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Explore functional, product/service, customer, place/territory, technology, and line/staff groupings in organizations. Learn about advantages and disadvantages.
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Internal Organisation Higher Business Management
What is an organisation? • A group of people working towards a defined set of goals and objectives.
‘An organisation is the rational co-ordination of the activities of a number of people for the achievement of some common explicit purpose or goal, through the division of labour and a hierarchy of authority.’ Edgar Schein
Types of organisational grouping • Functional • Product/service • Customer • Place/territory • Technology • Line/staff
Functional grouping • Departments where staff have similar skills and expertise, and do similar jobs. • Functional grouping usually consists of marketing, finance, human resources and operations. • What other functional areas might there be?
Functional grouping Advantages • Allow specialisation • Clear organisational structure • Staff aware of formal relationships Disadvantages • Organisation may become too large and wieldy • May be unresponsive to change • Departments may compete against each other
Product/service grouping • Divisions/departments where each deals with a different product or product range. • eg Sky has Sky Sports, Sky Movies, Sky Atlantic etc. Each division has its own functional staff. • Virgin and General Electric are other examples of product/service grouping.
Hewlett Packard Imaging and Printing Group Personal Systems Group Enterprise Systems Group HP Services HP Financial Services Product/service grouping
Product/service grouping Advantages • Each division self-contained • More responsive to customer changes in tastes/fashions • Easier to identify low sales in products Disadvantages • Duplication of effort • Divisions may be competing with each other
Customer grouping • Customer groups are divisions dealing with different types of customers. • May have different divisions based on distribution, eg retail, online and international.
Customer grouping Advantages • Each division has varying customer needs • Customer loyalty can build due to personal touch • Can respond quickly to customer needs or changes in taste Disadvantages • Expensive due to higher staff costs • Duplication of effort • When key staff leave, personal relationship is lost
Place/territory grouping • Staff divided into divisions, each dealing with a geographic area, eg south, west, north, Scotland. • Examples: Nestle, water boards
Hewlett Packard Americas Houston, Texas Europe, Middle East, Africa Geneva, Switzerland Asia Pacific Hong Kong Place/territory grouping
Place/territory grouping Advantages • Can cater for different local, regional, national tastes • More responsive to customer needs Disadvantages • Duplication of effort
Technology grouping • Manufacturing companies group their business activities according to technological or production processes. • Only suitable for large organisations with different products and production processes. • Ford (bodywork, glass, plastics, paints) is an example.
Technology grouping Advantages • Increased specialisation • Teething problems or technological problems easy to identify • Economies of scale Disadvantages • Specialist training required • Higher salaries for skilled workforce • Capital intensive
Line/staff grouping • Core activities – line • Support activities – staff • Core activities are essential to the business, eg teachers are essential or core in the education sector. • Janitors, office staff and canteen workers are involved in the support (staff) activities that are required for a school to function.
Answer a question • Many organisations group their activities by function. Discuss other methods an organisation could use to group their activities. (8 marks) 2008 • 15 minutes
Peer marking • You are going to swap answers. • Has your partner answered well? • Does the answer make sense? • Is it worth a mark?
Solution • Product/service grouping is when each division will be grouped according to a product or product range, eg Sky Sports, Sky Movies, Sky Atlantic. • Allows an organisation to be more responsive to changes in that market. • Expertise is developed within each specialised division. • Allows management to identify poorly performing products. • There can be duplication of resources and personnel across groups. • Divisions may find themselves competing against each other.
Solution (cont’d) • Place/territory grouping is when grouping of resources is carried out across a geographical area, eg midlands, Scottish, south-east etc. • Allows for the needs of different areas. • Can become familiar with local customs and cultures. • Expensive with regards to administration and staffing costs.
Solution (cont’d) • Technological grouping is when organisations group their activities according to technological process. • Suitable for large organisations with different production processes. • Duplication of resources can occur. • Customer grouping is when resources are organised around groups of customers with similar needs. • Allows for services to be tailored to each group of customers or a specific customer. • Builds up customer loyalty due to the personal service they receive. • There can be large staffing costs with this type of grouping. • Duplication of resources in administration, finance, etc.
