Chapter 9 Strategy and structure Flashcards
1.1 Organisational structure
Organisational structure defines how the various functions of an organisation are arranged. A successful strategy requires the organisation of people and decision making.
Organisational structure includes the organisation of people (types of structure and Mintzberg’s structural configurations) and the organisation of decision making (span of control, centralisation vs decentralisation and mechanistic vs organic).
2.1 Entrepreneurial structure
Structure built around the owner, typical of small companies in early stages of development. The structure is centralised with all key decisions being made by the strategic leader. The advantages are fast decision making, more responsive to market, good control and close bond to workforce. The disadvantages include lack of career structure, may be too centralised and cannot cope with diversification/growth.
2.2 Functional structure
Common in organisations that outgrow the entrepreneurial structure and need to organise the business on a functional basis. Most appropriate to smaller companies with few products and locations and which exist in a relatively stable environment.
The advantages are economies of scale, standardisation/efficiency and specialists more comfortable. The disadvantages are empire building, slow to adapt to market changes, conflicts between functions and cannot cope with diversification.
2.3 Divisionalised structure
Organisation structured in accordance with product lines/brands or divisions. The divisions are likely to be seen as profit centres and may be seen as strategic business units for planning and control purposes. Headed by general managers who enjoy responsibility for their own resources.
The advantages are it enables product growth, clear responsibility and accountability for products and training of general managers. The disadvantages are a potential loss of control, lack of goal congruence, duplication of effort and specialists may feel isolated.
2.4 Divisionalised structure
Divisionalised grouping of activities on the basis of location. Common in organisations that operate over a wide geographic area usually used in sales and production. Advantages include enabling geographic growth, clear responsibility for areas and training of general managers. The disadvantages are the same as for a divisional structure.
2.5 Matrix structure
Aims to combine the benefits of the divisional structure and functional structure. Usually found in multi-product and multi-functional organisations. The advantages include improving cross-functional communication, useful for projects and temporary teams and it enables flexibility and helps staff adapt quickly to new situations.
The disadvantages are dual command (causes conflicts between managers and over individual’s time and commitments), dilution of functional authority and time-consuming meetings.
2.6 Flexible structures
Flexible structures allow firms to adapt to changing circumstances. Network structures can be applied both within and between organisations. Different forms of network structures include:
- Virtual organisations: operating predominantly through electronic communication from employees and third parties
- Hollow organisations: non-essential activities are outsourced, allowing the organisation to hollow out
- Modular organisations: production processes become separate modules and are outsourced to third parties or subsidiaries
Advantages include increased flexibility, reduced premises cost and access to specialist skills. Disadvantages include lack of control and difficult to create a consistent culture within the organisation.
2.7 Handy’s shamrock organisation
Analyses how companies can improve efficiency and cut costs by considering staffing issues more flexibly. Business should focus on a core of vital permanent staff with support from part-time and outsourced staff. The components of the shamrock include:
- Professional core: permanently employed key staff
- Customers: may perform some tasks themselves
- Flexible labour force: temporary and part-time staff used to cover peak demand
- Contractual fringe: outsourced staff performing non-core services/ core services cheaper than the company can do itself
3.1 Mintzberg’s structural configurations
The components include:
- Operating core: basic work of the organisation
- Strategic apex: higher management, overall strategic, long-term planning and control
- Middle line: managers linking between the strategic apex and operating core
- Technostructure: accounts, computer specialists and engineers whose role is to design procedures and standards and expert co-ordination of processes. Can be outsourced
- Support structure: provision of services to the organisation which support operations/production
- Ideology: organisations values and beliefs
3.2 Role of Mintzberg’s components
Mintzberg placed emphasis on the key component (building block) in developing the business and the most likely co-ordinating mechanisms in achieving business development.
- Simple structures: key building block is strategic apex, co-ordinating mechanism is direct supervision
- Bureaucratic structures: key building block is technostructure and co-ordinating mechanism is standardisation of work
- Divisionalised structures: key building block is middle line and co-ordinating mechanism is standardisation of outputs
- Complex structures: key building block is operating core and co-ordinating mechanism is mutual adjustment
Co-ordinating mechanisms include:
- Direct supervision: formal hierarchy is important when control is needed
- Standardisation of work: specified work and procedures and standards are important
- Standardisation of outputs: design and delivery of product/services to specifications
- Mutual adjustment: co-ordination through informal contact is important
4.1 Span of control
Tall organisations have many layers of management, who oversee relatively few subordinates. If spans of control are too narrow, it leads to over-supervision, inefficient management and costly delays in passing information
Flat organisations have few layers of management, who oversee a larger number of subordinates. If spans are too wide, it leads to loss of contact/control and informal sub-groups appear.
4.2 Factors influencing span of control
The following factors will influence the span of control: complexity of work (complex leads to small project teams), degree of change (rapid change = narrow span), management’s ability (capable = wider spans), assistance received by managers, amount of non-supervisory work, level of knowledge and experience of staff (inexperienced is more supervision required), level of cost associated with mistakes, level of danger, physical proximity of subordinates and IT.
5.1 Decentralisation v centralisation
(De)centralisation refers to the degree of autonomy/decision making ability used throughout the organisation.
Pros of decentralisation include senior management free to concentrate on strategy, better local decisions, better motivation, quicker responses and a better career path. Cons include loss of control by senior management, dysfunctional decisions due to lack of goal congruence, poor decisions by inexperienced managers, training costs, duplication of roles and extra costs re information.
Factors impacting the degree of decentralisation include management ability, size of organisation, range of products/services, geographic location, extent of local market knowledge required and effectiveness of communication systems.
6.1 Mechanistic vs organic
Contingency theory promotes the need to adopt an appropriate structure for the needs and situation of the business. The structures can be mechanistic (rigid structure, suitable for stable environments) or organic (flexible structure, suitable for dynamic environment).
A mechanistic structure is formal, hierarchical, authority and control based and focuses on efficiency. An organic structure is informal, flat, project teams and power based on expertise.
7.1 Rules for effective Divisionalisation
Autonomy for local level managers to effectively run the division, issues such as imposed head office costs and company-wide initiatives can stile this autonomy.
Control: divisional managers are held accountable for factors they can control. Perceived interference from senior management can damage accountability.
Goal congruence: is important so divisional managers feel that they are fulfilling personal objectives as well as achieving corporate aims.
