Association of Chartered Certified Accountants (ACCA) Certification Practice Test

What defines a hollow organizational structure?

1. Complete internal management of all functions

2. Outsourcing almost all functions except for a few key roles

3. High number of employees in every department

4. A focus primarily on in-house production and sales

The correct answer is: Outsourcing almost all functions except for a few key roles

A hollow organizational structure is characterized by the strategy of outsourcing the majority of its functions, retaining only a few key roles within the organization. This approach allows the organization to reduce costs by shifting non-core activities to external providers who can perform these tasks more efficiently or effectively. By concentrating on essential functions such as strategy, control, and certain critical operational tasks, the organization can remain agile and focus on its core competencies. In this model, the company leverages external partnerships to maintain a streamlined and efficient operational framework, which can lead to a more flexible and competitive organization. The reliance on external resources enables the hollow organization to adapt quickly to market changes and innovations while managing its internal human capital effectively. The other choices do not align with the definition of a hollow organizational structure. For instance, complete internal management of all functions suggests a traditional hierarchical structure rather than a hollow one. A high number of employees in every department indicates a more conventional organizational layout that does not focus on outsourcing. Lastly, a focus primarily on in-house production and sales opposes the concept of utilizing external resources for operational functions.