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Organization Structure
And

Chp. 7

Introduction;

Strategic leadership sets the firms direction by developing and

communicating vision of future, formulate strategies in the light of internal
and external environment, brings about changes required to implement
strategies and inspire the staff to contribute to strategy execution.

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LEADERSHIP STYLE
A manager as a strategic leader has to play many leadership roles to
play: Visionary
Policy Maker
Motivator
Culture Builder
Resource Acquirer and Allocator
Crisis Manager

LEADERSHIP STYLE
Q.9 (b) (May 2018)
Ram and Shyam are two brothers engaged in the business of spices.
Both have different approaches to management.
Ram prefers the conventional and formal approach in which authority is
used for explicit rewards and punishment.
While, on the other hand, Shyam believes in democratic participative
management approach, involving employees to give their best.

Analyse the leadership style followed by Ram and Shyam. (5 Marks)

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LEADERSHIP STYLE

Transformational Transactional
Leadership Style Leadership Style

Transformational Leadership style

 Such a leadership motivates followers to do more than
originally affected to do by stretching their abilities
and increasing their self-confidence, and also
promote innovation throughout the organization.

 Uses charisma and enthusiasm to inspire people to exert them for the
good of the organization.
 Transformational leadership style may be appropriate in turbulent
environments.
 In industries at the very start or end of their life-cycles.
 In poorly performing organizations when there is a need to inspire a
company.

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Transactional Leadership style

 It prefer a more formalized approach to motivation,
setting clear goals with explicit rewards or penalties
for achievement or non-achievement.

 Focuses more on designing systems and controlling the organization’s

activities and are more likely to be associated with improving the
current situation.

 Transactional leadership style may be appropriate in static

environment.

 In mature industries, and in organizations that are performing well.

 It is suitable for well performed organizations.

ORGANISATION STRUCTURE
Introduction:
A competitive advantage is created when there is a proper match
between strategy and structure.

Selecting the organizational structure and controls that result in effective

implementation of chosen strategies is a fundamental challenge for
managers, especially top-level managers. C or IC (ans. 7.3)

In today’s emerging business scenario, skills related to strategic,

organizational and leadership processes are necessary.

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ORGANISATION STRUCTURE
Changes in corporate strategy often require changes in the way an
organization is structured for two major reasons.

Structure largely dictates;

1. How operational objectives and policies will be established to achieve

the strategic objectives?

2. How resources will be allocated to achieve strategic objectives?

ORGANISATION STRUCTURE
The ideal organizational structure is a place where ideas filter up as well
as down, where the merit of ideas carries more weight than their source,
and where participation and shared objectives are valued more than
executive order.
– Edson Spencer

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ORGANISATION STRUCTURE
According to Chandler,

Changes in strategy lead to changes in organizational structure.

Structure should be designed or redesigned to facilitate the strategic

pursuit of a firm and, therefore, structure should follow strategy.

CHANDLER’S STRATEGY-STRUCTURE RELATIONSHIP

Organizational
New Strategy is New administrative
performance
formed problems emerge
declines

Organizational New organizational

performance structure is
improves established

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ORGANISATION STRUCTURE
Every firm is influence by numerous external and internal forces. But no
firm could change its structure in response to each of these forces,
because to do so would lead to disorder (chaos).

However, when a firm changes its strategy, the existing organizational

structure may become ineffective.

ORGANISATION STRUCTURE
Symptoms of an ineffective organizational structure include;

 Too many levels of management,

 Too many meetings attended by too many people,
 Too much attention being directed toward solving interdepartmental
conflicts,
 Too large a span of control, and
 Too many unachieved objectives.

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ORGANISATION STRUCTURE

Changes in organisational structure can facilitate strategy-implementation

efforts,
but changes in structure should not be expected to make a bad strategy 
good , to make bad  managers good , or to make bad  products
sell.

Structure can also influence strategy.

Organizational structure is the company’s formal configuration of its;

 Intended roles,
 Procedures,
 Governance mechanisms,
 Authority, and
 Decision-making processes.

Organizational structure, influenced by factors such as an organization’s

age (BLC) and size (LS, MS & SS).

