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					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
    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
              Departments and
                their roles
                                                                          Production –
                                                           Marketing –
                Finance –                   Services –                     converting      Purchasing-
                                                             product                                      R and D –
                 financial    Admin –        customer                     supplies into     acquiring
HR –dealing                                                  design,                                      developing
                reporting,   back office     services,                      finished          input
 with staff                                                  pricing,                                        and
              treasury and   supporting    dealing with                    goods and      materials and
  issues                                                   distribution                                   improving
              management      functions     complaints                    adding value     negotiating
                                                               and                                         products
               accounting                  and enquiries                      in the      trading terms
                                                           promotion
                                                                            process
3. Strategic, tactical and operational
planning levels in the organisation –
The Anthony Hierarchy

                       Strategic
                       • Long term
                       • Looks at the whole organisation



                       Tactical
                       • Medium term
                       • Looks at the department/divisional
                         level


                       Operational
                       • Short term
                       • Concerned with the day to day running
                         of the organisation
    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


                             Main functions              •Strategic
                             •RnD                        (long-term, whole org.,
                             •Purchasing                 resource requirements)
Definitions
                             •Production                 •Tactical
•Social arrangements
                             •Direct service provision   (shorter-term, divisional
•Collective goals
                             •Marketing                  level, how use resources)
•Controlled performance
                             •Admin                      •Operational
                             •Finance                    (very short-term, detailed,
                                                         mainly control)


Types
•Profit seeking vs. NFP
•Private vs. public sector
•Co-operatives
Chapter 2

Organisational
structure
    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


                                   INFORMAL
  TYPES        CENTRALISATION
                                 ORGANISATION
    Organisational structure


•     Structure of an organisation:
       a. Allocates work into distinct tasks
       b. 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

Advantages                Disadvantages
Fast DM                   Lack of career structure

More responsive to        Dependant on the
market                    capabilities of the
                          manager/owner
Goal congruence
                          Cannot cope with
Good control              diversification/growth


Close bond to workforce
    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
  Functional structure



                BOARD OF DIRECTORS



 MARKETING   PRODUCTION     FINANCE    PERSONNEL
DEPARTMENT   DEPARTMENT   DEPARTMENT   DEPARTMENT
Functional structure

Advantages             Disadvantages
Economies of scale     Empire building

Standardisation        Slow

Specialists more       Conflicts between
comfortable            functions

Career opportunities   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



    CHEMICALS    PLASTICS   ELECTRIC
     DIVISION    DIVISION   DIVISION



                FUNCTIONS
Product/Division/Department

Advantages                Disadvantages
Enables growth            Potential loss of control

Clear resp. for           Lack of goal congruence
products/divisions
                          Specialists may feel
Training of general       isolated
managers
                           Allocation of central
Easily adapted for further costs can be a problem
diversification
Top mgt free to
concentrate on strategic
matters
    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
Geographically structured



            BOARD OF DIRECTORS



     NORTHERN     EASTERN    SOUTHERN
      DIVISION    DIVISION    DIVISION



                 FUNCTIONS
Geographically structured

Advantages                 Disadvantages
Enables geographic         As for divisional structure
growth

Clear resp. for areas

Training of general
managers

Top mgt free to
concentrate on strategic
matters
    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
                       SENIOR MGT



                       FUNCTIONAL
                       STRUCTURE



      PRODUCTION   SALES       FINANCE   R&D
         DEPT      DEPT          DEPT    DEPT

Production
Manager A


Production
Manager B

Production
Manager C
Matrix

Advantages                  Disadvantages
Adv of both functional      Dual command and
and divisional structures   conflict

Flexibility                 Dilution of functional
                            authority
Customer orientation
                            Time-consuming
Encourage teamwork          meetings
and the exchange of
opinions and expertise      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        MIDDLE LINE       SUPPORT
                                   STAFF




                   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    The authority to take decisions is passed
hierarchy retain the authority to make   down to units and people at lower levels.
decisions                                Can lead to extra costs in obtaining
                                         information
                                         Better 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
Advantages                   Disadvantages
Senior mgt free to           Loss of control by senior
concentrate on strategy      mgt

Better local decisions       Dysfunctional decisions
due to local expertise       due to lack of goal
                             congruence
Better motivation due to
increased training and       Poor decisions made by
career path                  inexperienced managers

Quicker                      Training costs
responses/flexibility, due   Duplication of roles
to smaller chain of          Extra costs in obtaining
command                      info
              Handy’s Shamrock

               Core group of managers
                 and professionals
                       CORE




Contractual                               Flexible
  fringe                                labour force
SUPPLIERS                               INTERFACE
      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
                  “Lean and Mean”

        Benefits                       Costs
• Smaller and more flexible   • Risks trading short term
• Ability to respond to the     gains for long-term decay
  business cycle              • Less than half of
• With new technology,          downsized companies
  fewer people can do           increased profits
  more                        • Workers become less
• Great success in the          loyal to companies
  manufacturing industry      • Sacrifice of knowledge
                                and skill
    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          Disadvantages
Better motivation   Inefficient
                    organisations
Better
communication       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
                                            INFORMAL
                                          ORGANISATION


               ORGANISATIONAL
                 STRUCTURE
                                           CENTRALISED/
                                          DECENTRALISED




TYPES OF STRUCTURE                   ASPECTS


Entrepreneurial                 Divorce of ownership
                                and control
Functional/Department
                                Scalar chain
Divisional/Product
                                Span of control
Geographical
Matrix

				
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posted:3/19/2012
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