2.

2 - Organisational Structure

Introduction to Organisational Structures:

- The organisational structure of a business shows the interrelationships and hierarchical
arrangements within the firm.
- In order for employees to achieve the organisation’s goals collectively, human resources
need to be formally organised.
- The way in which people are organised determines who each employee reports to, and the
breadth and depth of the authority each person has (if any).
- The organisational chart is a diagrammatic representation of an organisation’s formal
organisational structure. Hence, it shows the role(s) of each employee in the organisation,
responsibilities, and accountability (who each employee must formally report to).

Types of Organisational Structures:

1) Delegation:
- Definition: Refers to the process where a line manager entrusts authority and
empowers a subordinate to carry out a specific task, project, or role. While decision-
making and control are passed on, the ultimate responsibility for the outcome
remains with the line manager.
- Delegation occurs when a line manager entrusts and empowers a subordinate with
authority to successfully complete a particular task, project or role. It involves
passing on control and authority but holding subordinates accountable for their
actions. Although authority and decision-making are passed on, the responsibility for
the outcome remains with the line manager because they are ultimately in charge.
- As an organisation grows and evolves, delegation becomes more commonplace as
managers do not have the capacity to do everything or make all decisions. Hence,
they need to share the workload and pass on some of their roles. If delegation is
successful, it frees up managers to deal with other important responsibilities, such
as strategic planning.
- While a manager can delegate a task to a subordinate, the accountability will remain
on the manager as they are responsible for the consequences of the actions of the
worker.
- Advantages:
- Employee Motivation: Delegation can enhance employee motivation by
valuing and empowering them, aligning with Abraham Maslow's
motivational theory.
- Improved Decision-Making: Delegation leads to better and faster decision-
making, empowering employees to make informed decisions within their
roles.
- Workload Reduction: Effective delegation reduces the workload of senior
managers, allowing them to focus on strategic planning and higher-level
responsibilities.
 - Skills Development: Delegation contributes to the improvement of
employee skills, preparing them for more senior roles within the
organisation.
- Disadvantages:
- Costs: Delegation may increase overall costs for the business, especially if
additional pay or remuneration is not provided.
- Training Investment: Successful delegation often requires training and
development investments to ensure employees have the necessary skills.
- Not Universal Motivator: Not all workers are motivated by delegation; some
may be unwilling or unable to take on extra workload or accountability.
- Potential Discontent: Workers might feel disgruntled if they perceive that
they are doing managerial work without additional pay and recognition.
- Not Suitable in All Situations: Delegation may not be suitable in
organisations with low-skilled, manual workers who require close
supervision or during crises where decision-making is best left to
experienced senior executives.
2) Span of Control:
- Definition: Refers to how many workers are directly accountable to (or under the
authority of) a particular line manager.
- In this example, the chief executive officer (CEO) of the company has a span of
control of four people (such as the directors of marketing, finance, operations and
human resources).

