chapter 1 the business organisation. learning objectives define the term organisation explain the...

Chapter 1

The business organisation

Learning objectives

• Define the term organisation• Explain the need for a formal organisation• Distinguish between different types of

organisation• Summarise the main areas of responsibility

for different functions within an organisation

• Explain how different departments co-ordinate their activities

• Explain the nature and process of strategic planning

• Explain the purpose of each level of organisational management

The business organisation

ORGANISATIONS

NATURE MAIN DEPARTMENTS PLANNING LEVELS

1. The nature of organisations

ORGANISATIONS

WHAT ARE THEY? WHY DO WE NEED THEM? DIFFERENT TYPES

What is an organisation?

• ‘Organisations are social arrangements for the controlled performance of collective goals.’ (Buchanan & Huczynski)

• It is a social arrangement which pursues collective goals, which controls its own performance and which has a boundary separating it from its environment.

• It is a group of individuals working together in a systematic way to achieve a set of objectives or common goals.

What is an organisation?

• Key aspects• Collective goals• Social arrangements• Controlled performance

• It can also be seen as a machine which;• Receives inputs form its

environment in the form of resources

• Converts them into outputs

What makes an organisation?

• People: individuals who interact together

• Purpose: to achieve a set of common objectives

• Structure: defines & regulates behaviour of members

• Converts resources (inputs) into some kind of output.

Why do we need organisations?

• Organisations can achieve results that cannot be produced by individuals on their own.

• This is because organisations enable people to:• Share skills and knowledge• Specialise• Pool resources • Save time• Enable synergy

How organisations differ?

• Activity• Size• Ownership• Control• Legal status• Sources of finance• Technology• Profit vs. non-profit oriented

Classifying organisations by legal form

• Sole traders

• Partnerships

• Limited companies

Sole traders

• No separate legal entity• own & run their enterprises• contribute capital to start• run them with or without employees,

and• earn the profits or stand the losses of

the venture

Partnerships

• No separate legal entity• are arrangements between 2 or more

people to carry on a biz on an agreed basis.

Limited companies

• Have separate legal personalities.• Liability of the s/holders for the debts of

the company only extend to the capital they have contributed.

• May either be private, with from 2 to 50 s/holders, or public, with no upper limits on the # of s/holders.

Private vs. public limited companies differ with respect to:

• Number of shareholders• Transferability of shares• Directors as shareholders• Source of capital

Advantages and disadvantages of limited companies:

Advantages Disadvantages

More money available to invest Legal compliance costs

Reduces risk for investors Shareholders have little practical power other that to sell their shares to a new group of managers.

Separate legal personality

Ownership is legally separate from control

No restrictions on size

Flexibility – capital and enterprise can be brought together

Classifying organisations by profit orientations

• Profit-seeking organisations• Main objective is to maximise wealth of

the owners• 3 primary objectives:

• Continue in existence• Maintain growth and development• To make a profit

• Not-for-profit organisations• Seek to satisfy the particular needs of

their members or sectors of society• Exp. of NPO: Hospitals, Councils,

Charities, Government organisations

Classifying organisations by ownership/control

• Public sector organisations

• Private sector organisations

• Co-operatives Autonomous association of persons united voluntarily to meet their common economic, social and cultural needs and aspirations through a jointly owned and democratically controlled enterprise

Non-governmental organisations

• Independent voluntary association of people acting together for some common purpose (other than achieving government office or making money)

• Organisational features of NGO’s:• Staffing by volunteers as well as full

time employees• Finance from grants or contracts• Skills in advertising and media

relations• Some kind of ‘national HQ’• Planning and budgeting expertise

2. The roles and functions of the main departments in a business organisation

• Main departments in an organisation • R&D• Purchasing• Production• Direct service provision• Marketing• Administration• Finance HR

• Co-ordination

3. Strategic, tactical and operational planning levels in the organisation – The Anthony Hierarchy

Different levels of planning

• Strategic planning is long-term, looks at the whole organisation and defines resource requirements.

• Tactical planning is medium-term, looks at the department/divisional level and specifies how to use resources.

• Operational planning is very short-term, very detailed and is mainly concerned with control.

