Business (9609) | Organisational structure

Organisational Structure: The Skeleton of the Business (9609 A-Level)

Welcome to the chapter on Organisational Structure! Think of a business structure like the skeleton of a human body—it provides the framework, defines who is connected to whom, and dictates how efficiently tasks can be carried out.

In this chapter, you will learn why the way a business is organised is not random, but a critical strategic decision directly affecting its success, growth, and ability to manage people. This knowledge is essential for A-Level Human Resource Management (HRM) and Strategy topics.

Key Study Area 7.1.1: Objectives and the Purpose of Structure

An effective organisational structure is one that perfectly aligns with the company's long-term business objectives. If the objective is rapid innovation, the structure must be flexible. If the objective is cost control and efficiency, the structure might be more rigid.

Core Attributes of an Effective Organisational Structure

• Flexibility: Can the structure adapt quickly to changes in the market (e.g., new competitors or technology)?
• Meeting Business Needs: Does it efficiently support the core functions? (E.g., ensuring Marketing and Production teams can communicate easily).
• Allowing for Growth and Development: Can the company expand its operations or product lines without major internal chaos?
• Encouraging Intrapreneurship: Does the structure empower employees to be innovative and take calculated risks? (Often achieved through decentralisation and delegation.)

Quick Example: A small tech start-up needs rapid, flexible decision-making (flat structure) to support its objective of innovation (intrapreneurship). A huge, established bank needs strict control and clear rules (tall structure) to support its objective of financial security.

Key Study Area 7.1.2: Features and Types of Structure

Before looking at different structures, we must understand the essential building blocks. These describe the formal structure of a business.

Formal Features of Organisational Structure

1. Levels of Hierarchy: The number of layers of management or supervision in the organisation.
2. Chain of Command: The formal route through which communication flows and authority is passed down, from top management to the lowest employee.
3. Span of Control: The number of subordinates reporting directly to one manager.
4. Authority: The right or power to give orders and make decisions.
5. Responsibility: The duty to complete a task or job successfully.
6. Accountability: The requirement to explain to a higher authority how responsibilities were discharged (often referred to as 'answering for your actions').
7. Delegation: The passing down of authority to a subordinate (covered in detail in 7.1.3).
8. Centralised/Decentralised: Where decision-making power rests (covered in detail in 7.1.5).

The Relationship Between Span and Hierarchy

The span of control directly influences the shape of the hierarchy.

1. Tall (Narrow) Structure:

• Narrow Span of Control: Managers supervise few people.
• Many Levels of Hierarchy: Lots of layers from CEO to floor staff.
• Advantages: Tight control, clear progression (promotion), close supervision.
• Disadvantages: Slow decision-making (communication must travel many steps up and down), expensive (many managers needed), can demotivate staff (less freedom).

2. Flat (Wide) Structure:

• Wide Span of Control: Managers supervise many people.
• Few Levels of Hierarchy: Fewer layers between top and bottom.
• Advantages: Fast communication, lower costs (fewer managers), greater employee motivation (due to delegation and empowerment).
• Disadvantages: Managers may become overburdened, risk of loss of control, subordinates may not receive enough support or guidance.

Did you know? Many large organisations move towards a flatter structure by performing delayering, which means removing one or more layers of hierarchy.

Reasons and Ways Structures Change (Delayering)

Businesses change their structure, often due to growth, changes in strategy, or improving efficiency.

• Reasons for Delayering: To reduce costs (fewer management salaries), speed up communication, increase motivation through wider spans of control and delegation.
• Consequences of Delayering: Loss of management jobs (leading to low morale), increased workload for remaining managers, lack of clarity over roles during the transition.

Types of Organisational Structure (7.1.2)

1. Functional Structure

Organising the business according to different departments or functions (e.g., Marketing, Finance, Production, HR).

• Advantage: High levels of specialisation and expertise within each department. Clear career paths for specialists.
• Disadvantage: Can lead to "silos"—departments focusing only on their own objectives and not cooperating well with others (poor horizontal communication).

2. Structure by Product or Geographical Area (Divisional Structure)

Often used by large, diversified companies or multinationals. The business is split into separate divisions, each operating almost like a mini-business.

