Unit 3 Business Management

Outcome 2 Part A 2014

SAC DATE •  Wednesday March 19th •  20 marks •  5 mins reading •  50 minutes writing •  Chapter 2 •  (2.1, 2.2, 2.3, 2.5, 2.11 only – NOT the

whole chapter)

Outcome 2: The internal environment of LSO PART A

•  What do I need to study?

•  2.1 Different management structures •  2.2 Three basic types of management structure •  2.3 Corporate culture and its development •  2.5 Policy development and its applications •  2.11 Ethical and socially responsible management of the

internal environment.

•  Check study design for key areas and skills

2.1 Different management structures

•  A management structure refers to the ways in which parts of the organisation are formally arranged to achieve its objectives.

•  A management structure outlines the way in which parts or areas of the organisation are formally linked together. Structure links management, employees and management functions together.

Purpose: •  Shows the key positions of responsibility & accountability. •  Lines of communication. •  The possibility of career paths •  Ensures tasks are not duplicated. •  Roles, power, authority

Changes in organisational structure

•  Clear trend recently towards flatter organisational structures.

•  WHY? •  Rapid advances in technology •  Increased pressures on LSO’s to compete against

international competition.

•  Flatter organisational structures allow faster adaptations to changes in consumer needs and market decisions because fewer managers need to approve decisions.

Traditional hierarchical approach

•  Very hierarchical or bureaucratic •  (Number of layers of management with power being centralised on top) •  The higher up the organisation an employee goes, the more power and

responsibility they have. •  With so many layers of management, this type of hierarchy can be

inefficient, especially if decisions have to go through each level of management for approval.

Flatter Management (organisational) structure

•  Have become more common. •  Decreasing middle management. •  Development of more team orientated approach. •  Fewer levels of management & employees take on more

responsibility. •  More delegation of tasks taking place. •  Flexibility to give employees a wider range of experiences by

moving them into different depts at same level.

Key terms:

•  Span of control – number of employees being supervised. The number of people for whom a manager is directly responsible for.

•  Chain of command – (the line of authority) to determine reporting and accountability. System that determines responsibility, supervision and accountability of members of the organisation.

•  Unity of command – principle that states that each employee within an LSO should report to only one supervisor.

Management hierarchy •  Top management is involved in strategic planning (3-5

years). Its responsibilities include; Monitoring entire organisation. Devising and revising mission and vision statements

•  Middle management is involved in tactical planning (1-2 years). Its responsibilities include; Translating corporate objectives into specific projects. Developing operational plans. Supervising front line management.

•  Front line management is involved in operational planning (day to day). Its responsibilities include; Supervising employees and operations

• 

Management Structure - Functional Structure

–  Functional model is where employees are grouped into departments according to the tasks they perform; management functions. Eg operations, marketing & human resources. (Traditional structure)

–  Feature – sets clear lines of authority & responsibility as the chain of command extends directly from manager to employees.

–  Feature – allows for specialisation of tasks so that employees can develop their skills and experience in a particular type of work.

–  Feature – Organisation split into separate depts. With related occupations found in each.

Advantages; •  Defined career pathway for employees •  Provision of good opportunities for skill and knowledge

development •  Efficient use of resources; time, labour Disadvantages; •  Lack of flexibility and cooperation due to bureaucratic

nature •  Narrow departmental focus •  ‘empire building’ behaviours among personnel in

departments; gaining and keeping control over something (ie. resources, human resources, finances)

Management Structure - Divisional Structure

–  Divisional model is where employees are grouped into divisions based on products, geographic area, processes or customers.

–  Features – used by organisations producing a range of different products or services.

–  Features – Teams are organised into divisions that relate to end product or services provided by the LSO.

–  Feature – the ability to segregate large sections of the company’s business into semi-autonomous groups.

Divisional Structure

Advantages; •  Direction of expertise at specific customers, products, regions and

processes •  Encouragement of cooperation between departments •  Greater flexibility in adapting to environmental changes Disadvantages; •  Reduced benefits of economies of scale due to duplication of tasks •  Potential to promote rivalry between divisions

Divisional structure

Customers

Geography

Products

Processes

Matrix structure

–  Matrix model is a combination of the functional and divisional models where employees are grouped into project teams and organised by function and division

Advantages; •  Enhanced flexibility; operations can be altered quickly •  Enhanced communication; cooperation and teamwork •  Enhanced decision making; project teams become a critical

source of information •  Pooled expertise; best environment for problem solving Disadvantages; •  Decisions made in project teams can undermine line

authority •  Employees are reporting to more than one manager and this

can lead to a bigger chance of conflict

VCAA EXAM 2010

Question 3  

Ms West has just purchased a designer clothing and manufacturing company. She would like to expand the company and start exporting.

