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The effectiveness of organizational structure

2996 words (12 pages) Essay in Management

5/12/16 Management Reference this

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EXECUTIVE SUMMARY

This assignment gives an overview of the organisational structure of P.Cutajar & Co. Ltd, with particular focus on the Ferrero Department and the Food and Beverage Department. The effectiveness of these two departments was examined with respect to the external environment, the tasks and the workforce. In addition to this, the company is also scrutinized from a different perspective when compared to Olson, Slater and Hult’s (2005) study, which is dedicated to explore and explain the essentiality of linking the organisation’s structure and behaviours to its strategies.

1. INTRODUCTION

P.Cutajar & Co. Ltd is a local importation and distribution company that has been running its business for almost a century and a half. The firm owns its existence to its founder and visionary Paul Cutajar, who pioneered his family business by working in trading, shipping and coal bunkering in an office adjacent to his house in Valletta. As decades passed, the company continuously diversified its business. Until few years ago, it was mostly renowned for the photographic equipment and supplies heralding the Kodak label. However, nowadays the company is no longer in the photographic business and it is mainly focused on importing, selling and distributing fast moving consumer goods.

P.Cutajar’s organisational structure bears no resemblance to the structure it had in the mid 19th century. Through the years, the company continuously rearranged its structure so as to accommodate the ever changing demands of the environment, tasks and workforce. ‘While our history dates to the 19th century, we are adapting our business with optimism to the challenges of the early 21st’. (Zammit Cutajar, 2010). Dealing with change in the organisational structure is a reality that every business has to be willing to embrace as it is essential for business growth. As Charles Darwin’s famous quote goes ‘it is not the strongest of species that survive, nor the most intelligent, but the ones most responsive to change’.

2. The Company’s Organisation al Structure

To attain its business goals and objectives, P.Cutajar has its employees coordinated through an effective organisational structure.  Like many retail operation organisations, the company utilizes one of the most widely used structures: the functional organisational structure, whereas jobs are clustered together to form different departments. This structure is fundamentally a hierarchal arrangement of responsibilities, as shown in the chart below:

Under the direction and view of the CEO (Chief Executive Officer), the structure at P.Cutajar is mainly divided into two departments: the Sales and Marketing Department and the Administration Department. Each of these departments focuses on its primary tasks, in that every employee is differentiated to perform a specific set of tasks.

3. T he Sub-Structure

For the purpose of this assignment, the analysis of the effectiveness of P.Cutajar’s organisational structure is done vis-à-vis two departments: The Food and Beverage Department and the Ferrero Department, both of which fall under the supervision of the Sales and Marketing Director, as shown below:

# HORECA – Hotels, restaurants and catering

These two departments, managed by two different managers, are set up to be specifically product-focused, enabling each employee to focus on a particular product/brand. The company provides a good deal of support and nurturing to help these employees in becoming highly qualified and in turn this setup provides the company with a broad base of expertise. The main drawback of this structure is that it does not allow the salesmen in being customer-focused since no account managers are allocated.

Due to the continually increasing competition in the market of fast moving consumer goods, it is essential for these two departments to well-adapt to the external environment, which includes competitors, suppliers, brands and trade clients. The environmental requirements exert a number of pressures on these two departments and as a result, P.Cutajar ensures to alter and adjust its structure to accommodate to these needs. For example, from time to time, the majority of the company’s suppliers conduct a departmental evaluation by means of a site visit. Through this process, the suppliers measure and monitor the department’s performance to ensure that the departments provide a high standard of their goods and services, whilst also offering business stability. Thereafter, the company analyzes the strengths and weaknesses of its current organisational structure and if necessary, adjusts or reconstructs its structure accordingly.

The existing structure of these two departments, which is merely the result of their director’s vision, is very efficient as all employees across all the hierarchy effectively fulfill their job requirements. The director controls and coordinates the departments’ available resources (both human and material) to generate the most profitable circumstances. This is done by motivating all employees to achieve their allocated tasks. On the other hand, the managers of each department ensure that the tasks that the director allocates to them are performed and that the outcomes are achieved. In turn, the salesmen and merchandisers transform the predetermined goals to satisfy the market’s needs.

Another benefit of this setup is that it manages to create a meaningful communication between the staff and enables all individuals to coordinate and to work efficiently so as to accomplish their targets. This structure allows information to be smoothly conveyed across all departmental levels and enhances feedback. For example, the recent introduction of ‘Bacardi Martini’ to the company’s portfolio was successful since all concerned individuals were provided with the right knowledge about the product and the tasks related to its promotion in the market.

All in all, P.Cutajar’s sub-structure is successful due to the continuous efforts of all of its employees, particularly the director, who continuously scans its environment and analyzes its tasks and workforce to look for better ways of conducting business.  In fact, from time to time, the director accomplishes significant change in the structure’s overall strategies. Typical changes include the inclusion and removal of certain practices as well as a radical change in the way it operates. All this helps the sub-structure to improve its overall performance and to continue to develop.

