## Types of Organisational Structure
Chandler's Principle: Changes in strategy lead to changes in organisational structure. There is no one optimal structure for a given strategy.
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### A. Simple Structure
- Owner-manager makes all major decisions directly; staff merely execute.
- Suitable for: focused cost leadership or focused differentiation strategies.
- Little specialisation, few rules, little formalisation, direct owner involvement.
- Advantages: frequent direct communication, quick product launches, flexibility, rapid environmental response.
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### B. Functional Structure
- Groups tasks by business function (production, marketing, finance, HR).
- Simple, inexpensive; promotes specialisation, encourages efficiency, allows rapid decision-making.
- Structure: CEO/MD + corporate staff + functional line managers.
- Overcomes the growth constraints of the simple structure.
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### C. Divisional Structure — Four Types
| Type | When Best Used |
|---|---|
| By Geographic Area | Strategies tailored to different regional characteristics; allows local participation |
| By Product/Service | When specific products need special emphasis; products differ substantially |
| By Customer | When few major customers are paramount and many services are provided to them |
| By Process | Similar to functional, but departments are NOT accountable for profits/revenues |
Advantages: Clear accountability; higher employee morale; career development opportunities; local control; competitive internal climate; easy addition of new products/businesses.
Disadvantages (costly): Requires functional specialists per division; duplication of staff/facilities; higher-salaried managers needed; elaborate HQ-driven control system; inconsistent company-wide practices.
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### D. Multi-Divisional (M-Form) Structure
- Each division = a separate business.
- Corporate office manages overall strategy; delegates day-to-day operations to division managers.
- Less diversified → managed via strategic controls.
- More diversified → managed via financial controls.
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### E. Strategic Business Unit (SBU) Structure
- Relevant to multi-product, multi-business enterprises.
- Groups related businesses into distinct SBUs for strategic planning purposes.
Three characteristics of an SBU:
1. Single or collection of related businesses with scope for independent planning.
2. Has its own set of competitors.
3. Has a manager responsible for strategic planning, profit performance, and control of profit-influencing factors.
Three levels: Corporate HQ → SBU groups → Divisions (grouped by relatedness within SBU).
Relatedness decided by: Similar technologies; similar products/services; similar customers; similar core competencies underlying competitive advantage.
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### F. Matrix Structure
- Combines functional and project forms simultaneously at the same organisational level.
- Employees report to two superiors: a functional manager (permanent) AND a product/project manager (temporary).
- Most complex design — both vertical and horizontal authority flows.
Three conditions requiring matrix structure:
1. Ideas need to be cross-fertilised across projects/products.
2. Resources are scarce.
3. Information processing and decision-making need improvement.
Davis and Lawrence's Three Development Phases:
1. Cross-functional task forces — temporary; used when a new product is introduced.
2. Product/brand management — task forces become permanent; project manager becomes product/brand manager.
3. Mature matrix — true dual-authority; both functional and product structures are permanent.
Disadvantages: Higher overhead; dual budget authority (violates unity of command); dual reward/punishment sources; shared authority; dual reporting channels.
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### G. Network Structure (Virtual Organisation)
- Many activities are outsourced; linked by non-hierarchical, cobweb-like networks.
- Best when environment is unstable and expected to remain so.
- Uses long-term contracts with suppliers/distributors instead of vertical integration.
- Business functions scattered geographically.
Advantages: Flexibility, adaptability; focus on distinctive competencies; partner efficiencies.
Disadvantages: Many partners = source of trouble; contracting out prevents discovery of synergies; over-specialisation in wrong functions leads to non-competitiveness.
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### H. Hourglass Structure
- Three layers with a constricted (narrow) middle layer.
- IT links top and bottom, replacing many middle-management tasks.
- Middle managers are generalists (not specialists).
- Benefits: Reduced costs; simplified decision-making; faster decisions (authority close to information source).
- Drawback: Promotion opportunities for lower levels diminish significantly.