- There is an inverse relationship between the span of control and the levels of the
hierarchy. Managers have a narrow span of control in organisations that prefer to
have tighter (closer) control on decision-making. It enables managers to keep closer
control over the activities and operations of the employees for whom they are
directly responsible for. By contrast, delegation is inevitable when the span of
control is wide.
- A wide span of control means a line manager has responsibility for many
subordinates. A narrow span of control can present challenges for managers in
terms of communication and control unless they are able to delegate effectively to
members of their team. Naturally, workers have a greater degree of independence if
there is a wide span of control as it is not possible for an individual line manager to
monitor the work and progress of each and every subordinate in the team.
However, a wide span of control can help to reduce costs (as there are fewer levels
of management in the organisational hierarchy) but this requires strong leadership.
- Whether a business decides to adopt a wide or narrow span of control depends on
three main interrelated factors:
- Employee competencies: This refers to the skills, qualifications, training, and
experience of employees. Workers who are highly competent are more
 likely to be given greater authority and flexibility to make decisions and to
organise their own work. Hence, the employer is more able and willing to
use wider spans of control and delegation.
- Managerial competencies: This refers to the attitudes and beliefs of
managers, and hence their management styles. Some managers believe that
a workforce is most efficient if employees are given greater freedom to
make decisions and they are more likely to delegate authority to junior
employees, enabling the use of wide spans of control
- The business context: This refers to the nature of the organisation and the
market(s) in which it operates as well as the activities under consideration.
Large, multinational companies (MNCs) will need to be structured differently
from small sole traders or partnerships. MNCs will have wider spans of
control as senior managers will be responsible for larger teams, possibly
across multiple geographical locations. In the case of sole traders and small
partnerships, the business owners may maintain narrower spans of control.
- However, there is no universally accepted number that determines what is a narrow
or wide span of control, so this really depends on the context of the organisation
and the industry in which it operates.
- Advantages:
- Communication and Control: A narrow span of control allows for tighter
control and better communication as managers can closely monitor a
smaller group of subordinates.
- Independence: A wide span of control provides greater independence for
workers, as individual line managers cannot closely monitor each
subordinate. This can lead to more autonomy but requires strong
leadership.
- Disadvantages:
- Communication Challenges: A narrow span of control can present challenges
in communication and control, requiring effective delegation to manage
tasks.
- Cost Reduction vs. Leadership: While a wide span of control reduces costs by
having fewer management levels, it demands strong leadership to ensure
effective communication and control.
3) Layers of Hierarchy:
- Definition: Refers to the various levels or tiers within an organisational structure,
indicating the chain of command from top management to lower-level employees.
- It is represented in an organisational chart.
- Each horizontal level in the hierarchy shows the level of seniority in the organisation.
In the example below, there are five levels in the organisational hierarchy.
 - The hierarchical structures in an organisation show where workers fit within the
firm, showing their level of seniority. The organisational hierarchy also indicates
lines of communication, decision-making authority, accountabilities and
responsibilities.
- A tall structure (or vertical structure) has a large number of levels of hierarchy, so
the span of control is likely to be narrow. This means that there are many people
between the person at the top of the organisation (the CEO or Managing Director)
and those at the bottom of the hierarchical structure. Hence, decision-making tends
to be centralised and relatively quick. Tall structures can benefit from the
advantages of delegation (see above) but can be costly due to the large number of
managerial structures in the organisation.
- By contrast, a wider span of control means the organisation has a flat structure (or
horizontal structure). This means there are only a few levels or layers in the
organisational hierarchy. Decision-making is therefore decentralised and therefore
takes a relatively longer time. Flatter structures tend to benefit from improved and
speedier communications as there are fewer layers in the hierarchy. However, they
do not create many promotional opportunities for employees and can overburden
those in managerial positions.
- Advantages:
- Clear Chain of Command: Layers of Hierarchy provide a clear chain of
command, delineating the reporting relationships within the organisation.
- Disadvantages:
- Communication Delays: Multiple layers can lead to communication delays as
information may take longer to pass through the hierarchy.
4) Chain of Command:
- Definition: Refers to the formal lines of authority in an organisation.
- It can be seen via an organisational chart, which shows the formal path through
which commands and decisions are communicated from senior managers to
subordinates and operatives lower down in the organisational hierarchy.
- The chain of command is typically represented by vertical lines of authority, from
top to bottom. This shows that commands (instructions or directions) and decisions
are passed down the organisational hierarchy. It also reveals how communications
flow throughout the organisation.
- In the example below, the marketing team would receive communications
(commands and decisions) from the director of marketing. If the chief executive
officer (CEO)* wanted to communicate with the finance staff about a particular
issue, the message would pass through the chain of command, via the finance
director to the marketing manager, and finally to the finance staff.
 - Larger businesses and those with tall (vertical) hierarchical structures tend to have
longer chains of command, and vice versa. However, long chains of command can
create challenges for operational efficiency and miscommunications. In any case,
having clear and formal chains of command helps to improve communications
within an organisation, ensuring that directions and decisions are more likely to be
understood and acted on by subordinates.
- Businesses with flatter structures (fewer levels in the organisational hierarchy) have
shorter chains of command. However, it is not always practical or beneficial for
businesses to reduce the number of layers in their organisational structure.
- Advantages:
- Clear Authority Structure: Chain of Command establishes a clear authority
structure, reducing confusion about who is in charge and responsible for
decision-making.
- Disadvantages:
- Communication Issues: The rigid chain of command may lead to
communication issues, slowing down the decision-making process.
5) Bureaucracy:
- Definition: Refers to a formal organisational structure characterised by a set of rules,
procedures, and a hierarchical authority. Decision-making follows a systematic and
standardised process.
- A bureaucratic organisation is one that has a lot of formal rules, regulations and
procedures. There is a lack of flexibility as the organisation is set in the way it does
things.
- Typically, bureaucratic organisations involve a lot of paperwork to get tasks
approved and accomplished. Auditing is also commonplace in order to show that
rules, policies and procedures have been correctly followed. It is associated with
clear hierarchical structures with employees fulfilling specific roles and being held
accountable for their areas of responsibility. Hence, bureaucracy helps managers to
ensure they have control of their business and its operations.
- Bureaucracy is associated with organisations that are large and well-established, i.e.
ones which have been in operation for many years. They are also more likely to have
tall hierarchical structures, with many layers of management. Hence, authority and
decision-making tend to be centralised.
- However, there are disadvantages. Bureaucratic organisations are inflexible, so are
slow in responding to changes in the external business environment. Also, as people
have to adhere to fixed rules, regulations and policies, creativity and innovation are
essentially discouraged. Nevertheless, the main limitation or criticism is that
 bureaucracy (with all its detailed and complex rules and procedures) slows down
decision making and causes operational inefficiencies.
- Advantages:
- Consistency: Bureaucracy ensures consistency and fairness in decision-
making through standardised procedures.
- Disadvantages:
- Rigidity: Bureaucracy can be rigid, hindering adaptability and responsiveness
to change.
6) Centralisation:
- Definition: Refers to the situation in organisations where decision-making is
predominantly made by a small group of senior managers at the top of the
organisational hierarchy.
- For example, in a tall organisational structure, with many levels in the organisational
hierarchy, decision-making tends to be centralised.

