Organisational structure and design

Accounting Ahead | Original study resource | accountingahead.com.au

Organisational structure and design

MODULE 6 | 6.2.2 | STUDENT COMPANION

Structure (or organisational design) divides work into distinct tasks and roles and coordinates them

through levels, responsibilities and reporting lines. A good design supports goals already set, suits the

organisation's challenges and balances stability against the need for change. It is the vehicle through which

strategy is carried out.

Three components of structure

Complexity

How far work is differentiated:

horizontally across units at the same

level, and vertically into levels of

hierarchy

Formalisation

How far jobs are standardised by

written descriptions, policies and

procedures: consistency, but less

flexibility

Centralisation

Where decisions are made: at the top,

or pushed down to local managers.

Coordination versus speed

Every structure balances control and consistency against speed, flexibility and responsiveness

Formalisation in practice: a fast-food kitchen's step-by-step procedures keep every meal the same, but the

same rule book would stifle a team designing next season's menu.

What drives the design

Driver Typical effect Corella Partners (imagined)

Purpose or mission The starting point: the simplest structure that

lets the work run

Advice that helps clients grow

Strategy Responding to local markets favours

decentralisation

Industry expertise needs national teams

Environment Stable: routine structures; uncertain: flexible

ones

Software is automating compliance work

Technology Mass production: taller; digital: flatter Online tools link six offices

Size Large organisations must decentralise some

decisions

450 staff in six offices

People and culture Skilled professionals expect autonomy Qualified accountants want a say

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Accounting Ahead | Original study resource | accountingahead.com.au

Centralised or decentralised?

Centralised (tall)

Many levels of management

Authority held at the top

Narrow spans of control

Strengths: consistency, coordination, control

Decentralised (flat)

Fewer levels

Authority pushed down to middle and junior managers

Wide spans of control

Strengths: speed, responsiveness, motivation

About 1,100 people: spans of 10 need four levels; spans of 5 need six

The span-of-control arithmetic: with about 1,100 people and every manager supervising 10, four levels are

enough (1 + 10 + 100 + 1,000). With spans of 5, six levels are needed, bringing more managers, more cost and

slower communication. The long-term trend is towards decentralisation and empowerment, but organisations

often re-centralise in a downturn to control costs.

Outsourcing: the case for and against

Corella outsources routine compliance processing but keeps client relationships and quality review in-house; a

small team samples the outsourced work, and the contract sets service levels and data-protection rules.

For Against

The provider does the work better or more cheaply Can hollow out the company

Frees resources for the activities that build advantage Dependence on suppliers for quality and control

Less bureaucracy; a flatter, more flexible organisation Loss of skills needed to shape the future

Access to specialist expertise (for example, cloud

services)

Risks must be actively managed

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Accounting Ahead | Original study resource | accountingahead.com.au

Mechanistic or organic?

Mechanistic

People managed like parts of a machine

Many rules and regulations

Motivation mainly from pay

Authoritarian style

Centralised and formalised

Power from formal position

Organic

People as the most important resource

Shared principles and symbols over rules

Motivation from the work itself

Participative style

Decentralised

Comfort with ambiguity; initiative

Power from expertise

Mechanistic designs suit stable settings; organic designs suit turbulent ones

No organisation is purely one or the other: what matters is which principle dominates and whether it fits the

environment. Research also suggests giving the employee's experience more weight in design decisions

(Kessler, Nixon and others, 2016). Digital platforms blend both: physically decentralised, yet some enforce strict

central standards through their apps, while others let two-way ratings regulate quality.

Case note: Zappos and holacracy

In 2013 the online shoe and clothing retailer Zappos, owned by Amazon since 2009, announced it would adopt

holacracy, a system of self-management that replaces traditional managers with self-organising circles and

roles. In March 2015 chief executive Tony Hsieh offered at least three months' pay to employees who did not

want to embrace self-management: about 14% (210 of roughly 1,500) took the offer by May 2015, and about

18% by early 2016, in a year when total staff turnover reached 29%. Zappos later moved away from strict

holacracy. Self-management can release initiative, but a structure that runs ahead of what its people want can

cost the talent the strategy needs.

Sources: Fortune, 4 March 2016; HR Dive, 10 May 2015; Amazon Form 10-K, 2009.

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Accounting Ahead | Original study resource | accountingahead.com.au

Practice questions

MODULE 6 | 6.2.2 | TRY THESE BEFORE THE WORKED ANSWERS

Question 1 - Rate the structure

Pelican Air (an imagined regional airline) has eight levels of management; a 300-page operations manual

followed to the letter; every route and pricing decision made at head office; and pilots, cabin crew and engineers

in separate departments. Rate each component and suggest one change that would help a strategy of faster

local decisions.

Component Low, medium or

high?

Evidence

Complexity (vertical)

Complexity (horizontal)

Formalisation

Centralisation

Question 2 - Outsource the IT?

Ridgeline University (imagined) is considering outsourcing its IT infrastructure and help desk to a cloud provider.

Give three arguments for, three against, and two ways to manage the risks.

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Accounting Ahead | Original study resource | accountingahead.com.au

Question 3 - Mechanistic or organic?

Feature of Inkwell Design Studio (imagined) Mechanistic or organic?

(a) Designers choose their own projects within broad themes

(b) A 90-page manual governs all client work

(c) Pay is modest; people stay for the creative work

(d) The founder personally approves every proposal

(e) Teams form and dissolve around projects

(f) Influence comes from whoever has the best ideas

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Accounting Ahead | Original study resource | accountingahead.com.au

Worked answers

MODULE 6 | 6.2.2 | WORKED ANSWERS - ATTEMPT THE QUESTIONS FIRST

Question 1 - Pelican Air

Component Rating and evidence

Vertical complexity High: eight levels of management

Horizontal complexity High: separate departments for pilots, cabin crew and engineers

Formalisation High: a 300-page manual followed to the letter

Centralisation High: all route and pricing decisions at head office

One change Give regional managers authority over local schedules and fares within limits, and

remove one or two management levels

Question 2 - Ridgeline University

For Against Managing the risks

Specialist expertise and up-to-date

security

Dependence on one provider Service levels and penalties in the

contract

Lower and more flexible costs Loss of in-house IT skills Keep a small in-house team to

manage the provider and the IT

strategy

Frees staff to focus on teaching and

research systems

Data privacy and control concerns Data-protection terms, audits and an

exit plan

Question 3 - Inkwell Design Studio

Feature Classification

(a) Choose own projects Organic: initiative and autonomy

(b) 90-page manual Mechanistic: formalisation (useful for consistent client work)

(c) Stay for the work Organic: intrinsic motivation

(d) Founder approves all Mechanistic: centralised decisions

(e) Teams form around projects Organic: flexible, decentralised

(f) Best ideas win Organic: power from expertise

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