Organisational Structure of a Business

Learning Objectives

• Analyse the main features of an organisational chart, including levels of hierarchy, chain of command, span of control, flat and tall organisations

• Identify why firms need to organise employees and analyse ways in which this is done

Why do businesses need to be organised?

• Small businesses (particularly sole traders) have an informal organisational structure

• As a business gets bigger then it starts to form some kind of organisation and an organisation structure is required, this is a type of internal framework which shows how management is linked together and how authority is passed down

• The structure determines:– Who is responsible for what job and– Who is responsible to whom.

• Describes management structure of business• From top of company – managing director,

through to shop floor worker • Usually best understood by drawing an

organisation chart• Shows which levels of management and

employees report to whom

Hierarchy

• Accountability to your boss or manager• Responsibility for the people who work

for you• What does the formal organisation structure

show?– Hierarchy

Organisation Structure & Job Roles

CEO

Board of Directors

Managers

Supervisors & Team

Other Employees

This is called a layer of the hierarchy

Hierarchical / Bureaucratic structure

Advantages • To highlight how decision

making is done• Vertical departments can be

based on anything not just departments

• Role of each individual is clear and defined

Disadvantages• This type of structure seems

to suggest one way communication

• Managers often accused of tunnel vision

• What is the Span of Control?– The number of people who report to one manager in a hierarchy– The more people under the control of one manager - the wider the

span of control– Less means a narrower span of control

• Example below shows a span of control of 4 for the Marketing Manager

Span of Control

Marketing Manager

Marketing Assistant

Market Researcher

Telesales Supervisor

Customer Care Assistant

• Allows a manager to:– Communicate quickly with employees under them– Control employees more easily

• Feedback of ideas from workers more effective

• Requires a higher level of management skill

Advantage of a Narrow Span of Control

• There are less layers of management to pass a message through

• So the message reaches more employees faster

• It costs less money to run a wider span of control because a business does not need to employ as many managers

Advantage of a Wide Span of Control

Organisation Charts

• We can use an organisation chart to show the levels of hierarchy and the span of control in a business

Managing Director

Finance Manager

Accounts Supervisor

Sales Supervisor

Production Manager

Production supervisor

How large is the

MD’s span of control?

How large is the

Finance Manager’s

span of control?

How many levels of hierarchy are there?

• Tall organisation– Large number of managers– Narrow spans of control– Can suffer from having too many managers

(expensive)– Decisions can take a long time to reach bottom of

hierarchy– Can provide good opportunities for promotion– Manager does not have to spend so much time

managing staff• Flat organisation– Few managers– Wide span of control

Tall and Flat Organisations

• Line on which orders and decisions are passed down

• From top of hierarchy to bottomExample

Chain of Command

ManagingDirector

ProductionDirector

ProductionManager

FactorySupervisor

MachineOperators

Factors influencing organisational structure

• Size of the business and number of employees• Style of leadership and culture of

management• Retrenchment (Cutting down on the number

of staff you have)• Corporate objectives• New technologies

• Create an organisational structure diagram for all staff at the college.

• It must include job titles & people´s names

Task

Another activity• Any business plc has a functional organisation structure.

• The MD is responsible to a chair person and has a sales director, a finance director, a personnel director and a production director accountable to her.

• On the production side there are a works manager, technicians, test engineers and machine operators.

• In addition, the company employs 5 personnel assistants, 4 financial staff and 10 administrative staff and 20 sales people.

• DRAW an organisation chart for Any Business plc from this information!