Structure

Organisational Stress, Structure and Synergy

External influences on structure and systems design and their implications

for achievement of synergy

Presentation A&O• To define the various forms of and trends in the

design of organisational structures• To consider the relationship between the business

environment (ie the titular ‘stress’), company strategy and choice of structure

• To analyse the respective characteristics of structural forms

• To consider the limiting effects of communication systems, relationships and organisational design upon the achievement of synergy

Presentation Structure• Sources and resources• Definitions: stress; structure; synergy etc• Organisational structures: conceptualisation /

representation & basic forms analysed• Influences on structure: scale, geography,

complexity, competition, stability, management.• Structure as an inhibitor of synergy• Latest trends in organisation design

Sources and resources• Global trends in organisational design. Nikoloenko A & Kleiner B.

(1996) Work Study Vol 45 No 7 pp23-26 (Management e jnls BU site)• The Structuring of Organizations. Mintzberg H (1979) See Pt 1 pp17-

65• Corporate Strategy for Tourism. Tribe J (1997) See pp 174 - 193• Interrelationships and horizontal strategy to achieve synergy and

competitive advantage in the diversified firm. Ensign P (1998) Management Decision Vol 36 No 10 pp 657-668 (Management e jnls BU site)

• Ref: Porter’s 5 Forces and Value Chain models encountered with SR in BIT and elsewhere on BATS eg TILT unit.

• Competitive Advantage: creating and sustaining superior performance. Porter M (1985)

Definitions:(All TJ - many ‘standard’ definitions were too limiting)

• Stress: the set of external and internal pressures and influences for change acting upon the business which will demand a measured response in order for the business to survive and prosper.

• Structure: the ‘positions’ of the constituent elements of the organisation and the formal and informal relationships and processes which link these parts to one-another so as to create a productive system with fitness for purpose.

• Synergy: the positive product of interrelationships between two or more (business) units which is greater than the sum of the independent outputs of such units. (2+2 = 5)

1.1 Organisational structures• Mintzberg suggests all structures simply reflect:

“...the sum total of ways in which a company divides its labour into distinct tasks and then achieves coordination among them.”

• The principal elements of organisational structure are:– allocation of tasks and responsibilities to groups and individuals– designation of reporting relationships (inc power, authority, control)– definition of official groupings (around functions, products, geography)– design of systems to support, integrate and reward

NB."Structure is never the whole story, it is just a way of dividing responsibilities among executives. It is meaningless unless supported by appropriate systems (communication, MIS etc TJ) and a consistent culture.” Birkinshaw (2001)

1.2i Conceptualising Structure

Strategic Apex

Operating Core

Middle Line Mgt.

Support Staff

Techno-structure

After Mintzberg (1979)

•secures I/pts•t/fs I/pts to o/pts•distributes o/pts

•Supplies ancillaryservices not rel to

input/output:-Estates..payroll..

cleaning ..refectory

•Affects I/pt & o/pt by analysis &

technical support.IT, personnel, planning

etc

•Info collection,translation& transmissionco-ordination

•resource allocation•structure and process

•conflict resolution•external relations•task assignment

•funding•strategic direction

1.2ii Conceptualising Structure


Bold = formal authority and comms

………….

But that is less than half the picture.

1.2iii Conceptualising Structure


Bold = formal authority and comms

Arrows = possible informal relationships

Perhaps this is the MDs daughter?

What’s wrong with this guy?

At the hub of the official and informal

systems

THE key position,but being

marginalised bypeers and subordinates

The indispensable IT guy?

1.3 Structural FormsTraditional• Simple• Functional vertically arranged & possibly high-dependence

• Divisional• Holding / Portfolio / Conglomerate low-

dependence

• Matrix & other Hybrids degree of dependence varies

Newer ‘Forms’• The network organisation interdependence by choice

• The ‘virtual’ corporation

1.4 Simple Structure

The ‘structure without a structure’• usually for new start ups, small operations

where there is:– small scale– no complexity– no multiple functional specialism requirement

1.5 Functional Structure

Research Development

Research & Development M arketing M embership & Registration

Personnel Payroll

Adm instration

RTB

Pros•MD in touch with all operations

•obvious and simple control

•clear responsibilities

•focus on specialism

•Easy management succession within function

Cons•top management overburdened

•neglect of strategic company issues below apex

•difficulty in handling diverse product

•little natural lateral communication

•poor scope for TOP management succession.

