IB Business and Management 2.2 – Organisation Structures HL content

Reminder of principles and terms Chain of Command – the number of layers in an organisational structure Authority - who is in control of whom Span of control – the number of subordinates reporting to a manager; advantages of a short chain: better communication and managers get to know subordinates better Delegation – passing down authority, responsibility remains De-layering – the removal of one or more layers from the organisational structure

Delegation The passing down of authority from a manager to a subordinate Responsibility stays with the manager Becomes inevitable as an organisation gets bigger and managers can’t do all of the tasks themselves

Accountability The extent to which a person is held responsible for the success or failure of a task.

Bureaucracy Bureaucracy is the prescribed rules, policies and procedures that an organisation has. This ‘red tape’ slows down decision making and make the business inflexible Bureaucracy is associated with large firms with tall structures

Examples of Bureaucracy Filling in forms Long chain of commands Inflexible procedures

Task Watch the video “A classic bureaucratic procedure’

Centralisation and Decentralisation

Centralisation vs Decentralisation

Centralisation and Decentralisation These words refer to the extent to which authority is delegated in an organisation Centralisation – only the top level managers have the authority to make decisions (all key decisions at Head Office) Decentralisation – delegation of decision making power is passed downwards

Is centralised or decentralised decision making better? Why? What does this depend on?

Advantages of Centralisation Senior management have more control and can make decisions from the point of view of the whole business Rapid decision making Senior managers are more experienced and skilful in making decisions and so should be of a better quality In times of crisis a business may need strong leadership by a central group of managers Decisions will be consistent

Advantages of Decentralisation It empowers and motivates workers It reduces stress on senior managers and releases them to perform more important tasks It provides subordinates with greater job satisfaction by giving them more say in decision making Subordinates may have more knowledge of ‘local conditions’ affecting their area of work allowing them to make well-informed choices It allows greater flexibility and quicker response to change It gives training for taking over higher positions.

Disadvantages of Decentralisation Loss of Control Greater chance of mistakes and inconsistency

Which is best? Depends on…. Size of organisation Time frame Importance of decisions Level of risk Culture Skill of the workforce/management When might centralised decision making be the most appropriate

Matrix Structures/Project Teams

What is a matrix structure A flexible organisation where employees from different functional areas of an organisation work together on projects The groups are lead by a project manager Each member of staff is accountable to 2 managers….. Their functional manager and their project manager

Key Features Emphasises getting people with specialist skills together in PROJECT TEAMS. Allows the organisation of tasks along lines that cut across departmental boundaries. Individuals within the team have their own responsibility.

Advantages of a Matrix The appointment of a project manager allows for better co-ordination of projects Increased flexibility Improved communication Cross-fertilisation of ideas. Increased opportunities for employees Motivating for employees

Can you think of any disadvantages?

Disadvantages of a Matrix Difficult to control Friction between new group members from different departments may arise. Contrasting sub-cultures of different departments may cause difficulties. increased administration costs Split loyalties of workers

Issues with Matrix Structures…. Training costs Wage expectations Motivating or demotivating?

Organisational Structure Flexible structures

Flexible structures Unlike a traditional hierarchical structure, flexible structures change in response to the businesses needs This requires staff to be multiskilled - trained in different job roles so they can be used where they are needed.

Henry Mintzberg

Mintzberg says……. The internal structure of an organisation depends on both the complexity and pace of change. Businesses will only be successful if the structure is flexible enough to deal with rapid change

Different parts of an organisation according to Henry Mintzberg Strategic Apex (top management – key decision makers) Middle Line (middle management) Operating Core (operations staff and processes) Techno structure (system of technical support) Support Staff (staff outside of the main process such as admin/ICT/marketing) Ideology (halo of beliefs and traditions; norms, values, culture)

Mintzberg’s organisational configurations Mitzberg devised 6 configurations for organisations. He says that all may be present but that one will be dominant

Innovative organisations (Adhocracy) Staff work in small teams to deal with tasks Decision making is decentralised No standardised procedures Firm is flexible and adaptive to change

Entrepreneurial organisations Decision making power is retained by the strategic apex There is direct supervision of staff Decision making is centralised

Machine organisations (Machine bureaucracy) Procedures are formalised There are set ways of doing things which are set out in policy documents Communication is clear but the organisation is inflexible

Divisionalised Structure Coordination is through the middle line. Each middle manager ensure that their teams achieve company standards. Structures can be inflexible unless there is effective decentralisation and delegation

Professional organisations The workforce is made up of professionals with standardised skills The organisational core specialise in a skill They are therefore not multiskilled so the structure is inflexible

Missionary organisations The organisation is coordinated through standard ideologies. Workers all share the same set of beliefs

Tom Peters

What Tom Peters Says….. People are an organisation’s core asset Flatter organisational structures are better as there is better communication, delegation and flexibility in adapting to change. These structures will promote innovation and commitment from the workforce. Successful businesses would: Remove bureaucracy Use project teams

Organisational Structure The informal organisation

The Informal Organisation A glance at an organisational chart can show who's the boss and who reports to whom. But this formal chart won't reveal which people confer on technical matters or discuss office politics over lunch. Much of the real work in any company gets done through this informal organisation with its complex networks of relationships that cross functions and divisions

David Krackhardt and Jeffrey Hanson (1993) say……. There are three types of informal organisational networks that exist in the workplace: Advice Networks People who are sought after to provide guidance and help solve problems Trust Networks People who can be relied upon for their dependability and trustworthiness Communication Networks People who talk to each other on a normal basis as friends These relationships exist between staff in different departments and different ranks and are in addition to formal communication networks

Benefits of firms acknowledging informal organisations: Motivation – These informal organisations can help develop a sense of belonging in the work place Better communication - Informal groups can be a good way of spreading messages and receiving feedback Better decision making – often informal groups are the ones who come up with the best solution.

Organisational Structure Outsourcing and Off shoring

Outsourcing/Subcontracting The act of finding an external party to carry out internal (and often non core) activities of the firm. Common activities outsourced Cleaning Accounting ICT maintenance Catering Recruitment and Selection Manufacturing of components Customer service call centres Security training

Task Watch the advert for Xerox and Marriot Hotels. What point is the advert trying to make?

Task BISS Puxi outsources: Catering Cleaning Some printing jobs Discuss….. Why? What are the benefits of doing this? What problems could it cause?

How does outsourcing reduce costs/efficiency? Job is being done by specialists who are more efficient Reduces the need for capital expenditure Different subcontractors may bid for the contract meaning that competitive prices are gained Increases flexibility Reduces labour costs The business focuses on it’s core operations

Potential problems of outsourcing? Can initially cause redundancies Quality needs monitoring Will the third party follow the same ethical standards?

Why do businesses choose to outsource? So that they can focus on their core operations Reduce costs If the business lacks expertise If the business is working at full capacity

Off Shoring Relocating business functions and processes overseas. This can be: Production offshoring (e.g. manufacturing) Service offshoring (e.g. call centres) Why would a firm do this? Where are popular offshoring destinations?

Benefits of offshoring to host countries Job creation Economic growth Tax revenue Development of skilled workforce Investment in infrastructure

Issues with offshoring: Is offshoring exploitation? Difficult to monitor ethical standards Communication difficulties Exchange rate fluctuations

Migration This refers to international movement of labour. This can be due to the following reasons: Skills shortages Free movement of labour Pay rate differentials Rise of multinationals Cheap/flexible migrant workers