MGT501: Introduction to

Business Management
Semester 1 2024
 Topic
6:Organisation
Structure

Semester 1 2024
 6.1 Discuss the elements that comprise
organization structure
6.2 Analyse the importance of organization charts
Learning and chain of command
6.3 Categorise the current and emerging views in
Outcomes departmentalization
6.4 Classify the five factors that contribute to
vertical coordination in organizations.
6.5 Classify the three factors that contribute to
horizontal coordination in organizations.
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 Introduction
• Organisation Structure is Formal pattern of interactions and coordination
designed by management to link the tasks of individuals and groups in
achieving organisational goals.

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 6.1 Discuss the elements that comprise
organization structure
Work specialisation:
Assignment of tasks
and responsibilities

Mechanisms to encourage Clustering of individual

across department Organisational positions into units, into
coordination departments, into larger units
(horizontal coordination) structure to form hierachies

Mechanisms to facilitate
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top-down coordination
(vertical coordination)
 6.1 Discuss the elements that comprise
organization structure
• Work Specialization or Job Design
• Departmentalization-is the clustering of individuals into units and of units into
departments and larger units to facilitate achieving organisational goals.
• Vertical Coordination- is Linking of activities at the top of the organisation with those
at the middle and lower levels to achieve organisational goals.
• Horizontal Coordination-Linking of activities across departments at similar
levels

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 6.2 Analyse the importance of organization
charts and chain of command
• The organization chart is a formal diagram showing the major positions and
departments within an organization i.e. who reports to who (or the chain of
command).
• Hill et al, (2007), in Bartol et al, 2011 suggest that when designing organizations,
managers must keep the chain of command to a minimum to ensure fast,
effective and efficient communication between the top and the bottom levels in
the hierarchy (Hill et al. 2007).
• Today, teams are increasing replacing chains of command.

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 6.2 Analyse the importance of organization
charts and chain of command
CEO

Secretary

General manager Marketing General manager Operations General manager HR General manager Finance

Communication manufacturing Acquisition Projects

Market support Packaging Development Operations

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etc etc etc etc

 6.3 Categorise the current and emerging
views in departmentalization
• Departmentalisation is the clustering of individuals into units and of units into
departments and larger units to facilitate achieving organisational goals.
• An organisation design is an overall pattern of departmentalisation.
• Departmentalisation influences the way an organisation operates. The pattern of
departmentalisation determines the need for supervisors and their linkage into the
chain of command.
• the way individuals are grouped exerts an influence on how resources are shared.
• Individuals are evaluated to some degree as a unit, and therefore have a structural
incentive to coordinate their activities.
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 6.3 Categorise the current and emerging
views in departmentalization

Functional

Grouped according to
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similar expertise, skills, 10
 6.3 Categorise the current and emerging
views in departmentalization
• The more complex and specialized the job, the more difficult it is for one manager to
manage it. Jobs therefore are grouped into departments. These may be around:
• 1) Functions e.g., human resources, finance, marketing.
• 2) Divisions e.g. geographic area
• process (e.g. cutting, painting, assembly),
• customer similarity (e.g. divisions for each of several products) or
• customer type (e.g. business, ‘public/private’ customers or individuals).
• 3) Hybrid e.g. a mix of functions and divisions
• 4) Matrix structures superimpose, or overlay, horizontal divisional reporting
relationships
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6.3 Functional Structure
Managing director
• This structure groups positions
into functional (or General Manager General Manager General Manager
Research & development Manufacturing Marketing
specialisation) areas according
to expertise, skill and work
activity. Product A Product B Product C
• When to use it – for small to
medium size and large
organisations to coordinate
activities within a formal
structure. “Large firms may use
a functional structure where
much coordination is needed
among products” (Child, 1984
in Bartol et al, 2011, p.309).
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 6.3 Functional Structure
Advantages
• it encourages the development of expertise as members specialise in a particular function.
• Coordination within the departments is easy because all activities are related.
• There is also a clear career path for members.
• Economies of scale and technical advantage may be achieved because of the focus on
similar products and services.

