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Chapter 8 - Organisational structure
8.1 Organisational structures
Organisational structure outlines the reporting relationships, roles, and responsibilities of employees. It should help promote clarity, efficiency, and accountability.
Key Terminology in Organisational Design
Hierarchy
Describes the levels of authority in an organisation, where each level represents a grade or rank. The higher the position, the more authority it holds.
Bureaucracy
An organisational system with many levels of authority and standardised procedures, which can result in time-consuming decision-making and discourage initiative.
Chain of command
The formal line of authority flowing from the CEO to lower-level employees, defining who reports to whom.
Span of control
Refers to the number of employees a manager can effectively manage. Wider spans reduce levels of hierarchy, and narrower spans suggest close managerial control.
Delegation
The process of passing authority down the hierarchy to subordinates. It can improve motivation and allow senior managers to focus on important tasks, but may fail if not properly defined or if authority isn't given.
Centralisation and Decentralisation
Centralisation
Decision-making powers are held by top management.
Decentralisation
Decision-making powers are distributed down the organisation to empower subordinates and managers.
Delayering
The removal of hierarchical levels to reduce bureaucracy, increase delegation, and reduce costs.
Matrix Structure
An organisational structure that creates project teams across departments, with employees having two reporting lines: functional and project manager.
8.2 Organisation charts
Hierarchical Structure
Features a clear chain of command and formal relationships, with levels of hierarchy indicating authority and responsibility.
Flat vs Tall Structures
Flat - Few levels of hierarchy, wide spans of control, decentralised decision-making. Tall - Many levels of hierarchy, narrow spans of control, centralised decision-making.
Structure by Product, Function or Region
Product-based Structure
Teams focus on specific products or services, allowing autonomy and specialisation within product divisions, but can lead to compartmentalisation and conflicts.
Functional-based Structure
Employees are grouped by function (finance, marketing, HR). This can improve efficiency and specialisation but can also lead to lack of communication between departments and resistance to change.
Regional-based Structure
Divides the organisation into regional units to cater to local market needs. It allows for more direct communication and local decision-making but may lead to duplication and lack of consistency in company strategies.
8.3 External Factors Influencing Organisational Structure
Market Uncertainty
Flexible structures, such as project-based, are beneficial in volatile markets.
Economic Changes
Delayering and regional restructuring can help businesses adapt during an economic downturn.
Technological Changes
Businesses may need to adopt project-based or matrix structures to focus on innovation and technological developments.
Legal Changes
Legal changes may require businesses to adapt their structure, such as establishing a compliance unit to ensure regulations are met.
Competitors' Actions
Competitive pressure can drive businesses to decentralise and allow for faster decision-making and adaptability.
Globalisation
Global businesses often adopt a regional structure with decentralised decision-making to adapt to local markets and regulations.
8.4 Changes in Organisational Structures
Handy’s Shamrock Organisation
A flexible structure with core permanent staff, flexible workers on temporary contracts, and outsourced functions handled by independent providers.
Project-based Organisation
This flexible structure focuses on short-term projects, often with a matrix organisation, and allows teams to adapt quickly to changes.
