Business at work

goods, high technology products or pharmaceuticals. However, R&D is equally

important to firms providing services.

By investigating in research and development a business seeks to maintain

competitiveness against its rivals. Competitiveness measures a business’s

performance in comparison with rival firms in the same market. A highly

competitive firm has some advantage over other businesses. This competitive

edge can take a number of forms:

. lower prices

. more advanced and sophisticated products

. a better image with consumers

. a good reputation for advise and after-sales service

. reliability in terms of operation and delivery dates

Types of research:

. basic research

. applied research

. development

The prime function of R&D is to develop new products that can give the firm

a competitive edge in the market. This necessary involves the R&D

department in close liaison with staff in market research, design and

production.

Function 1.6: The nature of business activity

Functional areas of Tesco plc.

The diagram above shows the key functional areas or departments of Tesco,

as one of the leading retailers in the U.K. It is currently the leading

supermarket chain in Britain, with a higher market share than its leading

rivals, Asda-Wallmart, Sainsbury’s and Safeway.

I have explained earlier the key functional areas of a typical business

and Tesco, as the diagram shows, displays this type of structure. For

example, the Company Secretary, Rowley Ager is responsible for Pensions,

the Company Secretariat (the administrative staff), the Treasury, Taxation,

Site Facilities, Transport and all aspects of Consumer Law.

The Finance Department, directed by Andrew Higginson, is responsible for

all aspects of finance and audit, and also for European affairs. These

functions are shown in Figure 1.3 in my introductory section. I have no

detailed information on Finance within Tesco other than financial data

available from the Company Accounts and from the Tesco and Bized

websites……… and these are more relevant to a detailed finance study of

Tesco as a company, a topic to be studied in a later Unit.

The Marketing Department, directed by Tim Mason, is responsible for all

aspects of marketing , Customer Service, Advertising, Market Research,

Clubcard, Estates and Metros. Since the early 1990s Tesco marketing

strategy has been to become the best in terms of price, quality and

service. Objectives are set, and ways found of meeting them, in all aspects

of company’s operation.

The Retail Department, directed by Michael Wemms, is responsible for all

retail operations and express stores.

Tesco first ventured into foreign markets when it acquired stores in Irish

Republic in 1978, but these were sold in 1986. The 1990s produced a much

better climate for European expansion. Now Tesco operates 80 stores in

Central Europe, and 16 stores in two Far East countries trading both under

the Tesco and subsidiary fascias. The 13 Tesco stores in the Czech Republic

and Slovakia, 29 stores including 5 supermarkets in Hungary, 31 stores in

Poland. Also Tesco plan to open 12 hypermarkets in Thailand and in South

Korea over the next three years.

The Human Resources Department within Tesco is responsible for many

thousands of employees across the whole spectrum of the organisation. Tesco

employs 154,000 people in the UK and 27,000 in Ireland and Europe. It does

not appear on the organisation chart, which I obtained from Tesco, because

this function is somewhat complex and shared between the main headquarters

at Cheshunt. Hertfordshire, and the many stores operated by Tesco around

the country. For example, there are two Tesco superstores in Leicester, at

Hamilton and Beaumont Leys, both of which have a Human Resources officer in

charge of personnel administration.

The Commercial Department, directed by John Gildersleeve, responsible for

all commercial operations and technical services.

The Distribution Department, directed by Philip Clarke, responsible for

Supply Chain and all distribution operations. Distribution Director

responsible for products delivery, logistics and transport. Its purpose is

to ensure that Tesco stores have the right products delivered against

agreed delivery schedules and in good condition, enabling the stores to

provide a consistently high level of customer service. Tesco products are

sent to stores from distribution centres around the country. Tesco runs 13

centres and a further six centres are run for Tesco by contractors. A

typical centre covers 300,000 square feet and handles some 50 million units

a year. The centres work around the clock, seven days a week, providing

2,500 deliveries daily, amounting to 19 million cases per week. Tesco

employs 6,800 people in distribution (excluding the staff at the contractor-

run centres), and has about 1,000 tractor units and 2,000 trailers in its

national vehicle fleet.

The Operations department, directed by David Potts, responsible for

operations of Tesco stores in Northen Ireland & the Republic of Ireland. In

May 1997, Tesco completed an agreement with Associated British Foods to

purchase all their supermarkets in the north and south of Ireland. The

purchase price was Ј641 million, giving Tesco a further 110 food stores and

a leading position as a food retailer on both sides of the Irish border.

I have considered each of the major functions of Tesco separately. However,

it is the effective interaction of business functions that is essential to

the success of an organisation in attaining its objectives.

