Organisational structure (11)

Question 1

SUMMARY

Answer 1

In summary, the following are covered in this topic:
1. An organisational structure is the internal, formal framework of a business that
shows the way in which management is linked together and how authority is
transmitted.
2. Elements of organisation structure include hierarchy of authority; span of
control; authority; responsibility and delegation; and degree of centralisatIon.
3. There are two approaches to organisational structure; mechanistic and organic
approach.
4. The different ways organisation structure can be designed include simple,
functional, divisional and matrix structure.

Question 2

What is an Organisation?

Answer 2

An organisation refers to a group of people that is organised to meet a need or to pursue collective goals.

Question 3

Note:

Answer 3

In summary, an organisational structure will:
 provide the framework to get work done so that members with the same goals
and objectives can come together and pool their resources,
 satisfy the needs for social interactions among members and other business
needs.

Question 4

What is an Organisational Structure?

Answer 4

An organisational structure is the internal, formal framework of a business that shows the way in which management is linked together and how authority is transmitted.

It helps a business to achieve its goal by providing a framework to formally define working relationships among the members of the organisation.

Managers rely on formal organisational structure to coordinate and control the organisation’s work.

Question 5

What is an Organisation Chart?

Answer 5

Organisation chart is a diagram which shows:
 the individual with overall responsibility for decision-making and the way in
which accountability and authority may be passed down the organisation
 the formal relationships between people and departments, and how
employees and tasks are grouped.
 the number of subordinates reporting to each manager
 the formal channels of communication, both horizontal and vertical.

Question 6

What are the elements included in the Organisational Structure?

Answer 6

The elements of organisational structure include:
1) Hierarchy of authority;
2) Span of control;
3) Authority, responsibility and delegation; and
4) Degree of centralisation.

Question 7

What is the Hierarchy of authority?

Answer 7

The hierarchy of authority refers to the organisation power structure where the
amount of authority increases the higher the level an individual is in the hierarchy
of the organisation.

Each level in the hierarchy represents a grade or rank of staff.

Employees in the lower ranks will report to those in the higher ranks.

The levels of hierarchy also helps to define a clear promotion path.

Question 8

Based on the level of hierarchy, what are the two forms of organisational structure that can emerge?

Answer 8

Based on level of hierarchy, two forms of organisational structure can emerge:
 A tall (or narrow) organisational structure which has a large number of levels of hierarchy
 A flat organisational structure with few levels of hierarchy

Question 9

What are the advantages of a tall organisational structure?

Answer 9

The advantages of a tall organisational structure are:

1) Greater direct control.
The small span of control at each level allows the managers to exercise greater direct control especially when this control is required and cannot be achieved through any other way.

2) Provide greater attention and guidance.
Each manager has fewer employees to supervise and could pay more attention and give proper guidance to his or her subordinates.

Question 10

What are the disadvantages of a tall organisational structure?

Answer 10

The disadvantages of a tall organisational structure are:

1) Increased operation costs.

In a tall organisational structure, more managers are
required and this is likely to result in higher administrative and operation costs.

2) Poor communication.

Communication may get distorted as information has to
be filtered through many levels.

3) Reduced motivation.

Tighter control by the supervisors can prevent
subordinates from exercising self-direction and control. This decreases their
motivation and opportunities to develop new job skills.

Question 11

What is Span of control?

Answer 11

Span of control refers to the number of subordinates reporting directly to a manager.

Question 12

What is Wide/Narrow Span of control?

Answer 12

In a wide span of control, a manager is directly responsible for many subordinates.

In a narrow span of control, a manager is only responsible for a few subordinates.

Question 13

Note

In general, for organisational structures, the wider the span of control, the fewer the levels of hierarchy.

As a business grows and the total number of employees increases, senior management might be faced with a decision on whether to increase the number of levels of hierarchy or increasing the span of control.

Question 14

What are the factors to consider when deciding on whether to increase the number of levels of hierarchy or increasing the span of control?

Answer 14

Factors to be considered include:
 Characteristics of manager: experience, training, ability to problem-solve
(competence).
 Characteristics of subordinates: experience, training, commitment, initiative
(competence).
 Characteristics of the situation: nature of work (routine, repetitive, requiring
interactions, complexity).
 Degree of geographical distance between managers and subordinates
 Consistency of operations (rate of change)

Question 15

Note:

In an organisational structure where span of control is narrow, superiors may find it easier to have close control of the workers, but workers may feel like there is no trust in them by their superiors.

