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ThesyllabusforPaperF1,AccountantinBusinessincludesthetheoryoforganisationsandrelated
topics.Candidatesmustbefamiliarwiththedifferentorganisationalstructuresthatcanbeadopted,as
wellasrelatedconceptssuchasdepartmentalisation,divisionalisation,centralisationanddecentralisation,
spanofcontrol,scalarchainandtallandflatorganisations.

Inadditiontothesetopics,candidatesshouldalsostudysomeofthemorecontemporaryorganisational
models.Theseincludeboundarylessorganisationsandsharedservicesorganisations,bothofwhichare
examinableforthefirsttimein2014.

Thisarticleprovidesanoverviewofsomeoftheseconcepts.

PURPOSESOFORGANISATIONS
Anorganisationisagroupofpeoplewithacommonpurpose.Thepurposeisdefinedbytheentityfor
whichtheywork.Insmallerbusinesses,suchaspartnershipsandsmallcompanies,itiscommonfor
thosewhoworkfortheorganisationtohavecreatedit,ortohavehadsomepartincreatingit.By
contrast,largerorganisationshavetoemployorinvolvemorepeople,themajorityofwhichwillhavelittle
ornoconnectionwiththefoundersorowners.

THEDEVELOPMENTOFORGANISATIONS
Organisationshavebeenaroundforthousandsofyears.ThemightyarmiesofGreeceandRomewere
organisations,andthePhoenicianmerchantswhopliedtheirtradeacrosstheoceanscouldnothaverun
successfulbusinesseswithoutsomeorganisationalstructure.Whenevertwoormorepeoplecome
togethertopursuethesameoutcomes,wehaveanorganisation.Organisationsexistbecausesynergy
canbeachievedbycombininghumanresources.Together,thoseinanorganisationcanproducemore
thanthesumtotaloutputofindividualsworkingalone.

Theindustrialrevolutionoftheeighteenthandnineteenthcenturiesbroughtaneedformoresystematic
andformalconsiderationofhoworganisationsshouldbeconfigured.AdamSmithusedtheexampleof
thedivisionoflabourinapinfactorytodescribethebenefitsofspecialisation:

Onemandrawsoutthewire,anotherstraightsit,athirdcutsit,afourthpointsit,afifthgrindsitatthetop
forreceivingthehead:tomaketheheadrequirestwoorthreedistinctoperations:toputitonisa
particularbusiness,towhitenthepinsisanother...andtheimportantbusinessofmakingapinis,inthis
manner,dividedintoabouteighteendistinctoperations,whichinsomemanufactoriesareallperformed
bydistincthands,thoughinothersthesamemanwillsometimeperformtwoorthreeofthem.(The
WealthofNations,1776)

Generally,businessesstartassmallentities,andmanyremainso.Everycountryintheworldhas
thousandsofsoletraders,manyofwhichworkaloneandareabletomaketheirlivingwithoutinvolving
others.However,iftheactivitiesofthebusinessgrow,iteventuallybecomesnecessarytoutilisethe
labourofothers.Infamilyconcerns,thetradermayinvolveaspouse,childrenorsiblings,andthismay
notevenrequirethecreationofanycontractualrelationships.Yetitdoesrequiresomedegreeof
organisation.Whocarriesoutwhichtasks?Doeseverybodydothesameworkordoeseachindividual
specialise?Towhatextentshouldeveryonebeabletocarryoutthetasksusuallyreservedforothers?
Howdoweensurethatallworkisdone,butthereisnowastefulduplicationofeffort?Thesequestions
canbeaddressedinarelativelyinformalmannerinasmallbusinesswhereallcontrolisinthehandsofa
singleperson.However,theverysamequestionshavetobeaskedinthelargestandmostcomplex
businesses,andforthesetheanswersarelessstraightforward.

THEENTREPRENEURIALSTRUCTURE
Theentrepreneurialstructureisadoptedbysmallerbusinesses.Itissimple,informalandveryfluid,inthat

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itmaychangeonadaytodaybasis.

