2.2 organisational structure

levels of hierarchy

• number of layers of formal authority

• each horizontal level shows a level of seniority

delayering

• remove layers of hierarchy

• aim: cut costs (wages) + reduce bureaucratic inefficiency

• effect: increases span of control + shorter chains of command → improves communications, increases delegation (and thus motivation), encourages flexible working practices

• disadvantages

  • workload increases since responsible for larger team (due to wider span of control)

  • threatens security needs → demotivates and reduces productivity

  • severance allowance (one-off cost)

  • loss of institutional knowledge/internal expertise (eg trade secrets) since previous managers don’t contribute to decision-making anymore → might also ask these managers to not join competitors (eg through non-disclosure agreement)

span of control

• how many workers directly accountable to a particular line manager

• how to decide?

  • skilled employees → more authority and flexibility in decision-making → wider spans of control and increased delegation

  • managers’ leadership style

  • nature of the business and markets: MNCs will have wider spans of control as senior managers will be responsible for larger teams across geographical regions

chain of command

• official hierarchy: specifies flow of information/authority → longer = slower

bureaucracy

• administrative systems (formal policies/processes and paperwork). decisions made centrally then put into effect using set protocols.

• advantages: rational, efficient

• disadvantages: discourages initiative, impersonal, rigid (unable adapt to individual cases)

delegation

• manager entrusts subordinate with authority and control to complete a task/make decisions

• ACCOUNTABILITY (responsibility for success/failure) still lies with the manager

• because managers do not have capacity to do everything/make all decisions → delegate based on the subordinate’s competencies

• in wide span of control, delegation can happen more

• advantages

  • employees feel valued and empowered → motivation + retention

  • employees more familiar with roles and needs of customers → faster and better decision-making

  • reduce workload of senior managers → focus on the strategic planning

  • improves skills of employees

• disadvantages

  • usually comes with additional remuneration → increase the overall costs for the business

  • if no additional remuneration, subordinate unmotivated because feel like doing manager’s workload

  • training needed → time-consuming and expensive

  • not suitable in organisations with low-skilled, manual workers → need supervision and direction

  • not suitable during crisis

centralisation

• decision-making made by small group of senior leaders at top of organisational hierarchy

• employees not at top of hierarchy focus on carrying out decisions

• usually for narrow spans of control, autocratic/paternalistic leadership, tight chains of command

• advantages

  • Senior managers are experienced decision-makers

  • decisions made in the interest of the whole business, not just one division

  • fixed set of procedures → prevents inconsistencies between divisions + avoids confusion for customers

  • can lead to cost savings (eg fewer junior managers) + centralised buying decisions (instead of letting each division decide how much/when to buy) → purchasing EOS since larger quantity at one time

• disadvantages

  • less delegation → lower morale and productivity

  • rigid structure demotivating since employees cannot feedback → unsuitable for industries that rely on creativity and autonomous decision-making

decentralisation

• decision-making authority is delegated throughout rather than from central authority EXCEPT strategic decision-making is still made by senior managers

• usually wider span of control, democratic leadership, flatter structure with fewer levels of hierarchy

• advantages

  • junior managers with local knowledge make better decisions

  • more flexible → quicker decision-making

  • delegation is easier → improves morale, feel valued/empowered

  • reduce workload of senior managers → focus on the strategic planning

• disadvantages

  • more difficult for senior managers to know about all decisions made → challenging to maintain overall control and ensure focus on business objectives

how to decide on org structure

• internal factors

  • leadership style, organisational culture → senior executives want to retain authority/control?

