12A Organisation structure 12Activity 12.1 (page 214): Penang Valley Cars Ltd 1 Sketch the current organisational structure of Penang Cars Ltd. Include all staff on your chart. [6] Chief Executive Finance Marketing Administration Vehicle Repairs Accounting Assistants Sales Manager Office Supervisor Night Supervisor Day Supervisor Junior Sales Assistants Office Staff Mechanics Mechanics Organisation chart Penang Valley Cars Ltd 2 Do you think the current structure is appropriate for the business? Give reasons for your answer. [6] Penang Valley Cars Ltd has a traditional hierarchical organisational structure. The structure is appropriate for the business as the role of each individual is clearly defined and there is no ambiguity regarding the chain of command. The business is relatively small, employing only 33 staff and, therefore, the number of layers of hierarchy is also low. This allows communication to remain effective as the chain of commend is short. However, a hierarchical structure may reduce horizontal links between functional areas and, therefore, managers may become focused on their own department and lose sight of broader business goals. 3 Discuss how Jim might resolve the problem of devising a suitable structure for the two new developments he is planning. [8] Jim could consider retaining a traditional hierarchical structure based on functional, geographical or product lines. Such an approach would retain the advantages associated with clear roles and chains of command. He may consider a combination of maintaining a departmental structure, but using cross-departmental project groups to deal with tasks such as the expansion overseas and the introduction of a truck-rental business. 1
Activity 12.2 answer provided on Student's CD-ROM. Activity 12.3 (page 221): MAS must change strategy, says new boss 1 Analyse three possible reasons why labour productivity is lower in MAS than other airlines. [9] Possible reasons include: Chain of command too long this causes communication to be ineffective, leading to misunderstanding and slower decision making as decisions have to be given the OK by several managers, before they can be implemented. This can reduce productivity. Too many middle managers middle managers add costs to the business organisation, but may also reduce productivity as they do not contribute directly to the provision of services within the airline. In effect, more middle management means more employees, but no significant increase in production. Therefore, productivity falls. Poor motivation due to the number of layers of hierarchy as lower-level staff at Malaysia Airlines are so distant from senior management, they are more alienated and less motivated. Delegation is likely to be very limited as spans of control are very narrow. Thus, workers are not empowered and will lack motivation. 2 Evaluate the impact of adapting the organisational structure by reducing the number of storeys from 5 to 2 (delayering) on: MAS staff business efficiency. [12] Commentary may make reference to some of the following issues. MAS staff Wider span of control will lead to greater responsibility for managers and more delegation of decision making to subordinates. This should increase motivation. Managers would be made redundant due to loss of middle-management job roles. The flatter organisational structure would encourage a more democratic approach to managing employees. This will help staff achieve fulfilment at work. Senior managers may feel that they have less authority. Business efficiency There will be faster communication due to the shorter chain of command. Employees will be more motivated, leading to increased productivity. Overhead costs will be reduced due to the removal of layers of management. As two-way communication will be improved between employees dealing with customers and more senior managers, response to the needs of the market will be improved. 3 Assess the likely impact of a decision to split and operate separately the domestic and international divisions of the airline on: the performance of MAS staff motivation. [10] 2
Analysis may make reference to some of the following issues. MAS staff Decentralisation will necessitate the decision-making authority being passed to managers in the two divisions of the business. This will increase motivation. Subordinates will be provided with greater job satisfaction as they will have a greater say in decision making. Opportunities for employees to work on both domestic and international flights may be reduced. This would reduce job variety and be demotivating for staff. Business efficiency This would allow an increased focus on the specific needs of each market. Greater flexibility to serve the needs of the market will improve customer satisfaction. Decision making in response to market change would be quicker. Communication problems and bureaucracy will be reduced, which might also reduce costs. Coordination between domestic and international flights would be reduced. Less uniformity in decision making could damage the corporate identity of MAS. Activity 12.4 research activity. Revision case study 1 (page 223): Mitsubishi Motors to rejig structure 1 Explain what is meant by delayering. [2] This involves the removal of one or more layers from a hierarchy. The objective is to make the business leaner and fitter; Mitsubishi is aiming to remove 60 senior staff advisers. 2 Outline the culture conflict that seems to exist in this business. [6] The culture conflict is between a traditional Japanese culture that values length of service to the business and experience against a more dynamic culture at Daimler Chrysler that values change and reform. The German managers prefer a team-based, problem-solving structure in which horizontal boundaries between departments and layers of middle management are removed. 3 Analyse the possible reasons why the management of MMC wish to delayer the management structure. [8] Delayering offers the following possible advantages: Reduced overheads the senior staff advisers make only a marginal contribution to the company despite generous remuneration. More dynamic culture many managers are locked into a length of service mentality. This reduces the inflow of new ideas to the business. The job-for-life mentality of Japanese managers may hinder efficiency as it leads to complacency. Reduced bureaucracy this will make Mitsubishi more responsive to customer needs. 3
