Part B Organisation
Part B Organisation
CH 5 Business structure
CH 6 Organisational departments and functions
CH 7 The role of accounting
CH 8 Organisational culture
CH 9 Corporate governance
CH 10 Internal control
CH 11 Identifying and preventing fraud
Chapter 5
Business structure
1. Informal organisation
1. Definition
Individuals may occupy roles and offices, but they bring to those roles
with their own interests, thoughts or assumptions. They develop
friendships (or enemies), and preferences for how to accomplish
assigned tasks that may or may not support the formal organisation.
Thus, informal and formal organisation are born together and
informal organisation involves flexibility and changes quickly.
1.2 Benefits
a) Increased dedication of employees: It motivates employees and
reduces absenteeism and labour turnover.
b) Better knowledge sharing among employees: As the same as formal
organisations, informal ones could also help to share knowledge and
improve members’ performance.
c) Better co-ordination between employees: By providing means of
relieving emotional and psychological pressure, it may fill gaps in
management ability, and reduce internal politics. Additionally,
informal networks and methods are quicker to transmit information,
which can facilitate fast communication.
1.3 Problems
(a) There might be a danger that actions taken by informal organisation
members are averse to the organisational interests.
(b) The grapevine can spread rumours and may mislead employees.
(c) Individuals may be expelled or isolated by informal organisations if they
do not behave in line with “rules” within such organisations.
(d) There may be a compromise in internal control systems, which could
hamper quality of outputs.
1.4 Hawthorne Studies
1.4 Hawthorne Studies
• Elton Mayo (梅奥)
• Human relations school of management
• The concept of informal organisation was firstly brought up in the Hawthorne Studies.
• The Hawthorne studies also showed that people tend to perform better when they
believe they are being treated well and are valued.
Example question 1
Which of the following is a characteristic of the informal organisation?
A. Communication flows are mainly upward and downward
B. It is made up of individuals at the same level in the organisation
C. It evolves over time and can change rapidly
D. It exists in certain kind of organisations
2. Organisation structure
2.1 Mintzberg’s five components
Ideology - the organisation's beliefs and values
2.1 Mintzberg’s five components
a) Strategic apex
This element of the organisation is made up of directors
and senior executives. Their role is to interpret or define
the mission of the organisation and ensure objectives are
consistent with missions. The strategic apex is also
responsible for managing the organisation’s relationship
with the macro-environment.
b) Operating core
The operating core carries out the activities directly relating
to deliver outputs.
2.1 Mintzberg’s five components
c) Middle line
This element provides the link between the strategic apex and the
operating core. The main role is partially one of interpretation, as the
work of the operating core has to be consistent with the expectations and
plans of the strategic apex.
d) Technostructure
Mintzberg states that there are several roles here. The technostructure is
made up of individuals and teams working in functions such as human
resources, training, finance and planning. Analysers of technostructure
decide on the best ways to perform jobs and seek to standardise skills.
e) Support staff
Support staff work in functions such as public relations and legal
services. Their outputs do not contribute directly to the core purposes
of the organisation, but their activities contribute to the efficiency and
effectiveness of the whole organisation.
2.2 Organisation structure
Simple/Entrepreneurial
Functional New organisation
Geographical Divisionalisation
Product/Brand Matrix
2.2.1 Simple/entrepreneurial
The simple structure suits small and young organisation as it is often centralised and autocratic.
It is informal as the power in this structure is exerted from the strategic apex (often the founder) rather than
depending on the formal authority structure. The simplicity gives the organisation flexibility in adapting to
the dynamic environment.
2.2.1 Appraisal
Advantages:
a) Important decisions are more centralised in the hand of the
chief executive officer thus control is exercised more
directly.
b) Fast decision making becomes possible due to the flexibility.
Disadvantages:
a) It only suits small companies
b) It is riskier and more vulnerable than other types of structure
c) The structure is more likely to face succession crises
2.2.2 Functional
Grouping people based on similar tasks such as finance, HR, marketing etc.
Each function’s manager is responsible for his/her department’s staffs and performance.
