Organisational structures

Businesses use organisational structures to illustrate job roles and responsibilities.

Organisational structures show who each employee reports to in their job.

Hierarchical and flat organisational structures

An organisational structure is how a business organises its staff to represent the
different layers of management. This information can be displayed in the form of a
chart. There are two main types of organisational structure used in businesses –
hierarchical (or tall) and flat.

Hierarchical structure
A hierarchical structure is often also referred to as a ‘tall’ organisational structure.
A hierarchical structure has many layers of management, and businesses with this
structure often use a ‘top-down’ approach with a long chain of command. In a
hierarchical structure, managers will have a narrow span of control and a relatively
small number of subordinates (staff).

Advantages Disadvantages

● Areas of the business are ● There is slow communication due to a

closely managed
● Managers have tight
control over employees
● Excellent progression
opportunities
long chain of command
● Employees may be demotivated due
to lack of autonomy
● Organisational changes can be slow to
implement

Flat structure
A flat structure is an organisational structure with only a few layers of
management. In a flat structure, managers have a wide span of control with more
subordinates, and there is usually a short chain of command. Flat organisational
structures are commonly used by smaller businesses or those adopting a more
modern approach to management.

Advantages Disadvantages

● Less layers leads to better communication ● Lack of

● More autonomy and responsibility for progression
employees opportunities
● Employees may feel more motivated, ● Higher workloads
therefore being more productive for managers
● Managers have
more subordinates

Key terms in organisational structure

There are a number of key terms that apply to organisational structures:

● span of control - the number of staff that a manager has responsibility for
 ● chain of command - the route by which instructions and communications
flow from the top to the bottom of a business, explaining who is
answerable to whom
● delayering - a process where a business removes layers of its management
to make its structure more flat
● delegation - a process where tasks are given to members of staff, where
often managers give tasks to employees further down the chain of
command
● subordinates - members of staff below a manager in the chain of
command

Job roles and responsibilities and their characteristics

Businesses employ staff to take on a number of different roles, with different

duties and responsibilities. Roles in a business often follow a hierarchy and include
owners and leaders, senior managers, supervisors, team leaders, operational and
support staff.

Leaders and owners

Owners and leaders are the people at the top of a business and its organisational
structure. Small businesses may only have one or two owners or leaders. Larger
businesses often have a board of directors or leaders who make the key business
decisions. A board of directors is often made up of a senior person from each
department, governors and the owner or chief executive officer (CEO) of a
business.

Leaders and owners:

● have overall control of the business and all employees

 ● make decisions about the overall aims and objectives of a business, setting
long term targets
● are usually experienced in the industry and may have held senior positions
previously -they are likely to have a range of qualifications
● often delegate tasks further down the chain of command to managers and
senior managers
● are usually the highest paid people in a business - often they have a series
of benefits and bonus incentives

Senior managers

Senior managers sit below the level of owner or leader. They are the most high-
level managers in a business, and usually have overall responsibility for all staff
below them.

Senior managers:

● have to manage supervisors and operational employees, giving

instructions and day-to-day tasks
● make decisions about how the aims and objectives of a business will be
implemented and met
● are usually experienced in the industry and have often worked their way
up to a management position
● often delegate tasks further down the chain of command to supervisors
and operational employees
● are usually well paid and are offered some incentives to help motivate
them

Supervisors and team leaders

Supervisors and team leaders sit below the senior managers in the chain of
command. They often manage a team of employees, providing them with daily
duties and rotas of working hours, and ensuring employees fulfil their roles. For
instance, in a supermarket each department is likely to have a team leader, eg the
fruit and vegetable section will have a dedicated team of employees managed by a
team leader.

Supervisors:

● have overall responsibility for operatives, providing them with tasks and
monitoring performance
● will make decisions about tasks that operatives complete, and deal with
any immediate operational or customer service issues
● are usually skilled in the role and have had experience as an operative
● will often delegate tasks to operatives to ensure work is evenly distributed
● will be paid at a higher rate than operatives, but a lower rate than senior
managers

Operatives

Operational staff are the employees who complete and support the who complete
the tasks directly related to the products and services that the company produces in
a business. For example, in a car dealership the operational staff will be the sales
representatives and car engineers. In a supermarket, operational staff will be
customer service representatives, checkout operators and cleaners.

Operatives:

● do not have managerial authority and their responsibilities are provided to

them by employees further up the chain of command
 ● will often be skilled in a particular area of work, though some operatives
are lower skilled workers
● do not delegate tasks to others - they complete work that is given to them
● Are usually the lowest paid group of employees in a business

Centralised and decentralised organisational structures

Businesses usually use two main forms of management, called centralised and
decentralised.

Centralised management structure

A centralised structure is where business decisions are made at the top of the
business or in a head office and distributed down the chain of command. It is
often used in retail chains. Usually, all branches will operate in the same way and
store managers will have very little input into how their individual store is
operated.
Businesses with a centralised management style can often be slow to respond to
changes in the business environment or local changes near their branches.

