BUSINESS
ORGANISATION
AND
STRUCTURE
CHAPTER 2
Content
1 Organisation & formal structure
2 Organisational structure concepts
3 Levels of organisation
4 Centralisation and decentralisation
5 Roles and functions of departments
Organisational Structure
Organisational structure is
concerned with the way in which
work is divided up and allocated.
It outlines the roles and
responsibilities of individuals and
groups within the organisation.
The structure of most
organisations will change over
time as the company grows.
Entreprenuerial Structure
This structure is built around the owner-manager and is typical of small businesses in the
early stages of their development.
It is also often found where the entrepreneur has specialist knowledge of the product or
service that the organisation offers.
Advantages Disadvantages
Fast decision making Lack of career structure
More responsive to market Dependent on the capabilities
Goal congruence of the manager/ owner
Good control Cannot cope with
Close bond to workforce diversification/ growth
Functional Structure
Functional organisations group together employees that undertake similar tasks into
departments.
This type of structure is often found in organisations that have outgrown the entrepreneurial
structure.
Advantages Disadvantages
Economies of scale Empire building
Standardisation Slow
Specialists more comfortable Conflicts between functions
Career opportunities Cannot cope with
diversification
Divisional/ Product Structure
This structure occurs where an organisation is split into several divisions –
each one autonomously overseeing a product (i.e. separate divisions for cars and motor bikes),
a geographic section (i.e. separate divisions for US and Europe) or
even by customer (i.e. separate divisions that look after corporate clients and private clients).
Advantages Disadvantages
Enables growth
Potential loss of control
Clear responsibility for products/divisions
Lack of goal congruence
Training of general managers
Duplication
Easily adapted for further diversification
Specialists may feel isolated
Top management free to concentrate on
Allocation of central costs
strategic matters
can be a problem
Geographic Structure
This is similar to the divisional structure, but involves each division covering a specific location.
For example, a global company may be split into different divisions based on geographic areas. There
may be a division that looks after the organisation’s Asian operations, one that covers Europe and
another division for America.
Advantages
Enables geographic growth.
Allows local decision-making.
Clear responsibility for areas.
Training of general managers.
Top management free to concentrate on
strategic
Matrix Structure
Matrix structures are a combination of the functional and divisional structures
Advantages Disadvantages
Advantages of both functional and divisional Dual command and conflict.
structures. Dilution of functional authority.
Flexibility. Time-consuming meetings.
Customer orientation. Higher admin costs.
Encourage teamwork and the exchange of
opinions and expertise.
Boundryless Structure
Boundaryless organisations are unstructured design that is not constrained by having a chain of
command or formal departments, with the focus instead being on flexibility.
There are a number of different types of boundaryless organisations– hollow, virtual, and modular.
Boundryless Structure
Hollow organisations split their functions into core (i.e. strategically important)
and non-core activities. Anything which is classified as non-core is outsourced to
other organisations. Outsourcing refers to the contracting out of aspects of the
organization’s work to specialist providers.
Virtual organization occurs when an organisation outsources many of its
functions to other organisations and simply exists as a network of contracts, with
very few, if any, functions being kept in-house.
For example, many internet retailers could be seen as virtual companies.
Boundryless Structure
Modular organisation - These are examples of boundary less manufacturing
companies. Rather than simply making their own product, they break the
manufacturing process down into modules or components. Each component can
then be made by the company or outsourced to an external supplier.
For example, a mobile phone manufacturer may pay external manufacturers to
make some key components for its handsets – such as processors and screens.
These are then assembled by the manufacturer along with other components it
has manufactured itself.
Mintzberg Organisational Configuration
Henry Mintzberg argued that organisations are made up of five key ‘building blocks’.
Each ‘building block’ corresponds to a specific group of people within the organisation:
Strategic apex – senior levels of management.
Middle line – middle management.
Operating core – workers involved in producing or creating the core product or
service offered by the organisation.
Technostructure – provide technical input that is not part of the organisation’s core
activities (typically relating to standardisation of organisational procedures). They are
analysts who plan and control the work of others.
