Thursday, August 16, 2012

Chapter 10: Organisational Structure

What is organisational structure?

Organisational structure refers to the levels of management and division of responsibilities within a business, which could be presented in an organisational chart.

For simpler businesses in which the owner employs only himself, there is no need for an organisational structure. However, if the business expands and employs other people, an organisational structure is needed. When employing people, everybody needs a job description. These are its main advantages:

  • People who apply can see what they are expected to do.
  • People who are already employed will know exactly what to do.
Here is an example of a Job Description taken from the book:

When there are more than one person in a small business and they all do different things, it means that they are specialising in different jobs.


Delegation refers to giving a subordinate the responsibility and authority to do a given task. However, the final responsibility still lies with the person who delegated the job to the subordinate. Here are the advantages of delegation for managers and employees, as well as why some managers choose not to delegate.

Pros for the manager:
  • By letting subordinate do smaller tasks, managers have more time to do more important tasks.
  • Managers are less likely to make mistakes if tasks are done by specialist employees.
  • Managers can measure the success of their task more easily.
Pros for the subordinates:
  • Work becomes more interesting and rewarding.
  • Employees feel important and trusted.
  • Helps train workers, giving them better career opportunities.
Why some managers don't want to delegate:
  • Managers are afraid that their employees will fail.
  • Managers want total control.
  • Managers are scared that the subordinate will do tasks better than them, making them feel insecure.
Delegation must mean:
  • A reduction in direct control by managers or supervisors.
  • An increase in trust of workers by managers or supervisors.
Organisational charts

Eventually, when a business grows larger and employs many people, they will have to create an organisational chart to work out a clear structure for their company. Here is another example of an organisational chart from the book:

Here are the most important features of the chart:
  • It is a hierarchy. There are different levels in the business which has different degrees of authority. People on the same level have the same degree of authority.
  • It is organised into departments, which has their own function.
  • It shows the chain of command, which is how power and authority is passed down from the top of the hierarchy, and span of control, meaning how many subordinates one person controls, of the business.
Advantages of an organisational chart:
  • The charts shows how everybody is linked together. Makes employees aware of the communication channel that will be used for messages to reach them.
  • Employees can see their position and power, and who they take orders from.
  • It shows the relationship between departments.
  • Gives people a sense of belonging since they are always in one particular department.
Chain of command and span of control:

Here are two organisations, one having a long chain of command and the other a wide span of control. Therefore, the longer the chain of command, the taller the business hierarchy and the narrower the span of control.  When it is short, the business will have a wider span of control. 

In recent years, people have began to prefer to have their business have a wider span of control and shorter chain of command. In some cases, whole levels of management were removed. This is called de-layering. This is because short chains of commands have these advantages:

  • Communication is faster and more accurate. The message has to pass through less people.
  • Managers are closer to all employees so that they can understand the business better.
  • Spans of control will be wider, meaning that the manager would have to take care of more subordinates, this makes:
    • The manager delegate more, and we already know the advantages of delegation.
    • Workers gain more job satisfaction and feel trusted because of delegation.
However, if the span of control is too wide, managers could lose control. If the subordinates are poorly trained, many mistakes would be made.

Functional departments

Here is an example of an organisational chart from a larger business from the book:

Here are they key features of this graph:
  • The business is divided into functional departments. They use specialists for each job and this creates more efficiency. However, workers are more loyal to their department than to the organisation as a whole. Therefore, conflict can occur between different departments. Managers working in these departments are called line managers, who have direct authority and the power to put their decisions into effect over their department.
  • Not only are there departments, there are also other regional divisions that take care of outlets that are situated in other countries. They use the local knowledge to their advantage.
  • There are some departments which do not have a distinctive function but still employs specialists and report directly to the CEO/Board of Directors. These departments are the IT department, and the Economic Forecasting department. Some say the HR department fits in this category. These departments give specialist advice and support to the board of Directors and line managers, and the managers of these departments are called staff managers. They are often very highly qualified personnel who specialises in only their area. 
Here are the pros and cons of employing staff managers:

  • Staff managers help and provide advice for line managers on things such as computer systems.
  • Helps line managers concentrate on their main tasks.
  • There may be conflict between the two groups on important decisions and views.
  • Line employees may be confused and do not know who to take orders form, line or staff managers.

Decentralisation refers to a business delegating important decisions to lower divisions in the business. In a centralised structure important decisions are taken at the centre, or higher levels of management.

Advantages of a decentralised structure:
  • Decisions are made by managers who are "closer to the action".
  • Managers feel more trusted and get more job satisfaction due to delegation.
  • Decisions can be made much more quickly.
  • The business can adapt to change much more quickly.
Decentralisation means that:
  • Less central control.
  • More delegation.
  • Decisions taken "lower down" in the organisation.
  • Authority given to departments/regions
Different forms of decentralisation:
  • Functional decentralisation: Specialist departments are given the authority to make decisions. The most common of these are:
    • Human Resources.
    • Marketing.
    • Finance.
    • Production.
  • Federal decentralisation: Authority is divided between different product lines. e.g separate truck/car/bus divisions.
  • Regional decentralisation: In multinationals, each base in each country has authority to make its own decisions.
  • Decentralisation by project means: For a certain project, decision-making authority is given to a team chosen from all functional departments.
Is complete decentralisation a good idea?

It is dangerous to let the lower-level management make all the decisions. Therefore, it is wise for the central management to decide on major issues, long-term decisions, growth and business objectives. If these issues are not centralised then there would be a lack of purpose or direction in the business.

That's all folks! It's Pi Mai on Friday! Have fun water fights!


  1. Thank you sir for giving us a clear definition on management and division of responsibilities within a business.

    Business Job Descriptions

  2. You're welcome, I hope it helped!

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  31. Thank you very much. Succinct description of the topic. I love it.

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  33. please tell me about matrix organisation structure..

  34. First of all Thank u very much, ur note is help me a kind...lots of love...

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