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Conversely, a wide span of control, in which as many as 10 or 15 people may report to the same person, results in a flat organisational structure given below.
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Traditionally, an organisation chart is constructed in a pyramid form with individuals towards the top of the pyramid having more authority and responsibilities than individuals towards the bottom. The larger the organisation is, the more complex its structure and therefore its organisation chart will be.
Like all descriptive models, organisation charts tell us what we want to know and leaves out other details. So, they do not reveal many things. We learn little of what happens, or of how the system behaves. Important features not shown include relationships that cut across the normal hierarchy, power distances between levels, information flows, committees and other group activities, and details of each manager’s responsibilities.
Formal versus Informal Organisational Structures
In general terms, there are two types of structure in organisations: formal and informal. Formal structure is the one in which the relations among organisational resources are outlined by management and it is represented graphically in a chart. An example of formal structure would be the combination of groups of people into departments by management. Informal structure, on the other hand, is the one in which the patterns of relationships among organisational resources develop informally because of the existence of organisation members. An example of informal structure would be a group of people, perhaps from different departments, who are good friends. Informal structure evolves naturally and tends to be molded by individual norms, values and/or social relationships. Informal structure coexists with formal structure, but is not necessarily identical to it.
Just as structure can be formal and informal, so too can communication. While formal organisation structure is represented graphically in an organisation chart, “grapevine” is a term used to describe informal communication networks in organisations or communication that does not follow formal communication lines as established by management in the organisation chart.
Text 3.6. Read the text and give a gist of each formal organisation structure described.
Main Formal Organisational Structures
Although there are many complex sources of profitability and productivity, the importance of a formal organisation structure cannot be overemphasised. Which organisation structure is best suited to the business? Throughout the history of management practice, managers have struggled with this complicated issue.
Functional form
Shortly before the First World War, the French industrialist Henry Fayol organised his coal-mining business according to the functions that it had to carry out. He is generally credited with inventing functional organisation. Today, most large manufacturing organisations have a functional structure.
The functional type of organisation structure reflects an arrangement based on the nature of the activities that must be performed. Related activities, similar tasks and specialists are grouped together in the functional areas with which they are most clearly identified. They are based on disciplines such as production, marketing, finance and personnel. The chief executive of each area occupies a position on the second level of the organisation and generally has the title of Vice-President. The subdivisions of the area report to that person. The figure below is a simplified functional organisation structure.
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Since functional authority is the right to give orders within a segment of the organisation in which this right is normally nonexistent, this authority is usually assigned to individuals to complement the line or staff authority already possessed. Functional authority is generally established to cover only specific task areas and is operational only for designated amounts of time. Functional authority is typically possessed by individuals, who in order to meet their responsibilities, must be able to exercise some control over organisation members in other areas. Hence, the structure’s most distinguishing feature is that staff managers may have line (functional) authority for their particular activities.
As an illustration of functional authority, we may consider an organisation’s vice-president of finance in the figure above. Among his/her most basic responsibilities is the obligation to monitor the financial situation within the organisation. In order to accomplish this monitoring, however, he/she must have appropriate financial information continually flowing to him/her from various segments of the organisation. The vice-president of finance is usually delegated the functional authority that allows him/her to order various departments to furnish him/her with the kinds and amounts of information he/she needs in order to perform the analysis. In reality, the functional authority that this vice-president possesses allows him/her to give orders to personnel within departments in which he/she normally cannot give orders and production and marketing departments cannot take financial decisions without consulting the finance department.
The advantage of the functional structure is that it allows for coordination of related activities, thereby reducing the risk of empire building by specialised areas and resulting in greater efficiency. Functional departments grow in SMEs as each manager takes on assistants to cope with the increasing workload.
The major disadvantage is that such companies may experience interdepartmental rivalry because people are usually more concerned with the success of their own department than that of the company as a whole, so there are permanent battles between, for example, finance and marketing, or marketing and production, which have incompatible goals. Another disadvantage of the structure is that unless caution is observed in delineating line authority, some personnel may be subject to the orders of too many bosses. Thus, contradictory directives could be given. A third criticism is that separating functions is unlikely to encourage innovation.
Divisional Structure
The invention of the divisional, often called the multi-divisional, structure is attributed to Alfred Sloan who reorganised General Motors this way. Each division had its own engineering, production and sales departments, and made a different category of car (but with some overlap, to encourage internal competition), and was expected to make a profit. The unifying theme of the division is its output. Each division operates as if it is almost an autonomous business within the whole organisation. This type of organisation is valuable when:
•the size of each division is sufficient for it to be able to provide its own specialists, such as accountants and engineers; and
•the work of each division is relatively independent so that their operations do not need close coordination.
