Organisational Design

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.