Organisational structure 

• It is the internal, formal framework of a business that shows the way in which management is organised and linked together and how authority is passed through the organisation 

• It indicates:

  • Overall decision-making responsibility 

  • Formal relationships between people and departments 

  • The way accountability and authority is passed – chain of command 

  • Span of control

  • Formal channels of communication

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Types of organisational structure 

Hierarchical structure – 

• It is one where there are different layers of the organisation with fewer and fewer people on each higher level 

• Advantages – 

  • Everyone knows their spot on the corporate ladder 

  • Chances of promotion 

  • Clear and well-defined role for each individual 

  • Clear chain of command 

• Disadvantages –

  • Only one way communication 

  • Lack of coordination 

  • Inflexible 

  • Change resistance 

Matrix structure – 

• An organisational structure that creates project teams that cut across traditional functional departments 

• Task & project focused 

• Organisations require flexible structure (remove bureaucracy) 

• Innovative and creative ideas 

• Advantages –

  • Better communication and coordination 

  • More innovative and successful ideas 

  • Flexible 

  • Quicker in responding to market changes 

• Disadvantages –

  • Less direct control 

  • Conflict of interest

Key principles of organisational structures

Levels of hierarchy 

• Each level represents a grade 

• A flat organisational structure has fewer ranks and levels of hierarchy

• A tall organisational structure has many ranks

• Problems – 

  • Communication problems 

  • Narrow span of control 

  • No sense of belonging 

Chain of command 

• Route through with authority is passed down in an organisation 

• Includes instructions and information 

• Tall organisational structure – longer chain of command 

• Flat organisational structure – shorter chain of command 

Span of control 

• Number of subordinates reporting directly to a manager 

• Wide span of control – many subordinations, encourages delegation 

• Narrow span of control – few subordinations, discourages delegation 

Delegation 

• Passing authority down the organisational structure

• Encourages motivation 

• Wider span of control, more delegation 

• Employees are accountable for the work, but the manager is still responsible for it 

• Benefits – 

  • Senior managers can focus on other important roles 

  • Indicates trust in workers (motivation) 

  • Trains workers for promotions 

  • Help achieve self-actualisation 

• Drawbacks – 

  • Unsuccessful delegation if training is not given 

  • Unsuccessful delegation if enough authority is not given 

  • Managers may only delegate boring tasks, demotivating them

Key principles of organisational structures

Centralisation  

• It involves keeping all important decision making powers in the head office 

• Minimum delegation 

• Gives a sense of uniformity and consistency 

• Quicker decision making 

• Prevents conflicts 

• Decisions are taken with the effect on the entire business in mind, not just one division 

• Central buying – economies of scale 

• Experienced decision makers 

Decentralisation 

• It involves passing decision making down the organisational structure to empower employees 

• Demonstrates trust in employees (motivation) 

• Enables localisation as they are closer to the target market 

• Develops and prepares them for more challenging tasks (internal promotions) 

• Better motivation (delegation & empowerment) 

• Quicker and more flexible decisions

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Organisational structures – factors influencing it 

• Entrepreneurial structure 

• Organisational structure changes with size and range of activities. 

• It must be flexible 

• Factors:

  • Style of management, culture of managers 

  • Retrenchment cause by economic recession or increased competition 

  • Corporate objectives 

  • Adopting new technologies

Important links between organisational principles 

• The greater the number of levels of hierarchy, the longer the chain of command

  • Smaller span of control 

  • Increased delegation 

  • Ineffective communication 

  • Poor motivation of junior staff 

  • Higher business costs 

• Problems associated with a tall structure – is delayering the answer?

  • Delayering – remove a whole layer of management

• Delegation: conflicts that can arise and potential benefits

  • Indicates trust on the subordinate 

  • Increased motivation 

  • Empowerment & self-enrichment 

  • Managers may not wish to take risks 

• Accountability, authority and responsibility 

  • Delegation gives subordinates authority to perform tasks 

  • If done incorrectly, the worker is accountable for the task

  • However, the overall responsibility of the task is to the manager

• Centralisation and decentralisation 

• Line and staff relationships 

  • Line managers are workers who have direct authority over people, decisions and resources within the hierarchy

  • Line managers have responsibility for achieving specific business objectives 

  • Staff managers are specialists who provide support, information and assistance to line managers 

  • They do not have authority over line managers 

  • They perform a supporting role to the line managers, but do not make decisions

Informal organisations 

• The network of personal and social relations developed between people over time in an organisation is known as informal organisation

• Power and influence are obtained from membership of informal groups within a business 

• Conduct of individuals within these groups is governed by norms or normal standards of behaviour 

• It may be that informal group leader may gain more power over the formal group leader

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Organisational structure – the future 

• Businesses will need to have a flexible and fluid organisational structure 

• Move from command structure to team-based problem solving 

• Involves removing horizontal boundaries between departments 

• Future success depends on the ability to respond rapidly to the changing business environment