Competitive Organisational Structure

Competitive Organisational Structure

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Organisation structure in larger businesses

Structure changes regularly as it adapts to changes in the marketplace.

·                     Traditional hierarchical structure- may be appropriate in the financial and administration function where confidential or sensitive data is involved, processes are important and a consistency of service is expected

·                     Matrix structure, project based, may be appropriate for the marketing function. If the market is divided up geographically or by type of customer, sales teams will have different goals. Or a product could have dedicated team.

·                     Informal structure has no obvious organisation, although a support system will be in place. May be the best way to operate R&D.

1 of 20

Deciding organisational structure

May take the following factors into consideration:

·         If there are a lot of highly skilled, specialised employees, structure is likely to be less formal

·         Business environment. E.g. if the market is very competitive and market conditions are difficult, there will be pressure to reduce costs by streamlining the structure and speeding up the decision making process and responsiveness of the business to changes in the market

·         If the company wishes to moves away from a risk taking culture as it grows and wishes to become more established force in the market. Emphasising quality rather than innovation, a more formal structure may be introduced/

·         Leadership style of the senior execs will affect the structure: those who wish to retain control of decision making are likely to prefer a tall, hierarchical structure with narrow spans of control. Leader who prefer to delegate decision making are more likely to favour a wider span of control or a matrix structure. 

2 of 20

Impact on competitiveness

The effectiveness will be judged in terms of how efficiently the business performs.

·         How quickly are strategic decision made?

·         Does the business operate efficiently at minimum costs? The structure may be inefficient with unnecessary levels of management

·         How effective are the channels of communication within the organisation? Important information may not reach decision makers quickly enough for the company to respond to change

·         Who is involved in the decision making process and are they the most appropriate people? Those with the most knowledge about the market, customers, suppliers and competitors, need o be included in strategic decisions. 

3 of 20

Adapting to improve competitiveness. Centralisatio

Centralisation: where the decision making authority is concentrated amongst a small number of senior managers at the top/ centre of the organisational structure.  

Most likely to be the chosen strategy in times of crisis

Benefits -

·         Decisions can be taken quickly as few experienced people will be involved in the process

·         Tighter control over the day to day running of the business

·         Procedures can be standardised throughout the organisation which should mean that buying economies of scale can be achieved

·         Strong leadership can be very effective at a time of crisis

Drawbacks-

·         Bureaucracy

·         Diseconomies of scale 

4 of 20

Adapting to improve competitiveness. Decentralisat

Decentralisation: where the authority for decision making is delegated to subordinates in the organisational structure

Most likely to happen when a company has become too bureaucratic and diseconomies of scale have set in

Involves training issues > middle and junior managers may not have the expertise required to make strategic decisions.

Advantages

·         Senior management can concentrate on making longer term corporate decisions

·         Increased motivation because of job enrichment

·         Day to day problems and issues should be resolved quicker.

·         Delegation increases flexibility and means that the business should adapt to changing market conditions more quickly

·         Middle/ junior managers become better prepared for senior roles

5 of 20

Adapting to improve competitiveness. Decentralisat

Disadvantages

·         Slower strategic decision making

·         More difficult to control the business on a day to day basis; in particular finances

·         More difficult to achieve economies of scale

·         Leadership and direction of company is more difficult to maintain. 

6 of 20

Delayering

Delayering: removing levels in the organisational structure.  

To create a leaner more efficient organisation. Structure is flatter and wider.

Reduces indirect costs > less need for direct supervision because of the emphasis on team working, empowerment and TQM.

Benefits

Drawbacks

·         Indirect costs are reduced when permanent, full time salaried staff are removed

·         Improved motivation due to more responsibility

·         May be better able to respond to changes in the market and gain a competitive advantage

·         Valuable market knowledge and experience may be lost, loss of job security may reduce the levels of motivation

·         Recent legislation makes it illegal to discriminate by age

·         Workload of managers in likely to increase as the span of control widens> increasing stress and possibly absenteeism

7 of 20

Flexible workforces

Firms are less able to respond to changes in the market if they have a largely permanent, full time staff.

If more of the workforce are part time, on temporary contracts or have no set contracted hours, the business is able to use its employee resources more effectively/ efficiently.

If some aspects can be outsourced or completed at home then indirect/ overhead costs are reduced.

Core workers: full time, permanent employees, with business specific skills and knowledge, performing tasks key to the success of the business, often rewarded with high salaries and excellent working conditions.

Core workers are seen as essential whereas peripheral workers are seen as less significant to the success of the business. 

8 of 20

Outsourcing and Homeworking

Outsourcing: where business functions are provided by external specialist organisations rather than provided in the house.  

Part of creating a flexible workforce. May be more cost effective to pay for expertise only when required. E.g. cleaning, security and catering.

Home working: where employees can perform their job from home increasingly linked to their employer via the internet.

Growing option due to advances in communication technology

9 of 20

Flexible Workforces

Not just about reduced costs

Employees like the opportunity to more flexible hours to fit with other commitments, and improve work-life balance.

Ø  Motivational benefits to be gained.

Should be possible to retain larger percentage of employees and reduce absenteeism, - create cost savings/ increase efficiency

Success of adapting structure to improve efficiency make ultimately depend on how it’s managed.

Needs consultation with all involved and make sure it’s part of long term plan rather than knee jerk reaction to change in the market. 

