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A22 THE COMPETITIVE BUSINESSENVIRONMENT – ORGANISATIONAL DESIGN
FACTFILE:GCE BUSINESS STUDIES
Organisational Design
Learning outcomesStudents should be able to:• evaluate the various types of organisational
structures in business.
Formal and Informal organisational structures:There are likely to be both formal and informal information channels and networks in many businesses. • Formal – prescriptive organisation structures
in place
• Informal - no prescriptive organisation structures identified
• Line organisational structur• Staff or functional organisational structure• Line and staff organisational structure• Committee organisational structure• Divisional organisational structure• Project organisational structure• Matrix organisational structure• Hybrid organisational structure.
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FACTFILE: GCE BUSINESS STUDIES / A22 ORGANISATIONAL DESIGN
Advantages:1. Simplifies and clarifies authority, responsibility
and accountability relationships2. Promotes faster decision making3. Simple to understand.
Disadvantages:1. May overload key personnel2. Neglects specialists in planning.
Figure 1: Line Organisation Structure:
CEO
Manager(Production)
Manager(Marketing)
Foreman(Fabrication)
Workers
Foreman(Assembly)
Workers
Sales Officer(A)
Salespersons
Sales Officer(B)
Salespersons
Line Organisation Structure
This form of organisation structure features direct vertical relationships between various levels in the business.
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FACTFILE: GCE BUSINESS STUDIES / A22 ORGANISATIONAL DESIGN
Figure 2: Functional Organisation Structure
Advantage:1. Staff personnel who are specialists in some fields
are given functional authority.
Disadvantages:1. Potential for conflict resulting from violation of
principle of unity of command; 2. Tendency to keep authority centralised at higher
levels in the business.
Director(Production)
Director(Finance)
Director(R&D)
Director(Personnel)
Director(Quality Control)
GM(Production)
Manager(Works)
Foremen
Workers
Line AuthorityGM (Q.C.)
Staff Authority
Manager (Q.C.)
(Q.C.) Engineer
Inspectors
Legend:QC = Quality ControlGM = General ManagerR&D = Research & Development
M.D.
Line Authority
Staff Authority
Functional Organisation Structure
In this type of organisation structure, individual line managers cannot be experts in all the functions they are required to perform.
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FACTFILE: GCE BUSINESS STUDIES / A22 ORGANISATIONAL DESIGN
Figure 3: Line and Staff Organisation Structure
DIR(H.R)
DIR(Q.C)
DIR(MKTG)
DIR(PRODN)
DIR(R&D)
DIR(FIN)
GM (MFG)
MGR (Works)
F.M/Supervisor
Workers
GM (Personnel)
Manager (Personnel)
Personnel Officers
Personnel Assistants
LegendHR - Human ResourcesMKTG - MarketingR&D - Research and DevelopmentMFG - ManufacturingMGR - Manager
DIR - DirectorQC - Quality ControlPRODN - ProductionFIN - FinanceGM - General ManagerFM - Foreman
Staff responsibility
Advantages:1. The staff structure allows greater flexibility
and specialisation.2. The specialists’ knowledge and expertise is
pre-dominant.
Disadvantages:1. Conflict between line managers and staff may
still arise.2. Staff may resent their lack of authority.3. Co-ordination between line and staff may give
rise to personal conflict/difficulties.
CMD
Line Authority
Line and Staff Organisation Structure
In this type of organisation structure, staff authority of functional authority organisational structure is replaced by staff responsibility so that the principle of unity of command is not violated.
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FACTFILE: GCE BUSINESS STUDIES / A22 ORGANISATIONAL DESIGN
Figure 4: Divisional Organisation Structure
Features: Structure based on division of work based on a functional activity such as finance, marketing etc., or based on type of products manufactured or based on geographic location of the units or based on projects undertaken.
e) Departmentation by combination approach (Combination of any two or more bases discussed above).
M.D. - Managing DirectorG.M. - General Manager
a) Departmentation by Function
M.D.
GM(Fin)
GM(Mktg)
GM(Prodn.)
GM(R&D)
GM(Per)
b) Departmentation by Product
DIR(Mktg.)
Mktg. Mgr(a Products)Nihilius,
Mgr. Mktg(Video Products)Artus
Mgr. Mktg. (Entertainment)Electronics Products)
c) Departmentation by Geographic Territory
GM(Mktg)
Mgr. Sales(Northern Region)
Mgr. Sales(Southern Region)
Mgr. Sales(Western)
Mgr. Sales(Eastern Region)
Chief Executive
Project Mgr(Project A)
Project Mgr(Project B)
Project Mgr(Project C)
d) Departmentation by Project
Divisional Organisation Structure
Different types of divisional structure are possible, organised as follows:• Function,• Product,• Geographic territory,• Project and• Combination approach.