There are three themes found in the setting up of divisions – products, geography and customers. 1) Product-Based (Brand) Divisions
Many large organisations are organised by product. The advantage of such an organisation lies in the unification of effort towards the supply of a particular bundle of goods and services. This system can also be called the product-manager system or the brand-manager system. The essence of this structure is that the effort associated with the marketing of a particular product or group of products is coordinated and made the responsibility of a product manager. This form of organisation is suggested when a multiproduct firm becomes so large as to result in excessive dilution of management expertise with respect to the expanded number of products in the firm’s offerings.
Despite the popularity of the product-manager system, there have been many problems associated with its use. Some firms such as PepsiCo, Eastman Kodak and Levi Strauss have abandoned it after using it for a number of years. It is argued, for example, that many product managers have had very little advertising experience and therefore have only a halfhearted interest in that function. Moreover, it is said that many lack the creativity and risk-taking characteristics considered necessary for complete marketing success. As a result, the system has undergone numerous changes over the years, and it is not possible to illustrate a universally accepted structure. The figure below, however, represents the ideas embodied in the system.
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The figure incorporates some elements of a functional structure into the product-manager system (all functions are not shown). For example, the advertising manager, who occupies a position on the same level as the product managers and who coordinates all the company’s advertising, has line (functional) authority over the advertising manager for Product B. Similarly, the sales manager has line authority over the Product В sales manager. The same structure and relationships would prevail for Products A and С.
2) Geographically based divisions
Geography is a common basis for structural design, especially in large companies whose operations are widely dispersed. Service companies, from transport to retailing, can offer the same group of products to customers in many locations. They may then be best organised by region. For example, British Airways has geographic divisions. Among global corporations, the polycentric MNE splits geographically.
The geographic organisation structure is particularly useful in connection with the personal selling part of the promotion function. Decentralisation of authority is virtually mandatory in managing salespeople, although it can be adapted to the entire organisation if circumstances suggest such an arrangement. The figure of a simplified geographic structure below illustrates a geographic organisation of the personal selling function.
The figure shows the entire market of a company divided into three regions; each region has a sales manager who reports to the general sales manager. Each region is divided into districts as indicated for Region II, and each district has a sales manager whose immediate superior is the regional manager. The salespeople in each district are directly responsible to their respective district sales managers.
The geographical structure reflects decentralisation and pushes authority and responsibility close to the scene of action. Such an arrangement provides for better relationships with customers in handling their problems and adjusting complaints.
3) Customer-based divisions
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Here the organisation matches customer differences in its structure. This approach is useful when customer groups demand dissimilar products or require them to be supplied in distinct ways. Some companies can separate their sales and service organisations between businesses and consumers. Others may have different SBUs. Ferry companies, for example, frequently separate passengers and freight which is shown in the figure below representing a simplified customer-based divisional structure.
Organisation design is often a compromise. More competitive and dynamic times require more entrepreneurial, flexible forms.
Hybrid forms
Each basis of departmentalisation above is in its ideal form. In practice, however, organisations stray from the ideals, adapting them according to circumstances. Many organisations, moreover, split differently at each level. The figure on p.116* illustrates a supermarket firm with a functional structure at board level, two levels divided geographically and lastly product departments within each store. International retailers often have another geographic layer on top.
Matrix form
A form of organisation structure that combines some aspects of both the functional and the productmanager types is the matrix structure. This form, adopted by some firms, reflects the notion that sometimes there should be equal influence by different lines of authority over the same resources.
* Naylor J. Management. Pearson Education, 2004, p. 322.
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Companies using some variation of the matrix structure generally have a product or project manager, who coordinates all the activities necessary for the successful completion of a particular endeavor. In fact, the matrix form is particularly useful in connection with specific project contracts.
The unique feature of the matrix structure is that the personnel in the company’s functional divisions report to two or more superiors on the same level. Thus, complete line authority (perhaps “negotiated”) may exist horizontally as well as vertically as indicated in the figure below.
The personnel in the functional areas of marketing and production are under the authority of two bosses – the heads of their respective areas and a product manager. Thus, the product manager must negotiate with the marketing and production managers for the services of the personnel in those divisions. Such a system creates problems not found in the more traditional organisation structures, but the advantages of increased flexibility and a meld of specialisation and coordination are considered by many to be compensating factors. Furthermore, when the system is properly implemented, conflicts are resolved before they get to the top.
Advantages of matrix organisations are the following:
•integration of important functions such as sales and marketing, production and project management;
•improved information flow;
•flexibility in response to changing market and competitive environments;
•coordination at appropriate levels in the organisation; and
•managers report directly to those who are responsible.
Disadvantages of matrix organisations are the following:
•conflict between managers over range of responsibility;
•possible loss of efficiency through extra managerial overhead;
•conflict that has to be referred to higher levels for resolution; and
•stress caused by having several bosses with potentially conflicting interests.
