Chapter 3

CHAPTER 3
ORGANISATIONAL AND
BUSINESS STRUCTURES
201053_Ch3_Organisational & Business

1
Structures
TOPIC LIST
1. Introduction to 8. Partnerships
organizational structure 9. Companies
2. Types of organizational 10. Which business structure
structure should a business take?
3. Centralization and 11. Alliances
decentralization
4. Span of control: tall and
flat businesses
5. Mechanistic and organic
organizations
6. Introduction to business
structure
7. Sole tradership
201053_Ch3_Organisational & Business 2
Structures
Part 1
What is organisational structure?

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Structures
What is organisational structure?
• Organisational structure: the grouping of

people into departments or sections and the
allocation of responsibility and authority
• => Sets out how the various functions are
formally arranged (operations, marketing,
human resources, finance, etc)

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Structures
What is an organisational structure?
• Organisational structure
is a framework to:
- Link individuals
- Allocate the tasks
- Allocate authority
- Coordination
- Flow of work

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Structures
The building blocks of
organizational structure
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3
4 5

6
Structures
The building blocks of
organisational structure
• People directly involved in the process of
Operating core obtaining inputs and converting them into outputs
• Conveys the goals set by the strategic apex

Middle line • Control the work of the operating core
• Ensures the organization follow its mission

Strategic apex • Manages relationship with the environment
• Support services (cafeteria, security, legal) to the

Support staff operating core. These functions are independent
• Determine and standardize processes, outputs,

Technostructure skills
• Values, beliefs and traditions

Ideology 201053_Ch3_Organisational & Business
7
Structures
Basic principles of
organizational structure
Principle Comment
Division of work Work should be divided and allocated rationally,

based on specialization
Scalar chain Authority should flow vertically down a clear
chain of command from highest to lowest rank
Correspondence of authority Holder of an office should have enough authority
and responsibility to carry out all the responsibilities
Appropriate centralization Decisions should be taken at the top where
appropriate
Unity of command (for A subordinate should receive orders from 01
people) boss only
Unity of direction (for the There should be one head and one plan for each
organization) activity
Organizational policies should be just
8
Structures
Modern approaches to
organisational structure
Multi-skilled team:
individuals are
Multi-skilling
trained to perform a
variety of tasks
Multi-skilled
structure: project or
task-force teams
Values
Multi-functional units.
Matrix organization,
against “unity of
Flexibility -
Organisations and command”
processes are being Flexible deployment
re-engineered to of the labour
flexible structures resource: part-time
.temporary, etc
Virtual organizations:
staffs and resources
201053_Ch3_Organisational & Business are linked by 9
Structures
associated technology
Communicating the
organizational chart
Organization of
the business
Organisation
Job description
chart
Advantages: analyse Disadvantages: Include responsibilities,

organization, provide Frequent update, authorities, and work
at a glance info, unshown informal
highlights formal relationships, encourage Typical descriptions: job
relationship bureaucracy, title, department,…
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Structures
Part 2
Types of organizational structure

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Structures
Types of organizational structure
Types of Environment Internal factors Key building block Key coordinating
organisational mechanism
structure
Simple structure Simple Small Strategic apex Direct supervision

Dynamic Young
Simple task
Machine Simple Large Technostructure Standadisation

bureaucracy Static Old of work
Regulated
Professional Complex Professional Operating core Standadisation of

bureaucracy Static Simple systems skills
Divisionalised Simple Very large Middle line Standadisation of

Static Old output
Diverse Divisible tasks
Adhocracy/ Complex Young Operating core Mutual adjustment

Innovative Dynamic Complex tasks
12
Structures
Entrepreneurial structure
Entrepreneur/
boss
Employee Employee Employee Employee

13
Structures
• Entrepreneur has
specialist knowledge
Features • Entrepreneur has total
control
• One product
Most • Group of similar
suitable products

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Structures
• Quick decisions
Advantages • Goal congruence
• Adaptable to change
• Can’t expand beyond a certain size

• Can’t easily cope with diversification
into new products, …
Disadvantages • Lack of career development
opportunities
• Too centralized

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Structures
Functional structure

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Structures
• Jobs grouped by common feature
• Clear line of reporting and
Features authority
• Formal procedures
• Vertical flow of authority
• Single product/closely-related
Most product forms
• Relatively stable environment
suitable • Small enterprise

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Structures
• Career opportunities
• Efficient - functional tasks are well-known and
understood
Advantages • Exploit functional specialist
• Unsuitable for growth and diversification

