FACTFILE: GCE BUSINESS STUDIES

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A22 THE COMPETITIVE BUSINESSENVIRONMENT – ORGANISATIONAL DESIGN

FACTFILE:GCE BUSINESS STUDIES

Organisational Design

Learning outcomesStudents should be able to:• evaluate the various types of organisational

structures in business.

Formal and Informal organisational structures:There are likely to be both formal and informal information channels and networks in many businesses. • Formal – prescriptive organisation structures

in place

• Informal - no prescriptive organisation structures identified

• Line organisational structur• Staff or functional organisational structure• Line and staff organisational structure• Committee organisational structure• Divisional organisational structure• Project organisational structure• Matrix organisational structure• Hybrid organisational structure.

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FACTFILE: GCE BUSINESS STUDIES / A22 ORGANISATIONAL DESIGN

Advantages:1. Simplifies and clarifies authority, responsibility

and accountability relationships2. Promotes faster decision making3. Simple to understand.

Disadvantages:1. May overload key personnel2. Neglects specialists in planning.

Figure 1: Line Organisation Structure:

CEO

Manager(Production)

Manager(Marketing)

Foreman(Fabrication)

Workers

Foreman(Assembly)

Workers

Sales Officer(A)

Salespersons

Sales Officer(B)

Salespersons

Line Organisation Structure

This form of organisation structure features direct vertical relationships between various levels in the business.

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Figure 2: Functional Organisation Structure

Advantage:1. Staff personnel who are specialists in some fields

are given functional authority.

Disadvantages:1. Potential for conflict resulting from violation of

principle of unity of command; 2. Tendency to keep authority centralised at higher

levels in the business.

Director(Production)

Director(Finance)

Director(R&D)

Director(Personnel)

Director(Quality Control)

GM(Production)

Manager(Works)

Foremen

Workers

Line AuthorityGM (Q.C.)

Staff Authority

Manager (Q.C.)

(Q.C.) Engineer

Inspectors

Legend:QC = Quality ControlGM = General ManagerR&D = Research & Development

M.D.

Line Authority

Staff Authority

Functional Organisation Structure

In this type of organisation structure, individual line managers cannot be experts in all the functions they are required to perform.

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Figure 3: Line and Staff Organisation Structure

DIR(H.R)

DIR(Q.C)

DIR(MKTG)

DIR(PRODN)

DIR(R&D)

DIR(FIN)

GM (MFG)

MGR (Works)

F.M/Supervisor

Workers

GM (Personnel)

Manager (Personnel)

Personnel Officers

Personnel Assistants

LegendHR - Human ResourcesMKTG - MarketingR&D - Research and DevelopmentMFG - ManufacturingMGR - Manager

DIR - DirectorQC - Quality ControlPRODN - ProductionFIN - FinanceGM - General ManagerFM - Foreman

Staff responsibility

Advantages:1. The staff structure allows greater flexibility

and specialisation.2. The specialists’ knowledge and expertise is

pre-dominant.

Disadvantages:1. Conflict between line managers and staff may

still arise.2. Staff may resent their lack of authority.3. Co-ordination between line and staff may give

rise to personal conflict/difficulties.

CMD

Line Authority

Line and Staff Organisation Structure

In this type of organisation structure, staff authority of functional authority organisational structure is replaced by staff responsibility so that the principle of unity of command is not violated.

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Figure 4: Divisional Organisation Structure

Features: Structure based on division of work based on a functional activity such as finance, marketing etc., or based on type of products manufactured or based on geographic location of the units or based on projects undertaken.

e) Departmentation by combination approach (Combination of any two or more bases discussed above).

M.D. - Managing DirectorG.M. - General Manager

a) Departmentation by Function

M.D.

GM(Fin)

GM(Mktg)

GM(Prodn.)

GM(R&D)

GM(Per)

b) Departmentation by Product

DIR(Mktg.)

Mktg. Mgr(a Products)Nihilius,

Mgr. Mktg(Video Products)Artus

Mgr. Mktg. (Entertainment)Electronics Products)

c) Departmentation by Geographic Territory

GM(Mktg)

Mgr. Sales(Northern Region)

Mgr. Sales(Southern Region)

Mgr. Sales(Western)

Mgr. Sales(Eastern Region)

Chief Executive

Project Mgr(Project A)

Project Mgr(Project B)

Project Mgr(Project C)

d) Departmentation by Project

Divisional Organisation Structure

Different types of divisional structure are possible, organised as follows:• Function,• Product,• Geographic territory,• Project and• Combination approach.