2.2.2 Appraisal
Advantages:
a) It facilitates specialisation by bringing together employees with necessary
knowledge and skills, which enables creation of economies of scale.
b) It enables the organisation to operate through clear lines of authority and well-
defined responsibilities.
c) It prevents duplication of effort, thereby reducing inefficiencies and costs.
Disadvantages:
a) Empire building: managers of functions may try to make decisions to increase
their own power or are just in the best interests of their function, rather than
working in the best interest of the company, which leads to conflicts of interest
between different functions.
b) Poor lateral coordination and communication problems.
2.2.3 Geographic
Many organisations operate across different regions, so it is appropriate for these organisations, especially large
companies that operate across several continents to adopt a functional structure by geographical location. In this
way the organisation maintains separate functional structures in each location.
2.2.3 Appraisal
Advantages:
a) Better local decision making by tailored products and promotion.
b) Reduced cost of transportation.
Disadvantages:
a) Duplication of functions in different regions, which increases operating
costs.
b) Inconsistency of policy/standards might occur across the whole
organisation.
2.2.4 Product/brand structure
The functional model can be adapted for organisations that offer a range of products. In this way the
manager responsible for each product may have their own production, marketing and finance
departments as is shown in the figure below.
2.2.4 Appraisal
Advantages:
a) Better decision: Each manager could make specific, workable decisions rather
than obey the arrangement from the headquarter.
b) Better accountability: Each manager should be accountable for the
performance and profitability of the product/region he/she operates.
c) Better cooperation: All employees and their efforts are devoted to the
product/region they are vested in.
Disadvantages:
a) Duplication: Several functions are duplicated across the organisation.
b) Inconsistency: The autonomy given to regions/products may undermines the
consistency of policy across the whole organisation.
c) Conflicts: The scramble for resources might arise between different
product/geography divisions.
2.2.5 Matrix organisation
The matrix structure is the combination of product/project structure with the functional structure.
2.2.5 Appraisal
Advantages:
For organisation:
a) Bureaucracy is reduced, and communication lines are shortened.
b) Cooperation between departments can be increased and dependence on
rigid chains of command and lines of communication can be reduced.
For employees:
a) Employees’ jobs are enriched, and they could exploit more opportunities for
career development, thus their motivation could be enhanced;
b) The matrix approach may make employees more responsive to change and
more willing to welcome change.
2.2.5 Appraisal
Disadvantages:
a) Dual authority. Employees are likely to be confused by conflicting
demands of job arrangement from different managers.
b) Cost. The matrix structure creates additional time management pressures,
which may have an effect on costs.
c) Inefficiency. If the matrix is not designed or implemented systematically,
it can create organisational inefficiencies, such as slower decision taking.
2.2.6 Divisionalisation 事业部制 ★
In a divisionalised structure, the central core would provide guidelines for business
units that enjoy a high degree of autonomy, and main activities are decentralised
to products/geographical divisions, which we normally called strategic business
unit (SBU). The precondition to establish a division is that it has to undertake sole
responsibility for its own profits or losses, thus division is a profit centre.
Ø Divisions may focus on a geographic area or a particular product.
Ø Activities are decentralised to business units or regions.
Ø Autonomous region
阿里巴巴动物园
2.2.6 Appraisal
Advantages:
a) The divisional structure better satisfies the organisation’s diversified
development/ growth.
b) More attention is paid to the profits, as a result each division would endeavor
to improve efficiency and reduce costs.
c) Divisionalisation encourages delegating authority to junior managers, thus
reducing the workload of senior managers. It is also beneficial for future
succession planning .
d) Reduced hierarchy level enables quicker decision making.
Disadvantages:
a) It is hard for some businesses to identify a totally autonomous division.
b) There may be more resource scramble problems.
2.3 New organisations
2.3.1 'Jobless' structures.
The employee becomes not a job-holder but a seller of skills. This is a concrete expression of the concept
of employability, which says that a person needs to have a portfolio of skills which are valuable on the
open market.
