Chapter 5: Business Organization, Structure and Strategy

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Chapter 5: Business
organization, structure and
strategy
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What you will learn?

 Organization structure
 The concept of a market
 Other basic org concept
 Level of strategy
 Centralisation and Decentralisation
 Formal and informal organization
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Organizational structure
Definition
Organisational structure is concerned with the way in which
work is divided up and allocated.
Types of the organizational structure
This structure is built around the owner
manager and is typical of small
Entrepreneurial
businesses in the early stages of their
development.
Entrepreneur
Employees
Functional/dep Functional organisations group together

artmental employees that undertake similar
structure tasks into departments.
Board of
Director
Marketing Production Finance

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This structure occurs where an
Divisional/prod organisation is split into several divisions
uct structure - each one autonomously overseeing a
product
Board of
Director
Division 1 Division 2 Division 3
Functions
This is similar to the divisional structure,
Geographically
but involves each division covering
structured
a specific location.
Board of
Director
Northern Eastern Southern
Functions
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Matrix structures are a combination of
Matrix
the functional and divisional
structure
structures.
Senior
Management
Functions
Division 1 Division 2 Division 3
Product A
Products
Product B
Product C
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Boundaryless organisations are,
essentially, an unstructured design that
Boundaryless is not constrained by having a chain of
structure command or formal departments, with
the focus instead being on flexibility.
structures.
• Virtual: create a company outside the organisation to

respond to exceptional, often temporary market
opportunities.
• Hollow: all non-core operations are outsourced eg
accounting, human resources, legal services and
manufacturing could be outsourced, leaving the company
to concentrate on its core competence eg design of new
products.
• Modular: order parts from different internal and external
providers and assemble into a product.
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Mintzberg’s Management theorist Henry Mintzberg
Organisational (The Structuring of Organisations and
Configurations Structures in 5’s.
• Strategic apex – senior

levels of management.
• Middle line – middle
management.
• Operating core – workers
involved in producing or
creating the core product
or service offered by the
organisation.
• Technostructure – provide technical input that is not part
of the organisation’s core activities. They are analysts who
plan and control the work of others.
• Support staff – administrative support and indirect
services.
• A sixth block was later added to Mintzberg’s model:
Ideology – the organisation’s beliefs and values.
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Other basic org concept

Separation of direction and management
Ownership and management of larger organisations are often
separated.
Span of control
A manager’s span of control is the number of people for
whom he or she is directly responsible.
Tall or flat organizations
A ‘tall’ organisation has many levels of management and a
narrow span of control.
A ‘flat’ organisation has few levels of management and a
wide span of control.
Offshoring
Offshoring refers to the process of outsourcing or relocating
some of an organisation’s functions from one country to
another, usually in an effort to reduce costs.
Shared service approach
This approach involves restructuring the provision of certain
services within the organisation so that instead of the service
being found in several different parts of the organisation it is
centralised into one specific part of the organisation.
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Level of strategy
‘Anthony hierarchy’
Corporate
Strategy
Business Strategy
Functional
Strategy
• Corporate: the general direction of the whole

organization
• Business: how the organization or its SBUs tackle
particular markets
• Operational/functional: specific strategies for
different departments of the business
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Centralisation and Decentralisation

Criteria Centralisation Decentralization
Authority is concentrated in Authority is scattered to
Definition
one place many places
Geogra Functions are scattered in
Functions are centralized
phy different location
Aspec Increased delegation,
People have to refer
ts Author empowerment and
decisions upwards to their
ity autonomy at lower levels of
superiors
organisation
• Avoids heavy workloads
• Easy co-ordination of
• Improves motivation of
decisions
junior managers
• Wider view can be
• Greater awareness of
taken
local issues
• Different interests can
• Greater speed of
be balanced
decision-making
Advantages • Quality of decisions
• Develops the skills of
higher (in theory)
junior managers
• Cheaper to run
• Controls and direct
• Crisis decisions taken
accountability are clearer
quickly
• Use of communication
• Standardized policies
technology allows local
and procedures
decision making
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Formal and informal organization

Organization
Formal Organization Informal Organization
Business Organization Consists of:

• Social relationship
• Informal
communication
networks
• Behavioral norms
• Power/influence
structures

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1

What you will learn?

Functional/dep Functional organisations group together

Marketing Production Finance

• Virtual: create a company outside the organisation to

• Strategic apex – senior

Other basic org concept

• Corporate: the general direction of the whole

Centralisation and Decentralisation

Formal and informal organization

Formal Organization Informal Organization

Business Organization Consists of:

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