Organizational Structure (A2)

106, S.D.
S Jayasinghe Mw,
Kohuwela. Nugegoda A/S & A/L Cambridge
337/1 Negombo Road, Wattala
Organization Structure.
An organizational structure is the internal, formal framework of a business that shows the
way in which management is organised and linked together and how authority is passed
through the organization.
In other words, organization structure is the formal and systematic way the management of
the business is organized. When represented as a diagram, it shows the departmental function
and who is answerable to whom.
As organizations became larger and more complex, early management thinkers such
as F.W Taylor, Henry Fayol etc., considered how to structure an organization. They believed
that having a proper organizational structure will help to determine the manner and extent to
which roles, power and responsibilities are delegated, controlled and coordinated and how
information flows between levels of management.
A hierarchy describes the structure of management from top of the company through to the
lowest level employee. Therefore, the hierarchy of a business is best understood by drawing
an organizational chart showing which levels of management and employees report to whom.
➢ Roles – are different tasks that individual are responsible for.
➢ Authority – is the power to make decisions or to carry out a task. People at higher
level of the hierarchy have more authority than those at the lower levels. Also
authority that those at the lower levels. Also, authority could be delegated (passed
down) to lower levels by the superior
➢ Responsibility – means the obligation to carry out the duties entrusted to an
individual. Responsibility cannot be delegated.
1
Sameer Anis
CIMA Passed Finalist, Post Graduate Diploma (University of West London)
106, S.D.S Jayasinghe Mw,
Span of control.
The number of subordinates reporting directly to a manager (This is your definition)
The span of control of said to be wide if a superior is in charge of many employees and
narrow if the superior is in charge of a few employees.
Wide span of control
• No close supervision
• Less control
• Staff enjoy greater freedom therefore job satisfaction is higher
• If A is an inexperienced person, he may not be getting much attention in the structure.
Therefore his development will be very slow. On the other hand, if A is experienced
employee he does not require the support of the manager and he will enjoy his work.
Narrow span of control
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Sameer Anis
• Manager exerts tight control over his staff

• Gives instructions and follows up
• Less freedom, satisfaction is low
Chain of Command
Finance Manager
Chief Accountant
Accountant
Assistant
Accountant
Accounts
Executive
The figure shows that there is a route which instructions or commands are passed down from
finance manager to the accounts executive. This is called “chain of command”
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Long vs short chain of command (hierarchical structures)
Organization A
In its simplest form a tall organization has many levels of management and supervision.
There is a “long chain of command” running from the top of the organization e.g.: Chief
executive down to the bottom of the organization e.g.: shop floor worker. The diagram above
neatly captures the concept of a tall structure.
However, tall structures rarely exceed 8 levels of management. This is firstly because the no
of layers (i.e. management levels) decreases the span of control. Secondly the disadvantages
of the tall structure begin to outweigh the advantages of a tall structure.
Advantages of a tall organization/long chain of command
• There is a narrow span of control therefore managers can closely supervise their
employees and get work done quickly.
• Clear progression and promotion ladder
• There will be a clear management structure where each and everyone will know their
responsibilities.
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Sameer Anis
Disadvantages of a tall organization/long chain of command
• The freedom and responsibilities of employees is restricted.

• Communication has to take place through many layers of management
• High management cost because there are many levels of management.
• Not suitable for a market that is changing fast.
Organization B
In contrast to a tall organization a flat organization will have relatively few layers or just one
layer of management. This means that the “chain of command” from top to bottom is short
and the “span of control” is wide. Due to the small no of management layers. Flat
organizations are often small.
Advantages of flat organization /short chain of command
• Better team spirit

• Less bureaucracy and easier decision making
• Fewer levels of management therefore the cost will be low.
• Greater communication between workers.
Disadvantages of flat organization/short chain of command
• When the organisation is growing it cannot stay as a flat structure.

• Wide span of control therefore managers will find it difficult to monitor and control
employees.
• Roles of different people can be blurred or merged onto roles of others.
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Sameer Anis
Delegation
Delegation is the process where a superior or manager will pass down a part of his authority
and work to his immediate subordinate.
Advantages of delegation
• Manager’s workload will reduce. He will have more time to concentrate on important
things.
• Staff are empowered to take decisions and therefore they will be motivated, level of
commitment will increase
• Delegation helps staff to gain experience and this will lead to staff development.
Disadvantages of delegation
• Some managers don’t want to delegate because they fear that they would lose control.
• The manager may lack experience and therefore he may delegate the work to the
wrong person
• The manager should take full responsibility, but sometimes managers don’t follow up
after delegating the work and the staff may not complete the work on time.
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Delayering
Delayering involves removing one or more levels of hierarchy from the

organisational structure.
Frequently, the layers removed are those containing middle managers. For example,
many high-street banks no longer have a manager in each of their branches,
preferring to appoint a manager to oversee a number of branches. Some schools
adopt this policy too – with a director of studies looking after several schools in a
local area.
Delayering does not necessarily involve cutting jobs and overheads. But it does
usually mean increasing the average span of control of senior managers within the
business. This can, in effect, chop the number of layers without removing a single
name from the payroll, as the people affected are moved elsewhere in the business.
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However, it is fair to say that, increasingly delayering is seen as a way of reducing
operating costs, particularly as a response to the economic downturn.
Advantages of delayering
• Staffing cost will reduce as people are removed.

