Organisational Design

Purpose of Organisational Structure

Organisational structure outlines reporting relationships, roles, and responsibilities.
It refers to the levels of management and division of responsibilities.
Structures are represented on organizational charts.
Businesses must determine the best structure to implement ideas and achieve objectives.
Consideration should be given to how the structure affects management, operations, and communications.
A well-designed structure promotes clarity, efficiency, and accountability.

Key Words

Hierarchy: A system where people or things are arranged according to importance.
Chain of Command: The structure allowing instructions to be passed down from senior to lower levels of management.
Span of Control: Number of subordinates working directly under a manager.
Authority: The right to carry out a particular task or duty.
Responsibility: Being accountable for the work of others.
Delayering: Removing layers of management from the hierarchy.
Delegation: Passing down of authority.

Organizational Chart

A diagram that visually conveys a company’s internal structure.
Details the roles, responsibilities, and relationships between individuals.

Key Terminology

Chain of Command

The formal line of authority from top management to lower-level employees.
Defines who reports to whom and who is responsible for decisions.
Establishes clear communication channels and maintains accountability.

Span of Control

The number of employees a manager can effectively manage.
A narrower span of control means more layers of management.
A wider span of control means fewer layers of management; employees have more independence, and communication is better.

Hierarchy

Levels of authority within an organization.
Ranks positions from top to bottom.
Higher positions hold more authority and power.
Includes top-level, middle-level, and lower-level employees.

Centralised and Decentralised Structures

Centralised: Decision-making concentrated at the top.
Decentralised: Decision-making distributed throughout the organization.
Decentralisation promotes flexibility and innovation.
Centralisation promotes consistency and control.

Types of Organisational Structures

Tall organisational structures
Flat organisational structure
Matrix organisational structure

Tall Structure (Hierarchical)

Multiple levels of management and centralised decision-making.
Long chain of command.
Common in large organizations e.g. government agencies and universities

Advantages

Clear hierarchy of authority and defined roles.
Promotes specialisation and expertise.
Offers opportunities for career advancement.
Increases efficiency and motivation.

Disadvantages

Communication barriers between upper and lower levels.
Slow decision-making due to multiple layers.
Can lead to bureaucracy and excessive management.
Reduces efficiency and motivation.

Flat Structure

Fewer levels of management and decentralised decision-making.
Short chain of command.
Common in small organizations or start-ups e.g. tech start-ups and small businesses

Advantages

Promotes collaboration and open communication.
Faster and more efficient decision-making.
Encourages creativity and innovation, as employees have more autonomy and flexibility.
Increases efficiency and motivation.

Disadvantages

Role ambiguity and lack of clear hierarchy.
May not provide clear opportunities for career advancement.
Employees may take on multiple roles, leading to burnout.
Reduces efficiency and motivation.

Matrix Structure

Built around specific products or projects e.g. KitKat within Nestlé.
Combines functional areas with specialist teams.
resources are Shared

Advantages

Promotes collaboration and communication.
Allows for specialisation and expertise.
Enables efficient allocation of resources and coordination of multiple projects.
Increases efficiency and motivation.

Disadvantages

Can lead to conflicts over resources.
Creates confusion over roles and responsibilities when multiple managers are involved.
Requires a high degree of communication and coordination.
Reduces efficiency and motivation.

Centralised and Decentralised Structures

Centralised: Decision-making authority is concentrated at the top.
Decentralised: Decision-making authority is distributed throughout the organization.
Decentralisation promotes flexibility and innovation, while centralisation promotes consistency and control.

Centralization

Decision-making is kept at the top of the hierarchy.

Advantages

Easier to implement common policies and practices.
Prevents parts of the business from becoming too independent.
Easier to coordinate and control from the center.
Quicker decision-making.

Disadvantages

More bureaucratic with extra layers.
Local or junior managers are closer to customer needs.
Lack of authority may reduce motivation.
Misses flexibility and speed of local decision-making.

Decentralization

Decision-making is spread out to include more managers.

Advantages

Decisions made closer to the customer.
Better able to respond to local circumstances.
Improves staff motivation.
Consistent with aiming for a flatter hierarchy.

Disadvantages

Harder to ensure consistent practices and policies.
May be some diseconomies of scale.
Unclear leadership in a crisis.