Lecture overview

 Organising the vertical structure

 Departmentalisation
 Factors shaping structure

Organising the vertical structure

Organisational structure: The framework
in which the organisation defines how
tasks are divided, resources are deployed
and departments are coordinated.
1. Set of formal tasks assigned to individuals and
departments.
2. Formal reporting relationships.
3. Design of systems to ensure effective coordination
of employees across departments.

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Organising the vertical structure
 Organisational chart
 Work specialisation
 The degree to which organisational tasks are subdivided
into individual jobs, also called division of labour.
 e.g. Automobile assembly line.
 Specialisation results in efficiency .
 However, specialisation reduces motivation.

Organising the vertical structure

 Chain of command
 An unbroken line of authority that links all individuals
in the organisation and specifies who reports to whom.
 Unity of command.
 Each employee has one supervisor.
 Scalar principle.
 Line of authority includes all employees from bottom to top of
the organisation.

Organising the vertical structure

 Authority, responsibility and delegation
 The formal and legitimate right of a manager to
make decision, issue orders and allocate resources
to achieve organisationally desired outcomes.
1 Authority is vested in organisational positions, not people.
2 Authority is accepted by employees.
3 Authority flows down the vertical hierarchy.

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Organising the vertical structure
 Responsibility
 Accountability
 Delegation
 Line and staff authority
 Line authority: Management positions have the formal power to
direct and control immediate employees.
 Staff authority: Granted to staff specialists in their areas of
expertise.

Organising the vertical structure

 Span of management:
 The number of employees who report to a supervisor;
also called the span of control.
 Traditional: Seven employees per manager.
 Lean organisations: As high as 30
to 40.

Organising the vertical structure

 Factors that influence larger span of management:
1. Employees’ work is stable and routine.
2. Employees perform similar work tasks.
3. Employees are concentrated in a single location.
4. Employees are highly trained (need little direction).

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Organising the vertical structure
5. Rules and procedures defining task activities are
available.
6. Little time is required in non-supervisory
activities (e.g. coordination across other
departments or planning).
7. Managers’ personal preferences and styles favour a
larger span.

Organising the vertical

structure
Tall versus flat structures:
 Tall structures
 Narrow spans
 More hierarchical levels
 Flat structures
 Wide span
 Horizontally dispersed
 Trend towards wider spans to delegate

Organising the vertical

structure
 Centralisation
 The location of decision authority near top organisational
levels.
 Decentralisation
 The location of decision authority near lower
organisational levels.
 Trend toward greater decentralisation
 Lowers burden on top managers.
 Utilises skills and ability of workers.
 Allows rapid responses to external change.

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Organising the vertical
structure
 Two factors influencing centralisation and
decentralisation
1 Greater change and uncertainty in the environment
 Decentralisation
2 The firm’s strategy
 Should fit with need for centralisation or decentralisation

Organising the vertical

structure
 Formalisation
 The written documentation used to direct and control
employees.
 Bureaucratic form of organisation (Weber).
 Advantages in rationality and logical operation.
 However, ‘Red tape’ can cause problems.

Departmentalisation
- The basis on which individuals are
grouped into department and
departments into total organisations.

1 Vertical functional approach

2 Divisional approach
3 Horizontal matrix approach
4 Team-based approach
5 Network approach

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Departmentalisation
1 Vertical functional approach:
 An organisation structure in which positions are
grouped into departments based on similar skills,
expertise and resource use.
 Advantages:
 Economies of scale and efficient
resource use
 Expertise (in-depth skills)

Vertical functional
Advantages
approach
Disadvantages
• Economies of scale and • Poor communication across
efficient resource use functional departments
• Expertise (in-depth • Slow response to external
skills) changes
• Internal career progress • Decisions concentrated at top
• Centralised chain of leading to delay
command • Responsibility for problems
– Top manager direction difficult to pinpoint
and control • Limited view of organisational
– Excellent coordination goals by employees
within functions • Limited general management
• High-quality technical training for employees
problem solving

Departmentalisation
2 Divisional approach:
 An organisational structure in which departments are
grouped based on similar organisational outputs.
 Sometimes called a product structure, program
structure or self-contained unit structure.
 Encourages decentralisation (to divisions).
 Can group by geography.

