AS2: Business Studies (Organisational Design) Organisational Design

The way that a business is structured will be determined by: The relationships between individuals Who is in charge Who has authority to make decisions Who carries out decisions How information is communicated

Organisation Charts Highlight communication problems Allow individuals to see where they fit into the overall structure of the organisation and who they are responsible to and for Allow firms to identify where specialist members of staff are required Show how different departments relate to each other

Organisational Functions Production Finance Human Resources Sales and Marketing Administration Research and Development

AS2: Business Studies (Organisational Design) Functional Organisation Business Finance Production Research & Development Human Resources Administration Sales & Marketing

Tall hierarchical structure Flat hierarchical structure X XX XXXX XXXXXX XXXXXXXX XXXXXXXXXX X XXXXXXXXXX XXXXXXXXXXXXXXXXXX Tall hierarchical structure Flat hierarchical structure

Ways to Structure a Business By function: arranging the business according to what each section or department does By product or activity: organising according to the different products made By area: geographical or regional structure By customer: where different customer groups have different needs  By process: where products have to go through stages as they are made

Functional Structure Advantages Specialisation – each department focuses on its own work Accountability – someone is responsible for the section Clarity – know your and others’ roles

Functional Structure Disadvantages Closed communication could lead to lack of focus Departments can become resistant to change Coordination may take too long Gap between top and bottom

Organisation by Product/Activity Advantages Clear focus on market segment helps meet customers’ needs Positive competition between divisions Better control as each division can act as separate profit centre

Organisation by Product/Activity Disadvantages Duplication of functions (e.g. different sales force for each division) Negative effects of competition Lack of central control over each separate division

Organisation by Area Advantages Serve local needs better Positive competition More effective communication between firm and local customers

Organisation by Area Disadvantages Conflict between local and central management Duplication of resources and functions  

Other Organisational Structures By Customer: Similar to structuring by product   By Process: Similar to structuring by function

Characteristics of Organisational Design De-layering Chain of command Span of control Decentralisation Centralisation

Chain of Command Route by which orders and decisions are passed through the organisation information

Span of Control The number of people (subordinates) over whom a manager or supervisor has direct control. It should never exceed 5. Wide: More delegation, Reduces supervision, Better job enrichment Narrow: Tighter supervision, Less chance of mistakes, Suitable where tasks are straightforward, easily checked and non changing, more levels of hierarchy therefore better promotion prospects

Decentralisation Widespread delegation and the passing of power down to the lower levels for decision making Better motivation of junior staff Produces greater innovation Reduces communication More enthusiasm Less consistency Loss of control by senior staff Lack of direction

Centralisation Only the top levels of the business have the authority to take decisions Tight financial control Coherent strategies in marketing Simplify and speed up decision making Sharing of resources De-motivation of lower levels Poorer communication Less input from lower levels

De-layering Removal of one or more layers from the organisation Assist communication Cuts out bureaucracy Better staff motivation Widens the span of control Can lead to overwork Less overhead costs Reduces supervision