IB Business Management HUMAN RESOURCES 2.2 Organisational Structure

Organisational structure

The internal, formal framework of a business that shows the way in which management is organised and linked together and how authority is passed through he organisation

Organisational chart

The diagrammatic representation of a firm's formal organisation structure.

The organisational chart shows:

1. Who has overall responsibility for decision-making
2. The formal relationships between people and departments
3. The chain of command
4. The span of control
5. Formal channels of communication
6. Identity of the supervisor or manager to who each worker is answerable and should report to

Level of hierarchy

A stage of the organisation structure at which the personnel on it have equal status and authority

Chain of command

This is the route through which authority is passed down through an organisation - from the chief executive and the board of directors

Hierarchical (bureaucratic) organisational structure

An organisational structure where there are fewer and fewer people on each higher level

Advantages of hierarchical organisational structures - narrow span of control

1. There is quicker communication between smaller teams
2. Feedback from subordinates should be more effective
3. Clearer (but longer) lines of communication between the different layers of management
4. Smaller teams are easier to control and manage
5. Greater specialisation and division of labour can help increase efficiency and productivity
6. There are greater opportunities to earn promotion - more levels exist in the hierarchy

Span of control

Refers to the number of subordinates that are controlled by a manager; i.e., the number of people who are directly accountable to the manager

Flat (less hierarchical) organisational structure

An organisational structure that has few levels of hierarchy and a wider span of control where managers will be responsible for many subordinates and many management functions will be delegated

Advantages of less hierarchical organisational structures - wide span of control

1. Delegation becomes a relatively important part of managing an organisation - extra responsibilities for subordinates and, therefore, faster career development
2. Communication may be improved (it should be faster) overall since there are fewer layers in the hierarchy
3. It is cheaper to operate a wider span of control because there are fewer levels of management (management functions will be eliminated or delegated)
4. Smaller 'psychological distance' between those at the top and those at the bottom of an organisation - perhaps reducing an 'us and them' culture where workers feel alienated from senior management

Factors influencing organisational structure:

1. The size of the business and the number of employees
2. The style of leadership and the culture of management (e.g., autocratic vs. democratic leadership styles)
3. Overhead costs - delayering will reduce management overheads
4. Corporate objectives; e.g., overseas expansion will necessarily mean some decentralisation
5. New technologies, especially IT can facilitate the flow of information making some roles of middle management less important

Delegation

Passing authority down the organisational hierarchy

Accountability

The obligation of an individual to account for his or her activities and to disclose results ion a transparent way

Advantages of delegation:

1. Gives senior managers more time to focus on important, strategic roles
2. Shows trust in subordinates which can challenge and motivate them
3. Develops and trains staff for more senior positions
4. Helps staff to achieve fulfilment through their work (self-actualisation)
5. Encourages staff to be accountable for their work-based activities

Limitations of delegation:

1. If the task is not well-defined or if inadequate training is given, then delegation will be unlikely to succeed
2. Delegation will be unsuccessful if insufficient power (authority) is also given to the subordinate who is performing the tasks
3. Managers may only delegate the boring jobs that they do not want to do - this will not be motivating

Delayering

The removal of one or more of the levels of hierarchy from an organisational structure

Advantages of delayering:

1. Reduces business costs
2. Shortens the chain of command and should improve communication through the organisation
3. Increases the span of control and opportunities for delegation
4. May increase workforce motivation due to less remoteness from top management and greater chance of having more responsible work to perform

Disadvantages of delayering

1. Could be one-off costs of making managers redundant; e.g., redundancy payments
2. Increased workload for managers who remain - this could lead to overwork and stress
3. Fear that redundancies might be used to cut costs could reduce the sense of security of the whole workforce (see Maslow: security needs)

Bureaucracy

An organisational system with standardised procedures and rules

Centralisation

Keeping all of the important decision-making powers within head office or the centre of the organisation

Decentralisation

Decision-making powers are passed down the organisation to empower subordinates and regional/product managers

Advantages of centralisation:

1. A fixed set of rules and procedures in all areas of the firm should lead to rapid decision-making.
2. The business has consistent policies throughout the organisation. This prevents any conflicts between the divisions and avoids confusion in the mind of consumers.
3. Senior managers take decisions in the interest of the whole business - not just one division of it.
4. Central buying should allow for greater (purchasing) economies of scale.
5. Senior managers at central office will be experienced decision-makers.

Disadvantages of centralisation:

1. More local decisions can be made which reflect different conditions - the managers who take decisions will have local knowledge and are likely to have closer contact with consumers.
2. More junior managers can develop skills and this prepares them for more challenging roles.
3. Delegation and empowerment are made easier and these will have positive effects on motivation.
4. Decision-making in response to changes; e.g., local market conditions, should be quicker and more flexible as head office will not have to be involved every time.

Project-based organisations - Matrix structure

An organisational structure that creates project teams that cut across traditional functional departments.

How a matrix structure functions:

This method is task- or project-orientated. Instead of highlighting the role or status of individuals it gathers a team of specialists with the object of completing a task or project successfully. Emphasis is placed on an individual's ability to contribute to the team rather than their position in the hierarchy.

Advantages of matrix structure include:

1. A culture of teamworking and collaboration is created in the organisation.
2. Experts from different parts of the business can be brought together to work as a project team - increasing the chances of successful completion.
3. Good career and personal development opportunities are provided for team members and the project manager.
4. Projects can be spread out amongst various teams - reducing the pressures on senior management.
5. The ability of staff to work on different projects adds interest and variety to the work and increases staff motivation.

Disadvantages of matrix structure include:

1. Since team members have two line managers, there may be a conflict of interest, such as loyalty and prioritisation of workloads (e.g., the project may come first and departmental work second).
2. There is potential for team members to not get along with each other, and because teams are formed on a temporary basis, there is less of an obligation to ensure good team dynamics.
3. Project managers may have difficulty controlling team members who have conflicting interests, priorities and personal difference with team members.

Flexible structures

Are not based on the traditional hierarchical organisation of human resources. Instead, such structures enable a business to adapt its human resources when there is a need to respond to rapid change.

Informal groups

Consist of people at work who have formed their own associations based on friendship and/or common interest.

Outsourcing

Is the act of finding external people or businesses to carry out non-core functions of business, such as IT, payroll and transport.

Offshoring

Is a form of outsourcing that involves relocating business functions and processes to another country.

Handy's Shamrock organisation consists of:

1. Core managerial and technical staff
2. Outsourced functions by independent providers
3. Flexible workers on temporary and part-time contracts

Handy's Shamrock organisation: Core workers

Core managerial and technical staff must be offered full-time, permanent contracts with competitive salaries and benefits. These workers are central to the survival and growth of the organisation. In return for high rewards they are expected to work long hours when needed. As core workers are expensive, their numbers are being reduced in most organisations.

Handy's Shamrock organisation: Outsourced work

Outsourced functions by independent providers, who may once have been employed by the company. Also known as the 'contractual fringe', these workers provide specific services that do not have to be kept within the core. These may include payroll services, transport, catering and IT.

Handy's Shamrock organisation: Flexible workers

Flexible workers on temporary and part-time contracts, who are called on when the situation demands their labour. As the organisation demonstrates little concern or loyalty towards these workers, they often respond in kind. These workers are most likely to to lose their job in an economic downturn.