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Departmentalisation

Departmentalisation

Departmentalisation:
divisional
Advantages Disadvantages
 Fast response, flexible in  Duplication of resources
uncertain environment across divisions
 Focus on customer  Less technical depth and
 Excellent coordination specialisation
across functional
departments  Poor coordination across
 Easy to pinpoint divisions
responsibility for product  Less top management
problems control
 Emphasis on overall  Competition for corporate
product and division goals resources (among
 Develops general divisions)
management skills

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Departmentalisation
3 Horizontal matrix approach:
 An organisation structure that utilises functional and
divisional chains of command simultaneously in the
same part of the organisation.
 Balances traditional control of functional
departments with horizontal coordination across
departments.
 Problem for two-boss employee.

Departmentalisation

Departmentalisation: Matrix
Advantages
 More efficient use of
resources than single
hierarchy
 Flexible, adaptable to
changing environment
 Develop generalists and
specialists
 Interdisciplinary
cooperation, expertise
available to all divisions
 Enlarged tasks for
employees
Disadvantages
 Frustration and confusion
from dual chain of
command
 High conflict between two
sides of matrix
 Many meetings, more
discussion than action
 Human relations training
needed
 Power dominance by one
side of matrix

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 Departmentalisation
4 Team-based approach:
 Cross-functional team
 Group of employees (from various functional departments)
that report to both team and functional departments that
meet as a team to resolve mutual problems.
 Permanent team
 Participants from several functions who are permanently
assigned to solve ongoing problems of common interest.

Departmentalisation
4 Team-based approach:
 Re-engineering: Radical redesign of business
processes to achieve dramatic improvements in cost,
quality, service and speed.

Departmentalisation:
Team-based
Advantages Disadvantages
 Some advantages of  Dual loyalties and conflicts
functional structure  Time and resources spent on
 Reduced barriers among meetings
departments
 Unplanned decentralisation
 Quicker decisions
 Involvement increases
morale and enthusiasm
 Reduced administrative
overhead

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Departmentalisation
5 Network approach:
 An organisation structure that disaggregates
major functions into separate organisations that
are brokered by a small headquarters
organisation.
 Can subcontract major functions to separate
organisations and control from a central hub.
 Focus on what they do best, outsource the rest.

Departmentalisation

Departmentalisation: Network
Advantages
 Global competitiveness
 Workforce
flexibility/challenge
 Reduced administrative
overhead
Disadvantages
 No hands-on control
 Can lose organisational
part
 Employee weakened (no
cohesive corporate culture)

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Factors shaping structure
 Structure follows
strategy
 Structure reflects the
environment
 Structure fits the
technology

Structure follows strategy

 Different structural
approaches are required
for different strategies.
 e.g. A cost leadership
strategy (Porter)
requires an organisation
to strive for internal
efficiency within their
structure.
 Structural approaches
are associated with
strategic goals.
 e.g. Functional

Structure follows strategy

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Structure reflects the
environment
 Environmental
uncertainty causes
three things to occur in
an organisation:
- Increased differences
among departments.
- Increased
coordination to keep
departments working
together.
- Adaptation to change.

Structure reflects the

environment
 Mechanistic structures:
 Used in stable environments.
 Has rigid, vertical, centralised
structures with most decisions
made at the top.
 Highly specialised, many rules
and a clear hierarchy.
 Organic structures:
 Used in rapidly changing
environments.
 Has a looser, free flowing and
adaptive structure.
 Horizontal structure with
decentralised decision making.
 More fluid and adaptable to
change.

Structure fits the technology

 Technology includes the
knowledge, tools, techniques
and activities used to
transform the organisation’s
inputs into outputs.
 Woodward’s manufacturing
technology
 Small batch unit production.
 Large batch and mass
production.
 Continuous process production.
 Different technologies require
different structures.
 Structure and technology is
directly related to company
performance.

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Structure fits the technology
 Service technology:
 Intangible output.
 Direct contact with
customers.
 Service firms tend to be
flexible, informal and
centralised in structure.
 Digital technology:
 Characterised by the use of
the internet and other digital
processes to conduct or
support business online.
 Organisations tend to be
flexible and decentralised.

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