Topic 7 – Business structures Higher Business Management 1
Topic 7 – Business structures
Higher Business Management
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Learning Intentions / Success Criteria
Learning
Intentions
Business
structures
Success Criteria
Learners should be aware of business structures
available to an organisation, be able to describe these
structures, give reasons for using each one and give
any drawbacks to the structure:
• tall and flat management structures
• centralised and decentralised management structures
• matrix management structure
• entrepreneurial management structure
• staff groupings such as function, location, product
and customer.
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Tall (Hierarchical) Management
Structure • Hierarchy system - different levels of
authority and responsibility, those with the least amount of authority and responsibility at the bottom of the organisation and those with the most at the top.
• Commands flow down from the decision-makers at the top of the organisation to the workers at the bottom know as chain of command.
• Many layers of management.
• Takes a long chain of command; it will take time for instructions and information to pass through the structure.
• Suited to large organisations with many specialised departments.
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Advantages/Disadvantages of Tall
(Hierarchical) Management Structure
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Advantages
• Each staff member knows their
role and who to report to.
• With many levels come many
promotion opportunities which
can motivate staff.
• There is a narrow span of
control which means:
- managers have more time for
planning, supervision and
decision-making
- managers can support
subordinates.
Disadvantages
• Communications take time to
flow down though the levels,
which slows down decision-
making.
• The organisation can be slow to
react to changes in the market.
• The narrow span of control
means:
- managers supervise work more
closely, which can put staff under
pressure
- managers have fewer staff to
share ideas with.
Flat Management Structure
• Commands flow from top to bottom.
• Fewer layers of management
• Has a shorter chain of command; it will take less time for instructions and information to pass through the structure.
• Because there are fewer layers of management compared to tall structures, the cost of management salaries will be less.
• Suited to small to medium sized organisations.
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Advantages/Disadvantages of Flat
Management Structure Advantages
• Information can be communicated quickly between levels.
• The organisation can respond quickly to external (PESTEC) factors, such as competition.
• There is a wide span of control which means:
- managers have to delegate tasks to staff which can raise morale as staff feel trusted
- staff are empowered to make decisions themselves.
Disadvantages
• Fewer levels means fewer
promotion opportunities so
quality staff may leave to gain
promotion in larger organisations.
• As there are less management
levels, staff may be delegated
more tasks, which could put them
under pressure.
• The wide span of control means:
- Managers’ time is at a premium
which can lead to snap decisions
- Less time for planning
- Subordinates may have no one to
seek help from.
Delayering
Removing one or more
levels of management
from a tall structure, to
make it flatter.
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Advantages/Disadvantages of
Delayering Advantages
• Money is saved on paying the salaries of the management level that is removed.
• Quicker decision-making and communication are possible as there is a shorter chain of command.
• The organisation can be more responsive to changes in the market as there are fewer levels for information to pass through up to the decision makers.
• There is a wider span of control.
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Disadvantages
• There are fewer promotion
opportunities for staff.
• Redundancy payments will
cost the organisation a
significant amount of
money.
• The organisation will lose
key members of staff in the
restructure.
Centralised Management Structure
• Decision-making and control is kept at the
very top level of a centralised organisation.
• In organisations with many branches this
means important decision-making being
retained within head office and the senior
management, directors or owners that work
there.
• This structure is often associated with tall
(hierarchical) structures. In a plc, for
example, decisions might be made by
managers at the head office rather than
managers in different branches.
• Employees at various levels of the hierarchy
are not consulted about decisions being
made which can result in them becoming
demotivated.
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Advantages/Disadvantages of
Centralised Management Structure Advantages
• A high degree of corporate identity and strategy exists as decisions are made for the whole organisation.
• Procedures are standardised which ensures consistency.
• There is low risk of important information leaking from branches or departments.
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Disadvantages
• Less responsibility is given
to subordinates which can
result in demotivated staff.
• Decisions will not reflect
the needs of local markets.
• The organisation will react
slowly to external
(PESTEC) factors, such as
the competition improving
their product range.
Decentralised Management
Structure • Decision-making and control is delegated to
individual branches or departments.
• Associated with a flat structure and because
people at different levels of the hierarchy are
involved in decision-making, it can motivate
them.
• Best used in retail chains that need to respond to
the needs of their local markets, such as
supermarkets. While the overall strategy of an
organisation such as Tesco will still be
centralised, many decisions will be centralised,
such as buying and selling local products and
advertising in the local area.
• It can be harder to ensure consistency across the
organisation (e.g. departments might make
decisions to suit their own needs there than those
of the whole organisation) whereas a centralised
structure would achieve this consistency. 11
Advantages/Disadvantages of
Decentralised Management Structure Advantages
• The business reacts quickly to
change external (PESTEC)
factors.
• Decisions are made quickly as
local managers don’t need to
consult senior managers before
implementing decisions.
• More subordinates are
empowered which encourages
creativity.
• Senior management at head office
are relieved of the burden of
constant decision-making.
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Disadvantages
• The organisation can lose
an overall corporate
image if each
department/branch is
operating differently.
• Local branches could start
to compete with each
other if they are allowed
to make key decisions.
Matrix (or project-based)
Management Structure • This is when a specific task or project is to be
carried out.
• People from across the organisation will come
together from various departments.
