2.2 — Organisational Structure

PART A: KEY CONCEPTS OF ORGANISATIONAL STRUCTURE

Definition

Organisational structure refers to the formal system of authority, communication, roles, and responsibilities that determines how activities are directed, coordinated, and controlled to achieve organisational objectives.

It answers questions like:

Who reports to whom?
How are tasks divided?
How do different parts of the organisation coordinate?
Where are decisions made?

Why Structure Matters

Purpose	Explanation
Clarity	Employees know their roles, responsibilities, reporting lines
Coordination	Different parts work together effectively
Communication	Information flows appropriately
Control	Performance can be monitored and managed
Decision-making	Clear who has authority to decide
Efficiency	Avoids duplication; enables specialisation
Accountability	Clear who is responsible for what
Motivation	Appropriate spans and autonomy affect engagement

Key Structural Elements

1. Delegation

Definition: The assignment of authority and responsibility from a manager to a subordinate to carry out specific tasks or decisions.

What is Delegated

Element	Description
Authority	The right to make decisions and give orders
Responsibility	The obligation to complete the task
Accountability	The manager remains accountable for outcomes (cannot be delegated)

Key principle: Authority and responsibility should match — don't give someone responsibility without the authority to act.

Advantages of Delegation

Advantage	Explanation
Frees up manager time	Focus on strategic rather than operational tasks
Develops subordinates	Builds skills, experience, confidence
Motivates employees	Empowerment, trust, responsibility increase engagement
Faster decisions	Decisions made closer to the action
Better decisions	Those with direct knowledge often decide better
Succession planning	Prepares employees for future roles
Identifies talent	See who can handle increased responsibility

Disadvantages of Delegation

Disadvantage	Explanation
Loss of control	Manager doesn't directly control outcomes
Risk of mistakes	Subordinate may lack skills or judgement
Time to train	Initially takes time to brief and support
Inconsistency	Different people may handle tasks differently
Requires trust	Manager must have confidence in subordinate
Accountability remains	Manager still accountable if things go wrong
Not all tasks suitable	Some decisions too important or sensitive

Barriers to Effective Delegation

Barrier	Explanation
Manager reluctance	"I can do it better myself"; control issues
Lack of trust	Doesn't believe subordinates capable
Fear of being replaced	Insecurity about own position
Poor communication	Unclear instructions, expectations
Inadequate training	Subordinates not prepared
No authority given	Responsibility without authority
No follow-up	Delegate and forget; no support
Subordinate reluctance	Fear of failure; prefer to avoid responsibility

Effective Delegation Process

Step	Description
1. Select the task	Appropriate for delegation; not too critical
2. Select the person	Has capability or potential; matches development needs
3. Explain clearly	What, why, when, how, standards expected
4. Grant authority	Give power to make necessary decisions
5. Provide resources	Time, budget, information, support
6. Monitor progress	Check in appropriately; not micromanaging
7. Give feedback	Acknowledge success; coach on improvements

2. Span of Control

Definition: The number of subordinates who report directly to a manager.

Narrow vs Wide Span of Control

Aspect	Narrow Span (Few subordinates)	Wide Span (Many subordinates)
Typical number	3-6 direct reports	10-20+ direct reports
Supervision	Close supervision possible	Limited direct oversight
Communication	Easier to communicate with each	Harder to maintain contact
Hierarchy	More layers needed (tall structure)	Fewer layers (flat structure)
Costs	Higher (more managers)	Lower (fewer managers)
Decision speed	Slower (more levels)	Faster (fewer levels)
Employee autonomy	Less (more supervision)	More (less supervision)
Manager workload	Lower per manager	Higher per manager

Factors Affecting Optimal Span of Control

Factor	Narrower Span When...	Wider Span When...
Task complexity	Work is complex, varied, requires judgement	Work is routine, standardised
Employee skills	Employees are inexperienced, need guidance	Employees are skilled, experienced
Geographic spread	Teams are dispersed	Teams are co-located
Manager capability	Manager is less experienced	Manager is highly capable
Communication technology	Limited tech support	Strong systems enable coordination
Pace of change	Rapid change requires close coordination	Stable environment
Organisational culture	Control-oriented culture	Empowerment-oriented culture
Importance of errors	Mistakes are costly	Errors can be tolerated

3. Chain of Command

Definition: The formal line of authority from top to bottom of an organisation, showing who reports to whom.

