Board of Directors
Managing Director
Sales Director
Finance Director
Marketing Manager
Chief Accountant
Personnel Director Purchasing Director
H&S Officer
Chief Buyer
0
INTRODUCTION
In this unit you will find out about the following things:

WHAT A BUSINESS IS

TYPES OF PROFIT MAKING BUSINESSES

THE ROLE OF ADMINISTRATION IN A BUSINESS

THE IMPORTANCE OF ADMINISTRATION IN A BUSINESS

ORGANISATION CHARTS

USERS OF ORGANISATION CHARTS

LINE RELATIONSHIPS ©

LATERAL RELATIONSHIPS ©

AUTHORITY

RESPONSIBILITY

LINES OF COMMUNICATION

CHAINS OF COMMAND

SPANS OF CONTROL

TALL BUSINESSES

FLAT BUSINESSES

CHANGES TO STRUCTURE

EFFECTS OF CHANGES TO STRUCTURE ©

REASONS FOR CHANGES IN STRUCTURE ©
© - Credit Level Material
UNIT 1a – ORGANISATION OF BUSINESS
© BEST Ltd
1
Licensed to:
Coatbridge High School
WHAT IS A BUSINESS?
A business is any activity that creates WEALTH by providing GOODS (physical
things, eg car) or SERVICES (doing something for someone, eg haircut).
Businesses provide goods and services by paying for the use of LAND
(premises), LABOUR (workers), and CAPITAL (equipment). These things are
known as ECONOMIC RESOURCES.
Businesses exist for many reasons, but the most common one is to make a
PROFIT. A profit is extra money for the owners of the business who are paying
for the use of the economic resources.
UNIT 1a – ORGANISATION OF BUSINESS
© BEST Ltd
2
Licensed to:
Coatbridge High School
WHAT DIFFERENT TYPES OF BUSINESSES ARE THERE?
Business
SOLE TRADER
Features
Owned by
Run by
SINGLE owner
Usually SINGLE

Business owned by ONE person

Business usually run by owner

Business tends to be small

Business owned by 2-20 people
2+ owners called
Usually run by

Business usually run by owners
PARTNERS
PARTNERS together

Tends to be medium sized
PRIVATE

Business owned by 2+ people
2+ owners called
Run by a
LIMITED

Business may be run by owners
SHAREHOLDERS
BOARD OF
COMPANY

Tends to be medium sized
DIRECTORS (group
(Ltd)

Shares sold PRIVATELY
of senior managers)
PARTNERSHIP
owner alone
and a MANAGING
DIRECTOR
(most important
single manager) for
the shareholders.
PUBLIC LIMITED

Business owned by many people
Many owners
Run by a BOARD OF
COMPANY

Business run by Directors
called
DIRECTORS and a
(PLC)

Business tends to be large
SHAREHOLDERS
MANAGING

Shares sold PUBLICLY on the
DIRECTOR for
STOCK MARKET
shareholders.
UNIT 1a – ORGANISATION OF BUSINESS
© BEST Ltd
3
Licensed to:
Coatbridge High School
WHAT IS THE ROLE OF ADMINISTRATION IN A BUSINESS?
ADMINISTRATION is all about COLLECTING, PROCESSING and
TRANSMITTING information in a business. Administration should do this
EFFICIENTLY (easily) and EFFECTIVELY (properly).
COLLECT
(gather information)
PROCESS
(do something useful
with the information)
TRANSMIT
(pass the information on
to people who need it)
UNIT 1a – ORGANISATION OF BUSINESS
© BEST Ltd
4
Licensed to:
Coatbridge High School
WHY IS GOOD ADMINISTRATION IMPORTANT IN A BUSINESS?
Administration is important to a business because it makes sure that the
business will SURVIVE, GROW and make PROFITS.
Administration does this by making sure that everyone in the business has all of
the information that they need to:

BE SURE THAT THEY KNOW WHAT THEY SHOULD BE DOING;

BE ABLE TO THEIR JOB PROPERLY;