2.3 New organisations
2.3.2 Boundaryless organisations
Boundaryless organisation is “an organisation breaking down barriers between internal levels, job
functions and departments, as well as reducing external barriers between the association and those
with whom it does business”.
Essentially, it is an unstructured design that is not constrained by having a chain of command or
formal departments, with the focus on flexibility.
2.3.2 Boundaryless organisations
• Hollow organisation （中空组织）★
Hollow organisation is the one which relies heavily on outsourcing, the majority of the company’s
non-core processes and activities are outsourced to specialist providers so that the company can
focus on the most value adding activities.
2.3.2 Boundaryless organisations
• Modular organisations （模块化组织）★
Modular organisation is the one which firstly divide its production processes into different
components and outsource them to different suppliers, and then assemble and/or combine
different components into the final products or services.
2.3.2 Boundaryless organisations
• Virtual organisations
A virtual organisation is one which operates primarily through electronic communications, taking
advantage of the efficiencies made possible by information technology. People work together
remotely, with little or no dependence on physical premises. Instead, communications take place
through media such as emails, e-conferencing, extranet and intranet.
3. Centralisation and decentralisation
3. Centralisation and decentralisation ★
What is centralisation?
a) the concentration of management and decision-making power at the top of an
organisation’s hierarchy;
b) The location of all or most main departments and managers at one facility.
3. Centralisation and decentralisation ★
What is decentralisation?
a) empowerment of lower-level subordinates with greater discretion;
b) The dispersion of all or most main departments in different divisions/places.
3. Centralisation and decentralisation
For centralisation
• Easy to control due to concentration of power
• More thoughtful decisions made on problems
• Coordination of interests between different departments and functions
• Reduction of management costs as a result of less managers
• Fast speed of crisis decision-making (no need to refer back)
• Standardisation of organisations’ operations
3. Centralisation and decentralisation
For decentralisation
• Reduced workload and stress of senior managers and increased focus on corporate strategy
• Better motivation and development of junior managers through delegation of authority
• Better local decisions and faster routine decisions (no need to refer upwards)
• Improved responsibility and accountability
Example question 2
Example question 3
Which one of the following is an advantage of centralisation?
A. It helps to develop the skills of junior managers
B. It reduce workload of senior managers
C. Accountability is better
D. Senior managers can have a wider view of the company operation
Example question 4
Which one of the following is a potential advantage of decentralisation?
A Risk reduction in relation to operational decision-making
B More accountability at lower levels
C Consistency of decision-making across the organisation
4. Basic organisational structure concepts
4.1 Span of control
It refers to the number of subordinates directly responsible to a superior.
4.2 Scalar chain
Scalar chain refers to a clear line of communication in the organisation where instructions
flow down and reports flow back up.
4.3 Tall organisations VS Flat organisations
The organisation can be tall or flat. Tall organisations have
many levels and long scalar chains, while flat organisations
have fewer levels and short scalar chains.
4.3 Appraisal-tall organisations
Advantages Disadvantages
High participation in decisions- Limited employees’ initiatives due to strict
making across the organisation supervision
Better development of employment Increased management costs and slow
career planning decision-making due to too many layers
4.3 Appraisal- flat organisations
Advantages Disadvantages
Higher motivation for junior Lower quality of decision-making due to
managers through delegation delegation
Reduced overhead costs Diluted power of control for senior
executives
Faster communication between Less role of interpretation played by
strategic apex and operating core middle managers in the organisation
Example question 5
Which TWO of the following are DISADVANTAGES of a tall organisation?
A. Decision making and responses tend to be slow
B. Rigid supervision may block employee initiative
C. Managers will have a wider view of the operations
4.4 Delayering
Delayering is the reduction of the number of middle level management.
What makes delayering possible?
a) Some work done by middle managers is replaced by information technology.
b) Many organisations are willing to delegate authority to front line of managers
which can “touch” customers in order to make better decisions.
c) Delayering in the organisation can reduce managerial costs.
Example question 6
Delayering can make an organisation more responsive to market needs.