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ORGANISATION STRUCTURE
If a proposed strategy required massive structural changes it would not
be an attractive choice. In this way, structure can shape the choice of
strategy. (Forward & Backward Linkages) Chp. 8 (8.6)

But a more important concern is determining what types of structural

changes are needed to implement new strategies and how these changes
can best be accomplished.

ORGANISATION STRUCTURE
 Simple Structure,  SBU Structure,

 Functional Structure,  Matrix Structure,

 Divisional Structure,  Network Structure,

 Multi-Divisional Structure,  Hourglass Structure,

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O & Mgr.
Simple Structure Executor Executor

 Simple organizational structure is most appropriate for companies that

follow a single - business strategy and offer a line of products in a
single geographic market.

 A simple structure is an organizational form in which the owner-

manager makes all major decisions directly and monitors all activities,
while the company’s staff merely serves as an executor.

Simple Structure

 The simple structure also is appropriate for companies implementing

focused cost leadership or focused differentiation strategies.

 To coordinate more complex organizational functions, companies should

abandon the simple structure in favour of the functional structure.

 The functional structure is used by larger companies and by companies

with low levels of diversification.

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Functional Structure

 A widely used structure in business

organisations is functional type because of its
simplicity and low cost.

 Besides being simple and inexpensive, a functional structure also

promotes specialization of labour, encourages.

Functional Structure

 The functional structure consists of;

• CEO or MD,
• Corporate Staff &
• Functional Managers.

 The functional structure enables the company to overcome the growth-

related constraints of the simple structure,(&) enabling or facilitating
communication and coordination..

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Functional Structure

 However, compared to the simple structure, there also are some

potential problems.

 Differences in functional specialization and orientation may delay

communications and coordination.

 Thus, the chief executive officer must integrate functional decision-

making and coordinate actions of the overall business across functions.

Functional Structure

 Functional specialists often may develop a narrow perspective, losing

sight of the company’s strategic vision and mission.

 When this happens, this problem can be overcome by implementing the

multidivisional structure.

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Divisional Structure

E.g. Hindustan Unilever Limited,

Unilever Pakistan Limited, etc…

Divisional Structure

Introduction:

 As a firm, grows year after year it faces difficulty in managing different

products and services in different markets.

 Some form of divisional structure generally becomes necessary to

motivate employees, control operations, and compete successfully in
diverse locations.

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Divisional Structure

 The divisional structure can be organized in one of the four ways;

• By Geographic Area,
• By Product or Service,
• By Customer, or
• By Process.

 With a divisional structure, functional activities are performed both

centrally and in each division separately.

Divisional Structure

 A divisional structure by geographic area is appropriate for

organizations whose strategies are formulated to fit the particular needs
and characteristics of customers in different geographic areas.
E.g. HUL.

 The divisional structure by product (or services) is most effective for

implementing strategies when specific products or services need special
emphasis.
E.g. General Motors, P & G (Procter & Gamble), etc…

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Divisional Structure

 A divisional structure by customers airline companies have two major

customer divisions: passengers and freight or cargo services.
 Banks are often organised in divisions such as personal banking
corporate banking, etc..

 A divisional structure by process is similar to a functional structure.

Divisional structure accountable for profits or revenues. Whereas functional
departments are not accountable for profits or revenues.

Advantages of Divisional Structure;

• Accountability,

• Career development opportunities for managers,

Employee morale is generally higher in a divisional structure than it is in

centralized structure.

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Limitation of Divisional Structure;

 Divisional structure is costly,

• Each division requires functional specialists who must be paid.

• Second, there exists some duplication of staff services, facilities, and
personnel.
• Third, managers must be well qualified because the divisional design
forces delegation of authority better-qualified individuals requires
higher salaries.

 Difficult to maintain consistency.

Multi Divisional Structure

Introduction:

Multidivisional (M-form) structure is composed of operating divisions

where each division represents a separate business to which the top
corporate officer delegates responsibility for day-to-day operations and
business unit strategy to division managers.

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Multi Divisional Structure

Example:

DuPont is an American conglomerate Virgin Group Ltd. is a British multinational

that was founded in July 1802. venture capital conglomerate founded in
February 1970.

Multi Divisional Structure

 Multidivisional or M-form structure was developed in the 1920s.

 In response to coordination & control-related problems in large firms.