Mintzberg Organisational Configuration
Support staff – administrative support and indirect services.
Sixth block added later,
Ideology is the organisation’s beliefs and values (culture) and can be discerned by
examining norms or observable behaviour in the workplace
Continuation
Mintzberg argued that any one of these building blocks could dominate within the organisation, leading
to a variety of possible structures.
The simple structure (strategic apex dominates) This is also known as the entrepreneurial structure.
Machine bureaucracy (technostructure dominates) This structure tends to occur in large, established
organisations. Work becomes very formalised, with large numbers of rules and procedures.
Professional bureaucracy (operating core dominates) This occurs in organisations that rely on highly
skilled members of staff, such as in the medical and legal industries.
Continuation
Divisionalised (middle line dominates) This closely matches the divisional structure The heads of each
division (the middle line managers) will have a great deal of control over the day to day operations
and strategy of their part of the business
Adhocracy (support staff/operating core dominate) The focus within an adhocracy is on innovation –
making it more suitable than the other, more formal, structures for fast-moving, dynamic industries
(such as high-tech or pharmaceuticals).
Missionary (ideology dominates) The mission and beliefs of the organisation are dominant, with all
employee actions having to tie in to this
Case
Q plc runs five factories that assemble childrens toys, each of which is run by its own Production Manager.
The five Production Managers report directly to the Board of Directors of Q. All assembly staff in the
factories report directly to the Production Managers.
Q’s directors have recently stated that the company ‘must cut costs to maximise profits for investors’.
Q has recently hired a job design specialist, who has started investigating how assembly workers’ jobs
should be organised and what the most effective shift patterns would be to maximise Q’s productivity.
Q’s Strategic Accountant has recently created a set of guidelines on the claiming of expenses by staff which
the company hopes will reduce costs.
Q’s factories also have a number of administrative staff – including canteen workers and secretarial
employees.
Case- Application of Mintzberg's model
The Board of Directors of Q will make all of the major strategic decision for the company and would
therefore be classified as the strategic apex.
The Production Managers are the main interface between the Board of Directors and the assembly
staff, indicating that they are middle management – or the middle line.
The assembly staff are involved in the actual production of Q’s product and would therefore form the
operating core.
Case- Application of Mintzberg's model
The Strategic Accountant and the job design specialist would both be part of the technostructure as
they have technical input into the design of Q’s operations and are attempting to standardise
operations within the company.
The other administrative staff (canteen workers and secretarial staff) would be non-core, indirect
support and would therefore be considered support staff.
The directors have stated a desire for the company to be more profitable and cut costs – a desire which
is backed up by the actions of the technostructure. This would appear to form the core of Q’s ideology.
Other basic organisational concepts
Separation of direction and
Scalar chain
management
Span of control Tall organisation
Flat organisation Offshoring
Shared services approach
Centralisation & Decentralisation
Centralisation Decentralisation
In a centralised structure, the upper levels of an In a decentralised structure the authority to take
organisation's hierarchy retain the authority to decisions is passed down to units and people at
make decisions. lower levels.
The factors that will affect the amount of decentralisation are:
management style, the ability of management/employees, geographic spread, size of the organisation/ scale of activities.
Decentralisation
Advantages Disadvantages
Better local decisions due to local expertise. Loss of control by senior management.
Better motivation due to increased training and Dysfunctional decisions due to lack of goal
career path. congruence.
Quicker responses/flexibility, due to smaller Poor decisions made by inexperienced
chain of command. managers.
Training costs.
Duplication of roles within the organisation.
Extra costs in obtaining information.
Levels of
Strategy Strategic Planning
Anthony Triangle
Tactical Planning
Strategic Planning
Senior Managers; Long- term decisions
Operational
Tactical Planning
Planning
Middle-line managers; plans for specific
divisions and department
Operational Planning
Junior managers & supervisors; short-
term, detailed & practical
Roles & Functions
of main departments
Marketing
Marketing is defined by the Chartered Institute of Marketing as ‘the
management process that identifies, anticipates and supplies
customer needs efficiently and profitably.’
