Training Blog

Issues about structure are recurring matters of debate and dispute in most businesses. This is because they include matters relating to departmental and sectional groups, the pattern of reporting relationships, the cycle of meetings, information systems, and rules and procedures. A business might be structured in various ways: by function, by product, by service or by geography.
As is the case with most aspects of business, it is unlikely that there is any one ‘best’ model for structure. You would not expect businesses with a professional orientation, such as a legal or medical practice, or a not-for-profit business such as a church or theatre company with a strong values base, to have the same business or management structure as a supermarket or high street bank. The structure of a co-operative would enable the broad-based participation and involvement of its members, while a legal practice would need a more collectivist or collegiate structure. The challenge facing all types of businesses is to develop a structure that recognises what is required while still achieving an efficient use of resources and providing effective services to customers.

Whatever the business, however, structure is pivotal in the relationship between task (what the business does) and process (how the business does it). It is through the medium of its structure that the values, commitments, purposes and aspirations of the business are implemented. Structure has to translate values and processes into a practical, working reality – and to do this while delivering profit to its owners and value to its customers. Functional structures might work best when departments need regular communication with each other. However, a disadvantage may be that functions and the people who work in them may become rather insular.

Structuring by product or service can help to achieve better responsiveness to customer needs, although it might mean professional or functional expertise becomes fragmented. A geographic structure has advantages for a large international business because there are likely to be differences between the markets it serves. There are also likely to be language and cultural differences. However, structuring by location may be problematic in terms of communication and information flows, and support functions such as finance and ICT may have to be duplicated.

SWOT
• STRENGTHS
• WEAKNESSES
• OPPORTUNITIES
• THREATS
Analysing these gives businesses an overview of their position in relation to their external environment. The strengths and weaknesses of a business arise from its internal environment; that is, resources and their use, structure, culture and the different business functions. Which strengths a business decides to build upon and which it seeks to minimise depends on the impact of opportunities and threats from the external environment. Once the external influences on a business have been identified, they can then be judged to be either a threat or an opportunity and can be dealt with, or taken advantage of, as appropriate.

One method of undertaking a SWOT analysis is to consider strengths, weaknesses opportunities and threats in relation to four key business functions: marketing, operations, human resources and finance.

It is very easy to take a basic view of the relationship between business and society. On one hand, some people argue that the aim of business is to do good in the world. On the other hand, some economists claim that the business of business is simply to make profits and it’s not for business managers to make judgements about the needs of society, that is the concern of others, such as politicians. Like most simplified views, these are probably both wrong, or at least overstated. The reality is that society and business depend on each other – businesses are part of society and vice versa – and, like all forms of interdependence, this provides benefits, but also imposes obligations on both parties.

The role of business is largely economic. Unless a business performs its economic functions it will not have the resources to perform other roles, nor will it survive long enough to be an agent for any form of change. Businesses live to produce goods and provide services that society wants and needs, at a profit, and they can’t take on additional responsibilities unless they perform these tasks successfully. At the same time, business depends for its survival and long-term prosperity on society providing the resources – people, raw materials, services and infrastructure – which it needs to operate profitably. Society provides other, less corporeal, inputs to business. Which include a means of exchange (money); a legal system that is effectively policed and enforced; defence and trade arrangements.

These, in turn, depend on the members of the society supporting the values and norms that the business endorses. There is an unspoken contract between businesses and the communities in which they operate. A business is expected to create wealth, supply markets, generate employment, innovate and contribute to the maintenance of the community in which it is situated. Businesses, including their shareholders and other stakeholders, depend on the communities in which they operate for their existence and prosperity. The fundamental role of business is to provide the means by which the needs of the community are met, in the form of goods and services, jobs and income from taxes paid by the companies and their employees. The infrastructure on which industry depends requires long-term commitments (hospitals, schools and so on), and communities expect that businesses will match this with long-term investments. Business is also required to act legally and responsibly with respect to health and safety at work, employment conditions and environmental issues.

How do businesses in practice reconcile the demand for greater profit, lower costs, or ‘more for less’, with the interests of society to secure employment, protection of the environment and tax income? The degree of conflict between maximising profit and serving the interests of the community will depend on the type of business and its relationship with the community. If it is a major employer in the area, or a major customer of local suppliers, then its actions are going to have a substantial impact on the community. The community is a major stakeholder, and there are correspondingly serious obligations on the business to consider the interests and views of the local community when making decisions. This is likely to be in its interests because it will probably depend on local support for business plans. However, increasing globalisation can weaken a business’s ties with its local community. Its headquarters may be in one country, its plant managers from another, its suppliers from yet another, and its profits accounted for in whichever country it is most tax efficient to do so.

