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A. The business organization, its stake holders and the external environment B. Business organization structure, functions and governance
1. Business organization, structure and strategy 2. Organizational culture and committees 3. Corporate governance and social responsibility

Business organization, structure and strategy

ORGANISATIONAL STRUCTURE
The established pattern or relationships among components or parts of the organisation Kast and Rosenzweig Describes the:
lines of authority communication channels (vertical and horizontal) reporting lines

Strategy History Ownership

Organization Size

Technology Objectives Geography

Why Do Structures Differ? Environment

Geography Legal

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Entrepreneurial structure

Functional Structure

Advantages Fast decision making More responsive to market Goal congruence Good control Close bond to the workforce

BOSS

Disadvantages Lack of career structure Dependent ant on the capabilities of manager/owner Cannot cope with diversification/ growth

Advantages Efficiencies from putting together similar specialties and people with common skills, knowledge, and orientations Coordination within functional area (avoids duplication) In-depth specialization Economies of scale, standardization and career opportunities Centralized decision making Disadvantages Poor communication and coordination across functional areas Focus on process and inputs rather than customer and outputs. Slow decision making

TEAM

Geographical Departmentalization

Product Structures

Advantages More effective and efficient handling of specific regional issues that arise Serve needs of unique geographic markets better May be cheaper to establish area factories than to service markets from one location. Such as transportation costs Disadvantages Duplication of functions Can feel isolated from other organizational areas Inconsistency in methods or standards may develop across different areas + Allows specialization in particular products and services + Managers can become experts in their industry + Accountability + Closer to customers Duplication of functions Limited view of organizational goals Different product divisions may fail to share resources and customers

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A Product Organization
Chief Executive Officer

Customer Departmentalization

President

Product Group 1

Product Group 2

Product Group 3

+ Customers needs and problems can be met by specialists - Duplication of functions - Limited view of organizational goals

ProSales duction

R&D

Acctg.

ProSales duction

R&D

Acctg

Production

Sales

R&D

Acctg.

Divisional Structure

The Matrix Structure

Cross-Functional Coordination Dual Chain of Command Clear Accountability Allocation of Specialists

Divisionalization is the division of business in to autonomous regions or product business, each with its own revenues, expenditures and capital asset purchase programmes, and therefore each with its own profit and loss responsibility.

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A Matrix Organization
Functional authority Project authority
Production department

President

Farm Machinery Division

Legal department

Engineering department

Accounting department

Project Alpha manager

Production support group

Legal support group

Engineering support group

Accounting support group

Project Beta manager

Production support group

Legal support group

Engineering support group

Accounting support group

Project Gamma manager

Production support group

Legal support group

Engineering support group

Accounting support group

Emphasis on product (project, process, etc) and customer orientation Optimum resource allocation and flexibility. Close customer contact. Conflict between managers over allocation of resources. Lots of time taken up in meetings and firefighting. Role conflict/ambiguity due to a lack of unity of command (Dual command).

Hybrid Structure

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The shamrock organisation Core

Professional core and permanent staff of the organisation who are usually highly trained individuals with an in depth knowledge of the organisation, how it is run and its main objectives. These workers receive good remuneration packages but in return work hard and are committed to the organisation and are essential to the on-going success of the organisation. These are often managers, team leaders, professional staffs, skilled technicians, and skilled employees.

The second group represents the flexible and casual labor force (referred to as interface workers),made up of employees who work on a part time, temporary, seasonal or standby basis and perform relatively routine tasks and have little career progression. They allow the organisation to respond to variations in demand, for example, many retail outlets hire temporary sales employees over the Christmas period

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The third group or leaf consists of contractors, temporary and self employed staff (referred to as suppliers) who are hired when their particular skills and specialisms are required and paid based on results/output, usually in the forms of fees A fourth leaf of the shamrock may exist, consisting of consumers who do the work of the organisation. Examples are shoppers who bag their own groceries and purchasers of assemble-it-yourself furniture.

Separation of direction and management

Board sets the direction Board oversees/monitors management Management implement/carry out boards instructions The bigger the company, the greater the need for separate boards and management

Role of the board

King Report (South Africa) - role of the board is: To define the purpose of the company and the values by which the company will perform its daily existence and to identify the stakeholders relevant to the business of the company. The board must then develop a strategy combining all three factors and ensure management implements that strategy

Role of management
To ensure that objectives (strategic, tactical, operational, financial and non-financial) as set by the board of directors, are achieved. The manager will use resources (e.g. money, people, material, equipment, information, time and space) in the most effective and efficient way to achieve the objectives set (by the board).