• Product Structure: Organising around specific product lines (e.g., a car company might have divisions for Trucks, Sports Cars, and Electric Vehicles).
• Geographical Structure: Organising around specific locations (e.g., Asia Division, European Division, North American Division).

Why use this? To allow better focus on the specific needs of a region or product, improving marketing efforts and customer service.

3. Matrix Structure

A complex structure where employees are grouped by function (their permanent department) but also work in temporary project teams. This means an employee reports to two bosses: a functional manager and a project manager.

• Advantage: Excellent for complex projects requiring input from various specialists. Improves communication and flexibility across functions.
• Disadvantage: Confusion over who the immediate boss is (breaking the classical principle of unity of command). Can be difficult to manage and lead to conflict.

Key Study Area 7.1.3 & 7.1.4: Delegation, Accountability, Authority, and Trust

These four concepts are crucial for effective management and are often confused by students.

Delegation and Accountability (7.1.3)

Delegation is about transferring the authority to perform a task to a subordinate.

The golden rule: A manager can delegate authority and responsibility, but they cannot delegate accountability.

Analogy: If a parent asks their child (subordinate) to bake a cake (task), the child has the authority to use the oven and ingredients. If the cake burns, the child is responsible for the mistake, but the parent is still accountable to the family (higher authority) for the dinner party going wrong.

The Impact of Delegation on a Business (7.1.3)

• Managers: Reduces workload, allowing them to focus on strategic, high-level tasks.
• Subordinates: Acts as a powerful non-financial motivator (job enrichment/empowerment). Provides training opportunities and career development.
• Business: Improves decision-making speed as decisions are made closer to the action.

Authority, Responsibility, Control, and Trust (7.1.4)

The difference between authority and responsibility is subtle but key:

• Authority: The power to instruct others. (This is *given*).
• Responsibility: The duty to ensure a task is done. (This is *accepted*).

Conflicts Between Control and Trust (7.1.4)

When a manager delegates a task, they inherently give up some control. They must replace that control with trust in the subordinate's ability.

If a manager delegates but still constantly checks up on the subordinate (known as micromanagement), conflict will arise. The employee will feel untrusted and demotivated, defeating the whole point of delegation.

Key Study Area 7.1.5 & 7.1.6: Centralisation, Decentralisation, Line and Staff

Centralisation vs. Decentralisation (7.1.5)

This defines the extent to which decision-making power is concentrated.

Centralisation:

• Decision-making power is held at the top (Head Office/Senior Management).
• Impact: Ensures strict control, consistency across all operations (e.g., all branches use the exact same procedures), and good for crisis management.
• Downside: Slow response to local issues, decisions lack local knowledge, and demotivating for lower-level managers.

Decentralisation:

• Decision-making power is passed down to local managers or regional divisions.
• Impact: Faster decision-making, greater responsiveness to local customer needs, highly motivating for branch managers (encourages intrapreneurship).
• Downside: Risk of loss of control by head office, lack of uniformity across the business, potential for costly mistakes if local managers are inexperienced.

Business Context: A fast-food chain like McDonald's might centralise its menu and branding (to maintain consistency) but decentralise its staffing and promotional spending (to respond to local labour markets and events).

Line and Staff Functions (7.1.6)

This distinction helps clarify roles, especially in larger organizations.

1. Line Functions (Line Managers)

• These employees are directly involved in the company’s main goal (e.g., Production, Sales, Marketing).
• Line managers have direct authority over their subordinates in the main chain of command.
• Example: A production supervisor, a sales floor manager.

2. Staff Functions (Staff Managers)

• These employees provide support, expertise, and advice to the line functions, but do not directly instruct line workers on core tasks.
• Example: Human Resources, Legal Department, IT support, Accounting.

Conflicts Between Line and Staff Functions

Conflict frequently arises because staff managers (e.g., an HR specialist) may recommend changes that affect line operations (e.g., new safety protocols), but they are not held responsible for the day-to-day output.

Line managers may argue that: Staff managers are "ivory tower" theoreticians who interfere without understanding the pressures of production, slowing down operations.

Staff managers may argue that: Line managers resist necessary change (e.g., better safety or quality measures) because they only focus on short-term output targets.