INTERNAL ORGANISATION Internal Organisation Higher Business Management INTERNAL ORGANISATION What is an organisation? A group of people working towards a defined set of goals and objectives. INTERNAL ORGANISATION ‘An organisation is the rational coordination of the activities of a number of people for the achievement of some common explicit purpose or goal, through the division of labour and a hierarchy of authority.’ Edgar Schein INTERNAL ORGANISATION Types of organisational grouping Functional Product/service Customer Place/territory Technology Line/staff INTERNAL ORGANISATION Functional grouping Departments where staff have similar skills and expertise, and do similar jobs. Functional grouping usually consists of marketing, finance, human resources and operations. What other functional areas might there be? INTERNAL ORGANISATION Functional grouping INTERNAL ORGANISATION Functional grouping Advantages Allow specialisation Clear organisational structure Staff aware of formal relationships Disadvantages Organisation may become too large and wieldy May be unresponsive to change Departments may compete against each other INTERNAL ORGANISATION Product/service grouping Divisions/departments where each deals with a different product or product range. eg Sky has Sky Sports, Sky Movies, Sky Atlantic etc. Each division has its own functional staff. Virgin and General Electric are other examples of product/service grouping. INTERNAL ORGANISATION Product/service grouping Hewlett Packard Imaging and Printing Group Personal Systems Group Enterprise Systems Group HP Services HP Financial Services INTERNAL ORGANISATION Product/service grouping Advantages Each division selfcontained More responsive to customer changes in tastes/fashions Easier to identify low sales in products Disadvantages Duplication of effort Divisions may be competing with each other INTERNAL ORGANISATION Customer grouping Customer groups are divisions dealing with different types of customers. May have different divisions based on distribution, eg retail, online and international. INTERNAL ORGANISATION Customer grouping INTERNAL ORGANISATION Customer grouping Advantages Each division has varying customer needs Customer loyalty can build due to personal touch Can respond quickly to customer needs or changes in taste Disadvantages Expensive due to higher staff costs Duplication of effort When key staff leave, personal relationship is lost INTERNAL ORGANISATION Place/territory grouping Staff divided into divisions, each dealing with a geographic area, eg south, west, north, Scotland. Examples: Nestle, water boards INTERNAL ORGANISATION Place/territory grouping Hewlett Packard Americas Houston, Texas Europe, Middle East, Africa Geneva, Switzerland Asia Pacific Hong Kong INTERNAL ORGANISATION Place/territory grouping Advantages Can cater for different local, regional, national tastes More responsive to customer needs Disadvantages Duplication of effort INTERNAL ORGANISATION Technology grouping Manufacturing companies group their business activities according to technological or production processes. Only suitable for large organisations with different products and production processes. Ford (bodywork, glass, plastics, paints) is an example. INTERNAL ORGANISATION Technology grouping Advantages Increased specialisation Teething problems or technological problems easy to identify Economies of scale Disadvantages Specialist training required Higher salaries for skilled workforce Capital intensive INTERNAL ORGANISATION Line/staff grouping Core activities – line Support activities – staff Core activities are essential to the business, eg teachers are essential or core in the education sector. Janitors, office staff and canteen workers are involved in the support (staff) activities that are required for a school to function. INTERNAL ORGANISATION Answer a question Many organisations group their activities by function. Discuss other methods an organisation could use to group their activities. (8 marks) 2008 15 minutes INTERNAL ORGANISATION Peer marking You are going to swap answers. Has your partner answered well? Does the answer make sense? Is it worth a mark? Solution Product/service grouping is when each division will be grouped according to a product or product range, eg Sky Sports, Sky Movies, Sky Atlantic. Allows an organisation to be more responsive to changes in that market. Expertise is developed within each specialised division. Allows management to identify poorly performing products. There can be duplication of resources and personnel across groups. Divisions may find themselves competing against each other. INTERNAL ORGANISATION INTERNAL ORGANISATION Solution (cont’d) Place/territory grouping is when grouping of resources is carried out across a geographical area, eg midlands, Scottish, south-east etc. Allows for the needs of different areas. Can become familiar with local customs and cultures. Expensive with regards to administration and staffing costs. Solution (cont’d) INTERNAL ORGANISATION Technological grouping is when organisations group their activities according to technological