It is important that there is communication between the business and its stakeholders. This can be at both the formal and the informal level. Many businesses, for example, encourage their employees to participate in local activities. Typically, companies are good at communicating when they want something, such as planning permission, but allow communication links to lapse when there are no pressing needs.
Many decisions that may seem quite trivial to a business may be of great importance to the local community. An example would be the routeing of delivery trucks. Unnecessary bad feeling can be avoided if the community’s interests are taken into account.

Environmental issues often create tension. Businesses may seek to operate to the lowest legally permissible standards, and may thereby create distrust and suspicion among local residents. On the other hand, local opposition may be voiced through pressure groups that are overtly anti-industry and whose arguments are therefore instinctively rejected by companies, even when they express valid concerns.

The definition of a stakeholder is people or groups who have legitimate interest in activities of businesses and other organisations in their society.
The stakeholder concept is important for 2 main reasons. Firstly it emphasises the fact that stakeholder groups have differing interests. Secondly it highlights the relationship between businesses and their external environment.
There are 4 points that also need to be kept in mind when thinking about stakeholders:

• All businesses have internal stakeholders. They also have external stakeholders these are usually either strongly linked or affected by the business.
• A pretty obvious fact considering that stakeholders are human beings is that they can have differing interests which may conflict
• Culture, structure and control systems within a business will determine how conflicts, or trade-offs, are resolved, and in practice the interests of one stakeholder group often have a dominant position.
• Some stakeholder interests are protected by law, but not all. The interests of other stakeholders are protected, if at all, only by regulation or management discretion whereas owners and shareholders are protected by property and company law.
All businesses have difficulty balancing the interests of their different stakeholders, mainly when the political reality is that different groups have varying amounts of power. Such as:

• Commercial businesses have structures that recognise the dominance of shareholders. However, the legislative and regulatory environment, over, for example CO2 emissions, is increasingly imposing constraints to protect the interests of the other stakeholder groups.
• Voluntary organisations are typically less tightly structured, and priorities may depend on the power of their management committees or trustees. Employees may exhibit greater dominance than those in the commercial sector.
• Government bodies are answerable to taxpayers and to service users, both of which are represented by elected representatives (politicians); in some instances, the reality is that the dominant stakeholder is the employee.

The external environment is the world in which the business operates, it is a large ever changing place made up of:

• Organisations
• Employers
• Suppliers
• Customers
• Other Stakeholders

A business can’t operate with being influenced by and impacting upon the external environment. A key success factor for any business is an accurate understanding of the external environment. A long-term analysis of what is happening in all areas of a business can be monitored, anticipated and dealt with accordingly. The external environment can be defined & analysed using on of the following:

• STEEP – Sociological, Technological, Economic, Environmental, Political
• STEP – Sociological, Technological, Economic, Political
• PEST – Political, Economic, Sociological, Technological
• PESTLE – Political, Economic, Sociological, Technological, Legal, Environmental
• STEEPLE – Sociological, Technological, Economic, Environmental, Political, Legal, Ethical
The idea is the same for all of the models; that there are several main external influences on a business.
The STEEP model uses the 5 headings listed above.

Sociological Factors:

These include demographic changes in:
• Age
• Structure of the population
• Patterns of work
• Gender roles
• Patterns of consumption
• Changes in culture

Technological Factors:

• ICT is lowering the barriers of time and place
• ICT creates new industries
• Many individual jobs and internal service functions have been transformed and are now largely or solely based on ICT systems.

Economic Factors:

• Rate of economic growth
• Interest rates
• Inflation rates
• Energy prices
• Exchange rates
• Levels of employment

The state of a country’s economy pervades all aspects of business life as it affects demand for goods and services, the availability and cost of resources (land, labour, materials & buildings). Both individuals’ and businesses’ behaviour reflects their expectations of economic trends. Governments use changes in the interest rate to try to achieve short-term in levels of demand, investment and spending. Global communication technology has resulted in very high levels of currency trading, which leads to a great volatility in exchange rates.

