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Definition:
the way in which management is organised, both horizontally (layers of
hierarchy) and vertically (by function, operation or matrix).
Entrepreneurial Structure (Small Businesses)
1 or 2 people
at the top making decisions.
This reflects
the authority the entrepreneur has control over all aspects of the business
and its employees. This kind of
structure will usually encourage delegation and empowerment.
Appropriate
- where
quick decision making is needed with an element of skill and flair
Problems
- as
an organisation gets bigger it becomes difficult for the entrepreneur to
maintain direct authority over all employees and a change in structure is
necessary.
A Functional Structure (Bureaucratic Structure)
The traditional
approach was to divide an organisation into functional areas such as
marketing, production and finance. Each
has many layers of hierarchy to reflect the distribution of responsibility
and authority.
Features
·
specialisation between
job and department, e.g., finance and marketing.
·
reliance upon formal
procedures and paperwork (co-ordination.
·
clearly marked
authority distinctions within the hierarchy and lines of authority.
Appropriate
- to
single product firms or firms producing a clearly related group of
products.
Problems
- it
can be inflexible as there’s an inability to change and meet new
demands, e.g., IBM had a functional structure with a strict distinction
between areas such as marketing and research and development until 1988.
It was believed that this structure led to delays of up to two
years in the introduction of new models and this caused IBM’s profits to
fall after 1984. IBM has now
split up its product range into divisions, each with their own production,
marketing etc. staff.
Structure by Product (Divisional Structure)
Today many
companies have reduced the number of management layers and have re-organised
away from functional structure towards a divisional structure.
Within each division marketing, production and other staff would work
together on the same projects.
or
e.g.
Features
- each
division is self contained and operates as a profit centre (a firm within
a firm).
- within
each division the functional structures tends to be adopted.
Advantages
- allows
individuals to specialise and gain expertise in specific products and
markets.
- allows
a large company to operate as several smaller ones, each with greater
identity and autonomy, thus facilitating rapid decision making and
unambiguous performance measurement.
- greater
flexibility for growth and expansion (additional profit centres can be
grafted onto the organisation).
Disadvantages
- conflict
between divisions, e.g., allocation of fixed costs and machines, setting
of budgets and availability of finance)
- there
can be higher costs as activities such as marketing will be replicated in
different divisions.
- difficult
to co-ordinate if divisions grow too large.
The Systems Approach to the Design of Organisations
This structure
regards organisations as groups of inter-relating elements that require
co-ordination and information to turn a wide range of inputs into a variety
of outputs. This approach
acknowledges the dynamic nature of business and recognises that static
organisational structures are at times wholly inadequate for decision making.
Example: The Matrix Structure
The matrix
approach involves organising the management of a task along lines that cross
normal departmental boundaries, e.g., a new product development team might be
formed from an engineer, a research chemist, a marketing manager and a
designer. This means that each
team member can end up with two bosses; the departmental bosses and the
project leader. Once the project
has been finished the team will usually be disbanded, with the individual
members being drafted into other teams or absorbed back into the
organisations skeleton structure.
In the matrix
individuals have two or more superiors, e.g., a sales manager will report to
the marketing director and the product manager
Advantages
- ensures
the project is better co-ordinated than with four or five departments
contributing occasionally.
- if
many different project teams are organised, it gives more people an
opportunity to use their ability.
Disadvantages
- individuals
may suffer if both bosses make heavy demands on them.
- there
is a failure to provide the clear line of accountability present when
everyone has only one boss.
Factors Influencing Organisational Structures
- Size.
As a business grows it is unlikely to move away from an
organisational structure to one where authority is passed to other
employees. A large firm will
tend to have a longer chain of command with more levels of hierarchy.
- Views
of the owner or leadership style.
If
owners wish to retain control in the business, they will want a narrow
span of control. Owners or
managers who wish to motivate employees may delegate decision making to
them.
- Business
objectives. If the business
wishes to expand rapidly, perhaps by a merger, it’s likely to find its
span of control gets wider.
- External
factors, e.g., in a period of rising costs or recession, a business may be
forced to reduce its chain of command in order to cut costs.
Similarly in a period of growth a firm may employ extra managers as
specialists in order to gain economies of scale.
- Changes
in technology, e.g., a new information technology system could reduce the
role of administration.
If the Organisational Structure is Wrong
- decision
making can be slow.
- lack
of co-ordination.
- costs
can rise.
- failure
to share ideas.
- motivation
may decrease as people don’t know what is happening or why.
 Further
Reading
Chris
Argyris - Intro
Value
Systems
Immaturity
/ Maturity Theory
Organizational
Design
Chris
Argyris - Intro
Value
Systems
Immaturity
/ Maturity Theory
Organizational
Design
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