As an example, Tesco has recently introduced a customer-oriented website on

the Internet. Company has developed within this service facility a direct

order system via E-mail – called “Tesco Direct”. Customers can order

their produce/product for home delivery.

There are now many thousands of such deliveries but these all depend upon

the successful interaction of the major business functions outlined

earlier.

In other word, -

. Marketing - responding to the initial enquiry, receiving and

processing an order, distributing the product to customer.

. Administration – adding the customers details to the IT system,

passing on details to other departments within the business.

. Finance – investigating the financial status of the customer, offering

credit terms if appropriate, invoicing for payment.

. Distribution – receiving details of order and meeting the customer’s

demands, liasing with marketing over delivery dates, rescheduling

other production as required.

. Human resources – at a store or warehouse level – ensuring sufficient

employees are available to meet the delivery requirements of the

order, arranging overtime payments if necessary.

Hence these functions help meet the objectives successfully. All Tesco’s

organisation structure works as links of a chain, if one link falls down,

all the organisation will experience difficulty. For example, most

important department of Tesco, I consider, is Distribution department. If

this department fails, products will not be delivered to the store, so

customers will go to another store. Tesco’s success is built on the good

work of each department.

E4

Organisational structure

In many small firms, the owner may have a very hands-on approach and may be

responsible for getting customers, hiring any extra labour and acquiring

other inputs and taking all financial decisions. As organisations grow,

however, their structure takes on a greater significance and those at the

top have to pay more attention to its formal structure and presentation.

The various business functions will show an increasing degree of

specialisation as an organisation expands and people will be employed to

manage and take decisions in specialist areas.

In general, an organisational structure sets out:

1. Major roles and job titles, showing who is in control of the business

as a whole and who manages its major business functions within

departments.

2. The level of seniority of people holding different positions and their

respective positions in the organisation’s overall hierarchy.

3. The working relationships between individuals, identifying

relationships in terms of superiors and their subordinates and

indicating who has authority to take certain kinds of decisions and

who are responsible for carrying out the work arising from those

decisions.

4. The extent to which decision making is concentrated in the hands of

people at or near the top of the organisation or handed down to those

at lower levels of management.

5. The broad channels through which information is communicated

throughout the organisation, indicating the route by which

instructions flow down the hierarchy and how information flows back up

the hierarchy.

Organisational charts

Organisational charts are representations of the job titles and the formal

patterns of authority and responsibility in an organisation.

Business may produce organisational charts for several reasons. First, it

is important that a company reviews its organisational structure on a

regular basis to take account of any changes in the business environment.

A formal organisational chart helps the company to identify where changes

need to be made and to decide the relationship between any new sections or

departments and the rest of the organisation. Business also produce

organisational charts because they allow a company to review its structure

and to identify areas where cost saving changes and improvements can be

made. Organisational charts are useful when changes take place in the

company. It can be updated to take account of any informal developments in

its structure that have been good for the company. A revised organisational

chart is particularly useful for informing people about the new structure

of the company after mergers or take-overs.

The organisational chart can also be used during an induction period to

give new employees a useful overview of the company and their own position

within the structure in terms of their authority and the managers to whom

they are responsible. Although an organisational chart has several uses, it

should not be taken as giving an exact description of how the organisation

actually operates. It does not give the exact nature of job

responsibilities or indicate what levels of cooperation may be necessary

between departments.

Function 1.7: Line authority in a production department.

Chain of command - is the line of command flowing down from the top to the

bottom of an organisation. It passes down the management hierarchy, from

director and senior management levels to those in middle and junior

management positions and eventually to employees in supervisory jobs who,

for example may have authority over assembly line workers or staff

providing services to the organisation’s customers. Organisations with a

long chain of command - with a hierarchy made up of many levels of

management - are said to have tall organisational structures.

Span of control - refers to the number of subordinates a manager is

responsible for and has authority over. Organisations with a long chain of

command will tend to have narrow spans of control. Organisations with a

short chain of command tend to have wider spans of control. This produces a

flat organisational structure because it has a hierarchy with fewer levels

of management.

Flat organisational structures: are generally desirable, there is a limit

to the number of subordinates who can be placed under one superior. Even

very experienced managers who have the qualities and personalities that

promote loyalty and hard work can only be responsible for so many

employees.

Tall organisational structure : some organisations have many levels and

grades of staff with a tree-like management structure and strong patterns

of vertical communication. This means that there are many different grades

of staff between people lower down the organisation and the person at the

top. Tall organisations suffer from problems with bureaucracy, as

information needs to be directed through the correct channels before

appropriate action is taken.

The main features of such a structure are as follows:

6. At each level there are several staff responsible to a person at the

next level up. The process is repeated until the top of the

organisation is reached.

