Lecture 4

Question 1

What are the three types of organisational structures?

Answer 1

• Functional structure: Each manager is responsible for a specified function such as production or marketing.
• Business unit structure: Business unit managers are responsible for most of the activities of their particular unit, and the business unit functions as a semi-independent part of the company.
• Matrix unit: Functional units have dual responsibilities, to both a functional manager and a business unit manager. A matrix structure, therefore, can be seen as a mix between the functional and the business structures.

Question 2

What is differentiation?

Answer 2

The need for special competence in different areas (see responsibility centers)

Question 3

What is integration?

Answer 3

• The need for people with different competencies to cooperate towards some kind of common goal
• Problems may occur inside one department due to the division of labour

Question 4

What are the advantages of the functional structure?

Answer 4

• Manager brings specialized knowledge to bear on decisions related to a specific function.
• Skilled specialist should be able to better supervise employees in the same function better than the generalist would.
• Takes advantage of economies of scale to a greater degree than do other structures, since all similar tasks are conducted in one department or unit.
• Efficiency.
• Competence development since managers and employees develop their skills through learning from one another.

Question 5

What are the disadvantages of the functional structure?

Answer 5

• No unambiguous way of determining the effectiveness of the separate functional managers.
• A dispute between managers of different functions can be resolved only at the top.
• ‘Silos’ prevent cross-functional coordination in areas such as new product development.
• ‘The left hand doesn’t know what the right hand is doing’.

Question 6

What are the advantages of the business unit structure?

Answer 6

• Training ground in general management.
• Business unit is closer to the market for its products so its manager may make sounder production and marketing decisions.
• Cross-functional competence development.

Question 7

What are the disadvantages of the business unit structure?

Answer 7

• Duplication of work.
• Functional competence development normally suffers.

Question 8

Matrix organisations (dis)advantages:

Answer 8

• Aims to combine the advantages of both the functional and business unit structures.
• Each operational unit manager has two managers. E.g. the manager of the business unit marketing department reports to both the Marketing manager and the Business unit manager.
  o Contradicting orders, it is often difficult to follow orders and live up to the expectations of one manager, having to follow partly contradicting orders and live up to the partly different expectations of two managers is practically impossible.
• More complex structure and requires a high level of maturity among managers.

Question 9

What is lean management?

Answer 9

Just-in-time (JIT), total quality management (TQM), process management and lean production – concepts all had the goal of strengthening integration in organizations, focussed on flow efficiency and resource efficiency

Question 10

What is flow efficiency?

Answer 10

Product is produced and delivered as quickly as possible. Do things right first time.

Question 11

What is resource efficiency?

Answer 11

Capacity utilization in every part of the process, and for all the resources should be as close to 100 % as possible.

Question 12

What are problems related to long lead times?

Answer 12

• Costs: Material ties up capital and therefore costs money when in stock.
• Quality: If there are quality issues with the pieces coming from the casting department, the operators in the drilling department would not detect this until they had worked their way through the whole stock that they have at a certain point in time. This means that the casting department may continue to produce pieces with quality issues for quite some time.
• Waste: If the demand for the product is low or if the customers change preference, the company will end up with a large stock of both finished and unfinished products that are more or less useless.
• Flexibility: If a customer is in urgent need of a certain product that is not in stock, it will probably not be able to deliver this product in time due to the long lead times.

Question 13

Lead implementation

Answer 13

The lean concept is described as a combination of input, throughput, and output controls, but it is not unusual that only one or perhaps two of these types of control are focused on the actual implementation of lean.

The risk that the process lacks integration, and that the customer is less than satisfied remains. Focus only on throughput control is not really lean management.

Question 14

What is a project?

Answer 14

A project is a set of activities intended to accomplish a specified end result and which starts and ends at a particular time.

Question 15

What is the project management triangle?

Answer 15

Ideally a project is completed on time, does not spend more money than budgeted and produces very good results. However, this does not happen regularly. The project management triangle illustrated how priorities are set considering quality, time and cost. The idea with this is that depending on the project and the goals of the project, the three different aspects are not equally important. There is always one dimension that simply cannot be negotiated, some aspects are more important than others.

Question 16

Project planning: waterfall method

Answer 16

• Planned in detail.
• The activities fall down in a constant flow like a waterfall.

Question 17

What is agile project management?

Answer 17

The main idea in agile project management is to plan the whole project in only broad terms and then plan in detail for only a short part of the project (a so-called sprint) at a time. When the sprint is over, it is evaluated (a sprint evaluation) and only then the next sprint is planned. An important input to the sprint planning of the next sprint is the experiences acquired in the previous sprints. External changes are also taken into account. A sprint takes between a day and a month, depending on the type of project.

Question 18

Project evaluation

Answer 18

• Evaluation after the project
  1. An evaluation of project management: How does the manager do?
  2. An evaluation of the process of managing the project: How does the project go?
• The budget estimates what the cost should have been based on the information that was available at the time it was prepared
• Evaluation of results
  o The success of a project cannot be evaluated until enough time has elapsed to permit measurement of its actual benefits and costs.
  o Part of the evaluation should be a comparison of the actual results with the results that were anticipated when the project was approved.

Question 19

Why is there an increased importance of inter-organizational relationships?

