12 Organisation structure

A Activity 12.1 (page 214): Penang Valley Cars Ltd

1 Sketch the current organisational structure of Penang Cars Ltd. Include all staff on
your chart. [6]

Chief Executive

Finance Marketing Administration Vehicle

Director Director Director Repairs
Director

Accounting Sales Office Night Day

Assistants Manager Supervisor Supervisor Supervisor

Junior Sales Assistants Office Staff Mechanics Mechanics

Organisation chart – Penang Valley Cars Ltd

2 Do you think the current structure is appropriate for the business? Give reasons for
your answer. [6]

Penang Valley Cars Ltd has a traditional hierarchical organisational structure. The
structure is appropriate for the business as the role of each individual is clearly
defined and there is no ambiguity regarding the chain of command.

The business is relatively small, employing only 33 staff and, therefore, the number
of layers of hierarchy is also low. This allows communication to remain effective
as the chain of commend is short. However, a hierarchical structure may reduce
horizontal links between functional areas and, therefore, managers may become
focused on their own department and lose sight of broader business goals.

3 Discuss how Jim might resolve the problem of devising a suitable structure for the two
new developments he is planning. [8]

Jim could consider retaining a traditional hierarchical structure based on

functional, geographical or product lines. Such an approach would retain the
advantages associated with clear roles and chains of command.

He may consider a combination of maintaining a departmental structure, but

using cross-departmental project groups to deal with tasks such as the expansion
overseas and the introduction of a truck-rental business.

Chapter 12 © Cambridge University Press 2010 1

A Activity 12.2 − answer provided on Student's CD-ROM.
Activity 12.3 (page 221): MAS must change strategy,
says new boss

1 Analyse three possible reasons why labour productivity is lower in MAS than other
airlines. [9]

Possible reasons include:

• Chain of command too long − this causes communication to be ineffective,
leading to misunderstanding and slower decision making as decisions have to
be given the OK by several managers, before they can be implemented. This can
reduce productivity.
• Too many middle managers − middle managers add costs to the business
organisation, but may also reduce productivity as they do not contribute
directly to the provision of services within the airline. In effect, more middle
management means more employees, but no significant increase in production.
Therefore, productivity falls.
• Poor motivation due to the number of layers of hierarchy − as lower-level staff at
Malaysia Airlines are so distant from senior management, they are more alienated
and less motivated. Delegation is likely to be very limited as spans of control are
very narrow. Thus, workers are not empowered and will lack motivation.

2 Evaluate the impact of adapting the organisational structure by reducing the number
of ‘storeys’ from 5 to 2 (delayering) on:

• MAS staff
• business efficiency. [12]

Commentary may make reference to some of the following issues.

MAS staff Business efficiency

• Wider span of control will lead to • There will be faster communication
greater responsibility for managers and due to the shorter chain of
more delegation of decision making command.
to subordinates. This should increase • Employees will be more motivated,
motivation. leading to increased productivity.
• Managers would be made redundant due • Overhead costs will be reduced
to loss of middle-management job roles. due to the removal of layers of
• The flatter organisational structure management.
would encourage a more democratic • As two-way communication will
approach to managing employees. This be improved between employees
will help staff achieve fulfilment at dealing with customers and more
work. senior managers, response to
• Senior managers may feel that they have the needs of the market will be
less authority. improved.

3 Assess the likely impact of a decision to split and operate separately the domestic and
international divisions of the airline on:

• the performance of MAS

• staff motivation. [10]

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A Analysis may make reference to some of the following issues.

MAS staff Business efficiency

• Decentralisation will necessitate • This would allow an increased focus
the decision-making authority on the specific needs of each market.
being passed to managers in the Greater flexibility to serve the needs
two divisions of the business. This of the market will improve customer
will increase motivation. satisfaction.
• Subordinates will be provided • Decision making in response to market
with greater job satisfaction as change would be quicker.
they will have a greater say in • Communication problems and
decision making. bureaucracy will be reduced, which might
• Opportunities for employees also reduce costs.
to work on both domestic and • Coordination between domestic and
international flights may be international flights would be reduced.
reduced. This would reduce job • Less uniformity in decision making
variety and be demotivating for could damage the corporate identity of
staff. MAS.

Activity 12.4 − research activity.

Revision case study 1 (page 223): Mitsubishi Motors

to rejig structure

1 Explain what is meant by delayering. [2]

This involves the removal of one or more layers from a hierarchy. The objective is
to make the business leaner and fitter; Mitsubishi is aiming to remove 60 senior
staff advisers.