• Authoritative (non-participative) resulting in
clear levels of authority
Disadvantages • Poor/low decisions
• Empire building
• Inter-functional disputes, functional heads
build empire

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Structures
https://vietnambiz.vn/
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Structures
Divisional structure

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Structures
Divisional structure
• Business is split into divisions
• Division by product/brand or
Features location
• Divisions given responsibility for
their profits
• Large and/or diversified

Most businesses
• Diversity by product and/or
suitable location

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Structures
Divisional Structure
• Flexible in growth and diversification
• Good for developing managers as given
responsibility for their divisional profit
Advantages • Reduce number of levels of management
• Encourage efficiency, lower costs, higher profits
• Better decisions
• Top management concentration on strategic
issues
• Reduce unprofitable products
• Squabbles over allocation of central costs may occur

• Interdivisional trading problems (transfer price)
Disadvantages • Problems in identifying independent products or
markets

22
Structures

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Structures

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Structures
Matrix structure

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Structures
Matrix structure
• Vertical and lateral lines of
communication
Features • Project/customer/customer-project
managers liaise with functional
managers
• Maybe contemporary
• Complex/hi-tech industries
Most • Educational establishments where
there may be lecturers reporting to
both subjects and course heads
suitable • RD departments

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Structures
Matrix structure
• Reflect importance of project
or customer
Advantages • Coordination between
businesses and technology,
information, etc
• Dilution of the authority of functional

heads
Disadvantages • Conflicting demands on staff time
• Conflicting demands of staff and
other resources
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Structures
Part 3
Centralisation and decentralisation

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Structures
Centralisation vs. decentralisation
• Introduction:
- An organisational structure is centralised
when decision-making authority is
concentrated in its strategic apex
- Centralisation => control and coordination
- Decentralisation => flexibility

29
Structures
What is centralisation?
Geography –
some functions Authority – the
are centralised extent to which
people have to refer
rather than decisions upwards
‘scattered’ in to their superiors
different locations
Centralisation

30
Structures
Centralisation – Decentralisation
upper levels retain – authority to make
decisions is passed
authority to make down to lower
decision levels
Authority/
Decision-making
ability

31
Structures
• Centralised organisation: One in which
decision-making authority is concentrated in
one place – that is the strategic apex (According to 6
Building Blocks)
• Decentralised organisation: One in which

lower management levels are allowed to
make key decisions

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Structures
Centralisation (Potential benefits)
Easier to implement common policies and practices for the whole business.
Prevents other parts of the business form becoming TOO independent.
Easier to c-ordinate and control from the centre – e,g. with budgets
Economies of scale (tính kinh tế theo quy mô) & overhead saving easier to
achieve.
Quicker decision-making (usually) – easier to show strong leadership

33
Structures
Centralisation (Possible Drawbacks)
More bureaucratic – often extra layers in the hierarchy.
Local or junior managers are likely to be much loser to customer

needs.
Lack of authority down the hierarchy may reduce manager

motivation.
Cutomer service: lost flexibility and speed of local decision -making

34
Structures
Decentralisation (Potential benefits)
Decisions are made closer to the customer
Better able to respond to local circumstances
Improved level of customer service
Can enable a flatter hierarchy
Good way of training and developing junior management
Facilitates empowerment: should improve staff motivation

35
Structures
Decentralisation (Possible Drawbacks)
Decision-making not necessarily “Strategic”
Harder to ensure consistent practices and policies at each location
May be some diseconomies of scale – e.g. duplication of roles
Who provides strong leadership when needed (e.g in a crisis)?
Harder to achieve tight financial control – risk of cost-overruns

36
Structures
Factors affecting decentralisation
Centralised Decentralised
Leadership style Authoritative Participative
Size Small Big

Diversification Specialized Diversified
Communication Ineffective Effective
Ability of management Less able More able
Technological Backward technology Advanced technology

advancement
Geography of locations Concentrated Spread
Local knowledge Not needed Needed
requirement
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Structures
Part 4
Span of control

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Structures
Span of control
- Span of control: how many people reporting
directly to a manager
- Scalar chain: series of links from the most
senior manager to the direct operational staff
- Wide spans of control/short scalar chains =>
flat management hierarchy
- Narrow spans of control/long scalar chains =>
tall management hierarchy
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Structures
Tall vs. flat business
- Scalar chain: the chain of command from the

most senior to the most junior
- Tall business: has a large number of levels in
its management hierarchy (in relation to its
size)
- Flat business: has a small number of
hierarchical levels (in relation to its size)
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Structures
Tall vs. flat organisational structures

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Structures
Span of control – scalar chain
Short scalar chain