Answer 19

• Globalisation: Through globalization the speed of transformation of existing customer structures and the emergence of new business opportunities have increased dramatically. Organizations face globalized markets that are much larger than before, but at the same time they also meet fierce global competition. To remain competitive in a globalized world, organizations need to have fast and efficient access to customers to be able to develop new products quickly.
• The rapid technological transformation and increased technical complexity of products and services: This has made it difficult for organizations to maintain in-house expertise in every potentially relevant technical area. An organization cannot be on the technological fore- front in every area and needs to develop close inter-organizational relationships with its suppliers to be able to exploit their knowledge when developing its products or services. Thus, it often makes sense for an organization to outsource some activities to suppliers who are experts in the area concerned.

Question 20

What are the types of inter-organizational relationships?

Answer 20

• Customers and suppliers
• Technology licensing
• Strategic alliances
• Joint ventures

Question 21

What is technology licensing?

Answer 21

• Exploit the know-how of another by paying a fee.
• Reduces development costs, speeds up product development times and results in a faster market entry.
• Loss of control.

Question 22

What are strategic alliances?

Answer 22

Form of an agreement between two organizations to co-develop a new technology, product, or service with specified goals and to a predetermined timetable.

Question 23

What are joint ventures?

Answer 23

Are even more formal than strategic alliances and involve setting up a new organization with two (or more) parent companies as its owners.

Question 24

Inter-organizational INPUT controls

Answer 24

• Establish trust between people in the cooperating organizations
• Hold regular meetings
• Establishing a joint means of resolving disputes
• Sharing of accounting information
• Common culture
• Open communication channels.

Question 25

Inter-organizational THROUGHPUT controls

Answer 25

* Policy documents and procedures * Meet regularly to develop and discuss the guidelines for joint projects * Alliance board

Question 26

Inter-organizational OUTPUT control

Answer 26

Inter-organizational performance measures * Mix of financial and non-financial measures * Joint reward system Open-book accounting * Extensive flow of information between the organizations will enable them to successfully develop each other’s operations

Question 27

What are the roles of budgeting?

Answer 27

Planning: Planning involves deciding what the organization is going to do during the budgeted period. * Resource distribution o It is possible to estimate how much resource every department will need in order to fulfil the plan. * Coordination o Relates to cross-functional management o Ensuring that all parts of the organization follow the same plan Accountability: Managers at different levels prepare budgets their respective part of the organization * Monitoring o Is about superiors checking that their subordinates stick to the budget and relates to agency theory. * Motivation o Is mainly achieved through the setting of goals, which relates to goal setting theory. * Monitoring and motivation roles may be in conflict (self-determination theory chapter 10). Too much monitoring may decrease intrinsic motivation Process: The benefits of the budget are not so much tied to the actual budget as to the budgeting process. * Reflection o The budgeting task may make managers sit down and think about matters that are important also in a longer-term perspective. * Communication o Hopefully, they will then talk to the people they are dependent to. Ritual: The budget is no longer used as a well thought through management control practice but for other reasons. * Habit o Most organizations have been budgeting for as long as anyone can remember and maybe even forgot why they do it. * Legitimacy o Many organizations would not be seen as very professional or efficient if they did not prepare budgets.

Question 28

What is top-down budgeting?

Answer 28

Set by top management for the lower levels.

Question 29

What is bottom-up budgeting?

Answer 29

Lower-level managers participate in setting the budget numbers.

Question 30

What is iterative budgeting?

Answer 30

Starts out exactly like bottom-up budgeting but is then repeated once or more until top management is content with the consolidated budget figures.

Question 31

What is tight budgetary control?

Answer 31

* A strict evaluation with little acceptance of deviations * Outcome may be linked to reward or punishment * Strengthens discipline and makes people do what they are told * Related to mechanistic control

Question 32

What is loose budgetary control?

Answer 32

* Understanding that the budget was an educated guess * Evaluation is more of a constructive discussion regarding how the unit has performed, what can be learned from it and what improvements can be made in the future * Willing to make people make decisions, take the initiative and be creative. * Related to organic control

Question 33

What is budget gaming?

Answer 33

* Showing a better budget that expected – exposure * Showing a worse budget that expected – hedging

Question 34

Where does budget gaming depends on?

Answer 34

Budgetary control – tight or loose Profitability  The economic situation in the organization is something that may well influence the tendency for gaming. Uncertainty  Uncertainty in the organizational environment may very well influence the propensity of gaming in one direction or the other. Reward system  A performance-based reward system is very likely to create tactical behaviour in general and this also applies to budget gaming. Personality  Risk aversion of lower-level managers and that is likely to influence the gaming.

Question 35

Why is there critique against budgeting?

Answer 35

* Budgets create internal gaming and myopia (sub- optimization and short-termism). * Budgeting is too resource consuming * Calendar year is not a good time period * It is impossible to make a reliable budget these days * Contradicting roles * The ‘beyond budgeting’ movement criticized traditional budgeting and suggested alternatives.

Question 36

What is rolling forecasts?

Answer 36

Not limited to calendar year, Any time period Prepared in much less detail, Focussed on KPI’s and aggregated budget Updated regularly, Often quarterly A rolling forecast may be regarded with the same commitment as the budget Evaluation, Depends on whether the forecast is just a forecast or a commitment as the budget

Question 37

What is beyond budgeting?

Answer 37

No formal planning system, No absolute targets in the plans Internal and external benchmarking Decentralization Management compensation, No individual bonuses for managers Culture, Close to the customers and a very strong cost consciousness