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Chapter 11
Organisational structure
Definition
A structure is the grouping of organisational activities to promote the attainment of the organization’s goals and objectives. Each sub-‐ division influences the overall performance and more broken down, each individual does. It should reflect the need for process control, order, and stability with clearly defined roles and lines of authority connected to the required flexibility.
Determinants of structure
Not mutually exclusive but play contributing roles in informing decisions.
Environment
-‐ Pace of change in the environment changes the organisational structure -‐ Key determinant of organizational structure (Burns and Stalker, 1961) à more ‘organic’ than ‘mechanic’ structure required -‐ Adapting can take place in sub-‐divisional levels -‐ Structure as the key to understand these levels Environment Technology Size and Control Strategy Human resources Stakeholders Culture
Technology
-‐ Different structures depending on the technology used (e.g. pyramide hierarchy in companies with unit and small production but diamond shaped in process production -‐ Woodward (1965) states three main groups i. Unit and small-‐batch production : flexible structure required to facilitate innovative and new designs of products ii. Large-‐batch or mass production : more formal structure due to mass production of standardized products iii. Automation : flexible structure in fully automated processes where workers can react to problems quickly ( e.g. car manufacturing )
Human resources
-‐ Workers determine structure as they cannot be taken out of consideration -‐ In a learning organisation a flexible structure is required, but in a company with less highly skilled workers a hierarchal structure would be better
Size and control
-‐ The bigger the company the more structure and control is needed -‐ The bigger the company gets the more it has to move away from his centre, may this happen by ‘outsourcing’ several departments or creating sister companies
Strategy
-‐ Differentiation strategy à flexible structure, Low-‐cost strategy à formal structure -‐ Structure follows strategy vs. strategy follows structure
Culture
-‐ Organizational and social culture determines structure à open culture, equality, individualism è more open structure, collectivism è hierarchy
Stakeholders
-‐ Stakeholders can make pressure to change a organizational structure -‐ E.g. after finance crisis, bankers could not act they used to act à shift to more formal structure è Structure essentially important for the performance of an organization
-‐ Better monitoring and evaluation performance -‐ More efficient environmental scanning Disadvantages -‐ May lack cooperation between departments -‐ Focus on functional goals at the expense of organisation-‐wide goals
Geographical and product-‐based structures
Specialisation either on product-‐base or geography ( e.g. CEO and then departments for product A, B,C, D or for Europe, America, Asia )
Multidivisional structure
Used in case of market expansion or product diversification à Then divided into divisions , which can be grouped around a market or a product è e.g. combination of geographical and functional structures Advantages -‐ Maintains control and direction -‐ Helps manage growth -‐ Retains specialism of workers -‐ Focus on customer needs ( e.g. local needs ) -‐ Customer focus integrates cultural needs Disadvantages -‐ Escalating costs and increasing complexity -‐ Risk of duplication of effort and resources -‐ Inter-‐divisional rivalry -‐ Risk of ‘strategic drift’
Strategic Business Units (SBU)
SBUs are autonomous businesses within a corporation, which are responsible for special external markets. Advantages -‐ Flexibility -‐ Strategic use of the knowledge and expertise of managers who understand the environment they are working in
Matrix structure
Complexity increases à more functions; products and markets have to be coordinated è Matrix-‐system with dual-‐reporting relationships in the communication system à combines functional and product departments
Advantages -‐ Flexible to support growth -‐ Team form and disband as required -‐ Maintains specialisation of workers located in functional units and working in a production team -‐ Helps communicating and knowledge sharing -‐ Integrates function and product areas Disadvantages -‐ Lack of clarity in command -‐ Complex reporting network -‐ Politically motivated factions may emerge that undermine integration -‐ Ill-‐defined command can result in conflict -‐ Increased pressure of workload on management
Project-‐based structure
Can be found in almost every organization à permanent or temporal appearance Advantage -‐ Team consists of people from different functions and levels to achieve multidisciplinary input to decision making Disadvantage -‐ Can create problems between temporarily matrix arrangements and the permanent functional relationships
Virtual organisational structure
Realizable through advance in information and communication technologies (ICTs) à A group of companies collaborate as one to fulfil the need of the customer; A HUB (-‐organization) links the needs of the customer with the different teams (other organizations); it manages the relationships not the teams itself è HUB directs and teams react to change Consensus has to be achieved concerning the goals, processes, systems and metrics chosen. Advantages -‐ Flexible, dynamic, and quick to respond to market opportunities -‐ Cost effective due to lower overheads -‐ Access to a wide range of skills, experience, and expertise -‐ Customisation and personalisation according to customer needs -‐ Choice of participation entails less risk Disadvantages -‐ Relies on mutual understanding of goals across potentially multiple partners
