Analysis of Bega Cheeses Organisation Design - Case Study Example

Bega Cheese’s Organisation Design Name: Institution: Table of Contents Bega Cheese’s Organisation Design Introduction All organisations have a specific structure that determines various issues. The organisational structure and design in a firm normally influences the way that colleagues work together, managers control the company as well as the manner in which different departments coordinate. Accordingly, the structure that an organisation has is an important determinant of the company’s success and efficiency. The structures that different organisations use vary in various ways. These variations affect issues such as centralization, hierarchy and departmentalization. Like with other companies, Bega Cheese’s organisational design influences the way that the company operates. The company produces dairy products, particularly cheese, and markets them to consumers in Australia and Asia. For such companies, the organisational structure is key to maintaining production efficiency and therefore ensuring that the firm is able to meet the demand in the sector. This paper will first analyse the concept of organisational structure and design, looking at the different features it entails. The analysis will particularly focus on the mechanistic and organic structures as well as the mechanistic-organic continuum. The next part of the paper will delve into Bega Cheese. The section will begin with a brief summary of the firm’s history, followed by an in-depth analysis of its current structure. The paper will then place Bega Cheese on the mechanistic-organic continuum and then explain how this placement affects the firm’s long-term survivability. Organisational Structure and Design Every organisation in the world has certain goals and objectives that it seeks to attain. To achieve these goals, the administration or management needs to coordinate and organize the work that various individuals are carrying out within the firm. According to Carpenter, Bauer and Erdogan (2010) state that organisational design or structure is the manner in which the administration within a company coordinates and manages the work of individual employees. By having a fixed structure or design, companies can ensure that they achieve a high level of efficiency. This is because the coordination determines important issues within the firm such as reporting relationships, formal channels of communication and the links between the different roles that workers in the company have (Burns & Stalker, 2003). Different organisations normally adopt varying structures depending on the way that they combine various certain features. Each structure normally has its own advantages and disadvantages and some of them are particularly suitable for firms in specific industries. Scholars explain that the structure in a basic organisation normally incorporates four key features. According to Carpenter, Bauer and Erdogan (2010) centralization, departmentalization, hierarchy levels and formalization are the main building blocks that make up the structure of a basic organization. Centralization pertains to the extent to which a company focuses its decision-making processes on the upper levels in the firm. In centralized firms, the higher-ranking employees, particularly those working within the administration, are responsible for making the key decisions within the company (Plunkett, Attner & Allen, 2008). Conversely, decentralization means that the low-level employees play key roles in the decision-making process. In such firms, lowly ranked employees feel empowered and valued as the management allows them to make key decisions affecting the firm, particularly if the problem concerns them directly. Too much centralization or decentralization can become a problem for any company regardless of the industry or market in which the firm is operating (Plunkett, Attner & Allen, 2008). If a firm is too centralized, operations become slower because employees often seek verification and confirmation from the management before moving forward. Conversely, an overly decentralized firm will likely face problems concerning strategy and long-term planning. Other building blocks of organisational structure are just as important as centralization. Formalization is an important part of the organisational structure in any firm. Formalization in a firm is the extent to which a company officially and explicitly documents its rules, policies and procedures. By formalizing its rules and procedures, a company creates structures that guide the employee’s actions. Their behaviour therefore becomes predictable and controllable, which is an advantage for the company. However, formalization may also limit creativity and innovation by restricting the actions of the workers (Hess & Kazanjian, 2006). Hierarchy is another important aspect of the organisational structure in a firm. Experts evaluate the hierarchy in a firm by looking at the number of levels within its structure. Tall structures normally have many levels between the low and high-level employees. Contrastingly, flat structures limit the number of levels to a manageable amount. Scholars normally consider the departmentalization in a firm to be either functional or divisional (Plunkett, Attner & Allen, 