Also known as: Scalar chain; line of authority

Key Principles

Principle	Explanation
Unity of command	Each employee should have only one direct supervisor to avoid conflicting instructions
Clear reporting	Everyone knows who their boss is
Hierarchical communication	Information flows up and down the chain
Authority flows down	Senior levels have authority over junior levels
Accountability flows up	Junior levels report to senior levels

Advantages of Clear Chain of Command

Advantage	Explanation
Clarity	Everyone knows reporting relationships
Accountability	Clear who is responsible
Coordination	Enables vertical coordination
Discipline	Authority structure maintains order
Communication	Defined channels for information flow

Disadvantages of Rigid Chain of Command

Disadvantage	Explanation
Slow communication	Messages pass through many levels
Distortion	Information changed as it passes through
Inflexibility	Can't easily bypass for urgent matters
Demotivating	Employees feel distant from top
Stifles initiative	Must go through channels

4. Hierarchy

Definition: The arrangement of positions in an organisation according to levels of authority, from top management down to front-line employees.

Levels of Hierarchy

Level	Typical Titles	Focus
Strategic (Top)	CEO, MD, Board, C-suite	Vision, strategy, major decisions
Tactical (Middle)	Managers, Directors, Heads	Implementing strategy, coordinating
Operational (Bottom)	Supervisors, Team Leaders, Workers	Day-to-day tasks, execution

Tall vs Flat Hierarchies

Aspect	Tall Hierarchy	Flat Hierarchy
Layers	Many management levels	Few management levels
Span of control	Narrow	Wide
Communication	Longer chains; slower; risk of distortion	Shorter; faster; more direct
Costs	Higher (more managers)	Lower (fewer managers)
Promotion opportunities	More rungs on ladder	Fewer promotion steps
Decision-making	May be slower, more centralised	Faster, often more decentralised
Employee autonomy	Less (more supervision)	More (less supervision)
Coordination	Easier within functions	May need other mechanisms
Suitable for	Large, complex organisations; need for control	Smaller organisations; dynamic environments

5. Centralisation vs Decentralisation

Definition:

Centralisation: Decision-making authority concentrated at the top of the organisation
Decentralisation: Decision-making authority distributed to lower levels

Advantages and Disadvantages

Aspect	Centralisation	Decentralisation
Decision speed	Slower (must go to top)	Faster (decided locally)
Consistency	High (same decisions everywhere)	Lower (local variation)
Local responsiveness	Low	High
Senior workload	Heavy (all decisions)	Lighter (delegate)
Employee motivation	Lower (less empowerment)	Higher (more autonomy)
Control	Easier	Harder
Expertise utilisation	Top expertise; may miss local knowledge	Local expertise; may lack strategic view
Cost	Lower coordination costs	Potential duplication
Development	Less opportunity for junior staff	Develops future leaders
Crisis response	Clear command	May need coordination

Factors Influencing Centralisation vs Decentralisation

Factor	Centralisation More Likely	Decentralisation More Likely
Size	Small organisations	Large, geographically spread
Environment	Stable; uniform markets	Dynamic; diverse markets
Importance of decisions	High-risk decisions	Routine decisions
Management style	Autocratic leadership	Participative leadership
Employee capability	Less experienced workforce	Skilled, experienced workforce
Technology	Limited communication systems	Strong IT enabling coordination
Culture	Control-oriented	Empowerment-oriented
Consistency needs	Brand/quality must be uniform	Local adaptation valued

6. Delayering

Definition: The removal of one or more levels of hierarchy from an organisational structure, typically middle management.

Reasons for Delayering

Reason	Explanation
Cost reduction	Fewer managers = lower salary costs
Faster decisions	Fewer levels to pass through
Improved communication	Shorter chains; less distortion
Increased empowerment	Lower levels take more responsibility
Flatter, agile structure	More responsive to change
Technology	IT enables wider spans, coordination without middle managers
Competitive pressure	Need to reduce overheads

Advantages of Delayering

Advantage	Explanation
Reduced costs	Fewer management salaries, benefits
Faster communication	Messages travel shorter distances
Quicker decisions	Fewer approvals needed
Employee empowerment	More autonomy, responsibility
Clearer accountability	Less diffusion of responsibility
More agile	Faster response to market changes