BE ABLE TO COMMUNICATE WELL WITH EACH OTHER.
UNIT 1a – ORGANISATION OF BUSINESS
© BEST Ltd
5
Licensed to:
Coatbridge High School
ORGANISATION CHARTS
An example of administrative information that helps communication and
organises workers is an ORGANISATION CHART.
An Organisation Chart is a DIAGRAM that is used to show the OVERALL
STRUCTURE of a business. An example of an Organisation Chart for a limited
company is shown below.
Board of Directors
Managing Director
Sales and Marketing Director
Sales Manager
Marketing Manager
Finance Director
Accountant
Purchasing Director
Purchasing Manager Recruitment Manager
UNIT 1a – ORGANISATION OF BUSINESS
© BEST Ltd
Personnel Director
Training Manager
6
Licensed to:
Coatbridge High School
WHO USES AN ORGANISATION CHART?
The people who are likely to find Organisation Charts useful can be seen below.
User
Uses
VISITORS
 Shows who to contact about any questions.
 Shows who to contact about any problems.
NEW MEMBERS OF STAFF
 Shows their place in whole business.
 Shows who to report to.
 Shows who they are in charge of.
RECEPTIONIST
 Lets them know about promotions.
 Lets them know about new staff.
 Lets them know about leavers.
 Allows them to direct visitors.
The Organisation Chart is USEFUL to these people because
it shows them information VISUALLY (as a picture) and so
is easy to understand.
The only main DRAWBACK of using an Organisation Chart is that
information can soon be out of date and so useless (eg employees
leave the business or new employees join).
UNIT 1a – ORGANISATION OF BUSINESS
© BEST Ltd
7
Licensed to:
Coatbridge High School
WHAT INFORMATION ABOUT STRUCTURE
DOES AN ORGANISATION CHART SHOW?
An Organisation Chart shows the following information about business
structure.
1
EMPLOYEE NAMES, JOB TITLES and ROOM NUMBERS
2
LINE RELATIONSHIPS
A line relationship describes the link between a MANAGER and the
STAFF below them. Line relationships are shown by VERTICAL lines
joining staff together. An example can be seen below.
Managing Director
Line
Relationship
Finance Manager
3
LATERAL RELATIONSHIPS
A lateral relationship describes the link between staff of EQUAL
importance that report to the same manager. Lateral relationships are
shown by staff being at the same level HORIZONTALLY and linked to
the one manager. An example can be seen below.
Lateral
Relationship
Managing Director
Finance Manager
HRM Manager
Sales Manager
UNIT 1a – ORGANISATION OF BUSINESS
© BEST Ltd
8
Licensed to:
Coatbridge High School
4
LEVELS OF AUTHORITY
Organisation charts show the level of AUTHORITY each employee has.
Authority is the power an employee has to instruct others and to make
decisions.
Levels of authority are shown VERTICALLY on an Organisation Chart. The
employees who have the MOST authority are at the TOP of the chart. The
amount of authority FALLS with each LOWER level of the chart. An
example of different levels of authority is shown below.
High
Level of
Authority
Senior management
Middle management
Low
5
Lower level employees
LEVELS OF RESPONSIBILITY
Organisation charts show the level of RESPONSIBILITY each employee
has. RESPONSIBILITY shows what an employee has to be answerable for
when they are doing their job, ie their duties and tasks.
Levels of responsibility are shown VERTICALLY on an Organisation Chart.
The employees who have the MOST responsibility are at the TOP of the
chart. The amount responsibility FALLS with each LOWER level of the
chart. An example of different levels of responsibility is shown below.
High
Level of
Responsibility
Senior management
Middle management
Low
Lower level employees
UNIT 1a – ORGANISATION OF BUSINESS
© BEST Ltd
9
Licensed to:
Coatbridge High School
6
CHAIN OF COMMAND
The Chain of Command shows the connection between who gives instructions
and who receives them, ie connections between authority levels. On an
Organisation Chart, the Chain of Command is shown by the LINE
relationships for the business.
Chains of Command can be LONG (many levels of workers involved) or
SHORT (few levels of workers involved). The main features of these chains
can be seen below.
LONG Chain
SHORT Chain
 Lots of levels of workers
 Few levels of workers
 Commands can take a long time to move
 Commands move quickly
 Commands can be distorted as they move
 Commands are unlikely to be distorted
 Chance of people not knowing what to do

Less chance of people no having commands
 Takes time for staff to know what to do