Hence, conflicts might arise between control and trust and there may be impact on motivation.

Question 16

What is Authority?

Answer 16

Authority refers to the power inherent in a particular job or position that is meant to enable its holder to carry out his or her responsibilities successfully.

This power is delegated formally and includes a right to command a situation, commit resources, direct orders and expect them to be obeyed.

Authority is always accompanied by an equal responsibility for one’s actions, and accountability for any job done poorly.

Question 17

What is Responsibility?

Answer 17

Responsibility refers to the obligation to perform duties and achieve the goals and
objectives associated with a particular position.

In essence, the task assigned must be satisfactorily performed or completed, and any failure would result in a
consequent penalty.

Question 18

What is Delegation?

Answer 18

Delegation refers to the passing down of authority to perform tasks and take decisions from higher to lower levels in the organisation.

This is an important element due to its impact on organisational structure as well as subordinate
employees’ motivation levels.

Question 19

Note:

In general, the greater the span of control, the greater the degree of delegation that
is undertaken.

Delegating authority to subordinates demonstrate trust from the manager.

While subordinates are accountable to the manager for good
performance, the manager is still wholly responsible for the work done regardless
of whether delegation is undertaken.

Question 20

What are the benefits derived from Delegation?

Answer 20

Delegation can result in the following benefits:

 Time to focus on important matters.

By delegating authority and decision-making to subordinates, time and space could be free up for senior and middle manages to focus on important or strategic matters such as reviewing business objectives and targets.

 Improved motivation.

By delegating authority to subordinates, managers demonstrate that they are willing to show trust in them and their decision-making ability and competence. Hence, subordinates are more likely to be motivated and perform better in their tasks.

 Succession planning.

Through delegation, subordinates are exposed to and given the opportunity to undertake greater decision-making and more challenging tasks. This also provides senior management with the platform to identify employees with the potential to be advanced to senior positions, so that further training and development opportunities could be provided for these employees.

 Achieved fulfilment.

Some employees might seek fulfilment and delight by completing challenging tasks or through powers to make decisions. Delegation would help them achieve that.

Question 21

Note:

However, it must be noted that delegation will not become successful if the task is
not well-defined or if insufficient training is provided to the subordinate.

This is because the subordinate might not be clear on what is required to complete the
task, or he/ she might not have the knowledge or skill-sets to make the best
decisions.

The delegation is also unlikely to work well if the subordinate is not given
sufficient authority as he/she will be unable to command others and expect
instructions to be obeyed.

Also, if managers only delegate jobs which are not challenging, subordinates are unlikely to be motivated.

Question 22

What is Centralisation and Decentralisation?

Answer 22

Centralisation and decentralisation refers to the extent in which authority and
decision making power are delegated.

In a centralised organisational structure, decision-making authority is concentrated at the top of the business.

In a decentralised organisational structure, decision-making authority is delegated to employees in lower level positions.

No organisation is totally centralised or decentralised.

Question 23

What are the advantages of Centralisation?

Answer 23

The advantages of centralisation are:

1) Faster decision-making.

As a fixed set of rules and procedures apply in all areas of the business, there is less room for discussions and this should lead to faster decision-making.

2) Reduced confusion in customers.

The business has consistent policies throughout the organisation. This prevents any conflicts between the divisions and avoids confusion in the minds of consumers.

3) Interests of the whole business.

Decisions are made by senior managers in the
interest of the entire business, not just for the benefit of one division or
department.

4) Economies of scale.

A centralised business is likely to purchase resources and
raw materials centrally, and this is likely to allow for greater economies of scale.

5) Experienced decision-makers.

The senior management in the main office is
likely to be seasoned and experienced decision-makers, and they are likely to
make better decisions.

Question 24

What are the advantages of Decentralisation?

Answer 24

The advantages of decentralisation are:

1) Localised decisions made.

As conditions might vary across different locations, managers with local knowledge and direct or close contact with customers are likely to make decisions that suit such conditions.

2) Development of junior managers.

A decentralised business would allow for more junior managers to be developed and prepared for challenging roles.

3) Improved motivation.

Delegation and empowerment are made easier and these will have positive effects on motivation.

4) Faster and more flexible decision-making.

Decision-making in response to changes, for example in local market conditions, should be quicker and more
flexible as head office will not have to be involved every time.