 Because of that, Top managers became over-involved in solving short-

run problems and neglected long-term strategic issues.

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Multidivisional structure calls (needed) for:

• Creating separate divisions, each representing a distinct business,

• Each division would house its functional hierarchy,

• Division managers would be given responsibility for managing day-to-

day operations,

• A small corporate office that would determine the long-term strategic

direction of the firm and exercise overall financial control over the semi-
autonomous divisions.

STRATEGIC BUSINESS UNIT (SBU) STRUCTURE

 The concept is relevant to multi-product, multi-business enterprises.

 It is impractical for an enterprise with a multitude (assembly) of

businesses to provide separate strategic planning treatment to each one
of its products/businesses.

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STRATEGIC BUSINESS UNIT (SBU) STRUCTURE

 It has to necessarily group the products/businesses into a manageable
number of strategically related business units and then take them up for
strategic planning.

 An SBU is a grouping of related businesses.

 The SBU structure is composed of operating units where each unit

represents a separate business to which the top corporate officer
delegates responsibility for day- to-day operations and business unit
strategy to its managers.

STRATEGIC BUSINESS UNIT (SBU) STRUCTURE

 A strategic business unit (SBU) structure consists of at least three levels,
with a corporate headquarters at the top, SBU groups at the second
level, and divisions grouped by relatedness within each SBU at the third
level.

 Individual SBUs are treated as profit centres and controlled by corporate

headquarters.

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Characteristics of SBU’s;

 Single business or collection of related businesses that can be planned for

separately,

 Has its own set of competitors. E.g. Lux & Dove,

 Has a manager who is responsible for strategic planning and profit.

 Helps comparisons between divisions.

 Improving the allocation of resources.

Matrix Structure
Marketing
Manager

Product A

Product B

Introduction;
A matrix structure is the most complex of all designs because it
depends upon both vertical and horizontal flows of authority and
communication (hence the term matrix).

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Matrix Structure

 In matrix structures, functional and product forms are combined

simultaneously at the same level of the organization.

 Employees have two superiors,

• A product or project manager (usually temporary) and

• A functional manager. (Home department, reasonably

permanent).

Matrix Structure

 Matrix structure combines the stability of the functional structure with

the flexibility of the division by product form.

 People from these functional units are often assigned temporarily to one
or more product units or projects.

 The product units or project are usually temporary and act like
divisions.

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Matrix Structure

 Despite its complexity, the matrix structure is widely used in many

industries, including

• Construction,

• Healthcare,

• Research and defence.

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Network Structure

Network Structure

 Network structure could be termed as “non-structure” by its virtual

elimination of in-house business function.

 Many activities are outsourced.

 A corporation organized in this manner is often called a virtual

organization.

 The network structure becomes most useful when the environment of a

firm is unstable and is expected to remain so.

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Network Structure

 Under such conditions, there is usually a strong need for innovation and
quick response.

 Instead of having salaried employees, it may contract with people for a

specific project or length of time.

 Rather than being located in a single building or area, an organization’s

business functions are scattered worldwide.

Network Structure

 Companies like Airtel use the network structure in their operations

function by subcontracting manufacturing to other companies in low-
cost.
 Other e.g.

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Network Structure

Advantages:

 Increased flexibility and adaptability to cope with rapid technological

change and shifting patterns of competencies.

 Gathering efficiencies from other firms who are concentrating their

efforts in their areas of expertise.

Network Structure

Disadvantages:

 The availability of numerous potential partners can be a source of

trouble.

 It a particular firm overspecializes on only a few functions, it runs the

risk of choosing the wrong functions & thus becoming non competitive.

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Hourglass Structure

CL
Wide at
Task of BL the top
replaced by
Info. Tech. BL Narrow at
Info. Tech.
the middle
links

Widest at
FL the bottom

Note WIPRO proposed for Hourglass Structure, yet to implement.

http://content.timesjobs.com/wipro-mulls-revamp-to-embrace-an-hourglass-structure/articleshow/57914537.cms

Hourglass Structure

Introduction:
In the recent year’s information technology and communications have
significantly altered the functioning of organizations.

 The role played by middle management is diminishing (reducing) as the

tasks performed by them are increasingly being replaced by the
technological tools.

