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.)