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Strategy and Structure, Forms of organisation
Geoff Leese October 2005 revised September 2006, July 2007, August 2008, August
2009
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”
Legal status
• Usual way of classifying business organisations– legal status– ownership, control, methods of raising
capital
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
The partnership (1)
• Combination of resources• Should be economically more
efficient• Maximum 20 partners (some
exceptions!)• Articles of Partnership generally
required
The partnership (2)
• Joint management and ownership• All partners share in capital, profits
& losses– NOT always equally!
• Partners have unlimited personal liability
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
The company (2)
• Dominant form of business organisation
• Liability of members limited to amount invested
• Companies Act requires annual accounts to be filed
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”
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
Operation of companies
• Memorandum and Articles of association– (model set available)
• Directors appointed by shareholders• Company Secretary• Control by shareholders (in theory!)
Public corporations
• Owned by “the nation”• Financed by the state• Run by “Board of management”• Policy framework laid down by
Parliament
Co-operative societies (1)
• Registered under Industrial & Provident societies act
• “Self help” organisation• Profits distributed as dividends • Owners are customers (members)
Co-operative societies (2)
• More democratically run than companies
• Limit to individual share ownership• Shares cannot be sold, aren’t
quoted on Stock exchange
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)
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
A conflict!
• Breakdown of tasks & responsibilities – disintegration
• Coordination and control– integration
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?
Basic factors involved
• Purpose and goals• Tasks• People• Technology• Culture• External environment
Functional Specialisation
• 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
Advantages Disadvantages
Geographical Specialisation
• 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
Advantages Disadvantages
Product Specialisation
• 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
Advantages Disadvantages
Project CManager
Matrix Structure (1)Chief Exec
Production Finance ResearchMarketing
Project AManagerProject
BManager
Vertical flows - functional authorityFred is the Finance specialist on Project A
Hori
zon
tal flow
s -
Pro
ject
auth
ori
ty
Fred
Matrix Structure (2)
• 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?!Tries to combine stability & efficiency of “functional” division withflexibility and directness of “project based” division
Factors influencing span of control
Narrow span Wider Span
Complex work Simple work
Uncertain environment Stable environment
Less able subordinates Able subordinates
More risk/danger Less risk/danger
Less able manager Able manager
“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
“Tall” Vs “Flat” structures
• 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
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
Decentralisation disadvantages
• Possible sub-optimal decision making
• More co-ordination problems• Control and monitoring problems• Needs intelligent & well motivated
junior managers
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)
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
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
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.
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
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”
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
Empowerment (2)
• Extension of knowledge base• Discretion over tasks
– delegation– responsible autonomy– self-governing teams
• Involvement in policymaking• Organisational change
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”
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.)