LECTURE 5

T H E O R G A N I S AT I O N A L S T R U C T U R E O F A
BUSINESS
DIVISION OF LABOUR:

As businesses grow from sole trader to medium size to large different persons had to specialize in
different functional departments as follows:

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FUNCTIONAL AREAS IN THE
OPERATION OF BUSINESSES
• Departments in a business organization are structured according to certain functions. The
departments of various organizations will differ depending on the type of business.

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PRODUCTION

The production department is responsible for transforming raw materials into finished products.
They are also responsible for quality control to ensure that required standards are met.
• Input to output
• Quality control
• Purchase and storage of stock
• Organizing production schedules

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FINANCE/ACCOUNTS

The accounts department makes and receives all payments on behalf of the business and records
all financial transactions.
• Producing end of year financial statements – Annual reports, Balance sheets and Profit and
Loss.
• Advising Management
• Payments and receipts
• Managing cash flow

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MARKETING

This department creates awareness for the firm products and motivates consumers to buy. They
also carry out market research to identify customer’s needs.
• Market research and sales forecasting
• Advertising and sales promotion
• Distribution of products

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HUMAN RESOURCES/PERSONNEL
The human resource department recruits and selects staff for the business organization. They are also
responsible for staff training and welfare.

• Hiring and firing

• Promotion criteria
• Training
• Employee record keeping
• Interviews
• Wage negotiation
• Public Relations

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The Purchasing Department
This department is responsible for the purchasing of the firms raw material, stationery and goods for
re-sale.

Customer Service/ Customer Relations

Department
This Department bridges the gap between a business and its customers. It deals with customers’
queries, advising and assisting customers to place orders and handling customers’ complaints.

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Legal Department
This department is concerned with legal problems that might arise for the company. For example,
compensation for employees and customers, who have brought lawsuits against the company.

Research and Development (R&D)

This department is involved with research to explore ways of improving the company’s existing
products, developing new ones and identifying efficient processes to increase production. This
department works closely with the marketing department as products developed must satisfy
consumers’ needs.

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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.

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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

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

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ORGANIZATIONAL CHARTS

An organizational chart is a diagram of the organization of an enterprise. Its pyramid shape

illustrates the hierarchy system that exists in the organization. The most senior position in the
organization is placed by itself at the apex. The pyramid gets wider towards the bottom depicting
the greater number of workers at its base.

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Organizational Charts
Authority Responsibility
Flows flows
down upwards
General
Manager

Sales Accounts
Manager Manager

Supervisor 1 Supervisor 2 Supervisor 3 Supervisor 4

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Those who have the power to issue commands
have authority in an organization. In the
organization chart above the sales manager has the
authority in the Sales department. All persons
with the same level of authority are placed at the
same level on the chart. For example the sales
manager and the accounts manager have the same
level of authority in their various departments.
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RESPONSIBILITY

Responsibility is the capacity to accept duties and to carry out their tasks. For example, both sales
supervisors are responsible to the sales manager.
• The chart shows the following:
• each person’s position
• the number of levels of managers
• to whom each employee is responsible (reports) to
• the span of or (area) of control for senior staff members.

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TYPES OF ORGANIZATIONAL CHARTS

1. Line or Direct
2. Staff
3. Functional
4. Committee

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LINE OR DIRECT

The line organizational chart depicts a straight line of command. Authority is said to flow
downwards only in the line organization. The line organizational structure is found in schools or
in the military.

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Simple line Organizational Chart

Manager

Supervisor

Clerk

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 Complex line Organizational Chart

Manager

Supervisor Supervisor

Clerk Clerk Clerk Clerk

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Advantages
1. Simplicity- simple to understand and implement.
2. Responsibility is fixed- Every employee is clear about whom he is answerable to and who is
accountable for him.
3. Unified Control – Good control and direction.
4. Quick decisions made.
5. Flexibility- changes to circumstances

Disadvantages
1. Overloading of the executive as several duties are managed independently.
2. Lack of Specialisation – because different jobs are supervised.

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FUNCTIONAL ORGANIZATIONAL
CHART
The Functional organization chart is a diagram of an organization that is arranged by its
functions. For example, there is a manager in charge of marketing, and another in charge of
production. This type of organization has an advantage over the Line as experts are appointed to
run each department. All managers report to the General Manager.

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 Functional organizational chart

General
Manager

Production Marketing Finance & Human

Accounts Resource
Manager Manager Manager Manager

Supervisor Supervisor Supervisor Supervisor

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The Functional organizational chart combines the straight line of command of the line organization
with horizontal dotted diagonal lines representing functional authority. The dotted diagonal lines in
the figure above show the authority that the Human Resource Manager has over other departments.
The Human Resource Manager is allowed authority in these department over human resource
matters only e.g. to hire and fire workers. He therefore cannot give directives on production or
marketing matters.

