Contemporary Business Management Practices

Home Work#5
M. Ahsan Khan
PART ONE
Exercise#1
Question#1

Functional structure is a type of departmentalization in which positions are grouped

according to their main functional areas. For example Production, Operation, Human
Resource, Marketing , Finance, accounting, Research and development and legal
functions etc. Functional structure is commonly used in small and medium sized
organizations, or in large organizations that operate in relatively stable environment.

Advantages of functional Structures:

1.Because employees can concentrate on a single function, functional structure

encourages in-depth development of expertise.
2.Employees have clear career paths within with in their particular functions.
3.Functional structure facilitates efficient use of resources because employees can be
easily shifted from one project to another as needed when they work in same
department.
4.As employees specialize , large amounts of work can be handled, thus economies of
scale become possible.
5.Within the department activities are to same specialized area, thus functional
structure facilitates ease of coordination within the department.
6.Functional structure develops specialized technical competencies, that provides
potential technical advantage over competitors.

Disadvantages of functional Structures:

1.Because major issues and conflicts must be passed up the chain for resolution, there
is slow response time in handling complex problems.
2.As one function waits for another to complete its work, bottlenecks may develop.
3.Specialists become so narrow in orientation that there is restricted view of other
functions and organizational goals among employees.
4.Because various functions are involved in organizational results, performance of a
particular unit can't be measured exactly.
5.As potential managers tend to move up with in one function, they have narrow
training grounds.

Divisional Structure is a type of departmentalization in which positions are grouped

according to similarity of products, services or markets. Each division contains major
functional resources it needs to pursue its own goals, thus divisional structures are
also called self contained structures. There are three major forms of divisional
structure: product, geographic and customer. Divisional structure is commonly used in
fairly large organizations in which there are substantial differences among the
products or services, geographic areas or customers served , and that operate in
changing environment.
Advantages of divisional Structures:

1.Divisions can react quickly to environment change because they normally don't
need to coordinate with other divisions before taking action.
2.Because various functions are contained within the division itself, coordination
across functions is greatly simplified.
3.Functions can simultaneously emphasize on divisional goals.
4.As focus is either on limited number of products or services or on limited audience,
divisional structure encourages strong orientation towards customer requirements.
5.Divisional performance can be measured exactly as results can be tied to a particular
division.
6.As managers have to deal with multiple functions within the division, they develop
more general management skills in divisional structure.

Disadvantages of divisional Structures:

1.Divisional structure leads to duplication of resources.

2.Employees are not able to develop in-depth areas of specialization.
3.Divisions may become preoccupied with their own concerns and may compete with
other divisions for resources.
4.There is limited sharing of expertise and innovation among divisions.
5.Employees may neglect the long-term organizational goals by focusing on
immediate divisional goals.
Question#2
The best structure for an organization depends upon contingency factors like
technology, size and environment. Different organizations require different structure
partly because of technology. Two critical aspects of technology are technological
complexity and technological interdependence.
Technological Complexity:
Increasing technological complexity was associated with more levels of management
i-e a taller structure, more staff personnel per line worker and larger span of control at
upper management levels. Three different types of technologies are reasonably
predictive of an organizational structure.

a. Unit and Small batch production technology, In this case products are custom-
produced to meet customer specifications or they are made in small quantities
primarily by craft specialists. Examples are diamond cutting in New York's diamond
center and the production of stretch limousines. Unit and small batch production
technology is least complex, thus organizations using this technology had less levels
of management, less formalization and centralization.

b. Large batch and mass production technology, In this case products are
manufactured in large quantities frequently on an assembly line. Examples are the
automobile production and the manufacture of microchips used in computers and
related products. Organizations engaged in large batch and mass production
technology had high formalization and centralization in which efforts of large number
of workers needed to be standardized. At the level of first line supervisor the span was
greatest because one supervisor could handle a relatively large number of workers
doing the routine work.
c. Continuous process technology, In this case products are liquids , solids or gases
that are made through a continuous process. Examples are petroleum products and
chemical products. This technology is the most complex and like unit and small batch
production, formalization and centralization are low and thus appropriate work
decisions must be made at lower levels. At the level of first line supervisor span is
smallest because serious problems can result if there are process difficulties.