4 Discuss the possible consequences for the efficiency of the business and staff motivation of the new management structure described in the article. [12] Staff motivation Short-term effect on management motivation will be negative. Middle management resent the presence and power of the chief operating officer (COO) team. If the restructuring leads to a loss of the jobs-for-life commitment of Mitsubishi, employees will be dissatisfied and concerned about their future. There will be staff opposition to changes as they are significant. Mitsubishi s efficiency There will be a reduction in overheads the 60 senior staff advisers made only a marginal contribution to the company. Communication will be more efficient due to fewer levels of hierarchy. The delayering should make Mitsubishi leaner and fitter. Communication problems and bureaucracy will be reduced, which might also reduce costs. A significant change in culture is being attempted at Mitsubishi and in the short term this is likely to lead to opposition and confusion. There will be a high cost of making change due to e.g. redundancy payments. Management of change will be important to ensure that the restructuring is successful. However, the German management team is trying to alter a deeply embedded cultural approach to business within the Japanese firm. Revision case study 2 (page 224): Hotels group set for major management shake up 1 Outline the problems that Empire Hotels seem to be experiencing due to a long chain of command. [6] Slow to respond to changing consumer needs the long chain of command is reducing the effectiveness of communication in the organisation and, therefore, managers lack awareness of changing consumer demands. Increased labour turnover the long chain of command leads to narrow spans of control and a lack of delegation. Therefore, staff are leaving for businesses offering more responsibility. Poor motivation of employees due to distance from senior managers in contrast, at Excell Hotels, because managers report directly to senior managers, they get immediate feedback which improves motivation and leads to quicker decisions. At Empire, it takes three weeks for requests for new resources to be considered because there are so many middle managers. 2 Explain two reasons why existing senior managers are unwilling to delegate. [4] wish to retain control lack of trust in hotel managers. 3 Discuss the impact on the performance of this business of adopting extensive delegation. [8] 4
Delegation will bring a number of potential benefits, including: The business will be more responsive to local needs as decisions will be made by hotel managers based on their understanding of the local market. For example, Excell Hotels has an excellent reputation for local food dishes and decorations that reflect local culture and traditions. There will be a reduction in time to acquire resources needed by individual hotels. Currently, it takes three weeks for requests to be considered. Motivation of hotel managers will be greater due to their increased responsibility. It will lead to a more flexible business organisation. There may also be problems: Managers may need further training in order to be able to cope with the extra decision-making responsibility. Managers at Excell Hotels have much longer training to enable them to be effective. There will be a less consistent corporate identity as individual hotels will make their own decisions about operations. The key problem faced by Empire is its failure to respond to changing consumer needs and this is related to the structure of the organisation. The hotel group cannot afford to maintain the status quo. 4 Contrast the role of the newly appointed staff managers at Empire with that of the existing line managers. [6] The role of the new design and catering experts is to give advice to the line managers responsible for catering and hotel decoration. As staff managers, these new appointees do not have any line authority over other people. Their role is to provide support and provide information and assistance to the line managers. The line managers are responsible for making decisions regarding catering and decoration issues. They have direct authority over people and resources within the hotel. 5 To what extent might the performance of the Empire Hotel group be improved by changing its management structure? [12] Changing the structure by removing some of the middle managers (delayering) will bring benefits such as: Costs will be reduced. Greater delegation will improve motivation. Hotel managers will have greater responsibility and authority; therefore, the hotels will be more responsive to customer needs. The chain of command will be shorter, thus decisions can be made more quickly. Appointment of staff managers will help improve catering and decoration. A new structure could help reduce labour turnover. Problems related to changing structure include: There may be opposition to change from middle managers. Opposition to catering and decorating experts will lead to discontent. Line managers may feel undermined. 5