Organisation pyramid Board of directors Chief executive Senior managers Managers Junior managers Supervisors Assistants
Span of control • Span of control means the number of people who report to a manager. Manager Manager Employees Employees Narrow span of control Wide span of control
Hierarchical structures Hierarchical structures can be either tall or flat. Tall Flat
Tall structures • Many levels of management • Managers have narrow span of control • Management posts usually specialised • Clearly defined roles
Cost/benefit analysis of tall structures Benefits • Easier for managers to supervise staff • More promotion opportunities • Employees will know immediate boss • Clear lines of responsibility and communication Costs • Many layers of communication • Slow decision-making • High labour costs due to many levels of management • Workers may have little freedom or responsibility
Flat structures • Few levels of management • Managers have wider spans of control • Faster communications • Quicker decision-making
Cost/benefit analysis of flat structures Benefits • Employees have more authority and responsibility • Better communication between managers and workforce • Decision-making is quicker • Communication channels less complicated • Better team spirit Costs • Employees have greater workload • Employees may need training for many tasks • Fewer promotion opportunities • If span of control is too wide people may feel isolated or ignored
Marketing worker Project manager Matrix structure • A project team created to carry out a specific task. • Team members come from different functional areas, and report to the project manager and their own functional manager. • Software development follows matrix structures Marketing manager Finance manager Finance worker
Matrix structures Advantages • Increased experience • Good motivation and job satisfaction • Good for tackling complex problems Disadvantages • Expensive to have many teams • Co-ordination problems • Confusion as to who reports to whom Lack of supervision and confusion is thought to have led to the demise of Barings Bank.
Entrepreneurial structure • Small businesses use this structure • Decisions made by a few people, normally the owner
Entrepreneurial structure Advantages • Decisions made quickly • Staff know who they are accountable to • Decision-maker does not need to consult staff Disadvantages • Difficult to use in large businesses • Can create a heavy workload for decision-makers • Can stifle other staff’s initiatives
HQ Centralisation • Control and decision-making lie with top management in head office (HQ)
Centralisation Advantages • Decisions can be made for whole organisation • Easier to promote corporate image Disadvantages • Slower decision-making • Slower communication • Less room for staff initiative
HQ Decentralisation • Control and decision-making are delegated to departments • Relieves senior management from routine, day-to-day tasks
Decentralisation Advantages • Motivates staff • Empowers staff • Decision-making quicker • Decisions can match local needs Disadvantages • Decisions may differ from other branches • Transfer of staff may lead to confusion due to different practices • Less supervision
Answer a question a) Explain the advantages and disadvantages of the entrepreneurial structure. (4 marks) 2008 b) Describe the main features of the matrix structure. (3 marks) 2010 • 12 minutes
Self-marking • You are going answer on your own! • Have you answered well? • Does the answer make sense? • Is it worth a mark?
Solution to a) Advantages • Decisions are made quickly as managers do not consult staff, who rely on their expertise. • Staff know who they are accountable to as they have only one superior. Disadvantages • Difficult to use in larger businesses as they have more complex operations. • Top managers carry a heavy workload/burden as they have to make all the key decisions. • Does not allow for initiative from staff, which can demotivate talented employees.
Solution to b) • Matrix structures are created for specific projects. • They are made up of specialists from different functional areas, and offer a good mix of skills and ideas. • They are a a good method of solving complex problems, having different abilities and disciplines involved. • Each staff member can have two managers: the project manager and their own functional manager. This can cause confusion and conflict as staff are unsure of their priorities. • Gives staff increased experience in different situations, which improves their skills and potential for promotion (career progression).
Factors affecting organisation structure • Size of organisation • Technology used • Market firm operates in • Staff skills within organisation • Products/services made or supplied by organisation Click for clip
Definitions • Line relationships – exist when a member of staff is in charge of another member of staff. • Functional relationships - exist with people on the same level of management. • Staff relationships – exist with people who have skills that support the firm as a whole rather than individual departments. • Informal relationships – exist as friendships between workers who may have no formal contact in the workplace.
Delayering What happens? • Levels of management are reduced (move from tall to flat structure) • Wider spans of control • Savings in management wages Effect on organisation chart • Flatter structure • Fewer management posts • Increased worker responsibilities
Downsizing What happens? • Staff laid-off • Wages (labour costs) are reduced Effect on organisation chart • Greater workload for departments • Some posts will disappear • Workers have more duties
Answer a question • Distinguish between delayering and downsizing. (3 marks) 2008 • 6 minutes
Peer marking • You are going to swap answers. • Has your partner answered well? • Does the answer make sense? • Is it worth a mark?
Solution • Delayering involves removing a whole level of management to flatten an organisation’s structure. • Downsizing involves closing specific areas of the organisation to cut costs. • Communication – Delayering will quicken communication between management levels. Downsizing may not, as it closes certain departments and does not affect management structures. • Efficiency – Delayering may be viewed as more efficient by removing levels of management, but downsizing may affect productivity and efficiency as staff are not replaced. • Cost – Delayering reduces costs through fewer promotions, saving on salaries, whereas downsizing saves costs by making employees redundant.