Technological Interdependence:

It is the degree to which different parts of the organization must exchange information
and materials in order to perform the required activities. There are three types of
technological interdependence.
a. Pooled interdependence; It involves least interdependence, and units operate
independently but their individual efforts are important to organizational success as a
whole. For example a local bank branch will rarely need to contact another branch to
complete the transaction, if however the branch loses its customers by performing
poorly , this will have negative impact on the bank as a whole.

b. Sequential interdependence; In this case one unit must complete its work before the
next unit in the sequence can begin work. For example assembly unit of an
automobile manufacturer depends upon other units producing different parts.

c. Reciprocal interdependence; In this case one unit's output becomes the input to
other unit and vice versa. For example when an airplane lands, the flight crew turns
the plane over to maintenance crew, which after necessary action returns the plane
back to flight crew.

Question#3

Mechanistic characteristics:

The firms that operate in a stable environment tend to have mechanistic

characteristics, such as highly centralized decision making, many rules and
regulations, and mainly hierarchical communication channels. Much of the emphasis
is on vertical coordination, but very limited delegation from one level of management
to the next.

Organic Characteristics:

The firms that operate in a highly unstable and uncertain environment have organic
characteristics, such as decentralized decision making, few rules and regulations and
both hierarchical and lateral communication channels. Much of the emphasis is on
horizontal coordination with considerable delegation from one level to the next.
Environment might have different effects on various units within same organization.
The greater the differentiation among departments because of environmental
instability, the greater are the efforts required towards integration, which is the extent
to which there is collaboration among departments that need to coordinate their effort.
This integration is achieved through horizontal coordination e.g. teams and
managerial integrators.
Question#4

To achieve optimum effectiveness and organizational success ,structure and strategy

must be matched. Danny Miller has considered four main strategies and attempted to
match them with appropriate structures.
1.Niche differentiation; This strategy is aimed at distinguishing one's products and
services from those of competitors for a narrow target market.
2. Cost leadership; This strategy emphasizes organizational efficiency so that products
and services can be offered at prices lower than those of competitors.
3. Innovation differentiation; This strategy is aimed at distinguishing one's products
and services from those of competitors by leading in complex product or service
innovations.
4. Market differentiation; This strategy is aimed at distinguishing one's products and
services from those of competitors by through advertising, prestige pricing and market
segmentation.
With Niche differentiation the organization is small or medium in size, and deals with
a homogeneous set of customers and clients, making the functional structure
appropriate. A functional structure can also support a cost leadership strategy, even in
a large organization when a limited number of related products and services are
involved. A market differentiation strategy may be feasible with functional structure
as long as the products and services offered span a relatively narrow range and thus
can be effectively coordinated across functional level.
A divisional or hybrid structure is well matched with market differentiation. A cost
leadership strategy can also work with these structures as long as strategy is carried
out at divisional level.
The matrix structure is generally compatible with a strategy of innovation
differentiation.

Question#5

There are four major approaches to job design: job simplification, job rotation, job
enlargement and job enrichment.

1. Job Simplification:
It is the process of configuring jobs so that jobholders have only a small number of
narrow activities to perform. Job simplification creates narrow repetitive jobs and
results in work specialization. Workers are almost interchangeable, making training
new workers relatively easy. Negative side effects of job simplification are worker
boredom, low job satisfaction , absenteeism, turnover sabotage, and inflexibility in
serving customers with different needs.
2. Job Rotation:
It is the process of periodically shifting workers through a set of jobs in a planned
sequence. It is aimed at reducing boredom associated with job simplification by
providing some task variety. Job rotation results in cross-training workers so that there
is greater flexibility in job assignments. Job rotation across different units or
geographic locations may help stimulate innovation since it promotes the exchange of
ideas. Departments may view rotating individuals as temporary help and may question
their departmental loyalty.
3. Job Enlargement:
It is the process of allocating a wider variety of similar tasks to a job to make it more
challenging. It broadens job scope. If overdone job enlargement may lead to reduced
job satisfaction, lower efficiency, mental overload, increased errors, and reduced
customer satisfaction.
4.Job Enrichment:
It is the process of upgrading the job-task mix in order to increase significantly the
potential of growth, achievement, responsibility and recognition. Job enrichment
increases job depth.
Example of Job enrichment using job characteristic model:
First National Bank of Chicago used the job characteristic model to redesign jobs for
its unit that prepares the letter of credit for businesses. Before redesign letter
preparation was fragmented into paperwork assembly, that involved narrow skills,
little sense of overall product and its impact on client, limited autonomy and no
feedback from clients. Unit was notorious for poor service with more than 80% of
staff members not satisfied with their job.
Job redesign eliminated a layer of management and changed the nature of jobs. Each
employee performs customer contact work now resulting in higher task identity, task
significance, skill variety, autonomy and feedback. The result was reduced staff,
higher pays for remaining staff, high profits, high employee morale and increased
customer satisfaction.