Question 25

Why is Structure a valuable tool in achieving coordination?

Answer 25

Structure is a valuable tool in achieving coordination, as it specifies reporting relationships, delineates formal communication channels, and describes how separate actions of individuals are linked together.

Question 26

What are the two approaches to organisational structure?

Answer 26

1) Mechanistic approach 2) Organic approach

Question 27

What are Organisational structures with Mechanistic approaches?

Answer 27

Organisational structures with a mechanistic approach are highly formalised; many rules and regulations are in place to govern employee behavior and work. Authority is centralised. Communication tends to follow formal channels and employees are given specific job descriptions delineating their roles and responsibilities. Tasks and rules are clearly specified and employees are closely supervised. Organisational structures with a mechanistic approach tend to resemble a bureaucracy, and are often rigid and resist change.

Question 28

What are the advantages of a Mechanistic approach?

Answer 28

The following are advantages of organisational structures with a mechanistic approach: 1) Efficiency. The mechanistic approach is beneficial for businesses that are trying to maximize efficiency and minimise costs. For example, McDonald’s has a famously bureaucratic structure where employee jobs are highly formalized, with clear lines of communication and specific job descriptions. This structure is an advantage for them because it allows McDonald’s to produce a uniform product around the world at minimum cost. 2) Ideal for new businesses. The mechanistic approach is ideal for new businesses. New businesses often suffer from a lack of structure, role ambiguity, and uncertainty. Using a mechanistic approach tend to improve to performances of new ventures

Question 29

What are the disadvantages of a Mechanistic approach?

Answer 29

The following are disadvantages of organisational structures with a mechanistic approach: 1) Inhibits innovativeness and slows down decision-making. As the mechanistic approach is often rigid and resist change, this makes it unsuitable for innovativeness and taking quick action. As a result, the downside of inhibiting entrepreneurial action and discouraging the use of individual initiative on the part of employees are formed. 2) Reduced intrinsic motivation. Organisational structures with a mechanistic approach limits individual autonomy and self-determination, which will likely lead to lower levels of intrinsic motivation on the job.

Question 30

What are Organisational structures with the Organic approach?

Answer 30

Organisational structures with an organic approach are flexible and authority is decentralised and there are fewer rules and procedures. Communication lines are more fluid and networks of employees are encouraged to cooperate and respond quickly to unexpected tasks. Employee job descriptions are broader and employees are asked to perform duties based on the specific needs of the organisation at that time as well as their own expertise.

Question 31

What is the advantage of organisational structures with the Organic approach?

Answer 31

One advantage of organisational structures with an organic approach is higher job satisfaction. The organic approach tends to result in higher levels of job satisfaction on employees, due to the conducive environment for entrepreneurial behavior and innovativeness. The organic approach would negate the disadvantages of the mechanistic approach, and vice versa.

Question 32

What is Simple organisational structure?

Answer 32

The simple organisational structure is a basic organisational design structure with low departmentalization, little work specialization, wide span of control, centralised authority and few rules that govern operation. The owner typically holds most of the authority. Businesses that use a simple organisational structure are typically flat, such that there are not many hierarchical levels.

Question 33

Note: This simple organisational structure is most widely used in smaller businesses, in which the coordination of work can be effectively structured around a narrow set of activities and decision-makers, who are able to coordinate activities quickly and effectively. The simplicity of a simple organisational structure makes it responsive to new challenges, and makes it easy to coordinate activities within the company. However, this structure becomes inadequate when the organisation grows in size and complexity. Due to the small number of employees in a small business using a simple organisational structure, it is necessary for each employee to perform multiple functions in various areas of the business, therefore creating little departmentalisation.

Question 34

What are the advantages of a simple organisational structure?

Answer 34

The following are some advantages of a simple organisational structure: 1) Full control by owner. A simple organisational structure enables a business owner to have tight control over business operations. No decisions are made without the owner’s approval, and he/she is aware of every important decision made. 2) Clearer instructions for employees. Employees would not be confused about instructions because their orders come directly from the top, not a department head or middle manager. 3) Faster decision-making. Decision-making is faster because there are no layers of management that ideas or requests need to climb before approval.

Question 35

What are the disadvantages of a simple organisational structure?

