TOPIC 3

Inside the firm

Prepared by Dr. Nguyen Nhat Tan

Topic 05 Learning objectives

 outline the broad approaches to organisation and

management, paying particular attention to the systems
approach

 identify alternative organisation structures used by

business organisations

 Evaluate three different organizational structures

 Discuss major aspects of the functional management of

firms
Topic 05 Definition of management

 Management is seen both as a system of roles fulfilled by

individuals who manage the organisation (e.g. entrepreneur,
resource manager, co-ordinator, leader, motivator, organiser) and as
a process which enables an organisation to achieve its objectives.

 Management should be seen as a function of organisations,

rather than as a controlling element, and its task is to enable the
organisation to identify and achieve its objectives and to adapt to
change.

 Managers need to integrate the various influences on the

organisation – including people, technology, systems and the
environment
Topic 05 Approaches to organization and management

 Views of both practising managers and academics as to

the factors that determine organisational effectiveness and
the influences on individuals and groups within the work
environment

 The classical approach

 The human relations approach

 The systems approach

 The contingency approach

Topic 05 Approaches to organization and management

 The classical approach

• The classicists basically viewed organisations as formal
structures established to achieve a particular number of
objectives under the direction of management.
• By identifying a set of principles to guide managers in
the design of the organisational structure, the proponents
of the classical view believed that organisations would be
able to achieve their objectives more effectively.
Topic 05 Approaches to organization and management

 The human relations approach

• This approach emphasises the importance of people in the work
situation and the influence of social and psychological factors
in shaping organisational behaviour
• Human relations theorists concerned with issues: individual
motivation, leadership, communications and group dynamics
and have stressed the significance of the informal pattern of
relationships which exist within the formal structure.
• The factors influencing human behaviour - key to achieving
greater organisational effectiveness, thus elevating the
‘management of people’ to a prime position in the
determination of managerial strategies.
Topic 05 Approaches to organization and management

 The human relations approach

• Individuals at work were members of informal (i.e.
unofficial) as well as formal groups and that group
influences were fundamental to explaining individual
behaviour.
• Maslow, McGregor, Argyris, Likert and Herzberg
continued to stress the importance of the human factor in
determining organisational effectiveness, but tended to
adopt a more psychological orientation, as exemplified
by Maslow’s ‘hierarchy of needs’ and McGregor’s
‘Theory X and Theory Y’
Topic 05 Approaches to organization and management

 The human relations approach

• Maslow’s central proposition was that individuals seek to satisfy
specific groups of needs, ranging from basic physiological
requirements (e.g. food, sleep, sex), through safety, love and esteem,
to self-actualisation (i.e. self-fulfilment); progressing systematically
up the hierarchy as each lower-level need is satisfied
• To McGregor, individuals at work were seen by management as
either inherently lazy (Theory X) or committed to the organisation’s
objectives and often actively seeking responsibility (Theory Y).
• Ouichi’s notion of “Theory Z” organisations offered workers long-
term employment, a share in decision making, opportunities for
training, development and promotion, and other advantages which
gave them a positive orientation towards the organisation.
Topic 05 Approaches to organization and management

 The systems approach

• Organisations are portrayed as socio-technical systems
interacting with their environment
• Organisations were seen as complex systems of people,
tasks and technologies that were part of and interacted
with a larger environment, comprising a wide range of
influences
• For organisations to survive and prosper, adaptation to
environmental demands was seen as a necessary
requirement and one which was central to the process
of management
Topic 05 Approaches to organization and management

 The systems approach

• Organisations, including those involved in business, are
open systems, interacting with their environment as they
convert inputs (people, finance, materials and
information, provided by the environment in which the
organisation exists and operates) into output (goods
and services, information, ideas and waste, discharged
into the environment for consumption by ‘end’ or
‘intermediate’ users and in some cases representing
inputs used by other organisations).
Topic 05 Approaches to organization and management

 The systems approach

• Systems invariably comprise a number of sub-systems
through which the process of conversion or transformation
occurs.
• Just as the organisation as a system interacts with its
environment, so do the sub-systems and their
component elements, which also interact with each
other. In the case of the latter, the boundary between sub-
systems is usually known as an ‘interface’.
Topic 05 Approaches to organization and management