Disadvantages
• The organisation may struggle to respond quickly to multifunctional problems and may
view problems in a non-holistic way.
• Managers may become narrow in their outlooks.
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 Managing director
6.3 Divisional Structure General Manager
Product A Division
General Manager
Product B Division
General Manager
Product C Division

• Divisional structures look very like

Research & Development Research & Development Research & Developm

functional structures. The difference

is that the organisation is organised
around divisions rather than Manufacturing Manufacturing Manufacturing
functions e.g. by product, service,
process, geographic region or
customer similarity. Divisional Marketing Marketing Marketing
structures are self-contained with
each division containing all major
functions.
• When to use it – this structure works
well in larger organisations with
major differences in products,
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services, geographic areas and
customers.
 6.3 Divisional Structure
Advantages
• fast response to environmental change;
• simplified coordination across functions, similar emphasis on division goals;
• strong focus on customer requirements;
• easy to measure division performance;
• managers get a broad training in general management skills.
Disadvantages
• Duplication of resources;
• reduction of in-depth expertise; increased competition between divisions;
• limited sharing of expertise across divisions; restriction of innovation to divisions and
neglect of overall goals. 15

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 6.3 Hybrid Structure
• “The hybrid structure is a departmentalisation
form with both functional and divisional structure
elements at the same management level” (Daft
1998; Robey & Sales 1994 in Bartol et al, 2011,
p.321). The functional aspect is used to gain
efficiencies in resource usage, economies of scale
and in-depth expertise. The divisional aspect is
used to create a stronger focus on products,
services or markets.
• When to use it – generally used in medium to
large organisations operating in very uncertain
environments.
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 6.3 Hybrid Structure
Advantages
• alignment of corporate and divisional goals;
• functional expertise and efficiency;
• adaptability and flexibility in divisions.

Disadvantages
• conflict between divisions and functional departments;
• excessive administration and slow response to exceptional situations.
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6.3 Matrix Structure
• “A matrix structure is a
departmentalisation type that
superimposes divisional horizontal
reporting relationships onto a
hierarchical functional structure.”
(Bartol et al, 2011, p.322)
• When to use it – useful for high
tech companies operating in
uncertain, complex and
competitive environments where
there is a pressure for resources.
(See p.324 of Bartol et al, 2011 for
more details).
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 6.3 Matrix Structure
• Advantages
• divisional and functional managers can make decisions.
• It works well for projects where a variety of expertise is needed and there may be a need to react
quickly to environmental conditions.
• Human resources can easily be added or removed from projects without harm as needed.
• Support systems can also be used across multiple projects.

• Disadvantages
• high administration costs as there can be a doubling up of support requirements.
• Having a divisional and a functional boss can lead to confusion and conflict.
• There can also be an over focus on group decision making which can slow down responses to
change.
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 6.4 Classify the five factors that contribute to
vertical coordination in organizations.
Vertical Coordination is Linking of activities at the top of the organisation with
those at the middle and lower levels to achieve organisational goals.

1. Formalisation
2. Span of management
3. Centralisation versus decentralisation
4. Delegation
5. Line and staff positions
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 6.4 Classify the five factors that contribute to
vertical coordination in organizations.
1. Formalisation is the degree to which written policies, rules, procedures, job
descriptions, and other documents specify what actions are (or are not) to be taken
under a given set of circumstances.
• Most organisations need some degree of formalisation so that fundamental
decisions do not have to be made more than once and so inequities will be less
likely to occur.
• Being too highly formalised can lead to cumbersome operations, slowness in
reacting to change, and low levels of creativity and innovation.