The nature of strategic planning

• Long-term perspective• Looks at the whole organisation as well

as individual products and markets• Sets the direction of the whole

organisation and integrates its activities• Considers the views of all stakeholders,

not just the shareholders’ perspective• Analyses the organisation’s resources

and defines requirements• Relates the organisation to its

environments• Looks at gaining a sustainable

competitive advantage

The strategic planning process

1. Strategic analysis – 3 key areas• External analysis• Internal analysis• Stakeholder analysis

2. Strategic choice – 3 key angles to consider• What is the basis of our strategy? • Where do we want to compete? • How do we want to get there?

3. Strategic implementation• Long-term strategy needs to be

translated into plans for marketing, HRM, IT, production, organisational structure etc.

Chapter summary

ORGANISATIONS

NATURE MAIN DEPARTMENTS PLANNING LEVELS

Definitions•Social arrangements•Collective goals•Controlled performance

Types•Profit seeking vs. NFP•Private vs. public sector•Co-operatives

Main functions•RnD•Purchasing•Production•Direct service provision•Marketing•Admin•Finance

•Strategic(long-term, whole org.,resource requirements)•Tactical(shorter-term, divisional level, how use resources)•Operational(very short-term, detailed,mainly control)

Chapter 2

Organisationalstructure

Learning objectives

• Ways in which an organisation might be structured

• Adv/disadv of different organisational arrangements

• Scalar chain and span of control• Separation of ownership and management • Tall and flat organisational structure• Centralised/decentralised structure• Adv/disadv of de/centralised structure• Nature of ‘informal organisation’• Adv/disadv of the informal organisation• Identify what impact the informal organisation

has on the business• How can managers foster the benefits of the

informal organisation while at the same time reducing its potential disadv

Organisational structure

ORGANISATIONAL STRUCTURE

TYPES CENTRALISATIONINFORMAL

ORGANISATION

Organisational structure

• Structure of an organisation:a. Allocates work into distinct tasksb. Coordinates the people carrying out

the tasks

• Provides a framework for controlled performance of collective goals

• Organisational chart

• Formal vs. informal organisation

Type Rationale

Entrepreneurial Typical in small owner managed companies.

Functional Departments are based on common specialisation. Best suited to companies operating in a stable environment with few products.

Divisional Each product or group of products set up as a separate division.

Geographical Activities are grouped according to location.

Matrix A combination of the functional and divisional. Dual reporting lines

Entrepreneurial

• Built around the owner manager• Typical of small companies in early

stages of development• Entrepreneur has specialist knowledge

of p/s• Example owner/managed business

Entrepreneurial


Fast DM

More responsive to market

Goal congruence

Good control

Close bond to workforce

Lack of career structure

Dependant on the capabilities of the manager/owner

Cannot cope with diversification/growth

Functional structure

• Common in organisation that have outgrown the entrepreneurial structure

• Small companies with few products and locations

• Relatively stable environment• E.g. business making one type of

electrical component for use in a car manufacturing company


BOARD OF DIRECTORS

MARKETINGDEPARTMENT

PRODUCTIONDEPARTMENT

FINANCEDEPARTMENT

PERSONNELDEPARTMENT



Economies of scale

Standardisation

Specialists more comfortable

Career opportunities

Empire building

Slow

Conflicts between functions

Cannot cope with diversification

Product/Division/Department

• In accordance with product lines or divisions or dept.

• Headed by general managers who enjoy responsibility for their own resources

• Divisions as profit centres and strategic business units

• Some dept. will be centralised (e.g. accounts)

Product/Division/Department structure

BOARD OF DIRECTORS

CHEMICALSDIVISION

PLASTICSDIVISION

ELECTRICDIVISION

FUNCTIONS

Product/Division/Department


Enables growth

Clear resp. for products/divisions

Training of general managers

Easily adapted for further diversification

Top mgt free to concentrate on strategic matters

Potential loss of control

Lack of goal congruence

Specialists may feel isolated

Allocation of central costs can be a problem

Geographically structured

• Grouping activities on the basis of location

• Common in organisations that operate over a wide geographic area

• Often, some departments will be centralised (accounts)

• E.g. Kaplan


BOARD OF DIRECTORS

NORTHERNDIVISION

EASTERNDIVISION

SOUTHERNDIVISION

FUNCTIONS



Enables geographic growth

Clear resp. for areas

Training of general managers

Top mgt free to concentrate on strategic matters

As for divisional structure

Matrix

• Aims to combine the benefits of decentralisation and co-ordination

• Employees from various departments have to form a group to achieve a specific target

