BUSINESS & TECHNOLOGY

CHAPTER- 2
BUSINESS ORGANIZATION & STRUCTURE
Organization Structure
Organizational structure is related with the way a work is done in an organization.
It is associated with :

1. Organizational Hierarchies
2. Departments
3. Functions
4. Decision Making Channels
5. Roles & responsibilities
6. Division of labor

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Types of Business Structure
Entrepreneurial structure
This structure is built around the owner manager and is typical of small businesses in the early stages of their
development.

Who is an Entrepreneur?
‘a person who sets up a business or businesses, taking on financial risks in the hope of profit’

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Types of Business Structure
Functional/departmental structure
Functional organizations group together employees that undertake similar tasks into departments.

The larger forms of entrepreneurial structure develop into the functional or departmental structure.

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Types of Business Structure
Divisional/product structure :
This structure occurs where an organization is split into several divisions like :
▪ each one autonomously overseeing a product (i.e. separate divisions for cars and motor bikes),
▪ a geographic section (i.e. separate divisions for US and Europe) or
▪ even by customer (i.e. separate divisions that look after corporate clients and private clients).

These divisions are likely to form a profit center.

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Types of Business Structure
Geographically structured :

This is similar to the divisional structure, but involves each division covering a specific location.

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Types of Business Structure
Matrix structure :

This is similar to the divisional structure, but involves each division covering a specific location.

Here Production Manager A will look after the different departments for the product A

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Types of Organization Structure
Boundaryless Structures:

Boundaryless organizations are, essentially, an unstructured design without a chain of command or formal
departments, focusing on its flexibility.

There are a number of different types of boundaryless organizations – hollow, virtual and modular.
1. Hollow organizations
Hollow organizations split their functions into core (i.e. strategically important) and non-core activities.
Anything which is classified as non-core is outsourced to other organizations.

2. Virtual organizations :
An organization outsources many of its functions to other organizations and simply exists as a network
of contracts, very few functions are kept in-house.

3. Modular organizations :
Rather than simply making their own product, they break the manufacturing process down into modules
or components. Each component can then be made by the company or outsourced to an external supplier.

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Mintzberg’s Organizational Structure (X)
Henry Mintzberg divides organizations into five
parts :

▪ Strategic apex is equivalent to top management

or the Board of Directors.
▪ Middle line are the middle managers,
sometimes called the scalar chain.
▪ Operating core are the people near the bottom
who, for the most part, do the day-to-day work.
▪ Support staff would include the accounting
staff and IT staff.
▪ Technostructure provide technical input that is
not part of the organization’s core activities. It is
the technostructure that would write the quality
control manual, the employee handbook, the
health and safety manual, the finance manual.

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Mintzberg’s Organizational Structure (X)
As per Mintzberg, an Organization can be :
The simple structure (strategic apex dominates) :
It tends to occur in newer organisations with one or a few top managers who control the rest of the workforce by
way of direct supervision.

Machine bureaucracy (technostructure dominates)

In large, established organizations where work becomes very formalized, with large numbers of rules and
procedures.

Professional bureaucracy (operating core dominates)

This occurs in organizations that rely on highly skilled members of staff, such as in the medical and legal
industries.

Divisionalised (middle line dominates)

This is the divisional structure.

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Mintzberg’s Organizational Structure (X)
Adhocracy (support staff/operating core dominate)
The focus is on innovation – making it more suitable than the other, more formal, structures for fast-moving,
dynamic industries.

Missionary (ideology dominates) :

The mission and beliefs of the organization are dominant.

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Other Basic Organizational Structural Concepts
1. Separation of direction and management
In larger organizations, the directors responsible for direction and managers responsible for management are
separated. Day- to day is run by the managers and directors just watch in overview. This is also a corporate
governance structure.

2. Scalar Chain:
This is the line of authority which can be traced up or down the chain of command, from the most senior
member of staff to the most junior.

3. Span of Control :
Manager’s span of control is the number of people for whom he or she is directly responsible. It is affected by
nature of the work, type of personnel & location of personnel.

4. Tall and flat organizations :

A ‘tall’ organization has many levels of management (a long scalar chain) and a narrow span of control.
A ‘flat’ organization has few levels of management (a short scalar chain) and a wide span of control.

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Tall vs. Narrow Structure

Tall organizations tend to be more bureaucratic and take longer to make decisions, due to the large
number of levels of management that need to be involved.

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Other Basic Organizational Structural Concepts
5. Offshoring :

Offshoring refers to the process of outsourcing or relocating some of an organization's functions from one
country to another, usually in an effort to reduce costs.

6. Shared Services Approach

This approach involves restructuring within the organization so that instead of the service being found in
several different parts of the organization it is centralized into one specific part of the organization.

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Centralization vs. Decentralization
There are two organizations of exactly the same shape and
structure, yet in one a particular grade of employee could be
given an expenditure authority of only NRs. 10,000 but in
another, the same grade of person could be given an
expenditure authority of NRs. 100,000.