Long scalar chain
Wide span of control

Narrow span of control
Structures
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Structures
TALL VS FLAT BUSINESS
For Against
- Narrow control span -Inhibit delegation
TALL BUSINESS - Enable team members to -Tight supervision leading
participate in decisions to block the initiatives
- Large number of steps on - Same work passed to
promotional ladder- helps many hands
management training and - Increase administration
career planning and overhead costs
- Slow decision-making
- More opportunities for - Requires jobs to be
FLAT BUSINESS delegation delegated
- Relatively cheap - Managers may only get a
- Speeds up superficial idea
communication between - Sacrifices control
strategic apex and - Middle managers are may
operating core be needed to bridge the
vision from the strategic
apex
44
Structures
Part 5
Mechanistic vs. organic organisations

45
Structures
Organisation:
stable, efficient
Mechanistic
(bureaucracies) Environment:
static, slow-
changing
Organisation
Organisation:
flexible, adaptive
to changes
Organic
Environment:
dynamic, fast-
changing
46
Structures
Factor Mechanistic organization Organic organization
Task Specialized and broken down into Need specialist knowledge
sub-tasks contributing to common task
How the task fits in Focus on the completion of the Focus on the contribution of the
task, rather than its effectiveness task to the organization’s
effectiveness
Co-ordination Managers’ responsibility People adjust, redefine through
interaction with others
Job description Precise Less precise, whatever to

complete the task
Structure of control Hierarchical Network structure of control
Decision-making Senior managers Relevant technical, decision

making authority can be
anywhere
Mission Loyalty and obedience to Committed to the mission, more
superiors 201053_Ch3_Organisational & Business highly valued than loyalty
47
Structures
Part 6
Introduction to business structure
48
201053_Ch3_Organisational & Business Structures
Introduction to business structure
• Business structure – legal form of the
business:
- Sole tradership
- Partnership
- Companies
• Substantially, businesses may form an alliance
or a group structure

49
Structures
Part 7
Sole tradership
50
Sole tradership
• Definition:
• Sole tradership: A single proprietor owns the
business, taking all the risks and enjoying all
the rewards of the business

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Structures
Features of Sole tradership
- No legal distinction between the proprietor and the business

- The proprietor/trader: wholly liable for the business’s debts in
his/her own name.
- Financed by a mixture of owner’s capital, loans and short-term
credit
- Allowed to offer fixed charges, but not floating charges over the
business’s assets
- Sold traders do many different tasks.
- Take drawings from the business
- Can be sold as a going concern
- If the trader dies, the sole tradership ceases to exist- no perpetual
succession 201053_Ch3_Organisational & Business
52
Structures
Adv/disadvantages of
Sole tradership
Advantages Disadvantages
- Flexibility of being their - There are limits to skills

own boss, taking all and time-consuming ➔
decisions work overload and hard to
- No publicity requirement, expand
but just a simple financial - Have unlimited liability for
statement for tax purposes the business’s debt.
➔ offering privacy and cost
savings

53
Structures
Part 8
Partnership
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Partnership
• Definition:
• Partnership: the relation which subsists
between persons carrying on a business in
common with a view of profit

55
Structures
Features of a partnership
- Partners are jointly and severally liable for the
debts of the partnership
- Partnerships also face financing issues as well as
sole trader
- Partners take drawings from the business
- All partners are actively involved in their business
and there are scopes among them.
- A share in partnership can be difficult to sell
- There is no perpetual succession
- There are 03 forms of partnership: general, limited,
and limited liability partnership
56
Structures
General partnerships
- General partnership is not a legal entity
- All partners are jointly and severally liable for
the partnerships debts
- If one partner dies/becomes insolvent, the
others must take on his/her ‘share’ of the
partnership’s debts
- Partnership agreement or Partnership Act
1890
57
Structures
General Partnership
- Flexibility of being their - They each have unlimited

own boss, taking all liability for the business’s
decisions debt, but they have to share
- No publicity requirement, profits
but just a simple financial - The general partnership is
statement for tax purposes based on trust. So if the
➔ offering privacy and cost relationship fails then the
savings agreement is at an end and
- Multiple partners share the partnership ceases to
skills and work load. exit.
58
Structures
Limited liability partnerships
(LLPs)
- Have a legal identity separate from their
owners
- There are some publicity requirements for
LLPs

59
Structures
Part 9
Companies
60
Companies
• Company: a legal entity registered as such
under statue (the Companies Act 2006)
• The company has unlimited liability for its
own debt
• Shareholders have limited liability for the
unpaid debts

61
Structures
Features of company
• The company is legally distinct from its owners
• The company can offer a floating charge over its security for
lending
• Shareholders take dividends, not drawings from the business
• Directors run the company; shareholders do not take part in
the management unless they are also directors
• Shares are a form of property that can easily be sold
• The death of a shareholder has no effect on the company-
• There are 02 types of a company: public and private company
• Private companies: may not offer their securities for sale to
the public while it’s possible for public companies to do so.

