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Introduction

Historical development of organisational structures

Organisational Structures Different structural types


Key strategic principles of organisational structure
Centralisation -v- Devolution organisation control
Organisational configurations in practice
Dr Rajeev K Bali

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Simple Structures Functional Structures

Run by the personal control of an individual Based on the primary activities that have to be carried
out (production, finance, marketing etc)
Traditional owner managed firm of Adam Smith’s day,
eg. Joe Bloggs and Son plumbers

Little formal demarcation of functional activities

Number of employees is small as the organisation


structure can only operate effectively with a low number
of employees

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Functional Structures Functional Structures

Advantages Disadvantages

• Chief Executive is able to keep in touch with all • Senior managers may become overburdened
operations with routine matters
• Simple/reduced control mechanisms • Senior managers may neglect strategic
issues
• Clear definition of responsibilities (goals and tasks)
• Organisational form does not cope well with
• Specialists at senior and middle diversity
management levels
• Co-ordination between functions may be
difficult to achieve
• Failure to adapt because individuals
concentrate on their specialist functions
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Multidivisional Structure Multidivisional Structure

Subdivided into units (divisions) on the basis of Advantages


products, services, geographical areas or the process of • Concentration on the business area (eg.
the enterprise product/market)
• Opportunity for focus and specialisation
• Performance of each division can be
measured
• Ease of acquisition of different divisions
• Senior manager’s attention towards
strategy

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Multidivisional Structure Matrix Structure

Disadvantages Combination of structures which often take the form


of product and geographical divisions or functional
• Possible confusion over locus of responsibility and divisional structure operating in tandem
(centralisation/devolution)
• Duplication of effort across divisions
• Sacrifice of opportunities for synergy
• Lack of co-operation between divisions
• Tension between centre and lower tiers?
• Complexity of co-operation in too many
divisions

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Matrix Structure Matrix Structure

Advantages Disadvantages

• Quality decision making where there are conflicts of • High risk of dilution of priorities, not all
interest matters are equal
• Direct contact replaces bureaucracy • Longer time-spans in making decisions
• Increased managerial motivation through increased • Where does responsibility lie, whose
involvement in decisions accountable for profitability?
• High degrees of conflict
• “Creeping bureaucracy”

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Key Principles Key Principles

Small organisations tend to have limited resources If an organisation’s product ranges becomes highly
but an informal structure, allowing flexibility in diverse the centre may become a holding company
response, but giving unclear lines of responsibility
The matrix organisation is an alternative structure
The functional (unified) organisation has been used for companies with several product ranges, where
mainly in small to medium-sized organisations with joint responsibility is held by two different
one main product range. structures, eg. between product divisions and
As firms develop further ranges of products, it is another organisational structure such as
often necessary to divisionalise them. geographical or functional divisions
Each division will then have its own functional
structure The locus of strategy development in an
organisation depends on organisational
structure
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Centralisation -v- Devolution Adding Value

Devolution: extent to which the centre of an organisation Improving efficiency (economies of scale etc)
delegates decision making to units and managers lower Providing expertise in specific functions (eg
down the hierarchy personnel)
Providing investment (finance and competence
Reasons for the drive towards devolution building)
• Financial pressure on public/private organisations Fostering innovation (coaching of people/managers)
• Centralisation may lead to top managers becoming
Risk reduction (large scale of combined operations)
detached from the “sharp-end” of business
• Overcentralisation results in organisations becoming Provision of strong external image through size
too concerned with internal matters Encouragement of collaboration of effort
• A response to historical overcentralisation?
Setting standards by which individuals
and units may be assessed
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In Practice... Summary

Most organisations are a hybrid of different organisational Major organisational structures


structures
Key principles
Has been a trend towards devolution of decision-making, Centralisation -v- Devolution organisation control
the centre still has an important role to play
Adding Value
Costs associated with structural change:
?Loss of control
?Damage to employee motivation
?Lack of clarity in communication
Legacy problems of organisational culture
(can’t change the way people think overnight)
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