BUSINESS ANALYSIS Chapter 8 Organizational Structure

Prof.univ.dr. Ion ANGHEL, FRICS, REV, MAA

 Advise on how organizations can be structured to deliver a selected strategy Describe Mintzbergs six organizational configurations; Describe the types of control processes ; Describe with examples: outsourcing, strategic alliances, networks, the virtual firm

Chapter 8 Organizational structure

1. Factors affecting organisational structure 2. Mintzbergs structural configurations 3. Planning and control processes 4. Managing international companies 5. External relationships 6. Summary

1. Factors affecting organisational structure

The links between strategy and structure
strategic objectives (expansion vs specialization ex. Service appraisal company) nature of the environment (Adevarul Holding S.A. vs. Electroputere S.A.) Diversity (multinational vs local firm) future strategy (acquisition in the future, replica structure of the target company) technology (emag vs. Mega Image) people.

1. Factors affecting organizational structure

Types
Entrepreneurial Functional (bureaucratic) Divisional Matrix

1. Factors affecting organizational structure

A) Entrepreneurial
(+) Quick and flexible (small family restaurant) (-) Too slow for large company (-) Staff Demotivation (-) Too many decision for one person (-) No specialization

1. Factors affecting organizational structure

B) Functional (bureaucratic)
(+) specialization is efficient (experience in a US restaurant, used 20 h/day, breakfast, lunch, dinner etc.)

(+) good carrier opportunities (-) bureaucratic/ inflexible/slow to adapt (-) conflict between functions ; lack of communication between functions

Functional structure

Advantages
Specialisation is efficient Good career opportunities and extra responsibilities Can cope with more products than entrepreneurial structure

Disadvantages
Empire building Conflict between functions (i.e. lack of goal congruence) Problems if product base expands (people are too specialised) Bureaucratic/ inflexible / slow to adapt Lack of communication between functions

C) Divisional structure

Advantages
Decisions taken at point of action (so quicker) Increased staff motivation Senior management concentrate on overall strategy Can cope better with diversification than a functional structure

Disadvantages
Top managements level of control (the case of Omega watch or Adevarul newspaper) Conflict between divisions e.g. transfer prices Extra costs through repetition of functions e.g. marketing Conflict over shared costs e.g. personnel

D) Matrix organization

Advantages
Customer has single point of contact Interfunctional communication enhanced Staff motivation can be improved through variety of work and challenges Very flexible (can easily react to changes in both the internal and external environments)

Disadvantages
Functional managers expertise is diluted spread over many projects Staff are serving two masters; conflict, role ambiguity, role overload Time-consuming meetings and higher admin. costs

1. Factors affecting organisational structure

Centralisation v decentralisation Decentralisation:
is more likely in large-scale organisations gives authority to make specific decisions to units and people at lower levels in the organisations hierarchy allows front-line staff to respond flexibly to customer demands allows local management (of dispersed units) to respond flexibly to local market conditions

1. Factors affecting organisational structure

Centralisation:
(+) better management control; ex. Minirevelion ANEVAR (+) conformity with overall objectives; (+) economy of scale (general management, acquisions etc.), ANEVAR cost with Vodafone invoice (-) decisions take time, no flexibility; (-) reduced job satisfaction;

2. Mintzbergs structural configurations

Building blocks and co-ordinating mechanisms
the organisation structure exists to co-ordinate the activities of different individuals and work processes; the nature of co-ordination changes with the increasing size of an organisation. there are six main types of structure with configurations based on the following building blocks

2 Mintzbergs structural configurations

strategic apex higher levels of management technostructure provides technical input that is not part of the core activities operating core members involved in producing goods and services middle line middle and lower-level management support staff support that is not part of the operating core ideology beliefs and values. Where is the place of accounting services in a production company ?

2 Mintzbergs structural configurations

Simple structure: single owner manager: power of the owner (and his family) Machine bureaucracy: power of technostructure; Professional bureaucracy: medical staff in a hospital; Divisionalised form: importance of middle management; Adhocracy: not formalize activities, cooperation with consultancy firm and advertising agency You want to start your own consultancy/ accounting company?

2 Mintzbergs structural configurations

Link between the structures and the building blocks As the business and its structure grows, different building blocks develop and can become more important:

Building block
Strategic apex Technostructure

What they want

What they provide

Structure in which they dominate Simple Machine bureaucracy Professional bureaucracy Divisional

Direction Efficiency

Supervision Procedures and standards Expertise and skills

Operating core

Proficiency

Middle line Support staff

Concentration Learning

Focus and control Help and training

3. Planning and control processes

Classification of control processes
Organizations and their strategies are managed and controlled by the formal and informal processes There are a number of different possible processes, any or all of which may operate along side one another. These processes may be:
formal or informal focused on inputs or on outputs direct or indirect processes.