4. The Journal

Title: The Performance Implications of Fit among BusinessStrategy, MarketingOrganisationStructure, and Strategic Behavior.

By: Olson, Eric M.; Slater, Stanley F.; Hult, G. Tomas M..

Journal of Marketing, Jul 2005, Vol. 69 Issue 3, p49-65, 17p

Database: Business Source Complete

4.1  The Aim

The selected journal analyzes the performance implications of matching marketing’s organisational structure and organisational behaviour to business strategies. Through this study, Olson, Slater and Hult particularly examined whether ‘superior performance is contingent on how well the structure and behaviour are aligned with the requirements of a specific strategy’. For this study, the authors followed the lead of Walker and Ruekert’s (1987) theory of how marketing structures, policies, procedures and programs are likely to distinguish high performing business units from those that are relatively less effective within a specific type of strategy.

4.2 The Study

Through this empirical study, the authors investigated the performance contributions of business strategy, marketing organisation structure and strategic organisational behaviour to business growth. Previous studies investigated these three aspects separately but the authors consolidated them simultaneously.

As the basis of their research, Olson et al focused on two vital frameworks of business strategy: the Miles and Snow (1978) typology and the Porter’s typology (1980). From these two typologies, which focus on customers, competitors and product-market changes, the authors synthesized four archetypes of how firms implement different strategies; namely, prospectors, analyzers, low-cost defenders and differentiated defenders.

Throughout the study, the authors identified three structural concepts which are particularly important in shaping an organisation’s performance. These constructs, which are central to Mintzberg’s (1979) analysis of organisational structures, are: formalisation, centralisation and specialisation. These concepts were also included in the quantitative study carried out by the authors.  

Olson et al categorised the strategic organisational behaviours that are required to implement the business’s strategy into four: customer-focused behaviours, competitor-oriented behaviours, innovation-driving behaviours and internal/cost reducing behaviours. These behaviours ‘have the potential to create superior performance through enhancing the execution of business strategy’ (Gatignon and Xuereb 1997; Slater and Narver 1995).

In addition to the above, the authors also assessed the potential impact of business unit strategies and environmental conditions, namely market and technological turbulence, on the relationships of interest.

4.3 Methodology

The results of the study are based on a quantitative research method. The authors designed a questionnaire with a seven-point likert scale.  This questionnaire was sent to different managers of marketing organisations and the four hypotheses related to the effectiveness of each of the four identified strategies were tested by using ordinary least squares regression within subgroups.

4.4 F indings and Conclusions

Findings from this study have helped the authors to validate the correctness of their hypotheses. It was concluded that business success requires a fit between strategy and organisational structure and behaviour, and consequently it is fundamental for firms to ‘tailor their marketing organisation and strategic behaviours to complement the requirements of their business strategy’. It was also established that the overall performance of any organisation should be viewed in the light of market and technological turbulences.

5. Journal relevance

This aim of this section is to investigate the significance and appropriateness of the journal to P.Cutajar’s current organisational structure. Olson et al assert that even though the study was based on companies with at least 500 or more employees, they believe that the findings demonstrate that for superior performance, companies, irrespective of their size, should align their structure and behaviour to their business strategy. As a result, through this section, we intend to compare and contrast P.Cutajar’s organisational setup to the major factors identified by the authors in the study.

Olson et al assert that two fundamental factors which affect the formation of business strategies are market and technological turbulences. The highly competitive market climate, the ever changing customer needs, and the up-and-coming technology continually stir up turbulences, and these in turn directly affect the strategies of many firms, including those of P.Cutajar. In fact, the company has always ensured to complement for these two factors by modifying its strategies accordingly. For example, in the past, P.Cutajar was the only importer and distributor of Ferrero products in the market. This means that for a long time the company solely enjoyed the complete local market. However, due to the extent of competition from parallel traders and from international supermarket chains such as LIDL, both importing and selling Ferrero items, the company has felt a significant drop in its turnover figures. As a result, the company altered its business strategy, and this led to the reshaping of the Ferrero department.

Technological turbulence has an incredible impact on industry landscapes. In particular, the rapid speed of Information Technology (I.T.) development is of significant effect on organisations. I.T. is a leading environmental factor that is able to transform business strategies, structures and processes. Through the use of I.T., P.Cutajar has witnessed a radical change in the way it operates. The company’s extensive use of I.T. has led the company in implementing into its structure its own I.T. department to ensure that I.T. is used to enhance the company’s strategies. The company’s I.T. manager states ‘Our long-standing commitment to quality and to consumers and loyal customers means that we strive to regularly improve our standards especially through the use of the latest technology’ (Times of Malta, 2010).

