Organizational structure is the internal, formal framework of a business that shows how management is organized, linked together, and how authority is passed through the organization
Organizational structure chart displays:
Chain of command; who is answerable and who reports to whom
Authority and accountability
Formal relationship between people
Overall responsibility for decision making
Formal channels of communication: vertical/horizontal
Span of control
Level of hierarchy: a stage of the organizational structure where personnel have equal status and authority
Tall (vertical) organizational structure has many levels of hierarchy and narrow spans of control, leading to communication issues and a sense of remoteness between higher and lower levels of the organization
Flat (horizontal) structure has few levels of hierarchy and wide spans of control, encouraging delegation and quick decision-making, but may lead to redundancy and a short chain of command
Delegation is passing down authority in the organizational structure, giving managers more time to focus on important issues, but can be unsuccessful if sufficient authority isn't given or if the person is inadequately trained
Self-actualization is drawing fulfillment through work, encouraging staff accountability, and preparing them for senior posts
Accountability is the obligation to account for activities and disclose results transparently
De-layering is the action of removing a level in a business hierarchy in order to reduce the size of a business hierarchy, especially in terms of a reduction in management. This creates a flatter (less layered) organizational structure.
Bureaucracy is an organizational system with standardized procedures and rules
Centralization keeps important decision-making powers within the head office, while decentralization empowers subordinates and regional/product managers
Hierarchical structure allocates power and responsibility based on standing or position in the hierarchy, which can be divided by product, region, or function
Matrix structure creates project teams cutting across functional departments, encouraging communication and specialist knowledge, but may lead to conflicts of interest and less focus on business aims
Handy's Shamrock organization divides workers into core, outsourced, and flexible workers, each with different roles and expectations
Effective communication aids in motivation, generates new ideas, promotes coordination between departments, speeds up decision-making, reduces errors, and requires feedback
Cultural differences impact communication, such as high context vs low context culture and sequential vs synchronic culture
Technology impacts communication by requiring training, posing security issues, initial costs, reduced social costs, and information overload
Level of hierarchy: a stage of the organisational structure at which the personnel on it have equal status and authority
Span of control: number of subordinates reporting directly to a manager
Chain of command: route through which authority is passed down an organisation – from the CEO and the board of directors
Delegation: pass down authority in the organizational structure
Disadvantages of Tall org Structures:
Communication issues
Narrow span of control
Sense of remoteness between higher and lower levels of the organization
Advantages to Delegation : Gives managers more time to focus on other important issues
Showing trust in one’s subordinates may motivate them
Self-actualization: draw fulfillment through their work
Encourages staff to be accountable for their work based activities
May train them for senior posts
Disadvantages to Delegation: only boring tasks will be delegated which may not be motivating
Delegation is unsuccessful if sufficient authority isn’t given along with it the person is inadequately trained to do the job
Accountability: obligation of one to account for their activities and to disclose results in a transparent way.
Delayering: removal of one/ more of the levels of hierarchy from an organisational structure
Advantages to Delayering: Reduce business costs
Wider span of control; more delegation
short chain of command; eases communication
Less Sense of remoteness, helps motivation
Disadvantages of Delayering: One-off costs, eg: Redundancy payments for laid off managers; Remaining managers may dwell in workload; Redundancy being used as a way of cutting costs may reduce workforce’s sense of security
Advantages to Centralisation: Rapid decision making since the whole organization follows the same rules; Experienced decision makers
No conflict between divisions since only one body holds all decision making authority
Decisions taken in the interest of the whole business not just one division
Advantages to Decentralisation: Quick decision making in response to changing business environment; Manager would knows the regional needs and make decisions based on that; More delegation opportunities; more motivation; Prepares subordinates for senior, challenging posts
Advantages to Org Charts by Product:
More autonomous than functional divisions in terms of recruitment, budgeting, advertising
Allow a team to focus on only one single product
Better than multiple divisions managing the development of a product since one division means they could keep in track of development and build common culture/morale
Disadvantages to Org Charts by Product:
Encourages rivalries between different product division competing for financial resources; lacks cooperation
Duplication of developments, lacks coordination
Advantages to Org CHarts by Function:
Grouping employees by their functional skills improves efficiency since people of common goals are clustered together promoting collaboration and professional expertise
Employees can capitalize on their specialized skills as means of moving up the ladder in a given department.
Such structure is not immune to change since managers defend their position in the hierarchy and importance of their department
Disadvantages of Charts by Function:
Lacks horizontal links between departments; lacks coordination
Managers develop tunnel vision; more focus on departmental objects rather overall corporate aims
Advantages to Charts by REGION:
Recruitment of manager who are aware of the local business environment
Attracts local customers since the business tends to the needs of the particular regions
Conversation tend to be more direct/personal in a geographical organizational structure
Tracking the performance of individual regional markets is simplified under this structure, as measures such as revenues, profit margins, costs and performance improvements can be tracked to specific regions.
Disadvantages to Charts by Region:
Unhealthy competition between different regions
Duplication of personnel between head and regional offices
Poor coordination between different regions may lead to inconsistent strategies being adopted
Difficult to keep up the core company belief eg.ethical code of practice in different regions
Factors influencing organizational structure:
New technology IT may render jobs such as secretaries writing up letter useless, makes communication between head and regional offices easier resulting in middle management unnecessary.
Business size, number of employees
Leadership style, autocratic: narrow span of control, democratic: wide span of control, delegation etc.
Corporate objectives such as expansion to other countries may require decentralization
Retrenchment due to competition/economic recession causes delayering.
Matrix structure: organizational structure that creates project teams that cut across all functional departments; horizontally linked structure, eg: IT businesses, not suitable for service/ business producing products with longer life span.
Handy's Shamrock organization structure includes three types of workers: core, outsourced, and flexible workers
Core workers:
Carry out core processes essential for the survival and growth of the business
Given full-time permanent jobs with high salaries
Expected to be loyal and work long hours
Outsourced workers:
Could be independent providers or "contractual fringe" such as IT services, payroll, training, etc.
Do not carry out jobs that are core to business processes