Faculty of Business and Management

Semester May 2015

BBPP1103

Principles of Management

NAME : Angel Deborah John

MATRICULATION NO : 930113015622001
IDENTITY CARD NO : 930113-01-5622
TELEPHONE NO : 018-2699772
E-MAIL : angeldeborah@oum.edu.my
NAME OF LECTURER : Puan Hazira Mohd Nasir
LEARNING CENTRE : Negeri Sembilan
 BBPP1103 Principles of Management

Table of Contents

No. Contents Page no.

1. Table of Contents 1
2. Introduction 2
-Factors that influences the organisational structure 2-6
-Organisational Structures Types 7
3. Functional Structure 8-9
4. Geographical Structure 10-11
5. Product Structure 12-13
6. Matrix Structure 14-15
7. Conclusion 16
8. Reference 17

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 BBPP1103 Principles of Management

Introduction
An organisation is a group of individuals who work together to achieve a common objective. In
order to work together efficiently and effectively, the group should find the best method to
organise the work that needs to be done to achieve the objectives of the organisation.
Organisational structure is referred to the work arrangement at a department that directs the
behavior of individuals and groups towards the achievement of an organisation’s goals. All
organisations have a structure that defines the roles that organisational members perform, so that
the members understand their responsibilities towards the organisation. There are four factors
that can influence the structure of an organisation. These factors are organisational strategies,
size, technology and environment.

Factors that Influence Organisational Structure

Organisational Strategies
Structures are not simply an organisational chart. Structure is all the individuals, procedures,
processes, technology and all related elements that consist in an organisation. Therefore, it must
be aligned with strategy in order the organisation to achieve its goals and mission. For example,
if an organisation changes it strategy, it has to change its structure to support the new strategy. If
the organisation does not change its structure, the structure will eventually pulls back the
organisation to its old strategy. Organisational strategies can be simply defined as how the
organisation needs to change over time in order to deliver the strategy of the organisation and
plan to make the transformation. It can also mean that changing what everyone does in the
organisation to achieve desired result. When an organisation changes its structure and ignores the
strategy, the strategy will change to fit the new structure. Suddenly, the management will realize
the organisation’s strategy has shifted in an undesirable way. It appears to have done it on its
own. An organisation’s structure is a powerful force. Thus, you cannot simply change the
structure and ignore the strategy for any period of time unless the structure is capable of
supporting that strategy. Figure 2.0 shows the relationship between organisational structure and
organisational strategy.

Supports
Organisational Organisational
Structure Strategy
Follows
Figure 2.0
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 BBPP1103 Principles of Management

Size of Organisation
There are many ways to measure the size of an organisation. Most organisation measures the size
of the organisation by the quantum of sales and the quantum of manpower. The size of an
organisation influences greatly on the organisation structure. This is because bigger organisation
focuses more on work specialisation, standardisation, and decentralisation of decision making.
For example, a full service restaurant requires a kitchen manager, bar manager, floor manager,
and a general manager to run each department within the organisation and keep the employees in
each department working according to their respective job description. Smaller organisation
focuses less on work specialisation and standardisation but more on centralisation of decision
making. For example, a normal grocery shop requires just the manager to manage the accounts,
manage the supply and be the cashier. Figure 2.1 shows the relationship between the size of
organisation and the organisational structure.

• Less Work Specialisation

Small • Less Standardisation
Organisation • More Decision Making

• More Work Specialisation

Large • More Standardisation
Organisation • Less Decision Making

Figure 2.1

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 BBPP1103 Principles of Management

Technology
Technology does have an impact on the organisational structure as it results in greater efficiency
and lower costing for an organisation. Technology in this area is referred to the way tasks are
accomplished either by using tools, equipments and techniques. As our technology improves,
computer networking has been popular in the business sector as it eases people to do meeting or
group discussion. Technology can also create a new position or even eliminate a position in an
organisation. For example in a hospital, a patient’s data is filled in the computer system. There is
no need for a filing clerk for the hospital as all data is stored in the computer system. But there
are technician positions that are needed to be hired to maintain the computer system. As
technology continues to develop to change the jobs in a workplace, the design of the
organisational structure will also change with it. Therefore, when technology is used in the
operation of an organisation, there will be more departmentalisation, work specialisation and
compliance towards rules and regulations to be made in the organisation. Figure 2.2 shows the
effect of increased usage of technology in an organisation.

Usage of technology in an organisation increases,

Rules and Regulations

Work Specialisation

Departmentalisation

Figure 2.2

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 BBPP1103 Principles of Management

Environment
An external environment influence plays an important role in a company’s organisational
structure. The reason environment affects a company’s organisational structure is because it
consists of a variety of factors outside the organisation that cannot be determined. Some of the
external factors are economic, political, social, legal, and technology.

