Arslan Arif(ACCA) SKANS School of Accountancy, Multan

Chapter 3 Short Notes 1.Organisation is a social arrangement to pursue collective goals and controls its own performance while 2. Distinguishing Features

Organisations can differ on the following basis :- 1. Purpose :-Profit vs non-profit .Private sector vs public sector 2. Ownership :- Sole tradership vs partnership vs company vs public sector 3. Funding :- Multiple sources of finance are possible from equity to debt to government

funding 4. Accountability:- Directors in a company answer to shareholders as opposed to sole traders and partnerships

3. Cooperatives:-

Firm owned, controlled, and operated by a group of users for their own benefit. Each member contributes equity capital, and shares in the control of the firm on the basis of one-member, one-vote principle (and not in proportion to his or her equity contribution).

4. Stakeholders :- Any person or business having a stake/interest attached to a business . Internal Stakeholders :-

1. Shareholders :- Their common interests are :- a)Profits b)Dividend payments c)goodwill d)growth and diversification decisions e)Takeovers or merger situations If their interests are not met they may try to change the decisions by influencing the management through vote (voice) or may choose to sell off their investment (exit).If satisfied they stay loyal.

2. Executive directors &senior management: They are the top most employees of the company and their interests are a)Remuneration b)Power & status c)growth d)job security .They also have three choices :-a)Voice (try to change things if not satisfied) b)Exit (Leave the job) c)Loyalty.

3. Employees :- Their common interests are :- a) Pay b)working conditions c)Job security & satisfaction d)Management styles . They also have three options :- a)Voice b)Exit c) Loyalty

External Stakeholders :-

1. Lenders ;- Their possible interests to defend are :-a) Timely payments of interest & principal b)further borrowing reducing the repayment capacity of the business . Their possible reactions are a) Voice b)Exit( taking over security) c) Loyalty

2. Suppliers :- They want :- a) Continued business relations b) Timely payments c)Ethical practices .Their possible reactions are also a) Voice b) Exit or c) Loyalty

3. Governments :- They want :-a)Taxes b)Safeguarding of infrastructure c)Regulatory compliance d)Macroeconomic objectives achievement

4. Customers :- They want :- a)value for money . 5. Local Community :- They want :- a)Positive contribution to the society b)employment

opportunities. 6. General public :-They want :- a)environmental compliance by the business b)good corporate

social responsibility 7. Non-Executive Directors:-They are not employees of the business and want :- a)to keep an

eye on executive directors b)ensure adherence to good corporate governance

Arslan Arif(ACCA) SKANS School of Accountancy, Multan

Main vs connected Stakeholders

Main stakeholders are those who exert the greatest influence and include shareholders, executive directors & senior management. Connected stakeholders might influence the decisions that directors and senior management make but aren’t direct decision makers ,not part of the organizational infrastructure. NEDs ,employees, key suppliers & customers are connected stakeholders.

Sources of power

Internal :- a)Position b)Resource c)Charisma External :- a)Legal b)Claim on resource c)buying power d)publicity

Stakeholder Mapping:- Mendlows

Mendlow proposed a matrix to help analyse stakeholders.

Box A - Minimum effort Their lack of interest and power makes them open to influence. They are more likely than others to accept what they are told and follow instructions. Box B - Keep informed These stakeholders are interested in the strategy but lack the power to do anything. Management needs to convince opponents to the strategy that the plans are justified; otherwise they will try to gain power by joining with parties in boxes C and D. Box C - Keep satisfied The key here is to keep these stakeholders satisfied to avoid them gaining interest and moving to box D. This could involve reassuring them of the outcomes of the strategy well in advance. Box D - Key players / participation These stakeholders are the major drivers of change and could stop management plans if not satisfied. Management, therefore, needs to communicate plans to them and then discuss implementation issues.