Question#6

To explain how span of management is related to the number of levels in an

organization, let us consider two hypothetical organizations A and B. Organization A
is taller with seven levels , while B is flatter with five levels. We assume a span of
control of 4 in organization A, then the number of managers beginning with the top
level will be 1,,4,16,64,256, and 1024 , for a total of 1396 managers for level 1
through 6. There would be 4096 non managerial employees at bottom level.
For organization B we assume a span of control of 8, the number of managers
beginning with top level will be 1,8,64 and 512 for a total of 585 managers for level 1
through 4. There would be 4096 non managerial employees at bottom level. Thus
organization A requires 811 more managers than B. The only way to reduce the
number of hierarchical levels in organization A is to increase span of control.

Why many organizations are flattening their structures?

When average span of management in an organization is narrow, the organization has
a tall structure. Tall organizations have more administrative overheads, have slow
communication and decision making mechanisms, have more difficulty in pinpointing
responsibility for various tasks, and encourage the formation of dull routine jobs.
The solution is making the organizational structure flatter by downsizing, which is the
process of significantly reducing the layers of middle management.
Potential problems of Downsizing…………………..
If done poorly, it can cause the loss of valuable employees, demoralized survivors,
and can result in at least short run productivity decline. Continual downsizing erodes
employee loyalty with potentially dire long term consequences. There is possibility of
corporate anorexia, a condition in which an organization had no longer the resources
or will to grow following heavy downsizing.
Question#7

Lateral Relationships:

Lateral relationships are one of three major means of horizontal coordination in an

organization. Lateral relations is the coordination of efforts through communicating
and problem solving with peers in other departments or units rather than referring the
issues up the hierarchy for consideration. Major means of lateral relations are direct
contact, liaison roles, task forces, teams and managerial integrators.
a. Direct Contact; It is communication between two or more persons at similar levels
in different units for purpose of coordinating work and solving problems.
b. Liaison Roles; It is a role to which a specific individual is appointed to facilitate
communication and resolution of issues between two or more departments.
c. Task forces and Teams; A task force is a temporary interdepartmental group formed
to make recommendations on a specific issue. Task force recommendations typically
constitute advice. Teams are either temporary or ongoing groups that are expected to
solve problems and implement solutions related to a particular issue.
d. Managerial Integrators; It is a separate manager who is given the task of
coordinating related work that involves several functional departments. Such
managers typically have titles like project manager, product manager or brand
manager.

PART TWO
Exercise# 2

1.Hybrid ……….Corporate and divisional goals can be aligned.

2._Divisional..These organizations can react quickly to the changes in the
environment.
3.Functional ….Employees generally have clear career paths.
4.Functional …..Functional specialists can be added or removed from project as
needed allowing effective human resource use.
5.Hybrid …..These organizations tend to develop excessively large staffs in corporate
functional departments.
6.Divisional …..Goals may conflict with overall organizational goals.
7.Functional …..These organizations focus on the development of in-depth expertise.
8.Functional …..Response time on multifunctional problems may be slow because of
coordination problems.
9. Matrix…..Line of authority and responsibility may not be clear to individual
employees.
10.Functional ….. Specialized expertise and economies of scale can be achieved in
major functional areas.
11.Matrix …. Employees work for two bosses.
12.Divisional ….Department performance is easily measured.