in the way that bureaucracies are, there are distances of status, determined by peoples greater expertise, experience and so forth

Explain commitment

The degree of commitment employees have to the goals of the business and the team is more extensive in organic than in mechanistic systems

Explain shared values and culture

Hierarchical control is replaced by the development of shared beliefs and values.

In other words, corporate culture becomes a powerful guide to behaviour