Work: Industrial Organisational Structure
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Discuss the internal and external factors that influence an industry’s organisational structure
Introduction
An organisational structure shows how the work in an organisation is co-ordinated and supervised. It outlines how the organisation’s aims will be achieved by the different people in the company. The United Kingdom supermarket industry will be discussed. This is because, this year, it is currently undergoing significant change. Stores such as Tesco have to respond more strongly to customers’ needs.
The internal factors that affect a supermarket’s structure are the managerial decisions over what structures are appropriate. External factors that affect the organisational structure are customers and the supermarket’s competitors. Supermarkets have needed to respond to the opportunities and threats in the changing external environment. New challenges, as will be shown, have required changes to the organisational structure (Lewis and Trevitt 2007:42).
Size is a relevant internal factor which affects organisational structure. Supermarkets have grown in size and they have added more sophisticated departments. They have employed more people in staff positions, making their structures increasingly complicated (Aswathappa 2010:353). This has over-loaded their head offices and in response they have had to simplify their management structures. Supermarkets operating in stable external environments have tended to have centralised decision making, in their head offices. This has led to hierarchical channels of communication (Aswathappa 2010:353) which can now be questioned.
Functional and divisional structures will be examined together with the impact of contacting-out. The discussion will now look at the ideas of Henry Ford. These are based on scientific management and concerns with efficiency. The discussion will then examine Tesco.
Discussion
In the 20th Century supermarkets, in the UK, became successful by selling cheap food to the public. They achieved low prices through large sales of food in their shops. They ‘turned over’ their products quickly. They were efficient and productive. This efficiency was partly based on the work of Henry Ford and efficient production lines in car factories. The supermarket checkout can be seen as a production line with products moved efficiently along it.
Supermarket workers were, and perhaps still are, like workers in a car factory. This influenced how the supermarket’s organisational structure developed. The supermarket was a rigid hierarchy, with firm control over the work of supermarket employees such as till operators. The supermarket’s structure could, therefore, be described as bureaucratic. This structure matched the sale of standardised branded products at low prices. The supermarket worker did not need knowledge about the food products that were being sold. This was like a car factory, with workers only needing to operate the machinery. They did not need a particular craft or production skill.
Supermarkets were like bureaucracies. A bureaucracy “is where the work of an organisation closely follows rules and procedures” (Marcousie et. al. 2005: 249). The bureaucratic system has been useful for clearly defined operations such as ‘till work’. But bureaucratic organisations may not be able to respond well to the needs of customers. Tesco’s recent problems could be due to its organisational structure, which can be criticised for being too bureaucratic. Tesco admits that it has driven productivity too hard (Pratley 2012). It has focussed too much on efficiency and neglected the customer as a result. Its head-office led structure may have damaged performance.
Perhaps, Tesco has not been able to use the opinions of their shop-floor employees who could have told senior management about problems that were occurring in the stores, such as a lack of investment. UK supermarkets could rely too much on a management system which focuses on the formal management of employees. Perhaps, Tesco became too inflexible, in terms of the shops being unable to provide constructive feedback to the head office.
The problem with bureaucratic organisations is that they are impersonal; people can be treated as ‘just a shelf stacker’. Tesco says that they are going to make their stores “more consumer-friendly, warmer and with a focus on ... customer service” (Bunkall 2012). This emphasises how external influences, such as customers making fewer purchases, can affect organisational structure. It is likely that Tesco will need to delegate more to the store level, and give store managers and employees more control over their work. There is an external influence which is encouraging Tesco to change and to offer better service. Tesco has been seen as ‘too cold’ (Ahmad 2012) and too industrial. Too much like a factory but this would not be surprising considering the earlier comparison with the work of Henry Ford.
To reduce some of the problems with bureaucracy, UK supermarkets have ‘de-layered’ their organisational structures. “De-layering is the removal of management layers” (BPP 2004:58). The number of management levels is reduced. For example, middle managers such as regional managers, employed by the supermarkets, could be made redundant. This is because such managers could slow down communication between individual stores and the head office. Also with de-layering, responsibility and decisions are made further down the managerial hierarchy. Asda was successful at doing this in the 1990’s (Van de Vliet 1995).
Tesco has, to an extent, achieved a de-layered organisation. It has made sure that the chain of command between the chief executive and the shop floor worker has been reduced to its minimum. Tesco has “six work levels within the organisation. This gives a clear structure for managing and controlling the organisation” (Business Case Studies 2012). There are only three layers of management in the head office and three layers of management in the stores. There are no ‘regional managers’ to slow down communication between the head office and the shops. In theory, “every member of staff has the opportunity to train and rise up the (organisational) ladder (Blackhurst 2004)”. A flatter structure should mean that people are friendlier towards each other and this should be reflected in better customer service. People should feel more valued, and able to perform better, if they are given more responsibility.