Thisstructureisadoptedbysoletraderswhoemployothers,somesmallpartnershipsandsomesmall
companies.Thosewhoownandcontrolthebusinesstakedecisionsontheworktobedone,howitwillbe
doneandbywhom.Itisquitecommonforemployeestobeexpectedtomultitaskandnottoexpectrigid
jobdescriptions.Specialisationmaybepossible,suchasafamilymemberdealingwithbookkeeping,but
thatindividualmayalsoberequiredtocarryoutadditionaltasks,perhapsifthereisnobookkeepingwork
tobedoneatcertaintimes.

Theentrepreneurialstructureisperfectformanysmallbusinesses,butistooinformalandcanevenbe
chaoticoncethelevelofbusinessactivityreachesacertainlevel.Eventually,theentrepreneurhasto
considerformalisingtherolesthatemployeesplay,andcreatingjobswithdefineddutiesand
responsibilities.

THEFUNCTIONALSTRUCTURE
Thefunctionalstructureisthemostcommonorganisationalmodel.Itisusuallydepictedasatriangle,with
thechiefexecutiveofficeratthetopandreportinglinesofothersflowingvertically.Thefunctional
structureisformallydepictedasanorganisationchart.Figure1showsatypicalorganisationchart.

Thedutiesofindividualsareallocatedaccordingtothefunctionstheyperform.Forexample,asmall
companymayhaveaproductionmanager,financemanager,salesmanagerandITmanagerreportingto
thechiefexecutiveofficer.Eachofthefunctionalmanagersisresponsibleforadepartment.

Manylargercompanieshavegeneralmanagersorassistantgeneralmanagersresponsibleforgroupsof
functions.Forexample,theGeneralManager(Marketing)mayberesponsibleforadvertising,public
relations,merchandisinganddirectsales,andtheremaybeadepartmentalmanagerresponsiblefor
eachoftheseactivities.

Foreachfunction,employeesaregroupedtogethertoperformsimilarorcomplementarytasks.Justas
theorganisationasawholecanberepresentedonanorganisationchart,sotoocaneachdepartment.
Figure2showshowafinancedepartmentmightbeorganised.

Thefunctionalstructurehasseveraladvantages:
itfacilitatesspecialisation,bybringingtogetherthosewiththeknowledgeandskillsnecessarytocarryouteach
function,andthereforeshouldcreateeconomiesofscale
itenablestheorganisationtooperatethroughclearlinesofauthorityandwelldefinedresponsibilities,withall
employeesknowingtowhomtheyreportandforwhomtheyareresponsible
itpreventsduplicationofeffort,therebyreducinginefficiencies
itaccommodatesspecialists.

Thedisadvantagesofthefunctionalstructureare:
itcanbeinflexible,particularlyinaperiodofrapidchange,andineconomicsystemswhereitisdifficultorcostlyto
recruitordismissemployees
itencouragesdemarcationlinestobecreated,whichmaymakeemployeesreluctanttocarryouttasksthatthey
considernottobetheirresponsibility
asorganisationsbecomelarger,theremaybecoordinationproblemsasthenumberoffunctionsincreases
asinformationtendstoflowthroughformalorganisationallines,largerorganisationsmayencountercommunication
problems
somearguethatthefunctionalmodelistooinwardlooking,focusingonprocessesinsteadofconsideringdeliverables
definedbycustomerneeds.

Thefunctionalstructureiscommontomanyorganisations,butdifferentconceptscanbedeployedwithin
it.Forexample:
theorganisationcanbetallorflat:tallorganisationshavemanylevels(alongscalarchain),whileflatorganisations
havefewerlevels
theorganisationmayhavemanyemployeesreportingtoeachmanager,fewemployeesreportingtoeachmanager,or
acombinationofthese:thissocalledspanofcontrolwilldependonmanyfactors,includingthenatureofthework,
varietyoftasksperformed,capabilitiesofemployeesandriskfactors
someorganisationsconcentrateauthorityatthetopofthemanagementhierarchy,withkeydecisionstakenbysenior
executives,whileothersempowersubordinates,withgreaterdiscretionpermittedfurtherdownthemanagementchain:
thisrelatestotheconceptofcentralisationanddecentralisation.