 The systems approach

• Modern views of organisations draw heavily on the work
in this area, paying particular attention to the interactions
between people, technology, structure and
environment and to the key role of management in
directing the organisation’s activities towards the
achievement of its goals.
• As changes occur in one part of the system these will
induce changes elsewhere and this will require a
management response that will have implications for the
organisation and for its sub-systems.
Topic 05 Approaches to organization and management

 The contingency approach

• This approach argues that there is no single form of
organisation best suited to all situations and that the most
appropriate organisational structure and system of
management is dependent upon the contingencies of the
situation (e.g. size, technology, environment) for each
organisation It depend on the improvisation
Topic 05 Organizational structures- Definition

 Any business beyond that of a sole trader working on

his/her own will have some form of organizational structure.
Structure:
clear,
 Organizational structure refers to the way in which an
organization structures its human resources to carry out its
operations and activities and the relationship of these
resources with each other.

 Particular people in the firm will have different

responsibilities and levels of authority and it is important
for the organization to clarify what these roles and
the specific work
responsibilities are (What for?) What you will do
for job
Topic 05 Organizational structures - Size

 The type of organizational structure may be partly

dependent on size

 Small organizations may have relatively simply

structures; small to medium sized organizations may
have the capacity to introduce a greater degree of
specialization into their structure with particular functions
being grouped together.

 The organization structure will state what relationship (if

any) the one position has with the other and help to clarify
what that relationship should be.
Topic 05 Organizational structures- Why

 Organizations own and use a considerable amount of

resources – land, labour and capital – and efficient use of
these resources is important in controlling costs

 Giving individuals particular roles and responsibilities

helps the organization to monitor its performance as a
whole in relation to the strategic aims and operational
goals that have been established.

 All organizations have to make decisions and these

decisions will always involve some element of risk:
financial gain or loss, risk to humans.
Topic 05 Organizational structures- Why

 Communication and coordination in a business is crucial

to the successful execution of its operations.

 The existence of some structure in an organization helps to

provide specific job roles and this in turn enables a
business to build-in opportunities for progression for
employees.

 Organizational structures need to be capable of adapting

to change
Topic 05 Organizational structures- Formal relationships

 Line relationships

 Staff relationships

 Functional relationships

 Lateral or peer relationship

Topic 05 Organizational structures- Formal relationships

 Line relationships: the superior/subordinate relationship

within an organization, authority is invested with particular
individuals at different levels and tends to flow vertically
throughout the organization, the line management structure is
clear in terms of the level of authority and responsibility

 Staff relationships: members of the senior staff may wish

to appoint assistants who work closely with that person but
who do not have any authority over other members of staff
in the organization
Topic 05 Organizational structures- Formal relationships

 Functional relationships: employing specialists who

carry out a particular function but who may also not have
authority over other staff

 Lateral or peer relationship: individuals will occupy

positions that cut across different departments or functions
(HR department?)
Topic 05 Organizational structures- Type

 Influencing factors:
• what human resources it possesses
• how human resources can be organized to maximize
efficiency and keep costs under control
• increase the chances that the organizational goals of the
business are achieved
Topic 05 Organizational structures- Type

 Decisions made about the basis for the structure

• the roles within the structure
• the relative importance of these roles within the
organization
• the relationships between roles and where these roles will
be located
• the extent of the authority and responsibility each is
invested with
• how the performance of the roles will be monitored and
managed in relation to the overall goals
Topic 05 Organizational structures- Type

 Hierarchical structure

 Functional structures

 Product based structures

 Area based structures

 Matrix structures

 Divisional structure

 Project team
Topic 05 Organizational structures- Type

 Hierarchical structure
• A hierarchical structure will
show the
superior/subordinate
relationships throughout the
organization
• The lines of authority extend
upwards in the organization
with those at the lowest
levels having less authority
than those higher up
Topic 05 Organizational structures- Type

 Functional structures
Topic 05 Organizational structures- Type

 Functional structures
• people who do similar work (sharing a profession or
specialism) are grouped together by expertise.
• The business structure is based around the functions
that exist within it and allows individuals to exercise their
particular specialism.
• Functional structures tend to be appropriate where the
business only produces a limited range of products.
Topic 05 Organizational structures- Type