Staff know what to do quickly
UNIT 1a – ORGANISATION OF BUSINESS
© BEST Ltd
10
Licensed to:
Coatbridge High School
7
LINES OF COMMUNICATION
Information has to flow up and down through the business so that staff can
do their job properly. The ways that information flows around a business
are known as LINES OF COMMUNICATION. On an Organisation Chart, the
lines of communication are shown by ALL of the LINE and LATERAL
relationships in the business.
Lines of Communication can be LONG (many levels of workers involved) or
SHORT (few levels of workers involved). The main features of these lines
can be seen below.
LONG Line
SHORT Line
 Lots of levels of workers
 Few levels of workers
 Information can take a long time to move
 Information moves quickly
 Information can be distorted as it moves
 Information is unlikely to be distorted
 Chance of people being missed out

Less chance of people being missed out
UNIT 1a – ORGANISATION OF BUSINESS
© BEST Ltd
11
Licensed to:
Coatbridge High School
8
SPAN OF CONTROL
The Span of Control for a member of staff shows how many people they are
in charge of. These are shown on an Organisation Chart by the LATERAL
relationships in the business.
Spans of control can be WIDE (one manager supervises many staff) or
NARROW (one manager supervises few staff). The main features of these
spans can be seen below.
WIDE Span
NARROW Span
 Few managers
 Many managers
 Many staff for each manager
 Few staff for each manager
 Little manager time for each staff member
 Lots of manager time for each staff member
 Stress for manager due to staff numbers
 Stress for staff due manager supervision
 DELEGATION (authority) for staff
 No DELEGATION (authority) for staff
 Staff level decision making

No staff level decision making
Careful thought must be given to which Span of Control a business will use
for its managers. This is because the wrong span can lead to poor staff
morale and little quality work being done.
The main things to be considered when making this important decision are:

MANAGER’S ABILITY AND SKILLS (eg poor skills means narrow span);

MANAGER’S IDEAS ON CONTROL (eg tight control means narrow span);

QUALITY OF STAFF (eg high quality staff can allow wide spans);

IMPORTANCE OF WORK DONE BY MANAGER AND STAFF.
UNIT 1a – ORGANISATION OF BUSINESS
© BEST Ltd
12
Licensed to:
Coatbridge High School
9
FUNCTIONAL DEPARTMENTS (or GROUPINGS)
To carry out production and so provide goods and services, businesses
must carry out certain tasks (or FUNCTIONS) in an organised way.
The main way in a business structure that these functions are organised is
through FUNCTIONAL DEPARTMENTS. These are groups of workers
and resources that all do the SAME type of work in the business.
The main functional departments and their activities can be seen below.
Function
SALES
Activities Involved
 DEALING WITH SALES ENQUIRES
 MARKET RESEARCH (info on customers and competitors)
 DECISIONS ABOUT PRODUCT PROMOTION
PURCHASING
 ORDERING RAW MATERIALS
 ORDERING EQUIPMENT
FINANCE
 RECORDING FINANCIAL (money) TRANSACTIONS
 PAYING BILLS AND WAGES
 TRACKING PROFITS AND CASH
HUMAN
RESOURCES (HRM)
 RECRUITING AND SELECTING STAFF
 STAFF HEALTH AND SAFETY
 STAFF TRAINING
 STAFF DISCIPLINE AND WELFARE
UNIT 1a – ORGANISATION OF BUSINESS
© BEST Ltd
13
Licensed to:
Coatbridge High School
WHAT IS THE USUAL SHAPE OF AN ORGANISATION CHART?
Organisation Charts are usually shaped like a PYRAMID. This is because there
are normally few managers at the top of a business and many workers at the
bottom. This structure is also known as a HIERARCHICAL structure due to the
“hierarchy” (levels) of managers. An example is shown below.
Managing Director
Sales and Marketing Manger
Sales Supervisor
Purchasing Manager
Marketing Supervisor
Buyer
Buyer
Assistant Assistant Assistant Assistant Assistant Assistant Assistant Assistant
However, although all Organisation Charts have an overall pyramid shape, the
exact shape of the pyramid can vary. This is to show 2 different types of
management structure – FLAT and TALL.
Many levels of
management
Few levels of
management
FLAT BUSINESS
TALL BUSINESS
UNIT 1a – ORGANISATION OF BUSINESS
© BEST Ltd
14
Licensed to:
Coatbridge High School
WHAT ARE THE MAIN FEATURES OF TALL AND FLAT BUSINESSES?
FEATURES
ADVANTAGES
DISADVANTAGES
FLAT
TALL
(eg doctors, dentists, small shop)
(eg army, police, large business)