De-layering, and the flattening of organisational structures, has also been influenced by external cost pressures in the industry. It is possible that flatter organisational structures reflect a need to reduce food prices for shoppers. For example, the Co-op’s food business has reduced its management capacity, with fewer jobs in the head office, while retaining the same number of jobs in its shops (Thompson 2012).
Another reason for a flatter structure, with relatively few head office staff, is that many jobs are contracted out. For example, head office managers could contract out the design of supermarkets’ clothing ranges. Clothing ranges can be outsourced and if there are any problems with the supplier then the contract, with the supplier, can be terminated. However, in terms of the supermarkets’ core business then there are limits to which structures can be flattened. It may be difficult to give responsibility to staff lower down the chain of command. These employees may not have the appropriate skills for such delegation.
Supermarkets are structured, particularly at head office level, by function. This is an internal influence on the business. The organisation is structured according to different roles; for example finance and marketing. The aim is for head office employees, to improve organisational efficiency by specialising in complex areas of service. Specialist work is given to departmental experts, leaving them with the responsibility for particular types of work. The problem is that there may be a lack of co-ordination between different functional roles, such as finance and marketing. This could make a supermarket, such as Tesco, inflexible. It is possible that the functional separation between finance and marketing caused Tesco to prioritise finance and productivity; at the expense of marketing and customer prices. External market forces, in terms of fewer sales, and lower profits, may encourage greater internal co-operation between different departmental functions.
Supermarkets can also be structured by division. Each division has all the organisational functions within it. Each division will have its own finance, marketing and other departments such as Human Resources within it. Tesco has a wholly-owned but separately run business called One Stop. Tesco states that it is a "separate business with a different supply chain and a separate business model" (Goodley 2010). There could be many reasons why Tesco would want to set up a different division which is separate from its own brand. It may want to operate a different model with higher prices than Tesco. It may also want to avoid criticism of its expansion into the convenience segment of the food market. It can achieve this by setting up a separate division. There may be a social-cultural factor, at work here, that the British public is more sceptical of UK supermarkets than in the past.
Divisions can also be separated by different geographical areas. It would be possible to separate supermarket activity by different regions of the country. If a supermarket is organised regionally, then it could be able to serve the needs of local people more easily (Hall et. al. 2006:63). Booths supermarket chain could be an example of a successful regional operation. It has survived despite competition from the major supermarkets.
Conclusion
Traditional command and control structures are less relevant to supermarkets than they were in the past. Supermarkets have to offer good customer service as well as low prices. Commercially, supermarkets have to respond to external customer needs. To make sure they meet consumer needs then a supermarket may have to adapt its structure. It may need to develop a less hierarchical and flatter structure which gives shop-floor workers “a sense of belonging and identity” (Lim et. al. 2010). Nevertheless, the problem remains that such flatter structures need to be implemented in practice and not just discussed in theory.
References
Aswathappa, K. ,(2010), International Business, 4th Edition, New Dehli: Tata Mc Graw Hill Education
Ahmed, K., (2012), Will we fall in love again with ‘too cold’ Tesco?
Blackhurst, C., (2004), The MT Interview: Sir Terry Leahy
BPP, (2004), HNC HND Business, Mandatory Unit 7: Business Environment Course Book: First Edition, London: BPP Professional Education
Bunkall, A. , (2012), Business Case Studies, (2012)
Goodley, S. , (2010), Tesco's One Stop angers rivals with 77-store purchase
Hall, D., Jones, R., Raffo C., Chambers I., and Gray, D., (2006), Business Studies: Third Edition, Harlow: Pearson Education
Thompson, J., (2012), 'Extreme challenges' force Co-op to axe hundreds of jobs, available at, , accessed at 16/05/12
Lewis, R. and Trevitt, R., (2007), BTEC National Business, Book 1, Second Edition, Nelson Thornes, Cheltenham
Lim, M. Griffiths, G. and Sambrook, S. (2010), Organisational Structure for the 21st Century
Marcousie, I., Gilespie A., Martin B., Surridge, M. and Wall N., (2007), Business Studies: Third Edition, Abingdon: Hodder Arnold
Pratley, N. (2012), The trouble at Tesco
Van de Vliet, A. (1995), UK: ASDA'S Open Plan