Business & F[nance

Chapter-3
Organizational structure and business forms

organizational structure: Formed by the grouping by of people into departments or sections and the
allocation of responsibility and authority, organizational structure sets out how the various functions are
[ormally arranged.
Organizational structure is a frameworl< intended to

The buildine blocl( of orsanizational structure:

Operating core: People directly involved in the process of obtaining inputs and
4"
converting them into outputs.
r Middle line: Conveys the goals set by the strategic apex and controls of the operating
4.- core in pursuit of those goals.

->" Strategic apex: Ensure the organization follows its mission. Manages the organization's
4 ffivith the environment. Top managers.
. Support staff: support staff do not plan or standardize operations. They function
z' - --i--
' independently of the operating core.

->" Techno-structure: analysts determine and standardize worl< processes and techniques.
'-'7
' Planners determine and standardize outputs. Personnel analysts standardize skills.
ldeology: values, believes and traditions.
4 "

ed an allocated rationally.
2@Authorityshouldflowverticallydownaclearchainofcommandfrom
highest to lowest ranl<.
3. of authority and responsibility:The holder of an office should have
-Correspondence
enough authority to cffities assigned to them.
4. Appropriateate centralization: Decision should be taken at the top of the organization
where appropriate.
5. Unity of directions:There should be one head and one plan for activity.
6. Unity of command: For any action a subordinate should receive orders from one boss
onlY-
1. lnitiative: Employees should be encouraged to use direction within the bounds of their
a uthority.

Md. Mahedi Masud ACA

 8. Subordination of individual interests: lnterest of the employees should not prevail over
that of the general interest of the organization.
9. Discipline: A fair disciplinary system can be strength in an organization. Organizailon's
member should behave in agreed ways.
l-0. Order: people and resources should be reliably be where they are supposed to be.
11. Stability of personnel:There should be continuity of employment where possible.
12. Equity: Organizational policies should be just.
13. Remuneration: Rewards should be fatr.
14. Esprit de corps: Harmony and teamworl< are essentialto promote discipline and
co nte n tme nt.
Structu res:
1, Entrepreneurial structure:Entrepreneur has specialist knowledge of product/service and has
totalcontrol over running of the business. The entrepreneurialstructure is most suitable where
there is one product or a group of similar products-
Advantages:

Disadvantages:

the entrepreneur does not have specialist sl<ill/knowledge;

2. Functional structure:Jobs grouped by common feature and ranl<ed in hierarchy. Clear lines of
reporting and authority are existing. The functional bureaucratic structure is most suitable
where there is single product/closely-related product form.
Advantages:
can progress up through the ranl<s;

Disadvantaqes:

--Growth;
--Dive rsificatio n;

3. Divisionalstructure:
Divisionalisation:The division of a business into autonomous regions or product businesses,
each with its own revenues, expenditures and capitalasset purchase programs, and therefore
each with its own profit responsibility. ln divisionalstructure business is split into divisions
(division is usually by product or location).

Md. Malredi Masud RCA

 Advantages:

p rof it;
Reduces the number of levels of management;
Encourages to greater attention to efficiency, lower cost and higher profit;
Better performance decisions made by managers;
Releases top management to concentrate on strategtc tssues;
Reduces tlie likelihood of unprofitable products and activities being continued.

for which separate divisions can be set up.

4' Matrix structure:is more suitable to complex/hi-tech industry, R&D departments, educational
establishment where there may be lecturers reporting to both subject and course heads. This
structure formalizes vertical and latqral lines of communications. lt may be temporary.
AdvantaRes:
Reflects importance of project or customer, so may improve relationships and
sa les;
Business co-ordinated with regard to technology, information etc.

r Corrfricting demand over ailocation of other resources;

centralized structure:upper levels retain authority to mal<e decisions.

Decentralized structure: Authority to mal<e decision is passed to lower levels of the
hierarchy.
centralized orqanization: one in which decision making authority is concentrated in
one place, that is
\z lhe strategic apex. We can lool< at centralization in 2 ways- Geography and Authority.
Factor affectine the amount of decentralization in a business:
r Leadership style;

r Extent of activity diversification;

Effectiveness of com m u nication'
':
Ability of management;
r Speed of technological advancement;
r Geogra phy of location;
r Extend of a local l<nowledge needed.

Md. Mahedi Masud RCA

 \
\ ')

Span of control:The number of people reporting to one person.

lnfluences on the span of control:

Scalar chain:The chain of command from the most senior to the most junior.
Tall business:One which, in relation to its size, has a large number of levels in its management hierarchy,
normally because there are narrow Span of control.
Flat business: One which, in relation to its size, has a small number of hierarchical Ievels, normally
because there are wide span of control.

Are tall or flat businesses better?

Ta ll business:
For Aga inst
Narrow control spans _l tnhipLttlS]_uer!9lt _
Small groups enable team members to participate Rigid supervision can be imposed, blocl<ing
in decision initiative
A large number of steps on the promotional The same worl< passes through too many hands
ladder-assists management training and career
planning
lncreases administration and overhead costs
Slow decision mal<ing and responses, as the
strategic apex is further away

Flat business:
For Aga i nst
More opportunity for delegation Requires that jobs can be delegated. lf managers
are overworl<ed they are more lil<ely to be involved
in crisis management
Managers may only get a superficial idea of'whait
goes on
Re latively chea p Sacrifices control
ln theorv, speeds up communications between Middle managers are often necessary to co nve rt
strategic apex and operatrng core the gra nd visio n of the strategic a pex tnto
o p e ra t io n a I te rm s

Mld. Mahedi lVlasud RCA