Principles and practice of management question and answer

A key element in the effective implementation of corporate strategies is the design of the organizational structure of the firm or the organization.

Discuss each of the following types of organizational structure:
a) Holding Company structure;
b) The Functional structure;
c) The matrix structure; and
d) The multi-divisional structure.
There are a number of alternative ways of deploying the intangible webs of relationships that make up an organization structure.

The functional structures
In a functional organization structure, tasks are linked together on the basis of common functions. Thus, all production activities or all financial activities are grouped together in a

single function, which undertakes all the tasks required of that function. The chart below explains this.

1. By grouping people together on the basis of technical and specialist expertise, the organization can facilitate both their utilization and their coordination in the service of the whole enterprise.
2. It provides better opportunities for growth and career development.

1) The growth of sectional interest – this may conflict with the needs of the organization as a whole.
2) It is difficult to adopt this form of organization to meet issues such as product diversification or geographical dispersion.
3) Functional structures are best suited to a relatively stable environment.

These are organizations that have come about as a result of coordination problems in highly complex industries such as aircraft manufacture, where functional and product types of structure have not been able to meet organizational demands for a variety of key activities and relationships arising from the required work processes.

A matrix structure combines a functional form of structure with a project-based structure and entails a dual rather than single chain of command. Every matrix contains three unique and critical roles.
i) Top manager who leads and balances the dual chain of command
ii) The matrix bosses (i.e. functional manager + project manager) who share subordinates
iii) The subordinate managers who report to two different matrix bosses.

Dual authority comes about, for example, because a project has two bosses. i.e. the production director because he belongs to the production department and Project A director because he forms part of the team working on Project A, headed Project A director. The same applies for the other subordinates.

1. It combines lateral and vertical lines of communication and authority. This combines the relative stability and efficiency of a hierarchical structure with the flexibility and informality of an organic form of structure.
2. It provides coordination necessary to satisfy dual environmental demands e.g. new product introduction and computerization of processes.
3. It leads to better control of project and greater security
4. It leads to better customer relations and higher employee morale
5. Lowers program costs and leads to higher profit margins
6. Project development time is shortened
7. Aids the developments of managers as they are given more responsibility

1. Organization members experience dual authority which leads to ambiguity, frustration and confusion (It violates the unity of command principle) given Fayol.
2. Conflicts may arise concerning the allocation of resources
3. Relative dilution of functional management responsibility
4. Divided loyalty on the part of members of project teams in relation to their own manager and functional superiors
5. Managers and other participants need good interpersonal skills – not always available
6. Extensive training is required
7. Conflict resolution becomes time consuming, so is the agreement on objectives and plans
8. May lead to power struggles a managers fight for services of a joint subordinate
9. Too much shifting of staff from project to project may hinder training of new employees

The organization is divided into divisions on the basis of products and/or geography, and each division is operated in a functional form, but with certain key functions retained at company headquarters e.g. planning, finance and personnel policy. This is a common organizational form for highly diversified firms operating in more than one country. A typical chart for a divisionalised company would be as given below:

The regions act very much like self standing companies, producing and marketing the products developed the parent company.

Research and development activities and key corporate standards are controlled worldwide via the functional divisions while the headquarters provide group policy in key areas such as finance and personnel.

It is possible to maintain a balance between necessary corporate control from the centre and desired divisional independence at the regional and functional levels.
A holding company is simply a vehicle for the ownership of a range of other companies.

Company 1 and 2 are wholly owned subsidiaries or the holding company owns a majority of shares.

Companies 3 and 4 are part of the group but the company does not own the majority of shares.

The holding company manages a portfolio of companies and does not involve itself in the management or strategy at strategic Business Unit level (SBU). Thus it provides few synergies, and little in the way of corporate services or parenting roles.

This has advantages in that the holding company does not become enmeshed in complex logistical arrangements that would make divestment difficult if this was in the shareholders best interest.

The advantage for SBU is that they can continue to manage autonomously, and may have opportunities to raise capital more cheaply through the group than using the money markets.

The problems are that the SBU might be divested for reasons entirely unconnected with its own performance, and there are a few opportunities to leverage core competencies across the group structure.

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