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Span of control and Scalar chain

Span of control
The number of subordinates directly managed. Depends on:
Geographical distribution Ability Personality Support Organizational culture Scalar chain Complexity

Scalar chain
Organizations always have a hierarchy of command and authority. Fayol referred to the vertical arrangement of direct authority and responsibility as a scalar chain or line of authority. The length of the chain is the number of levels of authority and responsibility which constitute an organization's hierarchy, CEO through to cleaners.

Tall organizations
Large number of management levels Long scalar chain and small span of control. Typically connected to centralization, formal rule setting and division of labor (e.g. one man, one job). Top-down, command and control structures.

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Flat organizations
Few management levels, shorter scalar chains, wider spans of control. Typically decentralized and task orientated. Self-directed, self-managed, multidisciplinary, cross functional work teams where power flows from expertise, not position. Customer, problem and opportunity orientated.
Tall hierarchy

Tall versus Flat Organizations

Chief Executive Tall Organization

Span of Control is simply the number of people who can report to a single manager inside of the hierarchy.

Flat Organization
Flat hierarchy

Chief Executive

Relatively narrow span of control

Relatively wide span of control

TALL VS. FLAT STRUCTURES

TALL STRUCTURE
Close control Better coordination Fewer mistakes due to close supervision Good for staff desiring detailed guidance As levels in the hierarchy increase, communication gets difficult. More time being taken to implement decisions.

Centralization
The practice of minimal delegation of authority by senior management Decision-making authority is held at the core of the company, e.g. at head office. Tend to be found within tall, bureaucratic structures or command and control structures.

FLAT STUCTURE
Loose control Difficulty in coordination More mistakes due to loose supervision Good for staff requiring greater independence challenge and responsibility Results in quick communications, fast decision making but can lead to overworked managers

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Centralization advantages
Include:
Control over core resources Coordinated and uniform decision making Quick reaction to strategic requirements Uniform, controllable standards Easier to develop culture

Centralization disadvantages
Include:
Management overload Local (e.g. not head office) conditions and requirements may not be fully understood by central management. One-size may not fit all Slower reaction times to local issues May encourage revolts at local levels Discourages local initiative

Decentralization
The delegation of the freedom to make decisions Concerns the degree to which authority to act can be dispersed throughout an organisation. Requires autonomous business units or divisions and a flat structure management mentality. Advantages and disadvantages are basically the mirror to centralization

Decentralization Advantages Disadvantages

Senior management free to concentrate on strategy Better local decisions due to local expertise Better motivation due to increased training and career path Quicker responses/flexibility, due to smaller chain of command Frees Strategic apex Loss of control by senior management Poor decisions made by inexperienced managers Training costs

Duplication of roles within the organizations Dysfunctional decision making

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Anthonys Triangle

Anthonys hierarchy
Strategic = long-term, external, whole business, PEST, SWOT, Carried out by senior managers, 3 to 5 years implications Tactical = short to medium-term, internal and external, divisions, functional, managers and supervisors, mobilizing resources and innovating Operational = short-term, internal, day-to-day, supervisors and workers

STRATEGIC

TACTICAL
OPERATIONAL

The formal and informal organization

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The informal organisation

This organization evolves over time and is a network of relationships that exist within an organization These relationships could be as result of common interest or friendship No predefined layout or structure

The informal organisation

Formal = company policies, rules, internal controls and job descriptions. Informal = reality of day-to-day interactions between managers and employees. Together = best way of achieving.

Why it exist?
Personal relationships arise between individuals A group of individuals may share common interests E.g. Football, Politics and so form an informal organization Workers find new ways of doing things which save them time

The informal organisation

Advantages include:
Innovation and achievement beyond restrictions of formal rules Employee commitment: Higher motivation, job satisfaction, involvement and ownership Speed: Better communication Responsiveness: easy to adapt as directness and flexibility of such organization helps in times of rapid environmental changes

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The informal organisation

Disadvantages include:
Potential clash between formal and informal ways Can be used to increase opposition to change Gossip and rumor can be unproductive

Managers duties to minimize problems

Meeting employees needs as far as possible via formal organization: providing information, encouragement and social interaction Exploiting the dynamics of informal organization Involving managers themselves in the informal structure, so that they support information sharing, the breaking down of unhelpful rules and so on

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