Few levels of management

Many levels of management

Few lines of communication

Many lines of communication

Wide spans of control

Narrow spans of control

Variety in jobs

Specialised jobs

Fewer managers saves money

Narrow spans can mean better control

Fewer staff speeds communication

Narrow spans can improve team spirit

Quick communication speeds decisions

Lots of chances for promotion

Fewer managers means DELEGATION

Specific jobs mean less stress for staff

Delegation can motivate staff

Wide spans can mean less control

Many managers costs money

Few chances for promotion

Many staff slows communication

Varied jobs can increase staff stress

Slow communication means slow decisions

Many managers means no DELEGATION

No delegation can demotivate staff
UNIT 1a – ORGANISATION OF BUSINESS
© BEST Ltd
15
Licensed to:
Coatbridge High School
WHAT WILL DETERMINE WHETHER A BUSINESS IS TALL OR FLAT?
Whether the structure of business will be FLAT or TALL will normally depend
on the following.
Factor
BUSINESS
SIZE
Details
LARGE businesses tend to be TALL due to the many levels
of managers required to organise the large number of
workers. SMALL businesses tend to be FLAT due to the
few managers required to organise the small number of
workers.
NATURE OF THE
Businesses in FAST changing areas (eg IT) will try to be
BUSINESS
FLAT to allow them to make decisions and communicate
changes quickly. While businesses in SLOWER changing
areas can be TALL because they do not have to make
decisions and communicate changes quickly.
MANAGEMENT
STYLE
Managers who like to DELEGATE work (ie pass some
authority to other staff) will choose FLAT structures.
While, managers who DO NOT like to DELEGATE work will
choose TALL structures to get tighter control over staff.
UNIT 1a – ORGANISATION OF BUSINESS
© BEST Ltd
16
Licensed to:
Coatbridge High School
HOW WILL THE STRUCTURE OF A BUSINESS CHANGE?
Although a business may be tall or flat at one point in time, it is not likely to
keep this exact structure year after year due to changes in the business.
Examples of these changes that may occur and how they can affect the
business can be seen below.
Cause of
Effect on Structure
Details
Change
GROWTH
and Organisation Chart
 Increase in range of products.
 TALLER structure.
 Increase in product sales.
 ORGANISATION CHART will
 Increase in employees.
EXPAND with new posts and
perhaps new departments.
DOWNSIZING
 Redundancy of all levels of nonessential staff to save money
 FLATTER structure.
 ORGANISATION CHART will
but NOT reduce output.
CONTRACT with less posts
and perhaps departments.
DELAYERING
 Removal of management layers
to save money and widen spans
 FLATTER structure.
 ORGANISATION CHART will
of control.
CONTRACT with fewer
managers.
OUTSOURCING
 Business buys in services
 FLATTER structure.
instead of doing them itself.
 ORGANISATION CHART will
May result in downsizing or
CONTRACT due to fewer
delayering.
posts.
UNIT 1a – ORGANISATION OF BUSINESS
© BEST Ltd
17
Licensed to:
Coatbridge High School
WHY MIGHT A BUSINESS CHANGE ITS’ STRUCTURE?
Often businesses will change their structure from year to year (as we have seen
above). The main reasons for these changes are shown below.
Possible POSITIVE REASONS
NEW
for changing structure
Structure

Improved communications within the business.

Delegation of tasks to other departments or employees.

Better efficiency and motivation from delegation.

Reduced COSTS (ie staff costs, general running costs).

More control over staff.

More chances for promotion to motivate staff.

More output and profits.
FLATTER
BUSINESS
TALLER
BUSINESS
However, managers must remember to manage any changes to a business well, by
asking staff opinions and keeping gthem up to date with what is happening. This
is because if managers do not do this then there may be the following problems.

LOW STAFF MORALE (from redundancies, new management, etc).

STAFF MAY NOT LIKE THE NEW STRUCTURE AND FIGHT CHANGE

COSTS OF RESTRUCTURING – new staff, new buildings, new equipment, etc.

LOST CUSTOMERS - customers can go to other businesses if they are unsure
about who to contact in the new structure.
UNIT 1a – ORGANISATION OF BUSINESS
© BEST Ltd
18
Licensed to:
Coatbridge High School