Organisational Structures

What is Organisational Structure?

How an organisation divides its labour into distinct tasks and then
coordinates them
The structure provides a blueprint for the following within the
organisation;
•Lines of authority
•Controls
•Decision making

Often, organisational structure is discussed in terms of

organisational charts.
Importance of Organizational
Structure
• Enables employees to know what their
responsibilities are
• Coordinates job tasks so there is minimal
duplication
• Avoids overlapping of function
• Establishes formal lines of authority
• Allocates organizational resources
 ACTIVITY
• Write down the factors you think affect the way that employees
in businesses are organised (organisation structure.
Key elements of structural organising
process
The organising process include;

•Differentiation – The extent to which tasks in the org are

divided into subtasks and performed by individuals with
specialised skills

•Integration - The extent to which various parts of an

organisation cooperate, coordinate and interact with each
other
Structural dimensions that balance and help to
manage differentiation and integration;

• Formalisation

• Informalisation

• Centralisation

• Decentralisation
Formalisation
• A way to balance both differentiating (separating) and
integrating people and activities

• Formalisation are the defined structures and systems in

decision making, communication and control in an
organisation

• Common way of achieving formalisation:

• Officially designating the line of authority
• Unity of command
• Limit a supervisors span of control
 Span of Control
Factors that influence the span of control;
• Job complexity
• Job similarity
• Geographic proximity of supervised employees
• Abilities of employees
• Ability of management
• Technology

Consistent patterns of span of control can affect the

overall “shape” of the organization. The shape could be
either tall or flat .
Tall Organisation Structures
• Narrow spans of control throughout the entire organization
result in a tall organization structure

• A tall organization structure is a structure that had multiple

layers with high vertical differentiation
Flat Organisation Structures
• Wide span of control will lead to a more flat organisation
structure

• Given similar number of employees, a flat organisation will

have fewer layers in its hierarchy than a tall organisation
 ACTIVITY
Have a look at the BPA Organisational chart

•What is the span of control?

•Is it a tall or flat structure?

 ACTIVITY
Create an organization chart for this tool hire firm

•Darren is the manager of a branch of a well-known tool hire firm

•Anna is the assistant manager and she reports to Darren
•Anna delegates to the department managers - Jane, Tom and Omar
•Felicity, Matt and Ryan all report to Jane
•Rachel, Sally and Pete are accountable to Tom
•Omar is responsible for Jon, Mark, Sam and James
 DISCUSSION
1. Who has the largest span of control and how big is
it? ............................................
2. How many layers are in this
hierarchy? ............................................
3. Who does Tom delegate to? ............................................
4. Would you consider this to be a tall or flat
structure? ............................................
5. Why? .............................................................................
Informalisation
The other form of structural dimension that helps to manage
differentiation and integration is Informalisation.

Informalisation:
•Informal structures for decision making, communication and
control are not represented in org charts but are common in the
day-to-day operations

•Degree of formalisation and informalisation can vary from company

to company and across countries i.e US, Japan (nemawashi) and
China (Guanxi)
Centralisation &
Decentralisation
The other form of structural dimension that helps to manage
differentiation and integration is centralisation & decentralisation.

Centralisation and decentralisation refer to the level at which

decisions are made, at the top of the organisation or at lower
levels.

•Centralized organisations – tend to restrict decision making to

fewer individuals, usually at the top of the organisation

•Decentralised organisations – tend to push decision making

authority down to the lowest possible level
 Discussion
• What do you think are the advantages and
disadvantages of centralisation &
decentralisation
Common Organisational
Structures
There are a variety of organisational structures
that exist but six structures represent the most
common forms. These are:

1) Functional structure
2) Product structure
3) Division structure
4) Customer structure
5) Geographic/Regional structure
6) Matrix structure
Functional Structure
• Organises the firm around traditional functional areas i.e
Finance, marketing, HR,
• Most common type of structure
• Well suited to small/medium sized firms with limited product
diversification
Functional Structure
Advantages
•Facilitates specialisation of the organisation’s knowledge
•Reduces duplication of the organisation’s functional resources
•Facilitates coordination within the organisation’s functional
areas

Disadvantages
•Leads to a narrow view of the organisations overall goals
•It can result in the organisation responding slower to market
changes
•Can limit the attention paid to customers as functional groups
focus on their specific areas
 Product-based structure
• Organised around specific products or services
• Ideal for large organisations with a wide range of products or
services
• Enables diversification

Managing Director

Director Marketing Finance Personnel

R&D Director Director Director

General Manager General Manager General

Vaccines Anti-biotics Manager Sterile
Supplies

Prod Marketing Personnel

Manager Manager Manager
 Product-based structure
Advantages
•Individuals in different functional areas within product
group/services focus more on the specific products/ customers
•Performance of the organisation’s products (P&L) is easier to
evaluate
•Greater product responsiveness to market changes
•Reduces burden from the top executive (operation decision making)

Disadvantages
•Duplication of functional areas
•Conflicts can arise between organisation’s corporate objectives and
the objectives of the product group
•Conflicts can also arise between the different product groups and
creates greater difficulty coordinating across product groups
Divisional Structure
• Can be viewed as an extension of a product structure
• Organisation is divided up into divisions on the basis of products
and/or geography
• Used for highly diversified organisations with significant number
of specific products and product families
Divisionalised Structure
Advantages
•Organising various product families within a division can reduce
functional duplication
•Product families within a division serve common customers,
customer focus is often stronger
•Cross-product coordination within the division is easier

Disadvantages
•Can only apply to large, diversified companies
•Can inhibit cross-division coordination
•Can create coordination difficulties between division objectives
and corporate objectives
Customer Structure
• Organised around categories of customers
• Usually used when different categories of customers have
independent needs that differ from each other
Customer Structure
Advantages
•Facilitates in-depth understanding of specific customers
•Increases the organisation’s responsiveness to changes in
customer preferences and needs

Disadvantages
•Produces duplication of functional resources in each of the
customer units
•Makes it difficult to coordinate between customer units and
corporate objectives
•Can fail to leverage technology or other strengths of one unit
across other units
Geographical Structure
• Centred around appropriates geographical areas or regions
• Regional executives are generally responsible for all functional
activities and products in their regions

Managing
Director

Manager South Manager North Manager Central

Region Region Region

Marketing Personnel Accounts

Geographical Structure
Advantages
•Facilitates local responsiveness
•Develops in-depth knowledge of specific region/country
•Creates accountability by region

Disadvantages
•Often creates cross-regional coordination difficulties
•Separating production facilities can inhibit economies of scal
•Duplicates resources and functions across regions
Matrix Structure
• Consists of a combination of two structures
• As a consequence, there are dual reporting relationships
• The two overlapping structures used are often based on the two
dominant aspects of an organisations environment
Matrix Structure
Advantages
•Facilitates information flow throughout the organisation
•Enhances decision making
•Best suited to a changing and complicated business environment
•Can facilitate the flexible use of human resources

Disadvantages
•Makes performance evaluations more complex
•Can inhibit organisations ability to respond quickly to changing
conditions
•Can diffuse accountability
•Can lead to conflicts (differing perspectives)
Challenges of Organisational Structure
• Balancing people and tasks and integrating

• The “right” structure that achieves the “right” balance

between differentiation and integration is a function of the
demands in the environment and the organisation’s strategy
 ACTIVITY
Read the Webster’s Water scenario
•Identify the problems with the current organization structure
•Review the Specsavers case study to identify if any methods
used in that organization may be adopted
•Make any suggestions about the organization structure that
you think will improve the performance of the organisation
 ACTIVITY
• Read through the Specsavers case study.