Arslan Arif(ACCA) SKANS School of Accountancy, Multan

Informal organization Characteristics:-a) Faster communication b)Responsiveness c)based on personal interaction d)can hamper the formal organization if not managed properly

How to manage it :- a)faster and credible formal structure b)meet employee needs through formal channels c)managers become part of informal networks d)

Formal structure Types :-

a)Functional structure :- Advantages

This organisational structure relates to an organisation which has outgrown the entrepreneurial stage. Rather than duplicating roles in different parts of the company, similar activities are grouped together so leading to: (a)lower costs (b)standardisation of output/systems, etc. (c)people with similar skills being grouped together and so not feeling isolated. (d)Due to the larger size of the organisation and the grouping into functions, there is a career path for employees - they can work their way up through the function. Disadvantages (a)Managers of the functions may try to make decisions to increase their own power/be in the best interest of their function rather that work in the best interest of the company overall, leading to empire building and conflicts between the functions. (b)Due to the longer chain of command, decisions will be made more slowly. (c)This style of structure is not suited to an organisation which is rapidly growing and diversifying - the specialists in for example the production function would not be able to cope with making gas fires and radios.

b) Entrepreneurial Structures Advantages

There is only one person taking decisions - this should lead to decisions being made quickly. As soon as an element of the market alters, the entrepreneur should recognize it and act quickly. A lack of a chain of command and the small size of the organisation should mean that the

entrepreneur has control over the workforce and all decisions within the organisation leading to better goal congruence.

Disadvantages This type of structure is usually suited to small companies where due to the size; there is no

career path for the employees. If the organisation grows, one person will not be able to cope with the increased volume of

decisions etc. Succession issues

c) Divisional Structures Advantages

If an organisation wants to grow and diversify, the functional structure cannot cope, so instead the divisional structure should be adopted.

It encourages growth and diversity of products, . Due to the breakdown of the company's activities into the divisions, it should mean that the

divisional managers can clearly see where their area of responsibility lies and it should leave the top management free to concentrate on strategic matters, rather than to get involved in the day to day operations of each division - although this can lead to a lack of control over the activities of the division and possible lack of goal congruence.

The focus of attention is on product performance and profitability. By placing responsibility for product profitability at the division level, they are able to react and make decisions quickly on a day to day basis.

Arslan Arif(ACCA) SKANS School of Accountancy, Multan

Local/junior managers are motivated and have better career paths Decisions making is faster and according to local ground realities

Disadvantages Duplication Cost may escalate due to head office costs Substandard and short term based decisions by lesser experienced managers at divisional level Lack of uniformity .

d) Matrix Structure Advantages

In today's rapidly changing environment, there is a need for effective coordination in very complex situations. If a car manufacturer wants to design, produce and market a new model, the process involves most parts of the organisation and a flexible/adaptable system is needed to achieve the objectives. The more rigid structure experienced in a divisional company would not have the flexibility to be able to coordinate the tasks and the people, whereas the matrix structure can cope.

Task orientation Faster communication

Disadvantages Where the matrix structure can cause difficulty is in the lines of control. These may become

ambiguous and conflict with each other. A team member may be answerable to the product manager and to a functional head, and this may cause confusion and stress. Time consuming meetings may be required to resolve the conflict, so resulting in higher administration costs.

Complex Duplication

Tall-Narrow vs Wide Flat

�Formality in relationships . � Close supervision, � Task specialization � A strong cultural and procedural emphasis on formal roles, job titles and job descriptions. � Slow vertical communication.. As a result, tall-narrow organisations can be slow to react to change.

� Greater egalitarianism. � Team-work and co-operation. � Greater delegation of responsibility to subordinates. � Flexibility. � There is rapid vertical communication and decision-making.

The advantages and disadvantages of decentralisation are:

Arslan Arif(ACCA) SKANS School of Accountancy, Multan

The advantages and disadvantages of centralization are :- Advantages Disadvantages

Clear chain of command Focused vision Reduced costs Faster decisions Improved quality of work

Bureaucratic leadership Delay in work Lack of local understanding

Benefits of adopting an appropriate structure � Staff morale is high � Employees understand their roles and objectives � Relationships and processes appear logical and well organised � Efficient structure adding value � Customers get value for money� Faster and credible decisions � Inefficiencies such as redundant layers of management and delays in responding to customer queries are minimised Consequences of adopting a deficient structure � Staff can become frustrated through perceived overly bureaucratic processes � Decision making can be delayed as it may be difficult to identify or communicate with decision makers who are not local to the customers. � There may be a lack of clarity of roles and responsibilities, particularly where multiple reporting lines exist in matrix organisations � The operations may be inefficient � Customers and clients lose out through delays and lower quality � Reputation and brand image could be damaged if the market concludes that an organisation has adopted the wrong structure. � Ultimately a ‘bad fit’ may result in significant loss of customers to competitors and overall corporate failure.