5. organizational structure

7/28/2019 5. Organizational Structure

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A. The business organization, itsstake holders and the external

environment

B. Business organization structure,

functions and governance

1. Business organization, structure andstrategy

2. Organizational culture andcommittees

3. Corporate governance and socialresponsibility

Business

organization,

structure and

strategy

ORGANISATIONAL STRUCTURE

The established pattern or relationships

among components or parts of the

organisation Kast and Rosenzweig

Describes the:

lines of authority

communication channels (vertical and horizontal)

reporting lines

StrategyHistory

Ownership

Why DoStructures

Differ?

OrganizationSize

TechnologyObjectivesGeography

EnvironmentGeography

Legal


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Entrepreneurial structure

BOSS

TEAM

Advantages

Fast decision making

More responsive to market

Goal congruence

Good control

Close bond to the workforce

Disadvantages

Lack of career structure

Dependent ant on the

capabilities of manager/owner

Cannot cope with

diversification/ growth

Functional Structure

Advantages

Efficiencies from putting together similar specialties and people with

common skills, knowledge, and orientations

Coordination within functional area (avoids duplication)

In-depth specialization

Economies of scale, standardization and career opportunities

Centralized decision making

Disadvantages

Poor communication and coordination across functional areas

Focus on process and inputs rather than customer and outputs. Slow decision making

Geographical Departmentalization

Advantages

More effective and efficient handling of specific regional issues

that arise

Serve needs of unique geographic markets better

May be cheaper to establish area factories than to service

markets from one location. Such as transportation costs

Disadvantages

Duplication of functions

Can feel isolated from other organizational areas

Inconsistency in methods or standards may develop across

different areas

Product Structures

+ Allows specialization in particular products and services

+ Managers can become experts in their industry

+ Accountability

+ Closer to customers

Duplication of functions

Limited view of organizational goals

Different product divisions may fail to share resources and customers


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A Product Organization

Pro-

ductionAcctg.Sales R&D

Pro-

ductionAcctg.Sales R&D

Pro-

ductionAcctgSales R&D

Product

Group 2

Product

Group 1

Product

Group 3

President

Chief

Executive

Officer

Customer Departmentalization

+ Customers needs and problems can be met by specialists

- Duplication of functions

- Limited view of organizational goals

Divisional Structure

Divisionalization is the division of business in toautonomous regions or product business, each with itsown revenues, expenditures and capital asset purchaseprogrammes, and therefore each with its own profit andloss responsibility.

The Matrix Structure

Cross-Functional

Coordination

Clear

Accountability

Allocation

of Specialists

Dual Chain

of Command


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AMatrix Organization

Project

Gammamanager

Production

supportgroup

Legal

supportgroup

Accounting

supportgroup

Engineering

supportgroup

Project

Beta

manager

Production

support

group

Legal

support

group

Accounting

support

group

Engineering

support

group

Project

Alpha

manager

Production

support

group

Legal

support

group

Accounting

support

group

Engineering

support

group

Production

department

Legal

department

Accounting

department

Engineering

department

Farm Machinery

Division

President

Functional

authority

Project

authority

Emphasis on product (project, process, etc)

and customer orientation

Optimum resource allocation and flexibility.

Close customer contact.

Conflict between managers over allocation of

resources.

Lots of time taken up in meetings and fire-

fighting.

Role conflict/ambiguity due to a lack of unity

of command (Dual command).

Hybrid

Structure


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The shamrock organisation

Core

Professional core and permanent staff of theorganisation who are usually highly trainedindividuals with an in depth knowledge of theorganisation, how it is run and its mainobjectives.

These workers receive good remunerationpackages but in return work hard and arecommitted to the organisation and are

essential to the on-going success of theorganisation.

These are often managers, team leaders,professional staffs, skilled technicians, andskilled employees.

The second group represents the flexible and

casual labor force (referred to as interface

workers),made up of employees who work on

a part time, temporary, seasonal or standby

basis and perform relatively routine tasks and

have little career progression.

They allow the organisation to respond to

variations in demand, for example, many retail

outlets hire temporary sales employees over

the Christmas period


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The third group or leaf consists ofcontractors,

temporary and self employed staff(referred

to as suppliers) who are hired when their

particular skills and specialisms are required

and paid based on results/output, usually in

the forms of fees

A fourth leaf of the shamrock may exist,

consisting ofconsumers who do the work of

the organisation. Examples are shoppers who

bag their own groceries and purchasers of

assemble-it-yourself furniture.

Separation of direction andmanagement

Board sets the direction

Board oversees/monitors management

Management implement/carry out boards

instructions

The bigger the company, the greater the need

for separate boards and management

Role of the board

King Report (South Africa) - role of the board is:

To define the purpose of the company and the

values by which the company will perform its

daily existence and to identify the stakeholders

relevant to the business of the company. Theboard must then develop a strategy combining

all three factors and ensure management

implements that strategy

Role of management

To ensure that objectives (strategic, tactical,

operational, financial and non-financial) as

set by the board of directors, are achieved.

