Management Structures, Meeting Productive Efficiency

This stuff is advanced and you do not need to know this for A level. People will be impressed though and using some of this will be a good way to get full marks.

Company Structures

This is different to the types of firm section which explains Ltd, Plc and nationalised firms as in we are about to see the different management structures typically used, of which you’ll be able to recognise…

Functional Structure: ‘The bread and butter’

Front, Middle and Back Office: The most common for large corporates where we have our CFO, COO, and the rest of the alphabet soup of executives. The business itself is split not into sector or product divisions but operational divisions, one will be finance, marketing, sales, operations, technology, risk and more with a hierachal structure in each division. The CEO oversees all divisions.

Alan Johnson asks Mark about whether they should follow ‘Project Zeus’, to merge sales and marketing, typical of an innovative (and functional) structure

Entrepreneurial Structure ‘What Zahablog would be, if you want to search all 14 million Google results for Economics past papers’

Typically a startup or small business for which innovation is not constantly required and the product or service process is fairly simple. Take a haulage company for example. One is the leader and usually the founder who has recruited a bunch of relatively low skilled labour to take off the grunt work while the founder plans and directs.

The Holding Company ‘I don’t create, I own…’

Simply a company who, as Gordon Gekko would put it, doesn’t create, but owns other companies and does a bit of directing and restructuring.

A holding company is typically an investment company such as Nomura Holdings or a private equity firm such as KKR with a group of sector experts running what it owns. A holding company relies on M&A which I mentioned earlier but often buy only a ‘controlling interest’ rather than the whole company.

The M Structure ‘Diversify!’

Picture the functional structure, with its operations divisions and imagine 3 or 4 of these for separate products coming under an umbrella. You may think this is the same as the holding company, but a key difference is that each separate part is a product area rather than a company itself. This is typically a conglomerate, Unilever, Ralph Lauren or LG being good examples. Called ‘M’ as it branches out if you know what I mean..

The Innovative Structure 

This form of structure has taken hold in the past 20 years with the array of internet startups and the success stories of Google, YouTube and Facebook (FB has recently been valued at over $50bn, to put that into perspective, that is approximately 1/14th the value of all business operations in the United Kingdom!)

Innovation, the Michael Mcintyre way..

Creative Hub: The way this works is that you have your leaders, the board of directors, and your grunt workers such as admin staff, but due to the advanced nature of the product and the business being ideas based you also have a group in the middle who are very skilled and value generating.

Designers, programmers, market researchers, strategists and salespeople not only perform their role, but serve as the creative hub required in a TMT sector which is constantly adapting.

Productive Efficiency the Japanese Way

Remember productive efficiency? Operating right on the LRATC curve? Here we learn about the methods firms actually use in practice to minimise costs, waste and time taken through a production line. The examples given are typically manufacturers of goods, and is one of the reasons why Japan springs to mind.

The Japanese culture of perfection is exemplified in the Martial Arts

Why else is Japan chosen? Japan, despite suffering economically for the past 20 years capped off with the devastating earthquake of 2011 is still renowned for its efficiency in meeting orders in manufacturing. It was the first country to practice what became known as ‘Just in Time’ production.

Japan obsessively went about minimising the build up of inventory in its factories as its land values were (and still are) very high, storage would cost them a fortune! It was also found that during the boom years of the 1960’s and 70’s, 99% of the time an unfinished good would be lying around instead of being worked on. The Japanese have a culture of chasing perfection.

Just in Time Manufacturing

As it says on the tin, JIT makes sure that the stage of the (taking a copper foundry as an example) shaping of copper into wires and electrical components is done right after the supplies have been delivered and the workers have only just finished on the last load. As this implies, each part of the line is operating 100% of the time the factory is open. Most importantly:

It must make sure that what and how much is produced is made just in time for the order….

Sound very familiar to the fundamental economic problem right at the start?

Japan also has the highest robot density per manufacturing worker

Why isn’t everybody doing it?

JIT appears to be the ideal way to manage a production plant, I mean surely other countries’ manufacturers will be better off following this principle??

  1. JIT is very hard to implement: Meticulous levels of organisation is needed to ensure that people and machinery is freed up to add value on what has just been delivered, to deliver in time. In its purest form it does not allow for any error in any stage, which is unrealistic given people aren’t robots (and if they were, mechanical faults will still be an issue)!
  2. Stress on Employees and Managers: Ensuring 20000 Toyota cars are ready JIT for shipment does not allow for much margin for error if there are delays, placing a huge strain on managers who must meet very tight deadlines. As above, workers are also under pressure being expected to do things right first time.
  3. Unpredictability of suppliers and weather conditions: Say we have an order by 1st March and deliveries of raw materials by 1st January with the value adding process taking 2 months at full capacity. What if there is a storm or hurricane and the supplies are destroyed and have to be redelivered a month later?
  4. Inventory can never be fully eliminated: You can try until you’re blue in the face but inventory will always exist….unless perhaps the factory runs 24/7 including Christmas day, which will breach the working time regulations..

Lean Manufacturing and Waste

Lean manufacturing, like JIT aims to spot the main forms of waste and seek to cut them out. Here we lo0k at the wastes manufacturers of all sorts have in common.

The main wastes

  • Excess inventory: Taken care of in JIT
  • Excess transportation: Of labour, materials and delivery
  • Excess exertion: In lifting, pulling, pushing
  • Improper technique: Carrying out tasks inefficiently, using the wrong tools etc
  • Defects: Correcting these takes time

If only football was manufacturing…sorry Chelsea fans

  • Utilities bills: Can run up to a lot these days
  • Material usage: One man’s trash is another’s treasure
  • Unnecessary data: Logging how many toilet trips each of the 132 weavers made 10 years ago
  • Customer waiting: Because the customers waste should be yours
  • Customer loss: We need them no matter how efficient we are
And most importantly not enabling staff to fulfil their potential
As Napoleon Hill once said; more gold has been mined from the minds of men than could ever be from the Earth itself.
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