ORGANISATIONAL STRUCTURE

Organisational structure
Assessment Criteria
Compare and contrast different
organizational structure
Explain how the relationship between an
organization’s structure can impact on the
performance of business

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Learning Objectives
The nature of & influence on both formal &
informal organisation
Different organisation structures & network
Organisation charts
Contents
Organisational structure
Organisation & departmentation
Organisational networks & linkages
Organisation chart
Organisation structure
What is organisational structure
Objectives of organisational structure
What influences the structure?
Formal structure vs Informal structure
Types of organisation
Key elements define organisational structure
 Organizational structure is the system of task,
reporting, and authority relationships within which the
work of the organization is done.

The purpose of an organizational structure is to order

and coordinate the actions of employees to achieve
organizational goals.

1–6
 Manufacturing
Operations Finance & Marketing
Facilities: Accounting Sales
Construction:maintenance promotions
Disbursements/credits Advertising
Production & inventory control
Scheduling: materials control Receivables Sales
Payables Market
Supply-chain management
General ledger research
Manufacturing Funds Management
Tooling, fabrication,assembly
Money market
Design
Product development and design International
Detailed product specifications exchange
Industrial engineering Capital requirements
Efficient use of machines, space, and personnel Stock issue
Process analysis Bond issues and
Development and installation of production tools recall
and equipment
 Types of organisation EXAMPLES
Types of biz What do they do
activities
Manufacturers They buy in raw materials & components, co-ordinate
labor, machinery & processes to convert these inputs into
more complex components or finished products (outputs),
then sell them
Contractors They are brought in to carry out operations or projects for
Sub- clients, according to the terms of a contract or agreement
contractors about what is to be done, at what price & by what date.
Distributors, They buy products which others have produced, and then
wholesalers, sell them to customers
retailers

Service They buy (employ people with) knowledge & expertise,

organisations which is sold to customers &clients
Not-for-profit These perform a full range of biz. transactions, but do not
organisations have the primary aim of making money for their owners
 Manufacturing
Operations Finance & Marketing
Facilities: Accounting Sales
Construction:maintenance promotions
Disbursements/credits Advertising
Production & inventory control
Scheduling: materials control Receivables Sales
Payables Market
Supply-chain management
General ledger research
Manufacturing Funds Management
Tooling, fabrication,assembly
Money market
Design
Product development and design International
Detailed product specifications exchange
Industrial engineering Capital requirements
Efficient use of machines, space, and personnel Stock issue
Process analysis Bond issues and
Development and installation of production tools recall
and equipment
 Objectives of structure Reasons
To link ind. in established => Authority, responsibility &
network of relationships communication can be
controlled
To group together tasks Being done on basis of
required to fulfill objectives of functions, geographic areas,
org. as a whole, & to allocate product or product types
them to suitable ind. or
groups=> departmentation
To allocate to ind. or groups =>Creates hierachy or chain
the authority required to of command, whereby
perform their functions, as well authority flows down from
as the responsibilities to senior management to each
account for their performance level of org., & accountability
to their superiors flows back up
To co-ordinate objectives & => Overall aims are achieved
activities of separate units without gaps or overlaps in the
flow of work
To enable flow of work, info, => All the different parts of
What influences the structure?

Its size. As org. get largers, its structure gets more

complex=> specialisation & subdivision required
Its task – nature of its work. Structure is shaped by
divisions of work into functions & ind. tasks, & how
these tasks related to each other
Its staff. Skills and abilities of staff will determine how
the work is structure & the deegree of autonomy or
supervision required
Its legal, commercial, technical & social environment
Its age: the time it’s had to develop and grow
Its culture & management style : willing to delegate,
teamwork
Formal organisation vs Informal organisation
Formal organisation means the way people
work to accomplish their tasks, to achieve
their goals in line with the organisational
goals =>‘controlled performance of collective
goals’
Informal organisation is one which is
loosely structured, flexible, spontaneous,
fluctuating with its individual membership. It
is made up of relationship amongst individual
members. Informal organisation always exist
within formal organisation.
Formal organisation
‘Controlled performance of collective
goals’=> formal organisation
Deliberately constructed to fulfill specific
goals
Characterised by planned division of
responsibility and a well-defined structure
of authority and communication
Organisation structure provides for
consistent functions & roles, irrespective
of changes in individual membership
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Formal organisation
 Salesteam
 Production
department
 Plant of Biscuit
 Hanoi Branch of
ABN

