Management Theories and Organizational Structures Explained

Management Theories

Neo-classical Theory

Based on perfect market and information, this theory often ignores the human element and is considered a 'black box' approach.

Transaction Cost Theory

Focuses on factors like **market dynamics**, **pricing**, **company structure**, **coordination**, and **organizational aspects**, highlighting **limits on growth**.

Agency Theory

Examines relationships between **owners**, **workers**, and **regulators**, often involving **conflicts of interest**, **uncertainty**, and **additional costs**.

Ownership Theory

Views the firm as a series of **bilateral contracts**, emphasizing the **visible hand of the company**, the role of a **third party**, and **transparency**.

Management Functions

Planning

Stages include setting **objectives**, defining **policies**, establishing **procedures** and **rules**, allocating **budgets**, identifying **marketing opportunities**, **evaluating alternatives**, making **selections**, and **tracking progress**.

Organization

Modern work is complicated and requires **departmentalization** based on:

• Functions
• Products
• Geography
• Process
• Client/Distribution Channels

There must be a balance between **resources** and **objectives**, often visualized in an **organizational chart**.

Control

Aims to explain and limit the difference between **set objectives** and **reached objectives**. Steps include:

1. Planning
2. Information gathering
3. Evaluation
4. Corrective measures

Networking

Consists of establishing **alliances**. While everyone networks, it can lead to **limited freedom of action**, **stereotyping**, and being influenced by the **network's perception**.

Network Aspects

Key aspects include:

• Opportunity: Conform versus Confront
• Position: Consolidate versus Creation
• How: Coerce versus Concede

Organizational Structure Diagrams

Vertical Functional Structure

• Description: People are grouped together in departments by common activities and skills.
• Ideal Use: Stable, certain environment; small to medium size; routine technology; interdependence between functions; goals of efficiency.
• Advantages (+): Efficient use of resources, skill specialization.
• Disadvantages (-): Poor communication, slow response to changes, less loyalty.

Divisional Structure

• Description: Grouped together based on common product, customer, or geographic region.
• Ideal Use: Unstable, uncertain environment; large size; routine technology; goals of product specialization and innovation.
• Advantages (+): Flexibility, focuses on customer needs, excellent coordination within functions.
• Disadvantages (-): Competition for resources between divisions, more managers needed, poor coordination *between* divisions.

Hybrid Structure

• Description: Contains elements of both functional and divisional structures.
• Ideal Use: Unstable environment; large size; goals of product specialization and adaptation, plus efficiency in some functions.
• Advantages (+): Provides coordination between divisions, helps attain adaptability and efficiency.
• Disadvantages (-): Administrative overhead, conflict between divisions.

Matrix Structure

• Description: Organized by both functional and product lines.
• Ideal Use: Very uncertain environment; medium to large size; routine technology; dual goals of product and functional specialization.

Team Structure

• Description: Uses teams as the central device to accomplish specific tasks.

Network Structure

• Description: A small central hub organization that outsources key business functions.

Modular Structure

• Description: Similar to the vertical functional structure.