7. In a limited company the person at the top is the Managing Director

who is ultimately responsible for the whole organisation.

8. As the levels within the organisation are ascended, the number of

people at each level decreases and this gives the organisation a

pyramidal structure.

In an organisation with flat structure there are fewer levels or grades of

staff and much more emphasis on communication across the organisation. This

is more likely to be the structure of a small business where everyone knows

each other and works together more as a team.

In some situations, however, a relatively wide span of control may be

acceptable if:

9. The potential disadvantages of a wide span are outweighed by the costs

of employing the extra managers needed to produce narrower spans of

control.

10. Junior employees are engaged mainly in routine work and as a result

the manager is required to make relatively few decisions.

11. Managers are willing to reduce the pressure on their own time by

delegating more decision making and they can identify staff who are

likely to respond well to the extra responsibility.

12. An effective range of financial and non-financial motivational factors

produces a committed group of people who need very little supervision.

13. The group within the span are highly skilled or talented and are given

a great deal of scope to be creative and imaginative in their work.

Line structure

In a line structure, a company is usually organised into functional

departments, each headed by a senior manager, below whom there is a chain

of command. This indicates that there is a line of authority and

responsibility as one goes down the structure.

Each person in the line has authority over those below, while being

responsible for making sure that the work handed down to them from their

immediate manager is completed. This applies even if the subordinate does

not personally undertake the actual work.

Advantages:

14. It is hierarchical structure which is simple to understand - staff

know precisely where they are in the structure, who can allocate work

to them and to whom they are responsible.

15. Managers have a clear understanding of the roles of people when

allocating work and spend less time monitoring work because

subordinates are not distracted or confused by instructions from other

sources.

16. A well-established line authority makes it possible for work to be

delegated further down the line - this can be valuable when superior

is seeking to widen the experience subordinates and develop their

management or supervisory skills.

Disadvantages:

17. It can involve a very long chain of command - instructions may take a

considerable time to filter from the top and impact on production,

which can be an important drawback if the organisation operates in a

rapidly changing market.

18. The flow of information back up a long chain to management may be a

lengthy process, causing a considerable delay before problems are

identified and tackled.

19. Individuals might only respond to requests from the superior, creating

inflexibility in the organisation which may be totally unnecessary if

co-operation with other managers does not effect working relations

with their superior.

Line and staff structure

A line and staff structure combines both a line authority and what is known

as staff authority. The term staff authority refers to those staff, usually

at a relatively senior level, whose are of work often involves dealing with

different departments. Someone with the relevant staff authority can

provide services and advises to those in the line of authority of other

departments. Managers with staff authority do not have the power to control

or give instructions, but rather the authority to deal with different

departments and to offer advice or support services in relation to problems

or exploiting new opportunities. However, since those with staff authority

are appointed because of their expertise, experience and good personal

skills, their advice, though not binding, is likely to be very persuasive.

Advantages:

20. Staff authority enables the expertise and experience of specialists to

be utilised more fully across the organisation.

21. By having access to all areas of the company, managers with staff

authority, communications between departments are at director level,

and so any inter-departmental communication has to pass up the chain

of command in one department to director level and then down the other

before it reaches the appropriate level.

22. Staff authority prevents individual departments from being too inward

looking - departments remain aware of their interdependence and their

role in seeking to achieve the organisation’s objectives.

Disadvantages:

There is a risk that staff authority may diminish the authority of

individuals in the line management, particularly if those with staff

functions acquire informal power and authority.

Matrix structure

In a matrix structure, a senior manager heads a division or team of

specialists drawn from different departments. These specialists are also

located in departments where they are part of a line authority; they are

therefore subject to two sources of authority.

In a matrix structure the simple chain of command found in a line structure

is replaced by a very large number of reporting relationships as

individuals report to managers in more than one department or function.

A matrix structure may be used for just some of an organisation’s

activities or it may cover the whole work of the organisation. It is often

used for organising and managing project teams, where people with

specialist skills, perhaps from different levels in the hierarchy, are

brought together to solve complex and urgent problems. Project teams may be

created to deal with issues which arise every now and again or they may be

an ongoing feature of the organisational structure.

Some aspects of marketing, however, may be handled by an ongoing project

team drawn from other departments, although the membership of the group may

change as different marketing issues arise.

Advantages:

23. It promotes increased co-ordination between departments because it

cuts across departmental boundaries - it encourages greater

flexibility and creativity, produced by the cross-fertilisation of

knowledge and skills.

24. It allows for the involvement of relatively junior staff, giving them

valuable experience in a wider field for the expression and

application of their particular skills.

25. Staff lower down a line structure can also gain valuable management

development in a project team, preparing them for promotion to higher

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