• Chain of command becomes shorter, communication is faster.
• Span of control will become wide, staff will have more job satisfaction because the
managers will delegate more work.
• Unwanted persons removed, organisation will become more lean; cost
competitiveness will increase (lower cost)
Disadvantages of delayering
• Staff are made redundant. Therefore the company will have to pay compensation to
the staff this leads to extra cost.
• The company’s image will go down, bad publicity, so customers may not want to buy
this company’s products.
• Increase workload for the remaining persons- more stress, quality of work will go
down.
• Existing employees will feel very insecure (no job security) – refer Maslow’s
hierarchy of needs.
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Sameer Anis
Centralization Vs decentralization
Centralized structures
Businesses that have a centralized structure keep decision making firmly at the top of the
hierarchy (amongst the most senior management).the top management will have good control
over operations.
Fast food businesses like burger king, pizza hut and Mc Donald’s use a predominantly
centralized structure to ensure that control is maintained over their many thousands of outlets.
The need to ensure consistency of customer experience and quality at every location is the
main reason.
Advantages Disadvantages
Easier to implement common policies Slows down decision making as all the
and practices for the business as a whole decisions have to be made by top
management, e.g.: customer wants discount,
decision can’t be taken by the salesman, it
has to be referred to the marketing manager
therefore decision making is slow.
Easier to implement common policies Those people at the lower level don’t have
and practices for the business as a whole much power therefore they feel demotivated.
Easier to co-ordinate and control from Since staff are not allowed to make decisions
the centre – e.g. with budgets their development is very slow.
Economies of scale and overhead Customer service does not benefit from
savings easier to achieve flexibility and speed in local decision-
making
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Sameer Anis
Decentralization
In a decentralized structure, decision making is spread out to include more junior’s managers
in the hierarchy as individual business units or trading locations. Good examples of business
which use a decentralized structure include the major supermarket chains like WM Morrison
and Tesco. Each supermarket has a store manager who can make certain decisions concerning
areas like staffing, sales promotion. The store manager is responsible to a regional or area
manager. Hotel chains are particularly keen on using decentralized structure so that local
hotel managers are empowered to make on-the-spot decision to handle customer
problems/complaints.
Decisions are made closer to Decision-making is not necessarily “strategic”
the customer
Better able to respond to More difficult to ensure consistent practices and
local circumstances policies (customers might prefer consistency from
location to location)
Improved level of customer May be some diseconomies of scale – e.g.
service duplication of roles
Consistent with aiming for a Who provides strong leadership when needed (e.g.
flatter hierarchy in a crisis)?
Good way of training and Harder to achieve tight financial control – risk of cost-
developing junior overruns
management
Should improve staff
motivation
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Sameer Anis
Types of organization structure
• Entrepreneurial –
• This type of structure is built around the owner manager and is typical of small
companies in the early stages of their development.
• The entrepreneur often has specialist knowledge of the product or service
• Example owner/managed business
Advantages
o There is only one person taking decisions - this should lead to decisions being made
quickly.
o As soon as an element of the market alters, the entrepreneur should recognise it and
act quickly.
o A lack of a chain of command and the small size of the organisation should mean that
the entrepreneur has control over the workforce and all decisions within the
organisation leading to better goal congruence.
Disadvantages
o This type of structure is usually suited to small companies where due to the size; there
is no career path for the employees.
o If the organisation grows, one person will not be able to cope with the increased
volume of decisions etc.
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➢ Functional – the organization is divided into function headed by

functional heads.
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➢ Divisional – each segment specialises in one product
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➢ Geographic: Each division is focused on one area.
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Matrix – structure with a combination of both functional and project based.
A matrix type of organisational structure combines the traditional departments seen

in functional structures with project teams.
In a matrix structure, individuals work across teams and projects as well as within
their own department or function.
For example, a project or task team established to develop a new product might
include engineers and design specialists as well as those with marketing, financial,
personnel and production skills.
These teams can be temporary or permanent depending on the tasks they are asked
to complete. Each team member can find himself/herself with two managers - their
normal functional manager as well as the team leader of the project.
An example of a matrix structure is illustrated below:
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Matrix structures have advantages and disadvantages.
Advantages
• Can help to break down traditional department barriers, improving communication

across the entire organisation
• Can allow individuals to use particular skills within a variety of contexts
• Avoid the need for several departments to meet regularly, so reducing costs and
improving coordination
• Likely to result in greater motivation amongst the team members
• Encourages cross-fertilisation of ideas across departments – e.g. helping to share good
practice and ideas
• A good way of sharing resources across departments – which can make a project more
cost-effective
Disadvantages
• Members of project teams may have divided loyalties as they report to two line
managers. Equally, this scenario can put project team members under a heavy
pressure of work.
• There may not be a clear line of accountability for project teams given the complex
nature of matrix structures.
• Difficult to co-ordinate
• It takes time for matrix team members to get used to working in this kind of structure
• Team members may neglect their functional responsibilities
It is important to remember that a matrix structure often sites alongside a traditional

functional structure – it is not necessarily a replacement.
Factors that influence organizational structure
• Size of the business.

