IB - Module 5

mission statement

intentions of the organization

organizational goals

direct the activities of the organization's members; mission statement, detailed objectvies

detailed objectives

guide strategic planning to meet the organization's mission

organizational structure

defines how activities and people are grouped together to most effectively achieve the organizational goals

multidivisional company

number of business units, which each focus on different types of business activity, each producing their own profit

5 main types of organizational structure

functional structure, multidivisional structure, holding company, project teams, matrix organization

functional structure company

organized by functional specialization in which employees performing related specialised tasks are grouped together under a single management structure

holding company

loser arrangement of the divisional company and consequently may be less focused; may evolve to consisting of independent companies that are controlled by a coordinating group

project teams structure

units designed to cope with the highly unstable and fast changing environment; units=temporary structures created for a particular task or problem and are not part of a management hierarchy

matrix organization

combines the project team, the functional orgazniation and the divisional company; creates a structure by combining at least two different elements such as products, markets and customers

downsizing

the breaking down of large organizations into smaller units with a smaller number of employees

delayering

the number of levels of management is reduced

7 types of flexibility of the company

1. numerical, 2. functional, 3. financial, 4. temporal, 5. geographical, 6. organizational, 7. cognitive

numerical flexibility

rapidly changing the number of employees to meet changes in demand

functional flexibility

eployees can perform a range of jobs and switch between them if needed

financial flexibility

flexibility when there are changes in the supply and demand of labour

temporal flexibility

change of time patterns of work and the introduction of shift work

geographical flexibility

incorporates transnational teams and more mobile workers

organizational flexibility

extent to which the structure and systems can change

cognitive flexibility

changing mindset of the workforce

3 types of ownership

sole trader, partnership, limited companies

sole trader ownership

owner is the sole proprietor

partnership ownership

unlimited liability (same as sole trader), unless its Limited Liability Partnership (registered accounts and individual members are liable, other members are not)

limited companies ownership

all assets belong to the companies instead of the individuals involved; Public Limited Company (PLC) or Private Limited Company (Ltd)

Public Limited Company (PLC)

shares are made available to the general public as they are put on the stock market; limited liability; dividends

Private Limited Company (Ltd)

shares can only be sold to family members; limited liability; dividends

managerial revolution (Berle and Means)

managerial control was the most dominant form during the growth of business

The Agency Problem

arising conflicts between owners and managers (a.k.a. principals and agents)

agency relationship

agent performs a service on behlaf of the principal as a result of the separation of owners and managers

4 types of public institutions

1. industries fully owned and controlled by the state, 2. companies whose majority shareholder is the state, 3. services to the population (health, education), 4. other Government Departments at national and local levels

Why does the number of small businesses increase?

1. economy is shifting from manufacturing to services, 2. development of technology - lower price for technology

Lifestyle Firm

owners wish to remain small, and only want to have an opportunity for individual to work for themselves; e.g. local hairdresser

Growth Firm

the purpose is creating innovative products and services and achieve rapid growth; e.g. Microsoft

Family Firm

managed, and established by family members

organizational culture

collective values, beliefs, and practices of organizational members

corporate culture

culture intentionally created and implemented by management to serve a specific strategy

strong culture

guiding values of top management are clear, consistent and shared by employees; the values are strengthened by rituals, a cultural network, and hero figures

asset-specificity

the degree to which an asset is valuable only in a specific use and with a specific exchange partner

price components

transaction costs (search costs, bargaining costs, enforcement costs) and production costs

Transaction costs

Search costs; bargaining costs; Enforcement costs

Search costs

discovering what relevant prices are

bargaining costs

negotiating

enforcement costs

policing in the way that work is done in the way expected

Companies grow if:

cost of organising is lower; manager can avoid making mistakes; production costs are lower for firms with larger size

outsourcing

activities done outside of the organisation

integrate

activities done inside of the organisation

Economist view of how do firms set organisational goals

the context is knowable - actions can be linked with some confidence to consequences; maximise net revenue; rational decision-maker

challenges for setting organisational goals

context is chaotic, complex, not knowable; is profit the only objective?; bounded rational decision-maker

Economic man

one solution; clear and constant preferences; compute info; maximising outcome; all-encompassing rationality

Economic man 2.0

many solutions; real world is a confusion; incomplete info; satisfactory outcome; bounded rationality

Bounded rationality

ability to be a rational decision-maker is limited cuz we have incomplete information and lack of time

Power in interest groups

position in hierarchy; skills of group members; resources they have control over

organisational politics in interest groups

different coalitions will pursue different interests and sine coalitions will compete

Structural choices

hierarchy; integration; coordination and control

hierarchy as a structural choice

it tells us how managers divide the work between their workers; flat hierarchy - new managerial layers; span of a hierarchy - how many people are managed by one manager (span of 8 - each manager advocates for 8 subordinates)

Integration as a structural choice

activities are more centralised, easier coordination; differentiation; decentralisation; centralisation

differentiation

the need for each role to specialise in unique resources and capabilities

decentralisation

reduce the information overload; increased the motivation of lower level managers

centralisation

easier coordination of activities; decisions can better be fit with broader organisational objectives

Coordination and control as a structural choice

mutual adjustment; direct supervision; standardisation of work standardisation of output; standardisation of skills; standardisation of norms

mutual adjustment

processes that can only be fulfilled when both sides communicate their insights

standardisation of work

using detailed description of the work that has to be done

standardisation of output

much more autonomy to the member of an organisation; i.e. salesman gas a goal to reach 15000$ in sales

standardisation of skills

the accountant needs the degree to perform a task

standardisation of norms

the norm of a company is to work late hours i.e.

simple structure

many companies start with it - the owner is also a manager and does many different tasks himself; the company grows and the leadership crisis may happen; that's when it moves to the functional structure

leadership crisis

owner-manager at some point can't do everything by himself

Functional structure

introducing departments in which manager take care of various functional responsibilities; the owner can refocus attention on strategic issues; each position have their own coordination mechanisms; it may lead to autonomy crisis

Autonomy crisis

difficult product groups need their own attention, autonomy; diversifying product markets requires more decision-making; when this happens, we go towards divisional structure

Divisional structure

it enables to focus more on each line of business, each division has their own manager; work is done in subunits; each division is given a degree of autonomy but is monitored for good results - standardisation of outcome

The problem with divisional structure

Lack of communication between departments; it can lead to duplication; each department can think that it is not heard and then it can lead to matrix structure

Matrix structure

organisational members report to two managers; it is flat and decentralised; facilitates synergy, teams can quickly set up to respond to different requests from the customers

Flexible organisation (adhocracy)

people or units bounded together only for a specific temporary purpose; allows decisions to be made on the lowest level possible within an organisation

Virtual organisation

form of adhocracy; all parts are connected by formal and informal communications; members of the VO can never meet face 2 face

Charles Handy's four types of organisational cultures

power; rule; task; person

Power culture

power centres around just a few people, simple quick decision-making; small entrepreneurial organisation

rule culture

clear rules define structure; bureaucratic; slow decision-making; i.e. banks, governments

task culture

project-based addressing, specific goals, power mix depends on task

person culture

person superior to organisation; professional service firm; i.e. law firms, universities

ultimate goal of the company

achieving a fit - systems theory; contingency theory; there is no one best way, but many good ways and many bad ways to organise stuff; becoming an institution

becoming an institution as an ultimate goal

when the organisation becomes an institution, it becomes an important and indispensable part of the environment