Chapter 13 Organizational structure

Functional Structure

This structure indicates:

 who has overall responsibility for decision-making

 the formal relationships between different people and departments
 the position of each individual in the business and who their line manager is
 the way in which accountability and authority may be passed down the organization
 the number of subordinates reporting to each more senior manager
 formal channels of communication, both vertical and horizontal
 the identity of the supervisor or manager to whom each worker is accountable

Business objectives and organizational structure

The division of responsibilities and the relationships between different sections of the business change
considerably in different circumstances, as follows:

New competitors enter the industry

In a competitive market, organizations need to be quick-acting and flexible in their structure to respond
to changing conditions and objectives. This flexibility allows the structure to adapt to the evolving needs
of the business over time.

The business grows and develops

As a business expands, its internal structure must change to accommodate the increased demand and
complexity. The entrepreneurial structure, suitable for small businesses, becomes too burdensome for
the owner or entrepreneur at the center as the business grows. This necessitates the addition of
managers or supervisors to manage the expanding workforce and delegate tasks effectively. The decision
to divide responsibilities by function or product will depend on the specific needs of the business.

Business objectives change

A business's organizational structure should reflect its long-term objectives. If the aim is to increase
international sales, the structure must include a regional marketing department. Similarly, if the focus is
on innovation and incorporating new technologies, a dedicated research and development department
is crucial. The structure acts as a framework for achieving the desired goals and must be adaptable to
evolving needs and priorities.

Intrapreneurship is being encouraged

Many businesses are now seeing intrapreneurship as a way of giving them a competitive advantage.
Traditional bureaucratic hierarchies are often poor at innovation as they are inflexible, focused on
topdown communication and do not encourage teamworking between departments.

Structural changes are needed to encourage intrapreneurs:

1. Form intrapreneurial teams to spark innovative ideas beyond departmental silos.

2. High levels of delegation and trust must be shown, with only minimum direct management control
on a day-by-day basis.
3. Flexibility of team membership is important. A team should be able to call on a specialist for a short
or a long period to help with its project.

Types of organizational structure

The functional structure

Advantages of functional structure

1. Employees display a high level of departmental loyalty and pride in the work
2. Encourages employees to become specialists and this can increase efficiency and productivity
3. Departments are led by managers who are specialists in the functional area

Disadvantages of functional structure

1. Vertical structure – doesn’t allow for good connections between departments

2. Coordination btw departments is difficult
3. Communication flows through department heads to top management, so employees may feel
remote from senior management.
4. There might be competition between departments, which may not benefit the whole organization

The hierarchical structure

Features:

Levels of hierarchy

Problems:

1. Communication through the organization can become slow

2. Spans of control are likely to be narrow as there is a clear relationship between the number of levels
in a hierarchy and the average span of control (see Spans of control below).
3. Those on lower levels can feel remote from the decision-making power at the top.

n contrast, a flat organizational structure will have few levels of hierarchy but will tend to have wider

spans of control.