  • rapid decision-making required (eg major crisis that threatens survival of business)

  • low-skilled workers → direction/supervision to meet organisational objectives

  • can lead to cost savings (eg fewer managerial positions) + centralised buying decisions (instead of letting each department decide how much/when to buy) → purchasing EOS since larger quantity at one time

• external factors

  • globalisation: need more flexibility + local knowledge → decentralised decision-making, organise by region

  • new competitors enter frequently, need fast strategic changes → decentralised decision-making

  • technological: remain competitive → introduce R&D department or specialists (matrix structure)

  • economic

    • economic downturn: aim to reduce overheads → delayering

    • only some countries having recession → organise by region to exploit markets that are still growing

  • legal: introduce compliance department

tall vs flat structure

	tall/vertical	flat/horizontal
levels of hierarchy	many	few
chains of command	long → more bureaucracy, slower decision-making, more miscomm	short
span of control	narrow → no delegation	wide → more delegation
flexible	no	yes
motivation	increased since opportunities for promotion, decreased since more bureaucracy and less delegation
suitable for	routine tasks that are not challenging, since clear lines of accountability	rapidly changing markets since can react faster

matrix structure

• project-focused teams made up of people from all functional departments → employee reports to multiple managers with different expertise OR has one manager for project-related work and one core senior manager

• emphasises individuals’ ability to contribute rather than roles/status

• advantages

  • removes bureaucracy, flexible → can create teams quickly, responsive to changes in market

  • no tight chains of command, whole team can communicate directly with each other

  • more creative and successful ideas because more motivated /empowered + specialist knowledge

  • decision-making based on what is good for the project as a whole rather than individual departments

• disadvantages

  • no tight chains of command, senior managers uncomfortable

  • no bureaucracy, senior managers uncomfortable

  • conflict of interest between leaders of each department and leaders of projects (that is, if they retain the hierarchical structure too)

organisation by product

• parallel teams that focus on a specific product line, each has the four business functions and a senior executive

• semi-autonomous: manage own dedicated staff and budgets, recruitment, advertising → typically for orgs that focus on major clients

• advantages

  • suitable for broad product portfolio

  • enables specialisation since focus on specific market segment → improved product knowledge/catered marketing activities → ensures meets needs of customers

  • encourages healthy internal competition between teams → morale

  • having senior exec ensures the division is allocated sufficient resources

• disadvantages

  • lack of coordination, duplicate work done

  • diff divisons compete for financial resources

  • usually uses decentralised decision-making → board of directors has less control

organisation by function

• advantages

  • specialists clustered together: increases efficiency, enables on the job training

  • career progression for employees by using their specialist skills

• disadvantages

  • top-down communication, no feedback

  • lack of coordination between departments

  • too focused on departmental objectives rather than overall corporate aims

  • inflexible: managers want to defend own status and importance of their own department

organisation by region

• according to different geographical areas → focus on specific needs of customers in markets in different countries

• regional offices operate individually within policies of business + overseen by regional director

• advantages

  • overcome bottlenecks: timezone, language → improved communication → form stronger teams

  • local managers familiar with business environment → decision-making

  • can link brand image with local culture, customers more comfortable with local employees

  • clearer tracking of performance of individual regional markets

• disadvantages

  • duplicate personnel between head office and regional offices

  • unhealthy competition between regions

  • inconsistent company beliefs (code of ethics) and strategies (due to poor coordination between regions)

shamrock organisation

• core managerial and technical staff: full-time, permanent contracts

  • strategists, knowledge and core activities

  • competitve salaries and benefits → ensures loyalty and willing to work longer hours

  • expensive, org tries to reduce no. of core

• outsourced functions: non-core activities

• flexible workers: part-time, temporary contracts

project-based organisation

• usually use matrix structure: project-focused teams made up of people from all functional departments, employee has one manager for project-related work and one core senior manager

• Within each project team there is likely to be very few levels of hierarchy

• advantages

  • allows businesses to deal with short term/one-off demands within a dynamic market.

  • flexible: employees best suited to a particular project are assigned to it + mix of people from differnet business functions

  • focused on tasks, rather than on departmental roles/objectives → faster problem solving/strategising

• disadvantages

  • project teams are isolated, not coordinating with other teams/rest of org

  • employees might change project teams quite frequently, reporting to different managers all the time

  • specialist employees might be more loyal to their project than the overall business organisation, high labour turnover