Thursday, August 23, 2012

Contemporary Organisations can be structured in a variety of ways to meet their objectives. With reference to current business practice, academic models and theory, critically examine current influences on organisational structure and design’

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The following essay will first attempt to define exactly what is meant by organisational structure before analysing the complex internal and external influences that impact upon the strategy and structure an organisation will eventually adopt to deal with the problems they will face. This will be done using both real life examples as well as the theory that supports it to identify the potential sources of success and failure of which both profit and non-profit organisations should be aware.

Within the business and academic world there are a number of definitions that attempt to define exactly what an organisation is, however for the purposes of this essay it can be seen as

‘a social arrangement for achieving performance in pursuit of collective goals’ Huczynski and Buhcanan (001) p.5

These goals can vary greatly depending on the exact nature of the organisation, such as whether it is private sector (profit motivated) or public sector (aiming to provide a service to justify tax spending) as well as whether it is a production or

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service organisation. Contemporary or modern organisations can therefore be structured and designed in a number of different ways to meet their goals.

Huczynski and Buchanan (001) p.447 define organisational structure as

‘the formal system of task and reporting relationships that controls, co-ordinates and motivates employees so that they work together to achieve organisational goals’

In effect this means that the aim of the organisations structure should be to support the direction it wishes to take by allowing effective communication and co-operation from all its employees. As this definition shows structure is also an important aspect in the motivation of employees. Often it can be a vital factor in allowing employees, particularly those at lower levels (e.g. on the shop or factory floor), to feel valued and that there ideas/decisions are being considered. A desired consequence of this will be a positive impact upon their performance and there consequent relationships with the customers.

Child (184) identifies five aspects that are important to consider when looking at the structure of an organisation namely, specialisation, hierarchy, integration control, and grouping. Specialisation is concerned with the skills of the companys employees in terms of the variety of jobs they will perform. A more specialised workforce, which are usually found in larger organisations, will be assigned specific roles within the organisation where as a less specialised workforce will be asked to carry out a number of jobs that require a varying range of skills.

Hierarchy refers to the number of levels of authority that are found within an organisation. An organisation with a flat hierarchy will have only one or possible two levels separating its managing director at the top from its employees on the shop or factory floor and this can have its benefits and problems. As well as reducing Personnel costs, flattening the hierarchy of an organisation can also help to speed up the communication process between employees and there managers by reducing the number of levels that the information needs to pass through. The disadvantage is that there is increased responsibility on the current managers that can lead to demotivation problems if they feel they are being overworked. Conversely an organisation with an extended hierarchy, such as the catholic, may have up to five levels between its most senior and lowest employees, in the case of the catholic church there is - the parish, bishop, archbishop, cardinal and the Pope.

Lawrence and Lorsch cited in Huczynski and Buchanan (001) use the term integration to refer to

The process of achieving unity of effort among the previously differentiated sub-systems in order to accomplish the organisational task

Differentiation in a business sense is the arrangement of individual jobs or tasks and so in effect integration is the way in which information is communicated between these different groups and/or departments within the organisation. This integration aspect of structure becomes increasingly important as the size of the company increases in order to ensure that all employees continue to work towards a common goal. Integration is equally important in a marketplace where environmental uncertainty is high, as communication of any external changes is required to be delivered quickly and clearly throughout the organisation in order to ensure that the correct strategy is being employed.

Control is another important aspect of organisational structure and helps to prevent unwanted behaviour from employees that may effect the efficiency of the way it is run. An important question that needs to be answered however when designing a structure is how much control to retain over employees and how much freedom should be given for them to make their own decisions. This means that this aspect is not as simple as it may at first appear, as issues such as who retains ultimate responsibility and accountability for decisions made by all employees is a difficult one and therefore a number of managers may be wary of allowing decisions to be made for them.

The final aspect of structure identified by child is that of grouping. Organisations can group their employees in numerous ways. The traditional product and functional based methods explained within this essay as well as geographical grouping, where employees of different and complementary skills are co-ordinated in a particular location (e.g. A field office) are three such ways.

