The Key Importance Of Organizational Structure Business Essay

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5/12/16 Business Reference this

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In today increasingly stiff competitive environment, organisational structure is becoming a very important role to a company in the market competition. Andersen (2002) describes the organisational structure as the formal decision-making framework that will be done by dividing, grouping and coordinating job tasks. However, Anthony et al. (2002) pointed out that to design organisation structure managers need to address six key elements, those are work specialization, departmentalization, chain of command, span of control, decentralization and formalization.

Secondly, for the face on the sharply environment change, Vroom (2006) suggested that HR managers should divide the tasks and then coordinate those, in essence balancing job-related specialization with group, inter group, and organisation-based integration as necessary. They also said that organisational structure defines the firm’s decision-making authority and serves as the connecting fibbers between the company’s strategy, the actions and behaviours of members. For example, organization must design structure that facilitates close to coordination between the activities of manufacturing and those of research, and development it to ensure innovative products can be produced both reliably and cost effectively. To achieve gains from synergy between division, company must design mechanism that allow divisions to communicate and share their skills and knowledge. In pursuing a global strategy, company must create the right type of organisational structure for managing the flow of the resources and capabilities between domestic and foreign divisions.

2.1.2 Virtual Network Structure and Technology

The Virtual Network Structure (VNS) is a continuous evolving organisational structure for optimising its cost-benefits through taking the advantages of emerging technology. The organization use the VNS will keep the continuous innovation for new challenge. Technology is the major driving force for mostly organisations shifting their organisational design, for example, the high technology will keep the Apple inc always have new things to the people. Jones (2006) thinks that technology is one of the main determined driving forces which refer to how an organization ‘transfers its inputs into outputs in designing organization structure’. Technology has relative structure by converting the financial human and physical resource into products or services. Different organisation needs different technologies with different environment as well as the different structure to operate their business. On another hand, the new technology always requires huge initial investment (including time). By reviewing the history of development of technology, electricity took 40 years to penetrate 50% population in USA, computer took 30 years and the Internet took only 6 years. The key difference between the Internet and the electricity development is that the rapid growth of the Internet lies on synergy effects. Similarly, the VNS provide a great incentive for promoting synergy between The Kernal and The Strategic Partners, as the major attractiveness for them to form strategic partnership is due to the strong inter-dependency among them.

2.1.3 Virtual Network Structure and Environment

The Virtual Network Structure (VNS) suitable for certain firms in changeable environment. As Gratton (1999) defined that environment is the institution or force outside the organisation that potentially affect the organisation’s performance. Due to the shifting of industrial structure and the pressures creased by the globalisation, MNCs are facing many external opportunities and threats. In particular in 1990s, the business environment becomes a so-called dynamic ‘white-water rapids’ world. Global competition and economic downturns have exposed a glaring weakness in the US organizations. Accordingly, different management will choose different organisational structures to deal with the same global environment (such as under the similar or same economic) due to their internal environments, which would be significantly different from one another. For example, Marriott (Nike’s major rival at the time) has chosen bureaucracy organisational structures to expand its operations globally. Jones and Kriflik (2005) explain bureaucracy as a centralized system such as organisation with high tall hierarchy for the purpose of maintaining tightly controlled chain of command. In contrast, Nike has chosen VNS, which allows decentralisation occurs when Nike distributes decision-making authority throughout its organisation. Obviously, the global economic recession would force management to review their previous choices. ABC (2008) report that many leading corporations including banks like Bear Steins, Lehmann Brothers, Merrill Lynch, and AIG are suffering severely from the financial crisis. Actually, at the end of 2009, some of those banks are having been failed.

The VNS is an extension of horizontal coordination and collaboration by establishing strategic partnerships between the kernel of the organisation (The Kernal), and its strategic partners (The Strategic Partners). Unlike conventional horizontal structure, those The Strategic Partners have their own organisational structures that most suitable for their internal and external environment. Therefore, those organisational structures may not be in VNS as that of The Kernal.

2.1.4 Virtual Network Structure and Nike

This study now shows how a VNS firm like Nike is able to adopt appropriate strategy to achieve the organisations goals. Oladunjoye and Onyeaso (2007) explain that a strategic approach is to capitalising one’s internal strengths to address its challenges in a systematic way. For example, Nike has its internal strengths in strong brand management, creative design and superior marketing techniques. Accordingly, from the perspective of organisation structure, the design should reflect the way job tasks being formally divided in two different groups or among individuals according to their diverse knowledge levels. Nike’s current challenges are capturing advantages of international operations (‘IO’ in short) in a sustainable way.