The internal environment includes factors within the organisation that have a direct impact
towards the success and approach of the organisation. The strength of the employees in the
organisation is another important internal environment factor. Employees that are hard-working,
talented and motivated provide much better results than the less-talented and unmotivated
employees. This is why most of the big companies provide team building seminars and retreats
to motivate their employees as team work also significantly impact the business effectiveness
and efficiency.

There are two types of environment in whole, static and dynamic environment. Some of the
organisations faces static environment which provides less concern on the uncertainties
compared to the dynamic environment. For example, a technology company faces a dynamic
environment because as technology increases, consumer’s desire changes and more competition
between companies. Therefore, companies that are attempting to meet consumer demand can
struggle when creating an organisational structure. One way to reduce the uncertainties in the
environment is by making changes to the organisational structure, recognizing potential
opportunities and treats outside the organisation. Figure 2.3 shows the factors of environment.

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Figure 2.3

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 BBPP1103 Principles of Management

Organisational Structure Types

Depending on the organisational values and the nature of business, organisations tend to use one
of the following structures for management purposes. Certain organisations may follow a
combination of these organisational structures. These are some of the types of organisational
structure that are seen in today’s companies.

Bureaucratic Structures
Bureaucratic structures focuses on strict hierarchies when it comes to people management. There
are three types of bureaucratic structures:

Pre-bureaucratic structures
This type of organisation lacks of standards. This type of structure can be observed in small start-
up companies. The structure is centralised and there is only one decision maker. For an example,
a grocery shop. This type of structures is helpful for small organisations because the owner has
full control over all the decisions and operations.

Bureaucratic structures
These structures have a certain standards. When the organisations grow into a complex and large
company, bureaucratic structures are required for management. These structures are suitable for
big organisations.

Post-bureaucratic Structures
The organisation that follows post-bureaucratic structures still maintains a strict hierarchy, but is
open to more modern ideas and methodologies.

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Functional Structure
Functional structure is one of the oldest and most common organisational structures as it is the
most effective in smaller organisations in a relatively stable environment. The definition of
functional structure is where organisations coordinate work and employees according to a
specialised set of roles or task. As an example, take Dutch Lady Milk Industries Berhad. The
finance manager will only be in charge for the whole finance department. By this way, the
management of this functional group becomes efficient and effective because they only report to
one person which is their finance manager and the finance manger will then report to the
managing director. The figure below shows the functional structure of Dutch Lady Milk
Industries Berhad.

Figure 3.0

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 BBPP1103 Principles of Management

The advantage of having functional structure as an organisational design is that it offers a high
level of specialisation. Each division runs like a mini company with their specific roles. New
comers that come into the organisation are capable to specialise in certain area within that field
and climb up the hierarchy. When they become expert within their functional area, the units and
company will be able to benefit from their expertise and experience over time. Another
advantage is the efficiency and productivity. An employee that is good in his area of expertise
able to perform tasks with high speed and efficiency which will increase the productivity. They
also know their job very well that they have confidence and makes less mistakes in what they do.
This is because their career path within the functional division is clear and this maybe the cause
for them to self-motivate to climb the career ladder within the functional division, hence, making
them more productive towards the organisation. This is how Dutch Lady Milk Industries Berhad
had made their way to what they are now. Besides that, they are many graduates that are willing
to have the opportunity to work with them, it because of their functional structure and the
efficiency of the management.

Besides advantages, functional structures do have their disadvantages as well. Although

specialised employees within the organisation perform with a high level of efficiency, they may
have difficulties working well with other employees. Like all other companies, Dutch Lady Milk
Industries Berhad also does have team work issues. If a project calls for several employees to
work together, they may become unwilling to cooperate with each other. Thus, each employee
may act in what they believe to be best in their own interest instead of discussing in a group.
Hence, this problem could lead project to fall behind schedule.

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 BBPP1103 Principles of Management

Geographic Structure
Geographic structure is a reporting and functional system across multiple locations. It
coordinates the task and employees of different divisions that are responsible for conducting
business activities in certain geographical locations. The organization locations can be local,
national or even international. For example, the geographical structure of Yakult Worldwide.
The figure below shows the geographical structure of Yakult Worldwide.

Figure 4.0

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 BBPP1103 Principles of Management

The geographic structure is used mainly in large national or international organizations. Each
location of the organisation, there is one or several executives that oversee the organisation.
These executives are stationed in each organisation of various locations to oversee and direct the
functions of the organisation and they are in-charge of the entire operation and its finances. All
these executives report directly to the top level executives who are located in the main office or
headquarters (HQ) of the organisation. For an example, Yakult (Malaysia) Sdn Bhd top level
executives reports to the headquarters Yakult Honsha Co. Ltd in Japan.

