6.3 - Improving organisational design

• Organisational Design

  Shows Structure and Hierarchy
• Traditional business structure

  1. Series of levels

  2. Each level has responsibility for, and authority over, the levels below

  3. This is called a hierarchy

  4. Can be shown on an organisational chart
• Organisational chart

  Sets out who has authority and responsibility to make decisions
• Organisational chart

  • Shows who individual employees are accountable to (who is directly above them in the hierarchy)
  • Shows who employees are responsible for (who is directly below them in the hierarchy)
  • Shows how the organisation is divided up, e.g. by department, by product or by location
• Organisation hierarchy


  • Board of Directors gives direction to the business
  • Managers - make sure targets are met
  • Team Leaders - Responsible for a team of supervisors and shop-door workers
  • Supervisors - oversee things on a day-to-day basis
  • Shop-floor Workers - do the actual work
• Structures


  • Can be Tall or Flat
  • Have wide or narrow Spans of Control
• Tall organisations


  Organisations with lots of levels in their hierarchy
• Tall structures

  Have long chains of command
• Chain of command


  The path of communication and authority up and down the hierarchy
• Tall structures


  Can affect communication
• Messages take a long time to get from the top to the bottom, or vice-versa


  Decisions take a long time to make, and there's a lot of paperwork to deal with
• Flat organisations


  Only have a few levels in their hierarchy
• Flat structures


  People are given more responsibility and freedom
• Flat structures


  Can lead to managers getting overwhelmed by too many people reporting to them
• Flat structures


  Managers have wide spans of control, meaning they have a lot of workers answering to them
• If the span of control is too wide


  Managers find it hard to manage effectively
• Tall structures


  Managers have narrow spans of control, they aren't responsible for many people, allowing them to monitor the people below them more closely
• If the span of control is too narrow


  Workers can become demotivated, they may feel that they're being micromanaged by interfering bosses
• It can be hard for a manager to keep a close eye on workers if the span of control is bigger than about 6 people
• If the workers are all doing the same routine task, they don't need as much supervision, so a span of control of 10-12 people (or more) is fine
• Delayering


  Removing parts of the hierarchy, creating a flatter structure with wider spans of control
• Delayering


  • Lowers costs by cutting management jobs and saving money in salaries
  • Gives junior employees enhanced roles with more responsibility
  • Improves communication
• Delayering


  Can cost businesses money in the short term as the remaining staff need to be retrained in their new roles
• Overdoing delayering


  Managers can end up stressed and overworked with huge spans of control
• Delegation


  Giving responsibility for decision-making to people below you
• Delegation


  • The manager needs to trust the people they are delegating responsibility to
  • The person being delegated to needs to trust that their manager isn't just passing on the work they don't like doing themselves
  • The person being delegated to should be given challenging tasks (to help them develop) as well as routine tasks
• The amount of delegation


  Is heavily influenced by the nature and culture of the business
• A business that delegates a lot of responsibilities will need to have many levels of authority
• Centralised Structures


  Keep Authority for decisions at the Top
• Centralised organisations


  • All decisions are made by senior managers at the top of the business
• Advantages of centralisation


  • Business leaders have lots of experience of making business decisions
  • Managers get an overview of the whole business, so decisions are consistent throughout the business
  • Senior managers aren't biased towards one department so they can make the best decisions for the business as a whole
  • Senior managers can make big decisions quickly because they don't have to consult anybody else
• Disadvantages of centralisation


  • Not many people are expert enough to make decisions about all aspects of the business
  • Excluding employees from decision-making can be demotivating
  • The organisation reacts slowly to change, allowing its competitors to get ahead. This is because the senior managers who make the decisions don't spend time on the shop floor, so they're slow to notice consumer trends
• Decentralised Structures


  Share out the Authority to make decisions
• Decentralisation


  • Shares out authority to more junior employees
  • National and multinational firms decentralise decision-making, and delegate power to regional managers
  • Managers have to make sure that the work of all a company's employees is contributing to the goals of the business. This can be difficult to achieve when a lot of power has been delegated
• Advantages of decentralisation


  • Involvement in decision-making motivates employees
  • Employees can use expert knowledge of their sector
  • Day-to-day decisions can be made quickly without having to ask senior managers
• Disadvantages of decentralisation


  • Junior employees may not have enough experience to make decisions
  • Inconsistencies may develop between divisions in a business
  • Junior employees may not be able to see the overall situation and needs of an organisation
• The size, nature, objectives and culture of a business will all affect whether a centralised or decentralised approach is used - this will then have an impact on the structure of the business
• Businesses might centralise


  In order to save money in a more competitive market. A centralised approach can result in a flat and wide structure as levels of middle management are no longer needed
• Businesses might decentralise

  As they are expanding and operating from a number of different locations. A decentralised approach will create more levels of authority and increase the amount of delegation
• Human resource flow


  How people move into, out of and within the business