Results from the journal indicate that irrespective of which of the strategies is adopted, the top performing results draw from organisations that are decentralised. However, as the authors themselves declare, since the study is limited to large companies, it may be that structural issues of decentralisation are not relevant when attempting to explain the performance of small companies like P.Cutajar. Olson et al strengthen this argument by referring to Mintzberg’s (1979) suggestion that ‘simple structures are characterized by centralisation’ and that ‘direct supervision is the key coordination mechanism in this type of organisation’. In fact, P.Cutajar is a centralised organisation since directions and lines of authority come from higher level of management – the sales and marketing director. The company’s director has full control of the structure and this ensures that the goals and objectives are smoothly met.

One of the four strategic organisational behaviours identified in the journal is customer-focused behaviour. As indicated before, P.Cutajar is not primarily customer-focused but product-focused. Through this strategy, the company has always managed to reach its sales and profit targets. Nevertheless, with the ever increasing popularity of e-commerce and fierce competition, it would be beneficial for the company to increase its focus on its customers; identifying who they are and learning what segments they fit into. This can be done by employing an account manager who will be responsible of large account clients, such as supermarkets and wholesalers. With the inclusion of an account manager in the company’s structure, P.Cutajar will enhance its relationship with its customers while ensuring to satisfy their needs when possible. The company’s present focus on its products is fundamental; however to seek competitive advantage, it is essential for the company to shift some of its focus on its customers, to ensure that the products are relevant and necessary in the marketplace. As Olson et al argue ‘firms with a strong customer orientation pursue competitive advantage by placing the highest priority on the creation and maintenance of customer value’.

The study classifies business strategies adopted by organisations into four: prospectors, analysers, low-cost defenders and differentiated defenders. The authors contend that these strategies assemble different types of approaches that organisations take in view of achieving their targets and goals. Each of them has its own strengths and has a valid place in the business environment. The effective implementation of some of these strategies has helped and still helps P.Cutajar in being successful in the local market.

P.Cutajar has changed from being a prospector to being an analyzer. As a prospector, the company used to attempt to continually bring new and innovative products and services   to the market. In effect, in the past, the company was mainly committed to innovation and to the emerging trends in the market. At the time when many firms were focused on one or two specific business areas, P.Cutajar was a principal competitor in various areas such as photography, wines and spirits, coffee, food and confectionary, among others. As years passed, competition increased and the economic climate became more difficult. Thus P.Cutajar reduced its tendency of risk and moved towards stability by being an analyzer. The main aim of the company is no longer to be innovative but to assess the market demands and improve on other prospectors’ offerings, while not ignoring any business opportunities that might come along. In effect, as stated before, the company has recently successfully included ‘Bacardi Martini’ to its portfolio. Results from the journal suggest that ‘analyzers should place a greater emphasis on the responsive dimension of customer orientation, carefully evaluating customers’ likes and dislikes regarding prospectors’ offerings and introducing improved versions.’ This consolidates the argument that has been noted above – that it is imperative for P.Cutajar to cultivate a customer-oriented behaviour into its strategy.

As a differentiated defender, P.Cutajar puts its emphasis on competing in the market by offering superior quality products to customers who are willing to pay for them. Unlike low-cost defenders, the company’s main concern is not that of offering the lowest cost. This makes P.Cutajar a selective organisation as its strategy does not focus on what the overall market wants but on what specific customers want. For example, when the company was successfully running its photographic business with Kodak products, both the products and the services were not the cheapest in the market. Nevertheless, the company still managed to build a very good reputation to the extent that even though it exited the business after seventy years of success, it still hasn’t lost its long-held image of ‘Cutajar tal-Kodak’. Olson et al found that ‘higher levels of customer orientation are strongly associated with superior firm performance among differentiated defenders.’ So once again, it is apparent that if P.Cutajar is adherent to a customer-intimacy approach, it would improve its overall business performance.

P.Cutajar’s mission statement ‘Building profitable relationships’ encapsulates the company’s business strategy. In pursuit of fulfilling this, the company’s mission is to ‘continually review the content and structure of our business, adapt it to meet changing market conditions and take initiatives to create new business’ (P.Cutajar, 2011). This indicates that although P.Cutajar is much smaller than the firms under study in the journal, it still attempts to mold its structure and behaviour according to its business strategy for optimal performance.

6. CONCLUSION

For many years, researchers have been investigating organisational performance from different viewpoints. The chosen empirical study by Olson et al specifically contributes to the understanding of the structure-to-strategy-to-performance phenomenon. Despite its limitations, the study effectively demonstrates the significance of matching organisational structures and behaviours to strategy types for optimal performance.

In spite of facing a dynamic and turbulent industry, P.Cutajar managed to build and sustain a strong position in the local marketplace, to such an extent that it is one of Malta’s longest established businesses. This was possible since in conjunction with Olson et al’s journal, through the years, the company continuously created and shaped effective configurations that involved coordination between its structures and business strategies.

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