2.2 Organization structure An organization structure is the formal way of organizing the activities of an organization. An organization chart is a diagrammatic representation of the firm’s formal organizational structure. The structure or chart shows the relationship of authority between the management and their subordinates and the main features are:

The different departments within an organization by functions, by regions or by products and how they are linked together The chain of command (line management) – which people have authority and responsibility over whom The levels of hierarchy and job titles The span of control of each manager The official channels of communication

Marketing Production Finance HR director director director director CEO | Marketing Production Finance HR director director director director | | | | Marketing Production Quality Finance HR Manager manager controller manager manager | | | | | 4 Markting Production Quality Acctant 2 HRstaff staff supervisor assistant | - | | - 8 prod workers - 5 Acc staff

The functional departments The typical departments of a business firm are: Marketing, Production, Finance and human resources. In this example, each department is headed by a director.

The chain of command ( line management and staff relationship) This shows the path through which orders are passed down the hierarchy. It shows the way authority is organized, i.e. the people who have authority over others. Orders passed down the level and feedback passes up.

In the example, the production director has an overall staff authority over all employees in the production department, i.e. the operations manager, the quality manager, the quality controller, the production supervisor and the production operatives or workers. He has a direct line of authority over the production manager. He has a longer chain of command than the finance director.

Delayering Delayering often known as downsizing is the process of removing one or more levels in order to flatten the structure. The main reasons for delayering include: To reduce costs Improve the speed of communication Encourage delegation

Levels of hierarchy An organization chart also shows the levels of hierarchy. This refers to the different ranking of authority in the organization. In this chart, there are five levels of hierarchy. The CEO is at the top and the production operatives are on the fifth level.

However, delayering Can create a sense of insecurity among workers Increasing the workload of remaining workers Delay decision making as managers will have to deal with greater number of workers.

The span of control This measures the number of subordinates that is directly accountable to each single (horizontal) line manager. It shows the number of subordinates working under a supervisor or manager. In the example, the CEO has a span of control of four people (the directors). Each director has a span of control of one manager except the production manager has a span of control over two managers (production and quality control).

The channels of communication This shows the route that messages are officially communicated within the organization. In the example, communications that concern only the production team would go to the CEO, production director, production manager, and production operatives. There is no need to pass the message to other department managers or workers.

M02 S2 Q1 (analyze the org structure) QA Handout

M11 H1 Q1b (draw)

Tall vs. flat structures

Tall structure A tall structure is one where there are several layers of hierarchy with small teams and therefore a narrower span of control but a longer chain of command.

Advantages of tall structure Smaller teams are easier to manage and control. Therefore less time is required for monitoring It allows better co-ordination of subordinates’ activities. There are greater opportunities for more people to be promoted since more levels exist. This can help to motivate workers to work harder. Greater specialization is possible leading to efficiency and productivity.

Flat structure A flat structure is one where there are a few layers of hierarchy with large teams and therefore a larger span of control but a shorter chain of command.

Advantages of flat structure Delegation is less complicated and therefore easier. Hence there are more opportunities for subordinates to take more responsibilities. It is less expensive to operate as there are fewer managers to be employed. The manager can communicate to a larger number of workers. There is a smaller distance between those at the top and those at the bottom and therefore communications can be clearer

Accountability (HL) This describes the extent to which a person is held responsible for the success or failure of a task. Each manager is responsible or accountable for the success or failure of his subordinates.  Accountability forces managers to better control their departments or teams as ultimately they are answerable for their success or failure.

Assignment: hand out Adv of a flat structure N07 H1 Q2a: adv of a tall structure

DELEGATION (HL) Delegation refers to the process of transferring on tasks, authority and some responsibility from a line manager to a subordinate. However total responsibility cannot be delegated as a manager is finally responsible for the act of his subordinates. Delegation is necessary when an organization is growing.  

Benefits: Manager saves time by not having to tackle every single task. Delegation can motivate and develop employees who feel they are trusted Limitations Poor delegation can lead to confusion, resulting in failure in achieving the task done.

BUREAUCRACY (HL) Bureaucracy refers to the execution of tasks that are governed by official administrative and formal rules of an organization. Procedures will be prescribed and standardized. Because rules have to be strictly followed, there will be excessive administration, paperwork and formalities in the workplace and this is known as red tape.  

Types of organization charts Hierarchical /Pyramid structure: Functional (most common) Divisional By product By geography MATRIX STRUCTURE or matrix organization AND PROJECT TEAM (HL)

MATRIX STRUCTURE and Project team (HL) A matrix structure is usually set up for a particular project or program, e.g. the development of a product, the setting up of a new branch, setting up of a new advertising campaign etc

Example

It uses functional teams to support a project or program It uses functional teams to support a project or program. Workers from different functions work together in the project team which is headed by a team leader or project manager. Therefore each member in the matrix is accountable to two managers – the functional manager and project manager.

Advantages A culture of team working and collaboration is created across functions. Experts from different parts of the firm can work together to make the project successful. Personal development opportunities are provided for team members, thus increasing motivation . Improved decision making as information from each function is available.

Disadvantages There may be conflict of interest since team members have two line managers. Team meetings can be time consuming Project teams are formed on a temporary basis and consequently it may be difficult to control team members. A matrix can result in increased costs

FLEXIBLE STRUCTURE (HL) handout

THE INFORMAL ORGANIZATION (HL) handout

Outsourcing, off shoring and migration (HL) handout

Centralization vs. Decentralization (HL)

Centralized structure Here, all decisions are made centrally and there is a great reliance on a key person or a very small number of persons. It is found in small organizations (sole trader)and professional undertakings. It can also be found in firms where decisions have to be made quickly.

Example

Advantages Rapid decision making can take place as there is no need to consult many people. Managers can have a better control of what is happening in the organization. There is a better sense of direction as there are fewer decision-makers.

Disadvantages Increased pressure on senior management due to the large amount of work Management may become inflexible as they are not used to delegating. Employees may feel de-motivated since they feel less valued.  

Decentralized structure A decentralized structure is one where some decision making authority is passed onto others. Most hierarchical structures are examples of decentralized structure.

Examples

Advantages Better decision can result from input from workforce. Higher morale as empowered staff is motivated Improved accountability as staff is held accountable for their input.

Disadvantages Senior management can lose control over operation of the org. Greater chance of mistakes as empowered staff may not be competent Additional costs as there are many levels of hierarchy.