Which TWO consequences will the above proposal have on the structure of the organisation?
A. Increased scalar chain B. Reduced span of control
C. Reduced scalar chain D. Increased span of control
Example question 7
Scalar chain is the channel through which instructions flow down and reports flow
back up.
True or False?
5 Levels in the organisation
5.1 Levels of strategy
Corporate strategies
Business strategies
Operational/functional strategies
Levels of strategy in the organisation
5.1 Levels of strategy
5.1.1 Corporate strategies
The most general strategy, long-term, relatively complex, focuses on the activities of the whole
company, the threats and opportunities in the environment, the value systems of people, obtaining
and allocating corporate resources.
5.1 Levels of strategy
5.1.2 Business strategies
Business strategy is more detailed than corporate ones, which focuses on specific divisions or
departments and specifies how to use resources. For example, some large companies are divided
into different SBUs (strategic business units) which have different products or different locations.
In brief, business strategies are those aiming to achieving goals of each SBUs.
5.1 Levels of strategy
5.1.3 Operational/functional strategies
Functional/operational strategies put emphasis on certain functions such as marketing, production, finance,
human resources management, information system, R&D, IT etc.
5.2 Levels of management - The Anthony hierarchy /triangle
Levels Who What Time frame of
decisions
Strategic chief Macro matters, for example: Long term,
management executives - General direction for the whole organisation. usually 3~5 years
- Standard policy for the whole system.
- Handling crisis on behalf of whole
organisation
Tactical head of Translating strategic management’s requirements, Medium term,
management departments and adopting appropriate methods to achieve usually 1~3 years
them, for example:
- Utilising resources among organisations
- Arranging coordination between functions
- Identify available and profitable markets
Operational supervisors Dealing with day-to-day activities of each Short term,
management department. Usually less than
1 year
5.3 Levels of information
Data consists of numbers, letters, symbols, raw facts, events and transactions,
which have been recorded but not yet processed into a form that is suitable
for making decisions.
Information is data that has been processed in such a way that it has meaning
to the person that receives it, who may them use it to improve the quality of
their decision-making
5.3 Levels of information
System level System purpose Information required
Strategic Top level information aims to The information should be core and connected with
help senior managers to set environment, for example:
long-term strategies, which can a) Overall market analysis
match organisations’ strengths b) Key industry ratios
and capabilities with external c) Government policies
environment.
Tactical Middle level information aims The information would be in a summarised form, but
to help middle managers to detail enough to allow tactical planning of resources
monitor and control operations. and manpower, for example:
a) Budgets
b) Variance reports
c) Exception reports
Operational Lowest level information aims The information is detailed and precise, for example:
to help operational managers to a) Customer orders
supervise the organisation's b) Invoices
daily operational activities. c) Shift pattern of employees
Example question 8
ABC Co. is one of the best restaurants in the town. Andy as a manager for the ABC Co. He tries to
analyse how many customers will have dinner in their restaurant every day. Which type of
information should Andy use to help him analyse the situation?
A. Tactical
B. Operational
C. Strategic
Example question 9
The following are examples of business information:
(1) Annual forecasts of revenues and costs for a department
(2) Product development plans for the next 2–3 years
(3) Targets agreed by key managers at their performance appraisal interviews
Which of the above would be classified as tactical information?
A 1, 2 and 3
B 1 and 3 only
C 2 and 3 only
5.4 Information system to support decision making
As each level of managers need different type of information, we need different information
system to support them.
Levels of information Information system used to support
Operational Transaction processing system (TPS)
Tactical Management information system (MIS)
Strategic Executive information system (EIS)
5.4 Information system to support decision making
5.4.1 Transaction processing system (TPS)
A TPS records all the daily transactions of the organisation and summarises them so
they can be reported on a routine basis. TPS is used mainly by operational managers to
make basic decisions.
5.4.2 Management information system (MIS)
MIS convert data from TPS into information for tactical mangers to help them
monitor and control performance.
5.4.3 Executive information system (EIS)
It provides strategic managers with flexible access to information from the entire
business as well as the external environment.
