Strategy and Structure, Forms of organisation

1. Strategy and Structure, Forms of organisation Geoff Leese October 2005 revised September 2006, July 2007, August 2008, August 2009

2. Introduction • Legal form of the organisation • Sole trader • Partnership • Private and Public companies • The public corporation • The co-operative society • The organisation’s structure • Specialisation • Centralisation/decentralisation • Organisational culture and power bases • Empowerment and the “flexible firm”

3. Legal status • Usual way of classifying business organisations • legal status • ownership, control, methods of raising capital

4. The sole trader • Has no special legal status • Sole responsibility • Sole ownership of all assets (and debts!) • Limited capital resources • Little formal documentation required • Unlimited personal liability

5. The partnership (1) • Combination of resources • Should be economically more efficient • Maximum 20 partners (some exceptions!) • Articles of Partnership generally required

6. The partnership (2) • Joint management and ownership • All partners share in capital, profits & losses • NOT always equally! • Partners have unlimited personal liability

7. The company (1) • Limited by shares • Vast majority • Limited by guarantee • usually “not for profit” organisations • Unlimited companies • very rare - 1967 Companies Act exempts them from need to file accounts

8. The company (2) • Dominant form of business organisation • Liability of members limited to amount invested • Companies Act requires annual accounts to be filed

9. The public company • Limited by shares • Minimum share capital of £50,000 • Two or more members • Can invite general public to subscribe for it’s shares • Must include “plc” in it’s name • Requires a “business certificate”

10. The private company • Need only have one director (cannot also be secretary) • Cannot offer shares to public (illegal to do so!) • Must include “Ltd.” in it’s name • Does not require a “business certificate” • Often “half-way house” between partnership/sole tradership and plc

11. Operation of companies • Memorandum and Articles of association • (model set available) • Directors appointed by shareholders • Company Secretary • Control by shareholders (in theory!)

12. Public corporations • Owned by “the nation” • Financed by the state • Run by “Board of management” • Policy framework laid down by Parliament

13. Co-operative societies (1) • Registered under Industrial & Provident societies act • “Self help” organisation • Profits distributed as dividends • Owners are customers (members)

14. Co-operative societies (2) • More democratically run than companies • Limit to individual share ownership • Shares cannot be sold, aren’t quoted on Stock exchange

15. First - a definition! • “the structure of an organisation can be defined simply as the sum total of the ways in which it divides its labour into distinct tasks and then achieves coordination between them” (Mintzberg, 1979)

16. Purpose of Organisational Structure • To allocate tasks and responsibilities • To identify and clarify roles and levels of responsibility • To coordinate allocated activities and roles • To facilitate and regulate information flows and decision making processes • To serve, in some measure, as a means of resolving differences

17. A conflict! • Breakdown of tasks & responsibilities • disintegration • Coordination and control • integration

18. Issues! • Task differentiation - how much? • Tight or loose control? • Mechanistic Vs organic? • Central or devolved authority? • Prescriptive job definition? • Span of control? • Communication flows/decision making? • External (environmental) factors?

19. Basic factors involved • Purpose and goals • Tasks • People • Technology • Culture • External environment

20. Professional expertise enhanced Usually effective in practice Traditional form of departmentalisation Readily accepted by employees Sub-optimality Problems adapting to change (geographical, product diversification) Narrow functional experience less suitable as training for general managers Functional Specialisation Advantages Disadvantages

21. Faster decisionmaking Uses local knowledge Speedier reaction time Some operating costs lower (storage, transport) All round experience good training for managers Loss of control by “head office” Problems co-ordinating local activities Duplication of effort Geographical Specialisation Advantages Disadvantages

22. Develops expertise in products/services Responsibilities clearly identified Diversification and technological change easier to handle Sub optimality again! Possible co-ordination problems Loss of control by senior management Product Specialisation Advantages Disadvantages

23. Chief Exec Production Finance Marketing Research Project B Manager Matrix Structure (1) Project A Manager Fred Horizontal flows - Project authority Project C Manager Vertical flows - functional authority Fred is the Finance specialist on Project A

24. Can help motivation Helps direct effort Can result in “division of authority/responsibility” conflicts Resource allocation problems Resentment of “functional heads” One man, One boss?! Matrix Structure (2) Tries to combine stability & efficiency of “functional” division with flexibility and directness of “project based” division

25. Factors influencing span of control Narrow span Wider Span Simple work Complex work Stable environment Uncertain environment Less able subordinates Able subordinates More risk/danger Less risk/danger Less able manager Able manager

26. “Tall” Vs “Flat” structures • Size of organisation • Complexity & nature of operations • Production methods • Technology • Management style • Amount of delegation • Spans of control • Ability of managers & personnel

27. Larger size Many levels Narrow span of control Long chain of command More formality, specialisation & standardisation Smaller size (usually) Fewer levels Broad span of control Short chain of command “Tall” Vs “Flat” structures

28. Decentralisation advantages • Improvement of local decision making • Improvement of strategic decision making • Increased flexibility • Reduced communication problems • Increase motivation of local management • Better training for junior management

29. Decentralisation disadvantages • Possible sub-optimal decision making • More co-ordination problems • Control and monitoring problems • Needs intelligent & well motivated junior managers

30. Don’t decentralise! • Decisions about technologies, markets & products • Decisions about diversification and contraction • Decisions about corporate finance • Decisions about corporate personnel policy and key appointments (Drucker)

31. Organisational culture - factors • Rules, procedures, legal framework • Communications & decisionmaking systems • Goals & purpose • History & background • Operating environment • Employee skills & attitudes • Organisational structure • Organisational policies • Use and knowledge of technology

32. Organisational culture - types (1) • Power culture • Central control and power source. Clear figurehead and leader • Role culture • Culture reinforces structure. Roles more important than people in them. Typical of bureaucracies

33. Organisational culture - types (2) • Task culture • Focus on job expertise, personal contributions highly valued. High levels of collaboration within workgroups • Person Culture • Typically found where loose collection of individuals work together, sharing common facilities. Formal power unimportant.

34. Power bases in organisations • Powers visible • Position power • Expert power • Dependence power • Personal power • And invisible • Conflict suppression • Informal development of working practices • Information/agenda control Rob Paton 1983

35. The “Flexible Firm” • Core versus peripheral activities • Functional flexibility for core activities • Polyvalence/multiskilling • One man, one job? • Numerical flexibility for peripheral activities • Outsourcing • “Hire & fire”

36. Empowerment (1) • Greater responsiveness • “Delayering” • Need for lateral collaboration • Need to concentrate on strategic issues • Best use of resources • Higher expectations of better educated workforce • Continuous improvement

37. Empowerment (2) • Extension of knowledge base • Discretion over tasks • delegation • responsible autonomy • self-governing teams • Involvement in policymaking • Organisational change

38. Summary • Legal form of the organisation • Sole trader • Partnership • Private and Public companies • The public corporation • The co-operative society • The organisation’s structure • Specialisation • Centralisation/decentralisation • Organisational culture and power bases • Empowerment and the “flexible firm”

39. Further reading • Johnson and Scholes chapter 9 • http://www.quickmba.com/law/org/ (American, but very similar to our system!) • http://www.analytictech.com/mb021/handouts.htm • (a comprehensive site covering most aspects of organisational behaviour.)