2 Outline the ‘culture conflict’ that seems to exist in this business. [6]

The culture conflict is between a traditional Japanese culture that values length
of service to the business and experience against a more dynamic culture at
Daimler Chrysler that values change and reform. The German managers prefer a
team-based, problem-solving structure in which horizontal boundaries between
departments and layers of middle management are removed.

3 Analyse the possible reasons why the management of MMC wish to delayer the
management structure. [8]

Delayering offers the following possible advantages:

• Reduced overheads − the senior staff advisers make only a ‘marginal
contribution to the company despite generous remuneration’.
• More dynamic culture − many managers are locked into a ‘length of service’
mentality. This reduces the inflow of new ideas to the business. The job-for-life
mentality of Japanese managers may hinder efficiency as it leads to complacency.
• Reduced bureaucracy − this will make Mitsubishi more responsive to customer
needs.

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A 4 Discuss the possible consequences for the efficiency of the business and staff
motivation of the new management structure described in the article. [12]

Staff motivation Mitsubishi’s efficiency

• Short-term effect on management • There will be a reduction in
motivation will be negative. Middle overheads – the 60 senior staff
management resent the presence and advisers made only a ‘marginal
power of the chief operating officer contribution’ to the company.
(COO) team. • Communication will be more
• If the restructuring leads to a loss efficient due to fewer levels of
of the jobs-for-life commitment hierarchy.
of Mitsubishi, employees will be • The delayering should make
dissatisfied and concerned about their Mitsubishi leaner and fitter.
future. • Communication problems and
• There will be staff opposition to bureaucracy will be reduced, which
changes as they are significant. might also reduce costs.

Evaluation may consider:

A significant change in culture is being attempted at Mitsubishi and in the short term
this is likely to lead to opposition and confusion. There will be a high cost of making
change due to e.g. redundancy payments. Management of change will be important to
ensure that the restructuring is successful. However, the German management team is
trying to alter a deeply embedded cultural approach to business within the Japanese firm.

Revision case study 2 (page 224): Hotels group set for major
management shake up

1 Outline the problems that Empire Hotels seem to be experiencing due to a long chain
of command. [6]

• Slow to respond to changing consumer needs − the long chain of command is

reducing the effectiveness of communication in the organisation and, therefore,
managers lack awareness of changing consumer demands.
• Increased labour turnover − the long chain of command leads to narrow spans
of control and a lack of delegation. Therefore, staff are leaving for businesses
offering more responsibility.
• Poor motivation of employees due to distance from senior managers − in
contrast, at Excell Hotels, because managers report directly to senior managers,
they get immediate feedback which improves motivation and leads to quicker
decisions. At Empire, it takes three weeks for requests for new resources to be
considered because there are so many middle managers.

2 Explain two reasons why existing senior managers are unwilling to delegate. [4]

• wish to retain control

• lack of trust in hotel managers.

3 Discuss the impact on the performance of this business of adopting extensive

delegation. [8]

Chapter 12 © Cambridge University Press 2010 4

A Delegation will bring a number of potential benefits, including:
• The business will be more responsive to local needs as decisions will be made by
hotel managers based on their understanding of the local market. For example,
Excell Hotels has an excellent reputation for local food dishes and decorations
that reflect local culture and traditions.
• There will be a reduction in time to acquire resources needed by individual
hotels. Currently, it takes three weeks for requests to be considered.
• Motivation of hotel managers will be greater due to their increased responsibility.
• It will lead to a more flexible business organisation.

There may also be problems:

• Managers may need further training in order to be able to cope with the extra
decision-making responsibility. Managers at Excell Hotels have much longer
training to enable them to be effective.
• There will be a less consistent corporate identity as individual hotels will make
their own decisions about operations.

Evaluation may consider:

The key problem faced by Empire is its failure to respond to changing consumer needs
and this is related to the structure of the organisation. The hotel group cannot afford to
maintain the status quo.

4 Contrast the role of the newly appointed staff managers at Empire with that of the
existing line managers. [6]

The role of the new design and catering experts is to give advice to the line managers
responsible for catering and hotel decoration. As staff managers, these new
appointees do not have any line authority over other people. Their role is to provide
support and provide information and assistance to the line managers. The line
managers are responsible for making decisions regarding catering and decoration
issues. They have direct authority over people and resources within the hotel.

5 To what extent might the performance of the Empire Hotel group be improved by
changing its management structure? [12]

Changing the structure by removing some of the middle managers (delayering)

will bring benefits such as:
• Costs will be reduced.
• Greater delegation will improve motivation.
• Hotel managers will have greater responsibility and authority; therefore, the
hotels will be more responsive to customer needs.
• The chain of command will be shorter, thus decisions can be made more quickly.
• Appointment of staff managers will help improve catering and decoration.
• A new structure could help reduce labour turnover.