Functionalorganisationbyproduct
Thefunctionalmodelcanbeadaptedfororganisationsthatofferarangeofproducts.Justasmanagers
responsiblefordifferentproductscanreporttotheproductmanager,itisalsopossibleforeachproduct
managertohavehisorherownfunctionalstructure.Inthisway,severalfunctionsareduplicatedacross
theorganisation,asthemanagerresponsibleforeachproductmayhavetheirownproduction,sales,
marketing,financeandadministrationdepartments.ThisisshowninFigure3.

Thisorganisationstructureissometimesappropriateifthedesign,productionandmarketingofeach
productisuniqueorsignificantlydifferenttothoseforotherproducts.Thisstructurecanalsobesuitableif
productsaredistinctivebrands.Forexample,somemanufacturersofdetergentsofferbothquality(or
premium)productsanddiscountproducts.Althoughtheycompetewithoneanothertosomeextent,the
productsareusuallytargetedatdifferentmarketsegments.

Functionalorganisationbygeographicalregion
Manyorganisationsoperateacrossdifferentregions,oracrossinternationalfrontiers,sotheymay

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considerittobeappropriatetomaintainseparatefunctionalstructuresineachlocation.Thisapproachis
notappropriatetoallgeographicallydispersedbusinesses,butissuitablefororganisationswhose
geographicallocationshavedistinctivebutcontrastingcharacteristics.Forexample,companieswitha
presenceintheUK,IrelandandGermanywouldbeabletoidentifymajordifferencesinthedemographic
profiles,personalandfamilyvaluesandtastesinthethreelocations,whilecompaniesoperatingin
Belgium,LuxembourgandtheNetherlandswouldidentifydifferencesthatarelesscrucialincommercial
terms.

Functionalorganisationbygeographicallocationisespeciallyimportantforlargecompaniesthatoperate
acrossseveralcontinents.

MATRIXSTRUCTURE
Thematrixstructureevolvedincompaniesthatsoughttoovercomesomeoftherigiditiesofthefunctional
organisationstructure.ItwasfirstdeployedintheaerospaceindustryintheUSAinthe1950s.

Themostcommonapplicationofthematrixstructureisthecreationofanextralayerofresponsibilities
acrossthetraditionalfunctionalstructure.Aswellhasoccupyingapositionintheorganisationalpyramid,
whichdefineslinerelationships,employeeshaveresponsibilitiestoprojectmanagers.Inthisway,the
employeemayhavetwoorevenmoremanagers.Forexample,anindividualworkinginthefinance
departmentmayreporttotheheadoffinancebutmayalsohavesomedutiesinrelationtoIT/ISor
marketingprojects.Themanagersresponsiblefortheseprojectswillbeabletocalluponstaffacross
organisationalboundariesonaformalbasis.

Figure4showsthematrixorganisation.

Matrixorganisationscanbetakenfurtherinenvironmentsthatarelessdependentonrigidchainsof
commandandlinesofcommunication.Forexample,insomeprofessionalfirmsandconsultancies,a
positioninafunctionalorganisationchartisonlyimportantforthepurposeofestablishingaccountabilities
underemploymentlaw.Asoneindividualworkinginsuchanorganisationputit,whenaskedWhoisyour
manager?,thereplywasItdependswhatdayitis.

Thereareseveraladvantagesofadoptingamatrixstructure:
byinvolvingindividualsformallyinteamsallocatedtospecificprojects,theorganisationcancapitaliseonthe
knowledge,skillsandexperiencetheycanoffer
communicationlinesareshortenedinthatprojectmanagerscandealwithstaffassignedtothem
bureaucracyshouldbereduced
employeesjobsareenriched,andthismayimprovemotivation
moreambitiousindividualscanexploitopportunitiesmadeavailabletothemandmorereadilypursueadvancement
cooperationbetweendepartmentscanbeincreased,andthedisadvantagesofworkbeingdemarcatedbysiloscan
bereduced
thematrixapproachmaymakeemployeesmoreresponsivetochangeandmorewillingtowelcomechange.