• The style of management, or the culture of the managers. If senior managers adopted
a largely theory X approach, then functional structure would be adopted, but if they
adopt a theory Y management then matrix structure would be adopted.
• Corporate objectives – if the objective is to expand then structure such as divisional,
geographic maybe adopted.
• Adopting new technologies – if the business is using advanced tech it may help them
to delayer as computers can do most of the work.
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Formal Vs Informal Organizations
Organizations have a formal structure which is the way that the organization is organized by
those with responsibility for managing organization. They create the formal structures that
enable the organization to meet its stated objectives. Often these formal structures will be set
out on paper in the form of organization charts.
However, in the course of time an informal structure develops in most organizations which
are based on the reality of day to day interaction between members of the organization. This
informal structure may be different from that which is stated out on paper.
Sometimes the informal structure may conflict with the formal one. Where this is the case,
the organization may become less efficient at meeting its stated objectives. However, in some
cases the informal structure may prove to be more efficient at meeting organizational
objectives because the formal structure was badly set out.
Managers need to learn to work with both formal and informal structures. A flexible manager
will realize that elements of the informal structure can be formalized, i.e.: by adapting the
formal structure to incorporate improvements which results from the day-to-day working of
the informal structure. However, these organizations also benefit from informal structure
based on friendship groups. When managers nurture these informal groups and mold them
into the formal structure this can lead to high levels of motivation for the staff involved.
Line managers vs staff managers
• Line managers are the ones who have direct authority over others in an organizational
structure.
• Example: the sales director will have line authority over the sales manager for each of
the different products a firm sells.
• Staff managers are people such as specialists who provide support, information and
assistance to line managers.
• The line managers and staff managers usually have a conflict because they don’t like
it when the staff manager tells them how to do certain work.
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Sameer Anis
Real world example of delayering
Delayering at the BBC
A topical and excellent example of the concept of delayering in the news this week as the
BBC announced substantial job losses as part of a strategy of cost control aimed at also
improving the speed of decision-making in the organisation.
The BBC, which is mainly funded through the levy of the TV Licence Fee, has announced
plans to cut more than a thousand jobs as part of a long-term drive to reduce costs in the
face of an unexpected £150m shortfall in licence fee income. A significant increase in the
number of households saying they do not watch live TV, so do not pay for a licence, has been
blamed for the shortfall in revenues.
The BBC indicated that the majority of the positions to be cut would be in management, in
particular removing layers in the organisational hierarchy. It says the move is aimed at
becoming a simpler, leaner organisation.
According to the BBC, the 4 key areas for making the costs savings are:
1. Merging divisions, bringing together teams in BBC and BBC Worldwide

2. Cutting out management layers, reducing management levels from up to 10 in places
to seven (this is the delayering)
3. Reducing management roles, bringing down the number of senior positions
4. Simplifying procedures in professional areas including legal, marketing and finance.
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Sameer Anis
Real world example of span of control
It is often thought that there is an effective span of control of between 6-12 for a manager or
executive.
A narrow span of control can require more layers in the hierarchy but perhaps enables greater
supervision, collaboration and better communication.
A wide span of control potentially makes it harder to communicate (the article highlights the
issues that might arise for Tim Cook in meetings) but gives those executives more scope for
independent decision-making.
Of course we don't really know what Tim Cook's real span of control is.
And when you consider whether 17 is too wide, you might consider Apple's record of new
product innovation and profitability under Tim Cook. I doubt shareholders are too concerned.
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106, S.D.

➢ Roles – are different tasks that individual are responsible for.

The number of subordinates reporting directly to a manager (This is your definition)

Wide span of control

Narrow span of control

• Manager exerts tight control over his staff

Advantages of a tall organization/long chain of command

• The freedom and responsibilities of employees is restricted.

Advantages of flat organization /short chain of command

• Better team spirit

Disadvantages of flat organization/short chain of command

• When the organisation is growing it cannot stay as a flat structure.

Delayering involves removing one or more levels of hierarchy from the

• Staffing cost will reduce as people are removed.

➢ Functional – the organization is divided into function headed by

➢ Divisional – each segment specialises in one product

Matrix – structure with a combination of both functional and project based.

A matrix type of organisational structure combines the traditional departments seen

An example of a matrix structure is illustrated below:

• Can help to break down traditional department barriers, improving communication

It is important to remember that a matrix structure often sites alongside a traditional

Factors that influence organizational structure

• Size of the business.

Line managers vs staff managers

Delayering at the BBC

1. Merging divisions, bringing together teams in BBC and BBC Worldwide

Real world example of span of control

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