Professional Documents
Culture Documents
Unit 3 - Topic 1 - Content
Unit 3 - Topic 1 - Content
INTRODUCTION
Organizations exist to achieve set goals. Successful organizations are those that have
figured out the best way to integrate and coordinate key internal and external elements and
relationships. They understand the importance of reviewing and redesigning their structures
on an ongoing basis. Organizations can be structured in various ways, with each structure
determining the manner in which the organization operates and performs. Each organization
have their own organizational structure which aligns and relates parts of an organization so it
can achieve its maximum performance. But it should be noted that in an organization there is
no one right organizational configuration and it is up to the managers to determine exactly
what kind of structure is going to be the most effective based on the market and set goals of a
particular organization. The Mintzberg’s Organizational Configurations can assist business
owners and managers to recognize exactly how they should be setting up their operation
based on what they are trying to accomplish.
LEARNING OBJECTIVES
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Entrepreneurial Organization
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Advantages
Very quick decision making
Staff know who the boss is
Manager can make decisions without consulting staff
Disadvantages
Disadvantages
Employees may feel bored because of repetitive work. This monotony causes
loss of enthusiasm.
Conflicts may arise if the performance appraisal system is not properly managed.
A highly skilled employee costs more.
The departments have a self-centered mentality. Functional managers pay more
attention to their own departments and ignore others’ interests.
Communication is weak among the departments. This causes poor inter-
department coordination, affecting flexibility and innovation.
There is a lack of teamwork among different departments.
Employees may have little concern about events outside their group.
The functional structure is rigid and adapting to changes difficult and slow.
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As entities grow still further, and develop their business operations into different
product-markets, a divisional structure might become appropriate. A division is an area of
operations, defined by:
a. markets in different geographical areas (for example, the European and the
North American divisions).
b. different products (for example the bus division and the rail division of a
transport company).
c. different customers (for example, industrial products and consumer
products).
A division might be a strategic business unit of the entity (group). Each division has
its own functional departments, such as marketing and sales, operations (production),
accounting and finance, and so on.
Authority is delegated from head office to the divisional management (led perhaps by
a divisional managing director), and responsibility for the implementation of product-market
strategy is mainly at divisional level.
Head office retains overall control, and there may be some head office functions
providing support services to all the divisions, such as corporate strategy, IT and research and
development.
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Advantages
Flexibility – divisions can be closed or created to respond to changes in
organisational strategy.
Specialist expertise is built up relating to a particular product or market segment.
Managers of divisions have a greater personal interest in the strategy for their
own division.
The enabling of performance management (and hence control) of businesses by
head office from a distance.
Disadvantages
High central management costs.
Duplication of effort with all functions represented within divisions.
Vertical barriers between divisions that may prevent information sharing and co-
operation between divisions.
Strategic management can be a complex hierarchical process.
This structure allows for much more autonomy among groups within the
organization. One example of this is a company like General Electric. GE has many different
divisions including aviation, transportation, currents, digital and renewable energy, among
others.
Under this structure, each division essentially operates as its own company,
controlling its own resources and how much money it spends on certain projects or aspects of
the division.
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In this way, a dual command structure was created. In a matrix organization, the
traditional vertical command structure has an overlay of horizontal authority or influence.
A matrix organization has been defined as: ‘any organization that employs a multiple
command system that includes not only a multiple command structure but also related support
mechanisms and an associated organizational culture and behavior pattern’ (Davis and
Lawrence 1977).
The difference between a matrix organization structure and a project organization is
that with a project organization, the project management comes to an end when the project
ends. With matrix organization, the matrix structure of authority and command is
permanent.
In the diagram above, the person shown is a quality control expert and is responsible
to the quality control manager for technical aspects of the job, maintaining quality systems and
so on.
The person is also responsible to the manager of Project B. That manager will be
concerned with completing the project on time, within the cost budget and to the proper
standard.
Obviously conflicts can arise: the project manager might want to skip some tests to
make up time, but the quality control department won’t want to do that. Both can put the
employee under some pressure. However the matrix structure should allow the employee to
ask the two managers to discuss the problem, as it is plain that they are both involved.
Overall, matrix structures should:
a. encourage communication
b. place emphasis on ‘getting the job done’ rather than each manager defending his
or her own position.
c. be suitable for fairly large number of different functions.
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Advantages
It offers greater flexibility. This applies both to people, as employees adapt more
quickly to a new challenge or new task, and develop an attitude which is geared
to accepting change; and to task and structure. Flexibility should facilitate
efficient operations in the face of change.
It should improve communication within the organization.
Dual authority gives the organization multiple orientation so that functional
specialists do not get wrapped up in their own concerns.
It provides a structure for allocating responsibility to managers for end-results. A
product manager is responsible for product profitability, and a project leader is
responsible for ensuring that the task is completed.
It provides for inter-disciplinary cooperation and a mixing of skills and expertise.
Disadvantages
Dual authority threatens a conflict between managers. Where matrix structure
exists, it is important that the authority of superiors should not overlap and areas
of authority must be clearly defined. Subordinates must know to which superior
they are responsible for each aspect of their duties.