There will be the short-term cost of streamlining the organisation. Hotel managers may need more training. A change in structure, introduced after consultation with staff, should improve the performance of the hotel group as local customer needs will be better served and key weaknesses, such as catering, can be addressed. A well-designed organisation will help managers to get things done and aid decision making; a poorly designed structure makes it more difficult to succeed. However, structure alone will not make the hotel as good as its competitors investment has to be made in conference facilities and IT to bring them up to industry standards. Essay 2 a Analyse the claimed benefits of a matrix organisational structure for a manufacturer of consumer electronic goods. [10] Definition of matrix structures: these use project teams that involve members from across functional areas. It is a task-orientated structure as teams are created to complete a particular project, such as launching a new electronic product. Benefit Avoids a narrow functional department perspective being adopted Allows communication between all members of a team and promotes greater efficiency Responsive to market changes. Allows fast decision making Can motivate employees Commentary As teamwork is involved, there is more chance that people will not just focus on what is good for their department. Instead, there is a focus on what is good for the project and the business. With a traditional hierarchical structure, there is a greater likelihood of departmental conflict. This can improve decision making as ideas are shared between team members, each of whom has specialist knowledge. There needs to be close communication between functional areas if the consumer electronics are to be developed and marketed effectively. If departments work on projects in isolation, it will be less efficient as each department is unaware of the views and limitations that may be imposed by other departments. It is only when senior department heads meet to discuss the project that potential conflicts will be recognised. Project teams are dynamic and able to view problems in a different way, as specialists have been brought together. Consumer electronics is a rapidly changing market. Firms need to be responsive to market changes. In a matrix organisation, teams can be created quickly to respond to changes in the market and decisions can be made quickly. The matrix structure eliminates the possibility of inflexible hierarchies getting in the way of rapid decision making. Greater job variety is possible, as project teams are created for specific issues. A matrix structure is more useful when: The organisation is highly innovative. In consumer electronics, this is important. 6
The environment is rapidly changing. The consumer electronics industry is rapidly changing due to innovation of new products and technological developments. In order to be more responsive to changing consumer needs and to drive projects forwards more quickly, a matrix structure has many advantages over a traditional hierarchical structure. b To what extent should accountability be delegated to junior managers in a business? [15] Definition of accountability: this is the degree to which an individual is held responsible for the success or failure of a policy. If employees are given authority, which is the right to make decisions, and that authority is exercised poorly, then the employee is accountable for his or her mistakes. A manager may pass down the authority to complete a task, but responsibility for completion of the task remains with the manager. Thus a finance director might delegate budgetary control to a finance manager, but the director would remain ultimately responsible for the budget. However, having been given authority over budgetary control, the finance manager is accountable for any mistakes made in exercising budgetary control. Advantages of delegation: It is the basis for providing achievement. This is one of Herzberg s motivators. It is the basis for providing recognition for achievement. This is another of Herzberg s motivators. Delegation is useful because it empowers staff and can, therefore, promote motivation. It demonstrates trust in junior managers and this may help motivate. It helps staff to achieve fulfilment from work. Senior managers can devote more time to strategic issues. It makes little sense for senior managers to make all decisions. Disadvantages of delegation: Junior managers must have the necessary skills to complete tasks that are delegated. If junior managers are poorly trained or lack skills, then the quality of decision making will be poor and errors will be made. If only boring jobs are delegated, then this may act as a disincentive to effort. Junior managers may feel resentful if they believe they are being used. However, boring jobs are important and have to be completed. Should senior managers have to focus on boring tasks which by their very nature are suitable for lessskilled employees to complete? Not all junior managers want increased levels of accountability. Accountability for errors increases stress and could lead to dissatisfaction. Delegating accountability may be very motivational to junior managers as Herzberg and other researchers have observed. Delegation may be particularly necessary where managers have a large span of control as they cannot closely control the work of all subordinates. 7