Disadvantages of Delayering

Disadvantage	Explanation
Increased workload	Remaining managers have wider spans
Loss of expertise	Experienced middle managers leave
Reduced promotion opportunities	Fewer rungs on career ladder
Morale impact	Uncertainty, survivor guilt, increased stress
Communication gaps	Removed levels may have served coordination function
Overworked employees	Tasks pushed down without adequate support
Quality of decisions	Less oversight may lead to errors
Redundancy costs	Short-term costs of letting people go

Delayering and Other Structural Changes

Delayering often accompanies:

Increased decentralisation
Wider spans of control
Greater use of technology
Team-based structures
Empowerment initiatives

PART B: TYPES OF ORGANISATIONAL STRUCTURES

1. Functional Structure

Definition: Organisation divided by business functions — each department specialises in a particular function.

Diagram

                    CEO
                     │
    ┌────────┬───────┼───────┬────────┐
    │        │       │       │        │
 Finance  Marketing  HR  Operations  R&D

Characteristics

Feature	Description
Grouping	By business function (marketing, finance, HR, operations)
Specialisation	Each function has experts in that area
Authority	Functional heads report to CEO
Coordination	Within functions easy; across functions harder
Career paths	Usually within function

Advantages

Advantage	Explanation
Specialisation	Expertise develops within functions
Efficiency	Economies of scale within function
Clear career paths	Progression within function
Simple to understand	Clear structure
Avoids duplication	One department per function
Easier supervision	Manager understands subordinates' work

Disadvantages

Disadvantage	Explanation
Silos	Departments may not communicate well
Coordination problems	Cross-functional projects difficult
Slow response	Changes require coordination across functions
Narrow perspective	Employees focus on function, not whole business
Blame culture	Departments blame each other
Innovation barriers	Cross-functional innovation harder
Senior management burden	Only CEO sees whole picture; integration falls on top

Suitable For

Small to medium organisations
Single product/market businesses
Stable environments
Where functional efficiency is priority

2. Divisional Structure

Definition: Organisation divided into semi-autonomous divisions, each responsible for a product, market, or geographic region.

Types of Divisions

Type	Organisation Based On	Example
Product	Different products or product lines	Unilever: Personal Care, Foods, Home Care divisions
Geographic	Different regions or countries	HSBC: Asia, Europe, Americas divisions
Customer/Market	Different customer segments	Microsoft: Consumer, Enterprise divisions

Diagram (Product Division)

                        CEO
                         │
         ┌───────────────┼───────────────┐
         │               │               │
    Division A      Division B      Division C
    (Product 1)     (Product 2)     (Product 3)
         │               │               │
    ┌────┴────┐     ┌────┴────┐     ┌────┴────┐
    │    │    │     │    │    │     │    │    │
   Mkt  Ops  Fin   Mkt  Ops  Fin   Mkt  Ops  Fin

Characteristics

Feature	Description
Grouping	By product, geography, or customer
Autonomy	Each division operates semi-independently
Functions	Each division has its own functional departments
Accountability	Division head accountable for results
Measurement	Divisions can be profit centres

Advantages

Advantage	Explanation
Focus	Each division focused on specific product/market/region
Accountability	Clear responsibility for performance
Flexibility	Divisions can adapt to their markets
Development	Division heads develop general management skills
Acquisitions	Easy to add/remove divisions
Customer focus	Closer to specific customer needs
Performance measurement	Divisions can be profit centres

Disadvantages

Disadvantage	Explanation
Duplication	Each division has own functions — repeated costs
Coordination	Between divisions may be poor
Competition	Divisions may compete rather than cooperate
Inconsistency	Different practices across divisions
Higher costs	Duplication increases overhead
Loss of economies of scale	Functions not centralised
Transfer pricing conflicts	Divisions trading with each other

Suitable For

Large, diversified organisations
Multiple products, markets, or regions
Where responsiveness to different markets is priority
Where divisions can operate independently

3. Matrix Structure

Definition: A structure where employees report to two or more managers — typically a functional manager AND a project/product/regional manager.

Diagram

                         CEO
                          │
        ┌─────────────────┼─────────────────┐
        │                 │                 │
    Marketing          Operations        Finance
        │                 │                 │
   ─────┼─────────────────┼─────────────────┼───── Project A Manager
        │                 │                 │
   ─────┼─────────────────┼─────────────────┼───── Project B Manager
        │                 │                 │
   ─────┼─────────────────┼─────────────────┼───── Project C Manager

Employees at intersections report to both functional head AND project manager.