  Compare two potential management structures that would assist Ms West to achieve these aims. Which management structure would you recommend to Ms West? Justify your choice. (6 marks)

 

VCAA Question 3 2010 examiners report Typical management structures selected by students for comparison included the following. Divisional/Geographic – staff are organised in departments based on division; for example, products (T-shirts, socks, hats), customers (men, women, children), geography/region. Functional – Human Resources, Operations, Finance, Marketing, Research and Development. Matrix – combines specialisation with function and division focusing on a project over a period of time. The following is an example of a high-scoring response.

A management/organisational structure is the way in which managers, employees and functions are arranged within an organisation. One management structure is a functional structure, this is where employees are divided by function (Human Resources, Financial management, Marketing etc) and each function has a manager. A different management structure is a matrix structure, this is a horizontal and vertical structure where teams are formed across functional/departmental lines to work on a project or solve a problem. The two structures are similar in that they both have functional departments with managers at the’ top’ of the structure. They are also similar as they have functional departments which allow for specialisation. The two structures are different in that a matrix structure involves teams across functions, where as functional structure does not. A matrix structure will also have more managers than a functional structure as there will be a manager for each team as well as each department. I would recommend that Ms West use a ‘matrix’ structure at her designer clothing company. This is because a matrix structure is more flexible than a functional structure, it also has a greater organisation focus, rather than purely a functional focus, which means employees, will strive to achieve both function specific and organisation –wide objectives. Additionally, Ms West could form a team to discuss the expansion of the company and a team to focus on how and where the company should export. For any problem that arises, or any new venture Ms West would like to do, Ms West can for a team to work on specifically that task.

Functional model • vertical communication • no duplication of tasks

• upholds unity of command • centralised decision making

• task specialisation • inflexible for expansion

• expertise focused on one function

• high level of labour specialisation

Matrix model • horizontal and vertical

communication • duplication of tasks

• does not uphold unity of command

• decentrallised decision making

• flexible for expansion; add divisions/project teams • pooled expertise; most

effective • multitasking; inefficiencies

and high wastage

Divisional model • vertical communication

• duplication of tasks • upholds unity of command

• centraslised decision making • task specialiastion

• flexible for expansion; easily able to add divisions

• expertise focused on one division

• high level of labour specialisation

VCAA EXAM 2008

Question 1 Australian Mineral Resources (AMR and Jerrilderi Mining have been negotiating a merger with the aim of achieving economies of scale. The Chief Executive Officers (CEOs) of the two mining companies have been in discussion over the past three months.

•  The focus of these discussions has been •  The potential problems of merging two well-established companies with

different cultures •  The possible structure of the new entity •  The content of a joint mission statement •  The adoption of a single planning process at the three levels A. Define mission statement (1 mark)

B. Define management structure (1 mark) C. Describe the key features of a matrix management structure

(2 marks) D. Identify and describe the three levels of planning (4 marks)

E. Discuss two indicators of corporate culture the organisation would have considered (4 marks)

VCAA 2006 EXAM Question 1 Southern Furniture Ltd’s mission statement reads   Southern Furniture Ltd is a leader in the manufacturing of household furniture. Our mission is to meet customer needs with the highest quality products and services. This will support the profitability and the growth expectations of our shareholders. We care about the future of our environment and we support programs that protect communities.   The CEO, Mr Gomm, and his senior managers have developed a strategic plan for the next five years. The intention of this plan is to inform all staff within the organisation that changes have to be made. The strategic plan includes the following objectives. • increase market share by 25% in China (an identified growth area) • reduce materials waste by 5% per year • achieve and maintain ISO 9000 accreditation • increase productivity by 8% through the use of new automation/technology In addition, Mr Gomm also announced there would be a review of the current organisational structure to assess whether it is still appropriate. Mr Gomm informed Susan Wu, Human Resource Manager, that the following strategies must be put into action. • the firm will adopt enterprise bargaining agreements • current staff will need to be retrained to use the latest technology • training of staff will now be outsourced    

e. Identify and justify an appropriate management structure that will assist the organisation to achieve its strategic plan. (2 marks)  

Question 2 (2012 VCAA exam) •  Glass Transport is a long-established bulk transport provider, which has recently taken a

decision to invest in becoming a national parcel delivery service. The opportunity that CEO Catherine Glass seized on arose from fast-growing online sales. In order to build the expanded business, a significant number of new staff will be required. Some of these staff could be relocated from the bulk transport division and some will need to be recruited. Service standards will need to be set and new vehicles purchased. Further decisions will be made to determine whether parcel pick-up from residential and business premises will be offered. The major existing competitor in parcel delivery is a government-owned postal service. Its business of delivering mostly letters is declining because of emails and texting. Its delivery infrastructure is mostly suited to letters, not parcels. The growing parcel sector is a highly profitable business opportunity for the organisation that ‘gets it right’. As Glass Transport is becoming more complex in its service offerings, Ms Glass is considering changing the management structure of her organisation.

