Organization Structure
Organisational Structure
• Good management should be able to design an organisational
structure to ensure employees can carry out the work assigned to
them effectively.
• The use of an organisation chart can also help to visualise the
relationships between levels of the organisational structure.
7
Implications of an Organisation Chart
Show the activities of the organisation by level.
Highlight subdivisions of the organisation.
Identify different types of work performed.
Provide information about different management levels.
Show the lines of authority in the organisation and the flow of
communications within an organisation.
8
Organisational Structure by Level
• The organisational structure is based on the level of management.
• The line of authority moves directly from the top level to the lowest
level in a step-by-step manner i.e. Lower level managers follow the
orders from higher level managers.
• The authority and responsibility at each level is clearly defined.
• Example: The general manager issues order to
various departmental managers. Thereafter, the
departmental manager gives instructions to front
line managers.
11
Organisational Structure by Level
• The way that a company’s structure develops often falls into a tall
structure or a flat structure.
• Tall structure
• A structure that has more hierarchical levels of management.
• Flat structure
• A structure that has fewer hierarchical levels of management.
CEO
Tall Flat CEO
Structure Manager Manager
Structure
Manager Manager
Staff Staff Staff
Staff Staff Staff Staff Staff Staff Staff
Staff Staff Staff
Staff Staff Staff 12
Organisational Structure by Level
• Large company often requires a taller organizational structure. As a
company grows, the number of management levels increases and the
structure grows taller. It is because a manager cannot supervise so
many immediate subordinates at one time. It is not practical and
feasible for a large company to have a flat structure.
• Small company often requires a flat organizational structure. It is
because a tall structure will make a small company to deal with
greater bureaucracy and salaries for middle management.
13
Organisational Structure by Authority
• Authority is the right to perform or command. Staff with authority is
allowed to perform certain tasks and direct subordinates to perform by
delegating the authority.
• The position of individuals on an organisation chart indicates their
relative amount of authority. The higher the position, the more the
authority.
• There are two main types of authority can exist within an organisation:
• Line authority
• Staff authority
14
Organisational Structure by Authority
• Line authority – consists of the right
to make decisions and to give orders CEO
to subordinates. It is the most
fundamental authority with an Legal
organisation and it reflects existing Counsel
superior-subordinate relationships.
• Staff authority – consists of the CIO CFO COO
right to advise or assist those who
possess line authority. Example
Line authority
Legal Counsel of a company. Staff authority
15
Departmentalisation by Function
• To divide an organisation into separate units according to their key
function performed in the firm. E.g. Production, Marketing, Finance,
etc.
• Advantages
• Easier to lead and control
• Resources can be allocated by departments
• Disadvantages
• Lack of communication between departments
• Employees become narrow specialists
16
Departmentalisation by Function
• Departments are formed by business functions.
• Examples: production, marketing, finance, logistic, administration
CEO
Production Marketing Finance Logistic Administration
department department department department department
17
Departmentalisation by Function
Advantages Disadvantages
Resource allocation Overspecialization
Better communication within Departmental Barriers
department
18
Departmentalisation by Product
• Departments are formed according to the goods and services a
company offers.
• Examples: fashion, leather, jewellery, accessories
CEO
Fashion Leather Jewelry Accessories
division division division division
19
Departmentalisation by Location
• Departments are formed according to geographic regions.
• Examples: North America, European, Asia Pacific, Latin America
CEO/
International
Operation
North America Asia Pacific Latin America
European division
division division division
20
Departmentalisation by Product & Location
Advantages Disadvantages
Management Focus Wasting Resources
Better Service Competition
21
