Organisational Structure and Design
Chapter 3
Organisational Structure and Design
COMPONENTS OF ORGANISATIONAL STRUCTURE
CONTINGENCY FACTORS
RECOMMENDATIONS ON STRUCTURAL ISSUES
The organisational landscape in the 21st Century, is characterised by constant change. The markets that Apex-Pal competes in are constantly affected by customers' tastes and advancing technology. Apart from that, the low-barrier-to-entry nature of the food and beverage (F&B) industry creates an environment of intense competition. Thus, it is very important that Apex-Pal's organisational structure should evolve to reflect these market realities. Some examples of companies that have successfully transformed their organisational structures from rigid bureaucracies to become closer to their markets are Terex Corp, Honey Well Pacific and Bank of Montreal. Without changing their organisational structure to adapt to the changes in their business environment, these companies would be hampered in trying to respond quickly to customer needs.1
1 Stephen P. Robbins and Mary Coulter, Management 9th ed. (New Jersey, USA: Prentice Hall, 2007), 303.
COMPONENTS OF ORGANISATIONAL STRUCTURE
Work Specialisation
Work specialisation is the degree to which tasks in an organisation are divided into separate jobs.2 In Apex-Pal, a high degree of work specialisation occurs at the level of the service staff working in each sushi chain outlet. Each person at the outlet has his or her own tasks, which are quite specialised. For example, chefs are in charge of cooking, cashiers collect payment and waiters and waitresses serve customers and take orders.
Further up the hierarchy, jobs are also specialised, in the sense that each employee has a specific work function, such as human resource management or marketing. However, the degree of specialisation is less as the job scope becomes larger, especially for those people working in the headquarters. For example, a person may be a Marketing Manager, which has a large scope of responsibilities, ranging from global marketing to marketing communications. Thus, while the job is specialised by the function, the job scope within the function itself is quite varied.
However, we should take note that at Apex Pal, even for members at the lower levels of the hierarchy, work is not specialised or rigidly defined all the time. Whenever someone has a good idea which he/she feels will benefit the company, he/she can approach the relevant authority to start a new task force to work on it. The example given by Foo is the new laboratory that Apex-Pal has set up for research and
development and food quality testing. Instead of just picking people from the quality assurance department to work in it, employees throughout the company with relevant experience are invited to work there. Another example was given by a service crew who is in charge doing door-to-door delivery. In an interview conducted at one of the outlets, he mentioned that when he had more orders than he could cope with, other colleagues who could operate a motorcycle would help out with the delivery. Thus, while their regular jobs are somewhat specialised, they do not necessarily work on these specialised tasks all the time.
Departmentalisation
Departmentalisation is the basis by which jobs are grouped together and in this regard, Apex-Pal has functional departmentalisation, with departments such as Finance, Marketing, Human Resources, Service Quality and Maintenance. However, Foo reveals that cross-functional teams, which work on certain projects such as the new laboratory, also exist in the company.
Chain of command
The chain of command refers to the continuous line of authority that extends from the upper organisational levels to the lowest levels and clarifies who reports to whom.3 Apex-Pal tries to preserve the unity of command. Managers are given
the appropriate authority and empowerment to make certain decisions, and employees are encouraged to approach their direct superiors for direction. Whenever employees have problems in persuading superiors to accept their ideas, they can approach Foo for advice on how to put their ideas across to their superiors. However, Foo will try not to interfere with the chain of command; rather than he talking to their superiors, Foo would encourage the employees to make the representations.
Span of control
Span of control is the number of employees a manager can efficiently and effectively manage.4 Individuals are limited in their capacity to process information and have to make choices on where to focus their attention. Thus, the span of control of a manager should be decided based on his/her skills and abilities, the similarity and complexity of employee tasks, physical proximity of subordinates, the degree to which standardised procedures are in place, the sophistication of the organisation's information system, the strength of the organisation's culture, and the preferred style of the manager.
At Apex-Pal, the span of control of each manager is determined by the manager's capability and interest. If a manager feels that he/she wants to handle more people and the company feels that he/she is capable of doing so, that manager will be given a larger span of control.
Centralisation versus Decentralisation
Centralisation describes the degree to which decision-making is concentrated at the higher levels of an organisation. Decentralisation in an organisation increases as more lower-level employees provide input or actually make decisions. Apex-Pal is quite decentralised. Inputs of employees at all levels are taken into account, with schemes such as the Staff Suggestion Scheme which rewards employees whenever a suggestion they have made is successfully implemented.
