Business organisational structure

What is an organisational structure?

Organisational structure refers to the levels of management and division of responsibilities within a business, which could be presented in an organisational chart. For simpler businesses in which the owner employs only himself, there is no need for an organisational structure. However, if the business expands and employs other people, an organisational structure is needed. Any operating organization should have its own structure in order to operate efficiently. For an organization, the organizational structure is a hierarchy of people and its functions.

What is the purpose of an organisational structure?

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Organizational structures help everyone know who does what. To have an efficient and properly functioning business, you need to know that there are people to handle each kind of task. At the same time, you want to make sure that people aren't running up against each other. Creating a structure with clearly defined roles, functions, scopes of authority and systems help make sure your people are working together to accomplish everything the business must do.

Different ways a business could structure their organization Hierarchical structure

In a hierarchical organisation employees are ranked at various levels within the organisation, each level is one above the other. At each stage in the chain, one person has a number of workers directly under them, within their p of control. A tall hierarchical organisation has many levels and a flat hierarchical organisation will only have a few. The chain of command (i.e. the way authority is organised) is a typical pyramid shape.

The diagram above shows a traditional hierarchy: In a traditional hierarchy, senior managers make up the board of directors and are responsible for establishing strategy and overall business direction, whilst middle managers have responsibility for a specific function such as finance or marketing.

Chain Of Command and Employee Roles

A traditional hierarchical structure clearly defines each employee’s role within the organisation and defines the nature of their relationship with other employees. Hierarchical organisations are often tall with narrow ps of control, which gets wider as we move down the structure. They are often centralised with the most important decisions being taken by senior management.

Tall structure

In its simplest form, a tall organisation has many levels of management and supervision. There is a “long chain of command” running from the top of the organisation e.g. Chief Executive down to the bottom of the organisation e.g. shop floor worker. The diagram below neatly captures the concept of a tall structure.

How Many Levels Do Tall Structures Have?

However, tall structures rarely exceed 8 levels of management. This is firstly because the number of layers (i.e. management levels) decreases the p of control. Secondly the disadvantages of the tall structure begin to outweigh the advantages of a tall structure. Advantages of Tall Organisations

Disadvantages of Tall Organisations

There is a narrow p of control i.e. each manager has a small number of employees under their control. This means that employees can be closely supervised. The freedom and responsibility of employees (subordinates) is restricted. There is a clear management structure.

Decision making could be slowed down as approval may be needed by each of the layers of authority. The function of each layer will be clear and distinct. There will be clear lines of responsibility and control. Communication has to take place through many layers of management.

Clear progression and promotion ladder

High management costs because managers are generally paid more than subordinates. Each layer will tend to pay it’s managers more money than the layer below it.

Matrix structure

A Matrix structure organisation contains teams of people created from various sections of the business. These teams will be created for the purposes of a specific project and will be led by a project manager. Often the team will only exist for the duration of the project and matrix structures are usually deployed to develop new products and services. The advantages of a matrix include:

Individuals can be chosen according to the needs of the project. The use of a project team which is dynamic and able to view problems in a different way as specialists have been brought together in a new environment. Project managers are directly responsible for completing the project within a specific deadline and budget. Whilst the disadvantages include

A conflict of loyalty between line managers and project managers over the allocation of resources. If teams have a lot of independence they can be difficult to monitor. Costs can be increased if more managers (i.e. project managers) are created through the use of project teams.

Flat structure

In contrast to a tall organisation, a flat organisation will have relatively few layers or just one layer of management. This means that the “Chain of Command” from top to bottom is short and the “p of control is wide”. Span of control refers to the number of employees that each manager is responsible for. If a manager has lots of employees reporting to them, their p of control is said to be wide. A manager with a small number of direct reports has a narrow p of control. Due to the small number of management layers, flat organisations are often small organisations.

Advantages of Flat Organisations
Disadvantages of Flat Organisations
Greater communication between management and workers.
Employees may have more than one manager as there are a number of managers at the same level in the organisation Better team sprit as fewer management layers increase interaction between employees on different levels (layers). May delay the growth of the organisation especially if managers have wide ps of control. Less administration and easier decision making

Structure limited to small organisations such as partnerships, co-operatives and private limited companies. Fewer management layers may reduce costs as managers cost more than non managers. Also employees at higher levels in the organisation expect to be paid more than those on lower levels. Lack of layers may reduce opportunities for high level strategic management.
Greggs organisational structure Greggs PLC is categorised as a tall structured business. This is because it has many levels of hierarchy. There are many managers, and each manager has a small p of control which means that they are in charge of only a small group of employees.

Management

In Greggs which is a tall organisation, there are many layers of middle management between top management and employees. Each layer of management often develops its own rules and procedures, which means that employees who work several layers down in the company may have many rules and procedures to follow. This can add to costs, as some functions are performed by more than one person. Employees

Because managers in a tall organization only have a small number of employees to supervise, they are able to supervise more closely and spend more time on training employees. There are also very clear lines of career progression and promotion for employees. However, employee satisfaction may be lower in a tall organization because of the many layers of organisation and firm rules, and because employees have fewer opportunities to take on
responsibility.

Communication

The many layers of management mean that there are clear lines of communication in a tall organisation, but it can be very difficult for decisions to be made. Decision making is often slowed down because approval may be needed by many different people, and it can be difficult for managers to access executives without going through a long line of management. Because communication usually moves upward through the management chain, managers and employees in parallel groups may have difficulty communicating directly. Read about Tesco Legal Structure

Adidas organisational structure

This type of structure combines the traditional departments seen in functional structures with project teams. In a matrix structure, individuals work across teams and projects as well as within their own department or function. For example, a project or task team established to develop a new product might include design specialists as well as those with marketing, financial, personnel and production skills. This can be clearly seen from adidas matrix structure which shows three projects ( mi adidas, adidas original and adidas performance) and how they all have connections to the different functional departments. These teams can be temporary or permanent depending on the tasks they are asked to complete. Each team member can find himself/herself with two managers - their normal functional manager as well as the team leader of the project.

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