- Centralization is typically associated with organisations that have narrow spans of

control. Leadership and management are likely to be autocratic or paternalistic. For
example, the emergency services (ambulance, fire, and police services) use a
centralised organisational structure and tight chains of command to ensure that
their services safeguard the general public.
- Centralised decision-making ensures decision-making is swift and that the group of
senior managers can maintain better command and control. In particular,
centralization should ensure that everyone in the organisation pursues the business
objectives set by senior executives and directors.
- However, as delegation rarely happens in centralised organisations, morale and
productivity may be lower than otherwise. In addition, such structures are very rigid
(inflexible), which can be demotivating for employees, who cannot express their
opinions or suggestions. It also means that centralization is unsuitable for industries
that rely on creativity and autonomous decision-making, e.g., the high-tech industry.
- Whether an organisation is centralised or decentralised (see below) partly depends
on the dominant leadership style and the organisational culture. The decision to
adopt a centralised organisation may reflect the preferred style of leadership of the
business as senior executives and directors wish to retain authority and control of all
business activities and operations. This can be beneficial in numerous circumstance,
such as:
 - Situations when rapid decision making is required, such as during a major
crisis, threaten the survival of the business.
- In organisations where low-skilled workers form the vast majority of the
workforce, employees require direction and supervision to meet
organisational objectives.
- When centralization can lead to cost savings, such as fewer managerial
positions throughout the organisation or when buying decisions are made
centrally (creating opportunities to benefit from purchasing economies of
scale).
- Advantages:
- Unified Decision-Making: Centralisation ensures unified decision-making,
avoiding conflicts and inconsistencies.
- Disadvantages:
- Limited Flexibility: Centralisation may limit the organisation's flexibility and
responsiveness to local needs or market changes.
7) Decentralisation:
- Definition: Refers to the situation in organisations where decision-making authority
is delegated throughout, rather from a central authoritative group. It is, essentially,
the opposite of centralization.
- In a decentralised organisation, decision-making authority is delegated to middle
and junior level managers, although (as with all organisations) strategic decision-
making is made by the group of senior managers.

- A decentralised organisation tends to have a flatter hierarchical structure, with

fewer levels in the organisational hierarchy. Managers tend to have wider spans of
control, meaning that subordinates have greater autonomy as decision-making is
delegated. Unlike centralised structures which tend to have a ‘top-down’ approach
(autocratic or paternalistic management and leadership styles), a decentralised
organisation is usually more democratic.
- Decentralisation can help to improve morale and productivity as workers feel valued
and empowered. Decision-making is more flexible, and can usually be made a lot
quicker. It also reduces the workload on senior executives and directors, freeing up
their time to focus on strategic (rather than operational or tactical) matters.
- However, decentralisation means it is more difficult for senior managers to know
about all of the decisions that are made, especially in large organisations with
multiple locations. This makes it more challenging for them to maintain overall
control of the organisation and to ensure employees maintain clear focus on
business objectives.
 - Advantages:
- Local Autonomy: Decentralisation allows for local units to have greater
autonomy, making decisions that are better suited to their specific
circumstances and needs.
- Quicker Decision-Making: With decision-making authority dispersed, local
units can respond more quickly to local issues without waiting for approval
from higher levels of management.
- Employee Empowerment: Decentralisation empowers employees at various
levels, as they are entrusted with decision-making responsibilities, leading to
increased job satisfaction.
- Flexibility: Organisations can adapt more easily to changes in the external
environment due to the flexibility provided by decentralisation.
- Disadvantages:
- Lack of Uniformity: Decentralisation may lead to inconsistency in decision-
making, as different units may make different choices based on their local
priorities.
- Coordination Challenges: Coordinating activities across decentralised units
can be challenging, potentially resulting in duplication of efforts or conflicts.
- Loss of Control: The central management may feel a loss of control over the
organisation's operations, as decisions are made at various levels.
- Resource Allocation Issues: Decentralisation can result in uneven resource
allocation, with some units receiving more resources than others, impacting
overall efficiency.
- Training and Development Needs: Local units may require additional training
and development to handle increased decision-making responsibilities,
incurring additional costs for the organisation.
8) Delayering:
- Definition: Occurs when an organisation removes one or more layers in its
hierarchical structure. Meaning it reduces the number of layers of management to
make the organisation flatter.
- The intention is to: cut costs and to remove or reduce bureaucratic (administrative)
inefficiencies in the organisation. Delayering removes levels in the organisational
hierarchy so can result in substantial reductions in wage costs for the business.
Delayering also widens spans of control, and can help to improve communications in
the workplace as there are shorter chains of command. For many firms, delayering
has been attractive due to the growth in flexible working practices, which has meant
less of a need to have traditional, hierarchical organisational structures.
- However, delayering adds to the workload of the existing workforce, especially
those who have responsibility for a larger team (due to the wider span of control
associated with delayering). This can cause anxiety, stress, resentment and conflict,
so must be handled carefully by the management team. The management team also
need to be sensitive to those who lose out from delayering as their security needs
may be threatened, causing demotivation and lower labour productivity. In addition,
delegation can cause a loss of institutional knowledge and internal expertise as
 employees in former managerial positions no longer contribute to the decision
making process in the same ways as before.
- Advantages:
- Increased Efficiency: De-Layering increases organisational efficiency by
eliminating unnecessary levels of hierarchy.
- Disadvantages:
- Employee Resistance: Employees may resist delayering due to concerns
about job security and increased workload.
9) Matrix-Structure:
- Definition: Is an organisational design that combines functional and divisional
structures, allowing employees to report to multiple managers.
- Organisational structures are not static due to the dynamic nature of the global
business environment and changes in the external environment. In reality,
organisational structures are often more flexible and adaptable to change. A matrix
structure is a flexible organisational structure based on the specific needs of a
particular business to meet the changing needs of the organisation.
- A matrix structure involves organising or assigning individuals to multiple roles, so
they are placed in multiple reporting lines. This type of organisational structure is
typically used to promote cross-functional collaboration. Individuals may report to
multiple managers, and be part of multiple teams. For example, a teacher of IB DP
Business Management might also be on the TOK team, a pastoral leader, or even on
the Senior Leadership Team. This type of structure allows for more efficient
decision-making and faster response times due to improved communications.
However, it can also lead to confusion and conflict due to the complex reporting
lines and people holding multiple roles.
- Matrix structures are a type of task-oriented organisational structure designed to
allow firms to be responsive to changes in market demand for goods and services as
well as changing needs of a business. As a flexible organisational structure, it can be
used by any type of business in many different situations. Using experts from across
the organisation in a matrix structure can help to generate new and creative ideas,
as well as improve productivity. The flexibility enables organisations to overcome
limitations associated with traditional or hierarchical organisational structures.
- However, matrix structures can isolate team members who work outside of their
departments and ‘comfort zone’. Subcultures are formed which might unsettle some
employees. There might also be conflicting interests, as employees report to two or
more managers (their designated line manager and project managers in the matrix
structure), so have to deal with uncertainties about prioritising different tasks.
Conflict can result between managers and employees if there are divided loyalties,
resulting in lower morale and productivity. Furthermore, matrix structures are
complex so can be expensive to execute.
- Similarly, some employees may feel demoralised due to the increased workload and
pressures, especially if they are involved in numerous assignments happening at the
same time. Finally, additional resources and finance are required to fund the
different teams in a matrix structure.
- Advantages:
 - Enhanced Cross-Functional Collaboration: Matrix Structure encourages
collaboration across different functional areas.
- Disadvantages:
- Complexity: Matrix Structure can be complex, leading to role confusion and
potential conflicts.