Employees in certain positions also have the appropriate amount of authority, as befits their positions, in order to facilitate efficient and effective decision making. For instance, outlet managers have the authority to waive the bill for customers if the situation warrants it; those in charge of certain projects also have the authority to make their own decisions without having to seek approval from higher management.
Formalisation
Formalisation refers to the degree to which jobs within the organisation are standardised and the extent to which employee behaviour is guided by rules and procedures. When Apex-Pal first started, there were no rules and procedures existing in the company; employees could report to work whenever they liked. However, Foo soon realised that the company could not run efficiently without rules and procedures. Thus, relevant rules which helped in task accomplishments were set out. Some examples of rules currently in force in the company include the reporting time of outlet staff and the procedures staff have to go through to ensure the freshness of the food served to customers.
Other than the rules and procedures needed for the company to run efficiently, there is not much formalisation in the company. For example, there is no standard procedure for employees who want to implement a new idea. Employees who have new suggestions just have to convince their superiors that their ideas are sound.
Mechanistic versus Organic Organisation
Organisations are typically classified under two types: mechanistic or organic. A mechanistic organisation is rigid and tightly controlled.5 High specialisation, rigid departmentalisation, narrow spans of control and high formalisation are some of the characteristics of such an organisation. Also, it has a limited information network, which consists mostly of information travelling from bosses to the subordinates, and decision-making is highly centralised.6
Due to the above defining characteristics of a mechanistic organisation, it is more suitable to an organisation which aims to be very efficient. By standardising tasks and requiring employees to follow rules and procedures strictly, the organisation minimises the chance that an employee would make a judgment that would reduce work efficiency. An example of a mechanistic organisation is McDonald's. McDonald's has standardised processes that each employee must follow in order to deliver products which have the same quality across all outlets and countries.
In contrast, an organic organisation has a highly adaptive and flexible structure. The organic organisation is highly decentralised, with few standardised rules and procedures,
but many teams and task forces to deal with problems. Communication channels are also more informal, with information being shared across departments as well as up and down the hierarchical structure. Jobs are not standardised as employees apply their skills to wherever the organisation requires them.
Therefore, if an organisation wishes to be organic and flexible, a key requirement is that employees must have high levels of skills and training so that they are able to make knowledgeable decisions on their own; this would then make formalisation and tight managerial controls unnecessary.7
Based on the factors discussed above, we conclude that Apex-Pal has a fairly organic structure. There is division of labour, but jobs, particularly at the headquarters level, are not highly standardised. Day-to-day demands of their jobs change according to the situation and the projects that they are working on. Take Joyce Lee, for instance. Lee was a newly promoted manager in the marketing and communications department in August 2006 when she first mooted the idea of starting up Sho-U, an up-market brand among Apex-Pal's stable. CEO Foo liked the idea and Lee was placed in charge of Sho-U, taking care of the entire project from its interior design to kitchen set-up, and hiring and training of personnel. Till today, Lee mentioned that it was an experience she would never forget. What she did certainly went well beyond the job scope of a marketing and communications manager, thus affirming the fluid nature of jobs at Apex-Pal.
Employees are also highly empowered to make their own decisions at all levels of the hierarchy, and they frequently form work teams from different departments to tackle projects
such as the setting up of the new laboratory, as mentioned before.
Communication, according to Foo, is very open in the company. Employees are encouraged to send feedback to their supervisors whenever they think they can improve any area of the company's operations. Besides the traditional top-down communication, 360-degree feedback is highly encouraged among employees. Also, lateral communication across functions occurs when employees across different functions interact in cross-functional teams.
Formal rules exist, but only to the extent that it helps in the efficient running of the company, as mentioned in the previous section.
CONTINGENCY FACTORS
There is no single best way to structure or design an organisation. Instead, structure or design issues should be based on several contingency factors. Now that the structure of Apex-Pal has been identified, an analysis is done on these contingency factors to determine if the structure would aid Apex-Pal's future growth. The contingency factors are: strategy, size, environmental uncertainty and technology.8
Strategy and Structure
Apex-Pal's strategy is based on having twin engines of growth. The first engine is to grow and propel brands to be leaders in
the local and global markets. The second engine is research and development, to create new concepts which can tap into the first engine, once they are marketable. Thus, the strategy that Apex-Pal is following can be termed as one of concurrent growth and innovation.