Network organisations
Since the 1980s, new forms of organisation have emerged. Supported by innovations from knowledge management systems to e-commerce, some organisations are trying other solutions to the problems of complex organisations. They look to market mechanisms, as opposed to hierarchical ones, to achieve coordination. Network organisations are one outcome.
The network form is founded on the idea of disaggregation – separating major functions into independent units linked through a small core. Rather than having design, manufacturing, distribution, sales and marketing and customer service under one roof, some of these functions are supplied by separate organisations. Support functions, from engineering maintenance to information systems, are also included in this trend towards slimmer, more flexible structures. Networks have advantages in the following aspects: sharing resources and risk as well as reaching new markets.
Modern Tendencies for Structuring an Organisation
The structure of any organisation should be a dynamic thing, adaptable to changing circumstances. Now firms are dismantling. Among the recent developments in structuring or restructuring a company
the following can be pinpointed: delayering (re-engineering, downsizing, or rightsizing) and outsourcing (contracting out).
Delayering is the process of pruning the administrative structure of a large organisation by reducing the number of tiers in its hierarchy, or, simply, it is a recent trend for companies to reduce the number of
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people they employ, often by getting rid of layers of managers from the middle of the hierarchy. Moreover, an organisation that has undergone this process is lean and its hierarchy is flat.
Although viewed by many as synonymic, downsizing and rightsizing can be given more profound definitions. Downsizing may mean reducing the operating costs of a company by reducing the number of people it employs; it is often accompanied by restructuring such as selling subsidiaries, withdrawal from certain secondary activities, etc. Whilst rightsizing implies restructuring an organisation to cut costs and improve effectiveness and efficiency without ruthlessly downsizing.
Outsourcing or contracting out is purchasing goods, services or components from other companies rather than producing in-house.
Concept check
1.What does departmentalisation imply?
2.Define the concept of organisational structure and determine its purpose.
3.What does an organisation chart reveal? What are the strengths and weaknesses of revealing organisational structure in the form of organograms?
4.What is the role of informal relationships in organisations?
5.Decide whether the following statements about the functional structure are true or false.
1)Functions are interconnected activities grouped in certain areas.
2)Staff managers are never granted line authority in the functional structure.
3)Orders can be given by staff personnel in the functional structure.
4)Functional departments do not contribute to company harmonisation.
5)It is natural for people to be interested in attaining overall organisational goals rather than the goals of their departments.
6)Functional structure may cause confusion and frustration because of many orders from many bosses.
7)Functional structure is sure to promote novelties.
6.What is the main idea of the divisional structure? When is it appropriate to adopt this structure in a company?
7.Complete the chart with the three types of the divisional structure and describe them.
8.Complete the following sentences about the peculiarities of the hybrid, matrix and network structures.
1)The hybrid organisational structure implies … .
2)The combination of the elements of the functional and the product-manager types is … .
3)The matrix structure is especially appropriate for … .
4)The employees in the organisation’s functional divisions are responsible to … on the same level.
5)Line authority in the matrix structure may be … and … .
6)The pluses of the matrix structure are …; on the other hand, its minuses are … .
7)Network organisations imply … .
8)Network organisations have come into existence because … .
9.What are the recent trends and tendencies in companies’ dismantling?
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QUICK CHECK
Can you …
•Define organising.
•Define each of the four organising principles: hierarchy, centralisation, specialisation and coordination.
•Give the key elements of the hierarchy principle.
•Spell out the difference between line, staff and functional authority.
•Identify the importance of delegation for centralising/de-centralising.
•Clarify the main idea behind the statement “Employees should specialise”.
•List the four main methods of coordinating organisational work.
•Sketch the main features of the functional structure.
•Name three themes for setting up divisions.
•Enumerate advantages and disadvantages of matrix organisations.
•Outline the features of hybrid and network organisations.
•Name and define modern trends in structuring companies.
OVER TO YOU
1. Examine the information in the extract and describe in English the Project Manager’s responsibilities in the matrix organisation.
В матричной организации члены проектной группы подчи-няются как руководителю проекта, так и руководителям тех функциональных отделов, в которых они работают постоянно. Руководитель проекта обладает так называемыми проектными полномочиями. Эти полномочия могут варьироваться от почти всеобъемлющей линейной власти над всеми деталями проекта до практически чистых штабных полномочий. Выбор конкретного варианта определяется тем, какие права делегирует ему высшее руководство организации.
Руководители проектов в матричной организации отвечают в целом за интеграцию всех видов деятельности и ресурсов, относящихся к данному проекту. Для того чтобы они смогли добиться этого, все материальные и финансовые ресурсы по данному проекту передаются в их полное распоряжение. Руководители проекта также отвечают за планирование проекта, особенно за составление графика. Руководитель проверяет ход выполнения проекта, чтобы убедиться, что соблюдены запланированные затраты по проекту, его количественные, качественные и временные показатели. Руководители функциональных отделов делегируют руководителю проекта некоторые из своих обязанностей, решают, как и где должна быть сделана та или иная работа. Руководство функциональных отделов контролирует также ход выполнения задач.