•tends to become over-bureaucratic and centralised

•Acquisition & divestment difficulties

1.6 Divisional Structuresa).Area-based & ). Product-based

Product 1 Product 2 Product 3

EU N. Am erica

M kt Finance R&D

P 1 P 2 P 3

Far East Oceania

a) Jolley Inc

Product 1

N Am erica

Mkt Finance R&D

EU Far East Oceania

Product 2 Product 3

b) Jolley Inc

AREA AREA BASEDBASED

PRODUCT PRODUCT BASEDBASED

1.7 Divisional StructuresPros• Concentration on business areas

/products• Performance measurement via

profit centres• ‘Closer’ to the customer• Facilitates Snr Mgt attention to

strategy• Encourages general management

development• Supports delegation and engenders

entrepreneurial activity• Ease of divestment acquisition

Cons• divisions foster autonomy

not unity• possible confusion over

extent of (de)centralisation• Interdivisional rivalry and

unhealthy competition• disequilibrium caused by

division size variences• duplication of functions• coordination difficulties

1.8 Combining the Divisional and the Functional

" There is no perfect structure- each has its own drawbacks. For most global companies it is a question of choosing the least bad structure and then figuring out how to mitigate its greatest weaknesses.” Birkinshaw (2001)

Although Mintzberg saw these structural forms and others as ‘ideal types’, effectively they are reference points on a continuum. Between these ‘points’ management seeks to bridge the gaps informally or more formally through such devices as:– ad hoc, cross-functional (divisional) committees or groups to think product/ area

(function)– A liaison / co-ordination manager to formalise and extend the aboveLogically that is likely to end with one of three situations: – a working, informal balance within the existing structure– a shift to the dominant need embodied in structure (usually fcnl to divisional)– the balancing of the ‘tension’ of product and function within a matrix structure

1.9 Structural ContinuumSt

rate

gic

Obj

ectiv

es

Functional Structure

Functional with interdepartmental

liaisonMatrix

StructureDivisional Structure

Networking Structure

Strategic Objectives:Differentiation, innovation, flexibility

Strategic Objectives:Cost leadership, efficiency, stability

The drive for added value, excellence and competitive advantage in a turbulent environment are driving companies beyond an internal networking structure and towards a virtual organisation, enabled by ICT.

1.10 The Matrix StructureThe BoardThe Board

Function 2 Function 3

AreaDivision 2

Area / Division 1

Function l

AreaDivision 2

But who is But who is my boss??my boss??

I amI am when when it suits meit suits me

But But so so am Iam I!!Result: A very

stressful place to work!

1.11 Service IndustriesHead of School

Ac Gp: T L & S

Resources

Quality

Ac Gp: F H & R

Research &Consultancy

Result: Looks like a shifting ‘Latent Matrix’, with the added tension of a third management pull plus a ‘virtual’ element. .. but is it

Courses

Courses

Courses‘‘Virtual Virtual Graduate Graduate School’School’

Me..responsible to:• Keith Wilkes (Ac Gp)•Jacqui Gush (Quality)•Andy Boer (Resources)•John Fletcher (ICTHR)•John Edwards (Grad Sch)•Derek Robbins (BATS)

ICTHR

1.12 Service IndustriesHead of School

Ac Gp: T L & S

Resources

Quality

Ac Gp: F H & R

Research &Consultancy

Ref to Nikolenko and Kleiner (1996) suggests that this is BU seeking the best of two worlds: the marriage of the product (courses) and functions (quality / resources) with newer concepts of ‘The Horizontal Organisation’: “..autonomous, cross-functional teams, designed around critical processes. The teams are arranged to complete their projects in parallel, thus minimizing the subdivision of processes the heirarchy becomes flattened”.

