“Outline the main ways in which a large centralised organisation might achieve a more flexible organised structure. Using examples, discuss the advantages and disadvantages of pursuing greater organisational flexibility” “The structures that organisations adopt are usually aligned to one of five generic organisational structures. These are the simple structure, the functional structure, the divisional structure, the holding company structure and the matrix structure. (Capon, C. (2009) the business environment.
Chapter 4: Inside organisations. This essay will explain the various ways of how a large centralised organisation achieves a more flexible structure through de-centralisation.
This essay will analyse the benefits and drawbacks of the matrix structure and the functional structure. A flexible structure allows staff to take part in decision making thus making them feel more valued and motivated, this favours the organisation because efficiency and communication is improved. Centralised structures are often referred to as bureaucracies and have a long chain of command and a narrow span of control.
They are tall structures designed so that directors, owners and management can achieve maximum control.
Decision making is isolated within the top part of the hierarchy with a very autocratic style of management (none/very little shared decision making with employees further down the hierarchy). Centralised structures allow benchmarks and certain procedures to monitor quality closely. A clear path can be seen by employees in terms of promotion which often aids in motivation, in turn improving the productivity of staff.
However there are some downsides to a centralised or bureaucratic structure, such as the fact that it’s time-consuming for decisions to be made because the decision has to come from the top of the organisation (CEO’s/Directors) all the way to the bottom through many levels before the employees actually get told what they need to do; because of this it is difficult for companies with a tall structure to quickly react to changes in the market that they operate in.
In tall organisations there is a tendency for ‘red tape’ or excessive regulation which also slows down many processes within a business. Another problem with tall organisations is that there is a divide between the top managers and regular employees, which means that the workers lower down in the hierarchy feel excluded and less valued. This In turn leads to workers becoming less motivated. Because of all these difficulties big organisations are constantly attempting to increase flexibility by changing their structure.
Decentralisation provides higher subordinate satisfaction and a quicker response to problems and may give workers a sense of ownership and greater levels of motivation in their work” (Ray French, Charlotte Rayner, Gary Rees and Sally Rumbles – (2008) Organizational behaviour ). De-centralised structures are desirable because they allow flexibility within a business, it is essentially a democratic management style of running an organisation, and this means that there is more feedback and input from staff regarding decision making.
With a shorter chain of command, due to the flat hierarchical structure, and increased motivation of staff production can increase. The functional structure is relatively restrictive of flexibility, it is fairly rigid and centralised. The managers of the departments are given the responsibility to manage day-to-day problems and take part in decision making only in the short term. Decision making and power in the long term rests very much within the board of directors, thus slowing down communication within the organisation.
The functional structure is mainly used by small businesses; large organisations tend to move away from this structure in the search for more flexibility. The reason for this is because of product or service diversification and larger target markets. The functional structure tends to have poor career prospects, high pressure on senior managers , quality monitoring is very difficult and there are skills shortages in the sense that job roles are set so skills cannot be shared within the departments. The matrix structure integrates two structures together, often geographical and multi product structures.
For example, a company may have a department for a product A in Europe and for Product A in Asia. One of the advantages of the Matrix structure is the convenience of experts simplifying the sharing of knowledge between the goods. Another advantage of the matrix structure is intra-team communication, this allows ease of communication between the different functional product groups within the same organisation, and similarly there is less pressure on managers, quality monitoring is easier and skills are interchanged within departments of the same function thus improving efficiency.
In the early 90’s the majority of IBM and the business press were convinced decentralisation would aid the company in terms of “flexibility, speed and entrepreneurial motivation”. They believed splitting up IBM into smaller companies would speed up processes and promote and enhance efficiency, which can be true of decentralisation. Lou Gerstner was appointed CEO of IBM in 1993. He was convinced IBM should remain centralised and to “use its unique size and capabilities to help customers integrate the diverse components of their information technology (IT) systems”.
In the end IBM was loosened up but not completely decentralised. This worked tremendously well with IBM’s stock price rising by almost a factor of ten. (Thomas W. Malone – Harvard Business School Archives (29/3/2004): Making the decision to decentralise. )From this we can conclude that de-centralisation improves organisational flexibility by speeding up the process of decision making, improving efficiency and communication and increasing job satisfaction for employees.
Pursuing greater organisational flexibility could be complex in the sense that the organisation may become less efficient due to the change in structure and managerial span of control. Nonetheless changing from a tall centralised structure to a flat decentralised structure favours the organisation because there are fewer levels of hierarchy and a shorter chain of command which enables better communication. “Decentralisation, in theory, provides greater potential for motivating employees and, because decisions are taken nearer the place of work, the organisation can react faster and smarter”.
Ian Brookes (2009): Organisational behaviour – individuals, groups and organisation 4th edition). However not all flat structures are decentralised; take for example the functional structure, despite being flat it is a rigid and centralised structure. The Matrix structure would enable a large organisation to achieve greater organisational flexibility because one of its main strengths is allowing ease of communication.