Business and the Business

Environment
Session 5
Ms. Ama De Silva

J/618/5035-Human Resource
Organisational structure

J/618/5035-Human Resource 2
Outline
• Organisational Structures
• Virtual organization
• The concept of globalisation
• Multinational and global structures

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Organizational structure
• Organizational structure refers to the way in which a group is

formed, its lines of communication, and its means for

• Organization Structure- is a firm’s formal configuration of
roles, governance, authority and decision making channels.
channeling authority and making decisions.
• Reporting
• It clarifies the formal relationships of individuals in the
relationship
• (hierarchy)
various positions within the organization

Importance of organizational structure

Job role/
responsibilities Job 1
• It enables members to know what their responsibilities and

avoids overlapping of function and duplication of effort or

conflict.
Job 2 Job 3
• It frees the manager and the individual workers to

concentrate on their respective roles and responsibilities

• Cross organizational
Job 4
and shows to whom and for whom they are responsible communication
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paths
Organizational Design
A process involving decisions about six key elements:
Work specialization • Structural decisions are influenced by:
• division of work tasks
• Overall strategy of the organization
• Organizational structure follows strategy.
Departmentalization • Size of the organization
• grouping of jobs • Firms change from organic to mechanistic
Chain of command organizations as they grow in size.
• reporting relationship
• Technology use by the organization
• Firms adapt their structure to the
Span of control technology they use.
• supervision of workers • Degree of environmental uncertainty
• Dynamic environments require organic
Centralization and decentralization structures; mechanistic structures need
• location of decision making stable environments.
Hierarchy • Tasks carried out
• The nature and the size of the tasks is a key
• levels in the organization
determinant in shaping the organization.
Organizational structure
• Pre-bureaucratic Structures
• This structure is most common in smaller organizations and is best used to
solve simple tasks. The structure is totally centralized. The strategic leader
makes all key decisions and most communication is done by one on one
conversations. It is particularly useful for new business as it enables the
founder to control growth and development.
• Bureaucratic Structures
• Bureaucratic structures have a certain degree of standardization. They are
better suited for more complex or larger scale organizations. They usually
adopt a tall structure. It is very much complex and useful for hierarchical
structures organization.

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 Organizational structure
• Post-bureaucratic Structures
• The term of post bureaucratic is used in two senses in the organizational literature: one generic and one
much more specific. In the generic sense the term post bureaucratic is often used to describe a range of
ideas. A smaller group of theorists have developed the theory of the Post-Bureaucratic Organization,
provide a detailed discussion which attempts to describe an organization that is fundamentally not
bureaucratic.
• Parent Company
• A parent company is a company that owns more than 50% of the outstanding voting shares of another
company. Therefore, it controls the other company or companies and can directly influence the business’
operations or take a more hands-off approach on ownership.
• E.g. Apple Inc. From the birth of Apple to the present day, they’ve controlled their manufacturing and distribution of its products. It
designs the software that perfectly fits its iPad, iPhone, and computers.Even more recently, in 2020, Apple announced that they
would be cutting its 14-year partnership with Intel and will be transitioning to in-house design for all products, including
components such as its processors and much more. The move expands Apple’s vertically integrated supply chain and will help
improve their control over their products and hopefully give them a competitive advantage.

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Organizational structure
• A strategic business unit
• popularly known as SBU, is a fully-functional unit of a business that has its
own vision and direction. Typically, a SBU operates as a separate unit, but it
is also an important part of the company. It reports to the headquarters
about its operational status.

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Organizational structure  Efficiencies from putting together similar specialties
and people with common skills, knowledge, and
orientations

 Coordination within functional area

• Functional
 In-depth specialization
One of the most common types of
organizational structures.
 Poor communication across functional areas
The work of the business are divided  Limited view of organizational goals
into separate ‘functional’ groups.

So an organization with a functional

structure would group all of the
marketers together in one department,
group all of the salespeople together in
a separate department, and group all of
the customer service people together
in a third department.

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 • Disadvantages
Organizational structure • Creates dual authority confusion/
frustration;
• High conflicts between two sides of matrix;
• Matrix organizational structure doesn’t follow the • Many meetings, more discussions than
traditional, hierarchical model. all employees action;
(represented by the green boxes) have dual reporting • Is time consuming;
relationships. • Generates high implementation cost;
• Typically, there is a functional reporting line (shown in • Power dominance by one side of matrix.
blue) as well as a product- based reporting line
(shown in yellow).
• In a matrix structure org chart, solid lines represent
strong, direct-reporting relationships, whereas dotted
lines indicate that the relationship is secondary, or
not as strong.
• In the example below, it’s clear that functional
reporting takes precedence over product-based
reporting.