Marketing orientation (customers' needs> competitors)
Product orientation (quality, R&D)
Marketing Mix
Marketing Mix
The marketing mix is the set of controllable variables that a firm blends to produce desired results
from its chosen target market.
4P’s= customer satisfaction+ profit
Product- This includes product features, durability, design, brand name, packaging, range,
aftersales service, warranties and guarantees.
Place- Choice of distribution channels, transportation, outlet management, stocks and
warehouses.
Promotion (distribution)- Advertising, personal selling, publicity, sales promotion techniques.
Price- Price levels, discounts, allowances, payment terms, credit policy.
Marketing Mix
Marketing Mix
Beyond the 4Ps other elements of the marketing mix have come to light through the work of Kotler
amongst others:
People – this relates to both staff and the need to understand customer needs.
Processes – these are the systems through which the service is delivered.
Physical evidence – testimonials and references regarding proposed service
Product Issues
Product definition – The main issue regarding product is to define exactly what the
product should be. This can be done on three levels:
A new car could be specified as follows:
Core/generic product – personal transportation.
Actual product – range of engine sizes, different body shapes offered, etc.
Augmented/ extended product – manufacturer’s warranty or dealer’s
discounted service contract.
Ex: Washing Machines
Product positioning - With all of these factors the question of product positioning is
critical – how does our product compare with the offerings of competitors? Is our
product better? If so, in what way?
Pricing Issues
There are four key considerations (the ‘4Cs’) when deciding the price of a
product:
Cost- the price must be high enough to make a profit.
Customers- what are they willing to pay?
Competition- is our price higher than competitors?
Corporate objectives- e.g. the price could be set low to gain market
share.
Pricing Issues
These issues can be blended to give a range of pricing tactics, including the following:
Cost plus pricing – the cost per unit is calculated and then a mark-up added.
Penetration pricing – a low price is set to gain market share.
Perceived quality pricing – a high price is set to reflect/ create an image of high
quality.
Price discrimination – different prices are set for the same product in different
markets.
Going rate pricing – prices are set to match competitors.
Price skimming – high prices are set when a new product is launched. Later the price
is dropped to increase demand once the customers who are willing to pay more have
been 'skimmed off'.
Loss leaders – one product may be sold at a loss with the expectation that customers
will then go on and buy other more profitable products.
Captive product pricing – this is used where customers must buy two products. The
first is cheap to attract customers but the second is expensive, once they are captive.
Promotion Issues
Promotion is about market communication. The primary aim is to
encourage customers to buy the products by moving them along the AIDA
sequence.
Firms will use a combination of different promotional techniques as part of
their ‘promotional mix’, including:
Advertising – e.g. placing adverts on TV, in newspapers, on billboards, etc.
Sales promotion techniques – e.g. ‘Buy one get one free’.
Personal selling – e.g. door-to-door salesmen.
Public relations (PR) – e.g. sponsoring sports events.
Place/ Distribution Issues
Selling direct – here the manufacturer sells directly to the ultimate
consumer without using any middlemen, e.g. accountancy firms deal
directly with their clients without recourse to brokers or other
middlemen.
Selling indirect – here the channel strategy could comprise a mixture
of retailers, distributors, wholesalers, and shipping agents, e.g. food
distribution will often involve distributors and retailers to get the
product from farmer to consumer.
Strategic Marketing Process
STRATEGIC ANALYSIS STRATEGIC CHOICE STRATEGIC
Marketing analysis will include: Marketing decisions will include: IMPLEMENTATION
analysis of brand strength, product decisions regarding which products Implementing marketing strategies
quality, reputation, etc. to sell will include:
analysis of competition segmenting potential markets (e.g. setting budgets for advertising
market research to determine market by age) and then targeting setting targets for sales revenue,
attractiveness attractive segments market share, brand awareness
detailed analysis of customer developing strategies for each of monitoring and control.
expectations and power. the marketing mix variables.