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 Informal organisation
Network of Made up of
relationships,
communication, & People who form social
ideas that links people groups or cliques, or
Loosely structure, temporary networks,
flexible and communication or alliances
spontaneous form of Informal customs & ways of
org. which alters getting things done which
according to its become unwritten rules or
memberships at any the way we things round here
given time
Informal channels of
Always exist alongside
communication which by-pass
formal structure
official channels
Informal organisation
Loosely structured, flexible, spontaneous,
fluctuating with its individual membership
 Lunch together
 Shopping
 Tennis
 Game online

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 Specialization
Departmentalization
Chain of command
Span of control
Centralization and decentralization
Formalization

1–17
Work Specialization
The degree to which tasks in the organization are divided into
separate jobs
 Advantages??
 Disadvantages??

1–18
 Specialization
Departmentalization
Chain of command
Span of control
Centralization and decentralization
Formalization

1–19
 Grouping
GroupingActivities
ActivitiesBy:
By:
• • Function
Function
• • Product
Product
• • Geography
Geography
• • Process
Process
• • Customer
Customer

1–20
 Specialization
Departmentalization
Chain of command
Span of control
Centralization and decentralization
Formalization

1–21
 Authority
Unity of command

1–22
Chain of Command
The scalar chain of
command: formal CEO
organisation
structure with Director Director Director
hierarchy from
highest to lowest
ranks. Mgr
Authority passes
down the chain:
superior give orders Teamleader
& instructions to
subbordinates,
subordinates report W1
back up the chain to
their superior
W2
 Specialization
Departmentalization
Chain of command
Span of control
Centralization and decentralization
Formalization

1–24
 Narrow span of control?
Wide span of control?

Right span of control? => depends

on
Manager’s capabilities
The nature of manager’s work load
Subordinates’ work
The degree of interaction between
1–25 subordinates
 Tall organisation
Tall organisation
is one which, in
relation to its
size, has a large
number of levels
of management
hierarchy =>
narrow span of
control
Tall organisation
For Against
Narrow span of control Inhibit delegations
Small group enable Rigid supervision can be
team members to imposed, blocking initiative
participate in making The same work passes
decisions through many hands
Large number of steps Increase admin & overhead
on the promotional cost
ladders – assists Communication problems,
management training
as decisions take time to
filter down
Flat organisation
Flat organisation
is one which, in
relation to its
size, has a small
number of levels
of management
hierarchy =>
wide span of
control
Flat organisation
For Against
More Implies that jobs can be delegated
opportunities for Managers may only get a
delegation superficial idea of what goes on. If
Relatively cheap they are overworked they are
In theory, speeds more likely to be involved in crisis
up communication mgt
between strategic Sacrifies control
apex & operating Middle mgrs are often necessary
core to convert grand vision of
strategic apex into opreational
terms
1–30
 Specialization
Departmentalization
Chain of command
Span of control
Centralization and decentralization
Formalization

1–31
Centralisation & decentralisation
Centralisation is Decentralisation is
the concentration of the dipersion of
authority for authority to make
making most decisions
decisions at the top throughout all
levels of the levels of the
organisation organisation

