BM Chapter 8 - Organisational structure

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.