2008). Companies that have functional structures normally group similar jobs and operations together. This means that people have specialized roles and carry out multiple functions for the firm. Other firms use divisional structures, where factors such as the products, customers, services and location determine the departments. Through this form departmentalization, companies attain a high level of agility. Mechanistic and Organic Structures The various features that compose the basic structure of an organisation are normally interchangeable and are capable of coexisting together. Due to the various possible combinations and mixtures, experts normally refer to mechanistic and organic structures as the two main types of organisational design. Most experts similarized a mechanistic structure to a rigid bureaucracy (Dyck & Neubert, 2010; Graubner, 2006). This is because the mechanistic structure contains many of the characteristics that would be found in a highly structured and formalized organisation (Netting & O’Connor, 2013). Firstly, mechanistic structures have a high level of formalization with the management clearly articulating most of the organisation’s rules and procedures. This formalization also affects the operations of the employees, with the administration making sure that it states all of their tasks with clarity (Burns & Stalker, 2003). Communication within mechanistic structures is primarily formal and vertical. This matches the strict hierarchy in such firms, with most of them having tall structures. Lastly, almost all of the decision-making processes within mechanistic structures take place in the higher levels of the organisation (Burns & Stalker, 2003). Accordingly, employees in such firms normally have limited power and control over their actions. Organic and mechanistic structures are polar opposites in many ways. Organic structures normally substitute the rigidity from mechanistic designs with flexibility and adaptability. Plunkett, Attner and Allen (2008) explain that organic structures are free flowing and highly adaptive. This normally results in organisations where employees bear many responsibilities. Unlike the mechanistic design, organic structures are decentralized to the extent that low-level employees are responsible for making some of the decisions (Zanzi, 2007). Additionally, the hierarchical form of such organisations contains horizontal structures. As such, much of the communication is informal and horizontal in nature. This feature combines well with the decentralized nature of the structure. This is because employees are in charge of the decision-making process and the horizontal communication suits such a situation (Zanzi, 2007). The level of formalization in an organic structure is normally low, with many rules and policies being unwritten. This means that employees have room to be creative and develop innovative solutions. The Mechanistic-organic Continuum Although scholars normally classify organisations as either mechanistic or organic, few companies have designs that fall purely within the two structures. Most companies normally favour one of the structures over the other but incorporate elements of both depending on suitability and purpose (Hess & Kazanjian, 2006). Scholars therefore base the classification of the organisation structures of different companies on the mechanistic-organic continuum. Phillips and Gully (2012) explain that the mechanistic and organic structures are extremes on the continuum that analysts use to judge the designs of different organisations. Accordingly, most firms fall in between the two structures within the continuum and have features from both of them. Phillips and Gully (2012) place the mechanistic structure on the top end of the continuum, with a rigid bureaucracy typifying the structure. On the second level in the continuum, scholars place organisations where high-level management normally runs the bureaucracy. On the third level, the bureaucracy still exists, but a high level of departmentalization allows more people in the firm to become involved in the management (Alston, 2006). The middle point in the continuum is the matrix organisation. Companies within this category normally have a combination of different features that incorporates the two extremes on the continuum in a way that allows the firm to benefit from the best aspects of both structures. The next model in the continuum incorporates more elements of the organic structure than previous ones. Organisations using this model normally work through multiple teams that have various projects. The sixth model on the continuum involves a highly decentralized and informal structure that comes close to mirroring the organic design (Burns & Stalker, 2003). Bega Cheese Brief History Bega Cheese is an Australian firm that deals with the production of various dairy products, with cheese being the company’s main commodity. The company started in 1900 with the opening of a butter factory in Bega, then a small town in New South Wales. Twenty years later, the expansion of the firm resulted in the opening of a co-operative store in the same town for the sale of the factory’s products (Bega Cheese Limited, 2012). Through rapid expansion, the firm expanded its production to include cheese in 1954 and started