Courses

Courses

Courses‘‘Virtual Virtual Graduate Graduate School’School’

Me..resp to:• Keith Wilkes (Ac Gp)•Jacqui Gush (Quality)•Andy Boer (Resources)•John Fletcher (ICTHR)•John Edwards (Grad Sch)•Derek Robbins (BATS)

ICTHR

1.13 The ‘Horizontal’ Organisation(Also embodies ‘Network’ Orgs)

The problem (IMHO) for SI is that it is not fully appreciating that the autonomy requirement of ‘Horizontal Organisations’ needs a different control system based on outputs not input control:

“In a functional hierarchy of vertically built companies, individual jobs and information flows are geared towards control. The cross-functional teams of the horizontal company do not require the same level of formal managerial ‘control because their work is aligned with customer needs and ‘controlled’ by a judgement of the final result.” Nikolenko & Kleiner (1996)

1.14 The Virtual CorporationA transient, ephemeral form. A coalition of interested parties from various specialities and points on the value chain working together for a particular purpose, project or contract. The logical end point of outsourcing, whereby a network of suppliers is offering capability at the business unit or function level, such that these capabilities may be combined in a unique way to add value and competitive advantage. (TJ!)

Nikolenko & Kleiner (1996) suggest that within a VC “..companies can share costs, skills, and access to global markets with one-another, with each contributing to the common goal what it is best at …. The VC appears to be a single firm with vast capacities, when in reality it is a collection of many smaller firms that work together to achieve a specific goal.”

1.15 Structural dilemmas

• Flat - Tall• Centralised - decentralised• Product/ Brand … function…or customer?• Command or consider• Global vision - local delivery

2.0 Organisational EvolutionCategory Phase 1 Phase 2 Phase 3 Phase 4 Phase 5 ->

Mgt Focus Manu /service

Efficiencyof ops

MktExpan.

Consolid-ation

Problemsolving

OrgnStructure

Informal Centralfcnl

Decentralgeog.

Productbrandfocus

Matrixnetwork&virtual

Top Mgtstyle

Entrepreneurial

Directive Delegative watchdog participative

Controlsystem

Marketresults

Standardscost

centres

Reportsprofit

centres

Plans &investment

centres

Mutualgoals &customer

Incentive Ownership Salary &merit inc

Bonus Profitsharing

Team

3.0 New Structures ?

Strategic Apex

Operating Core

In house

Middle Line Mgt.

Support Staff

Techno-structure


Operating corevirtual / outsourced

4.0 Potential Synergies from M & A

F cnl bensP u rc h as in g

R & D ..M k t e tc

K now -how T /FM g t.. .O rg ..S tra t

Im a ge T /F

Non-Financial

T a x A dv . L ow er bulk £ Ris k Redn.

Financial

Synergies

Cost Based Synergies: economies of scale in production, R&D, admin , logistics, sales etc

Revenue Based Synergies: new competency development to support premium price (via increased market power / innovation capability) or to increase sales volume.

(After Wall S & Rees B (2001). Intro to Intnl Business)

4.2 Economies of scale & minimum efficient size(Often suggested as justification for acquisition….)

£

C1

Q1

Long Run Av Cost curve

Output

C1, Q1 = Optimal position

4.3 Key to Synergy

“ It depends upon the selection of activities where interrelationships will occur. Recognising the costs and benefits to specific circumstances is important: knowing when NOT to pursue interdependencies may be as crucial as knowing when to seek them. The realisation of synergy depends upon how effectively linkages between activities are actually managed.”

Ensign 1998)

SOAR - Scenario planning in industrySOAR - Scenario planning in industry Overall, then, the level of conservatism to be seen suggests that many managements will be unprepared for the surprises which await them…..the answer to this problem can be quite simple. Even the smallest organisations can now make use of scenario planning techniques as the starting point for producing robust strategies It is even possible to conduct the whole long-range planning process in a single day.Organisational futures: unprepared for the surprises to come. Mercer D (Management Decision 37/5 [1999] 411±416)