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 6.4 Classify the five factors that contribute to
vertical coordination in organizations.
2. Span of management
• The number of subordinates who report directly to a specific manager or
supervisor.
• Can vary widely in different industries and types of organisations.
• Also called “span of control”. With too many subordinates, managers cannot
coordinate or control. With too few, managers tend to over-supervise.
• Traditionally, recommended group size has been about 7 or 8.

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 6.4 Classify the five factors that contribute to
vertical coordination in organizations.
2. Span of management
• Tall structures: many levels, small spans of
management
• Flat structures: few levels, wide spans
• The trend to downsizing - cutting middle-
management layers, increasing spans of
control, reducing overall organization size
• Restructuring: reducing management
levels, changing organizational components
(e.g. divestitures or acquisitions)
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 6.4 Classify the five factors that contribute to
vertical coordination in organizations.
Factors influencing span of management:
• Low interaction requirements
• High competence levels
• Work similarity (between organisational peers)
• Low problem frequency and seriousness

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 6.4 Classify the five factors that contribute to
vertical coordination in organizations.
3. Centralisation versus decentralisation
• Centralisation is the extent to which power and authority are retained at the top
organisational levels.
• Decentralisation is the extent to which power and authority are delegated to lower
levels.

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 6.4 Classify the five factors that contribute to
vertical coordination in organizations.
• 4. Delegation is the assignment of part of a manager’s work to others, along with both
responsibility and authority necessary to achieve expected results.
• Responsibility is the obligation to carry out duties and achieve goals related to a position.
• Authority is the right to make decisions, carry out actions, and direct others in matters
related to the duties and goals of a position. While part of a manager’s work may be
delegated, the manager remains accountable for results.
• Accountability is the requirement to be able to answer for significant deviations from duties
or expected results. The fact that managers remain accountable for delegated work may
cause them to resist delegation.

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 6.4 Classify the five factors that contribute to
vertical coordination in organizations.
• 5. Line and staff positions enter into the vertical integration of organisations.
• A line position is a position that has authority and responsibility for achieving the major
goals of the organisation.
• A staff position is a position whose primary purpose is providing specialised expertise and
assistance to line positions.
• Line authority differs from staff authority.
• Line authority is authority following the chain of command established by the formal
hierarchy.
• Staff departments have functional authority, authority over others in the organisation in
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matters related directly to the staff departments’ functions
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 6.5 Classify the three factors that contribute to
horizontal coordination in organizations
• Horizontal Coordination- Linking of activities across departments at similar
levels
• Need for information processing across the organisation
Slack
• Promotes innovation through dissemination of ideas and information
Informatio resources
n systems
• - new ideas more likely with many views
• - awareness of problems sparks solutions Lateral
relations
• - involvement means willingness to implement

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Supports horizontal coordination &

6.5 Classify the three factors that contribute to
horizontal coordination in organizations
Horizontal coordination promoted by:
1.Slack resources
• Cushion of resources that facilitates adaptations to internal/external
pressures, as well as initiation of changes
2.Information systems
• One information source for many users
3. Lateral relations
• Direct contact, liaison roles, task forces, teams, Managerial integrators
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What will future organisations look like?

• 1) Boundaryless – they will need to be able to operate across multiple

boundaries – geographic, vertical, horizontal, and external.
• 2) They will need to be able to adapt rapidly to changes within their
environment.
• 3) They may look quite different from traditional organisational structures in
that they may consist of multiple partners (both within and outside the
organisation), each bringing to the organisation their own experience and skills.
• 4) They will use technology extensively as a means of cutting costs but also to 30

collaborate
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 Conclusion
• Organizing helps managers to match resources to work and vice versa to achieve
organizational plans and decisions.
• organizations can use structure to better achieve their goals and to fulfill their
strategies.

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6.1 Discuss the elements that comprise
organization structure
6.2 Analyse the importance of organization
charts and chain of command

6.3 Categorise the current and emerging views in

departmentalization
6.4 Classify the five factors that contribute to
vertical coordination in organizations.
6.5 Classify the three factors that contribute to
horizontal coordination in organizations.
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