Page 37 - DMGT514_MANAGEMENT_CONTROL_SYSTEMS

Management Control Systems

Notes 3.5 Structure in an Organization

A firm’s strategy has a major influence on its structure. The type of structure in turn influences
the design of the organizations management control system. Although organizations come in
all shapes and sizes their structures can be grouped into following:

3.5.1 Entrepreneurial Structure

The entrepreneurial structure is the most elementary form of structure and is appropriate for an
organisation that is owned and managed by one person. A small-scale industrial unit, a small
proprietary concern, or a mini service outlet may exhibit the characteristics of organizations
which are based on an entrepreneurial structure. The owner manager looks after all decisions,
whether they are day-to-day operational matters or strategic in nature.

Owner Manager

Employees

The advantages of this type of structure are:
1. Quick decision making as power is centralized
2. Timely response to environmental changes
3. Informal and simple organisation systems.

The disadvantages are:
1. Excessive reliance on the owner-manager and so proves to be demanding for the owner
manager

2. May be fully busy with day-to-day matters and ignore strategic decision
3. Increasingly inadequate for future requirements if volume of business expands.

3.5.2 Functional Structure

As the volume of business expands, the entrepreneurial structure outlines its usefulness. The
need arises for specialized skills and delegation of authority to managers who can look after
different functional areas.
The rationale for the functional form of organisation involves the notion of a manager who
brings specialized knowledge to bear on decisions related to a specific function as contrast to
general purpose manager who lacks that specialized knowledge. A skilled marketing manager
should make better marketing decisions and a skilled production manager should make better
production decisions than that made by a generalist who is responsible for both marketing and
production. Further in terms of need satisfaction a functional organisation tends to bring together
people with similar skills and interests and these groups are more congenial and more likely to
recognize individual’s skills. Thus, an important advantage of functional organisation is its
efficiency.

There are several disadvantages to a functional structure:
1. There is no unambiguous way of determining the effectiveness of the separate functional
managers e.g. the managers of marketing and of production contributes to the final output.
There is no precise way of determining how much of the profit is earned by each function.

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