• Advantages
• Provides flexibility;
• Adoptability to changing environment;
• Encourages resource efficiency;
• Enhances both general and specialist management skills;
• Increase motivation and commitment;
• Enlarge tasks for employees;
• Helps top management in planning process. 10
Virtual organisations
• The virtual organisation and flexible, fluid structures that are
geographically dispersed.
• Virtual organisations are the most extreme form of
outsourcing, alliances and networks. The core organisation
carries out very few activities and as much work as possible is
carried out by other organisations. Virtual organisations have
a number of characteristics.
• Virtual organisation entails the development of relationships
with a broad range of potential partners, each having a
particular competency that complements the others.
• Virtual organising capitalises on the mobility and
responsiveness of telecommunications to overcome
problems of distance.
• Timing is a key aspect of relationships, with key players using
responsiveness and availability to decide between
alternatives.
• There must be trust between players separated in space for
virtual organisation to be effective.
• Most virtual organisations have an operating core. 11
 The concept of globalisation
• It is not that everyone is moving to a single global
• Globalisation, if it can be seen as a single concept at all, is a standard, but that shared tastes transcend
very complex one. The term provides a collective label for a national borders. Some consumers are moving
whole series of trends and changes related to the towards a traditional Italian diet whether they live
significance of geography in shaping organisations and the in London, Toronto or Stockholm, while others eat
interactions between them. For example, many local markets increasing quantities of Chinese style stir-fries,
are globalising as their governments reduce import whether in New York, Adelaide or Madrid.
restrictions and tariffs, or as other countries re-open trade-
relationships. This not only means that goods and services • In this context globalisation simply means that
become available from other parts of the world, but that the geographic location is no longer the key
nature of competition changes from local to global, in turn determinant of behaviour.
affecting the way that local firms must operate in order to • Other forms of globalisation can also be
survive and thrive. distinguished. More and more firms have a
• A somewhat different type of globalisation concerns the presence in multiple locations across the world,
homogenizing of tastes across geographies. Food, once highly rather than simply exporting from a home base.
local in-style, has become more global in many respects. This But, perhaps more importantly, as such firms seek
is not simply what has been called the culinary imperialism of to standardize approaches or gain purchasing
America being rolled out across the world via Coca-Cola and economies, they increasingly demand coordinated,
McDonalds. The changing economics of transportation and multi-country support from their suppliers. This
increased experience of foreign travel have enable requires the suppliers not only to be present in
dconsumers to break away from largely national different parts of the world, but also to manage
determinants of taste, andre-segment across countries on the relationships between their local units in new12
more individual lines. ways.
Multinational and global structures
• International divisions
• Here the home-based structure may be retained at first, whether
functional or divisional, but the overseas interests are managed
through a special international division.
• The international subsidiaries will draw on the products of the home
company and gain advantage from this technology transfer.
• The disadvantage is a lack of local tailoring of products or technology.
• Such structures tend to work best where there is a wide geographical
spread but quite closely related products.
• International subsidiaries
• Are geographically based and operate independently by country.
• In these companies virtually all the management functions are
nationally based, allowing for higher degrees of local responsiveness.
• The control of the parent company is likely to be dependent on some
form of planning and reporting system and perhaps an ultimate veto
over national strategies, but the extent of global co-ordination is likely
to be low.
• The main problem lies in failing to achieve synergy between business
units.
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Multinational and global structures
• Global product companies
• Represent a move away from the international divisional or subsidiary
structure to an integrated structure.
• Here the multinational is split into product divisions, which are then
managed on an international basis.
• The logic of such an approach is that it should promote cost efficiency
(particularly of production) on an international basis, and should provide
enhanced transfer of resources (particularly technology) between
geographical regions.
• The international development of many Japanese companies in electronics
and car manufacture has been managed in this way.
• Research has shown that the theoretical benefits of the global product
structure are not always realised. Although cost efficiency is improved, it
does not appear that technology transfer is necessarily enhanced. Also,
while the structure is well suited to promoting defensive or consolidation
strategies, it does not seem to meet the expected benefits of better
strategic planning and is not suited to the promotion of aggressive or
expansionist strategies.

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Multinational and global structures
• Transnational corporations
• Are matrix-like structures that attempt to combine the local responsiveness
of the international subsidiary with the advantages of co-ordination found
in global product companies.
• A major strength is in transferring knowledge across borders.
• The key lies in creating an integrated network of interdependent resources
and capabilities.
• Potential problems for transnational corporations
• Managers must be able and willing to work hard to simultaneously
improve their specific focus (e.g. region, product, function) as well as
looking at the global picture.
• The same control problems as found in matrices.

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