2.02 Organisational Structure

Organizational Structure

Human resources can be organized in different ways. Most businesses needs a formal and organized structure for accountability and responsibility (in charge of what, what position)

Role and Ranking

There are many roles in a company, which can be organized in a hierarchy of importance or power.

Delegation

It is not possible for one person who handle all the work in an organization. The passing of control and authority is known as delegation. (assigning tasks and responsibilities to employees)

Effective Delegation

Effective delegation and save time and allow managers to focus on other issues. It could further motivate and develop employees.

Poor delegation

Poor delegation can lead to confusion, feelings of inadequacy, and demotivate staff.

SMARTER Delegation

Specific, Measurable, Agreed, Realistic, Time-bound, Ethical, Record.

Span of Control

Refers to the number of people who are directly accountable (under) to manager. Someone higher up in the hierarchy, will have a wider span of control. CEOs only have control over a board of director so its narrow, indirectly, its very wide.

Wide Span of Control

• Fewer layers in the hierarchy, less cost due to less managerial positions in the firm.

• Communication would be more effective (in terms of speed and accuracy).

Narrow Span of Control

Fewer subordinate accountable to a manager. Easier to communicate and control, smaller teams can be more productive due to cohesiveness and spirit. This system can be more costly.

Manager’s Degree of Control - MOST

• Manager - skills and experience

• Organization structure - there might be cultures that require managers to closely monitor and control subordinates.

• Subordinates - skilled staff are likely to work in smaller teams, managers having a wide span of control

• Task - higher complexity task needs narrow span of control.

Levels of Hierarchy

Refers to organizational structure formed from a ranking system. At the top is CEO, chairperson, board, and at the other end is unskilled employees.

Pro/Con Hierarchal Structures

• +Clear lines of communication, can improve coordination and productivity.

• +Sense of belonging in different hierarchies.

• - Departmentalisation, workers isolated to teams

• - Inflexibility – hard to combat external changes

Chain of Command

The formal line of authority where orders are passed down. This can be seen through an organization chart. Few levels of hierarchy result in short chain of command.

Delayering

Delayering is the process of removing one or more levels in the hierarchy to flatten the organizational structure. This will widen span of control.

Pro/Con Delayering

• +Reduce costs

• +Improve communication speed

• + Encourages Delegation

• - Create anxiety and sense of insecurity

• - Overload staff

• - Longer decision-making

Downsizing vs. Delayering

Downsizing involves reducing the workforce, maybe due to redundancy, while delayering means removing at least one level in the hierarccy, without anyone necessarily losing their jobs.

Bureaucracy

The execution of tasks that are governed by official administrative and formal organization rules. Bureaucratic organizations are characterized by policies, standardized procedures, formal hierarchies structures.

Excessive Administration in Bureaucracy

• Frequent requirement to fill tedious paperwork

• Staff working in multiple department, reporting to multiple managers.

• Too many committees

• Long chains of command

• Managers with overlapping roles.

Bureaucratic organizations are governed by several principles:

• Continuity - The establishment follows rules and regulations rather than taking high risks to maintain continuity.

• Rules and regulations - Business activity is done according to official policies. There are clear lines of authority, responsibility, autonomy.

• Hierarchical structures - Authority and responsibilities are part of formal hierarchies.

• Accountability - Business activity is conducted with written evidence complying to the firm’s policies. Formality makes worker accountable.

Bureaucracy - Drawbacks

Most experts feel that bureaucracy hinders or prevent creativity and risk-taking, also slowing down decision-making, making organizations highly inflexible.

Centralization and decentralization

Decision-making power can be shared amongst the workforce or amongst a few people. The extent of dilution or concentration of authority depends on the skills and traits of employees in the organization. Decentralization means power is extended to a lot of people, centralization means limited amount of people.

Pro/Con Centralization

• + Rapid decision making

• + Better control

• + Efficiency

• - Add pressure, stress to senior staff

• - Inflexibility.

• - Demotivating

• - Delays in decision making

Which to choose: Centralization or Decentralization

• Organization size - larger = greater need for decentralization

• Scale of importance in the decision - decisions with high-cost risks will be centralized

• Level of risk - high risk decisions will be centralized

• Corporate culture

Matrix Structure

Task-oriented and based on teams. It tends to overcome many problems associated with traditional/hierarchical structures. It is a combination of vertical chain of command, operated through departments, and horizontal projects of product teams.

Organization Charts

An organizational chart is a diagram representation of the firm’s formal structure. It shows the functional departments, chain of command, span of control, communication channels and hierarchy levels.

Tall/Vertical Organization Structure

• Multiple hierarchy levels: Narrow span of control

• Centralized decision-making: Directors and seniors makes decisions.

• Top-down communication: Decision flow from the top levels.

• Emphasis on Hierarchy: Seniority is respected

• Clear career path: Promotion for senior roles.

• Slow decision-making: Hinder response to external change.

• High cost: Large management structure is expensive.

Flat/Horizontal Organizational Structure

• Fewer hierarchical levels: Wider span of control

• Decentralized Decision-Making: More autonomy at lower levels

• Increased delegation: Managers handle more employees.

• Efficiency and Flexibility: Fast decision-making and adaptability.

• Limited supervision: Close oversight can be difficult with many direct reports.

Organizational Structure by Functions

• Department-Based: Hierarchy revolves around functions like marketing, HR, and finance.

• Specialization: Experts work in their specific areas.

• Coordination challenges: Difficult for departments to align.

• Growth issues: Departments can compete for resources, potentially prioritizing their needs over the company’s.

Organization Structure by Region

• Geographical Focus: Structure based on regions (countries/continents)

• Common in Global Businesses: Used by companies operating in many countries.

• Regional Autonomy: Better adaptation to local markets and needs.

  • E.g. Multinational companies likes HSBC bank organize by geographical areas.

Organization Structure by Product

• Product-focused: Employees concentrate on the specific needs of customers for a particular product/brands.

• Motivation&Loyalty: High levels of commitment to specific products or divisions.

• Autonomy: Divisions may have significant control over finance and decision making.

• Isolation risk: Decisions made without considering overall business objectives.

  • E.g. BBC organizes divisions based on services like music, news, media.

Technology Impacts on Communication

• More information for decision-making via data (e.g. loyalty cards)

• Shift towards decentralization: Junior employees can make data-supported decisions

• Rise in flatter structures: Faster response to customer feedback (social media)

• Social media management: Teams responding quickly to customer issues.

Culture Impacts on Communication

• Language proficiency is a highly valued communication skill. Knowing the native language are vital in many occupations in certain parts of the world.

• Accents can hinder communication

• Cultural ignorance can cause offense to others.

The main solution is to recruit bilingual or multilingual employees.