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.

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• The traditional hierarchical structure

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Key principles of organizational structure

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

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

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

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

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

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Delegation and accountability

• Delegation: passing authority down the organizational hierarchy.

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

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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.

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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.

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Centralization and decentralization

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

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

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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

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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)

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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.

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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.

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• 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

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