Chapter 7: Structure and shape of the finance function

• Finance function


  • Handles the financial operations
  • Provides information & advice to other departments
  • Responsible for organisations physical and financial resources
• Traditional finance function


  Originally responsible for generating information like reports, management accounts, investment appraisals
• Contemporary finance function


  • Taking information that has been generated
  • Analyse them to create insights which add value
  • Effective communication with decision makers
• Mintzberg organisational structure


  • 6 building blocks that relate to an organisation
  • Effective control and co-ordination are needed for the blocks to work well together
• Components of Mintzberg structure

  • Strategic apex - Driving direction of business through control over decision making
  • Technostructure - Drives efficiency through rules and procedures.
  • Operating core - These perform the routine everyday activities.
  • Middle line - They do the management functions.
  • Support staff - Provides expertise and service to organisation.
  • Ideology - The companies culture.
• Different configurations of the Mintzberg structure

  • Simple structure / Strategic apex - No formal structure and little planning.
  • Machine bureaucracy / Technostructure - Standardised work process.. functional structure
  • Professional bureaucracy / Operating core - this is standardised skills like corporate places.
  • Divisionalised / Middle line - this is when company so big that there are divisions.
  • Adhocracy - support staff
  • missionary
• Functional structures


  Group employees via specialism, I.E finance and marketing
• Geographical structures


  People are arranged via their location
• Divisional structures


  Company is divided into semi-autonomous units or divisions, each focusing on a specific product, service, or market
• Matrix Structure


  Organisation uses cross functional teams
• Boundaryless organisations


  Minimise/eliminate formality and chains of command to focus on speed and flexibility
• Types of boundaryless organisations

  • Virtual - Virtual teams
  • Modular
  • Hollow - Core and Non core activities
• Shamrock Organisations


  Core of essential workers supported by outside contractors and part-timers
• Core parts of shamrock

  • Professional core
  • Self-employed
  • Contingent workforce
  • Consumers
• Flatter structures


  Companies with less layers so that there are quicker response times
• Horizontal structures


  Companies that use multi-functional project teams and multi skilling providing flexibility
• Horizontal integration


  When a company acquires another company on its level to expand its market share
• Vertical integration


  When a company expands forwards or backwards within its own value network. Allowing it to become its own supplier or distributor
• Types of alliances


  • Joint ventures - New company setup by two or more firms with each retaining independent entity
  • Licenses - granting permission to another company to sell patented products
  • Franchises
  • Consortia - Short term legal entities to deliver project.
  • Agents -
  • Strategic alliances - sharing resources across two or more organisations
• Reconfigurations


  Finance functions are now increasingly configured to help organisations with processes and information flow (Right people, right info, right time)
• Shared service centres


  Centralising operations that previously existed in more than one part of the organisation
• Outsourcing


  Getting outsiders to do your companies work
• Service level agreements


  Legally binding contracts between customer and outsource partner setting out the agreed levels of service
• Transaction costs


  The consequence of having a business activity performed by a third party
• Transaction cost theory


  Businesses need to consider the costs of making deals or transactions, like time and money, to decide whether to do things themselves or hire others
• Business process re-engineering


  When an organisation transforms business processes from scratch
• Relocation (Offshoring)


  Moving some parts of company to another country
• Business partnering


  Working with other functions in an organisation
• Benefits of shared service centres

  • Cost saving (Reduced staff)
  • Standardised processes (Reduce errors)
  • Improved services
  • Improved quality and control
  • Consolidation of information systems
• Risks of shared service centres


  • HR issues (Redundancy costs)
  • Costly, time consuming and complex
  • Language issues for different countries
• Requirements for successful shared service centres

  • Committed to continuous improvement
  • Clear roles for staff
  • Clear vision
  • Ensure company is strong after the change
  • Customer focused culture
  • Senior management committed
• Types of outsourcing competencies

  • Core competences
  • Complementary competences
  • Residual competency
• Core competency


  Tasks that are fundamental to a company and shouldn't be outsourced
• Complementary competency


  Can be outsourced but because it is technically advanced, can only be given to trusted outsourcer
• Residual competency


  Can be outsourced, basic arm's length transactions
• Hierarchy solution


  Deciding to own the assets and produce yourself
• Market solutions


  Buying other companies assets to produce with
• Scalar chain


  This relates to levels in the organisation
• Span of control

  This relates to the number of employees managed
• Scalar chain and span of control

  Tall companies have more layers but narrower span of control