ORGANISATION STRUCTURE & DESIGN (Part 1) Introduction to

ORGANISATION STRUCTURE & DESIGN (Part 1) Introduction to Business BM004-4-0-ITB

Learning Outcomes Recognise and apply sound knowledge of the key organisational theories. Compare the fundamental organisational concepts and principles. Compare the functions within the organisation and their interdependency and interaction.

PRINCIPLES OF ORGANISATION 1. Unity of Objective 2. Span of Control 3. Delegation 4. Unity of Command 5. Clear Lines of Authority 6. The Principle of Responsibility

PRINCIPLES OF ORGANISATION Unity of Objective Span of Control Delegation the principle that each employee strive to achieve one common objective of the company. the length of control / authority transferring responsibility to someone else.

PRINCIPLES OF ORGANISATION Unity of Command Clear Lines of Authority The Principle of Responsibility the principle that each employee should report to only one supervisor. the given right to discharge responsibilities. - legitimate power. duty / obligation to be in charge of something.

TALL & FLAT STRUCTURES Organisational Structures are formed when the principles are in place. Organisational Pyramid shows the lines of authority, accountability, responsibility. The hierarchy of organisational management

TALL & FLAT STRUCTURES (continued)

CENTRALISED & DECENTRALISED DECISION MAKING (continued) Centralised: small group of senior managers exercises authority. Decentralised: authority is dispersed throughout the organisation

CENTRALISED & DECENTRALISED DECISION MAKING (continued) Advantages of Decentralised Decision Making: More motivation Use of local information, customise Senior managers freed from operational decisions Less bureaucracy experiences Disadvantages of Decentralised Decision Making: Different standards Communication problems Reliance on junior management, who might be lacking in experiences.

BASIC ORGANISATION DIVISIONS When the organisation grows to an extent that direct control is not practical or efficient, delegations need to be made within the organisation structure. Delegations would allow for specialisation and division of work that helps organisational owners regain back control of the business There are 5 main approaches to division of work: Division by Function Division by Location Division by Customers Division by Product / Process Matrix Organisation

DIVISION BY FUNCTION Organisations are divided into various functions (e.g. production, sales, finance, human resource) needed for objective achievement. Natural for people with similar tasks to communicate and relate to each other. Better specialisation. However, functions are usually interdependent and not independent. Decision making needs to consider other functions for cohesiveness.

DIVISION BY LOCATION Organisations are divided based on geographical locations. Eg. Multinational companies (MNC). Increase market share. Lower production cost. New communication technology decreases the difficulty of communicating between divisions e.g. mobile phone, virtual private networks, video conferencing.

DIVISION BY CUSTOMERS Specialised divisions based on types of customers. Increases satisfaction to customers as specialisation increases. Useful for products with many marketing channels and outlets (wide appeal). Competition between divisions may arise, as some customers and business activities may overlap – positive & negative effect.

DIVISION BY PRODUCT / PROCESS Specialised divisions based on product lines or work processes which cannot be further sub-divided. Economies of scale achieved. Similar types of equipment and specialised labour are centralised. Clear cut technical considerations determine departments.

MATRIX ORGANISATION Also known as division by project or contract. Team based that is headed by a project manager and is accountable for the project and reports on a direct line basis to a superior. Good mix of specialists in various fields. Flexible and fast to adapt to changes. Project oriented. However, it is costly and lines of authority may overlap. Conflict of interest between project and functional department.

Today’s Challenges in Organisational Design Virtualisation (Technology) Virtualization is the creation of a virtual (rather than actual) version of something, such as an operating system, a server, a storage device or network resources. Globalisation The worldwide movement toward economic, financial, trade, and communications integration.

WORKING RELATIONSHIP Refers to the flow of authority and instruction from its source to its points of action. Direct line relationship and Indirect line relationship. Clear cut division of authority and responsibility. Work discipline and control easily achieved. Managers and their staff take quick action. Managers burdened by task and personnel issues. If personnel absent, link may be lost. LINE RELATIONSHIP

WORKING RELATIONSHIP (continued) STAFF RELATIONSHIP Refers to members of the organisation that help the main activities of the organisation. E.g. a secretary to the Managing Director. The relationship is indicated by a dotted line.

WORKING RELATIONSHIP (continued) LATERAL RELATIONSHIP Refers to relationship that exists between two people of the same level or tier Based on co-operation and supervisory influences Horizontal line refers to lateral relationship

WORKING RELATIONSHIP (continued) FUNCTIONAL RELATIONSHIP Refers to relationship which exists between a line manager and a specialist staff. Specialist staff deals with a wider scope of personnel (especially from a particular level for various departments ). Lines drawn are diagonal. Specialisation in supervision improves efficiency.

ORGANISATION CHARTS Hierarchical and shows clear lines of authority Vertical Organisation Chart Source: http://www.kimia.gov.my/cartaorgeg.html

ORGANISATION CHARTS (continued) Clear lines of authority, but plays down hierarchy Horizontal Organisation Chart Source: http://www2.cnrs.fr/en/51.htm (Centre national de la recherche scientifique)

ORGANISATION CHARTS (continued) Circular / Concentric Organisation Chart No clear lines of authority and hierarchy Source: http://growingcircle.com/structure.html

Summary of Main Teaching Points The structure of an organisation exists when the principles / foundation is in place. Tall and Flat Structure of an organisation. Centralised / Decentralised. Organisational Divisions: Division by Function, Location, Customer, Product/Process and Matrix Organisation. Working / Organisation Relationships: Line, Staff, Lateral and Functional. Organisation Chart: Vertical, Horizontal and Concentric / Circular

Q & A Question and Answer Session

Give one example each for the following organisational set-ups: Review Question Decentralised organisation 2. Matrix Organisation