Thedisadvantagesincludethefollowing:
thematrixstructuresacrificesthenotionthateveryemployeeshouldberesponsibletoonemanager,andthiscan
resultinconflictingdemandsontheemployee,intermsofwhatworkshouldbedone,howtimeshouldbeapportioned
andhowworkshouldbecarriedout
thedifferentmanagerstowhomtheindividualreportsmayhaveverydifferentstyles,whichmaycreateconflict,oreven
confusionastothebestorcorrectapproach
thematrixstructurecreatesadditionaltimemanagementpressures,whichmayhaveaneffectoncosts
ifthematrixisnotdesignedorimplementedsystematically,itcancreateorganisationalinefficiencies,suchasslower
decisiontaking.

BOUNDARYLESSORGANISATIONS
Traditionally,organisationsbringpeopletogetherinoneormorephysicallocationsinordertoprocess
inputsandcreateoutputs,allwithinaformallydefinedstructure.Advancesininformationcommunications
technologyhaveresultedinnewapproachesthathaveredefinedwhere,whenandhowpeoplework.The
mostobviousevidenceofthisisthereductioninrelianceonthe9.00amto5.00pmworkingday,the
emergenceofflexibleworkingarrangementsandincreasesinworksharingandhomeworking.
Organisationshavealsoadoptednewwaysofconfiguringrelationships.

Virtualorganisation
Avirtualorganisationisonewhichoperatesprimarilythroughelectroniccommunications,taking
advantageoftheefficienciesmadepossiblebyinformationtechnology.Itremovesmanyofthefeaturesof
theworkingenvironmentthatwereoncetakenforgranted,suchasbringingmanagersandstafftogether
atadefinedlocation.Peopleworktogetherremotely,withlittleornodependenceonphysicalpremises.
Instead,communicationstakeplacethroughmediasuchasemails,econferencing,extranetandintranet.
Thisvirtualaspectoftheoperationsometimesextendstolinkswithsuppliers(upstream),andcustomers
(downstream).Byextendingthevirtualconcepttocustomerrelationships,thedependenceonretail
premisesandcustomerfacingstaffiseliminated.Amazonisoftencitedasthefirstmajorvirtualbusiness
inthisrespect.

Thevirtualorganisationmodelcanbeadoptedwhollyorinjustcertainpartsofthebusiness.For
example,onemajorinsurancecompanymaintainsalargeheadofficewhichservesasabasefor
functionaldepartments,butmanyofthestaffworkingforcertaindepartmentsworkfromhomeandrarely
ifeverneedtovisittheoffice.

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Someserviceorganisationscanadoptthevirtualapproachinitsentirety,withatokenphysicalpresence
ataregisteredofficetosatisfystatutoryregistrationrequirements.

Theadvantagesofvirtualorganisationsare:
Costscanbegreatlyreduced,asthereislessdependenceonpremises.Thiscanresultinsignificantreductionsin
overheads,suchaselectricity,water,mortgageorrent,andservicestaff.
Theadoptionofebusinesssolutionscancreateefficiencies,suchasautomatedreorderingandseamlesstransaction
processing.Infact,whilethevirtualorganisationisarelativelynewbusinessconcept,manyofthetechnologies
deployedhavebeenavailableformanyyears.Forexample,electronicdatainterchange(EDI)wasfirstdevelopedin
the1960s.
Jobswiththeorganisationmaybemoreattractive,astheneedfordailycommutingisremoved.Thiscanbe
particularlyappealingtothosewithfamilycommitmentsatcertaintimesofday,andthosewhowouldbedeterredfrom
workingduetothecostoftransportandcarparking.
Thevirtualorganisationhasamodernimagewhichmayappealtoseveralstakeholdergroups,includingcustomers,
suppliersanddistributors.Increasingly,thisapproachtobusinessalignswiththeexpectationsofsuchgroups.