• Dual reporting to managers • Mix of product and functional structures

Matrix

FUNCTIONAL STRUCTURE

PRODUCTIONDEPT

SALESDEPT

FINANCEDEPT

ProductionManager A

ProductionManager C

ProductionManager B

R&DDEPT

SENIOR MGT

Matrix


Adv of both functional and divisional structures

Flexibility

Customer orientation

Encourage teamwork and the exchange of opinions and expertise

Dual command and conflict

Dilution of functional authority

Time-consuming meetings

Higher admin costs

Contingent factors affecting an organisation structure

• Age of the organisation• Size of the organisation• Technology• Staff employed• Business strategy• Activities of the organisation• Environment

Components of the organisation - MINTZBERG

STRATEGIC APEX

TECHNO STRUCTURE SUPPORT

STAFFMIDDLE LINE

OPERATING CORE

Further aspects of organisational structure

• Tall vs. flat organisations

• Scalar chain • Line of authority which can be

traced up or down the chain of command

• Relates to number of mgt levels within an organisation

• Span of control• Number of people for whom

manager is directly responsible

Further aspects of organisational structure

• Factors that influence span of control• Nature of work• Type of personnel• Location of personnel

• Mgt style• Mgt capabilities, workload• Level of organisational support for

routine tasks• Interaction between subordinated• Nature of problems

Centralisation vs. Decentralisation

Centralised structure Decentralised structure

The upper levels of an organisation’s hierarchy retain the authority to make decisions

The authority to take decisions is passed down to units and people at lower levels. Can lead to extra costs in obtaining informationBetter motivation due to increased training and career path

Centralisation and decentralisation

• Centralised:• Upper levels retain authority to

make decisions• Decentralisation:

• Authority to take decisions is passed down to units and people at lower levels

• Influencing factors:• Mgt style• Ability of mgt/employees• Locational spread• Size of the organisation/scale of

activities

Decentralisation


Senior mgt 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

Loss of control by senior mgt

Dysfunctional decisions due to lack of goal congruence

Poor decisions made by inexperienced managers

Training costs

Duplication of roles

Extra costs in obtaining info

Handy’s Shamrock

Core group of managers and professionals

CORE

Flexible labour force

INTERFACE

Contractual fringe

SUPPLIERS

Handy’s Shamrock

• Handy’s “shamrock” form:1. Core group of managers & professionals

with critical skills

2. Flexible labour force – increasingly part-time improve organization’s flexibility

3. Contractual fringe – use of independent contractors

4. Customers

• Smaller and more flexible• Ability to respond to the

business cycle• With new technology,

fewer people can do more

• Great success in the manufacturing industry

• Risks trading short term gains for long-term decay

• Less than half of downsized companies increased profits

• Workers become less loyal to companies

• Sacrifice of knowledge and skill

“Lean and Mean”

Benefits Costs

Informal organisation

• An organisation evolves over time and is a network of relationships that exist within an organisation

• Relationships due to common interests or friendships

• Relationships across divisions • Daily interactions between staff

members through these relationships

• Within a formal organisation, an informal organisation will be present

• All organisations have some mix of the two

Informal organisation

Advantages DisadvantagesBetter motivation

Better communication

Inefficient organisations

Opposition to change can be intensified

‘Grapevine effect’

Impact of informal organisation on the business

• Informal organisation can enhance or hold back the business

• Managers have to ensure that they• Adapt a formal structure to

complement the informal one• Maintain a looser formal structure

so that the informal structure can thrive

• Take account of the informal structure in DM

The new organisation

• Flat structures• Horizontal structures• Chunked and unglued structures• Output focused structures• Jobless structures• Virtual organisations

Chapter summary

ORGANISATIONALSTRUCTURE

TYPES OF STRUCTURE ASPECTS

INFORMALORGANISATION

CENTRALISED/DECENTRALISED

Entrepreneurial

Functional/Department

Divisional/Product

Geographical

Matrix

Divorce of ownership and control

Scalar chain

Span of control

chapter 1 the business organisation. learning objectives define the term organisation explain the...

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