Answer 35

The following are some disadvantages of a simple organisational structure: 1) Increased workload of owner. Using a simple organisational structure would increase the workload of the owner, or that of the person at the top. An owner might become swamped with work, if he has to approve every decision at a company. 2) Unmotivated employees. Some small businesses with a simple organisational structure might hire specialised employees who are qualified to make decisions. However, due to the owner’s unwillingness to delegate, these employees have to wait for approval on actions, making them unhappy or unmotivated as a result. 3) Overdependence on owner. If an owner is sick or away on a business trip, business operations could come to a standstill, because no one can move forward to take advantage of an opportunity or to solve a problem until the owner is available again.

Question 36

What is a Functional Organisational structure?

Answer 36

A functional organisation structure is a hierarchical organization structure whereby employees are grouped according to their skills, resource use and expertise. They would be supervised by a functional manager with specialisation in the same area. This helps the manager to effectively manage and utilise the skills of employees, which ultimately helps the business achieve its objectives.

Question 37

Note: In a functional organisational structure, common functional departments include marketing, production, human resources, finance and administration. Explicit job titles, chain of command, reporting relationships and a well-defined channel of communication exist within these specialized work units in order to maximize their functionality. A functional organisational structure is ideal for businesses that produce a single product line within a limited product market.

Question 38

What are the advantages of a Functional organisational structure?

Answer 38

The following are some advantages of a functional organisational structure: 1) Specialisation. When companies use a functional organisational structure, employees with similar knowledge and skills are grouped together. This makes it possible for them to become specialists in their field. 2) Career development/ advancement for employees. A functional organisational structure together with a performance management system allows for the promotion and development of individual skills within their functional area. The specialisation that functional structures hone helps to bring about in-depth knowledge and skill development among the employees. In addition, the clear nature of the career path within the functional unit makes it possible for employees to be highly motivated to advance their careers as they move up within the hierarchy. 3) Improved productivity. Specialisation leads to operational efficiencies and enhances productivity levels. Because of their expertise, employees with specialized skills can perform tasks quickly, efficiently and with more confidence, thus reducing the occurrence of work-related mistakes.

Question 39

What are the disadvantages of a Functional organisational structure?

Answer 39

The following are some disadvantages of a functional organisational structure: 1) Slow decision-making. Communication in organizations with functional organisational structures can be rigid because of the standardised ways of operation and the high degree of formalisation. This can further make the decision-making process slow and inflexible. 2) Reduced employee motivation. Since it is more bureaucratic, functional units are often not accountable to each other, and poor coordination within the departments can occur. Lack of innovation and restricted views of organisational goals, along with too much focus on department goals or benefits can affect employees' sense of belonging and motivation. 3) Poor coordination. Even though functional units often perform with a high level of efficiency, their level of cooperation with each other is often compromised. Departments may have difficulty working well with each other as they may be unwilling to cooperate. The occurrence of infighting among departments may cause delays, reduced commitment due to competing interests, and wasted time, making projects fall behind schedule. This ultimately can bring down the overall production levels and employee commitment toward meeting business objectives.

Question 40

What is a Divisional organisational structure?

Answer 40

A divisional organisational structure gives a business the ability to segregate large sections of the business into groups with some decision-making autonomy. While generally better suited to larger businesses, in some circumstances a divisional organizational structure may also benefit a smaller business. In all cases, groups are mostly self-managed and focused upon one narrow aspect of the business.

Question 41

Note: A divisional organisational structure usually consists of several parallel teams focusing on one aspect of the business. Unlike departments, divisions are more autonomous, each with its own top executive – often a vice president –and typically manage their own hiring, budgeting and advertising. Though small businesses rarely use a divisional structure, it can work for such firms as advertising agencies which have dedicated staff and budgets that focus on major customers or industries. A divisional organisational structure can be segregated in terms of product, customer or geographical location.

Question 42

What is a divisional organisational structure that are separated by product?

Answer 42

A divisional structure organised by product departmentalisation means that the various activities related to the product or service are under the authority of one manager. This is appropriate for organisations that produce multiple products and services that differ in their production requirements and markets served. For example, Procter & Gamble, a multinational consumer goods company is likely to adopt a divisional organisational structure by products.

Question 43

What are divisional organisational structures that are separated by customers?

Answer 43

Companies that offer services, such as health care, tend to use a customer-based structure. While similar to the product structure, the different business segments at the bottom are each split into a specific customer group — for example, outpatient, urgent care, and emergency care patients. Employees can specialize around the type of customer and be more productive. The directors of each customer centre would report directly to the hospital CEO. This is also designed to avoid overlap, confusion, and redundancies.

