Jamie Hill

Business A2 Notes
Chapter 13- Organisational structure
Organisations need structure

Structure allows for there to be:

• Division of tasks and responsibilities to be made clear to all
• Workers to understand which manager they would be responsible to.

A typical business structure is one that is based on departments or functions. These departments are
divided according to the type of work carried out.

Structures can be illustrated by means of an organisation chart- This displays a number of important
points about the internal organisation of this business.

Structure indicates:
● Who has overall responsibility for decision-making
● Formal relationships between different people and departments
● Position of each individual in the business and who their line manager is
● Ways in which accountability and authority may be passed down the organisation
● Number of subordinates reporting to each more senior manager
● Formal channels of communication, both vertical and horizontal
● Identity of the supervisor or manager to whom each worker is accountable

Business objectives and organisational structure:

Organisations consist of any number of individuals who work together to achieve the mission of the
organisation.

Everyone fills a certain role within the structure, performing tasks that help them achieve the objectives
set by management.

Each person has their role defined and a certain amount of accountability to complete tasks that help the
business reach its overall goals.

The structure of a business needs to change internally if the objectives change.

New competitors in the industry

Jamie Hill
Business A2 Notes
● Competitive markets lead to demand for a quicker acting and more flexible structure.
● An organisational structure is not fixed all the time as it needs to adapt and be flexible to allow the
business to be responsive to meet changing conditions such as different objectives.
● Flexibility of a structure allows a workforce to meet the needs of the business.

The business grows and develops

Expansion of a business leads to internal structural change.

Entrepreneurial structure
● Only suitable for small businesses.
● Puts too much pressure on the owner at the centre of an
organisation.
● If a business grows, another manager or supervisor might be
required.
● Time consuming for one person to control the work of all the
employees even with delegation.

If a business is very successful and further expansion is achieved-possibly by producing in other

geographical areas- then further structural changes will become necessary.

The organisational structure changes with the size of the business and the range of activities that they are
involved in. The structure must therefore be flexible to meet the changing needs of a business as it grows
and develops.

Business objectives change

If one of the long-term objectives of the business is to increase sales in other countries, then the
organisational structure must be adapted to create a regional marketing department.

If the objective becomes one of making innovative products using the latest technology, then the business
structure must include a research and development department.

Structure must reflect the objectives of the business.

Jamie Hill
Business A2 Notes
Entrepreneurship is being encouraged
Many businesses see this as giving them a competitive advantage.
Traditional bureaucratic hierarchies are often poor at innovation as they are inflexible, focused on
top-down communication and do not encourage team working.

Types of organisational structure

1) The functional structure
A functional structure splits an organisation into departments based on their major area of
responsibility.
Each of these departments is led by a functional manager. All authority rests with this departmental
head.
Other employees are grouped according to their role.
This type of structure is usually also organised hierarchically.

Advantages:
● Employees often display a high level of departmental loyalty and pride in the work of their
department.
● It encourages employees to become specialists and this can increase efficiency and
productivity.
● Departments are led by managers who are specialists in the functional area.

Disadvantages :
● The structure is a vertical one and this often does not allow for good connections between
departments.
● Coordination between departments is therefore difficult, for example, when developing a new
major project.
● Communication flows through the department heads to the top management, so
employees may feel remote from senior management.
● There might be competition between departments, which may not benefit the whole
organisation. For example, competition for financial resources is based on getting the most for
the department and not necessarily considering what is best for the business as a whole.
Jamie Hill
Business A2 Notes
The hierarchical structure
● Different layers of the organisation with fewer and fewer people at each
higher level.

Features of a hierarchical structure:

● Hierarchy
● Chain of command
● Span of control

Levels of hierarchy
Each level in the hierarchy represents a grade or rank of staff.
Lower levels are subordinate to superiors on a higher level.
The greater the number of levels, the greater the number of different grades or ranks in the
organisation.

A narrow (or tall) organisational structure has many levels of hierarchy and this creates three main
problems:
• Communication through the organisation can become slow, with messages becoming distorted or
filtered in some way.
• Spans of control are likely to be narrow as there is a clear relationship between the number of levels in
a hierarchy and the average span of control (see Spans of control below).
• Lower levels feel remote from the decision-making power at the top.

In contrast, a flat organisational structure will have few levels of hierarchy but will tend to have
wider spans of control.

Chain of command
Instructions are passed down the hierarchy
The taller the organisational structure, the longer the chain of command thus slowing down
communications.