Основной недостаток матричной структуры – ее сложность. Кроме того, многие исследователи указывают на некоторые дру-гие проблемы, возникающие в матричной организации: борьбу за власть, неприспособленность к неблагоприятным экономии-ческим условиям, конформизм в принятии групповых решений, чрезмерные накладные расходы. Они также обращают внимание на то, что поскольку сотрудники не видят начальника, кому бы они подчинялись, существует тенденция к анархии, и весь контроль пытаются захватить функциональные руководители.
2. Study the comparison of the old and contemporary organisational patterns and discuss the differences in pairs.
Old organisations |
Contemporary organisations |
|
|
Few large organisations |
Many extremely large, powerful organisations, |
|
both business and nonprofit |
Relatively few managers, almost no middle |
Many managers, large middle-management group |
managers |
|
Managerial work often not clearly distinguished |
Well-defined managerial group; managerial work |
and separated from non-managerial activities |
clearly recognised and separated from non- |
|
managerial activities |
Succession to top management based primarily on |
Succession to top management based primarily on |
age and seniority |
competence with orderly transition |
Few people able to make important organisational |
Many people able to make important |
decisions |
organisational decisions |
Emphasis on command and intuition |
Emphasis on teamwork and rationality |
ROUND-TABLE DISCUSSION
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Think, find out and share
Work in groups. Read the following questions, statements and tasks, analyse and discuss them. Choose a spokesperson in the group to make a presentation to the whole class, summarising the opinions in the group. Hold a Questions & Answers (Q&A) session.
1.In general, the greater the division of labour and interdependence of the subunits, the greater will be the need for coordination. Is it a correct statement?
2.Principles of organisational structure are only guides for understanding the dynamics of the organisation, not absolute rules to be followed. Why should the effective manager constantly attempt to improve the organisational process?
3.The structure of an organisation can be derived either from abstract principles and intuition or from the organisation’s strategy, markets, technology and task environment. Comment on the statement.
4.Find real examples to explain the three main bases for organisational divisions.
5.Why are some MNEs changing to the matrix structure while others are shying away from it?
6.Organisational structure has a strong impact on human behaviour. Some say what are frequently diagnosed as personality clashes are really problems in the organisational design. Do you think that design can help avoid conflicts?
7.Use your own examples to illustrate the four key principles of organising.
8.Study an organisation that has recently announced a reorganisation. Comment on the reasons for the change and the benefits you might expect.
For your career
In small groups read and discuss the tips for successful organisational behaviour. Share your findings with others.
1.Frequently, more gets done through the informal organisation than through the formal one. The good manager builds a network of contacts throughout the organisation so as to work within the informal organisation when necessary, because membership in such groups is the most effective way of cutting through the red tape of large organisations.
2.The informal organisation may have more influence on behaviour than the formal one. The good manager keeps informed of its workings.
3.If you want to influence a group, make certain its informal leaders are on your side.
4.If a group is not productive or is actively working against the organisation, ask yourself what needs its unproductive activities are serving.
5.Organising is not a one-time process but is constant, sometimes requiring major restructuring and other times requiring fine-tuning.
6.Some managers never think of changing the structure; others change it almost without thought. Be wary of both extremes.
7.Rather than trying to create an organisational design, meant to last indefinitely, managers should be prepared to constantly and deliberately experiment with new organisational approaches.
CASE
Study and discuss this case paying special attention to the questions below it.
The Newly Proposed Structure
The Philby Corporation has been in operation for six years. During this time the company has increased its product lines from one to six, and sales have climbed from just under $100,000 in the first year to more than $16 million last year. Because of this rapid sales growth, Philby has focused most of its attention on manufacturing problems. The corporation has a rule that it will not allow backlog orders to extend more than 90 days. If they do, the firm employs subcontractors to help out.
This year promises to be another big one for Philby. Management is not as concerned as usual with manufacturing problems, however. The large plant that was constructed last year went into full operation three weeks ago, and it now appears that Philby will not have to rely on subcontractors in the future. In fact, if the plant is as efficient as it seems to be, the company should be able to meet all orders within 40 days after they are received.
Having resolved this problem, management is now turning its attention to the company’s organisational structure. Currently the firm is organised along functional lines. Reporting directly to the president are the vice-presidents of marketing, finance and production. The latter, of course, has been of greatest importance to the firm in past years, and any organising concerns the firm had in the past were related to improving production operations. Now, however, the president believes a total reorganisation is
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