 Product based structures

Topic 05 Organizational structures- Type

 Product based structures

• The organization is based around the range of products that
the business produces
• Within this structure, people are grouped according to the
product(s) worked on.
• This structure focuses on the outputs of the
transformational process.
• The organization is suitable for a business that has a wide
product portfolio or where production facilities may be
based in different locations – both nationally and
internationally.
Topic 05 Organizational structures- Type

 Area based structures

• The organization may be structured according to
geographical areas.
• Aside from area knowledge arguments, the area structure
may offer cost efficiencies when goods and service need
to be close to the customer.
• Delivery, repair and maintenance costs may be lower
with the area structure.
• The area (geographic) structure keeps knowledge close
to the needs of individual countries.
Topic 05 Organizational structures- Type

 Matrix structures
Topic 05 Organizational structures- Type

 Matrix structures
• A matrix structure combines the benefits of product or area
based with functional structures
• It allows specialist departments to exist side by side with
those focused on particular products or area.
• The lines of authority exist both horizontally and vertically.
• Groups of workers might belong to a functional area, for
example marketing, but its members may be assigned to
different projects to lend their expertise.
• The individual is thus answerable both to their functional head
and also to the project head.
Topic 05 Organizational structures- Type

 Matrix structures
• Matrix structures provide the element of progression for
careers and flexibility for the business to utilize expertise
across the organization
• Matrix structures create tension and confusion amongst
staff who may be working for a number of different people
across the business.
• This can create conflict between the managers of the
function and the various projects as well as issues of
coordination and control.
Topic 05 Organizational structures- Type

 Divisional structure
Topic 05 Organizational structures- Type

 Divisional structure
• As firms diversify their products and/or markets – often as
a result of merger or takeover – a structure is needed to co-
ordinate and control the different parts of the organisation:
the divisional (or ‘multi- divisional’) company.
• A divisionalized structure is formed when an organisation is
split up into a number of self-contained business units.
• Each division of the business therefore is a profit centre in
its own right but contributes to the overall group business
financials (human resources and financial control may be
overseen centrally).
Topic 05 Organizational structures- Type

 Divisional structure
• It allows each part of what can be a very diverse organisation to
operate semi-independently in producing and marketing its
products, thus permitting each division to design its offering to
suit local market conditions
• The dual existence of divisional profit centres and a central
unit responsible for establishing global strategy can be a source
of considerable tension, particularly where the needs and aims
of the centre appear to conflict with operations at the local
level or to impose burdens seen to be unreasonable by
divisional managers (e.g. the allocation of central overhead
costs).
Topic 05 Organizational structures- Type

 Project team
• The project team is essentially a temporary structure
established as a means of carrying out a particular task,
often in a highly unstable environment.
• Once the task is complete, the team is disbanded and
individuals return to their usual departments or are
assigned to a new project.
• Project teams tend to be at their most effective when
objectives and tasks are well defined, when the client is
clear as to the desired outcome and when the team is
chosen with care
Topic 05 Changing approaches to organizational structure

 Many organizations have looked at developing more flexible

structures that are designed to change with the way in which
the business environment changes over time

 The emphasis on hierarchy is gradually diminishing and

extended layers of management seen as being too rigid and
bureaucratic for a world that changes almost everyday

 These hierarchical structures tend to be seen as not being

conducive to innovation, a key element in maintaining and
generating competitive advantage

 The emphasis on organizational structure therefore tends to

be more on so-called organic structures (?).
Topic 05 Changing approaches to organizational structure

 Virtual organization
• A virtual organisation or firm signifies an extremely loose
web of essentially freelance individuals or businesses who
organise themselves to produce a specific customer
product (e.g. an individual holiday package with particular
features unique to the customer).
• Without any permanent structure or hierarchy this so-called
firm can constantly change its shape and, despite existing
across space and time, tends to appear edgeless, with its
inputs, outputs and employees increasingly dispersed across
the linked world of information systems
Topic 05 Structural change

 A partial or wholesale shift in the organisation’s structural form to

strategies for reducing the overall size and shape of the company
(e.g. ‘downsizing’) or a radical redesign of business processes
(e.g. ‘re-engineering’).