Question 44

What are divisional organisational structures that are separated by geographic location?

Answer 44

Geographic departmentalisation involves grouping activities based on geography, such as an Asia/Pacific or Latin American division. Geographic departmentalisation is particularly important if tastes and brand responses differ across regions, as it allows for flexibility in product offerings and marketing strategies (an approach known as localization). This allows the business to be more aware of and responsive to local cultural differences and consumer needs. Such structures also allow empowered regional managers to have better overall control over staffing and training issues.

Question 45

What are the advantages of a divisional organisational structure?

Answer 45

The following are advantages of divisional organisational structure: 1) Accountability. A divisional organisational structure makes it much easier to assign responsibility for actions and results. In particular, a division is run by its own management team, which looks out for the best interests of the division. 2) Responding to local culture and conditions. In a divisional organisational structure, local managers can quickly adjust business directions to respond to changes in local conditions. The divisional structure allows decision-making to be shifted downward in the organization, which may improve the company's ability to respond to local market conditions. There is also a strong orientation to customer requirements. 3) Multiple offerings. A divisional organisational structure is appropriate when a company has a large number of product offerings, or different markets that it services.

Question 46

What are the disadvantages of a divisional organisational structure?

Answer 46

The following are disadvantages of divisional organisational structure: 1) Cost. In a divisional organisational structure, there are likely to be more employees in total as compared to a functional structure. This leads to a duplication of resources which result in higher costs. 2) Economies of scale. The company as a whole may not be able to take advantage of economies of scale, unless purchases are integrated across the entire organization. 3) Inefficiencies. When there are a number of functional areas spread among many divisions, no one functional area will be as efficient as would have been the case if there had instead been one central organization for each function. 4) Rivalries. The various divisions may have no incentive to work together, and may even work at cross-purposes, as some managers undercut the actions of other divisions to reflect their division in a better light. 5) Silo. All skills are compartmentalized by division, so it can be difficult to transfer skills or best practices across the business. It becomes more difficult to develop in-depth functional expertise and specialised skills 6) Strategic focus. Each division will tend to have its own strategic direction, which may differ from the strategic direction of the company as a whole. This can also lead to a narrow perspective when employees become too involved with their own division’s work only.

Question 47

What is a Matrix organisational structure?

Answer 47

A matrix organisational structure creates project teams that cut across traditional functional department; it contains teams of people from various sections of the business. These teams will be created for the purposes of a specific project and will be led by a project manager, i.e. method of organising a business is task or project focused. Often the team will only exist for the duration of the project and matrix structures are usually adopted to develop new products and services.

Question 48

Note: In a matrix organisational structure, emphasis is placed on the employee’s ability to contribute to the team instead of one’s position in the hierarchy. Businesses adopt the matrix structure to remove as much bureaucracy as possible by removing rigid rules and regulations. The use of project teams should also lead to more creative and innovative ideas and motivation of employees should improve.

Question 49

What are the advantages of a Matrix organisational structure?

Answer 49

The following are advantages of matrix organisational structure: 1) Total communication. A matrix organisational structure allows for total communication between all members of the team, cutting across boundaries between departments in a hierarchy where only senior managers communicate with each other. 2) Focus on business, not departments. In a matrix organisational structure, employees are less likely to focus on what is beneficial for their department. Instead, the focus becomes what is good for the project, and hence the business as a whole. 3) Innovative ideas. In a matrix organisational structure, the bouncing of ideas across employees with different specialised knowledge tend to create more innovative and often successful solutions. 4) Faster response to external conditions. As new project teams can be created quickly, a matrix organisational structure is well-equipped and better designed to respond to changing market or technological conditions.

Question 50

What are the disadvantages of a Matrix organisational structure?

Answer 50

The following are disadvantages of matrix organisational structure: 1) Less control from top management. In a matrix organisational structure, there is less direct control from top or senior management, as the teams are empowered to undertake and complete the project. It might also be difficult to monitor the performance and progress of the employees in teams. 2) Resistance from senior managers. In a matrix organisational structure, some authority is passed down to the more junior employees, and there is reduced bureaucratic control. Senior managers might not be comfortable with such arrangements and show resistance. 3) Conflict of interests. In essence, in a matrix organisational structure, team members have two leaders to report to, if the business retains levels of hierarchy but allows for cross-departmental project teams to be formed. This could create conflict of interests, and potential confusion over authority and responsibility.