1.4.4 Organisational Design

Organisational Design

Key Definition

Organisational Design: The creation of a formal hierarchy establishing who has the power within a business.

Hierarchy: The levels of different supervisory and management levels from the ordinary worker to the CEO and senior management.

Span of Control: The number of people directly under the supervision and control of a manager within a business.

Chain of Command: The reporting system that follows the hierarchy of a business, and shows how information will pass through a business.

Centralisation: A business structure in which the decisions of a business are made by the person at the top of the hierarchy. 

Decentralisation: A business structure in which the decisions of a business are made by the managers who tend to be closer to the customer. 

Tall Structure: A hierarchy structure which has lots of different management layers in it, which makes the span of control for these businesses narrower and communication between the bottom and the top of the hierarchy slower. 

Flat Structure: A hierarchy structure with only a few different management layers in it, which makes the span of control for these businesses wider and communication between the bottom and the top of the hierarchy quicker. 

Matrix Structure: A hierarchy structure in which there are different project "teams" that all work together to find a solution to a problem.

Cross-Functional: When something draws from all functions of a business instead of just one or two.

Delayering: When a management layer is removed from the hierarchy and the chain of command increasing the communication times and the span of control.

Line Manager: A manager that is responsible for meeting specific business targets and responsible for certain people in the business.

The Growing Business

In the early stages of a business there are often only one or two people involved, meaning that the day-to-day tasks are carried out by the owner and no formal organisation is needed as the communication and co-ordination will be carried out on an informal face-to-face basis. However, as the business grows and more people are involved and hired the need for an organised structure will arise. This shows the roles, responsibilities and relationships of each member within the business, often shown in an organisational chart, such as the one shown below:

This is a diagram that shows the links between people and departments within a business, and it also shows the communication flows, lines of authority and the layers of the hierarchy. A hierarchy, and the organisational chart, will become more complicated as the business grows and more people are hired. 

Organisational Structure

Levels of Hierarchy

These show the number of different supervisory and management levels between the top layer of management and the bottom layer of workers. More levels of hierarchy can cause problems with communication within a business as it can make it slow and unreliable between the levels. 

Span of Control

These are the number of people under the direct control of one manager. If managers have a very wide span of control they are responsible for many people, and they may find that there are communication problems between the workers and the manager. The workers may also find that they are not given enough guidance in their work. The ideal span of control depends on the nature of the tasks and the skills and attitudes of the workforce and the manager. 

Advantages of a Narrow Span of Control	Disadvantages of a Narrow Span of Control
Allows close management supervision, which is vital for inexperienced staff or times when labour turnover is high.	Workers may feel over supervised and therefore not trusted, reducing motivation due to lack of responsibility.
Communications may be excellent within the immediate team.	Communications may suffer within the business due to the larger chain of command, making communications more difficult.
Many layers in the hierarchy means many “rungs” in the career ladder, providing plenty of chances for promotion.	The narrow span of control leads to restricted scope for initiative and experiment with their workers, alienating enterprising staff.

Chain of Command

This is the reporting system from the top layers of management to the bottom layer workforce, and it is the route that information takes to travel within the organisation. The chain of command is longer and more complicated when a business has more layers in its hierarchy than it would be in a business with a shorter hierarchy, and this is could create a gap between the workers at the bottom and the managers at the top, also creating the risk that important information is distorted and confusecd between the layers.  

Centralisation and Decentralisation

This describes how decision-making, power and authority in a business is divided and delegated. A centralised structure has the decision-making, power, and control kept in the top level of the hierarchy with the CEO and senior managers. A decentralised structure delegates the decision-making power to the workers who interact the most with the customers. Many businesses combine the two of these in their structure as it often depends on the nature of the decision being made. The influences on these are primarily internal, and they often present alternatives that look good when the alternative doesn't look like a good decision to make. 

Types of Structure

Tall Structure

A business hierarchy is tall if it has lots of levels of management that are all responsible for very few people - the span of control in a tall hierarchy should be narrow as managers are responsible for less workers of a lower level to them. A business would want a tall hierarchy to try and reduce the amount of mistakes it makes by having everyone carefully supervised. 

Flat Structure

A business hierarchy is flat if it has only a few levels of management in the hierarchy, but the managers are responsible for more people - the span of control in a flat hierarchy is should be wide as managers are responsible for more workers of a lower level to them. A business would want a flat hierarchy to improve the communication between the workers and the management.

Matrix Structure 

A matrix structure is completely different to a tall or flat structure. This structure has no set hierarchy, instead the workers are divided into teams that work together to solve a problem or design and create a new innovative. They are typically cross-functional, meaning that the teams often contain people from a variety of departments to work on the project.

Advantages	Disadvantages
Working together should avoid each function trying to ‘win’ by getting its own ideas at the forefront	Above all else each matrix member will have 2 bosses: project leader and their actual boss
Working together should avoid hold-ups in the process, which is vital to gaining the competitive advantage	The actual boss may resent the distraction caused by the project leader, making it hard for the employee to prioritise their work
It enriches the experience of every team member as they learn the views and opinions of the other departments in the business	People from functions in the business may struggle to come to an agreement when vital decisions are needed unless the project manager is very experienced

The Impact of Organisational Structure on Efficiency and Motivation

In the past businesses had very tall hierarchical structures, meaning that there were many layers of management and, often, narrower spans of control. This made them expensive to run as the management required larger salaries. The chain of command is also longer, which can have a negative impact on communication as it runs the risk of becoming distorted and not what the 'higher-ups' said. Over time companies have changed and the hierarchies have become flatter, reducing the number of layers of management and widening the span of control. Some managers don't like the additional responsibility, but the workers will often thrive with increased independence. Overhead costs will also reduce, improving business efficiency.

Why is the organisational structure so important?

As a business grows more people will be involved and hired, so to ensure that the different tasks are fulfilled it is vital that every individual knows exactly what the role involves and who they are accountable to/responsible for. Poor organisational structures lack co-ordination, which causes the following problems to business efficiency:

• Poor communication, leading to mistakes
• Duplication of tasks
• Tasks being overlooked
• Departments failing to work together efficiently

In the long term these problems will lower service standards and have negative impacts on profit, sales and revenue. As a business gets bigger it will need to ensure that the organisation structure is able to accommodate the growth.

What is the impact of different structures on motivation?

Motivation is the desire to push yourself and work your hardest to achieve what you want to achieve for that feeling of achievement and success. Key influences on motivation are the scope for initiative and responsibility. As both of these are unlikely to be accessible in a tightly supervised role found in a tall hierarchy with a narrow span of control, the use of this type of structure is likely to hinder motivation. The better option to motivate employees is to use a flatter structure with a wider span of control, as it gives employees more independence in their work. The same logic here can be applied to comparing decentralised businesses with centralised businesses.