a. Discuss an appropriate management structure for Ms Glass’s expanding business. (4 marks)

Examiners Report Question 2 - 2012 Appropriate management structures could include •  functional: employees are grouped according to the task they perform, which allows for

specialisation and improves productivity through well-trained staff, career paths and economies of scale. However, it may also lead to a lack of flexibility and cooperation, narrow departmental focus and the possibility for empire building

•  divisional: employees are grouped according to product, service, customer, geographic region or type of business entity. This allows for greater flexibility to adapt to environmental changes; direction of expertise is at specific customers, products, regions and processes; and it allows for the encouragement of cooperation between departments. However, there is also the possibility of duplication of work, reducing benefits of economies of scale and rivalries between division

The following is an example of a high-scoring answer. An appropriate management structure that Ms Glass could employ would be the divisional structure. This is a structure where employees are grouped together regarding the product or service, geography or process they undertake. As Ms Glass’s company is incorporating a new aspect of parcel delivery, she can divide the organisation into the bulk transport division and the parcel delivery service. This enables each area of the organisation to focus on its own service that it provides rather than having one operations manager for two fairly different operations. This focus means greater efficiency and effectiveness is able to be delivered in each of the different operations as each division will develop expertise in their area. This will however, create some duplication of work in some areas such as finance and human resources and she also must ensure that the company remains one company as although it is separated into two major divisions they are still both part of Glass Transport

Corporate culture

•  What does this term mean? •  Elements (how can it be observed?? •  Positive or negative? How can you tell? •  Benefits of having good corporate ethical & socially

responsible culture? •  How can you develop it in the future? •  Indicators that HR managers could use to evaluate

corporate culture •  Causes of change in corporate culture.

Corporate culture

•  Corporate culture refers to the values, attitude, expectations and beliefs within an organisation. The corporate culture of each organisation is unique.

•  Organisations try to ensure that the culture is positive as it impacts on the whole organisation.  

•  Each organisation develops its own particular way of doing things. The style or character of an organisation is consequently reflected in its culture.

•  Corporate culture can be revealed officially in the policies, objectives or slogans of an organisation. It can also be seen in the unwritten or informal rules that guide how people in the organisation behave, such as the way staff dress, the language staff use and the way that staff treat each other and customers.

• 

Elements of a corporate culture

•  Values. The LSO’s basic beliefs, shared among its employees. Eg honesty, hard work, teamwork, quality customer service, employee participation and innovation.

•  Symbols. These consist of events or objects that are used to represent something the organisation believes to be important. For some LSOs, competitive sports are a key feature of the organisation's culture. Other organisations have encouraged employee development and loyalty through the use of training and development programs.

•  Rituals, rites and celebrations. These are the routine behaviour patterns in an organisation's everyday life. Regular social gatherings can be held to help develop a sense of belonging among employees who normally work in small teams during the week.

•  Heroes. Successful employees who reflect its values and, therefore, act as an example for others

Creating and maintaining corporate culture can be done by management in the following ways;

•  Setting an example for lower level employees of how to behave and treat others

•  Recognising and rewarding behaviour and action that is in line with desired culture

•  Hiring and training staff in line with the desired culture •  Communicating to staff what the desired culture is •  Providing a clear mission and vision statement

Examples of positive culture in LSO’s

•  Open communication. •  Allowing employees and front-line managers to have input into decision-

making and taking on board the suggestions and feedback of employees.

•  Recognising employees through ‘employee of the month’ awards, •  Social gatherings and other activities and through the use of language

when staff and managers communicate all influence culture. •  Treating employees respectfully and ethically, with policies to back

this up, as employees know what their rights and responsibilities are and that they will be treated fairly because appropriate policies and procedures are in place

Indicators that HR managers could use to evaluate corporate culture.

•  Staff turnover •  Staff absenteeism •  Employee presentation •  Results of staff survey responses to

measure their level of satisfaction •  Level of participation in employee

training programs

Corporate culture can change/ impact due to; Time •  Corporate culture will change over time as changes are made •  Corporate culture will change as the organisation becomes older

and more established New management •  Corporate culture can change if management has a different

approach; different expectations and standards New employees •  Corporate culture can change if employees bring attitudes and

approaches from previous work environments Changes in structure (mergers) •  Corporate culture will change to fit the new organisation Macro factors •  Laws, economic conditions and changes in work practices can

change corporate culture positively or negatively

Case scenario: possible impact of a takeover on the corporate culture

•  For employees, the initial period after the takeover might be confusing as they could be uncertain about which policies and procedures they are to follow, which could affect the corporate culture in a negative way.