Advantage:Outlines clear lines of authority across divisions of the business.
Disadvantage:May be too complex to understand.
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FACTFILE: GCE BUSINESS STUDIES / A22 ORGANISATIONAL DESIGN
In some larger business organisations, projects or tasks may be too complex for individual departments or personnel to manage. In order to manage such situations, project organisations and matrix organisations have emerged.
Figure 5: Project Organisation Structure
M.D.
GM(Personnel)
GM(Marketing)
GM(Finance)
GM(Research and Development)
GM(Quality Control)
GM(Production)
Product Manager A
Product Manager B
(R & D]Engineer
TestEngineer Technicians
(R & D]Engineer
TestEngineer Technicians
Advantages:This structure is useful when:• Work is defined by a specific goal or target date
for completion.• Work is unique and unfamiliar in the business
organisation.• Work is complex having independent activities
and specialised skills are necessary for accomplishment.
• Work is not repetitive in nature.
Project Organisation Structure
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FACTFILE: GCE BUSINESS STUDIES / A22 ORGANISATIONAL DESIGN
Figure 6: Matrix Organisational Structure
Advantages:1. Decentralised decision making is prevalent2. Strong product/project co-ordination between staff3. Enhanced environmental monitoring.4. Responds to change quicker.
Disadvantages:1. Administration costs may be higher.2. Confusion over authority and responsibility of
key personnel likely.3. Possibility of conflict greater.
Matrix Organisation Structure
Matrix Organisation Structure:This type of organisation structure is a permanent organisation designed to achieve specific outcomes by using teams of specialists from various functional areas in the organisation.
President
V.P. (Research & Development)
V.P.(Operations)
V.P.(Marketing)
V.P.(Finance)
Manager Business
Manager Business
Manager Business
MgrA1
Mgr A2
Mgr A3
Mgr A4
MgrB1
Mgr B2
Mgr B3
Mgr B4
Mgr C1 Mgr C2 Mgr C3 Mgr C4
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FACTFILE: GCE BUSINESS STUDIES / A22 ORGANISATIONAL DESIGN
Figure 7: Hybrid Organisation Structure
Board of Directors
Managing Committeechairman of Board (A)
President (B)Two vice presidents (C & D)
A A A
V.P.(Law &
External)
V.P.(R&D)
V.P.(Science &
Technology)
Controller(Finances & Resources
Mktg(Services &
Quality)
Personnel
A A A
V.P. & GM(North America)
C
V.P. & GM(Asia)
C
V.P. & GM(Europe)
C
V.P. & GM(USA)
B
This type of organisational structure is typically used by multinational companies operating in the global environment. A combination of different organisation structures often yields a ‘hybrid’ organisational structure:
Hybrid Organisation Structure
Advantages:1. Aligns corporate and divisional goals2. Facilitates functional expertise and efficiency
to prevail3. Allows organisation to adapt and operate
flexibly to meet goals.
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FACTFILE: GCE BUSINESS STUDIES / A22 ORGANISATIONAL DESIGN
An informal organisation is the set of relationships and patterns of human interaction which appear to evolve in a business organisation which are not officially documented, however they may exist alongside the formal organisation.
An informal organisation structure is one which consists of informal relationships created not by officially designated managers but by organisational members at every level. It may not be possible for managers to avoid such informal relationships, therefore they must be trained to cope with it.
An informal organisation structure may exhibit the following features:• members are joined together to satisfy their
personal needs (need for friendship, socialising etc.)• It changes on a regular basis, often dynamic in
nature.• It may include members from various
organisational levels.• the structure may be affected by relationships
outside the firm.
Advantages:1. Workloads may be completed quicker2. Addresses potential weakness in the formal
organisation structure3. Extends the effective span of control.
Disadvantages:1. May mitigate against the aim of a formal
organisation structure2. Greater levels of unpredictability or
random events3. The number of practical alternatives are reduced.4. Time consuming.
Informal Organisation Structures
An organisation structure in a business will help determine how the roles, power and responsibilities are assigned, controlled, and co-ordinated, and how information flows between different levels of management.
Summary
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FACTFILE: GCE BUSINESS STUDIES / A22 ORGANISATIONAL DESIGN
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Revision Questions
Explain what is meant by the term ‘organisation structure’.
2 Explain the term ‘informal structure’ and analyse two ways in which this might impact a large MNE.
3 Analyse the impact of a reduction of span of control if a large business decides to change from a ‘line and staff’ organisation structure to a divisional structure.
4 Evaluate the usefulness of a project organisation structure in a large MNE which participates in global trade activities and is currently experiencing growth in profitability and efficiency.
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