2 What is organisational structure?
The term organisational structure refers to the relationships between the various functions and positions in an organisation. Structure determines authority and responsibility for particular tasks/activities. It also specifies the routes of communication between different parts of the organisation. Organisational structure therefore has important implications for the design of management accounting systems. For example, some organisations are highly decentralised, with decision making authority delegated to relatively junior managers at lower levels in the organisational hierarchy. In this case, a major role of the organisation’s management accounting system will be to monitor the outcomes and provide feedback to senior managers about the performance of those who have the decision making authority. Such a role will not be necessary in a highly centralised organisation, where senior managers make all the important decisions.
Theories of organisational structure
With the emergence of large industrial enterprises in the nineteenth century, management theorists began to consider how organisations should be designed and managed. As you will read later in this session, early organisational theorists such as Henri Fayol (1949) attempted to derive universal prescriptions for the optimal design of organisations. More recently, theorists have emphasised the contingent nature of optimal organisational design – depending on variables such as size, production technology, degree of stability in the organisation’s business environment, nature of competition in the industry and so on. These factors are assumed to influence, for example, whether organisations are ‘tall’ or ‘flat’, centralised or decentralised in terms of decision making and so on. (These terms are discussed later.)
Ultimately, organisational structure is a means of influencing and controlling the behaviour of the individuals who work in the organisation. Structure is used to assign authority and responsibility to individuals and hold them accountable for the achievement of specific tasks or objectives (Emmanuel et al., 1990, p. 38). Management accounting is an important part of this process as it provides managers with the information to carry out the various activities for which they are responsible. It also measures and monitors their performance to ensure that the organisation achieves its objectives.
A good example of a management accounting technique employed widely for organisational planning and control purposes is budgeting.
The sort of information managers need to undertake various activities and the way their performance is measured/monitored will depend on the way in which the organisation is structured.