Lesson 1.

1
Organisational Structures and Management Theories

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Learning Outcomes
This lecture note covers the following learning outcome: LO 1-Identify relevant managerial roles and functions across a range of organisations and organisational structures.

Agenda
Organisational Structure Functional structure Divisional structure Matrix structure Network structure Virtual organisation Theories of Management Classical School

Human relations school

Systems theory Contingency theory

Organisational Structure
Organisational structure refers to the pattern of relationships among positions in the organisation and members of the organisation(1).Structure determines the way information flows between levels in the organisation and degree to which responsibilities are delegated, controlled, and coordinated.

Types of organisational structures:

Functional
Divisional Product/brand

Geographical
Matrix

Organisational Structure
Organisational structure can be further divided in to two types:

Vertical /hierarchical organisation-The authority and responsibility is depicted with

clear limits. e.g. Divisional Horizontal /Flat structure Where activities are grouped in order to use the resources toward goal achievement. e.g. Network
Organisational Structure

Vertical structure

Horizontal structure

Organisational Structure
Dimensions of Organisational Structure
Formalisation Centralisation Specialisation Standardisation Configuration

Organisational Structure
Challenges in shaping structure
Organisational structure and strategy are very closely related. Whenever there is a change in the strategy it should be accompanied by a change in structure. If not there

can be business failures.

Size of the organisation Level of diversification Type of technology Control Change Knowledge

Globalisation

Organisational Structure
Choosing Structures

1.Market advantage test: According to Alfred Chandler structure follows strategy :Does the structure facilitate the strategy?
2.Parenting advantage test: Does the structure match the parenting role of the business unit? 3.People test: Are necessary people and expertise and skills available?

4.Feasibility study: Technical, financial, social/ecological, commercial

Functional Structure
The organisation is divided main activities (production, marketing etc) where
similar activities are grouped under independent departments. This structure is suitable for stable environments with routine technology where interdependence between departments is less and functional specialisation is emphasised.

Chief Executive Officer

Production

Marketing

Finance

HR

Divisional Structure
A divisional structure can help to overcome the limitations of a functional structure
as it is more flexible. There is a limited amount of independence for each division. The activities can be grouped around o o Products or Geophrapical regions.

Each division has self contained functional units such as research and development, production, marketing etc.

This type of structure is suitable for large corporations who product numerous product or are spread across various geographical locations and the inter relationship between divisions is low.

Divisional Structure
Product/ Brand Organisational Structure
Head Office

Pharmecutical Divisional Manager

Cosmetics Divisional Manager

Healthcare Divisional Manager

Production

Production

Production

Marketing

Marketing

Marketing

HR

HR

HR

Finance

Finance

Finance

Divisional Structure
Geographical Structure
Head Office

Divisional Manager-North

Divisional Manager-South

Divisional Manager-Central

Production

Production

Production

Marketing

Marketing

Marketing

HR

HR

HR

Finance

Finance

Finance

Matrix Structure

14

Project-based Structure
A project can be defined as a unique undertaking to achieve a specific objective that requires resources and activity. It has a definitive beginning and an end. Teams are formed, undertake project activities, then dissolved.

This type of structure is used for events with a limited time duration, e.g.

Construction. Project life cycle may vary in terms of time frame from a couple of weeks
to several years, dependent on the complexity, size and content of the project.

This is suitable where organisational structure has to constantly change. A small corporate group will steer the project teams.

Virtual Structure
A virtual organisation exists within a network of alliances, using the Internet and other technological innovations such as e-mail and VoIP. It does not actually need to

exist in a physical form in one location.

The unique aspects of virtual organisations is that the company can operate globally while the core of the organisation can be small amazon.com is a an example of a successful virtual organisation.

It helps to overcome certain disadvantages of traditional structures due to its flexibility and adaptability to change.

Network Structure
This structure is more complicated than other structures. This consists of multiple organisations that work together for one purpose.

Manufacturing company

HR Agency

Core company
Purchasing agencies Distribution companies

Theories of Management
There are four main schools of management thinking

Classical School Scientific Management Functions of Management Bureaucracy

Human relations school Systems theory Contingency theory

Theories of Management
Contemporary perspective on organisations
Unlike the early days, the recent literature on management is immense and it is difficult to categorise all these theories. According to Gareth Morgan (author of management theory), we use different perspectives as we try to understand organisations. e.g. the photographs of the Parthenon from different angles can give different perspectives. Likewise, the way we look at an organisation influences our understanding. One such perspective is thinking organisation as a machine,where jobs, activities and departments are organised to perform certain functions effectives and smoothly. This idea is implicit in early theories such as scientific and classical management.

Theories of Management
Managers or leaders
Generally the definitions for managers and leaders tend to overlap, however there
is a distinct difference. Managers require leadership skills but not all leaders are managers. Leaders providing direction, developing a vision and then influencing others, work

towards attaining organisational objectives.