Centralisation also refers to the extents to which people have

to refer decisions upward to their superiors.
Decentralisation implies delegation
 Arguments in favour of centralisation
& decentralisation
Pro
Pro centralisation
decentralisation/delegation
1. Decisions are made 1. Avoids overburdening top
at 1 point => easier mgrs (workload & stress)
to co-ordinate 2. Improves motivation of
2. Senior mgrs can take more junior mgrs
a wider view of
problems & 3. Greater awareness of local
consequence problems by decision
makers. Geographically
3. Senior mgrs can keep
dispersed organisations
a proper balance should often be
between different decentralised on a
dept. & functions regional/area basis
 Arguments in favour of centralisation
& decentralisation (cont.)
Pro
Pro centralisation
decentralisation/delegation
4. Quality of decisions is 4. Greater speed of decision
(theoritically) higher due to making, & response to changing
senior mgrs’ skills & events, since no need to refer
experience decisson upwards
5. Helps junior mgrs to develop &
5. Possibly cheaper, by reducing helps process of transition from
number of mgrs needed => functional to general
lower overhead costs management
6. Crisis decisions are taken 6. Separate spheres of
more quickly at the centre, responsibility can be identified:
without need to refer back, get controls, performance
measurement, accountability are
authority etc
better
7. Policies, procedures &
7. Communication technology
documentation can be
allows decisions made locally,
standardised organisation-
with info & input from head
wide
 Specialization
Departmentalization
Chain of command
Span of control
Centralization and decentralization
Formalization

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  Procedures • Standards
 Regulations •Guidelines

 Rules •Handbook

 Discipline •Instructions

1–36
Organisation & departmentation
By geography
By function
By product/brand
The Matrix
Multifunctional teams & multidivisional
structures
Organisation & departmentation
By function
Functions - Bank
Commercial Bank
© 1984-1994
T/Maker Co.

Marketing Operations Finance/

Accounting

Teller Check Transactions

Security
Scheduling Clearing Processing
Functions - Airline
Airline © 1984-1994 T/Maker Co.

Marketing Operations Finance/

Accounting

Flight Ground Facility

Catering
Operations Support Maintenance
Functions - Manufacturer
Manufacturing

Marketing Operations Finance/

Accounting

Manufacturing Production Quality

Purchasing
Control Control
 Organisation & departmentation
By function
Advantages Disadvantages
 Expertise is pooled &  It is organisation by inputs
related & internal process, rather
technology/equipment/m than by outputs & customer
aterials accessed more demands
effectively  Communication problems
 Avoids duplication & may arise between different
specialisms, with their own
offers economies of
cuture & language
scale
 Poor co-ordination, may
 Make easier the
result, specially in a tall
recruitment, training, organisation structure.
motivation of Frequent upward referrals,
professional specialists or inter-deparment
meetings, need to be held
Organisation & departmentation
By geography
 Organisation & departmentation
By geography
Advantages Disadvantages
 There is logical  Duplication & possible
decisions-making at the loss of economies of scale
point of contact between might arise
org. & its customers,
suppliers & other
stakeholders
 Inconsistency in
 Maybe cheaper to
standards may develop
establish local
from one area to another
factories/offices than to
service makets from one
location
Organisation & departmentation
By product/brand
 Organisation & departmentation
By product/ brand
Advantages Disadvantages
 Accountability. Individual  Increases overheadcosts
managers can be held & managerial complexity
accountable for  Different product
profitability of individual divisions may fail to
products share resources &
 Specialisation. customers
 Co-ordination. Different
functional activities &
efforts required to make
& sell each product can
be co-ordinated &
integrated by the
divisional/product
Organisation & departmentation
Matrix
Organisation & departmentation
Matrix
Advantages??? Disadvantages???
Organisation & departmentation
Multifunctional teams
 Organisation & departmentation
Multifunctional
Advantages Disadvantages
 Eliminate barriers  Conflicting loyalties
between operating dept. among members
 Improve morale due to  Excessive time spent in
cross-functiona meetings
interaction  Effective use of time
 Improve quality and depends on quality of
speed of decision- interpersonal relations,
making group dynamics, and
 Increase enthusiam for team mgt.
work
Organisation & departmentation
Multidivisional structure
 Organisation & departmentation
Multidivisional
Advantages Disadvantages
 Better finance and  Burearcratic costs
strategic control –  Difficulty establishing
decision –making
authority relationship
responsibility is retained
 Communication problems
at the headquarter’s level
 Growth is easier – new  Competition for
units do not have to be resources
integrated across
organisation
 Stronger pursuit of
internal efficiency –
performance of individual
units is readily
measurable
Organisation chart
Units into which the organisation is divided &
how they are related to each other
 Formal communication & reporting channels
Structure of authority, responsibility &
delegation
Any problems
 Commercial Bank