Complete the three exam questions below:

a) Define the term ‘Span of control’ (2 Marks)

Span of control refers to the number of employees a leader is responsible for (1) within a small
busines’s organisational structure (1).

b) Explain the difference between delegation and accountability (4 Marks)

Delegation is when a manager entrusts a subordinate to complete a task on their behalf, (1) in
contrast accountability is the responsibility of the worker to complete a task. (1) A manager can
delegate a task to their subordinate, without the accountability for the task falling with that
employee. The accountability stays with the manager, despite the task being delegated. (2)

c) Explain how delayering is likely to impact the span of control and delegation in an
organisation (4 Marks)
Delayering is when a business removes one or more layers from within its organisational structure.
(1) Delayering will cause the span of control of the managers to increase (1), as the organisational
structure is flatter. (1) Managers are likely to have more responsibility, and therefore are more likely
to delegate to their subordinates. (1)

Types of Organisation Charts:

- An organisational chart is a visual representation of a company's structure that illustrates
the relationships and relative ranks of its parts and positions/jobs.
- It typically depicts the hierarchy of authority, showing who reports to whom and how the
information flows within the organisation.

There are three categories of organisation charts:

1) Flat (or Horizontal) Organisational Structure:

- A flat organisation (also known as a horizontal structure) has only a few layers of
management.
- Hence, there is a wide span of control. This means line managers have a lot of
decision-making authority.
 - Such an organisation also has a short chain of command, which can improve
communication in the firm.
- A flat structure is typically found in start-up firms, small businesses and in
organisations that value creativity and flexible working practices.
- However, a large and wide span of control in flat organisations can make it more
difficult to have control of workers because managers with their wide span of
control have to supervise a large number of employees.
- The organisational culture in horizontal structures is typically open and somewhat
informal. As an organisation grows, the structure becomes more formally structured
and tall (or vertical) over time.
2) Tall (or Vertical) Organisational Structure::