3 Planning and control processes

Formal control process Examples of control processes include:
all enquiries are to be processed within 48 hours of receipt quality sampling to ensure process meets specification the budgeting process.

3. Planning and control processes

Production control processes
Control processes involved in production include:
cost recording variance analysis lead times monitoring quality control inspections monitoring of rejection levels achievement of delivery times

4. Managing international companies

Geographical diversification Reasons why for international diversification
increasing opportunities from global markets. If local markets are saturated, it may be possible to sell products into new locations using existing infrastructure. Risks may be spread as poor results in one market due to local economic conditions can be balanced against good conditions in another. It may be possible to take advantage of particular aspects of different locations and markets such as low labour costs.

4. Managing international companies

Possible strategies for geographical diversification
A multi-domestic strategy where products and services are tailored to individual countries and markets A global strategy, where standard products are sold in different countries. A balance between the two above strategies, where products are largely global but have minor modifications to suit the requirements of individual countries.

4. Managing international companies

Issues for consideration
The increased complexity due to operating in a number of different countries needs to be managed. How to gain the maximum benefit from the expertise and advantages of particular countries The attractiveness of local markets, which depend on
the political environment (ex.the stability of the government) the strength of the local economy

5. External relationships
Types of external relationships
outsourcing, where products and services, (es. IT, accounting), that were previously provided within the organisation are supplied by outside organisations strategic alliances, co-operative business activities, formed by two or more separate organisations for strategic purposes networks, relationships outside the traditional organisation boundaries virtual organisations, which are constructed from administratively and geographically distributed business units or organisations that have rejected the traditional work patterns of bringing people to one location for a fixed period

5 External relationships (outsourcing)

Advantages
Reduced cost Overcomes skills shortages

Disadvantages
Loss of control Dependency on supplier

Flexibility

Loss of confidentiality

Allows organizations to focus on their core Loss of in-house skills skills

5 External relationships
A company is considering whether to outsource its IT provision. Suggest some areas of conflict between the business and its supplier.
Ex. Accounting of fixed assets in state ownership companies ?

5 External relationships
The organisation might be interested in ensuring that its IS/IT function remains dynamic, and responds to changes in IT and changes in its information systems requirements. The external supplier, on the other hand, might be more interested in stability and minimal change, in order to keep costs under control and avoid the risks that inevitably arise with system changes and upgrades

5. External relationships
Strategic alliances
co-operative business activities, formed by two or more separate organisations for strategic purposes. Ownership, operational responsibilities, financial risks and rewards are allocated to each member, while preserving their separate identity and autonomy. Strategic alliances are long-term collaborations bringing together the strengths to achieve strategic goals. For example, IBM formed links with Ricoh for distribution of lowend computers. This allowed them to move into the Japanese market quickly, inexpensively and with a relatively high prospect for success. Example: Accounting company vs professional valuer;

5. External relationships
Networks
Outsourcing & strategic alliances = examples of ways in which an organisation depends on relationships with other external organisations. There are a number of other important forms of networks. Networks of experts which come together for a particular project or purpose (valuation of BCR for privzatization) Teleworking, where individuals are based in different locations but work together through the use of information technology.

5. External relationships
Networks (cont.)
One-stop-shops, where a group of organisations are co-ordinated centrally so that there is one contact point for the customer with the aim of providing a comprehensive and seamless service. Service networks, where the members of the network provide services to customers through any other members of the network

5. External relationships
Example of a successful network Amazon
Amazon = the best known on-line retailers. Amazon operates its website but relies on external book publishers and other suppliers, couriers and credit card companies to deliver the rest of the customer experience. These partners are also expected to provide Amazon with information on (stock availability, promotional material.. ) The customer feels that they are dealing with one organisation, not many. In addition, the Amazon Marketplace allows other organisations and individuals to sell their goods through the Amazon website.

5. External relationships
Virtual organisations
the most extreme form of outsourcing, alliances and networks. The core organisation carries out very few activities and as much work as possible is carried out by other organisations. Virtual organisations have a number of characteristics

5. External relationships
Virtual organisations (characteristics)
development of relationships with a broad range of potential partners, each having a particular competency that complements the others. Virtual organising capitalises on the mobility and responsiveness of telecommunications to overcome problems of distance. Timing is a key aspect of relationships, with key players using responsiveness and availability to decide between alternatives. There must be trust between players separated in space for virtual organisation to be effective. Most virtual organisations have an operating core

Example of a virtual organisation

Chapter 8. Summary

Homework
Case 19 25 marks

MULTUMESC PENTRU ATENTIE !