Page 33 - Managing Change in Organizations

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Chapter 2 ■ Organization structures: choice and leadership
The federal structure

This structure carries the decentralization of the divisional structure a stage fur-
ther. The group establishes strategic business units for each product market and
controls them from the centre without an intervening divisional structure. This
reflects the fact that, in practice, further growth often means that divisions oper-
ate more than one unit, firm or plant.
Accountability could readily become confused between group, division and
firm levels. The three advantages of the federal structure are as follows:
1 Accountability is clear and defined at unit level.
2 Resources are not expended at divisional level.
3 Groups can achieve growth or divestment quickly to suit corporate strategies.
However, the emergence of the ‘federal structure’ can recreate the pressures on
senior management which the divisional structure once removed. Effective
reporting systems, information systems and decentralization are three keys to the
solution of this problem.

Management in action

In practice, organizations implement variants of the above structures. Many large
organizations in both the public and private sectors operate divisional structures
alongside some element of matrix management. Thus an international oil com-
pany and a large hospital group I know are both organized into divisions; both
have a finance function separate from the divisions (divisional directors and the
finance director both being on the executive committee or board) but both assign
finance staff to each division.
At local level, people interpret the demands of the tasks in hand, alongside
ideas of good financial management practice and standing orders, rules and reg-
ulations, in ways which allow them to get on with their work as they see it. In
practice, the task of senior management is to establish priorities and to achieve
both control and adaptability. The reality is that, at all levels of management,

there is considerable discretion on a day-to-day basis. Top management attempts
to exert complete control are generally counterproductive. They discourage ini-
tiative and encourage ritual or even ineffective behaviour, and take time and
money to exert.
People have long distinguished the formal from the informal structure of
organizations. The formal structure is that defined by organizational charts, job
descriptions and so on. The informal structure is that which emerges from and
around the formal structure.

For centuries observers and leaders have remarked on the distinctions between
expected and unexpected behaviour in organizations. The fact that the dis-
tinctions continue to be made under various names points to an apparently
universal condition. From at least the time of Augustus Caesar, these dissimi-
larities were recognized and incorporated in the terms de jure (by right) and
de facto (in fact), which are roughly equivalent to legal or official, and actual
but unofficial. In industry and business today one repeatedly hears the same

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