We can observe natural leaders emerging in groups. But managers are usually appointed or nominated as leaders and sometimes lack qualities displayed by a strong leader. In spite of the fact that leadership is one of the most researched

areas in organisations and management,defining leadership qualities is complex.

However the importance of leadership to an organisation and its link with power, authority and influence is widely accepted.

Theories of Management
Organisational Structure and Classical Management Theory

This theory tries to find the best form of organisational structure. It aims at presenting general principles of management to guide the design of appropriate organisational structure.

The followers of the classical management theory believe there is one best way to perform and manage tasks.

Therefore principles of classical management theory emphasise tightly organised

bureaucratic structures where there is clear division of authority.

Theories of Management
Organisational Structure and Contingency Theory

Contingency theory is focused on finding optimum structure for particular circumstances. In this regard, the following factors are taken into consideration. Size organisations size Technology techniques, equipment, special knowledge People type of people, their skills, competencies and level of motivation Past experience gained from facing similar circumstances Pattern of ownership whether owner is directly involved in management

Classical School
Under this approach, the emphasis of the management is on the technical and

economic aspects of the organisation. Organisational behaviour is assumed to be

rational and logical. Three approaches can be identified under classical school (1).

Scientific Management Functions of Management Bureaucracy

The foundation of these theories is based on the belief that management can be learnt and codified.

Classical School
Scientific management
Fredrick W. Taylor developed the scientific management approach. His

experience in the steel and paper making industry helped him to introduce the
following four principles.
1. the development of a true science of work. This was the assessment of what constituted a fair days work, as well as a fair days pay.

2. The scientific selection and progressive development of workers, involving careful

recruitment and training to ensure that the worker was capable of achieving output and quality targets. 3. The bringing together of science of work and the scientifically selected and trained men. This was referred to as mental revolution, as the workforce is encouraged to develop to their full potential. 4.The constant and intimate cooperation between management and workers. Work was allocated by consultation and cooperation between management and workers.

Classical School
The Administrative School
This was introduced by Henri Fayol, who was a manager of a group of mining and engineering companies in France. He defined the following operations as ones, that give business control. Technical: production, maintenance ,design Commercial: sales, purchasing , marketing Financial: capital investment Security: protection of goods and people

Accounting: accounts, balance sheets, stock taking

Managerial: various functions

Classical School
The Administrative School contd...
From the study of managerial aspect of organisations and role of managers Fayol identified the following common features: Forecasting and planning Organising: allocation of resources, duties and authority Coordinating: giving orders and instructions Controlling: comparing actual performance with expected or budgeted A managers effectiveness is judged by the efficiency in applying these elements. Fayol also identified the need for managers to be trained for their new roles before promotion.

Classical School
Bureaucracy
This word does not have positive image. However Max Weber developed bureaucracy as a the ideal type model. He identified eight characteristics of ideal type bureaucracy. 1.Specialisation 2.Heirachy

3.Rules
4.Impersonality 5.Appointes officials 6.Career officials 7.Full-time officials 8.Public /private division

The Human Relations School

Elton Mayo developed this theory from the famous Hawthorne studies (1) on fatigue and productivity. Mayos team discovered the experimenter effect'. i.e. workers efficiency

improved because of the scientists interest in them.

Fredrick Herzberg carried forward Mayo's identification of the motivational needs of individuals. Herzberg introduced the two factor theory on motivation
Motivational factors Challenging tasks A feeling of achievement Responsibility Personal growth Advancement Recognition of ability Hygiene factors Rules Environment work breaks Supervision Wages and fringe benefits

According to Herzberg, hygiene factors prevent dissatisfaction and motivational factors move employees towards action.

Systems Theory
This was developed by Trist and Bamforth. They identified the link between social needs and technological needs,through observing the long wall method of mining.

Contingency Theory
The classical management schools have not always been successful as per the experience of consultants, researchers and managers. Therefore concept that one method is correct is abandoned in favour of contingency. Contingency suggests that the circumstances of the situation have a direct impact on the effectiveness of the management practice that is used. However issues

arise when two such contingencies are in conflict and the contingency theory does
not state how such conflicts can be resolved. Popular advocates of contingency theory are: Burns and Stalker Joan Woodward

Contingency Theory
Joan Woodward focused mainly on the following factors in through the Essex Studies:

Number of levels of authority

The spans of control at different levels Communication processes

Use of specialists
Use of management committees Recruitment of graduates These studies contributed to the debate as to whether technology forced organisations to change their structure and culture.

Management by Objectives (MBO)

Peter Drucker : Management by Objectives (MBO) (1)
Drucker proposed the concept of linking objectives to a timescale. According to
him objectives should be agreed for areas where performance and results have a direct influence on the attainment of the basic company aims. Profitability Managerial performance Worker performance Public responsibility In order for objectives to be effective, they must be stated in measurable and behavioural terms. Then any deviation can be identified and corrective action taken.

References
1. Mullins Laurie J, Management and Organisational Behaviour: Pearson Education LTD; 2007.