Slide of strategic management w11

Learning objectives• Distinguish between the basic principles that determine the structural characteristics of complex human organisations • Discuss the role and importance of structura

Learning objectives

• Distinguish between the basic principles that determine the structural characteristics of complex

human organisations

• Discuss the role and importance of structural building blocks for structural arrangements

• Examine the differences between mechanistic and organic structural features

• Distinguish between specialisation, coordination and cooperation

• Illustrate and discuss types of organisational structure and their strengths and weaknesses

• The design of organisational structure and management control system is the key component of strategy implementation

• The formulation of strategy should not be separated from its implementation

• It is widely accepted now that ‘organisation structure should follow strategy’

Principles of organisational design

• The modern organisational design should incorporate key design principles or building blocks

• It is widely acknowledged that modern organisation has evolved from a purely functional to a highly

adaptable design

• Modern organisations have emerged from two key influences:

• Line and staff structure

• Multidivisional corporations

Line and staff structure

• Historically, most organisations were small and operated from a single plant or office.

• With advancement in transportation and communication, organisations commenced operating over a wider area

• These geographically dispersed units were managed by an administrative

headquarter.

• This organisational form was known as line and staff structure

Companies and markets

• The business corporation is one of the greatest innovation of modern civilisation

• Most of the modern world’s production of goods and services is undertaken by corporations — enterprises with a legal identity that is distinct from the individuals that own the enterprise

• In the capitalist economy, production is organised in two ways: in markets — by the price

mechanism — and in companies — by managerial hierarchical direction

Building blocks of structure

Fig 10.1

Mechanistic and organic forms

Table 10.1

Specialisation and the division of labour

• The fundamental source of efficiency in production is specialisation, especially the division of labour into separate tasks

• The more a production process is divided between different specialists, the greater are the costs of coordination

• The more volatile and unstable the external environment, the greater the number of decisions that need to be made and the higher are these coordination costs

The coordination problem

• No matter how great the specialist skills possessed by individuals, unless these individuals can coordinate their efforts, production can not occur

• Four different coordination mechanisms are common:

• Price

• Rules and directives

• Mutual adjustment

• Routines

The cooperation problem

• Cooperation problem refers to the problem of different organisational members having conflicting goals

• Several mechanisms exist for achieving goal alignment within organisations:

• Control mechanisms

• Financial incentives

• Shared values

Part b

Hierarchy in Organisational Design

Hierarchy in organisational design

• The traditional approach to large-scale organisation has been to create hierarchy

• Hierarchical structures are essential for creating efficient and flexible coordination in complex organisations

• The critical issue is not whether to organise by hierarchy — but how the hierarchy should be structured and how the different parts of it should relate to one another

Hierarchy as coordination: modularity

• A hierarchy is defined as a system composed of interrelated subsystems

• There are two key advantages to hierarchical structures:

• Economising on coordination

• Adaptability

Hierarchy as a control: bureaucracy

• It has been shown that hierarchy is an efficient solution to the problem of coordination

in organising complex tasks

• To the extent that hierarchy is also a device for exercising control, it is also one

solution to the problem of cooperation in organisations.

• Administrative hierarchies operate as bureaucracies

Rethinking hierarchy

• Hierarchical organisations generally add layers as they get bigger

• If the hierarchy is run as a bureaucracy with centralised power, growth implies an increasing ratio of managers to operatives, slower decision making and increased loss of control

• In a fast-paced business environment, the slow movement of information up the hierarchy and

decisions down the hierarchy can be fatal

Part c

Structural Types

Types of structure in focus

• Four common organisational forms include:

• The simple structure

• The functional structure

• The multidivisional structure

• The matrix structure

The simple structure

• It is a structure with a minimum level of division of labour

• Decision making is largely centralised in the hands of a single person, usually the founder, with very little formalisation

• The major advantage of a simple structure is its flexibility and adaptability

• A major weakness of the simple structure is the lack of consistency and sustainability

The functional structure

• Single-business organisations often tend to be organised along functional lines

• Grouping together functionally similar tasks is conducive to exploiting scale economies, promoting learning and capability building, and deploying standardised control systems

• Different functional departments however develop their own goals, values, vocabularies and

behavioural norms, which make cross-functional integration difficult

The multidivisional structure

• It is a structure that permits decentralised decision making where business-level

strategies and operating decisions are made at the divisional level

• The multidivisional structure is an example of a loose-coupled, modular organisation where business-level strategies and operating decisions can be made at the

divisional level, while the corporate headquarters concentrates on corporate planning, budgeting and providing common services

over-Applying the principles of organisational

design

• A fundamental problem of organisational design is reconciling specialisation

with coordination and cooperation

• Two key issues are:

• On what basis should specialised units be defined?

• How should decision-making authority be allocated?

Defining organisational units

• Some of the principal bases for grouping employees are:

• Tasks

• Products

• Geography

• Process

Organising on the basis of coordination

• This implies grouping individuals according to the intensity of their coordination needs

• Those individuals whose tasks require the most intensive coordination should work within the same organisational unit

Other factors influencing the definition

Contemporary organisational structures

• There have been major changes in the way organisational hierarchies are now organised

Some of the new structures include:

• Adhocracies

• Team-based and project-based organisations

• Networks

Part D

Management Systems

Management systems for coordination

and control

• Management systems provide the mechanisms of communication, decision making and

control that allow companies to solve the problems of achieving both coordination and cooperation Three key areas addressed are:

• Performance

• Culture

• Strategic planning and finance

Strategic planning systems

Fig 10.10

Financial planning and control systems

• Finance is a critical resources for all organisations

• Financial systems are a key mechanism to exercise control

• At the centre of financial planning is the budgetary process

• Two types of budgets should be well understood:

• Capital expenditure budget

• Operational budget

Organisational restructuring

• Changes are often painful to many employees as they can involve job losses, pay cuts and more

work

• Organisations should restructure to align with the changes

• The restructuring plan should identify appropriate staff to achieve the objectives of restructuring

• Organisational restructure should involve new organisational culture that is well communicated to all

employees

• This session has dealt with various aspects of organisational structure and control

• Some of the key issues to recall are that:

• strategy implementation is inseparable from strategy formulation

• organisational structure and systems are central to the fundamental issues of competitive advantage and strategy choice

• effective management systems for coordination and control are important