In order to follow such a strategy, the structure of the company should be flexible and ready to take advantage of any opportunities that come its way. In a market where speed is necessary, a rigid structure will stifle new ideas or opportunity for growth. These ideas may not reach the top in time, or may simply be repressed by superiors who do not see their value. Thus, a flexible structure is important.
Technology and Structure
One is very tempted to think that technology is not a crucial factor in the F&B industry. Afterall, isn't success in this industry all about providing good food and good service? That is where our first instinct can be wrong. Technology can be used in food production and in getting the food to the customers. For example, Apex-Pal uses machines for the production of sushi rice balls to ensure consistency in size and quality. A computerised interactive menu and conveyor belt also allow customers to order and get their food quickly. These technologies help Apex-Pal improve customer service and save costs by reducing the labour — intensity of its operations.
Moreover, according to Foo, Apex-Pal is going to set up a laboratory for two purposes: for R&D and to ensure food quality. The technology for R&D requires a more customised approach, as employees must be creative while in the process of developing new ideas. However, the technology for testing
food quality should be quite standard, as certain processes have to be followed in the laboratory to ensure that the food is safe for consumption. Thus, it would be beneficial if the people working in the laboratory were split into two departments, one for the R&D and the other for food quality assurance. While the R&D department should have a more organic structure, the food quality assurance department could be more mechanistic.
Environmental Uncertainty and Structure
The environmental uncertainty that Apex-Pal faces is quite high, as it is focusing on expanding its Sakae Sushi outlets abroad. Different countries have very different operating environments and Apex-Pal has to adapt to competing in these different environments. The company has to come up with new strategies and take note of obstacles present in those new markets and decide how to overcome them. Therefore, in this respect, the company needs a lean, fast and flexible organisational structure.
Appropriateness of the Company's Structure
Based on Apex-Pal's strategy and the uncertainty and instability existing in their competitive environment, the company should have a flexible, organic structure. Thus, the company's current organic structure is rather appropriate considering its present situation. Even so, the organisational structure of Apex-Pal can still be improved in certain areas.
RECOMMENDATIONS ON STRUCTURAL ISSUES
Apex-Pal is evolving from a small local company to a large international company. As the company becomes bigger, it tends to become more mechanistic in structure as more rules and procedures are put in place for the efficient running of the company. However, Apex-Pal needs to stay flexible and organic in structure in order to grow with their current strategy. Therefore, recommendations will be focused on how Apex-Pal can maintain an organic structure even as it grows.
Autonomous Units
The first recommendation is to let separate business units act as autonomous teams of the company. For example, in Whole Foods Market, the largest natural-foods grocer in the United States, each store is an autonomous unit which consists of teams and team leaders. Each store is thus responsible for its own profit.
When outlets, which are closest to the customers, become autonomous, outlet employees automatically become more involved with the company when they realise that the decisions which they are empowered to make ultimately affect the outlets' bottom line. It also benefits the company as these outlets are able to respond more effectively to their customers' needs. However, since these employees are given total responsibility over the running of an outlet, they also have to be accountable for its performance. Management has to also ensure that these employees are equipped with the proper skills to handle the running of the outlet.
For Apex-Pal, autonomy can be given to local outlets, which would be responsible for their own operations and strategies to attract customers. When expanding overseas, giving wholly-owned subsidiaries autonomy is one way to keep the company flexible. Franchising is also an option. It leaves the headquarters in Singapore free to pursue new opportunities without having to worry about the day-to-day operations of all Sakae Sushi outlets around the world.
We understand that Apex-Pal has already started pursuing this strategy, with its wholly owned subsidiaries in China, Malaysia and the United States; and franchises in Indonesia, Philippines and Thailand.
Total autonomy should not be practised as there is the possibility that a disaster may happen without the knowledge of the headquarters. General targets and guidelines should be set for subsidiaries to ensure that they follow the strategy of the company. Monitoring of the autonomous unit can be undertaken through quarterly reports and meetings with the headquarters in order to update the latter on the recent activities of the subsidiaries.
If giving individual outlets autonomy is not feasible, the company can consider organising outlets in close proximity into one business unit and giving them autonomy in running the day-to-day operations. The business unit would be like a franchisee receiving general guidelines, directions and support from the parent company. Apex-Pal's culture, which takes the welfare of its employees seriously, and in return, asks the employees to weigh their actions against the impact on the company, will support such a structure. Satisfied employees will run the autonomous units with the good of the company in mind.