One individual with two or more bosses is more likely to suffer role stress at
work.
It is sometimes more costly – e.g. product managers are additional jobs which
would not be required in a simple structure of functional departmentation.
It may be difficult for the management to accept a matrix structure. It is possible
that a manager may feel threatened that another manager will usurp his or her
authority.
It requires consensus and agreement which may slow down decision-making.
The span of control refers to the number of people who directly report to a manager in
a hierarchical management ‘command’ structure. There are two extreme shapes:
a. Tall-narrow. In this type of structure, each manager has a small number of
subordinates reporting directly to him. As a result, in a large organization, there are
many layers of management from the top down to supervisor level. The span of
control is narrow, and the shape of the organization structure is tall, because of the
many layers of management.
b. Wide-flat. In this type of structure each manager has a large number of subordinates
reporting directly to him. As a result, even in a large organization, there are only a
few layers of management from the top down to supervisor level. The span of control
is wide, and the shape of the organization structure is flat, because of the small
number of management levels.
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Wider and flatter organization structures have replaced tall bureaucratic structures in
many organizations. The reasons why wide-flat organizations are often preferred are as
follows.
a. Wide-flat structures are more suitable to rapidly-changing business environments,
where entities must respond to changes quickly and with flexibility. An organization
in which information travels quickly and decisions can be made quickly is more
appropriate in these circumstances that a structure that is more formal and
hierarchical.
b. Cost savings. It has been argued that in a tall-narrow organization, managers spend
too much time managing each other, instead of adding value. If middle managers do
not add value, they should be eliminated from the organization structure.
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Advantages of centralization:
Advantage Comment
Corporate view Senior managers can make decisions from the point of view of
the organization as a whole, whereas subordinates would tend
to make decisions from the point of view of their own
department or section.
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Advantage Comment
Workload It reduces the stress and burdens of senior management.
An entity might use external relationships to deliver a particular strategy. These are
relationships with other entities, or with individuals who are not a part of the entity but are
external to it. External relationships may take the form of:
a. strategic alliances
b. value networks
c. outsourcing of functions
d. virtual organization
Strategic Alliance
Strategic alliances can take many forms, from loose informal agreements,
partnerships and formal joint ventures to contracting out services to outside suppliers.
Strategic alliances are co-operative business activities, formed by two or more separate
organizations 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 of
two or more organizations to achieve strategic goals.
For example, IBM formed links with Ricoh for distribution of low-end computers.
This allowed them to move into the Japanese market quickly, inexpensively and with a
relatively high prospect for success.
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Alliances can also help result in improved access to information and technology.
Some organizations form alliances to retain some of the innovation and flexibility that is
characteristic of small companies. They are balancing bureaucracy and entrepreneurship by
forming closer working relationships with other organizations.
Strategic alliances may be used to extend an organization's reach without increasing
its size. Other alliances are motivated by the benefits associated with a global strategy,
especially where the organization lacks a key success factor for some market. This may be
distribution, a brand name, a selling organization, technology, R&D or manufacturing
capability. To remedy this deficiency internally would often require excessive time and
money.
Outsourcing
An entity does not need to carry out operations itself. Instead, it can outsource work
to a sub-contractor.
Outsourcing is common in certain industries, such as the construction industry. It is
also common to outsource ‘non-core’ activities, such as the management of the entity’s fleet
of motor vehicles, security services, some IT work and some accountancy work (for example,
payroll operations).
The size of an entity, and its organization structure, will depend to some extent on
how much of its operational activities it chooses to outsource.
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Advantages
The main perceived benefit of outsourcing is reduced cost. Using external services can
be much cheaper than employing in-house IT staff and not using them fully or
efficiently.
It is used to overcome skills shortages. For example, the IT function of the organization
may not have all the resources necessary to carry out the full range of activities
required, or requirements of the organization might not justify an in-house IT
department, particularly in the areas of systems development. Facilities management
specialists will have a larger pool of technical staff than the organization.
Outsourcing can bring flexibility. Using external providers allows an organization to be
flexible in its choice of services and it can buy in services as and when it needs them.
It is argued that outsourcing allows organizations to focus on their core skills and
activities where they have a clear competitive advantage, and sub-contract non-core
activities. Outsourcing frees up management time, and allows management to
concentrate on those areas of the business that are most critical. However, defining core
activities can be problematic. Different definitions include the following activities:
o activities critical to the performance of the organization
o activities that create current potential for profits and returns (or non-financial benefits,
in the case of public sector organizations)
o activities that will drive the future growth, innovation or rejuvenation of the
organization.
Outsourcing is not without risks as there is no direct management control over the
organization providing the services.
Disadvantages
Dependency on supplier for the quality of service provision. When a company cedes
control to a single supplier, it becomes dependent on the quality of the supplier's skills,
management, technology and service know-how.
A risk of loss of confidentiality, particularly if the external supplier performs similar
services for rival companies.
Difficulties in agreeing and enforcing contract terms.
The length of contract (the risk of being 'locked in').
Lost in-house expertise and knowledge.