Characteristics

Feature	Description
Dual reporting	Employees have two (or more) bosses
Flexible teams	People assigned to projects from functions
Combines	Functional expertise + project/product focus
Complex coordination	Requires sophisticated management
Temporary assignments	Project teams form and disband

Advantages

Advantage	Explanation
Flexibility	Resources allocated where needed
Expertise sharing	Functional specialists across projects
Dual focus	Both functional efficiency and project success
Communication	Breaks down functional silos
Development	Employees gain broader experience
Customer focus	Projects aligned to customer needs
Innovation	Cross-functional collaboration

Disadvantages

Disadvantage	Explanation
Confusion	Two bosses; conflicting priorities
Conflict	Functional vs project managers compete for resources
Complexity	Harder to manage; requires maturity
Slow decisions	Need agreement between managers
Power struggles	Ambiguity about authority
Expensive	More management overhead
Stress	Employees caught between competing demands
Accountability	Unclear who is responsible

Making Matrix Work

Success Factor	Description
Clear roles	Define authority of each manager
Conflict resolution	Processes for managing disputes
Strong culture	Collaboration valued
Communication	Frequent, open dialogue
Training	Managers skilled in matrix management
Senior support	Top management models collaboration

Suitable For

Project-based industries (construction, consulting, aerospace)
Complex products requiring multiple specialisations
Dynamic environments requiring flexibility
Organisations needing both efficiency and innovation

4. Other Structural Forms

Flat/Horizontal Structure

Definition: Minimal hierarchy; few or no middle management levels; wide spans of control.

Advantages	Disadvantages
Fast decisions	Limited supervision
Employee empowerment	Overworked managers
Low costs	Fewer promotion opportunities
Good communication	May lack coordination
Agility	Not suitable for large scale

Suitable for: Startups, small businesses, creative industries.

Network Structure

Definition: A central organisation coordinates a network of external firms and contractors rather than performing all functions in-house.

            ┌─────────────┐
            │   External  │
            │   Design    │
            └──────┬──────┘
                   │
┌──────────┐       │       ┌──────────┐
│ External ├───────┼───────┤ External │
│  Mfg     │       │       │ Logistics│
└──────────┘       │       └──────────┘
                   │
            ┌──────┴──────┐
            │   Core Firm  │
            │ (Coordinates)│
            └──────┬──────┘
                   │
            ┌──────┴──────┐
            │   External  │
            │  Marketing  │
            └─────────────┘

Advantages	Disadvantages
Flexibility	Less control
Access to best capabilities	Dependence on partners
Lower fixed costs	Coordination complexity
Scalability	Quality risks
Focus on core competencies	Intellectual property risks

Examples: Nike (outsources manufacturing), Apple (contract manufacturing).

Team-Based Structure

Definition: Work organised around self-managing teams rather than individual jobs in a hierarchy.

Advantages	Disadvantages
Collaboration	Team conflict
Flexibility	Requires team skills
Employee engagement	May lack accountability
Innovation	Coordination between teams
Speed	Not all tasks suit teams

Shamrock Organisation (Charles Handy)

Definition: Organisation with three types of workforce like the three leaves of a shamrock.

Leaf	Description
Core workers	Permanent, skilled employees; essential to organisation
Contractors	Specialists engaged for specific projects
Flexible workers	Part-time, temporary, casual as needed

Implications: Different HR strategies for each group.

PART C: CHOOSING THE RIGHT STRUCTURE

Factors Affecting Structural Choice

Factor	Impact on Structure
Size	Larger → more formalised, divisional; smaller → simpler, flatter
Strategy	Diversification → divisional; focus → functional
Environment	Dynamic → flexible, decentralised; stable → mechanistic
Technology	Complex tech → specialisation; IT enables wider spans
Culture	Control culture → hierarchy; empowerment → flat
Tasks	Routine → centralised, standardised; creative → flexible
Geographic spread	Multiple locations → geographic divisions or decentralisation
Customer diversity	Diverse customers → customer divisions
Product diversity	Multiple products → product divisions
Management style	Autocratic → centralised; participative → decentralised

Mechanistic vs Organic Structures

Dimension	Mechanistic (Bureaucratic)	Organic (Adaptive)
Hierarchy	Tall, rigid	Flat, flexible
Rules	Many formal rules, procedures	Few rules, adaptive
Centralisation	Centralised	Decentralised
Specialisation	Narrow, defined roles	Broad, flexible roles
Communication	Vertical, formal	Lateral, informal
Control	Through hierarchy	Through shared goals
Decision speed	Slow	Fast
Innovation	Lower	Higher
Suitable for	Stable environment, efficiency	Dynamic environment, innovation

Structure Follows Strategy (Chandler)

Principle: Organisational structure should be designed to support the strategy.