Thedisadvantagesofvirtualorganisationsare:
Thereisheavyrelianceoninformationtechnology,soifthingsgowrongthiscanhaveacatastrophiceffect.Problems
canarisefromlackofconnectivity,hardwareandsoftwarefailures,malwareandsecuritybreaches.
ThosewholackbasicITskills,orareunpreparedtouseinformationtechnologyequipment,havenoprospectofdoing
businesswithvirtualorganisationsorworkingforthem.
Insomecultures,thereremainsapreferenceforthepersonaltouch,sovirtualorganisationsmayfinditdifficultto
achieveafoothold.
Someofthosewhoworkforvirtualorganisationsfeelisolatedasdirecthumaninteractiononafacetofacebasisis
minimal.Feelingpersonallyconnectedtoaworkgroupcanbemotivational,andthiseffectislostwhenmembersof
teamsdonotmeetonaregularbasis.

Holloworganisation
Aholloworganisationisonewhichreliesheavilyonoutsourcing,enablingittomaintainlowstaffinglevels
whilecapitalisingonthecompetencesofpartnerorganisations.

Themostcommonapplicationofthismodeliswhereanorganisationidentifiesthosecompetencesthat
arecoreandmustberetained.Thesearethenkeptinhouse,whileallnoncoreoperationsare
contractedout.

Theholloworganisationmustforgestrongstrategiclinkswithtrustedpartners.Anexampleofthis
organisationalformisNike,asportsgoodsmanufacturer,whichsubcontractsproductionactivitieswhilst
maintainingtotalcontroloverdesignandqualityspecifications.

Modularorganisation
Amodularorganisationextendsthehollowconceptbybreakingdownproductionprocessesintomodules.
Productionisoutsourced,buteachexternalorganisationisresponsibleforonlyoneelementofthe
process.Forexample,inproducingtheDreamlineraircraft,Boeingentersintocontractswithmany
suppliers,eachofwhichisresponsibleforonecomponentorassembly.Theoutputsofthesesuppliers
canthenbeintegrated.

Themodularorganisationisamoreefficient,contemporaryversionofthemodelpreviouslyusedbymany
carmanufacturers,whooftenownedthesubsidiarieswhichproducedcomponentsthatmakeupthefinal
product.Themodularorganisationremovestheneedforcomplexownershipstructuresthroughholding
companiesandsubsidiaries,andalsocreatesforcedefficiencies,asthoseresponsibleforeachmodule
havetocompetewithorganisationsinthesamemarketplacefortheirservices.

SHAREDSERVICESORGANISATIONS
Thesharedservicesorganisationisamediumthroughwhichdefinedservicescanbeprovidedacrossthe
organisationbyadedicatedunit.Thisdiffersfromoutsourcing,inthatthesharedservicesprovideris
actuallyapartoftheorganisation.

Sharedservicesorganisationsreducethelevelofduplicationoftasks.Forexample,insteadofeachpart
oftheorganisationemployinghumanresourcesorinformationtechnologyspecialists,theseservicescan
beprovidedcentrally,throughasingleteam.Inthisway,theycanreducecostssignificantlyandalso
standardisethepoliciesandprocessesacrossthebusiness.Managementandoperationalsupportcanbe
deliveredthroughfacilitiessuchashotlinesorhelpdesks.

Anexampleofaveryeffectiveuseofthesharedservicesconceptistheprovisionofprofessionaltraining
coursesandsupportacrosslargeconsultancyfirmsoperatingonaregionalormultinationalbasis.

Whiletheuseofsharedservicesorganisationsisincreasing,themodelisnotsuitableforall.For
example,ifthebusinessunitsareverydiverse,acentralisedmodelmaynotbeappropriate.Ithasalso
beensuggestedthatpotentialcostreductionsshouldnotbeoverestimated,asmanyorganisationswill
stillrelyonlocalprovisiontomeettheidiosyncraticneedsofeachbusinessfunctionorlocality.

WrittenbyamemberofthePaperF1/FABexaminingteam

Lastupdated:20Apr2015

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