The manager will use resources (e.g. money,

people, material, equipment, information,

time and space) in the most effective andefficient way to achieve the objectives set (by

the board).


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Span of control and Scalar chain Span of control

The number of subordinates directly managed.

Depends on:

Geographical distribution

Ability

Personality

Support

Organizational culture

Scalar chain

Complexity

Scalar chain

Organizations always havea hierarchy of commandand authority.

Fayol referred to thevertical arrangement ofdirect authority andresponsibility as a scalarchain or line of authority.

The length of the chain isthe number of levels ofauthority andresponsibility whichconstitute anorganization's hierarchy,CEO through to cleaners.

Tall organizations

Large number of management levels

Long scalar chain and small span of control.

Typically connected to centralization, formal

rule setting and division of labor (e.g. one

man, one job).

Top-down, command and control structures.


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Flat organizations

Few management levels, shorter scalarchains, wider spans of control.

Typically decentralized and task orientated.

Self-directed, self-managed, multi-disciplinary, cross functional work teamswhere power flows from expertise, notposition.

Customer, problem and opportunityorientated.

Tall versus Flat OrganizationsChief

Executive

ChiefExecutive

Tallhierarchy

Flathierarchy

Relatively widespan of control

Relatively narrow

span of control

Tall Organization

Flat Organization

Span of Control

is simply the

number of

people who can

report to a

single manager

inside of the

hierarchy.

TALL VS. FLAT STRUCTURES

FLAT STUCTURE

Close control

Better coordination

Fewer mistakes due to closesupervision

Good for staff desiringdetailed guidance

As levels in the hierarchyincrease, communication getsdifficult.

More time being taken toimplement decisions.

TALL STRUCTURE

Loose control

Difficulty in coordination

More mistakes due to loosesupervision

Good for staff requiringgreater independence

challenge and responsibility Results in quick

communications, fast decisionmaking but can lead tooverworked managers

Centralization

The practice of minimal delegation of

authority by senior management

Decision-making authority is held at the core

of the company, e.g. at head office.

Tend to be found within tall, bureaucratic

structures or command and control

structures.


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Centralization advantages

Include:

Control over core resources

Coordinated and uniform decision making

Quick reaction to strategic requirements

Uniform, controllable standards

Easier to develop culture

Centralization disadvantages

Include:

Management overload

Local (e.g. not head office) conditions and

requirements may not be fully understood by

central management.

One-size may not fit all

Slower reaction times to local issues

May encourage revolts at local levels

Discourages local initiative

Decentralization

The delegation of the freedom to make

decisions

Concerns the degree to which authority to act

can be dispersed throughout an organisation.

Requires autonomous business units or divisions

and a flat structure management mentality. Advantages and disadvantages are basically the

mirror to centralization

Decentralization

Advantages Disadvantages

Senior management free to

concentrate on strategy

Loss of control by senior

management

Better local decisions due to local

expertise

Poor decisions made by

inexperienced managers

Better motivation due to increased

training and career path

Training costs

Quicker responses/flexibility, due to

smaller chain of command

Duplication of roles within the

organizations

Frees Strategic apex Dysfunctional d ecision making


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Anthonys Triangle

OPERATIONAL

TACTICAL

STRATEGIC

Anthonys hierarchy

Strategic = long-term, external, wholebusiness, PEST, SWOT, Carried out by seniormanagers, 3 to 5 years implications

Tactical = short to medium-term, internal andexternal, divisions, functional, managers andsupervisors, mobilizing resources andinnovating

Operational = short-term, internal, day-to-day,supervisors and workers

The formal and informal organization


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The informal organisation

This organization evolves over time and is a

network of relationships that exist within an

organization

These relationships could be as result of

common interest or friendship

No predefined layout or structure


Formal = company policies, rules, internal

controls and job descriptions.

Informal = reality of day-to-day interactions

between managers and employees.

Together = best way of achieving.

Why it exist?

Personal relationships arise between

individuals

A group of individuals may share common

interests E.g. Football, Politics and so form an

informal organization

Workers find new ways of doing things which

save them time


Advantages include:

Innovation and achievement beyond restrictions

of formal rules

Employee commitment: Higher motivation, job

satisfaction, involvement and ownership

Speed: Better communication

Responsiveness: easy to adapt as directness and

flexibility of such organization helps in times of

rapid environmental changes


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Disadvantages include:

Potential clash between formal and informal ways

Can be used to increase opposition to change

Gossip and rumor can be unproductive

Managers duties to minimize problems

Meeting employees needs as far as possible

via formal organization: providing information,encouragement and social interaction

Exploiting the dynamics of informalorganization

Involving managers themselves in the informalstructure, so that they support informationsharing, the breaking down of unhelpful rulesand so on

5. organizational structure

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