Spans of control
Either wide (a manager directly responsible for many subordinates) or narrow (a manager has direct
responsibility for a few subordinates).
Jamie Hill
Business A2 Notes
The benefits of a flat organisational structure with wide spans of control are that:
● Each worker is delegated more authority as there is less direct control from a manager .
● Employee empowerment can be an important motivational force.
● A short chain of command results in better communications: there is a clear link between
the number of hierarchy levels and the spans of control.
● There are few levels of hierarchy so fewer middle managers are needed, reducing business
costs (delayering). This increases the average size of each span of control. This helps to
demonstrate the clear link between the number of levels of hierarchy and spans of control.

Advantages of hierarchical structure:

Many businesses are still organised in a hierarchical structure as decision-making power starts at the top,
but may be passed down to lower levels. The rungs on the career ladder for a keen and ambitious
employee are illustrated by the different levels of hierarchy.
The role of each individual will be clear and well-defined.
There is a clearly identifiable chain of command.
This traditional hierarchy is most frequently used by organisations based on a role culture, where the
importance of the role determines the position in the hierarchy.

Disadvantages of a hierarchical structure

A hierarchical structure tends to indicate that one-way (top downwards) communication is standard
practice.
This is rarely the most efficient type of communication.
There are no horizontal links between the departments or the separate divisions, and this can lead
to lack of coordination between them.
Managers are often accused of having a narrow vision as they are not encouraged to look at
problems in any other way than through their experience of their own department.
Structure is very inflexible and often leads to change resistance- as a result all managers tend to
defend both their own position in the hierarchy and the importance of their own section or department.

Structure by product or geographical area

Vertical divisions in a hierarchy do not have to be based on functional departments.
They could be based on region, country or product category.
When the structure of a business is based on the different ranges of products that it makes or areas that it
operates in, it can be referred to as a divisional organisational structure.
Each of these product divisions will be self-contained as they have their own marketing, production and
research teams.
A senior manager in these teams will report to the head of the product type.
Key functions such as strategic decision-making and finance are usually still centralised.

Product structure can help a business:

• focus on specific market segments
• respond to consumer needs and market changes more quickly
• measure the performance and profitability of each division separately. Potential disadvantages include:
• duplication of roles, for example, each division has its own sales team
• rivalries between divisions might develop as they each focus on divisional objectives
• loss of overall central control over each division.
Jamie Hill
Business A2 Notes
Same general advantages and disadvantages apply to businesses that are structured by geographical
area. Most suitable for a business that operates and sells in several different markets with distinct cultures
and characteristics.
Great benefits in taking marketing decisions within each area division rather than centrally. These benefits
might outweigh the cost of duplicating the roles of the marketing teams.

Delayering
● Narrow hierarchical structures -communication and employee motivation problems.
● Senior managers may remove whole layers of management to create shorter structures.
● This process is known as delayering.
● Development in organisational structures has been assisted by improvements in IT and
communication technology which allow senior managers to communicate with and monitor the
performance of junior employees and widely dispersed departments much more effectively.

The matrix structure (Tom Peters)

Organises businesses aims to eliminate many of the problems associated with the hierarchical
structure.

It cuts across the departmental lines of a hierarchical chart and creates project teams made up of
people from all departments and divisions.

Method of organising a business is task or project focused.

The matrix organisation gathers together a team of specialists with the objective of completing a
task or project, instead of highlighting the role or status of individuals.

Emphasis is placed on an individual’s ability to contribute to the team rather than their position in the
hierarchy.

Tom Peters suggested that:

• Organisations need flexible structures that remove as much bureaucracy as possible by getting rid of as
many rigid rules and regulations as possible.
• Use of project teams should lead to more innovative and creative ideas, as employees will be more
motivated to contribute.
 Jamie Hill
Business A2 Notes

Advantages of matrix structure Disadvantages of matrix structure

Allows good communication between all members of the Less direct control from senior managers as the teams may
team be empowered to undertake and complete a project

Cuts across traditional boundaries between departments in Passing down of authority to more junior employees can be
a hierarchy difficult for some senior managers to accept

Less chance of people being focusing on just what is good Reduced bureaucratic control may be resisted by some
for their department as the aim is to focus on the project senior managers
and the businesses as a whole

Crossover of ideas between people with specialist Team members may have two managers to report to. If the
knowledge in different areas tend to create more successful business retains levels of hierarchy for departments but
and innovative solutions. allows cross-departmental teams to be created, each team
member has two bosses. This could cause a conflict of
interests.

New project teams can be created quickly so this system is

well-designed to respond to changing markets or
technological innovations

Delegation and accountability

Delegation affects both the organisational structure and the motivation levels of subordinate
employees.

Delegation means the passing down of authority from higher to lower levels in the organisation, in
order for subordinate employees to perform tasks and take decisions.

This process can be very beneficial to motivation (Herzberg).