A loss of competitive advantage (if the function being outsourced is a core competence,
they must not be outsourced).
Outsourcing might be seen by management as a way of off-loading problems onto
someone else, rather than as a way of managing them constructively.
The virtual company or virtual organization does not have an identifiable physical
existence, in the sense that it does not have a head office or operational premises. It might not
have any employees.
A virtual organization is operated by means of:
a. IT systems and communications networks – normally telephone and e-mail
b. business contacts for outsourcing all operations.
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Example
In the same way, there is no reason why a larger business should not be operated as a
virtual company. For example, a company that sells branded footwear could operate as a
virtual company, using its brand name as its major core competence. It could outsource all its
value chain and support activities. Manufacture could be outsourced to producers in
developing countries, warehousing companies could be used to hold inventories. A network
of self-employed sales representatives might be used to sell the footwear into retail
organizations, and marketing activities might be outsourced to producers in developing
countries, warehousing companies could be used to hold inventories. A network of self-
employed sales representatives might be used to sell the footwear into retail organizations,
and marketing activities might be outsourced to an external agency.
One person, or a small number of individuals, can operate a virtual organization and
indirectly control the actions of many ‘external’ entities and individuals.
A key to a successful virtual organization is the successful management of all the
different external relationships, and successful co-ordination of their activities.
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Components Explanations
Strategic apex This is the top management in the organization.
When the strategic apex is powerful, the organization is
entrepreneurial. The leaders give the organization its sense
of direction and take most of the decisions.
Operating core This represents the basic work of the organization, and the
individuals who carry out this work.
Some organizations are dominated by their operating core,
where the basic ‘workers’ are highly-skilled and seek to
achieve proficiency in the work that they do. Examples
might be schools, universities, and hospitals, where the
teachers and doctors can have an exceptionally strong
influence.
Middle line These are the managers and the management structure
between the strategic apex and the operating core.
When the organization is divisionalized and local
managers are given extensive authority to run their own
division in the way that they consider best, the middle line
is dominant.
Support staff These are the staff who provide support for the operating
core, such as secretarial staff, cleaning staff, repair and
maintenance staff, IT staff and so on.
Technostructure These are staff without direct line management
responsibilities, but who seek to standardize the way the
organization works. They produce procedures and systems
manuals that others are expected to follow.
When the technostructure is dominant, the organization
often has the characteristics of a bureaucracy, with
organizing, planning and controlling prominent activities.
The organization continually seeks greater efficiency.
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Simple structure
This is found in an entrepreneurial company. The strategic apex exercises direct control
over the operating core, and there is no middle line. There is also little or no support staff or
technostructure. The strategic apex might be an owner-director of the company. This type of
structure is very flexible, and can react quickly to changes in the environment, because the
strategic apex controls the operating core directly.
Machine bureaucracy
In a machine bureaucracy, the technostructure is the dominant element in the
organization. The entity is controlled and regulated by a bureaucracy and the emphasis is on
control through regulation. It is difficult for an entity with this type of organization to react
quickly to environmental change. This structure is therefore more suitable for entities that
operate in a stable business environment.
Professional bureaucracy
In this type of structure, the operating core is the dominant element. Mintzberg gave the
name ‘professional bureaucracy’ to this type of structure because it is often found in entities
where the operating core consists of highly-skilled professional individuals (such as
investment bankers in a bank, programmers in a software firm, doctors in a hospital,
accountants and lawyers in a professional practice, and so on).
Divisionalized form
In this type of structure, the middle line is the dominant element. There is a large group
of powerful executive managers, and the organization structure is a divisionalized structure,
each led by a divisional manager. In some divisionalized structures, divisional managers are
very powerful, and are able to restrict the influence of the strategic apex on decision-making.
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Adhocracy
Mintzberg identified a type of organization that he called an ‘adhocracy’. This is an
organization with a complex and disordered structure, making extensive use of teamwork and
project-based work. This type of organization will be found in a complex and dynamic business
environment, where innovation is essential for success. These organizations might establish
working relationships with external consultancies and experts. The ‘support staff’ element can
therefore be very important.
Missionary organizations
In this type of organization, all the members share a common set of beliefs and values.
There is usually an unwillingness to compromise or accept change. This type of organization is
only appropriate for small entities that operate in simple and fairly static business
environments.
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REFERENCES
https://pmstudycircle.com/2012/08/what-is-a-functional-organization-structure/
https://kfknowledgebank.kaplan.co.uk/KFKB/Wiki%20Pages/ACCA%20P3%2
0Chapter%208.aspx
http://www.free-management-ebooks.com/news/mintzbergs-organization-
configurations/
https://www.mindtools.com/pages/article/newSTR_54.htm
http://www.summaryplanet.com/industrial-economics/Organizing-and-
Enabling-Success.html
https://hkiaatevening.yolasite.com/p3-ba.php
https://courses.lumenlearning.com/wmopen-introbusiness/chapter/organizing/
http://www.fao.org/3/w5830e0f.htm
https://www.coursehero.com/file/p5psj18/What-internal-and-external-
relationships-must-be-considered-Internal/
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