First, Nike has the challenge for reducing unit costs. Enderwick and Ronayne (2004) explain that VNS would help the firm reducing unit costs. This occurs when Nike takes the advantages of The Strategic Partners’ cheap labour costs in the developing countries. This is one key area that Nike cannot achieve in the USA as the labour costs in the developed country are much higher than those low-cost production facilities owned by The Strategic Partners’ in the developing countries. The example effective demonstrates that the external social environment of the organisation is a key for deciding whether a VN structure is suitable for that particular organisation. The designer should identify the external social environment of the organisation. For MNCs like Nike, it has to secure the production several months ahead of the peak sales period.

Second, Nike has the challenge for improving its economies of scale. Enderwick and Ronayne (2004) explain that IO would help the firm improve its economies of scale. This occurs when Nike acts as the marketer for the design that Nike has invested as the initial investment regardless the quantity to be produced later (‘sunk-money’ in short). Carter et al. (1997) explain that IO would help the firm absorb excess capacity. This occurs when Nike acts as the marketer for the summation of production quantity of all The Strategic Partners’ capacity of productions. In the modern era, most organisations had focused on mass production for improving production costs per unit. The demand on operational efficiency encouraged vertical organisational design, which emphasis on efficiency and control. Traditional organisational structure had been characterised with tall hierarchy. Cost minimisation need tight control, high formalisation and high centralisation of strategies to produce high ‘standardization products’ efficiently (Nelson & Quick 2000, p.515). Besides, since mass production involve less innovative ingredients, imitation strategy requires both tight as well as loose properties in order to ‘minimise risk and maximise opportunity for profit in the organization’ (Yacovone 2007).

On the selling side, Enderwick and Ronayne (2004) explain that IO would help the firm spread risk over wider markets. Since Nike management cannot fully handle the cross-cultural aspects around the globe, Nike effectively has to rely on massive domestic retailers to distribute its products in the way that fulfil those consumers’ expectations in the particular cultural background.

Moreover, Enderwick and Ronayne (2004) explain that IO would help the firm enjoy less intense competition, or lower taxes – the tax rate in the USA is relatively higher than that in the developing countries. The above examples effective demonstrate that certain firms like Nike would heavily depend on VNS as a tool for capitalising its internal strengths for capturing those potential external opportunities that otherwise Nike finds difficult to capture.

The VNS is commercially viable when The Kernal manages to secure its sustainable competitive advantages (‘SCAs’ in short). Peteraf and Barney (2003) explain that SCAs are about an enterprise has a competitive advantage if it is able to create more economic value than the marginal (breakeven) competitor in its products market. Johannessen and Olsen (2003) add that SCAs are the sort of resources that are Valuable, Rare, Difficult to imitate or Implications. For example, the co-founder of Nike (Bill Bowerman) himself is a rare human asset for Nike (Nike 2009). He used to be a well-known athlete teacher. It was Bowerman to design the first generation Nike shoes. Therefore, Bowerman would be equivalent to Warner Disney during his embryonic stage. The example effectively demonstrates the importance for the founder of a great business to be an expert, or to be competent in the field. Nevertheless, being competent along does not guarantee the rapid growth of the business. Appropriate product development and marketing would be essential. For example, Bowerman defined Nike as perusing destiny. Since Nike also protecting those designs, The Strategic Partners find difficult to imitate or Implications. Moreover, the ‘Nike’ brand is valuable. Nike (2009) reports that it was the marketing experts that Bowerman chose to partner recommended “Nike” as a word represents something which is extra ordinary. Today, Nike is a brand symbol in sports all over the world.

Taking Nike as an example, it is facing significant external threats such as the retail sector is becoming price competitive. Fortunately, the VN often manages to overcome those short-term down falls with its superior flexibility. For example, in the case when the VN became blind to changes in the market despite healthy profits, the designer may address those external threats by maintaining small size of Core staff.

Besides, NS effectively force Nike to respond those external threats by decentralising authority and varying its product line. In that sense, new trend in contemporary organisational structure design makes chain of command lose its importance. For example, Nike’s network structure enables direct communication across unit and firm boundaries, which improve the responsiveness to the rapidly changing business environment through reducing the dependence on the chain of command.

2.1.5 Benefits of Virtual Network Structure

VNS provides benefits to those organisations that manage to secure SCAs within The Kernal. The first benefit is allowing the organisation to focus its limited resources (such as capitals) on securing those SCAs. For Nike, attracting elite designers is a key component for securing those SCAs. It would be hard to imagine how Bowerman (one of the Nike founder) could attract those outstanding members of it The Core without that excellent hardware creating the first impression. Accordingly, Nike must invest heavily on decorating it does headquarter at Beaverton, Oregon, USA. Here, the VNS effectively helping Nike to address the major part of troubles caused by jealousy – those workers working at the ‘sweat shop’ is under The Strategic Partners’ administration.

