Internal Organisation

Higher Business Management

What is an organisation?
A group of people working towards a
defined set of goals and objectives.
Schools have Principal Teachers in
charge of departments. Explain why
schools need PTs to be in charge of
individual departments
What decisions can they make for their
departments?
Types of Organisational
Grouping
Functional
Product/Service
Customer
Place/Territory
Technology
Line/Staff
Functional Grouping
Departments where staff have similar
skills & expertise, and do similar jobs.

Functional grouping usually consists of

marketing, finance, human resources
and operations.

What other functional areas might there

be?
Functional Grouping

Chief Executive

Board of Directors

Human
Production Marketing Accounts IT
Resources
Your local supermarket will have very
different departments in store from
those mentioned above. What will its
departments be?
Functional Groupings +/-
Advantages Disadvantages
Staff with similar Organisation may
skills kept together become too large
Allows specialisation May be unresponsive to
change
Clear organisational Departmental
structure competition may emerge
Staff know formal Departments may put
relationships own interests before
organisation’s
Describe what you understand by
functional grouping
What are the main advantages and
disadvantages of a functional grouping?
Product/Service Grouping
Divisions/departments where each deals
with a different product or product range.

E.g. a TV company may have a Sports

division, a Film division and a Music
division. Each division has its own
functional staff.

Virgin and General Electric are examples

of Product/Service grouping.
 Product/Service Grouping

Hewlett Packard

Imaging and Personal Enterprise HP Financial

HP Services
Printing Group Systems Group Systems Group Services
Product/Service Grouping +/-
Advantages Disadvantages
Each division self- Duplication of
contained resources/ tasks/
Each division more personnel
responsive to changes
Divisions may be
Incentive for staff to competing with each
perform better
other
Can identify products
under performing
The Virgin Group provides a wide
variety of goods and services. Identify
as many of their products as you can,
and then describe what advantages and
disadvantages Virgin have in grouping
this way
Customer Grouping
Customer groups are divisions dealing
with different types of customers.

May be a different division for Retail,

Trade, Overseas and for Mail Order.

E.g. Doctors Surgery, Clydesdale Bank

Customer Grouping
Customer Groupings
Advantages Disadvantages
Each division able to Can be expensive
give a service suited due to greater staff
to its own type of costs
customer Duplication of
Customer loyalty admin, marketing &
builds due to finance
personal service Staff turnover
Quicker to respond erodes personal
to customer needs service benefits
Insurance companies will group their
organisation around the different
categories of customers they have, such
as life assurance, motor insurance,
house insurance etc.
Describe why insurance companies will
do this, and what the drawbacks of
such grouping would be.
Place/Territory Grouping
Staff divided into divisions, each dealing
with a geographic area.

For example, South, West, North,

Scotland division.

Example: Nestle, Water Boards

Place/Territory Grouping

Hewlett Packard

Americas Europe, Middle East, Africa Asia Pacific

Houston, Texas Geneva, Switzerland Hong Kong
 Place/Territory Grouping +/-
Advantages Disadvantages
Allows the Again, duplication of
organisation to cater effort
for different local,
regional, national
tastes
More responsive to
customer needs
Such groupings are used often by European firms,
but not by American ones. Why?
Shell exploration and production has
facilities all around the world. Explain
why it would group geographically,
describing the benefits and drawbacks
of such a grouping
Technology Grouping
Manufacturing companies group its business
activities according to technological or
production processes.

Only suitable for large organisations with

different products and production processes.

WH Smith (Wholesale, Retail Internet) and Ford

(Bodywork, Glass, Plastics, Paints) are example
of this.
Technology Grouping
Advantages Disadvantages
Increased Specialist training
specialisation required
Teething problems Capital-intensive
or technological
problems identified
easily
W H Smith organises activities
around 3 areas: wholesale
operations, retail operations and
Internet sales.
Explain why W H Smith could be
described as grouping around
different technologies used in
different processes.
Line/Staff Grouping
Core Activities LINE
Support Activities STAFF

This grouping divides into line

departments involved in generating
revenue (ie sales) and staff
departments providing whole firm
support (Finance, HRM).
Think of the school…

Identify those activities which could be

described as core, and those which
could be described as support.
Look at the following examples and
then decide what type of structure
would best suit them, and describe the
factors that made this the best choice
A) a national supermarket chain
B) a supplier of drilling equipment to a
single oil company in Aberdeen
C) a small graphic design business
Levels of Management
C h ie f E x e c u t iv e
This is how we would
B o a r d o f D ir e c t o r s normally see an
organisation structure.
S e n io r M a n a g e r s

This is an organisation
M a n a g e rs
chart of a business.
J u n io r M a n a g e r s There is another way
we can view the same
S u p e r v is o r s
organisation.
A s s is t a n t s
Organisation Pyramid

Chief Executive
Board of Directors
Senior Managers
Managers
Junior Managers
Supervisors
Assistants
Span of Control
Span of Control means the number of
people who report to a manager
Manager Manager

Employees Employees
Narrow span of control Wide span of control
Hierarchical Structures
Hierarchical structures can either a tall or flat
structure

Tall Flat
Tall Structures
Many levels of
management
Managers will have
narrow span of control
Management posts
usually specialised
Clearly defined roles
Cost/Benefit Analysis of Tall
Structures
Benefits Costs
Easier for managers to Many layers of
supervise staff communication
More promotion Slow decision-making
opportunities High labour costs due to
Employees will know many levels of
immediate boss management
Clear lines of Workers may have little
responsibility and freedom or responsibility
communication
Flat Structures
Few levels of
management
Managers have wider
spans of control
Faster
communications
Quicker decision-
making
 Cost/Benefit Analysis of Flat
Structures
Benefits
Employees have more
authority and responsibility
Better communication
between managers and
workforce
Decision-making is quicker
Communication channels less
complicated
Better team spirit
Costs
Employees have greater
workload
Employees may need
training for multi-tasks
Fewer promotion
opportunities
If span of control is too
wide people may feel
isolated or ignored
Describe what you understand by a flat
structure (include diagrams)
Identify the advantages and
disadvantages of such a structure
Explain the meaning of the terms
empowerment and delayering
 Matrix Structure
A project team created to
Marketing Finance
carry out a specific task.
Manager Manager
Team members come
g
ke t i n
n ce from different functional
Project a r in a areas, and would report
M e r F er
rk rk to the Project Manager
Manager W o Wo
and their own Functional
Manager.