- A tall organisation (also known as a vertical structure) has many layers in its
organisational hierarchy.
- At the top of the hierarchy is the chief executive officer (CEO) or managing director
(MD).
- Senior managers at the top of the hierarchy have more authority and responsibility
than those below them.
- At the bottom of the hierarchical organisational structure are the low-ranked
employees with minimal experience and responsibilities.
- Examples of organisations with hierarchical structures include the emergency
services, central government and the military.
- Hierarchical organisations are highly formal, inflexible, and bureaucratic (rule-
bound) in structure, with clear lines of seniority and long chains of command.
- Managers may have a narrow span of control due to the large number of layers in
the organisational structure.
- The organisational structure is well established and rigid, so changes do not happen
frequently or easily.
- Hierarchical structures help senior managers and decision-makers to have better
control of command of the business.
- They are suitable if jobs or tasks are routine and not too challenging, especially as
there are clear lines of accountability.
- However, vertical structures are bureaucratic (rule-bound), so there may be a rather
impersonal nature to the organisation.
- Vertical structures can be motivational for employees as there are opportunities for
promotion. This means they can move up the ‘career ladder’ (or vertical hierarchical
structure).
- However, drawbacks of tall organisations include the long chains of command (so
decision-making may be slow) and potential for miscommunications (due to the
number of layers in the hierarchy).
 - Professor John Kotter, Harvard Business School (2011), argues that tall organisations
are not useful for firms that operate in rapidly changing and dynamic environments
as they are slow to react to new opportunities and constraints transformative
change.
3) Organisation by Product, Function or Region:
a) Organisation by product:
- Organisation by product means structuring a workforce according to the
goods or services sold.
- Each department focuses on a different product within the organisation’s
overall product portfolio.
- For example, a major publisher might organise its workers according to the
types of books it publishes. For instance, Hodder Education, a large
multinational publisher based in London, UK, organises staff into different
product groups, including international education (such as IGCSE and IB
publications) as well as resources for UK qualifications (such as A Levels,
BTEC and GCSE courses).
- It is suitable for large organisations with a broad product portfolio. Large
carmakers, such as Ford and Volkswagen, use organisation by product based
on their various products, e.g. commercial vans, family vehicles, SUVs (sport
utility vehicle) and sports cars. Each product group or team has its own
internal organisational structure, specifically related to the product line.
- An example of organisation by product for a large car manufacturer:

- Organisation by product enables specialisation as workers focus on a specific

market segment related to the product.
- This helps to ensure the business meets the needs of its customers more
effectively, such as improved product knowledge and marketing activities.
- It can also encourage healthy internal competition between departments to
produce ever-more appealing products.
- A drawback of organisation by product is the duplication of work done by
each department, such as different marketing and sales personnel in the
various departments.
- Organisation by product is associated with decentralised decision-making, so
it can be difficult for the senior executives to maintain overall control of the
various separate divisions of the business.
b) Organisation by Function:

Organisation by function means structuring a workforce according to

business functions, such as specialised roles or tasks.
 - Typically, this will involve staff working together but from different
departments, such as marketing, human resources, production (operations),
and finance.
- Each department has a manager or director who is in charge of the assigned
functional area of the business. Departmental staff report to the respective
manager or director, who has overall responsibility for the functional area (a
department or division of the overall business).
- It is an ideal organisational structure for organisations that focus on one
product or a small number of related goods or services.
- The main advantage of organisation by function is that roles and tasks are
carried out by experts and specialists. Hence, productivity and output are
both higher.
- However, departments tend to work in isolation by focusing only on their
area of responsibility.

c) Organisation by Region:

- Organisation by region means structuring a workforce according to different

geographical areas based on where the firm’s operations are.
- It is suitable for large businesses with operations in different geographical
locations, such as global multinational companies.
- This form of organisation enables businesses to focus better on the specific
needs and wants of their customers in markets in different geographical
regions of the country or the world.
- A real-world example is the International Baccalaureate Organization (IBO),
which operates on a regional basis, with its founding office in Geneva,
Switzerland and three regional offices: the Americas (IBA), Asia-Pacific
(IBAP), and Africa, Europe and the Middle East (IBAEM).
- It is likely to be used with other organisational structures, such as by
function or product, but across multiple locations. The organisation’s
regional offices operates individually, within the policies and values of the
business as a whole. Each location is overseen and managed by a regional
director or executive.
- This type of organisation is suitable for large businesses that operate across
the globe.
- Whilst most multinational companies have their headquarters in a single
location, having regional offices helps the organisation to adapt to regional
differences in demand and exploit local knowledge, despite the benefits of
globalisation.
- However, the main drawback of organisation by region is the difficulty in
controlling a decentralised organisation that operates across numerous
regions of the country or the world.

The choice of organisational structure (such as centralised, decentralised, hierarchical or

bureaucratic) depends on several factors, such as:
 1) The corporate culture: Organisations such as Google rely on creativity and autonomy, so a
flatter structure might be more suitable.
2) The size of the workforce: The larger the number of workers in an organisation, the more
formal it needs to be in order to maintain order and control. Businesses with more
employees, such as Walmart, usually require taller structures as more levels of managers are
needed.
3) The skills, qualifications, experiences, and talents of the workforce: Organisations such as
fast-food restaurants will have more formal structures and protocols, whereas organisations
that rely on innovations, such as Apple or Tesla, will have more adaptive and flexible
structures.
4) The nature of the decisions (whether they are strategic or routine decisions): Organisations
making strategic decisions may prefer a more adaptive and flexible structure to respond to
dynamic environments. In contrast, those focused on routine decisions may opt for more
formal structures and protocols to ensure consistency and efficiency in daily operations.

Exam Practice Question: Gene Simmons Manufacturer (GSM)

Gene Simmons Manufacturer (GSM) is a small producer of plastic toys. In recent years, the business
has grown quite significantly so there are now nearly 70 workers. GSM expects the business to keep
growing, with almost 100 workers by the end of next year. While demand for plastic toys has fallen
in many European markets, GSM is happy that increased disposable incomes in Asia has meant
overall sales to toy shops has increased.

