organisation - how businesses organise themselves
Richard Bowett introduces the main ways in which businesses organise their people and operations
All businesses are organised into groups of people. This is so the employees can be organised and controlled to make sure the necessary work is one efficiently. These groups have managers responsible for them.
There are different ways of organising the business into groups, and each way has its advantages and disadvantages. There are additional benefits of organising people into groups, such as making it clearer how communications should be organised. The development of team-spirit also usually improves motivation and productivity.
Method 1: Organisation by Function
Comments on this method of organisation:
1. Specialisation by function is more efficient. Employees get experienced
in and competent at one particular job.
2. Accountability is clear ie whose responsibility is it to do what.
3. Clarity is improved ie it is clear who does what.
4. Communication is weakened by a lack of communication across and between
functions. HRM may be doing things Marketing need to know about.
5. Inertia may set in where departments become over-focussed on their own
agendas and lose sight of the overall business objectives. In extreme case
the team-spirit may degenerate into tribalism where departments are ‘at
war’ with each other and are more concerned with ‘winning’ this
war than attending to the overall business objectives.
6. This system can become overly bureaucratic where flexibility is lost because
things have to be done ‘by the book’.
7. This system may not be suitable for large businesses with many different
markets and/or products.
Method 2: Organisation by Product
Comments on this method of organisation:
1. This structure gives focus on individual products, which may be especially
appropriate if different products have different problems and concerns. The
issue of focus is important because it determines the priorities people will
have, and the way they think about those priorities.
2. Each group can be run as a separate profit centre. This way, healthy competition
and rivalry can develop between ‘teams’ which can help motivation
and productivity. It is also flexible in that poorly performing groups can
be closed down without too much disruption to the rest of the organisation.
3. Co-operation between teams will improve where it is in the interests of
both teams to do so.
4. There is a danger of duplication of resource use if each team has a Marketing
department, a Finance department and so on.
5. Rivalry can get out of hand and become destructive.
6. Individual teams can get out of overall management control, especially
if headed by a very ambitious person.
Method 3: Organisation by Area/Region
Comments on this method of organisation:
1. Better response to and focus on local customer needs.
2. Better communication within the locally-based department.
3. Rivalry between departments.
4. Duplication of resource use.
5. Conflict and lack of co-operation between departments.
Method 4: Organisation by Customer/Customer Type
Comments on this method of organisation:
1. This method of organisation promotes focus on customers and their different
individual needs. This is a major advantage and helps a business to become
market oriented as opposed to the previous product oriented structure.
2. Departments can be organised by market segment which adds to the focus
on customer need.
3. It is sometimes difficult to define exactly which group a particular customer
belongs to.
4. Some customer groups may be small and so individual departments may be
inefficient.
5. There will be duplication of resources.
6. Individual departments may escape from proper overall management control.
Method 5: Organisation by Process
Comments on this method of organisation:
1. This structure gives focus on production processes which may be appropriate
where, as in the example of oil, the processes are quite different with different
problems and needs.
2. Otherwise, this is very similar to organisation by function.
Conclusions on organisational structures
All these structures have strengths and weaknesses which a business has to think about before choosing which one to use. Changing that decision, and re-structuring, is very disruptive and very expensive, so it is better to get it right the first time. Communications and control are key issues.
The question of focus is also very important, because the structure affects the way employees think about themselves and their own personal objectives eg ‘I am an accountant’ or ‘I am a soap-team member’ or ‘I am a driller’. It is natural for humans to identify with a group of people (a ‘team’) and this can be turned to the business’ advantage by acting as a motivator and helping to raise productivity. But it is also an important limiting factor. People become very defensive and territorial about the interests of ‘their’ team and this can get in the way of objective problem-solving. In the extreme, a business can disintegrate into a bunch of warring tribes where ‘revenge’ on ‘that lot’ overrides the business’ objectives.
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