Centralization is based on the way on which decisions are

made. If upper level retain decision powers, they centralize it
else decentralize it.

Consider following :
▪ If nothing is decentralized, all decisions have to remain at
the top of the organization, with the managing director or
the board of directors.
▪ If requests have to be passed up through an organization for a
decision to be made and then the answers are passed down,
decisions are likely to be much slower.
▪ It might be better to decentralize power to areas of
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 Levels of Strategies
Within an organization, each level of management will have different roles and responsibilities.
Different levels of planning
Strategic planning is undertaken by senior managers. It involves making long-term
decisions for the entire organization.
Such plans include overall profitability, the profitability of different segments of the
business, capital equipment needs and so on.
It can also include qualitative information, for example, plans to enter into a new market, or
create a new product.

Tactical planning is undertaken by middle management. It tends to look at plans for specific
divisions or departments and specifies how to use resources. It generally covers for next year
or any other short period.
e.g. decide how the resources of the business should be employed, and to monitor how they
are being and have been employed.

Operational planning is undertaken by junior managers and supervisors. It is short-term,

detailed and practical.
It is also called Anthony Hierarchy developed by Robert Anthony.
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 Marketing
Chartered Institute of Marketing says marketing is the management process that identifies, anticipates and supplies
customer needs efficiently and profitably.

There are 4 Ps in effective marketing :

Product Price Place

Promotion
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Marketing Mix
McCarthy’s 4 Ps in marketing mix :

Product • A product (goods or services) is anything that satisfies a need or want

• A product is a solution to a problem or a package of benefits

• Place deals with how the product is distributed, and how it reaches its customers.

Place • Channel. Where are products sold?

• Logistics. The location of warehouses and efficiency of the distribution system.

• Many of the practical activities of the marketing department are related to promotion.
Promotion • Promotion in the marketing mix includes all marketing communications which let the
public know of the product or service.

• A product (goods or services) is anything that satisfies a need or want

Price • Price is influenced by many factors including economic factors (supply and demand),
competitors’ prices and payment terms
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Marketing Mix
• Employees are particularly important in service marketing.
• Front-line staff must be selected, trained and motivated with particular attention to customer
People care and public relations.
• In some services, the physical presence of people performing the service is a vital aspect of
customer satisfaction.

• Efficient processes can become a marketing advantage in their own right

Processes • If an airline, for example, develops a sophisticated ticketing system, it can offer shorter waits at
check-in or a wider choice of flights through allied airlines.

Physical • The customer has no evidence of ownership and so may find it harder to perceive, evaluate and
compare the qualities of service provision, and this may therefore dampen the incentive to

Evidence consume.

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 Pricing Strategy
Costing strategies include:
There are four key considerations (the
‘4Cs’) when deciding the price of a
▪ Cost plus pricing
product:
▪ Penetration pricing (charging lower price)
▪ Price discrimination (different prices set for same product)
Cost – the price must be high enough
▪ Going rate pricing (prices are set to match competitors)
to make a profit.
▪ Price skimming (high prices are set when a new product is
Customers – what are they willing to
launched)
pay?
▪ Loss leaders (one product may be sold at a loss with the
Competition – is our price higher
expectation that customers will then go on and buy other more
than competitors?
profitable products.)
Corporate objectives – e.g. the price
▪ Captive product pricing (this is used where customers must
could be set low to gain market share.
buy two products.)

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 Product Strategy
Product definition – The main issue regarding product is to define exactly what the product should be.

Product positioning – With all of these factors the question of product positioning is critical – how does our
product compare with the offerings of competitors? Is our product better? If so, in what way?

Product can further be analyzed as :

▪ The core product – what is the buyer really buying?
▪ The actual product is the tangible product or intangible service that serves as the medium for receiving core
product benefits
▪ The augmented product consists of the measures taken to help the consumer put the actual product to
sustained use, including installation, delivery and credit, warranties, and after-sales service.

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Promotional Strategy
Promotion is essentially about market communication. The primary aim is to encourage customers to buy the
products by moving them along the AIDA sequence:

▪ Advertising – e.g. placing adverts on TV, in newspapers, on billboards, etc.

▪ Sales promotion techniques – e.g. ‘Buy one get one free’.
▪ Personal selling – e.g. door-to-door salesmen.
▪ Public relations (PR) – e.g. sponsoring sports events.

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Strategic Marketing
Strategic analysis of the firm and its business environment
Marketing analysis will include:
▪ analysis of brand strength, product quality, reputation, etc.
▪ analysis of competition
▪ market research to determine market attractiveness
▪ detailed analysis of customer expectations and power.

Strategic choice
Marketing decisions will include:
▪ decisions regarding which products to sell
▪ segmenting potential markets (e.g. by age) and then targeting attractive segments
▪ developing strategies for each of the marketing mix variables.

Strategy implementation
Implementing marketing strategies will include:
▪ setting budgets for advertising, etc.
▪ setting targets for sales revenue, market share, brand awareness, etc.
▪ monitoring and control.
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END OF CHAPTER

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