The advantage of geographic structure is the communication and collaboration. This is because
communication between the representatives of different division within an organisation is much
personal rather than communicating to people around the globe by emailing and telephone.
Coordinating employees this way motivates stronger formation, collaborative teams will be able
to work well together, group discussion and decision making will be much easier as they
understand each other’s personalities and work styles. Other advantages like having local
manager like in Yakult companies or many large organisations are good as they ensures the
development of expertise specific to the political, social and cultural needs of the region.

The disadvantage of geographic structure is that it does not allow centralised decision-making.
Business owners must rely on the executives that are stationed in the various locations of
organisation to take corrective actions and improve operations or even change of a product rather
than making the decision straight from the headquarters. A good example is Yakult Company.
This is because of the choice of consumers in various locations lead the company to produce
different types of products. Apart from that, the management environment and marketing is also
different at each location.

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 BBPP1103 Principles of Management

Product Structure
In a product structure, there are managers that are in-charge of a certain type of product reporting
to the CEO or head of the company. Product structures are basically used by big manufacturing
companies that have companies in various locations. For example, Yakult Honsha Co. Ltd., they
have various types of products like probiotic drinks (which is their international business), food
and beverages, cosmetics and even pharmaceuticals. Each of the categories has its own manager
and each report to its upper level management. The figure below shows the product structure of
Yakult Honsha Co. Ltd. and who do they report to.

Figure 5.0 12
 BBPP1103 Principles of Management

The advantage of having a product structure is that it develops personals with a higher level of
expertise and specialization for each of its product. Apart from that, it allows the top level
management to evaluate the work performance and sales performance of each product group.

Beside of having such advantages, product structure may also have some disadvantages. The cost
of administration may be high due to the fact that each product group has its own functional area
experts. Another disadvantage is that there is duplication of work force. For example, a different
sales force for each product group.

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 BBPP1103 Principles of Management

Matrix Structure
Matrix structure in management is a technique of managing an organisation or a division of an
organisation by combining two or more types of structures at the same time. It is unlike the
traditional structure where employees report to only one supervisor. In matrix structure,
employees report to two different supervisors. Matrix structure also leads to cross interactive
functions which cannot be done in other structures. An example of matrix structure is Yakult
Honsha Co. Ltd., the below show the matrix structure of the organisation. It is a combination of
product structure and functional structure.

Figure 6.0
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 BBPP1103 Principles of Management

As the figure above shows that some of the groups reports to a few top level management
executives. One of the main advantages of adopting a matrix structure is that it allows exchange
of information throughout the organisation. This is because all the separate departments are
working closely with one another. Another advantage is that there will be much more efficient
communications in the organisation which can lead to improved of productivity, fast decision
making, quick to solve problems and a better customer service.

Besides of having advantages, the common disadvantage of a matrix structure is that is can be
expensive to maintain it. This is because to get the most out of this structure, more managers are
needed thus increasing in the organisation’s payroll expenses. Another problem is confusion in
employees on primary supervisor. This can happen is manager shares the employees, thus
creating confusion among employees who are tasked with different responsibilities by two
different managers. Although matrix organizational structure is designed to improve the
organisation’s communication efficiency, it also can create confusion when the group of
employee in board does not understand on how the system suppose to work.

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Conclusion
Organisation structure defines the coordination of task and employees in different division of an
organisation. The organizational design needs to be adapted with the factors that influence the
effectiveness of the strategies. The factors are: organizational strategy, size of organisation,
technology, and environment. Organizational structure can also help to explain authority and the
transfer of authority in the organisation. It will also help in the design of work involved in an
organisation. Different types of organisation structure are created based on the arrangement of
various tasks in the organisation. They are: functional, product, geographic, and matrix. There is
not one organisational structure, which is suitable for a particular type of organisation. We find
that within the same organisation there can be more than one structure at the same time.
However, from bureaucracy to the matrix organisation there has been wide variety of structures.
As a result of growing outsourcing the organisational structure would be more towards virtual
and boundary less organisation. But bureaucracy in a limited manner shall remain true in all ages
and departmentalisation has to be done in order to assign task. The ultimate aim for the
organisation is to be effective and organisational structure is a tool in the attainment of
organisational objectives. The components of organisational effectiveness are managerial
policies and practices, employee characteristics, organizational characteristics and the
environmental characteristics.

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References:
Organisation’s Websites:
http://www.yakult.co.in/worldwide.php
http://www.dutchlady.com.my/company-overview.php

Bibliography:
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Meteor Doc Sdn. Bhd.
 Brews, P., & Tucci, C. (2004). Exploring the structural effects of internetworking. Strategic
Management Journal 25, 429-451.
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 Friend, L. (n.d.). Geographic Organizational Structure. Retrieved July 13, 2015, from
http://smallbusiness.chron.com/geographic-organizational-structure-3807.html
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http://www.tutorialspoint.com/management_concepts/organizational_structures.htm

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