Operations Finance Marketing

Teller Scheduling Investments Loans
Check Clearing Security Commercial
Transactions Real Estate Industrial
processing
Financial
Facilities Accounting Personal
design/layout
Vault operations Mortgage
Maintenance Auditing
Security Trust Department
 Airline

Operations Finance & Marketing

Ground support Traffic
equipment Accounting administration
Maintenance Accounting Reservations
Payables Schedules
Ground Operations
Receivables Tariffs (pricing)
Facility maintenance
Catering General Ledger Sales
Finance
Flight Operations Advertising
Crew scheduling Cash control
Flying International
Communications exchange
Dispatching
Management science
Organisational networks
& linkages
Network structures
Internal network
Vertical network
Dynamic network
Network structures
A network is a comtemporary
organisational structure that is founded on
a set of alliances with other organisations
that serve a wide variety of functions

57
 Internal network
•Traditional organisations
in which divisions or units
of the same firm are seen
as separate profit centres
• These profit centers are Broker/
given freedom to buy & sell server
from each others & also
from others outside the
firm.
=> Aims to inspire
entrepreneurship internally
without using outsourcing
 Vertical or stable network
 Consist of central
organisation that Distributor Distributor
outsource much of their Franchisee 1 Franchisee 2
operations to other
companies
 Include long-term
relationships that often Core firm
appear in mature
industries with largely
predictable market cycles
=> Serve to spread risk Supplier 1 Supplier 2
across a number of
separate layers &
encourage the network
to support product Supplier 3
diversity & innovation
 Dynamic network
 They are more
temporary alliances of Producer
firms with key skills
Designer
usually around a lead or
a brokering firm
 Each of the units tends
to be independent & Core firm
collaborates on a
specific project or
opportunity, & then,
disbands, later to Distributor Marketer
connect again, perhaps
with others, for another
project
=> in toys, fashion, Supplier
publishing industries
Trends of organisations today
 Flat structure => encourage communication and
decision making, more responsive
 Horizontal structures =>functional flexibility (through
muti-functional project teams and multi-skilling, eg)
 Chunked and unglued structures =>means team-
working & decentralisation, or empowerment, creating
smaller and more flexible units
 Output-focused structures=> focus on results &
customers, instead of internal process and functions for
their own interest
 Jobless structure s=> people need to have a portfolio of
skills and competencies which are valuable on open
market,: they need to be mobile, moving between org,
rather than settling in to a particular job
Organisation chart
Horizontal
Organisation chart
Concentric
 Managerial authority
Managerial authority
consists of
 Making decisions within
scope of authority given to
the position
 Assigning tasks to
subordinates, and expecting
satisfactory performance of
these tasks

64
Forms of authority
Line authority
Staff authority
Functional authority

65
Line authority
Is the authority a manager has over a
subordinate, arising from their respective
positions in the organization hierarchy.
If you have line authority, you can exercise
position power over someone immediately
below you.

66
Staff authority
Is the influence wielded when an expert give
specialist advice to another manager or
department, even if there is no direct line
authority.
Examples
legal advice from legal dept.
Advice on budgetary constraints from the
accounts dept.

67
Functional authority
Is staff authority which has been built into
the structure and policies of the
organization => which means a specialist
department lays down procedures and
rules for other department to follow within
the area of its expertise.

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