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Strategic Management


This compendium provides a comprehensive overview of the most important topics covered in a strategy course at the Bachelor, Master or MBA level. The intention is to supplement renowned strategy textbooks such as Johnson and Scholes.

This compendium is designed such that it follows the structure of a typical strategy course.

Throughout this compendium theory is supplemented with examples and illustrations.

The Basis of Strategy: Structure

Introduction –definition ‘Structure’ is the allocation and control of work tasks

This implies power relationships based on the acceptance of managerial power by subordinates and society – this use of power is termed the ‘legitimacy’ of management – which Max Weber called its ‘authority’.

All organisations have some form of structure, based on ‘the established pattern of relationships among the individuals, groups and departments within it’

There are two structures -- a vertical structure of authority and responsibility where clear limits of financial authority exist, and a horizontal structure of groupings of activities designed to use the resources towards goal-attainment.

The horizontal structure can be changed from time to time, to suit the environment (see later sections on the internal and external environments).

The basic vertical structure of an organisation is a relatively static framework within which processes such as communication, leadership and decision-making take place. In most organizations, structure will be illustrated in the form of a chart.

Functional Structure

This is the most common form of structure. This divides the organisation up into its main activities or functions (production, sales, accounting and so on) in which all similar specialist activities are grouped together into interdependent departments.

A manager is placed in charge of each function under the overall control of the owner or a senior manager.

Advantages of a functional structure

• Specialised resources are used efficiently.
• Quality is enhanced by other specialists from the same functional area.
• Opportunities exist for extensive division of labour.
• A career structure enables people to advance within their functional specialism.
• It is easier to manage specialists if they are grouped together, especially when the manager has the same experience.
• It fosters communication between specialists and enhances the development of skill and knowledge.
• It does not duplicate specialist resources throughout the organisation and promotes economies of scale.
• It is suited to conditions which stress functional specialism, where the environment is stable, and when the technology is routine, requiring little interdependence between departments.

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