Environmental Factors:

These are of growing importance as people all over the world are very concerned about the impact of businesses on the natural environment. The following are factors that businesses need to consider:

• Legalisation – Environmental Legalisation is increasing, with the emphasis on pollution control and waste disposal. However there are regulations affecting packaging, transport and distribution and sourcing materials.
• Information – Businesses report regularly on their environmental performance.
• Employees – Employees are interested &concerned about the environmental credentials of their employers.
• Shareholders – Most shareholders of larger businesses are financial institutions who are driven by financial performance. However in several countries a category of ethical investors is emerging.
• Pressure Groups –In the late 20th Century there was a massive growth in pressure groups, most of which were established to deal with particular issues. Many of them broadened their membership bases and became a permanent part of the political scene; these groups include groups such as Greenpeace and Stonewall.
• Customers – There are opportunities for businesses that are operating to high environmental standards to gain market advantage.

Political factors

Political influences affect/most of what we all do. Here are only a few political factors for businesses:
• Legislation – This affects a lot of different aspects of business life. The CIPD (Chartered Institute of Personnel and Development).
• Trading Relationships – Examples of this are the World Trade Organisation and the European Union.
• Government- In many cases the Government is either the largest employer or purchaser of goods and services or in some cases the only customer.
• Public Services – Health Services, Education and the Police Force are all determined on political grounds.
• Taxation – This is a pretty big one for businesses.

The distinction between the factors defined in the STEEP model are rather artificial, this is because in reality the factors are often interlinked.

In Images of Organisation, Gareth Morgan talks about learning the skill of “reading” situations. This is particularly important for people dealing with business situations. “Skilled readers develop the knack of reading the situations with various scenarios in mind and of forging actions that seem appropriate to the readings thus obtained”. The metaphor “implies a way of thinking and a way of seeing that pervade how we understand the world generally”.

Morgan wasn’t intending to categorise different types of business, rather offer different ways of looking at them. The metaphorical lens can help people understand their experiences with them.
Morgan uses eight metaphors to create “images of organization”:

• A Machine – Businesses are often designed and operated as if they are machines, with highly visible structures and procedures. They offer continuity and security, but tend to fit people into jobs rather than allow much creativity
• An Organism – This means seeing the businesses as behaving in similar ways to our own biological mechanisms. When the environment around us changes, so do our bodies. Successful businesses are often adaptable and open to change. This may mean that its structures and procedures are less fixed.
• A Brain – Seeing a business as a brain means realising it has to be able to respond to change and also capable of rational thinking and intelligent change. Being open to inquiry and self-criticism often produces the ability to innovate: as Morgan puts it, businesses become “learning systems” that are able to self-organise.
• A Culture – When you speak of businesses as cultures, we are referring to the fact that they are made up of sets of values, perspectives and principles, held and sustained by the people who work there.
• A Political System – Businesses are not only about structures, cultures and hierarchies, they are also about politics. Politics in this context is about the social relations between individuals and groups in a business that involves authority or power. Organisational charts that plot the lines of communications between people will reveal some, but not all of the politics.
• A Psychic Prison – This more abstract metaphor suggests that some businesses are constrained by themselves. Conventional or usual, ways of organising work and thinking about it can limit change and the adoption of alternative business strategies. Looking at the business in these terms encourages us to dig beneath the surface in order to see the restrictions real or otherwise that may be affecting the business and its ability to operate successfully.
• Flux and Transformation – Morgan suggests that the secret to understanding businesses from this perspective lies in understanding the constant change shaping our lives. To understand a business we have to appreciate it as an ever changing thing. It grows & regenerates in order to survive.
• A Vehicle for Domination – This metaphor introduces the idea that businesses can be or an attempt to be dominant. They can or try to impose their will on others. Again it encourages us to dig below the surface in order to understand and appreciate how business can exert power and influence.

Morgan’s framework is considered to be useful as one way of understanding business. It’s not intended to suggest fixed types of businesses. Businesses are likely to be a mixture of different metaphors, which can change over time, or according to circumstance. The metaphors can help to highlight the complexities of a business and their potential impact.

Gordon Brown has said overpaid public sector workers will be “named and shamed” in efforts to deliver more value for money in public services. Ahead of the pre-Budget report, the PM said “efficiency savings” would help to save £12bn over four years – £3bn more than planned in the Budget. Crime maps and online school reports will be used to cut overheads as Labour tries to halve the Budget deficit.