 The structure has a short and narrow middle-management level.

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Hourglass Structure
 Hourglass organization structure consists of three layers with constricted
middle layer.

 Information technology links the top and bottom levels in the

organization taking away many tasks that are performed by the middle
level managers.

 Contrary to traditional middle level managers who are often specialist,

the managers in the hourglass structure are generalists and perform
wide variety of tasks.

Advantages:

 Reduced costs.

 Helps in enhancing responsiveness by simplifying decision making.

 Decision making authority is shifted close to the source of information so

that it is faster.

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Disadvantages:

 The promotion opportunities for the lower levels diminish significantly.

 Continuity at same level may bring monotony (routine, lack of variety)

and lack of interest and it becomes difficult to keep the motivation levels
high.

 Organisations try to overcome these problems by assigning challenging

tasks, transferring laterally and having a system of proper rewards for
performance. *Case study based question can be asked.

Strategy Supportive Culture

Introduction;

 Every organisation has a unique organizational culture.

 It has its own philosophy and principles, its own history, values, and
rituals, its own ways of approaching problems and making decisions, its
own work climate.

 Its own ingrained (established) beliefs and thought patterns, and

practices that define its corporate culture.

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Q. Corporate culture. Also, elucidate the statement “Culture is a

strength that can also be a weakness”.

Ans.
The phenomenon which often distinguishes good organizations from bad
ones could be summed up as ‘corporate culture’.

Corporate culture refers to a company’s values, beliefs, business principles,

traditions, ways of operating and internal work environment.

Every corporation has a culture that exerts powerful influences on the

behaviour of managers.

Culture affects not only the way managers behave within an organization
but also the decisions they make about the organization’s relationships with
its environment and its strategy.

“Culture is a strength that can also be a weakness”. This statement

can be explained by splitting it in to two parts.

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Culture as a strength:

 As a strength, culture can facilitate communication, decision- making &

control and create cooperation & commitment.

 An organization’s culture could be strong and cohesive when it conducts

its business according to a clear and explicit set of principles and values,
which the management devotes considerable time to communicating to
employees and which values are shared widely across the organization.

Culture as a weakness:

 As a weakness, culture may obstruct the smooth implementation of

strategy by creating resistance to change.

 An organization’s culture could be characterized as weak when many

subcultures exist, few values and behavioural norms are shared and
traditions are rare.

 In such organizations, employees do not have a sense of commitment

and loyalty with the organisation.

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Founders CEO

Larry Page Sergey Brin Sundar Pichai

Entrepreneur(s) Intrapreneur

Entrepreneur(s)
Meaning:

 An entrepreneur is a person who searched for business opportunity and

starts a new enterprise to make use of that opportunity.

 An entrepreneur is an individual who conceives the idea of starting a

new venture, takes all types of risks, not only to put the product or
service into reality but also to make it an extremely demanding one.

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An entrepreneur is one who:

 Initiates and innovates a new concept.

 Recognises and utilises opportunity.
 Faces risks and uncertainties.
 Establishes a start-up company.
 Adds value to the product or service.
 Takes decisions to make the product or service a profitable one.
 Is responsible for the profits or losses of the company.

Meaning: Intrapreneur(s)
 The terms Entrepreneur and Intrapreneur are frequently used in the
business world. Many people use these terms interchangeably because
they think that they both contain the same elements.

 However there is a fine line of difference in these terms;

 The former (Entrepreneur) refers to a person who starts his own
business with a new idea or concept,
 The latter (Intrapreneur) represents an employee who promotes
innovation within the limits of the organisation.

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 An intrapreneur is nothing but an entrepreneur who operates within the

boundaries of an organisation.

 He is an employee of a large organisation, who is vested with authority

of initiating creativity and innovation in the company’s products,
services and projects, redesigning the processes, workflows and
systems.

 The intrapreneurs believe in change and do not fear failure.

 They discover new ideas, look for such opportunities that can benefit
the whole organisation and take risks, promote innovation to improve
the performance and profitability of the organisation.

 The job of an intrapreneur is extremely challenging.

 They get recognition and reward for the success achieved by them.

 It has now become a trend that large corporations appoint intrapreneur

within the organisation, to bring operational excellence and gain
competitive edge in the market.

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