Organisational Structure

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What is an Organisational Structure?

An organisational structure is the particular way in which a firm's staff are arranged in order to carry out its activities. It illustrates:

- The routes by which communication passes through the business

- The structure of authority within the organisation

- The roles and titles of individuals within the organisation

- The staff who each employee is accountable to

- The units and divisions for which individual managers are responsible

Levels of hierarchy - the number of layers of authority within an organisation - the chain of command

Span of control - the number of subordinates reporting directly to a manager. This may be narrow, if there are few subordinates or wide if they are reporting to a manager

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Span of Control

A narrow span of control means that managers can keep a close eye on employees. 

  • Mistakes can be spotted beforehand and corrected e.g. through extra training.
  • Employees can be closely monitored which is particularly useful for health and safety reasons if work is dangerous.
  • Communication can be easier as a manager has fewer employees to speak with. Also manager has more time to listen to ideas from subordinates which may improve the business

A wide span of control also has advantages.

  • More opportunity for employees to work independantly which can motivate them & stop them feeling micro-managed (although a lack of a managerial presence may mean employees do not feel supported, increasing stress)
  • Employees fewer managers is also cheaper for the business
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Levels of Hierarchy

Many layers means communication and decisions need to pass through more people than in a structure with a fewer layers.

This can mean that decisions are fully considered and may be more likely to be accurate.

More managers increase control over employees employees reducing errors. 

Also, more layers means more opportunities for promotion which can motivate employees. 

However

Many layers can mean communication is slow and more difficult so fewer layers may be best. 

Fewer layers would mean quicker communication, fewer managers and cost savings but also fewer opportunities for promotions for employees. 

A tall structure has many layers in its hierarchy and a narrow span of control 

A flat structure has fewer layers in its hierarchy and a wide span of control 

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Delayering

When a business decides the organisational structure is too tall. One or more layers are removed from the hierarchy. The layers removed are those containing middle managers. 

Benefits: 

  • Motivation - some employees will get promoted gaining new challenges and responsibilities 
  • Communication - quicker due to fewer layers 
  • Costs - reduces wages costs as you only pay 4 managers 

Drawbacks:

  • Motivation - employees may worry they will be made redundant, fewer opportunities from promotion in the long term as there are fewer layers 
  • Communication - slower due to wider spans of control 
  • Costs - redundancy pay, mistakes may be more likely due to a wider span of control - could be costly 
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Centralized organisational structures

Advantages 

  • Easier to implement common policies and practices for the business as a whole
  • Prevents other parts of the business from becoming too independent 
  • Easier to co-ordinate and control from the centre e.g. with budgets 
  • Senior staff are trained to make important decisions whereas other staff may not be
  • Lack of consultation should mean decision making is quicker 

Disadvantages 

  • More bureaucratic - often extra layers in the hierarchy 
  • Managers lower down the hierarchy are more likely to know about local needs
  • Lack of authority down the hierarchy may reduce motivation
  • Lack of consultation may mean mistakes are made that could have been picked up on by others
  • A problem noticed by a junior manager may take longer to deal with as they are not empowered to address the problem there and then
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Decentralized Organisational Structures

Advantages 

  • Should improve staff motivation as more staff have a say in the running of the business
  • Can mean decisions are made more quickly as more senior members of staff do not need to approve the decision 
  • Better able to respond to local circumstances and customer needs 
  • Consistent with aiming for a flatter hierarchy 
  • Good way of training and developing junior management skills 

Disadvantages

  • Decision making is not necessarily "strategic"
  • More difficult to ensure consistent practices and policies (customers might prefer consistency from location to location) 
  • May lead to duplication of roles
  • Who provides strong leadership when needed (e.g. in a crisis)
  • Harder to achieve tight financial control if multiple people have power to spend
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Matrix Structures

Sometimes referred to as a cross functional team. A matrix structure is one in which teams of employees with appropriate skills are assembled to carry out particular tasks. Employees are often from various elements of the business and so can be used to bring ideas from various places. It is not necessarily a replacement but often a temporary thing that is removed once a project is over. 

Advantages 

  • Can help to break down traditional department barriers, improving communication across the entire organisation 
  • Can allow skills to be drawn from various departments
  • Avoid the need for several departments to meet regularly so reducing costs and improving coordination 
  • Likely to result in greater motivation amongst the team members
  • A good way of sharing resources across departments - which can make a project more cost effective

Disadvantages 

  • Members of project teams may have divided loyalties as they report to two line managers. Put project team members under a heavy pressure of work. Accountability can be an issue
  • Difficult to co-ordinate 
  • Takes time for team members to get used to working in this kind of structure
  • Team members may neglect their regular, functional responsibilties 
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