The second benefit is allowing the organisation to maintain rapid growth with its limited resources (such as capitals). Boxall and Purcell (2003) believed that a good organisational structure should be flexible, focused, and streamlined which makes it become one of the keys for business to survive in the competitive world and without organisational structure there is conflicting objectives which will lead to the collapse of internal economies. For example, Nike would want its pooled production capacity to increase 100 times when it identifies a hit design. Here, VNS is the only way that allows Nike to expand its capacity rapidly within months.

The third benefit is associated with the independency of administration between The Kernal and The Strategic Partners. Since The Kernal would have limited control on The Strategic Partners, in most cases The Kernal can simply walk away safely in case The Strategic Partners have caught troubles. For example, Nike would try its best to avoid the burden of maintaining the life line for tens of thousands of workers during the economic down-turn (which is now). It is reasonable to expect that some of Nike’s The Strategic Partners would go to the wall during this period. Obviously, Nike would feel guilty about those poor The Strategic Partners. This example effectively demonstrates that organisational design affects the live and death of organisations.

2.2.1 Supply-Chain

The supply-chain is another product of increasingly stiff competition, from the literal meanings, that is a chain will link all of the different part such as the manufacture, logistics and marketing. The organization will own all parts of supply-chain, there are other company will be discussion by this study. The Wiki (2010) said that ‘A supply chain is a system of organizations, people, technology, activities, information and resources involved in moving a product or service from supplier to customer.’

2.2.2 Supply-Chain and Zara

Zara have more than 1000 store around over 65 countries, Zara is also the flagship chain store of Inditex Group, from the March of 2006, the Inditex Group become the first fashion retailer in Europe (at before, the biggest fashion retailer in Europe is H&M company form Sweden).

Zara is totally different from the Nike shows above, Zara use the characteristic Business model to face on the increasing stiff competition; they has resisted the industry-wide trend towards transferring fast fashion production to low-cost countries. Almost Zara’s products made in Europe, they just 20 kinds of lower-Level product outsourcing in the Asia made. Zara another most unusual strategy was its policy of zero advertising, a little bit like the Dell in the IT area, the Inditex Group preferred to invest a percentage of revenues in opening new stores instead the higher advertising cost, that is also the main reason about the sharply expansion. Zara employed more than 400 fashion designers, but they are all not very famous designers in the world, every year, Zara have blameless information network for the new style dress collecting, they put lots of employee in the every fashion show around world, whatever the Paris or UK’s. The information Collect like the spy in the war, all of the new season fashion information always with fast transform way to core-design center which in the Spain, and that more than 400 fashion designers will re-design that new style dress, they like the copy, but just add or cut something on the dress, and put the ‘Zara’ brand for this new ‘fabrication’. Every year, Zara will face on the lots of lawsuit form the right encroachment, but Zara always keep their own way in today’s competition. Zara have the highest efficiency of logistics system. For the faster transform purpose, Zara spares no expense to build the vacuum-subway channel for matter transport, which cost more than millions dollar, their some organization want to copy that Zara styles for logistics, but at finally, they do not have enough for primary investment. After the new dress making, there are lots of vans just wait out said of factory for deliver that new season style dress to every Zara store. For Europe store will receive that new dress within 24 hours. For the American or Japan store, Zara use the air express to achieve the fast purpose that will just cost 48 hours.

Grow out of nothing, Zara firmly laid hold of all supply chain within 15 days, form the information collection to the new season in stock. The ‘Fast’ is the main key for the Zara use, for example, today you have see a new Gucci dress on TV. After one week, you will find the similar dress in the Zara store, and just quarter price from Gucci, when you put on that dress for a month later, you have receive a message from Gucci said they get that dress in stock. Zara use that faster supply-chain to achieve the higher competition position.

3.0 Conclusion

In conclusion, this investigation finds that organizational design affects the live and death of organizations. The best organizational structure for any organization depends on many factors including the size, technology, environment, strategy and goals and culture. In the modern era, most organizations had focused on mass production for improving operational efficiency thus they preferred tall hierarchy. In the globalization era, due to the shifting of industrial structure and the pressures creased by the globalization, although, there are some company like the Zara shows above, to use the supply-chain to face on the challenge. Most multinational corporations are facing many external opportunities and threats, such as the Nike company shows above. However, the design of organization structure should reflect the way job tasks being formally divided in two different groups or among individuals according to their diverse knowledge levels. Most multinational corporations are now focusing on transforming into the virtual network structure to face on the increasingly stiff competition. The VNS is a continuous evolving organizational structure for optimizing its cost-benefits through taking the advantages of emerging technology. The VNS is an extension of horizontal coordination and collaboration by establishing strategic partnerships between the kernel of the organization, and its strategic partners.

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