However, GSM is concerned that labour productivity in its factory has declined, despite the
increased overtime payments made to workers. This is frustrating as GSM has spent a lot of money
automating production in its factory. Labour turnover has also increased, so GSM has not been able
to benefit from economies of scale.

Gene Simons is the chief executive officer (CEO) of the company and has an assistant executive who
reports directly to him. There are four directors: Marketing, Human Resources, Production and
Accounting. The Marketing Director has three workers who report to her. The Human Resources has
2 people who report to her: the Recruitment and Training Manager, and Remunerations Manager
(who is responsible for two other employees). The Production Director oversees the Factory
Manager, who controls 50 workers. The Accounts Director is in charge of two staff members.

(a) Define the term span of control. [2 marks]

The span of control is the number of subordinates that a manager or supervisor directly oversees in
the organisation.

(b) State Gene Simon’s direct span of control. [1 mark]

1 (the assistant executive)

(c) On a separate piece of paper, construct an organisation chart for GSM. [4 marks]
 Gene Simons

Assistant

Marketing Human Producti Accoun

Resources on ting

3 2
Factory
Manage
Remunera
Recruitment tions
+ Training 50

(d) Using information in the case study and the organisation chart, examine the causes of and
solutions to GSM’s labour productivity problem. [10 marks]
The structure of this 10 mark question should be:
1) Introduction:
- Define key terms.
- Identify the best solution.
2) Causes:
- Cause 1: Explanation (BLT) and Link to GSM.
- Cause 2: Explanation (BLT) and link to GSM.
3) Solutions:
- Solution 1: Explanation (BLT) and link to GSM.
- Solution 2: Explanation (BLT) and link to GSM.
4) Conclusion:
- State which solution is best fitted to GSM and justify this.

Labour productivity is a measure of a workforce’s efficiency. In GSM’s case, it has become a concern
as it has declined significantly despite advances in automation and increased overtime payments.
The best solution is changing the payment method to piece rate rather than hour rate.

The first cause is the span of control being too wide, since it can make it more difficult to have
control of workers because managers have to supervise a large number of employees. In the case of
GSM, the factory manager has a span of control of 50 workers, making it a challenge for him/her to
provide individual attention, guidance, and supervision. This lack of personalised management in the
toy manufacturer can lead to decreased employee motivation, causing labour productivity levels to
decrease significantly.
The second cause is using an hour rate payment rather than piece rate pay in a manufacturing firm.
In the context of GSM, since workers are now being paid for hours worked, may contribute to the
declining productivity, as when manufacturing plastic toys involves repetitive tasks therefore if
workers are not directly motivated to increase their output or efficiency, as no matter how many
toys they produce, they will get paid the same amount. This payment system can lead to lower sales
revenue as total output and good quality has decreased.
The solution for a wide span of control is the addition of another layer, meaning another manager
will be added to oversee the smaller teams within the manufacturing process. In the case of GSM,
this additional layer of management, such as supervisors, the 50 workers will be more effectively
managed in the factory. This solution will improve their labour productivity as the increased
managers can provide individual attention, guidance, and supervision to their smaller groups of
employees. This personalised management approach will improve the worker’s motivation therefore
increasing productivity, leading to higher sales revenue.

The solution for the declining productivity associated with the use of an hour rate payment system,
involves transitioning to a piece rate pay system. In the case of GSM, since manufacturing toys can
be a repetitive task, and quantifiable in terms of pieces produced, a piece rate pay system aligns
more closely with the nature of the work. Unlike an hourly rate, where workers are compensated
based on time spent, a piece rate pays employees for each unit they produce. This change will lead
to higher average worker output and productivity.

In conclusion, the best solution for GSM would be the transitioning to a piece rate pay system as it is
a direct incentive for workers to increase their output and efficiency. This shift in payment structure
ensures that employees are rewarded for their individual contributions, fostering a sense of
ownership and motivation. Workers will be encouraged to maximise their production, leading to an
overall increase in the quantity and quality of plastic toys manufactured.

Changes to Organisational Structure:

Watch the video and complete the questions below: https://youtu.be/MxDVucUZCnc?

si=Rm4ciuwhfowwFc1F

1) Prior to COVID-19, 1 in 50 Americans worked full time from home. What is the rate now?
1:3

2) The concept of a modern working office emerged during which revolution?

Industrial revolution, since people moved to cities to work in factories.

3) Did the rise of the Internet change the basic function of the workplace office?
No, office design did not really change in the first 20 years.

4) How much do companies spend on office space for one employee a year, on average?
$10,000 (offices are expensive, and often inefficient). Global office real estate cost per employee.

5) Which location has the most expensive prices for office spaces?
Hong Kong, followed by Beijing and London.

6) By how much could the COVID-19 pandemic reduce the number of staff in London offices?
Up to ⅔
 7) Which social media company has authorised a permanent move to working from home to
its employees?
Twitter.

8) What is meant by “knowledge jobs”?

High skilled, highly paid roles that have a disproportionate impact on the economy, supporting entire
ecosystems of other jobs around them (up to 5 jobs are created per knowledge job).

