Organisational Structure and Culture
Organisation
Organisational Structure and Culture
Syllabus tag: KASNEB CPA | Advanced Level | CA31 Leadership and Management | Topic 5 Organisational Structure and Culture
Lesson objectives
By the end of this topic, you will be able to:
- Compare the principal organisational structures
- Explain centralisation, span of control and delegation
- Apply Handy's and Schein's models of culture
- Explain how structure and culture support or obstruct strategy
- Describe the effect of culture on control systems
Why this matters
Structure determines who decides what, and culture determines what people do when nobody is watching. A strategy inconsistent with either will not be delivered, however well it was formulated.
Structures
| Structure | Basis | Suits | Weakness |
|---|---|---|---|
| Functional | Specialism — finance, production, sales | Single product, stable environment | Silos; slow cross-functional decisions |
| Divisional | Product, market or geography | Diverse products or regions | Duplication; divisional self-interest |
| Matrix | Two dimensions at once | Complex projects needing both | Dual reporting; conflict over priorities |
| Network | A core with outsourced activities | Flexibility, low fixed cost | Dependence on partners; loss of capability |
The matrix is the one examiners probe. Its strength is combining functional expertise with project focus. Its weakness is that a person reporting to two managers receives conflicting instructions, and the structure only works where the two managers resolve priorities between themselves rather than through the subordinate.
Divisional structure creates the transfer pricing and performance measurement problems covered in CA34S3 — the structure produces the measurement question, not the other way round.
Centralisation and delegation
Centralised decision-making gives consistency, control and economies of scale, and it slows response and demotivates local managers.
Decentralised decision-making gives speed, local responsiveness and development of managers, and it risks inconsistency and duplication.
The choice depends on the environment's stability, the cost of an error, the competence of local managers, and the need for consistency across units.
Span of control — the number reporting to one manager. A wide span forces delegation and produces a flat structure with short communication chains. A narrow span permits close supervision and produces a tall structure with more layers and slower communication.
Note the connection: delayering widens spans, so it requires managers capable of delegating and staff capable of working with less supervision. Done without either, it produces overload rather than efficiency.
Culture
Culture is the set of shared assumptions, values and behaviours — the way things are done here.
Schein's three levels:
| Level | Nature |
|---|---|
| Artefacts | Visible: dress, layout, ceremonies, stories |
| Espoused values | What the organisation says it believes |
| Basic assumptions | Unconscious, taken for granted — the real culture |
The gap between espoused values and basic assumptions is where diagnosis happens. A company whose values statement emphasises openness while staff know that raising problems damages a career has one espoused value and a different assumption, and the assumption governs behaviour.
Handy's four cultures:
| Culture | Character |
|---|---|
| Power | Central figure; few rules; fast decisions; depends on one person |
| Role | Bureaucratic; defined procedures; stable and slow to adapt |
| Task | Project and team focused; flexible; can lack control |
| Person | Serves the individuals in it — partnerships, professional practices |
Most organisations contain more than one. A bank may have a role culture in operations and a task culture in project teams, and the friction between them is a common source of internal conflict.
Structure, culture and strategy
The alignment argument, in one line: structure and culture must support the strategy, or the strategy loses.
- A cost leadership strategy suits a functional structure and a role culture — standardisation and efficiency
- A differentiation strategy through innovation needs a task culture and a flatter structure — the same controls that deliver efficiency suppress experiment
- Rapid growth eventually breaks a power culture, because the central figure becomes the bottleneck
Culture is the harder of the two to change. Structure can be redrawn in a memorandum; basic assumptions take years and change most reliably through changed behaviour and changed people, not through a values statement.
:::checkpoint A founder-led company with a power culture has grown from 30 to 400 staff and decisions are now delayed for weeks awaiting the founder. Diagnose the problem and set out what must change in structure and culture. :::
Culture and control
Culture determines which control system works.
Where trust and professional norms are strong, output controls — agreeing results and leaving the method to the individual — are effective and cheap.
Where they are not, behaviour controls — detailed procedures and supervision — are needed, and they cost more and constrain initiative.
The link to CA24 is direct: the control environment is the first component of internal control precisely because detailed controls designed by a management that will not enforce them do not operate. Culture sits underneath every control system, and an auditor assessing a weak control environment is making a cultural judgement.
:::checkpoint Two companies have identical documented control procedures. In one they are followed; in the other they are routinely bypassed with management's knowledge. Explain what differs and what an auditor should conclude. :::