The wider the span of control, the greater the degree of delegation that is undertaken.

If a job is done poorly, then the worker is accountable to his or her immediate manager. They can be
held to account and be disciplined for an inadequate performance.

Processes of accountability
Effective accountability needs to outline a clear set of guidelines so that the worker knows what is
expected of them and how their work will be assessed.
 Jamie Hill
Business A2 Notes

The accountability process:

• Clear expectations before the employee starts the job.
• Make sure the employee has the appropriate skills, providing training if necessary.
• Establish two-way communication to provide feedback on how the employee is performing while
doing the job, not just at the end of the task.
• Agree a clear measurement of performance so that the worker knows when they will be assessed
as having done a job well or poorly.
• The consequences of good or poor performance need to be made clear to the employee

The impact of delegation on a business

Advantages of delegation Disadvantages of delegation

It gives senior managers more time to focus on important If tasks are not well-defined or if inadequate training is given,
strategic roles then delegation is unlikely to succeed

Shows trust in subordinates and this can motivate and Delegation will be unsuccessful if insufficient authority is given
challenge them to the subordinate who is performing the tasks

Develops and trains employees for more senior positions Managers may only delegate the boring jobs that hey do not
want to do, which will bit be motivating

Helps employees to achieve self fulfilment through their

work

Control, authority and trust

● There is a clear relationship between these concepts.
● There is also a link between spans of control and levels of hierarchy.
● The fewer the levels of hierarchy, the wider the spans of control tend to be.
● The wider the span of control, the more trust must be placed in each individual employee as there
is less direct supervision.

Authority and responsibility

● Delegation gives subordinates the authority to perform certain tasks- They have the power
to undertake jobs and make decisions necessary for these jobs to be completed.

● The overall responsibility for the work of each employee or department remains with the
manager.

● The manager delegates authority, but not responsibility.

● The manager must take the ultimate blame for underperformance or mistakes within the
department

Managers:
• selects the employee (or delegatee) to undertake the task
• allocates resources
• arranges training
Jamie Hill
Business A2 Notes

If any of these were the reasons for poor performance, then the manager should ultimately take
responsibility.

A worker cannot perform a delegated task without believing that they will be held accountable for
their actions.

This ultimate control over their work is achieved by:

• setting and agreeing targets
• regular appraisal
• monitoring of performance against targets

Control and trust

Delegation involves a manager showing trust in a subordinate because less control will be
exercised over the employee’s work. Many managers do not like giving up control. Some managers
feel less important if they reduce control over workers. They may not want to take any risks by
giving up control-These managers do not make good delegators. There is a conflict between showing
trust in a worker and controlling the worker’s efforts.

Effective delegation means slowly releasing management control in order to show more trust. This
trust allows the worker to gain a greater sense of achievement when the work is done well. A modern
development of delegation is called empowerment. This approach not only delegates tasks and
authority to individuals and groups but also allows them to decide on the best method to
complete the job. More chances for employees to show initiative and creativity (Herzberg’s
motivators). However, it requires an even greater level of trust from managers as there is even less
direct control over the work being carried out.

Centralised and decentralised

Centralisation:
● Minimum delegation to managers in other areas, departments or divisions of the business.
● Most decisions are taken by a few senior managers at the centre of an organisation.

Decentralisation:
● Passes decision making authority to managers down the hierarchy.
● Managers take decisions in a centralised structure at the head office.
● Decentralisation involves delegation.

● A centralised organisation insists on all sections of the business following the same procedures,
which gives the business a feeling of uniformity and consistency.

● Head office is able to exert considerable control over all operations.

● Decentralised organisations allow employees to

be empowered and this demonstrates trust in
them.

● Decisions are taken closer to the action in terms

of junior managers being more aware of local
factors or consumers’ preferences
Jamie Hill
Business A2 Notes
Line and staff management functions
● Those who have authority over others in a hierarchical structure.
● Carry out line functions that directly impact on the core activities of the business.
● Staff managers do not have line authority over others (specialists who are employed to give
advice to senior line managers).
● Might be economists, specialist market researchers or scientific experts advising on the
environmental impact of certain products or processes.
● They carry out staff functions.
● Support the line managers and help the organisation by offering specialised advice and
analysis.
● There is always potential for conflict between line and staff functions.
● Due to their professional status and experience, staff managers can be very well paid.
● They are often accused of having less loyalty to the business as their services might be in
great demand by a wide range of firms.
● This could lead to them being attracted by better rewards in other organisations.
● The line managers might resent experts coming into the organisation and telling them how
to do their jobs.
● Some staff managers might have frequent access to, and communications with, the directors of
the business and this can cause jealousy from line managers who do not have the same easy
access to directors.