process. Suitable for large organisations with different production processes. Duplication of resources can occur. Customer grouping is when resources are organised around groups of customers with similar needs. Allows for services to be tailored to each group of customers or a specific customer. Builds up customer loyalty due to the personal service they receive. There can be large staffing costs with this type of grouping. Duplication of resources in administration, finance, etc. INTERNAL ORGANISATION Organisation pyramid Board of directors Chief executive Senior managers Managers Junior managers Supervisors Assistants INTERNAL ORGANISATION Span of control Span of control means the number of people who report to a manager. Manager Employees Narrow span of control Manager Employees Wide span of control INTERNAL ORGANISATION Hierarchical structures Hierarchical structures can be either tall or flat. Tall Flat INTERNAL ORGANISATION Tall structures Many levels of management Managers have narrow span of control Management posts usually specialised Clearly defined roles INTERNAL ORGANISATION Cost/benefit analysis of tall structures Benefits Easier for managers to supervise staff More promotion opportunities Employees will know immediate boss Clear lines of responsibility and communication Costs Many layers of communication Slow decision-making High labour costs due to many levels of management Workers may have little freedom or responsibility INTERNAL ORGANISATION Flat structures Few levels of management Managers have wider spans of control Faster communications Quicker decisionmaking INTERNAL ORGANISATION Cost/benefit analysis of flat structures Costs Benefits Employees have Employees have more authority and responsibility greater workload Employees may need Better communication training for many tasks between managers and workforce Fewer promotion Decision-making is quicker opportunities Communication channels If span of control is too wide people may feel less complicated isolated or ignored Better team spirit INTERNAL ORGANISATION Matrix structure Marketing Finance manager manager A project team created to carry out a specific task. Team members come from different functional areas, and report to the project manager and their own functional manager. Software development follows matrix structures Project manager INTERNAL ORGANISATION Matrix structures Advantages Increased experience Good motivation and job satisfaction Good for tackling complex problems Disadvantages Expensive to have many teams Co-ordination problems Confusion as to who reports to whom Lack of supervision and confusion is thought to have led to the demise of Barings Bank. INTERNAL ORGANISATION Entrepreneurial structure Small businesses use this structure Decisions made by a few people, normally the owner INTERNAL ORGANISATION Entrepreneurial structure Advantages Decisions made quickly Staff know who they are accountable to Decision-maker does not need to consult staff Disadvantages Difficult to use in large businesses Can create a heavy workload for decision-makers Can stifle other staff’s initiatives INTERNAL ORGANISATION Centralisation HQ Control and decision-making lie with top management in head office (HQ) INTERNAL ORGANISATION Centralisation Advantages Decisions can be made for whole organisation Easier to promote corporate image Disadvantages Slower decisionmaking Slower communication Less room for staff initiative INTERNAL ORGANISATION Decentralisation Control and decision-making are delegated to departments Relieves senior management from routine, day-to-day tasks HQ INTERNAL ORGANISATION Decentralisation Advantages Motivates staff Empowers staff Decision-making quicker Decisions can match local needs Disadvantages Decisions may differ from other branches Transfer of staff may lead to confusion due to different practices Less supervision INTERNAL ORGANISATION Answer a question a) Explain the advantages and disadvantages of the entrepreneurial structure. (4 marks) 2008 b) Describe the main features of the matrix structure. (3 marks) 2010 12 minutes INTERNAL ORGANISATION Self-marking You are going answer on your own! Have you answered well? Does the answer make sense? Is it worth a mark? Solution to a) INTERNAL ORGANISATION Advantages Decisions are made quickly as managers do not consult staff, who rely on their expertise. Staff know who they are accountable to as they have only one superior. Disadvantages Difficult to use in larger businesses as they have more complex operations. Top managers carry a heavy workload/burden as they have to make all the key decisions. Does not allow for initiative from staff, which can demotivate talented employees. Solution to b) Matrix structures are created for specific projects. They are made up of specialists from different functional areas, and offer a good mix of skills and ideas. They are a a good method of solving complex problems, having different abilities and disciplines involved. Each staff member can have two managers: the project manager and their own functional manager. This can cause confusion and conflict as