9) What percentage of people in Switzerland have the ability to work from home?
45%

10) What are some of the challenges and opportunities of working from home to female
workers?
Mothers are 50% more than fathers whilst working at home. Also, it is challenging to build
professional work relationships if working from home.
Prestigious career opportunities so women don’t have to drop everything.

- Challenge: Construct a diagram of an organisational structure before and after the Covid-
19 pandemic to demonstrate the impact the changes have had.
In a hotel:

Factor: Scenario: How this can affect a

business’s organisational
structure:

Political The government has More work in the HR

introduced stricter recruitment department results in the HR
 laws, which require all
advertised roles to be fully
documented and candidates to
be recruited based on a fair,
points based hiring system.
Economic Since BREXIT and the Covid-19
Pandemic, several European
countries have seen a decrease
in their GDP.
Social The public are more keen to
have flexible working hours
and locations now, in
comparison to the working
patterns in the early 2000s.
Technological Industrialisation and
technological advancements
have led to workplaces using
more automation in their
manufacturing process
Legal Governments have introduced
data protection and health &
safety laws that need to be
adhered to in order to prevent
huge fines.
department expanding. Hire a
recruitment manager and a
team of staff to support them
in fulfilling the new law. Points-
based system and recruit.
Economic downturns often
lead to cost-cutting measures.
In response, businesses might
streamline their organisational
structure, possibly reducing
layers of management to
increase efficiency. There may
be a shift towards a more agile
and adaptable structure to
navigate economic
uncertainties.
Organisations may need to
adopt more flexible structures
to accommodate changing
work patterns. This could
involve a move towards
remote work arrangements,
the use of technology to
facilitate collaboration, and a
shift towards outcome-based
performance metrics.
Traditional hierarchical
structures might need to be
more fluid to support diverse
working arrangements.
Workers in the manufacturing
department can be laid off, as
technology makes them
redundant. Therefore, the HR
department can be made
smaller, such as eliminating
managers. This may also
indicate a smaller span of
control.
Compliance with legal
requirements often requires
the establishment of dedicated
roles or departments.
Businesses may need to create
specific teams to ensure
adherence to data protection
and health & safety laws,
 possibly leading to a more
complex organisational
structure to manage these
compliance-related functions.

Environmental Environmental sustainability, More people are hired in the

such as creating a CBM, have
become more common in large
businesses that want to
‘greenwash’ and increase
sustain revenue and profit
margins.
marketing department, so
more layers are added.
Additional roles will need to be
filled, so either adding more
layers (taller structure) or
increasing the span of control
(wide)

- Organisational structures are not static due to the dynamic nature of the global business
environment.
- Hence, in reality, organisational structures are more flexible and adaptable to change.
- Two examples of flexible organisational structures are:
1) Project-based Organisation
2) The Shamrock Organisation
- Both internal and external factors may cause changes in a firm’s organisational structure.
- For example, inorganic growth such as mergers and acquisitions are likely to cause a
restructuring of the organisation.
- Other examples include decisions to outsource, offshore, reshore, or insource (Unit 5.4)

1) Project-based Organisation:
- Is a flexible organisational structure based on the specific needs of a particular
project or business venture.
- It is suitable for getting experts together for short-term or temporary projects, such
as construction projects or teams of suitably experienced employees to work on a
new business venture or product.
- The teams are then broken up after the completion of the project.
- It is suitable for highly critical projects, especially when time is crucial, such as
marketing campaigns for an upcoming blockbuster movie.

- Each project is run by a project manager (PM), who is in charge of the team involved
in the particular project, such as construction projects or innovative organisations
working on a new project or product.
- Unlike a departmental manager who has responsibility over a specific functional
area of the business, a project manager is someone who holds responsibility for an
entire project.
- Hence, decision making is centralised in project-based organisation, although the
dedicated team works on the designated project to achieve a common goal.

- The team members may come from any part of the overall organisation, such as
accountants from the finance department, operations managers, quality controllers,
and marketing experts.
- These team members are often self-selected volunteers who express an interest in
certain assignments, although it is quite common for workers to be working
between several engagements in addition to their functional work (in designated
departments or functional areas).

- Once the project is completed, the team members break-up and reassemble to
begin another project or revert back to their own departments or functional areas of
the organisation.
- It is not uncommon for the project manager to create an appraisal of each member
of the project as part of the firm's human resource management.
- Typically, several teams operate at the same time as the organisation has numerous
projects happening at the same time.

- In the example below, there are three concurrent projects in the organisation, led by
three different project managers.
- Each project manager is in charge of eight different team members, who have been
temporarily redeployed from other departments in the organisation.
- The project-based organisational structure enables senior managers to put together
teams of individuals with the specialist expertise to focus on each assignment or task
in hand, such as opening a new production facility overseas, acquiring a competitor
in the market, and liquidating an unprofitable division of the organisation.

- This type of organisational structure is designed to allow firms to be responsive to

changes in market demand for goods and services.
- As a temporary and flexible organisational structure, it can be used by any type of
business.
- Using experts from across the organisation in a matrix structure can help to
generate new and creative ideas, as well as improve productivity.
- The dynamics of the team mean that an effective person must be chosen as the
project manager.