Matrix and Project Structures
The matrix structure is one that assigns specialists from different functional departments to work on one or more projects being led by project managers. Project teams are formed temporarily from different functions to address problems which crop up or to respond to changing customer demands. While working on the project, project members will be exposed to how people in different functions work. They will also be in touch with the technology and methods used by different functions in various situations. This leads to a more wholesome solution, and when these team members return to their functional roles, they may have new ideas and experiences to share with their original unit to improve performance.
In the project structure, which takes the matrix structure a step further, employees continuously work on projects instead of belonging to any certain functional department. Upon the completion of a project, employees are free to join other projects, choosing those which can benefit most from their skills, abilities and experiences. In order to make sure that project teams give the desired attention to the task, it is recommended that they be held accountable for the recommendations that they propose. If the project team is not held accountable, too many competing demands from their functional bosses will result in them diverting their attention away from the task.
The advantage of these structures is that it creates a fluid and flexible organisation that can respond more easily to environmental changes. Teams can be formed to address problems as they crop up. Decisions can be made faster without any obstacles imposed due to the bureaucracy created by departmentalisation or organisational hierarchy.
A disadvantage of the matrix and project structures is that it is difficult to implement effectively. First, there is a dual chain of command. Project leaders have authority over functional members only in relation to the project's goals while functional managers still have the responsibility of deciding on the promotions, salary raises and annual reviews of the employees under them. Thus, communication and coordination between the project and functional managers are important in avoiding conflict. If badly implemented, the employee may feel stuck between a rock and a hard place, as both managers might insist that their work be completed first. However, if a matrix system can be implemented properly, Apex-Pal can benefit from the flexibility that the structure provides.
Global Structural Issues
When expanding into other countries, it is inevitable that the company needs to hire employees from those countries. Apex-Pal needs to take into account the stage of development of that particular country when deciding on the organisational structure of the company operating in that country. The professional education and skills of employees are very important in an organisation where there is autonomy and employee empowerment, as employees must be able to make decisions on their own without supervision from higher level management.
For less developed countries, like Russia or Indonesia, the level of professional education and skills of the locals in general would be lower than their counterparts in more developed countries. As local employees are less skilled to deal with situations that may occur, it is better to allow them less autonomy, as the danger of making mistakes is higher.
Instead, more rules and procedures are needed to ensure that a minimum standard is achieved. Thus, a more mechanistic organisation with more standard rules and procedures will be more suitable in this situation.
The locals in more developed countries like the United States and Singapore tend to possess a higher level of education and skill. These people will be more equipped to make their own judgments based on their skills and experience. Thus, they can be trusted with a higher level of autonomy and empowerment, making an organic structure more suitable for these countries.
However, Apex-Pal's current growth strategy requires it to be flexible and adaptable, as mentioned before. A mechanistic structure in less developed countries would mean that Apex-Pal has to sacrifice responsiveness and flexibility in those countries. In order to ensure that the company stays on track with its growth strategy, it is advisable that it does not expand into the less developed countries first. Instead, they should focus on more developed countries like the United States and Europe.
If the company feels that the opportunity in less developed countries is too good to give up, they could consider first staffing outlets in these countries with people with the proper skills and experiences from other countries. These expatriates would serve two purposes: giving the overseas outlets a good start and training the locals to acquire the skills needed to stand on their own in future.
Independent Review Team for New Ideas
The ability of an organisation to grow is dependent on its ability to generate new ideas and to exploit them effectively for the long-term benefit of the company. According to Foo,
when employees have an idea which they feel will benefit the company, they are encouraged to approach their immediate superiors to ask for permission to proceed. The flaw in this approach is that superiors may not like the idea and prevent the employee from going further. As a result, even though the employee still thinks it is a good idea, he/she might be discouraged from pursuing the matter further by the superior.
In order to ensure that ideas from employees are given due consideration, the company can consider setting up an independent team tasked to review all suggestions made by employees. The process used by this team to review ideas should be transparent and open. This ensures that well-meaning managers do not inadvertently squash good ideas prematurely. Transparency and openness also encourage employees to turn in good ideas by showing them that the company takes all their suggestions seriously. Apex-Pal can benefit from this virtuous cycle where good ideas submitted are rewarded, which in turn encourages more good ideas from employees.