Problems related to changing structure include:

• There may be opposition to change from middle managers.
• Opposition to catering and decorating experts will lead to discontent. Line
managers may feel undermined.

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A • There will be the short-term cost of streamlining the organisation.
• Hotel managers may need more training.

Evaluation may consider:

A change in structure, introduced after consultation with staff, should improve the
performance of the hotel group as local customer needs will be better served and key
weaknesses, such as catering, can be addressed. A well-designed organisation will help
managers to get things done and aid decision making; a poorly designed structure
makes it more difficult to succeed. However, structure alone will not make the hotel as
good as its competitors – investment has to be made in conference facilities and IT to
bring them up to industry standards.

Essay
2 a Analyse the claimed benefits of a matrix organisational structure for a manufacturer
of consumer electronic goods. [10]

Definition of matrix structures: these use project teams that involve members
from across functional areas. It is a task-orientated structure as teams are created to
complete a particular project, such as launching a new electronic product.

Benefit Commentary
Avoids a narrow As teamwork is involved, there is more chance that people will
functional not just focus on what is good for their department. Instead,
department there is a focus on what is good for the project and the business.
perspective being With a traditional hierarchical structure, there is a greater
adopted likelihood of departmental conflict.
Allows This can improve decision making as ideas are shared between
communication team members, each of whom has specialist knowledge. There
between all needs to be close communication between functional areas if
members of the consumer electronics are to be developed and marketed
a team and effectively.
promotes greater If departments work on projects in isolation, it will be less
efficiency efficient as each department is unaware of the views and
limitations that may be imposed by other departments. It is only
when senior department heads meet to discuss the project that
potential conflicts will be recognised. Project teams are dynamic
and able to view problems in a different way, as specialists have
been brought together.
Responsive to Consumer electronics is a rapidly changing market. Firms need
market changes. to be responsive to market changes. In a matrix organisation,
Allows fast teams can be created quickly to respond to changes in the
decision making market and decisions can be made quickly. The matrix structure
eliminates the possibility of inflexible hierarchies getting in the
way of rapid decision making.
Can motivate Greater job variety is possible, as project teams are created for
employees specific issues.

A matrix structure is more useful when:

• The organisation is highly innovative. In consumer electronics, this is
important.

Chapter 12 © Cambridge University Press 2010 6

A • The environment is rapidly changing. The consumer electronics industry
is rapidly changing due to innovation of new products and technological
developments. In order to be more responsive to changing consumer needs
and to drive projects forwards more quickly, a matrix structure has many
advantages over a traditional hierarchical structure.

b To what extent should accountability be delegated to junior managers in a

business? [15]

Definition of accountability: this is the degree to which an individual is held

responsible for the success or failure of a policy. If employees are given authority,
which is the right to make decisions, and that authority is exercised poorly, then
the employee is accountable for his or her mistakes.

A manager may pass down the authority to complete a task, but responsibility for
completion of the task remains with the manager. Thus a finance director might
delegate budgetary control to a finance manager, but the director would remain
ultimately responsible for the budget. However, having been given authority over
budgetary control, the finance manager is accountable for any mistakes made in
exercising budgetary control.

Advantages of delegation:
• It is the basis for providing achievement. This is one of Herzberg’s ‘motivators’.
• It is the basis for providing recognition for achievement. This is another of
Herzberg’s ‘motivators’.
• Delegation is useful because it empowers staff and can, therefore, promote
motivation.
• It demonstrates trust in junior managers and this may help motivate.
• It helps staff to achieve fulfilment from work.
• Senior managers can devote more time to strategic issues. It makes little sense
for senior managers to make all decisions.

Disadvantages of delegation:
• Junior managers must have the necessary skills to complete tasks that are
delegated. If junior managers are poorly trained or lack skills, then the quality
of decision making will be poor and errors will be made.
• If only boring jobs are delegated, then this may act as a disincentive to effort.
Junior managers may feel resentful if they believe they are being used. However,
boring jobs are important and have to be completed. Should senior managers
have to focus on boring tasks which by their very nature are suitable for less-
skilled employees to complete?
• Not all junior managers want increased levels of accountability. Accountability
for errors increases stress and could lead to dissatisfaction.

Evaluation may consider:

Delegating accountability may be very motivational to junior managers as Herzberg
and other researchers have observed. Delegation may be particularly necessary where
managers have a large span of control as they cannot closely control the work of all
subordinates.

Chapter 12 © Cambridge University Press 2010 7