- As with matrix structures, project-based structures can isolate group members who
work outside of their normal functional areas.
- Cultural differences may exist between the various members of the project who
have been put together from other sections of the organisation.
- This can be unsettling for some members of the project team, especially if they have
to handle the uncertainties and potential conflicts associated with prioritising
different tasks and deadlines for different project managers.
 - Similarly, some members of the project team may feel demotivated due to the
increased workload and pressures linked to project-based structure, especially if
they are involved in numerous projects occurring at the same time.

What's the difference between project-based organisation and matrix organisation?

Although both may be formed temporarily to meet the needs of an organisation, several key
differences are outlined below:
- A project manager (PM) takes full responsibility for project-based organisation under a
formal structure, given authority is centralised. There is no formal ranking in a matrix
structure, although the group might self-elect someone to chair (oversee) the discussions
and progress.
- All team members in project-based organisations are held accountable for their actions and
outcomes. By contrast, members of a matrix structure can be volunteers from different
areas of the organisation.
- In a matrix structure, employees report to multiple line managers, whereas teams in a
project-based organisation may at any point in time report to a single project manager
(depending on the nature and complexity of the project).
- Project-based organisation works better for highly complex and strategic projects or
business ventures, whereas matrix structures are suitable for less complex assignments. In
fact, team members could be working on more than one assignment at the same time.

2) The Shamrock organisation:

- Professor Charles Handy’s Shamrock organisation (1991) is another type of flexible

organisational structure
- Handy argued that organisations must adapt to changes in the business
environment in order to survive and thrive.
- Being Irish, Handy chose to use a shamrock (three-leafed clover) to illustrate this.
- The Shamrock organisation consists of three components:
1) The professional core (or core workers)
2) The contingent workforce (or peripheral workers)
3) Outsourced vendors (or outsourced workers)
1) The professional core:
- The professional core (also known as core workers) consists of full-time experts who
are vital for the organisation’s operations and survival, such as professional
technicians, senior managers, and other professionals.
- They are essential for the business to meet their organisational objectives, mission
and vision.
- For example, schools need to rely on their full-time teachers to deliver the
curriculum and to support the students of the school.
- Hence, the professional core is considered as the most significant group of workers
in an organisation.
- The pay and remuneration of these workers in private sector for-profit organisations
is closely related to the success of the business.
- Charles Handy predicted that improvements in information and communications
technology (ICT) would lead to downsizing and delayering in organisations, as they
become reliant on fewer core workers.

2) The contingent workforce:

- The contingent workforce (also known as peripheral workers) consists of temporary
staff hired by the organisation.
- It is made up of portfolio workers, part-time staff, seasonal workers, and those on
flexitime or flexible hours.
- Contingent workers perform routine jobs.
- For example, schools might hire supply/cover/substitute teachers in the event of
full-time teachers being ill or absent (perhaps to attend a workshop or off-the-job
training course).
- Supermarkets, fast-food restaurants, and many other retailers hire a significant
proportion of part-time workers. However, this often causes a lack of job security
and lower staff morale as there is less scope for career development within the
organisation.

3) Outsourced vendors:
- Outsourced vendors (also referred to as outsourced workers or the contractual
fringe) are individuals or other organisations hired on a contract basis to carry out a
specific but non-core role, such as security, catering, accounting, or marketing.
- They mainly consist of self-employed professionals and contractors who are hired on
flexible and project-based terms.
- As outsourced workers are not managed directly by the business, they have far
greater autonomy and are more flexible with their work.
- Their pay is negotiated and often based on performance rather than time
commitments.
- However, hiring outsourced vendors can be costly, especially as they are experts in
their industry.
- For the workers, the nature of their roles often lacks any form of job security.

- Handy’s Shamrock organisation suggests that organisations can be competitive by reducing

unnecessary costs and be more responsive to market changes.
- It allows firms to have greater flexibility and ability to change the number of employees as
and when the organisation’s needs change.
 - For example, by using a contractual fringe and peripheral workers, the organisation can
avoid the stresses and costs of staff redundancies when there are adverse changes in the
market.
- Retaining only a multi-skilled group of core workers enables the workforce to concentrate on
their core activities, i.e. what the business does best.
- Non-core functions can/should be outsourced to specialists and to gain cost advantages. This
also helps to cut costs further as only full-time workers are entitled to fringe benefits (perks).
- However, flexible structures like the Shamrock organisation can create uncertainties and
therefore anxieties for workers.
- Also, flexible contracts can be a legal minefield in some countries or regions of the world
where labour laws are particularly stringent.

Overall key terms:

- The contingent workforce (or peripheral workers): in Charles Handy’s Shamrock
organisation consists of temporary staff hired by the organisation.
- Outsourced vendors (also referred to as outsourced workers or the contractual fringe): in
Charles Handy’s Shamrock organisation are individuals or other organisations hired on a
contract basis to carry out a specific but non-core role.
- The professional core (core workers): in Charles Handy’s Shamrock organisation consists of
full-time experts who are vital for the organisation’s operations and survival.
- Project-based organisation: is a flexible organisational structure based on the specific needs
of a particular project or business venture.
- The Shamrock organisation: is Charles Handy’s model of a flexible organisational structure,
consisting of the professional core, the contingent workforce, and outsourced vendors or
workers.