 Downsizing essentially involves shrinking the organisation to

make it ‘leaner’ and ‘fitter’ and hopefully more ‘flexible’ in its
response to the marketplace.

 Downsizing can be used as a vehicle for cultural change through

which an organisation’s employees are encouraged to embrace
notions of continuous improvement and innovation, and to
accept that structural reform is a permanent and natural state of
affairs
Topic 05 Aspect of functional management

 Human resource management (HRM)

• HRM involves a wide variety of activities related to the

formulation and implementation of appropriate
organisational policies, the provision of opportunities for
monitoring, evaluation and change, and the application
of resources to the fulfilment of organisational ends
• Internal and external influences (e.g. size of the firm,
management style, competition, economic and political
developments),
Topic 05 Aspect of functional management

 Human resource management (HRM)

• recruitment and selection;
• working conditions;
• training and career development;
• job evaluation;
• employee relations;
• manpower planning; and
• legal aspects of employment.
Topic 05 Aspect of functional management

 Human resource management (HRM)

• A case of Recruitment and selection of staff

 This activity ensures that it has the right quantity and
quality of labour in the right place and at the right time
to meet its requirements at all levels.
 The organisation initially needs to consider a large
number of factors, including possible changes in the
demand for labour, the need for new skills and likely
labour turnover, before the processes of recruitment and
selection can begin.
Topic 05 Aspect of functional management

 Human resource management (HRM)

• A case of Recruitment and selection of staff

 Influencing factors: changes in the demand for the product, the
introduction of new technology and social, economic and
demographic changes
 Other external factors: the relative cost and effectiveness of the
different advertising media; existing relationships with external
sources of recruitment (e.g. job centres, schools, colleges,
universities); commitments to the local community; relationships
with employee organisations (e.g. trade unions, staff
associations); and opportunities for staff training and
development in local training and educational institutions.
Topic 05 Aspect of functional management

 Marketing function

• Marketing is concerned with meeting the needs of the

consumer in a way which is profitable to the enterprise.
• Strategic marketing management is normally characterised as
the process of ensuring a good fit between the opportunities
afforded by the marketplace and the abilities and resources of
an organisation operating in it.
• Marketing as an integrative function within the organisation –
linking the needs of the consumer with the various
functional areas of the firm
Topic 05 Aspect of functional management

 Marketing function

• When viewed from a customer perspective, marketing

can be seen to comprise a range of activities that go
beyond the simple production of an item for sale:
 Identifying the needs of consumers (e.g. through marketing
research).
 Designing different ‘offerings’ to meet the needs of different
types of customers (e.g. through market segmentation).
 Choosing products, prices, promotional techniques and
distribution channels that are appropriate to a particular
market (i.e. designing a ‘marketing mix’ strategy).
Topic 05 Aspect of functional management

 Marketing function

• When viewed from a customer perspective, marketing

can be seen to comprise a range of activities that go
beyond the simple production of an item for sale:
 Undertaking market and product planning.
 Deciding on brand names, types of packages, and
methods of communicating with the customer.
 Creating a marketing information system.
Topic 05 Summary

 Management is a key aspect of the internal environment of the

business organisation

 Theories of organisation and management basically fall into

three categories: classical theories; human relations
approaches; systems approaches

 The systems view of organisations depicts businesses as open

systems interacting with their external environment as they
convert inputs into outputs

 The external environment of the organisation affects all

aspects of the business including its structures, functions and
processes
Topic 05 Summary

 To carry out their tasks businesses can structure themselves in a

variety of ways, including functionally, by product/service, by divisions,
in a matrix format or via project teams. Each has its advantages and
disadvantages.

 Structural change tends to be a feature of large modern

organisations.

 Within the organisation the different business functions such as

marketing, production, HRM, purchasing and so on are influenced by
external factors of both a general and operational kind.

 An examination of the marketing and HRM functions reveals the

importance of the wide range of external influences that can impinge
upon the day-to-day areas of organisational work.