Software Development
follow Matrix structures
Matrix Structures +/-
Advantages Disadvantages
Increased Expensive to have
experience many teams
Motivation and job Co-ordination
satisfaction problems
Good for tackling Confusion as to who
complex problems reports to whom

Lack of supervision and confusion is thought to

have led to Nick Leeson’s demise of Barings Bank
Describe what you understand by a
matrix structure
Identify the advantages and
disadvantages of this type of structure
Explain the meaning of the term multi-
skilling
Entrepreneurial Structure
Small businesses
use this structure

Decisions made by a
few people, normally
the owner
Entrepreneurial Structure
Advantages Disadvantages
Decisions made Difficult to use in
quickly large businesses
Staff know who they Can create a heavy
are accountable to workload for
Decision-maker does decision-makers
not need to consult Can stifle other
staff staff’s initiative
Describe what you understand by an
entrepreneurial structure
Identify the advantages and
disadvantages of this type of structure
Centralisation
Control and
decision-making lies
with top
HQ management in
Head Office (HQ)
Centralisation
Advantages Disadvantages
Decisions can be Slower decision-
made for whole making
organisation Slower
Easier to promote communication
corporate image Less room for staff
initiative
Decentralisation
Control and
decision-making is
delegated to
HQ departments
Relieves senior
management from
routine, day-to-day
tasks
Describe what you understand by a
centralised structure
Identify the advantages and
disadvantages of this type of structure
Decentralisation
Advantages Disadvantages
Motivates staff Decisions may differ
Empowers staff from other branches
Decision-making Transfer of staff
quicker may lead to
Decisions can match confusion due to
local needs different practices
Less supervision
Describe what you understand by a
decentralised structure
Identify the advantages and
disadvantage of this type of structure
Definitions
Chain of Command
Unity of Command
Span of Control
Explain why organisation charts are
useful
Explain what is meant by span of
control
Factors Affecting Organisation
Structure
Size of organisation
Technology used
Market firm operates in
Staff skills within organisation
Products/services made or supplied by
organisation
Definitions
Line relationships – exist when a member of
staff is in charge of another member of staff
Functional relationships - exist with people on
the same level of management
Staff Relationships – exist with people who
have skills which support the firm as a whole
rather than individual departments
Informal Relationships – exist as friendships
between workers who may have no formal
contact in the workplace.
Delayering
What happens? Effect on Org. Chart
Levels of management Flatter structure
are reduced (move
from tall to flat Fewer management
structure) posts
Wider spans of control Increased worker
Savings in responsibilities
management wages
Explain what is meant by delayering
Give an example of an organisation
which has delayered
What are the benefits and costs of
delayering?
Downsizing
What happens? Effect on Org. Chart
Staff ‘laid-off’ Greater workload for
Wages (labour costs) departments
are reduced Some posts will
disappear
Workers have more
duties
Why would trade unions work against
attempts to downsize an engineering
business?
Outsourcing
What happens? Effect on Org. Chart
Sub-contractors come in Simpler organisation
to do activities chart (fewer
Sub-contractors bring departments &
their expertise
fewer specialist
Organisation can focus members of staff)
on core activities
May result from
downsizing
Explain why organisations may feel they
have to change
Describe what you understand by the
term outsourcing
What is Culture?
Define what you think culture means.

Identify 3 cultures you know.

Give evidence that they exist.

Culture Definitions
Way of life Ethos
Traditions Ambience
Customs Atmosphere
Norms

Culture is: “the way things are done around here”.

Or
“the (often unwritten) code affecting attitudes,
decision-making and management style”
Culture Definition

The values, beliefs and norms relating to

the organisation that are shared by all
staff
Cultural Evidence

ARTEFACTS

VALUES

BELIEFS
Think of your local school
What is the visible evidence of its culture?

Academic or vocational?
Uniform?
Discipline?
Homework?
Approachable SMT?
Importance of Corporate
Culture
Peters & Waterman (1982) observed US and
Japanese firms to see the differences
between each.

The US firms compared favourably with the

Japanese on strategy and structure, but when
it came to shared values and the other things
hard to measure, they lagged behind.
Corporate Culture
Think of an organisation you know.

What can you tell about its culture as

an outsider looking in?
The HP Way
Hewlett Packard’s success was not deemed to
be related to quality or service but to internal
issues:

1. Respect for others

2. Sense of community
3. Hard work
Southwest Airlines
For 5 years in a row they were the only US
airline to make a profit

Southwest put this down to:

Hiring – look for positive people
Demeanour – treat everyone like a
human being
How to develop a strong
corporate culture…
Use of uniforms, logos, symbols
Ideals and principles of organisation (a
mission statement)
Reward schemes for employees
Code of conduct for employees (attitudes
and beliefs)
Advertising (promote their corporate
values)
Teambuilding among employees
Advantages of a strong
corporate culture
Increased staff loyalty
Less turnover of staff (saves in training
costs too)
Increased staff motivation
Increased awareness by the public
All employees know their role and
responsibilities within the organisation