Organisational Structure

13.1 Understand the basic concepts of organisational structure.

Organisational Structure

In general, an organisation consists of: A group of people working together with a common purpose to satisfy a series of objectives and carry out

all those activities which contribute to those objectives.

Ingredients for Success

Organisations can very in size from a small business with a few employees to a large multinational company with offices throughout the world, employing tens of thousands of people.The three fundamental resources of any organisation are:

– People– Organisation– Tecnhology

The success of an organisation is determined by how well it manages and controls these three resources.

Ingredients for Success

According to the DTI ‘Winning’ Report:

Winning UK companies… are led by visionary, enthusiastic champions of change unlock the potential of their people know their customers constantly introduce new, differentiated products and

services exceed their customer’s expectations with new

products and services

Focus on People

Successful companies view people as a key resource rather than simply as a cost.

One of the main tasks of management, therefore, is to enable each person in an organisation to fulfil his or her full potential.

Training is seen as a key component.

Focus on Organisation

Business organisations have four internal functions which they must manage and control:

– The Production group produces the goods or services– The Sales and Marketing group sells the product– The Personnel or Human Resources group hires and

trains workers.– The Finance and Accounting group seeks funds to pay

for all these activities and keeps track of the accounts.

Organisational Structure

In practice, the structure in many organisations is a mixture of different forms of specialisation. Every organisation attempts to develop a structure that best fits its circumstances.

Organisational Structure

Most organisational structures are hierarchical in design.

The structure consists of a number of layers; moving down from the top to the bottom of the structure, as the number of personnel in each layer increases, the amount of responsibilities decreases.

Functional Specialisation

Tasks are grouped together on the basis of common functions such as human resources, sales and finance. This is the traditional organisational form. Any professional expertise eg in public relations, is enhanced as qualified staff will be working with other professionals in the same field.

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Product or Service Specialisation

Tasks and activities that relate to a particular product or service are grouped together. This form of specialisation is common within the public sector. A local authority would group its activities together in departments such as Housing, Education, Local Taxation etc. Such specialisation allows for the development of expertise in the product or service

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Geographical Specialisation

Many large organisations operate nationally or globally with operations in many locations. It is sometimes appropriate for such organisation to be structured on a geographical basis, giving local management the responsibilities for its own local activities. Such specialisation allows for decision-making based on local knowledge that can lead to a better service for customers.

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Organisational Structure

The type of structure adopted by an organisation depends on several factors including:

The size and complexity of the organisation The diversity of the products and the services

produced or provided The geographical spread of the organisation The activities performed by the organisation The objectives and goals which are set out by the

organisation.

Span of Control

The span of control is the number of employees who are directly supervised by one person.

This should be clear in the organisational structure.

Too wide a span of control leads to a lack of control and is inefficient.

Too narrow a span wastes staff.

Chain of Command

The chain of command is the path through the levels of management from the managing director downwards.

Instructions go down the line of authority. Problems are referred up the lines to a higher level.

Long lines of communication mean messages can be distorted.

Tall Hierarchical Structure

This is the traditional structure typified by large public limited companies, the military and the civil service.

Roles are clearly defined within a large number of layers, each responsible to the layer above.

Tall Hierarchical Structure

This tall hierarchical structure is suitable for large organisations with centralised decision making by the strategic staff.

Organisations with a tall structure are likely to be slow to change as important decisions have to be referred all the way up the line.

Decisions take a long time to be made and take even longer to implement.

Senior staff can be very remote from the lower levels of the structure.

Tall Hierarchical Structure

Horizontal Structure

An alternative structure is the horizontal structure. There are fewer layers, but the spans of control are much

greater. Problems being referred up the line can be resolved more

quickly. As more people are directly answerable to the managing director, the power to make decision for themselves will need to be delegated to middle managers.

Parts of the organisation may tend to operate independently of the other parts but are still under the umbrella control of senior management.

Employees have more responsibility which often leads to better motivation.

Horizontal Structure

As departments are specialised, different departments may have little to do with each other which can lead to poor communication across the organisation.

Control of top management could be weakened as they have a greater span of control and need to delegate more frequently.

Fewer levels usually means there are fewer prospects for promotion.

Horizontal Structure

The flat structure is becoming more popular. It allows considerable independence to different units which means that these units can make decision and change more rapidly.

Tall, hierarchical organisations are static.

Flat organisations tend to be more dynamic.

Levels of an Organisation’s Structure

There are generally three levels of personnel in a business organisation (although there may be considerably more layers).

The strategic level (management workers) that consists of senior management, responsible for long-term planning and policy making decisions.

The tactical level (information workers) consists of middle management in charge of one particular department or area of the business. Examples would be a regional sales manager or a training manager. Planning at this level is medium term.

The operational level (production workers) consisting of the workforce who are making the product, taking sales orders, keeping the accounts etc. Operational managers include foremen, supervisors and charge hands. Planning is on a short-term, often daily or even minute-by minute basis.

Strategic/ManagementChief Executive

Managing DirectorMarketing Director

Operational/Production WorkersForeman, Shift Leader, Chief Clerk

Management Information Systems

Data Processing/Transaction Processing Systems

Knowledge Work Systems

Tactical/Information Workers

Middle management eg Area Manager, Factory Manager, Store Manager

How has the Development of IT Affected the Choice of Organisational Structure?

IT tends to lead to a flatter organisational structure. This is because frequent change is inevitable and businesses must be dynamic.

IT systems provide better information on staff performance, thus enabling managers to monitor more people and cope more easily with a wider span of control.

Some jobs at lower levels, such as typists in the typing pool may disappear altogether as a result of the growth of word processing. New, direct methods of data entry reduce the number of clerical staff needed. Robots have replaced many jobs on the production line. All these changes have resulted in the reduction of the number of levels in an organisation.

Over the last decade the jobs of middle managers have been eroded.

Developments in IT have enabled information to be produced in a form suitable for the strategic managers directly from the operational level, without the need for manipulation and interpretation by middle managers.

Many decisions that used to be taken by middle managers are now taken by computer based systems. Eg decisions regarding granting of loans to bank customers and stock replenishment in supermarkets can all be made by computer based systems. Increasingly, operational staff can work without needing direct middle management involvement.

Companies rely on their information systems to provide good quality information.– (a) Identify three different categories of users of

information systems, and state the level at which they operate. (6 marks)

– (b) Describe four characteristics of good information. (8 marks)