The Conservatives say the government is not being straight on the cuts needed. The government has delayed its planned comprehensive spending review until after a general election. In the pre-Budget report, Mr Darling is expected to confirm annual borrowing will top £175bn – which the government has promised to halve within four years. In his speech in central London, Mr Brown said ministers had identified £3bn in additional efficiency savings since the Budget in April.

Of that, £1.3bn over four years would be achieved by streamlining central government, he said, indicating that certain programmes would have to be delayed or abandoned. We need to do what households up and down the country do to prioritise the necessities and postpone the things we can do without

Government spending on consultants would be cut by half and communication spending by a quarter – saving £650m – while more Civil Service staff would be relocated from London to “cheaper” premises. Whitehall departments could set up “common spending policies” and share office space, as part of a “third generation of changes in public services”. In its report, Putting The Frontline First, the government points out there are now 4,300 senior civil servants compared with 3,100 in the mid-1990s.

Mr Brown said public sector workers earning an “over-generous” salary would be “named and shamed”, as many had “lost touch” with normality. In future, all new public sector jobs with salaries above £150,000 will have to be approved by the Treasury while the details of civil servants and other public sector managers under direct ministerial control currently earning that amount will be published.

Mr Brown has ordered a review of senior public sector pay by the Senior Salaries Review Body to report by the Spring. He said: “Money which should be spent on health, on schools, on policing and on social services is, in some cases, going on excessive salaries and unjustified bonuses, far beyond the expectation of the majority of workers. This culture of excess must change and will change.” He added that the government would use technological advances to make services more user-friendly and cheaper.

As an example, sending text messages to remind patients about GP appointments could help save up to £600m a year wasted on missed visits. The public needed more “feedback and interaction” when using services, such as crime maps and giving parents online details of children’s progress at school, he added. Mr Brown promised to bring more such details on to the internet by next year. “The proposals we are setting out in this plan – which is just one element of our efforts to reduce the deficit – will go further than we have ever gone before in streamlining central government,” Mr Brown said.

“We have already promised savings of £35bn a year by 2011 on top of the £26.5bn a year already delivered through the Gershon [spending] review. “But by identifying new ways of working – and being prepared to make the tough choices – we can deliver in excess of another £12bn in efficiency savings over the next four years.
“This includes £3bn of new efficiency savings identified since the Budget – of which over £1.3bn will come from streamlining central government.”

The proposals were laid out in Parliament by Liam Byrne, Chief Secretary to the Treasury, who said that saving money should be “everybody’s business”. Chancellor Alistair Darling told BBC One’s Andrew Marr show that public spending would be “a lot tighter than it was in the past” as a result.

He said parts of the troubled £12bn NHS IT system would be delayed as it “isn’t essential to the front line” – a move Health Secretary Andy Burnham told MPs on Monday would save £600m “over the lifetime of the programme”. Mr Darling said the full details of spending cuts would not be revealed until “the first half of next year at some point”.

Meanwhile, as part of plans to tackle the deficit in public finances, the Treasury is working on a possible windfall tax on what it sees as the exceptional profits of banks or the excessive bonuses of bankers.
But the Conservatives say the government is still not revealing the full extent of cuts needed to tackle Britain’s debts.

They say they would protect NHS and international development spending but the rest of Whitehall would face “very difficult choices” if the Tories won power. The party has also called for a moratorium on all government computer projects, claiming Labour has spent £100bn on IT since 1997 and that contracts worth another £70bn are due to be renewed or commissioned in the next two years.

Shadow Treasury minister Philip Hammond told MPs: “Since 2000 they’ve poured billions of pounds of taxpayers’ money into indifferent public services, borrowing and spending like it’s Monopoly money.”
He called Labour’s savings plans a “mish-mash of announcements and stolen clothes, in the dying months of their rule”.

Liberal Democrat Treasury spokesman Vince Cable said: “If the government knew there was inefficiency, why hasn’t the government already dealt with it?” We have now reached the point where the investment gap which we inherited…in 1997 has been fixed.

He added that more had to be done to improve the level of independence local government has from Whitehall, in an effort to increase accountability. Jonathan Baume, general secretary of the First Division Association, which represents senior civil servants, called the government’s proposals on public sector workers “irresponsible”. He added that “this announcement looks more like crude electioneering than a sober assessment of the implications for central government of the fiscal crisis”.