In order to first show the full importance of an appropriate structure and design within an organisation, the problems that an inappropriate structure can cause will first be highlighted. The first of these problems, as previously stated, is that of motivation, which could be affected by lack of clarity as to what is expected of people, the perception that they have little responsibility and recognition and the fact that some employees could become overworked as they have no efficient way of communicating with others to tell them what they require. A large US financial services company was one such organisation that had this problem of demotivation, which could have been avoided had they paid more attention to the way they were structured and operated. After a period of sustained growth for their business, client numbers began to decline and in an attempt to restructure it was rumoured that a number of people would be made redundant, this unfortunately lead to demotivation amongst the staff and when people where eventually laid off many sued claiming they had been discriminated against.

An inappropriate structure can also mean that necessary information is not transmitted to the people who need it on time, decision makers are overloaded and there is no way to evaluate decisions made in the past leading to a delay in the decision- making process and a lack of quality and faith in these decisions. A final problem of that could be encountered if a deficient structure is in place is a possible lack of co-ordination and conflict within the organisation both as a whole and within the individual departments. This would be down to the fact that each department would be aiming to achieve in their own individual goals and priorities, which would often conflict with each other, causing them to lose sight of the goals set out by the organisation. A combination of these problems would for most organisations lead to increasing costs and a resultant loss in profits for those in the private sector and drop in the quality of service for those in the public sector, which if long term could prove fatal.

Up until approximately the last decade organisations had been structured in traditional ways depending on the type of business they are in, namely either Functional or Product Based. A functional structure is one that is based on groupings of the major functions within the business such as production or sales (Appendix 1a). This type of structure allows organisations to utilise necessary skill sets when they are required as each group is instantly available. It also provides employees with good opportunities for career development and promotion thus aiding in their motivation. However a functional structure can lead to conflicting issues between the different groups, as well as making it difficult to adjust to any product diversification that the company may wish to achieve.

Conversely a product based structure (Appendix 1b) is one in which the organisation divides its workforce into groups that work on individual products or product ranges depending on the size of the organisation. Each group would carry its own functional specialisms and this form of structure has become popular with those who provide a large number of products or services such as the NHS (National Health Service) in the United Kingdom. A product-based structure allows for greater diversification in the number of products and/or services they can offer and also allows an organisation to cope better with external environmental changes than a typical functional structure. Despite these advantages conflict between departments can still occur, without strong management at higher levels, with each product group/team attempting to promote their own work to the detriment of others.

In recent years these traditional structures are being modified greatly and in some cases completely re-invented as structures within contemporary organisations are increasingly arising in a direct response to the influences of both external and internal factors. In fact the levels of turbulence within the market place in which a company operates can have a significant influence on the structure that is adopted as a rapidly changing environment, such as the airline industry, will require the company to be more flexible. An organic rather than a mechanist structure would therefore need to be deployed. These external factors, which will impact upon an organisations strategy and its resultant structure, can be examined in detail using the well-recognised PESTLE analysis that is comprised of political, social, technological, legal and ecological issues.

At some point each of these factors will impact upon both the formal and informal systems that operate within the organisation, although as this essay will highlight some will have a greater influence than others. Often these PESTLE factors are even interrelated, operating in a series complex ways to trigger organisational change.

Of these external factors many consider that the social and economic issues will have the most significant impact upon the structure of an organisation. Hannagan (18) p.7 states that

“If disposable income falls, consumers will continue to buy necessities, but will reduce spending on luxuries”

Along with the influence of social trends, this means that demand for certain luxury products, such as certain styles of video recorder or television sets, can vary greatly. Therefore an organisation needs to be aware of the potential future sales levels for the product/service they offer and be structured accordingly to any adjust changes.

The behaviour of competitors is a further economic factor that needs to be considered as being able to adjust to new product releases and changes in competitor strategy (including technological innovations that may allow them to improve their operations) can mean the difference between success and failure, particularly in oligoloplistic marketplaces that contain a large number of highly-competitive, profit making firms.