Advantages of a centralised management structure include:

● consistency across the business

● the business has a clear direction
● operations and decisions are closely controlled and managed
● the chain of command and accountability are clear

Disadvantages of a centralised management structure include:

● it can demotivate employees

● a standardised approach may not work in all business locations
● it may lower productivity

Decentralised management structure

A decentralised approach is where a business allows decisions to be made by

managers and subordinates further down the chain. This structure provides staff
with more decision-making responsibilities. For example, individual stores or
departments may make decisions on staffing levels, which products and services to
offer for sale, and pricing.

Businesses with a decentralised management structure can often respond quickly to

changes in the business environment and the local area.

Advantages of a decentralised management structure include:

 ● improved employee motivation
● allowing managers lower down the chain to make decisions to suit their
local area and customers
● more responsibility for employees

Disadvantages of a decentralised management structure include:

● consistency is not achieved across the business

● managers can make ineffective decisions
● may negatively impact sales and overall business performance, eg because
of ineffective decisions by managers lower down the chain

Delayering and downsizing

Delayering

Delayering involves removing a layer of management

Within hierarchical structures a method that can be used to reduce costs is to

remove a layer of management, while expecting staff to produce the same level of
output. This can:

● save the company money on managerial wages

● make the business more responsive to change due to the reduction of
layers of management

Downsizing
Downsizing is when a firm closes down or merges aspects of their operations in
order to:

● reduce costs
● remain competitive in the marketplace

Matrix and entrepreneurial structures

Matrix structure

Matrix structure is often used when cross-functional teams are created to run a
project. Team members may come from different disciplines. The team will
disband when the project is complete.

Advantages

● a good way of having different viewpoints and skills involved in a project

● provide staff with an opportunity to learn new skills from other members
of the team which may lead to greater motivation and productivity
Disadvantages

● it is very expensive
● team members may have priority issues when having to report to two
bosses (their regular line manager and their project leader)

Entrepreneurial structure

Entrepreneurial structure is used in SMEs. This is when the major decisions are
made by one or two key personnel. Usually in small businesses this will be the
owner or the entrepreneur.

Advantage

Decisions are often made quickly by the entrepreneur who is experienced within
the business.

Disadvantage

There is a workload issue for the decision makers as responsibility for many tasks
will fall to them.

Groupings of activities

There are different ways organisations group the activities they undertake. They
are:

Functional grouping
Functional grouping is a company structure with a board of directors overseeing a
chief executive managing different departments

This is the traditional method of organising a firm into departments based on their
core activities such as marketing or finance. This means that staff with similar
expertise work together.

Advantages Characteristics – this will be the

second title cell

Brings together employees with similar Can lead to slow decision making
skills allowing expertise to develop. and poor communication

Less duplication of resources Can become unresponsive to

external changes in the market

Product / service grouping

Product or service grouping is a company structure that is split into divisions.

This is when an organisation is divided into divisions based on a product they

make or a product range.

Advantages Disadvantages

It encourages customer loyalty There can be duplication of effort and

 resources

Easier to identify products that are Departments based on products may

poorly performing end up competing with each other

Departments can respond more quickly Difficult to share expertise and

to change in their specialist area resources across departments

Customer grouping

Customer grouping divides its operations by types of customer.

This is when an organisation divides its operations by types of customer. It may

divide its customers into:

● retail (high street sales)

● online operations

Advantages Disadvantages

It encourages customer loyalty as customer There can be duplication of

needs are the main focus of the department effort and resources
Individual departments are more responsive to Competition between
changes in customer needs departments may occur

Difficult to share expertise and

resources across departments

Place / territory grouping

Place or territory grouping divides its operations by geographical area

This is common among large multinationals. This is where the organisation divides
its operations by geographical area.

Advantages Disadvantages

Each department can meet the needs of Naturally high cost due to duplication
local markets and can react quickly to of effort and resources
external factors

Communication is better, for example Departments may begin to compete

with different languages or cultures with each other

Failing departments can be easily New departments need to be created

identified when the business wants to trade in a
new area.
Technological grouping

Technological grouping divides its operation by the type of technology required.

This is where the organisation divides its operation by the type of technology they
require. It can often be used in the manufacturing industry where departments are
created based on the stage in the production process such as design or welding

Advantages Disadvantages

Specialists are all working together which may High cost of training
result in a higher quality product

Wastage and costs may be reduced due to specialist There can be duplication of
equipment and staff knowledge effort and resources

Can only be used in very

large organisations

Organisational Structure- refers to the way a business is structured to achieve maximum

efficiency. An organizational structure defines how activities such as task allocation,
coordination and supervision are directed towards the achievement of organizational aims

Formal Structure - Formal organization is a fixed set of rules of intra-organization procedures

and structures. As such, it is usually set out in writing eg. Org Chart.

Informal Structure – the unofficial relationships that exist in the firm.

Span of Control - refers to the number of subordinates a supervisor has.

Factors that influence the span of control

- Competence, skill and experience of the workers

- The nature of the job i.e. complexity

- The actual skill of the manager

- How motivated workers are

Lines of Communication- this represents the standards and procedures associated with the
movement of information