Advantage:Outlines clear lines of authority across divisions of the business.

Disadvantage:May be too complex to understand.

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In some larger business organisations, projects or tasks may be too complex for individual departments or personnel to manage. In order to manage such situations, project organisations and matrix organisations have emerged.

Figure 5: Project Organisation Structure

M.D.

GM(Personnel)

GM(Marketing)

GM(Finance)

GM(Research and Development)

GM(Quality Control)

GM(Production)

Product Manager A

Product Manager B

(R & D]Engineer

TestEngineer Technicians

(R & D]Engineer

TestEngineer Technicians

Advantages:This structure is useful when:• Work is defined by a specific goal or target date

for completion.• Work is unique and unfamiliar in the business

organisation.• Work is complex having independent activities

and specialised skills are necessary for accomplishment.

• Work is not repetitive in nature.

Project Organisation Structure

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Figure 6: Matrix Organisational Structure

Advantages:1. Decentralised decision making is prevalent2. Strong product/project co-ordination between staff3. Enhanced environmental monitoring.4. Responds to change quicker.

Disadvantages:1. Administration costs may be higher.2. Confusion over authority and responsibility of

key personnel likely.3. Possibility of conflict greater.

Matrix Organisation Structure

Matrix Organisation Structure:This type of organisation structure is a permanent organisation designed to achieve specific outcomes by using teams of specialists from various functional areas in the organisation.

President

V.P. (Research & Development)

V.P.(Operations)

V.P.(Marketing)

V.P.(Finance)

Manager Business

Manager Business

Manager Business

MgrA1

Mgr A2

Mgr A3

Mgr A4

MgrB1

Mgr B2

Mgr B3

Mgr B4

Mgr C1 Mgr C2 Mgr C3 Mgr C4

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Figure 7: Hybrid Organisation Structure

Board of Directors

Managing Committeechairman of Board (A)

President (B)Two vice presidents (C & D)

A A A

V.P.(Law &

External)

V.P.(R&D)

V.P.(Science &

Technology)

Controller(Finances & Resources

Mktg(Services &

Quality)

Personnel

A A A

V.P. & GM(North America)

C

V.P. & GM(Asia)

C

V.P. & GM(Europe)

C

V.P. & GM(USA)

B

This type of organisational structure is typically used by multinational companies operating in the global environment. A combination of different organisation structures often yields a ‘hybrid’ organisational structure:

Hybrid Organisation Structure

Advantages:1. Aligns corporate and divisional goals2. Facilitates functional expertise and efficiency

to prevail3. Allows organisation to adapt and operate

flexibly to meet goals.

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An informal organisation is the set of relationships and patterns of human interaction which appear to evolve in a business organisation which are not officially documented, however they may exist alongside the formal organisation.

An informal organisation structure is one which consists of informal relationships created not by officially designated managers but by organisational members at every level. It may not be possible for managers to avoid such informal relationships, therefore they must be trained to cope with it.

An informal organisation structure may exhibit the following features:• members are joined together to satisfy their

personal needs (need for friendship, socialising etc.)• It changes on a regular basis, often dynamic in

nature.• It may include members from various

organisational levels.• the structure may be affected by relationships

outside the firm.

Advantages:1. Workloads may be completed quicker2. Addresses potential weakness in the formal

organisation structure3. Extends the effective span of control.

Disadvantages:1. May mitigate against the aim of a formal

organisation structure2. Greater levels of unpredictability or

random events3. The number of practical alternatives are reduced.4. Time consuming.

Informal Organisation Structures

An organisation structure in a business will help determine how the roles, power and responsibilities are assigned, controlled, and co-ordinated, and how information flows between different levels of management.

Summary

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Revision Questions

Explain what is meant by the term ‘organisation structure’.

2 Explain the term ‘informal structure’ and analyse two ways in which this might impact a large MNE.

3 Analyse the impact of a reduction of span of control if a large business decides to change from a ‘line and staff’ organisation structure to a divisional structure.

4 Evaluate the usefulness of a project organisation structure in a large MNE which participates in global trade activities and is currently experiencing growth in profitability and efficiency.

FACTFILE: GCE BUSINESS STUDIES

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