62
Structures
Company
- Separate legal entity - Separation of ownership and

- Limited liability of its control
shareholders - Ownership of assets
- Perpetual succession - Accounting records and
- Transferability of shareholders’ returns: companies are subject
interests to stringent rules in compliance
- Security for loans includes with act 2006
floating as well as fix charges - Publicity: financial position is
exposed to others like
competitors, creditors, etc
- Regulation and expenses:
Stringent rules by the Company
Act
201053_Ch3_Organisational 2006
& Business
63
Structures
Part 11
Alliances

64
Structures
Alliances
• A business of whatever form may enter into
various types of alliance with other businesses,
creating business structures in the form of:
- Joint venture
- Licenses
- Strategic alliances
- Agencies
- Groups

65
Structures
Alliances
Joint venture
• A separate business is formed in which businesses take a financial
stake (usually shareholders) – usually but not always a limited
company
License
• A permission to another company to manufacture or sell a product,
or to use a brand name (e.g TDTU & ICAEW; franchise)
Strategic alliance
• An informal contractual agreement between parties or a minority
cross-shareholding arrangement. No separate company is formed
(e.g: bank & Paypal, Visa, Mastercard)
Agent
• E.g. distribution channel (e.g. Big 4, accounting service)
Group
• When a company owns the majority of shares in another one, a
group of companies may form

66
Structures
.
• END OF CHAPTER 3
• THANK YOU FOR YOUR

ATTENTION!

67
Structures

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201053_Ch3_Organisational & Business

201053_Ch3_Organisational & Business

• Organisational structure: the grouping of

201053_Ch3_Organisational & Business

201053_Ch3_Organisational & Business

201053_Ch3_Organisational & Business

• Conveys the goals set by the strategic apex

• Ensures the organization follow its mission

• Support services (cafeteria, security, legal) to the

• Determine and standardize processes, outputs,

• Values, beliefs and traditions

Division of work Work should be divided and allocated rationally,

Advantages: analyse Disadvantages: Include responsibilities,

201053_Ch3_Organisational & Business

Simple structure Simple Small Strategic apex Direct supervision

Machine Simple Large Technostructure Standadisation

Professional Complex Professional Operating core Standadisation of

Divisionalised Simple Very large Middle line Standadisation of

Adhocracy/ Complex Young Operating core Mutual adjustment

Employee Employee Employee Employee

201053_Ch3_Organisational & Business

201053_Ch3_Organisational & Business

• Can’t expand beyond a certain size

201053_Ch3_Organisational & Business

201053_Ch3_Organisational & Business

201053_Ch3_Organisational & Business

• Unsuitable for growth and diversification

201053_Ch3_Organisational & Business

201053_Ch3_Organisational & Business

• Large and/or diversified

201053_Ch3_Organisational & Business

• Squabbles over allocation of central costs may occur

201053_Ch3_Organisational & Business

201053_Ch3_Organisational & Business

201053_Ch3_Organisational & Business

201053_Ch3_Organisational & Business

201053_Ch3_Organisational & Business

• Dilution of the authority of functional

201053_Ch3_Organisational & Business

201053_Ch3_Organisational & Business

201053_Ch3_Organisational & Business

201053_Ch3_Organisational & Business

• Decentralised organisation: One in which

201053_Ch3_Organisational & Business

Prevents other parts of the business form becoming TOO independent.

Quicker decision-making (usually) – easier to show strong leadership

201053_Ch3_Organisational & Business

More bureaucratic – often extra layers in the hierarchy.

Local or junior managers are likely to be much loser to customer

Lack of authority down the hierarchy may reduce manager

Cutomer service: lost flexibility and speed of local decision -making

201053_Ch3_Organisational & Business

Better able to respond to local circumstances

Improved level of customer service

Can enable a flatter hierarchy

Good way of training and developing junior management

Facilitates empowerment: should improve staff motivation

Harder to ensure consistent practices and policies at each location

May be some diseconomies of scale – e.g. duplication of roles

Who provides strong leadership when needed (e.g in a crisis)?

Harder to achieve tight financial control – risk of cost-overruns

201053_Ch3_Organisational & Business