staff are unsure of their priorities. Gives staff increased experience in different situations, which improves their skills and potential for promotion (career progression). INTERNAL ORGANISATION INTERNAL ORGANISATION Factors affecting organisation structure Size of organisation Technology used Market firm operates in Staff skills within organisation Products/services made or supplied by organisation Click for clip INTERNAL 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 that 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. INTERNAL ORGANISATION Delayering What happens? Levels of management are reduced (move from tall to flat structure) Wider spans of control Savings in management wages Effect on organisation chart Flatter structure Fewer management posts Increased worker responsibilities INTERNAL ORGANISATION Downsizing What happens? Staff laid-off Wages (labour costs) are reduced Effect on organisation chart Greater workload for departments Some posts will disappear Workers have more duties INTERNAL ORGANISATION Answer a question Distinguish between delayering and downsizing. (3 marks) 2008 6 minutes INTERNAL ORGANISATION Peer marking You are going to swap answers. Has your partner answered well? Does the answer make sense? Is it worth a mark? Solution INTERNAL ORGANISATION Delayering involves removing a whole level of management to flatten an organisation’s structure. Downsizing involves closing specific areas of the organisation to cut costs. Communication – Delayering will quicken communication between management levels. Downsizing may not, as it closes certain departments and does not affect management structures. Efficiency – Delayering may be viewed as more efficient by removing levels of management, but downsizing may affect productivity and efficiency as staff are not replaced. Cost – Delayering reduces costs through fewer promotions, saving on salaries, whereas downsizing saves costs by making employees redundant. INTERNAL ORGANISATION What is culture? Define what you think culture means. Identify three cultures you know. Give evidence that they exist. Click for clip INTERNAL ORGANISATION Culture definitions Way of life Traditions Customs Norms Ethos Ambience Atmosphere Culture is: ‘the way things are done around here’ or ‘the (often unwritten) code affecting attitudes, decision-making and management style’. INTERNAL ORGANISATION Culture definition The values, beliefs and norms relating to the organisation that are shared by all staff. Another video on Google! Click for clip INTERNAL ORGANISATION Cultural evidence Artefacts Values Beliefs INTERNAL ORGANISATION Think of your local school What is the visible evidence of its culture? Academic or vocational? Uniform? Discipline? Homework? Approachable SMT? INTERNAL ORGANISATION Importance of corporate culture Peters & Waterman (1982) observed US and Japanese firms to examine the differences between each. The US firms compared favourably with the Japanese on hard skills such as strategy and structure, but not on soft skills such as values and culture. INTERNAL ORGANISATION Corporate culture Think of an organisation you know. What can you tell about its culture as an outsider looking in? INTERNAL ORGANISATION How to develop a strong corporate culture Use of uniforms, logos, symbols. Ideals and principles of the organisation (a mission statement). Reward schemes for employees. Code of conduct for employees (attitudes and beliefs). Advertising (promote their corporate values). Teambuilding among employees. INTERNAL ORGANISATION 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. INTERNAL ORGANISATION Answer a question a) Describe the different methods organisations can use to develop a corporate culture. (4 marks) 2010 b) Explain the advantages to an organisation of having a strong corporate culture. (4 marks) 2010 15 minutes INTERNAL ORGANISATION Peer marking You are going to swap answers. Has your partner answered well? Does the answer make sense? Is it worth a mark? INTERNAL ORGANISATION Solution to a) Implementing the ideals and beliefs of the owner. Use of symbols or logos that customers recognise. Staff uniforms consistent throughout the organisation. Uniformity of layout of offices/branches. Use of a phrase or motto that can be recognised by customers/used in marketing. Standardise how staff interact with customers. Merchandising of products linked to the organisation. Solution b) INTERNAL ORGANISATION Improved customer satisfaction and loyalty – consumers associate themselves with the organisation because of brand/logos, etc. Increased staff motivation as they can associate themselves with the organisation. Staff can move between branches/departments more easily as they are aware of their practices and policies. Staff will identify with the organisation, which could result in reduced absences or lower staff turnover. A single corporate identity is given to customers, who will then associate with that organisation. The organisation can be easily recognised anywhere in the world, which will allow customers to feel comfortable with products/services wherever they are.