2.2 Organizational structure

Introduction

• Organizational structure: internal, formal framework of a business that shows the way in which management is organized and linked together and how authority is passed through the organization.

• The traditional hierarchical structure

  

  

Key principles of organizational structure

• Level of hierarchy: stage of the organizational structure at which the personnel on it have equal status and authority.

• Tall (vertical) structure: one with many levels of hierarchy and, usually, narrow spans of control.

  

• Flat (horizontal) structure: one with few levels of hierarchy and wide spans of control.

  

• Span of control: number of subordinates reporting directly to a manager.

• Chain of command: this is the route through which authority is passed down an organization from the chief executive and the board of directors.

Delegation and accountability

• Delegation: passing authority down the organizational hierarchy.

• Accountability: obligation of an individual to account for his/her activities and to disclose results in a transparent way.

Delayering

• Delayering: removal of one or more of the levels of hierarchy from an organizational structure.
  • It leads to wider spans of control and increased delegation to subordinates.

Bureaucracy

• Bureaucracy: organizational system with standardized procedures and rules.
  • It discourages initiative and enterprise as decisions are taken centrally and then put into effect by staff following set procedures and protocols.
  • Max Weber (sociologist) identified the main attributes of bureaucracy as rationality and efficiency.

Centralization and decentralization

• Centralization: keeping all of the important decision making powers within head office or the centre of the organization.

• Decentralization: decision-making powers are passed down the organization to empower subordinates and regional/product managers.

Different types of organizational structures

• Hierarchical structure: structure in which power and responsibility are clearly specified and allocated to individuals according to their standing or position in the hierarchy.

  • By product: organizational structure based on products that usually consists of several parallel teams a focusing on a single product or service line.

    

  • By function

    

  • By region

    

Factors influencing organizational structure

• Size of the business and the number of employees.
• Style of leadership and culture of management.
• Retrenchment caused by economic recession or increased competition might lead to delayering to reduce overhead costs
• Corporate objectives
• New technologies (especially IT)

Changes in organizational structures

• There are alternative organizational structures, other than the hierarchical type, namely:
  • Matrix structure: organizational structure that creates project teams that cut across traditional functional departments.
  • Horizontally linked structure
  • Structure primarily found in the IT and high-tech sectors
  • In a horizontal structure, employees are grouped by function into three areas planning, building and running.
  • This structure allows the company to respond quickly to changing market conditions and technological advances, but may not work as well for companies that produce products with a longer lifespan, or for service industries.

Communication in an organization

• Communication is only effective if the message has been received and understood by the receiver and the sender knows that it has been understood.

• Effective communication: exchange of information between people or groups, with feedback.

  • Key features:

  • Sender (or transmitter) of the message

  • Clear message

  • Appropriate medium (way in which the message is sent)

  • Receiver

  • Feedback to confirm receipt and understanding