Terminology to Understand Organisational Structures

Delegation occurs when a line manager entrusts and empowers a subordinate with authority to successfully complete a particular task, project or role. 

It involves passing on control and authority but holding subordinates accountable for their actions. A line manager is someone with direct authority over the employees they supervise and are responsible for as shown in an organizational chart. They are responsible for guiding and evaluating the performance of subordinates who are directly below them in the organizational chart so that the firm's objectives are met.

Although authority and decision making are passed on, the responsibility for the outcome remains with the line manager because they are ultimately in charge.

As an organization grows and evolves, delegation becomes more commonplace as managers do not have the capacity to do everything or make all decisions. Hence, they need to share the workload and pass on some of their roles. If delegation is successful, it frees up managers to deal with other important responsibilities, such as strategic planning.

The span of control refers to how many workers are directly accountable to (or under the authority of) a particular line manager, i.e., the number of workers who report directly to a particular manager. In this example, the chief executive officer (CEO) of the company has a span of control of four people (such as the directors of marketing, finance, operations and human resources).

There is an inverse relationship between the span of control and the number of layers in the organizational hierarchy (or levels of the hierarchy). Managers have a narrow span of control in organizations that prefer to have a tighter (closer) control on decision-making. It enables managers to keep closer control over the activities and operations of the employees for whom they are directly responsible for. By contrast, delegation is inevitable when the span of control is wide.

A wide span of control means a line manager has responsibility for many subordinates. A wide span of control can present challenges for managers in terms of communication and control unless they are able to delegate effectively to members of their team. Naturally, workers have a greater degree of independence if there is a wide span of control as it is not possible for an individual line manager to monitor the work and progress of each and every subordinate in the team. However, a wide span of control can help to reduce costs (as there are fewer levels of management in the organizational hierarchy) but this requires strong leadership.

Whether a business decides to adopt a wide or narrow span of control depends on three main interralated factors:

• Employee competencies - This refers to the skills, qualifications, training, and experience of employees. Workers who are highly competent are more likely to be given greater authority and flexibility to make decisions and to organize their own work. Hence, the employer is more able and willing to use wider spans of control and delegation.

• Managerial competencies - This refers to the attitudes and beliefs of of managers, and hence their management styles. Some managers believe that a workforce is most efficient if employees are given greater freedom to make decisions and they are more likely to delegate authority to junior employees, enabling the use of wide spans of control

• The business context - This refers to the nature of the organization and the market(s) in which it operates as well as the activities under consideration. Large, multinational companies (MNCs) will need to be structured differently from small sole traders or partnerships. MNCs will have wider spans of control as senior managers will be responsible for larger teams, possibly across multiple geographical locations. In the case of sole traders and small partnerships, the business owners may maintain narrower spans of control.

However, there is no universally accepted number that determines what is a narrow or wide span of control, so this really depends on the context of the organization and the industry in which it operates.

The term levels of hierarchy refers to the number of layers of formal authority. It is represented in an organizational chart. Each horizontal level in the hierarchy shows the level of seniority in the organization. In the example below, there are five levels in the organizational hierarchy.

The hierarchical structures in an organization show where workers fit within the firm, showing their level of seniority. The organizational hierarchy also indicates lines of communication, decision-making authority, accountabilities and responsibilities.

In the example above, the marketing team would receive communications (commands and decisions) from the director of marketing. If the chief executive officer (CEO)* wanted to communicate with the finance staff about a particular issue, the message would pass through the chain of command, via the finance director to the marketing manager, and finally to the finance staff.

Larger businesses and those with tall (vertical) hierarchical structures tend to have longer chains of command, and vice versa. However, long chains of command can create challenges for operational efficiency and miscommunications. In any case, having clear and formal chains of command help to improve communications within an organization, ensuring that directions and decisions are more likely to be understood and acted by subordinates. Businesses with flatter structures (fewer levels in the organizational hierarchy) have shorter chains of command. However, it is not always practical or beneficial for businesses to reduce the number of layers in its organizational structure.

Bureaucracy refers to administrative systems within an organization. This includes the formal policies and procedures of the business. A bureaucratic organization is one that has a lot of formal rules, regulations and procedures. There is a lack of flexibility as the organization is set in the way it does things.

Typically, bureaucratic organizations involve a lot of paperwork to get tasks approved and accomplished. Auditing is also commonplace in order to show that rules, policies and procedures have been correctly followed. It is associated with clear hierarchical structures with employees fulfilling specific roles and being held accountable for their areas of responsibility. Hence, bureaucracy helps managers to ensure they have control of their business and its operations.

Bureaucracy is associated with organizations that are large and well-established, i.e. ones which have been in operation for many years. They are also more likely to have tall hierarchical structures, with a many layers of management. Hence, authority and decision-making tend to be centralized.

However, there are disadvantages. Bureaucratic organizations are inflexible, so are slow in responding to changes in the external business environment. Also, as people have to adhere to fixed rules, regulations and policies, creativity and innovation are essentially discouraged. Nevertheless, the main limitation or criticism is that bureaucracy (with all its detailed and complex rules and procedures) slows down decision making and causes operational inefficiencies.

However, as delegation rarely happens in centralized organizations, morale and productivity may be lower than otherwise. In addition, such structures are very rigid (inflexible), which can be demotivating for employees, who cannot express their opinions or suggestions. It also means that centralization is unsuitable for industries that rely on creativity and autonomous decision-making, e.g., the high-tech industry.

Whether an organization is centralized or decentralized (see below) partly depends on the dominant leadership style and the organizational culture. The decision to adopt a centralized organization may reflect the preferred style of leadership style of the business as senior executives and directors wish to retain authority and control of all business activities and operations. This can be beneficial in numerous circumstance, such as:

Situations when rapid decision making is required, such as during a major crisis than threatens the survival of the business.

• In organizations where low-skilled workers form the vast majority of the workforce, so employees require direction and supervision to meet organizational objectives.

• When centralization can lead to cost savings, such as fewer managerial positions throughout the organization or when buying decisions are made centrally (creating opportunities to benefit from purchasing economies of scale).

Decentralization can help to improve morale and productivity as workers feel valued and empowered. Decision-making is more flexible, and can usually be made a lot quicker. It also reduces the workload on senior executives and directors, freeing up their time to focus on strategic (rather than operational or tactical) matters.

However, decentralization means it is more difficult for senior managers to know about all of the decisions that are made, especially in large organizations with multiple locations. This makes it more challenging for them to maintain overall control of the organization and to ensure employees maintain clear focus on business objectives.

However, delayering adds to the workload of the existing workforce, especially those who have responsibility for a larger team (due to the wider span of control associated with delayering). This can cause anxiety, stress, resentment and conflict, so must be handled carefully by the management team. The management team also need to be sensitive to those who lose out from delayering as their security needs may be threatened, causing demotivation and lower labour productivity. In addition, delegation can cause a loss of institutional knowledge and internal expertise as employees in former managerial positions no longer contribute to the decision making process in the same ways as before.