delivering milk to clients while buying some from farmers. Continued expansion saw the Canberra and Queanbeyan branches open in 1960 and 1981 respectively. In 2008, Bega Co-operative Society went through structural changes that saw the company become an unlisted public firm called Bega Cheese Limited. The successful corporate restructuring allowed Bega Cheese Limited to be listed on the Australian Stock Exchange in 2011 (Bega Cheese Limited, 2012). Bega Cheese’s Organisation Design Various factors influence the organisational design that Bega Cheese currently uses. Firstly, as a company listed in the ASX, the shareholders who have invested in the firm effectively own Bega Cheese. This means that the company bears a responsibility to the investors and it has to ensure that it remains profitable for their benefit. The operations of Bega Cheese also have to satisfy other stakeholders such as the employees, the farmers who provide dairy produce for the firm, the local community of Bega and its client base, which includes consumers in Australia and Asia (Phillips, 2012). In addition to the nature of Bega Cheese’s operations also influence the company’s organisational structure. According to Netting and O’Connor (2010), firms dealing with the production of tangible goods, like Bega Cheese, are normally more efficient when their organisational design is closer to the mechanistic end of the continuum. Accordingly, it is likely that the nature of Bega Cheese’s operations and the commodities that the company produces have had a large influence on its organisational design. Bega Cheese’s organisational design is structured in a manner that separates the corporate operations of the firm from the production sector. This has resulted in a tall structure within the firm’s hierarchy. At the top of the structure sits the company’s board of directors. The shareholders of the company normally elect the executives who compose the board of directors during the firm’s annual general meetings (AGMs) (Constitution of Bega Cheese Limited, 2011). Working directly under the board are company’s executives. Bega Cheese’s executive team includes a Chief Executive Officer, Chief Financial Officer and several general managers. Each of the firm’s general managers is in charge of a specific department within the company. These include sales and marketing, operations, human resources and supply chain (Corporate governance, 2012). The executive team in Bega Cheese is directly answerable to the board of directors. This makes the board the highest structure within the company’s internal chain of command. However, the board primarily serves the interests of the shareholders, making them the highest commanding authority at Bega Cheese. Bega Cheese’s organisational design also has a high degree of formalization. Because the company is publicly listed, there is a need for it to have democratic systems that determine issues such as the board membership and the firm’s strategy. Accordingly, Bega Cheese has a constitution that sets rules and regulations that mainly concern the shareholders. These rules identify issues such as the frequency of the company’s AGMs, the process through which shareholders will elect board members and the manner in which investors will transfer shares in different situations (Constitution of Bega Cheese Limited, 2011). The company’s formalization is mostly visible in the higher levels of the hierarchy. In addition to the constitution, the company has a charter that regulates the actions of the board. The charter outlines the board’s mandate and explains how the executives of the firm will work with the directors. In addition to the board and the executives, Bega Cheese’s hierarchy also has members at the management and staff levels. The management in the firm takes responsibility for operations on the ground and answers to the executives. The management is also responsible for furthering the company’s objectives within its operations (Board charter, 2011). With this structuring, the company clearly articulates the roles of its employees across all hierarchical levels. The high level of mechanization in the firm also means that most of the low-level employees have little room for innovation in the work that they do (Phillips, 2012). For the majority of the workers in Bega Cheese’s factories, the work that the company expects them to carry out is basic and routine, meaning that a person cannot deviate from the normal course of action. Placement on the Mechanistic-Organic Continuum Several factors determine Bega Cheese’s placement on the mechanistic-organic continuum. The influential factors include issues such as hierarchy, formalization and rigidity. Bega Cheese currently has a high level of formalization and uses a tall structure within its hierarchical arrangement. Additionally, the high degree of mechanization and routine nature of operations in its plants means that the work that its employees carry out is repetitive. These factors imply that Bega Cheese is rigid in its structure and closer to the mechanistic end of the continuum. The best position for Bega Cheese on the continuum is on the second level. On this level, the rigidity of the firm is still high and the influence of the bureaucracy remains significant. However, there is some departmentalization