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Advantages
1. Specialisation – allows for specialisation by function thereby developing their skills.
2. Efficiency and Productivity improved.

Disadvantages
1. Lack of Teamwork- difficulty working with other units.
2. Difficult Management Control- Difficult to manage a growing organisation.

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 Line and Staff Organizational Chart

General
Manager Secretary

Production Marketing Finance & Human

Accounts Resource
Manager Manager Manager Manager

Technical
Advisor

Supervisor Supervisor Supervisor Supervisor

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The Line and Staff organizational chart combines the line and functional organization with the
addition of staff personnel. Staff workers assist and advise line workers. Staff workers include
consultants, advisors, company lawyers, executive secretary, auxiliary workers etc. Staff officers do
not have authority, that is, the power to delegate tasks to subordinates in the organization. Their main
role is to advise and assist line officers. This is why there are no vertical lines connecting staff
officers to any other member of staff on the chart. They are therefore, placed at the side directly
below the line officer whom they assist or advise.

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Advantages
1. Decision efficiency- able to use staff specialist skills without interference of a hierarchy.
2. Expert Advice
3. Productivity increases because line managers can have more free time to focus on other duties.
Disadvantages
1. Authority- confusion between the line and staff positions for authority.
2. Decision Making- line position relies heavily on a staff position for decision making.
3. Conflict between staff and line positions.
4. It is more costly to hire staff specialist

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 Committee Organizational Chart

Finance Committee

Executive Committee

Training Committee

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Committees are advisory bodies. They are usually appointed to advise organizations. Examples of
committees include; parent teachers associations and student councils which are committees within a
school organization. Committees usually delegate certain duties to sub-committees. For example, an
executive committee may appoint a finance committee to advise it on financial matters. Note that an
element of the line organization exists in the committee organization as all sub-committees are
responsible to the executive committee.

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Advantages
1. Improved problem solving because of differing ideas.
2. Authority is shared
3. Different interest groups are represented.
4. Assist in coordination amongst various divisions.
Disadvantages
1. High cost and long time to make decision.
2. Conflict among members.
3. Dominant members may control decision making.
4. No one particular person can be held responsible.

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MATRIX STRUCTURE

This is a combination structure that joins functional areas with structures for projects and teams.
The functional areas flow vertically down the chain of command. Simultaneously, a worker can
be horizontally attached to a project team. Matrix structures offer flexibility for organisation
employees to utilize skills and competencies. It is based on the individual having expertise in
functional areas and be able to transfer these skills to projects. Difficulties can occur in areas of
control of tasks, role ambiguity and role conflict.

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Advantages
1. Efficient Information Exchange
2. Increased Motivation – shared decision making encourages employees

Disadvantages
1. Internal Complexity- this may cause miscommunication and confusion because of dual authority.
2. Expensive to Maintain and Internal Conflict

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Chain of Command- The definition of a chain of command is an official hierarchy of authority
that dictates who is in charge of whom and of whom permission must be asked. An example of chain
of command is when an employee reports to a manager who reports to a senior manager who reports
to the vice president who reports to the CEO.

Types of Org Charts:

1. Vertical
2. Circular
3. Horizontal

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TYPES OF DEPARTMENTALIZATION:

1. By Function
2. By Process or Equipment
3. By Geographic Territory
4. By Product
5. By Customer and Client

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 TEAMWORK

Definition of Team:
• A group of two or more persons interacting regularly and coordinating their work to
accomplish a common objective.

Role of Teamwork
• Many firms adopt a teamwork approach to complete tasks more efficiently. For example a
major Caribbean airline encourages its workers to work as a team to achieve the main task of
having each flight leave on time. Workers therefore move to various positions if needed, to
have each flight leave on time

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Advantages
1. It improves the working relationship among workers
2. It increases communication
3. Skills and knowledge are passed on through the interaction
4. It satisfies the social needs of workers
5. Ability to solve problems constructively.
6. Ensures continuity, i.e. if one team member is absent the other will complete the task.
7. The quantity and quality of work will improve due to collaboration.

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Disadvantages
1. Adds unnecessary bureaucracy (slow to make decisions)
2. Only effective with clear objectives
3. Personality clashes (Conflict)
4. Additional cost in terms of time and human resources (training)
5. Unwieldy and Unproductive

Groups are formed naturally by persons with similar interest, common goals and similar past
experiences in an organization. The establishment of various clubs, work socials and outings will
encourage greater interaction among workers, better relationships and a teamwork approach to
completing tasks.

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