An equally important social factor to consider when designing and implementing a structure is the availability of required skills in the local community, or nationally for larger organisations, which will have an impact upon the amount of control they wish to retain over their employees. In regions or countries where higher skilled employees are available they may be more inclined to allow staff at lower levels (e.g. the shop floor) the authority to make minor decisions concerning issues such as refunds and faulty product returns than lower skilled staff. For example a multi-national company such as Nike would be perfectly happy to allow an employee in a UK high street to use their own judgement on certain issues but more wary to allow an employee on a factory on an LEDC, (less economically developed country) such as India or China to take decisions on its operation.

From a political and legal stand point government policies, including health and safety regulations, as well as the effects of taxation will need to be considered to ensure that they can be effectively communicated throughout the company. This would be particularly important in the air transportation business where a failure to communicate clearly could result in catastrophic consequences and the demise of the organisation. Closely related to these politics are the ecological issues and related external pressure groups, Greenpeace being the most widely known, that need to be considered as in certain cases they can be extremely influential when it comes to the publics opinion of an organisation.

As was previously mentioned as well as the external influences on an organisation there are also a number of influences that originate from within the company (internally) that may affect the way it is structured and designed.

Technology within the organisation is one such internal factor, as the quality and availability of technology to employees and management can greatly aid or hinder integration (communication) by allowing information to be gathered and distributed effectively and quickly to the employees who require it when they require it. This becomes increasingly important as an organisation increases in size as suitable use of this technology can allow people who work together to not necessarily have to be in the same room or even building and so as well as saving on travel expenses employees can be situated in a workplace nearer to the materials they require or their customers.

Organisational culture is the characteristic spirit and belief of an organisation (Torrington and Hall, 18 p.88)

It incorporates issues such as beliefs about how people should treat each other and behave, attitudes to internal changes and the nature of working relationships. Very much related to structure culture is developed over an extended period of time, unlike structure however it can be difficult to change. An example of a company with a strong link between its culture and structure is the advertising agency St Lukes. St Lukes, which is very much a contemporary organisation, was founded in 15 and operates a number of flexible working practices designed to ensure that employees continue to think creatively or “out of the box” when designing solutions to problems. Within St Lukes employees do not have their offices or desks and instead are encouraged to plug their own personal laptops into the nearest available socket. Monthly reviews are also held where by employees are invited to discuss openly and honestly any problems they may have with their own or a colleague’s work. These flexible philosophy and structure is very much ingrained into of St Lukes and new employees must therefore learn to accept “the way things are done”.

A study by the Aston team (Cited in Cole 000) in the late nineteen-sixties also identified that the size of an organisation will have an effect on the way it is structured. In this study it was determined that once an organisation increases in size to a stage beyond that at which it can be controlled by personal interaction more specialisation, standardisation and formalisation and less centralisation will be present. These changes are often necessary in order to ensure that an organisation can continue to retain sufficient control over its employees and that sufficient skills are available in the workforce to cope with increasing demand.

This essay has shown that there is numerous external and internal influences on the way an organisation may structure itself in order to achieve success in their own market. It has also shown that when it comes to designing and implementing these structures, although there is no one right or wrong answer as to what will work and what will not, an organisations structure should arise to support the strategy and direction it wishes to take and be constantly evolving, rather than fixed, in order to adjust to any new variables they may need to be considered. If an insufficient structure is being implemented within an organisation however the consequences can be extremely severe possibly even resulting in the failure of the entire business.


Online Newsletter - Managing change

http// (Accessed 8th December 00)

Burnes (000) - Managing Change - A Strategic Approach To Organisational Dynamics - Prentice Hall

Carnall (1) - Managing Change In Organisations rd Edition - Prentice Hall

Cole (16) - Management Theory And Practice 5th Edition - DP Publications

Hannagan (18) � Management Concepts And Practices nd Edition � London Pitman Publishing

Huczynski and Buchanan (001) � Organisational Behaviour An Introductory Text 4th Edition � Essex Pearson Education Limited

Jackson and Schuler (000) - Managing Human Resources-A Partnership Perspective 7th Edition - Dave Shaut

Senior (17) - Organisational Change- Prentice Hall

Torrington and Hall (18) - Human Resource Management 4th Edition - Hertfordshire Prentice Hall

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