Strategy and structure Flashcards
What is organisational structure?
It defines how the various functions of an organisation are arranged
What is Entrepreneurial structure?
Structure built around the owner-manager- typical for small companies
Centralised with all key decisions made by the strategic leader
Advantages and disadvantages of entrepreneurial structure
Adv- fast decision-making, more responsive to market, good control, close bond workforce
Disadv - lack of career structure, too centralised, can’t cope with growtg
What is functional structure?
Common when outgrown entrepreneurial- need to reorganise on a functional basis (economies of scale)
Advantages and disadvantages of functional structure
Adv - economies of scale, efficiency, specialists more comfortable
Disadv - empire building, slow to adapt to change, conflicts between functions e.g. communication
What is divisionalised structure?
Structure in accordance with product lines or divisions
Headed by general managers responsible for their own resources
Advantages and disadvantages of divisionalised structure
Adv- enable product growth, clearly responsible and accountable for products, training of managers
Disadv - Loss of control, lack of goal congruence, duplication of effort, may feel isolated
Advantages and disadvantages of divisionalised structure (geographically based)
Adv - enables geographic growth, clear responsibility for areas, training of general managers
Disad -same for divisionalised (loss of control, duplicate, goal congruence)
What is matrix structure?
Aims to combine benefits of divisionalised & functional structure
Usually in multifunctional organisations with intertelationships
Advantages and disadvantages of matrix structure
Adv - improves communication, useful for projects, flexible
Disadv - conflicts between managers over individuals commitments, dilution of authority, time-consuming meetings
What are flexible structures?
Allow firms to adapt to changing circumstances
Network structures can be applied within and between organisations
Advantages and disadvantages of flexible structures
Adv - increased flexibility, reduces premises cost, access to specialist skills
Disadv - lack of control, difficult to create consistent culture
What are Mintzberg’s six components of an organisation?
Operating core - basic work
Strategic apex - higher management
Middle line - managers linking apex
Technostructure - accountants, IT etc
Support structure - eg catering, legal
Ideology- the values and beliefs
What are tall and flat organisations?
Tall - many layers of management, who oversee few subordinates
Flat - few layers of management, who oversee a large no. subordinates
What is decentralisation?
It refers to the degree of autonomy/decision making ability diffused through the organisation
Pros of decentralisation
Senior management free to concentrate on strategy
Better local decisions
Better motivation
Quicker responses/flexibility
Training/career path
Cons of decentralisation
Loss of control by management
Dysfunctional decions due to lack of goal congruence
Poor decisions by inexperience
Training costs
Duplication of roles/resources
What is the calculation for Return on Investment (ROI)?
Annual profit controllable my manager ➗️ Capital employed in the division
What is Return on Investment (ROI) and Residual Income (RI) used for?
To assess the performance in a divisional business
Advantages and disadvantages of ROI
Adv - widely used & accepted, should facilitate comparisons
Disadv - relative measure, different accounting policies make comparisons difficult, ROI increases with age of asset, can lead to dysfunctional decisions
How is Residual Income (RI) calculated?
Controllable profit -
(Capital employed x target % return)
Advantages of RI
Absolute measure
RI will increase with age if asset
Less likely to lead to dysfunctional decisions
What is transfer pricing?
The price at which one division in a group sells its product/services to another division in the same group
What methods cna be used to set a transfer price?
Cost plus pricing - marginal/full cost plus mark-up
Opportunity cost
Negotiated prices - decided by managers
Market prices - currently market rate