10 of 20

Organisation structure in larger businesses

Structure changes regularly as it adapts to changes in the marketplace.

·                     Traditional hierarchical structure- may be appropriate in the financial and administration function where confidential or sensitive data is involved, processes are important and a consistency of service is expected

·                     Matrix structure, project based, may be appropriate for the marketing function. If the market is divided up geographically or by type of customer, sales teams will have different goals. Or a product could have dedicated team.

·                     Informal structure has no obvious organisation, although a support system will be in place. May be the best way to operate R&D.

11 of 20

Deciding organisational structure

May take the following factors into consideration:

·         If there are a lot of highly skilled, specialised employees, structure is likely to be less formal

·         Business environment. E.g. if the market is very competitive and market conditions are difficult, there will be pressure to reduce costs by streamlining the structure and speeding up the decision making process and responsiveness of the business to changes in the market

·         If the company wishes to moves away from a risk taking culture as it grows and wishes to become more established force in the market. Emphasising quality rather than innovation, a more formal structure may be introduced/

·         Leadership style of the senior execs will affect the structure: those who wish to retain control of decision making are likely to prefer a tall, hierarchical structure with narrow spans of control. Leader who prefer to delegate decision making are more likely to favour a wider span of control or a matrix structure. 

12 of 20

Impact on competitiveness

The effectiveness will be judged in terms of how efficiently the business performs.

·         How quickly are strategic decision made?

·         Does the business operate efficiently at minimum costs? The structure may be inefficient with unnecessary levels of management

·         How effective are the channels of communication within the organisation? Important information may not reach decision makers quickly enough for the company to respond to change

·         Who is involved in the decision making process and are they the most appropriate people? Those with the most knowledge about the market, customers, suppliers and competitors, need o be included in strategic decisions. 

13 of 20

Adapting to improve competitiveness. Centralisatio

Centralisation: where the decision making authority is concentrated amongst a small number of senior managers at the top/ centre of the organisational structure.  

Most likely to be the chosen strategy in times of crisis

Benefits -

·         Decisions can be taken quickly as few experienced people will be involved in the process

·         Tighter control over the day to day running of the business

·         Procedures can be standardised throughout the organisation which should mean that buying economies of scale can be achieved

·         Strong leadership can be very effective at a time of crisis

Drawbacks-

·         Bureaucracy

·         Diseconomies of scale 

14 of 20

Adapting to improve competitiveness. Decentralisat

Decentralisation: where the authority for decision making is delegated to subordinates in the organisational structure

Most likely to happen when a company has become too bureaucratic and diseconomies of scale have set in

Involves training issues > middle and junior managers may not have the expertise required to make strategic decisions.

Advantages

·         Senior management can concentrate on making longer term corporate decisions

·         Increased motivation because of job enrichment

·         Day to day problems and issues should be resolved quicker.

·         Delegation increases flexibility and means that the business should adapt to changing market conditions more quickly

·         Middle/ junior managers become better prepared for senior roles

15 of 20

Adapting to improve competitiveness. Decentralisat

Disadvantages

·         Slower strategic decision making

·         More difficult to control the business on a day to day basis; in particular finances

·         More difficult to achieve economies of scale

·         Leadership and direction of company is more difficult to maintain. 

16 of 20

Delayering

Delayering: removing levels in the organisational structure.  

To create a leaner more efficient organisation. Structure is flatter and wider.

Reduces indirect costs > less need for direct supervision because of the emphasis on team working, empowerment and TQM.

Benefits

Drawbacks

·         Indirect costs are reduced when permanent, full time salaried staff are removed

·         Improved motivation due to more responsibility

·         May be better able to respond to changes in the market and gain a competitive advantage

·         Valuable market knowledge and experience may be lost, loss of job security may reduce the levels of motivation

·         Recent legislation makes it illegal to discriminate by age

·         Workload of managers in likely to increase as the span of control widens> increasing stress and possibly absenteeism

17 of 20

Flexible workforces

Firms are less able to respond to changes in the market if they have a largely permanent, full time staff.

If more of the workforce are part time, on temporary contracts or have no set contracted hours, the business is able to use its employee resources more effectively/ efficiently.

If some aspects can be outsourced or completed at home then indirect/ overhead costs are reduced.

Core workers: full time, permanent employees, with business specific skills and knowledge, performing tasks key to the success of the business, often rewarded with high salaries and excellent working conditions.

Core workers are seen as essential whereas peripheral workers are seen as less significant to the success of the business. 

18 of 20

Outsourcing and Homeworking

Outsourcing: where business functions are provided by external specialist organisations rather than provided in the house.  

Part of creating a flexible workforce. May be more cost effective to pay for expertise only when required. E.g. cleaning, security and catering.

Home working: where employees can perform their job from home increasingly linked to their employer via the internet.

Growing option due to advances in communication technology

19 of 20

Flexible Workforces

Not just about reduced costs

Employees like the opportunity to more flexible hours to fit with other commitments, and improve work-life balance.

Ø  Motivational benefits to be gained.

Should be possible to retain larger percentage of employees and reduce absenteeism, - create cost savings/ increase efficiency

Success of adapting structure to improve efficiency make ultimately depend on how it’s managed.

Needs consultation with all involved and make sure it’s part of long term plan rather than knee jerk reaction to change in the market. 

20 of 20

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