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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

An example of an organizational structure organized by function

A typical hierarchical pyramid

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 structure with a wide span of control of eight

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

Tall structure with a narrow span of control of three

  • 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

        Effective communication - barriers must be reduced or eliminated

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

An example of an organizational structure organized by function

A typical hierarchical pyramid

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 structure with a wide span of control of eight

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

Tall structure with a narrow span of control of three

  • 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

        Effective communication - barriers must be reduced or eliminated

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