NCEA BUSINESS STUIDES 2.1 - Organisational Structure

Organisational structure

The arrangement of lines of authority, communications, rights and duties of an organisation. It identifies each job, its function and where it reports to, or who reports it, from within the organisation.

Why have an organisational structure?

- Makes it clear who is responsible for each department and the workers in that department

- Makes it clear who workers should communicate with and take instructions from

- Makes it clear how many different departments and layers of management there are

What does organisational structure impact on?

- Communication flows

- Levels of hierarchy

- Spans of control

- Workloads

- Job allocation

- Delegation

Hierarchy

- The layers of management are known as levels of hierarchy

- The chain of command relates to how power/authority is exercised in an organisation and how instructions flow downwards from top management and accountability follows upwards

- The number of people a manager is responsible for is called a span of control

Functional organisational structure

The organisation is divided into smaller groups based on specialised functional areas - common in limited companies

Advantages of a functional organisational structure

- Specialists can concentrate on their particular job

- Possible for employees to become experts

- Can improve efficiency as people have a high level of skill in their particular area - Highly experienced staff can lead to fast problem solving/faster work output

- Every worker/department has specific tasks

Disadvantages of functional organisational structure

- Different departments might not work well together

- Departments can become silo-ed (meaning that keep to themselves and don't share different perspectives)

Matrix Organisational Structure:

- Based on tasks or projects and involve the creation of teams that include all the necessary specialists.

- Employees are encouraged to use their individual talents and skills and their job roles are likely to be more varied.

- Team working in a matrix structure can be very motivating.

Advantages of the matrix structure:

- Can help break down traditional department barriers, improving communication across the entire organisation and encourages cross-fertilisation of ideas across departments - e.g. helping to share good practice and ideas

- Likely to result in greater motivation amongst the team members

- A good way of sharing resources across departments - which can make a project more cost-effective

Disadvantages of matrix structure:

- Members of project teams may have divided loyalties as they report to two line managers. Equally, this scenario can put project team members under a heavy pressure of work

- There may not be a clear line of accountability for project teams given the complex nature of matrix structures

- Difficult to coordinate

- It takes time for team members to get used to working in this kind of structure

Shamrock organisational structure

- A core of essential executives and workers are supported by outside contractors and part-time (flexible) help.

- The core workforce are generally professional permanent employees who are essential to the organisation; they have detailed knowledge of the business and understand the aims and objectives. Generally, they are well paid and are hard-working and committed.

- The freelance contractors take on outsourced work for the organisation so that the core workforce can concentrate on core or essential competencies. Things such as PR (public relations), accounting services, IT services, catering services, cleaning services can all be outsourced and are often dealt with by outsourced professionals within that area. This saves on operating costs for an organisation and means that core staff can focus on crucial areas.

- Flexible workers are workers who are employed when needed (temporary workers). They undertake routine jobs and generally do not have a career track within the organisation. People like apple pickers for orchards would make up the flexible workforce. They are needed for specific times and to complete a specific job.

Advantages of shamrock structure:

- With a reduced core staff, the business should be more flexible in reacting to market changes

- Allows core staff to concentrate fully on the businesses' key aims

Disadvantages of shamrock structure:

- A greater amount of work completed externally increases the risk of issues with contractors

- Temporary workers may not be fully motivated/unreliable as their job is less stable.

Tall organisational structure:

- It is easier to control fewer staff so managers can closely supervise quality

- Responsibility is kept in the hand of senior managers so there is less risk of workers making wrong decisions

Training costs will be lower as workers will not have to be trained in how to take responsibility and make decisions

- Appropriate for senior managers who believe workers need to be controlled and told what to do

- There is a clear promotional progression and ability to "climb the ladder" within an organisation

Disadvantages of a tall structure:

- Communication can be slow as there are many levels that messages need to travel through (long chain of command) which can make the organisation unresponsive to change

- Decision-making can be slow as there are many levels to work through

- Less responsibility for workers and their freedom can be restricted

- High management costs - more managers and so therefore higher pay for them

- Less flexible can make it more difficult to meet customer needs

Flat Organisational Structure

A flat organisational structure has fewer levels of management and hierarchy. The span of control is much larger than the tall organisational structure and managers have less control over workers.

Advantages of a flat organisational structure:

- There should be quicker communication through the business as there are fewer layers for messages to pass through

- More responsibility is given to each manager and workers, as senior managers cannot control everyone's work all the time

- Workers may need training in order to take responsibility. This new learning could increase levels of motivation and feeling of empowerment

- Appropriate for managers who believe that workers should be more involved in taking decisions

- Can be more responsive to change as communication lines are shorter

Disadvantages of a flat organisational structure:

- Decisions can take longer as there are more people involved in decision-making

-More training required as tasks are delegated to more junior staff and they need to be trained. This leads to more downtime

- Financial control may not be as tight as it would be if there was more management control

- Managers can feel stressed / overstretched

Centralised structure:

A centralised structure is when the planning and decision-making of an organisation is made by senior managers, generally at the Head Office, rather than in branch offices.

Advantages of using a centralised structure:

- Allows a business to maintain consistent policies / procedures / regulations throughout the organisation. - - This can display a feeling of "togetherness" and allows for all employees / customers to be treated equally

- Decisions can be made taking into account all aspects of the business. More departments can be engaged in decision making and planning

- Decision-making can be faster as only top managers/leaders are involved

- Avoids duplication - especially in decision-making

- Control and accountability is well defined

Disadvantages of using a centralised organisational structure:

- A centralised structure can stifle creativity

- Business find it difficult to customise

- Staff can become demotivated when they have little say in decisions

Decentralised structure:

A decentralised structure is when the planning and decision-making of an organisation is distributed or delegated away from a central location and instead undertaken by regional/local managers.

Advantages of using a decentralised organisational structure:

- Gives employees the opportunity to make the best decisions for the situation. As employees are given the ability to make decisions, they feel inspired and empowered by the trust afforded to them

- Allows for the decision-making to be made to suit a particular customer/branch rather than "one size fits all"

- Allows senior management to concentrate on big-picture matters and middle management to worry about day-to-day events

Disadvantages of using a decentralised organisational structure:

- Can be difficult to ensure that situations are dealt with in the same manner (for example, complaints from customers)

- If too much power is given to inexperienced managers/supervisors, costly mistakes can be made

- It can be costly if different branches are all making their own decisions on a similar issue

(Adjusting the Organisational Structure) - An organisational structure is not static and will evolve over time as changes occur, such as:

Growth of the business

Market conditions change

Ownership changes

Customer's needs change