• When the task or project has been completed, the
matrix structure will become obsolete.
• A project or team leader will be appointed to
provide leadership to the task or project being
undertaken.
• Employees may find this task motivating as they
have to work with people from across the
organisation.
• It gives employees the opportunity to learn new
skills, by participating in a project or task, but it
can be costly to implement and for the organisation
to coordinate.
• Employees may find having two managers (e.g.
from their own functional area as well as for the
matrix structure) confusing.
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Advantages/Disadvantages of Matrix (or
project-based) Management Structure
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Advantages
• Each team has
specialised staff from all
functional areas.
• Complex problems can
be solved.
• Staff can use their
expertise and as such
have satisfaction and
motivation.
Disadvantages
• Many managers across
all project teams will
mean high wage costs.
• Duplication of resources
such as administration
staff and equipment.
• Staff can be confused as
to who to report to.
Entrepreneurial Management
Structure • Often found in smaller
organisations.
• Decisions are made by the owner
(or certain managers) with very
little input from employees.
• This means decisions can be made
quickly because employees are
not involved in the process, but
reduces employees' motivation.
• It also means that good ideas or
creative solutions to problems are
not considered because employees
have not been consulted.
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Advantages/Disadvantages of
Entrepreneurial Management Structure
Advantages
• Decisions are made
quickly as there is little
consultation.
• Staff know who they
need to report to.
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Disadvantage
• This structure can create a
heavy workload for the
main decision maker.
• If the owner is busy or not
available, key decisions
can’t be made.
• Other staff don’t get a
chance to show initiative,
stifling creativity and
possibly demotivating some
staff.
Organisational groupings
As well as using a management structure such as tall,
flat or entrepreneurial, organisations can group their
activities in a number of different ways. The following
are different types of groupings:
• Functional
• Location/Geographical
• Product/Service
• Customer.
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Functional grouping
• Grouping an organisation into
departments based on skills and
expertise.
• The main functional areas of most
organisations are marketing, finance,
operations, human resources and also
supported by administration and IT
departments.
• People can contact specific
departments if they require specialist
advice or help.
• Clear lines of authority exist between
subordinates and managers, and
everyone will usually have clearly
defined tasks and duties to carry out.
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Advantages/Disadvantages of
Functional grouping Advantages
• Staff with similar skills and
expertise are together,
allowing for specialisation,
i.e. each department
becomes excellent at what
it does.
• Staff know who to report
to and can get guidance
from more experienced
staff in their area of
expertise.
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Disadvantages
• The organisation can become too large to
manage if functional departments grow
rapidly.
• Functional grouping is often coupled
with a centralised management structure
so communication can take a while to
filter through to functional departments,
causing slow reactions to external
(PESTEC) factors.
• Functional departments can be more
interested in their own objectives rather
than the organisation’s objectives as a
whole.
Location/Geographical grouping
• Grouping an organisation into
geographical divisions.
• Each division will operate to serve
customers in a particular location.
• Organisations can become familiar
with the needs of customers and
different cultures that exist in
different locations.
• Technology can be used to
communicate with staff in different
locations (e.g. video conferencing),
though this can be expensive.
• Duplication of resources can be a
downside to this structure.
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Advantages/Disadvantages of
Location/Geographical grouping Advantages
• Each division can meet the needs
of it local market, e.g. different
tastes or fashions in different
areas or countries.
• The business can react to
changing external (PESTEC)
factors quickly.
• It is easy to identify a failing
‘area’ and hold regional managers
accountable.
Disadvantages
• Duplication of resources, such as
administration staff or computer
equipment, across each group is
inefficient.
• Divisions may compete against
each other and forget the overall
objectives of the organisation as a
whole.
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Product/Service grouping
• Grouping an organisation into divisions that
deal with different products or services.
• Each department concentrates on one specific
product, which results in specialist knowledge
of each product.
• Able to respond quickly to changes in the
market, but if their product is not performing
well, this is easily identifiable to managers.
• If the organisation introduces a new product,
new employees need to be employed.
• There may also be rivalry between different
departments that can be counterproductive to
working relationships within the organisation.
• Line relationships (who an employee reports
to) in product groupings may not be as clear
as more traditional, functional structures.
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Advantages/Disadvantages of
Product grouping Advantages
• The advantages can react to
changing external (PESTEC)
factors that affect each particular
group’s market quickly.
• It is easy for management to
identify struggling
products/services.
Disadvantages
• Duplication of resources can
occur.
• A new group need to be set up
every time the business launches a
new product – meaning more
staff, equipment and premises
costs.
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Customer grouping
• Grouping the organisation’s
resources into divisions that each
deal with a different type of
customer.
• Products can be marketed towards
each specific customer group.
• The organisation can build up
loyalty with their customers
because activities are focused on
the specific customer group, and
therefore a higher level of
customer service is achieved.
• High staffing costs can be a
disadvantage of this type of
structure.
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Advantages/Disadvantages of
Customer grouping Advantages
• Each group can tailor its
product or service to its own
type of customer.
• Customer loyalty can build
up due to the high level of
personal service that can be
achieved.
Disadvantages
• Duplication of resources can
occur.
• This is only suitable for
large businesses, with many
customers types/segments
that are of sufficient size. It
is inefficient to offer a group
for a small customer
segment.
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