By the end of the chapter, you should be able to understand:

• the different types of organizational structures (AO2)
• types of organization charts (AO2, AO4)
• appropriateness of different organizational structures given a change in external factors (AO3)
• changes in organizational structures (HL only) (AO3)

Learning objectives:

• Explain the following terminology: delegation, span of control, levels of hierarchy, chain of command, bureaucracy, centralisation, decentralisation, delayering, matrix structure (AO2)
• Distinguish between various types of organisational structure: flat/horizontal, tall/vertical, organisation by product, function or region (AO2)
• Analyse and draw different types of organisational charts (AO4)
• Evaluate the appropriateness of different organisational structures given a change in external factors (AO3)
• Evaluate the changes in organisational structures and, more specifically, project-based organisation and Handy's ‛shamrock organisation’ (AO3) (HL)

Terminology in relation to different types of organisational structures (AO2)

Delegation occurs when a line manager entrusts and empowers a subordinate with authority to successfully complete a particular task. Win-win situation.

Advantages of delegation

• Motivate employees: They feel valued and empowered.
• Improve quality and speed of decision-making: Employees are aware of their roles without needing to refer problems and issues to senior managers.
• Reduce workload of senior managers: Frees up time on the strategic decision of the business.
• Improve skills of employees: Prepare them for senior roles and boost staff morale as well as staff retention.

Limitations of delegation

• Increased costs: Delegation usually comes with additional pay.
• Requires prior training for employees to have necessary qualifications which could be time-consuming and expensive.
• Does not motivate everyone.
• Employees feel disgruntled that they completing work without additional pay.
• Not suitable in all situations: Such as low skilled, manual workers that do require supervision.

Span of control refers to how many workers are directly accountable to a particular line manager.

• Narrow span of control prefer tighter control on decision-making. Manager can keep close control of employees activities and operations.
  • More layers, more costly, more prolonged communication, “us and them” culture, easier to control.
  • A narrow span of control is easier to communicate and control the team as well as higher productivity as it is likely to have higher sense of team spirit.
• Wide span of control means a line manager has responsibility for many subordinates.
  • Fewer layers, lower managerial costs, effective communication, large teams, heard to control.
  • Wide span of control allows employees a greater degree of independence and can reduce costs but this requires strong leadership.

Whether a business decides to adopt a wide or narrow span of control depends on three main interrelated factors:

1. Employee competencies: Workers who are more competent are more likely to be given greater flexibility.
2. Managerial competencies: Refers to attitudes and beliefs of managers. Some prefer to provide employees greater freedom and only delegate to junior employees.
3. The business context: Nature of organisation and market. MNC will have wider span of controls becase there are possibly multiple geographical locations. Sole traders and partnerships may maintain narrower span of control.

Levels of hierarchy is an organisational system that is based on ranking.

• Tall/vertical structure has a large number of levels of hierarchy so the span of control is likely to be narrow. It is quite inflexible because people will not substitute the other. Decision-making is mostly centralised and quick. Benefits from delegation but can be costly as there are large numbers of managerial structures in the organisation. Leads to division between employees and managers, because they do not think they belong.
• Flat/horizontal strcuture means there are only a few levels of organisational hierarchy. Decision-making is motly decentralised and takes a longer time. Benefits from improved and quicker communications. However, they do not create promotional opportunities for employees and can over burden managers.

Line manager is a person who is directly above an employee on the next hierarchical level.

Chain of command is a system by which orders and organisation are passed down in an organisation. The more levels of hierarchy, the longer the chain of command is.

• Long chain of command
• Short chain of command

Bureaucracy is the execution of tasks that are guided by excessively complicated administrative rules and procedures.

Refers to filing reports, tedious paperworks, long chains of command, impersonal attitudes and hide degree of accountability.

Limits creativity.

Opposite of bureaucracy is adhocracy. Adhocracy.

Centralisation is the centralisation of power and decision-making in a single authority (one person/group of people).

Centralisation allows

• Quick decisions, sense of direction, control and efficiency in critical situations.

But it also

• Adds pressure to senior management
• Is inflexible
• Power plays
• Delays in decision-making (waiting for boss’ okay)
• Demotivating as there is lack of reward for employees.

Decentralisation is the transfer of power and decision-making from a single authority to several people/groups.

Decentralisation tends to

• Engage and motivate employees
• Promote teamwork

However it also

• Increase admin costs
• Time-consuming
• Hard to trace the mistakes
• Potential loss of control

Delayering is the process of reoving one or more levels in the hierarchy. ≠ Downsizing.

Delayering benefits

• Reduces costs
• Improves the speed of communication as there is shorter chain of command
• Encourages delegation and empowerment.

Delayering limitations

• Creates anxiety and sense of insecurity because employees do not know what they need to do.
• Overloads staff.
• Prolongs decision-making because there are more decision-makers.

Matrix structures is a flexible system whereby employees report to several managers and work in cross-departmental teams. It is common for project-based work.

The opposite of matrix structure is functional structure. But, matrix and functional structure can coexist in one organisation.

Types of organisation charts

Organisation chart is a graph that represents the structure of an organisation showing the relationships of accountability and responsibility.

With organisational charts, you can see:

Types of organisational charts