and this allows other people to play a role in the management of the firm. For Bega Cheese this departmentalization is evident in the different levels of the hierarchical structure. As the investors, the shareholders of Bega Cheese are the commanding influence in the firm. The firm should ideally serve the interests of the shareholders whenever possible. However, the company divides managerial duties to different departments. The board of governors play a role by formulating the firm’s strategy. The executives then ensure that the firm meets the objectives and implements the strategies. Within the manufacturing plants, various managers and supervisors ensure that Bega Cheese meets its targets, to the benefit of all stakeholders. Bega Cheese’s placement on the mechanistic-organic continuum matches the firm’s nature and operations. Dyck and Neubert (2010) explain that firms involved in the production of tangible commodities, such as cheese, are better suited by the mechanistic structures because of the rigid and routine nature of their operations. Conversely, firms operating in highly dynamic sectors such as IT (information technology) work better with the organic structure because of it permits innovation and agility. According to Phillips (2012), Bega Cheese’s plants are highly automated with some even lacking any manual operations. The only innovation involved in the company concerns the development and utilization of new machines for the processing plants. Accordingly, the company’s use of a mechanistic organisation design suits the production of dairy products in a highly automated and routine environment. Long-Term Survivability of Bega Cheese The fact that Bega Cheese places towards the mechanistic end of the continuum has various implications on the company’s long-term survival. The mechanistic inclinations of Bega Cheese make the firm become highly efficient in its operations. For firm’s carrying out production through routine operations, efficiency allows the manufacturing processes to yield high throughputs. The clear description of employees’ roles also means that they can carry out their work with efficiency. This efficiency in production and employee operations can help the firm retain its dominance in the market (Dyck & Neubert, 2010). It is therefore important for the managers to ensure that the firm retains high efficiency levels. Bega Cheese’s placement on the mechanistic end of the continuum means that the firm’s expansion and growth should take place through the acquisition of other companies or the creation of entirely new divisions. This is because the mechanistic nature of the firm makes it difficult for the management to change operations (Graubner, 2006). The firm’s inertia to change also means that the managers need to monitor the market conditions closely. With firms such as Bega Cheese, change normally occurs through a long and complicated process. This means that the firm needs to have advanced warnings of any drastic shifts in the market that would require a large change in operations or focus. Lastly, companies using a mechanistic structure like Bega Cheese normally benefit from economies of scale (Dyck & Neubert, 2010). This means that the managers of the firm need to ensure that the company keeps on growing and matches the expansion of rival firms. Doing so will ensure that Bega Cheese retains its market position within the dairy products industry. Conclusion Organisational design is an important variable for every company. It determines issues such as efficiency, innovation and agility for firms. This means that the wrong structure could condemn a company to fail. Bega Cheese is a large company in Bega, New South Wales that produces and sells dairy products to consumers in Australia and Asia. The company operates through several production firms that are highly automated, meaning that most of the firm’s basic operations are of a routine nature. The level of formalization and centralization in Bega Cheese, along with its tall hierarchical structure, means that the firm places closer to the mechanistic end of the continuum. Bega Cheese specifically places on the second level, as a firm with a high amount of rigidity and bureaucracy, but with management spread across different levels. This placement suits Bega Cheese because it ensures workers to keep producing products at an efficient rate, allowing the firm to benefit from economies of scale. For the managers, the placement has several implications. The managers of Bega Cheese have to keep the firm’s efficiency high so that production meets the market’s needs. Additionally, expansion has to take place through the creation of new divisions or acquisition of other firms. Lastly, the managers need to be aware of any shifts in the market to allow the firm to react before it is too late. References Alston, F. (2014). Culture and trust in technology-driven organizations. Boca Raton: Taylor & Francis Group. Bega Cheese Limited. (2012). Brief history. Retrieved from http://www.begacheese.com.au/student-resources/brief-history/. Burns, T. & Stalker, G. M. (2003). The management of innovation. Oxford: Oxford University Press. Carpenter, M. A., Bauer, T. & Erdogan, B. (2010). Principles of management. 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