Chapter 3

Organisational structure and business

forms
Organisational structure:
Organisational structure: Formed by the grouping of
people into departments or sections and the allocation of
responsibility and authority, organisational structure sets
out how the various functions (operations, marketing, HR,
finance etc) are formally arranged.

-Finance Dept
-Operations Dept
-Marketing
-Production
-Board Secretariat % Share Dpt.
-HR etc.
OS_ Pyramid vs Reverse
Pyramid

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 Organisational structure: Purpose

(i). Link individuals in an established network

(ii). Allocate the tasks to be done

(iii). Give each individual or group the authority required

(iv). Co-ordinate the objectives and activities of separate

groups

(v). Facilitate the flow of work, information and other

resources

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 Building blocks and co-ordinating mechanisms of
organisational structure:

(Mintzberg suggests that all businesses can be analysed into six 'building
blocks‘)

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• (i). Operating core People directly involved in the process of obtaining inputs,
and converting them into outputs, i.e. direct operational staff.

• (ii). Middle line Conveys the goals set by the strategic apex and controls the
work of the operating core in pursuit of those goals, i.e. middle and first-line
managers.

• (iii). Strategic apex Ensures the organisation follows its mission. Manages the
organisation's relationship with the environment. Top managers. Support staff
Ancillary services such as PR, legal counsel, the cafeteria and security staff.

• (iv). Support staff do not plan or standardise operations. They function

independently of the operating core.

• (v). Techno-structure Analysts determine and standardise work processes and

techniques. Planners determine and standardise outputs (e.g. goods must
achieve a specified level of quality). Personnel analysts standardise skills (e.g.
through training programmes).
• (vi). Ideology Values, beliefs and traditions, i.e. the business culture

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 Classical principles of
organisational structure (Henri
• Division of work
Fayol)
• Scalar chain
• Correspondence of authority and responsibility
• Appropriate centralisation
• Unity of command (for people)
• Unity of direction (for the organisation)
• Initiative
• Subordination of individual interests
• Discipline
• Order
• Stability of personnel
• Equity
• Remuneration
• Esprit de corps (Harmony & Team) 6
Modern approaches to organisational
structure
• Multi-skilling. Contrary to the idea of specialisation,
multi-skilled teams (where individuals are trained to
perform a variety of team tasks, as required) enable
tasks to be performed more flexibly, using labour more
efficiently.

• Flexibility. This is perhaps the major value in modern

management theory. Arising from the competitive need
to respond swiftly (and without organisational trauma)
to rapidly-changing customer demands and
technological changes, organisations and processes
are being re-engineered to flexible structures such as
the following:

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Communicating the organisational
structure
(i). Organisation chart/Organogram
(Pictorial representation of the structure)

(ii). Organisation manual (Organisation

manual)

(iii). Job description (Includes

responsibilities, authority and work
involved)

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Types of business structure
1. Entrepreneurial structure (Entrepreneur has
specialist knowledge of product/service)
2. Functional structure (bureaucratic structure, led by
functional designation)

3. Divisional structure (Led by divisional head)

4. Matrix structure (2 dimensional responsibility

design)

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 Centralisation vs. Decentralisation vs
Distribution
It can be Geographical way or Authority Basis

Generally, centralisation offers greater control and co-

ordination, while decentralisation offers greater flexibility
as authority is delegated.

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 Factors affecting the degree of
decentralisation
(a). Leadership style: if it is authoritative, the business will be more
centralised

(b). Size of organisation: as size increases, decentralisation tends to

increase

(c). Extent of activity diversification: the more diversified, the more

decentralised

(d). Effectiveness of communication: decentralisation will not work if

information is not communicated downwards

(e). Ability of management: the more able, the more decentralisation

(f). Speed of technological advancement : lower managers are likely to be

more familiar with changing technology, therefore decentralise.
(g). Geography of locations: if spread, decentralise .. 11
 Span of control: Tall vs. Flat
businesses
Span of Control: The number of people (subordinates)
reporting to one person.

Scalar chain: The chain of command from the most senior to

the most junior.
Tall business: One which, in relation to its size, has a large
number of levels in its management hierarchy, normally
because there are narrow spans of control.
Flat business: One which, in relation to its size, has a small
number of hierarchical levels, normally because there are
wide spans of control.

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 Mechanistic (bureaucracy) vs. Organic
structures
Bureaucracy: 'A continuous organisation of
official functions bound by rules.
Organic structures: have their own
control mechanisms.

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 Form of Business
1. Sole proprietorship form
1. Sole proprietorship form

2. Partnership form

3. Companies form

4. Alliance form:
-Holding Company
-Subsidiary
-Associate
- Joint ventures
-Licences / KFC
-Strategic alliances/
-Agency or a group structure/ H vs S
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 Joint ventures
A joint venture (JV) is a business
arrangement in which two or more parties
agree to pool their resources for the
purpose of accomplishing a specific task.
This task can be a new project or any other
business activity

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 Licences Vs Strategic
Alliance
A licensing agreement is a permission to
another company to manufacture or sell a
product, or to use a brand name.

A strategic alliance is an informal or weak

contractual agreement between parties or a
minority cross shareholding arrangement (a
cross-shareholding is where each party takes
a small number of shares in the other parties).
Normally no separate company is formed.

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 Agent Vs Group
Agents: can be used as the distribution channel where
local knowledge and contacts are important.

Group: As companies are entitled to own shares,

groups of companies may form. In its simplest form,
a group of companies might look.

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Practice :
Q. What is the difference between the parent and
subsidiary company? [ 51%]

Q. ABC Corporation acquired XYZ Company and took over

its assets, at the same time dissolving XYZ Company. This
type of business combination is considered as ?
a) Consolidation
b) Merger /
c) Pooling of interests
d) Subsidiary

Q. Horizontal integration is the combination of companies in

the same business lines and markets.
a)True
b)False ?
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Q. It is frequently less expensive for a company to obtain
needed facilities through development than > through
business combination.
a)True
b)False ?

Q. A merger occurs when one corporation takes over all

the operations of another company, and that company is
dissolved

a)True
b)False ?

Q. The first step in recording an acquisition is to

determine the fair values of only the liabilities assumed in
the combination.
a)True
b)False ? 19
Q. Business combination is a form of business external
expansion.
a)True
b)False ?

Q. Non-controlling interest (NCI) is the equity in a

subsidiary not attributable, directly or indirectly, to
a parent.

a)True
b)False ?

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Q. Grouping of marketing activities into
areas of specialization such as
advertising, sales, marketing comes
under concept of …..

•Product approach,
•functional approach,
•geographical approach,
•customer approach
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Q. A network of social relationship
that arises spontaneously due to
interaction at work is called ?

Formal Organization
Informal Org
Delegation
Decentralization
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• Under what type of organizational
structure, manpower is grouped on the
basis of different product
manufactured ?

• Divisional str
• Functional Str
• Network Str
• Matrix Str
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Q. Which of the following does not
follow the scalar chain ?

Functional structure
Informal Str
Formal Str
Divisional

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Associates ….

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