•  The need to change the management style of the organisation. If the styles and approaches are different in each organisation, then this would need to be changed or adapted in the newly acquired organisation. If the management styles are very different, this will impact on the shared values of management and the employees at, particularly if they have had a people-oriented approach to management and are then required to adopt a more task-orientated approach.

•  Can you think of others???

2011 VCAA EXAM

Question 1 A. In the foyer of the head office of Southern Industries hangs a sign

that states ‘Employees are our most important resource. If we look after our staff everything else will take care of itself’. Define the term corporate culture. (1 mark)

B. Describe one way management can develop an organisation’s corporate

culture. 2 marks

Strategies HR managers could implement to develop corporate culture

•  Recruit & select employees that best fit current culture.

•  Clearly communicate goals & direction •  Develop new uniforms, logos, advertising campaigns. •  Review rewards Management programs to encourage

motivation & involvement in org. •  Offer social activities and community service

programs to improve camaraderie.

Benefits of positive corporate culture includes; •  Lower levels of staff turnover •  Increased retention of staff •  Increased levels of staff satisfaction •  Increased employee and organisational productivity

POLICIES

•  A policy is a written statement detailing processes, procedures, rules and regulations that must be observed in a given situation

•  Policies reflect the organisation’s mission and vision •  Provide governing principles that mandate or constrain the

actions of people within the organisation •  A policy guides a member of an organisation about what they are

expected to do in a given situation •  Policies establish expected standards of and guidelines for

behaviour •  Ensure that in a given situation what happens is within

boundaries of what is expected •  Examples of policies include an anti-bullying or a uniform policy

in an organisation.

Procedures

•  Procedures are the steps taken to implement the policy and put it in into practice.

•  A complaints policy, for example, would state what is included and contains the sections making up the policy. The procedure would set out how a complaint is lodged, the required forms to be completed, and what the possible outcomes are. It puts the policy into practice.

•  Effective policies are; •  Plainly expressed so everyone understands them and

implementation is effective •  Clearly communicated so everyone is aware of their existence,

potential and actual changes to them •  Often introduced by training employees and management about

procedures to be followed within a policy and reason for policy

Examples of policies •  Equal opportunity, health & safety, smoking •  Paid parental leave, health & safety, environment •  Internet use, email policies •  Compliance in trade practices, anti competitive behaviour •  Waste policy •  Early childhood, job sharing •  Road funding, safer roads •  Corporation salary, corporate social responsibility •  Dress code, training & development, bullying

Policy development •  The policy development process involves the following steps;

Issue identification

Research & analysis

Stakeholder input

Policy developement

Draft policy is posted

Policy approval

Evaluation

Steps to policy development Issue identification •  People become aware of the need for a new policy or the need to change

an existing policy Research and analysis •  Research is conducted into policies of competitors, trading partners and

organisation’s that are known to have ‘best practice’ to determine possible alternatives

•  Assessment of what is needed in the new or updated policy is conducted Stakeholder input •  Stakeholders are informed of possible impending policy change and why

change is required Policy development •  Draft policy or policy amendment is prepared considering stakeholder

views and input Draft policy is posted •  Draft policy is made public and stakeholders are invited to give feedback Policy approval •  Necessary changes are made •  Appropriate level of approval is obtained Evaluation •  Was the policy effective?

2011 VCAA EXAM

Question 3 •  Jason Green is an Operations Manager who has just moved from

an organisation that provides Internet services to an organisation named Trendsetters, that manufactures clothing. His supervisor has indicated that one of his first tasks is to work with the Human Resource Manager to update the firm’s employee relations policies. Jason is concerned about making changes too soon after he arrives. 

•  Define the term policy. (1 mark)

Managing ethical issues in the internal environment

•  Ethics can be defined as a set of moral principles and values that an organisation develops for people to follow. It is often an internal focus.

Examples: •  Ensuring employees are treated fairly and are recognised in

a number of ways for their achievements. •  Having policies in place that are designed to develop

employees and provide them with career opportunities. Issue •  Costly and time-consuming; however, in the longer term a

company gains and maintains well-trained and loyal employees.

Social responsibility is the accountability of the business towards its stakeholders and how the organisation can contribute to society beyond its products and services

Examples •  Contributing to the local community. Eg working with local

businesses and providing sponsorships and scholarships for people in the local community, sustainability

Issues •  These programs require financial, personnel and time outlays;

however, in terms of developing good relationships with its external stakeholders, these actions are examples of the social responsibility in practice..

REMEMBER KEY TASK WORDS

•  Compare (similarities & differences) •  Discuss (look at both sides of an issue) •  Justify (give reasons why)

•  ALSO a reminder you must always define key terminology even if question does not specify.

•  Identify, explain, link (to case study)