Strategy	Suitable Structure
Single product, single market	Functional
Diversified products	Divisional (product)
Geographic expansion	Divisional (geographic) or regional
Innovation focus	Flat, team-based, matrix
Cost leadership	Centralised, efficient functional
Differentiation	Flexible, customer-focused

PART D: ORGANISATIONAL CHARTS

Definition

An organisational chart (org chart) is a visual diagram showing the structure of an organisation — positions, reporting relationships, and hierarchy.

What Org Charts Show

Element	Description
Positions/roles	Job titles and departments
Reporting lines	Who reports to whom (chain of command)
Hierarchy	Levels of management
Span of control	Number of direct reports per manager
Departments	Groupings and divisions
Relationships	Formal authority relationships

What Org Charts Don't Show

Element	Description
Informal relationships	Networks, friendships, influence
Communication flows	How information actually moves
Power dynamics	Real influence vs formal authority
Quality of relationships	How well people work together
Temporary structures	Project teams, task forces
Culture	Values, norms, behaviours

Types of Org Charts

Type	Best For
Hierarchical	Traditional organisations; shows chain of command
Flat	Small organisations; minimal hierarchy
Matrix	Project-based organisations; shows dual reporting
Divisional	Large, diversified organisations
Functional	Organisations grouped by function

Advantages of Org Charts

Advantage	Explanation
Clarity	Everyone sees where they fit
Orientation	New employees understand structure
Planning	Identify gaps, overlaps, restructuring needs
Communication	Know who to contact
Accountability	Clear responsibilities
External	Show structure to customers, investors, regulators

Limitations of Org Charts

Limitation	Explanation
Static	Quickly outdated as organisation changes
Formal only	Miss informal structures
Oversimplified	Complex relationships not captured
Status focus	May reinforce hierarchy over collaboration
Misleading	Formal structure may not match reality

PART E: EXAM APPLICATION

Potential Exam Questions

"Analyse the advantages and disadvantages of a flat organisational structure." (10 marks)
"Evaluate the factors a business should consider when choosing between a functional and divisional structure." (10 marks)
"Discuss the impact of delayering on an organisation and its employees." (10 marks)
"Examine the benefits and challenges of a matrix structure for a project-based organisation." (10 marks)
"To what extent does the effectiveness of delegation depend on the skills of the manager?" (10 marks)
"Analyse the relationship between span of control and organisational efficiency." (10 marks)
"Evaluate the usefulness of organisational charts for understanding how a business operates." (10 marks)

Key Definitions to Memorise

Term	Definition
Organisational structure	The formal system of authority, communication, and responsibilities in an organisation
Delegation	Assigning authority and responsibility to subordinates to carry out tasks
Span of control	Number of subordinates reporting directly to a manager
Chain of command	Formal line of authority from top to bottom of an organisation
Hierarchy	Arrangement of positions by levels of authority
Centralisation	Decision-making concentrated at the top
Decentralisation	Decision-making distributed to lower levels
Delayering	Removing levels of hierarchy from an organisation
Functional structure	Organisation divided by business functions
Divisional structure	Organisation divided into semi-autonomous divisions
Matrix structure	Employees report to two or more managers
Organisational chart	Visual diagram showing structure and reporting relationships

Evaluation Frameworks

When discussing structural choices:

"The best structure depends on the organisation's size, strategy, and environment..."
"There is no perfect structure — all involve trade-offs..."
"Structure should support strategy, not constrain it..."
"Formal structure is only part of how an organisation really works..."

When discussing specific concepts:

"The optimal span of control depends on the nature of work and employee capabilities..."
"Delegation is only effective when authority matches responsibility..."
"Delayering reduces costs but may have unintended consequences for morale and capability..."
"Centralisation and decentralisation are not either/or — most organisations combine elements of both..."

When discussing different structures:

"Functional structures offer efficiency but may create silos..."
"Divisional structures offer flexibility but may duplicate resources..."
"Matrix structures combine benefits but create complexity..."