Organisational Structure
of a Business
Why Do Businesses Need to be
Organised?
Small businesses (particularly sole traders) have an informal
organisational structure
As a business gets bigger then it starts to form some kind of
organisation
An organisation structure is required as soon as there are
several people working in the business
The structure determines:
 Who is responsible for what job and
 Who is responsible to whom.
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Hierarchy
Describes management structure of business
From top of company – managing director, through to shop
floor worker
Usually best understood by drawing an organisation chart
Shows which levels of management and employees report to
whom
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Example of a Hierarchy
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Span of Control
What is the Span of Control?
 The number of people who report to one manager in a hierarchy
 The more people under the control of one manager - the wider
the span of control
 Less means a narrower span of control
Example below shows a span of control of 4 for the Marketing
Manager
Marketing
Manager
Marketing
Assistant
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Market
Researcher
Telesales
Supervisor
Customer
Care
Assistant
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Advantage of a Narrow Span of
Control
Allows a manager to:
 Communicate quickly with employees under them
 Control employees more easily
Feedback of ideas from workers more effective
Requires a higher level of management skill
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Advantage of a Wide Span of Control
There are less layers of management to pass a message
through
So the message reaches more employees faster
It costs less money to run a wider span of control because a
business does not need to employ as many managers
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Importance of Effective Delegation
Delegation is giving authority for certain decisions to those
below manager
Gives manager more time to work on other aspects of
business
Also plays an important part in increasing job satisfaction and
motivation of employees
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Tall and Flat Organisations
Tall organisation
 Large number of managers
 Narrow spans of control
 Can suffer from having too many managers (expensive)
 Decisions can take a long time to reach bottom of hierarchy
 Can provide good opportunities for promotion
 Manager does not have to spend so much time managing staff
Flat organisation
 Few managers
 Wide span of control
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Chain of Command
Line on which orders and decisions are passed down
From top of hierarchy to bottom
Example
Managing
Director
Production
Director
Production
Manager
Factory
Supervisor
Machine
Operators
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Centralised Organisations
What are they?
 Organisations where important decisions are taken at the centre
and then passed out to the various departments / locations
Advantages
 Tight control of decisions
 Decisions made by senior management
 Helps decisions to be consistent across the business
 Avoids repetition of functions (e.g. only one purchasing
department)
Disadvantages
 Lack of motivation for managers
 Central management may be “out of touch”
 May be slow to make decisions that need to taken quickly
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De-Centralised Organisations
What are they?
 Organisations where important decisions are delegated to
managers in other departments / locations
Advantages
 Increased motivation of managers
 Encourages local initiatives
 Decisions based on more up-to-date information
 Decisions made quicker
Disadvantages
 Managers may lack experience
 Local decisions may be inconsistent with the overall business
aims and objectives
 Duplication of functions and costs
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Main Departments in a Manufacturing
Business
Production
Makes sure that production plans are met on time and
products of right quality are produced
Accounts
Provides a detailed record of money coming in and going
out of business
Prepares accounts as a basis for financial decisions
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Sales and
Marketing
Sales - deals with all aspects of selling to customers
Purchasing
Buys all raw materials and goods required for production
Human
Resources
Deals with all recruitment, training, health and safety
Marketing - carries out market research, organises
advertising and product promotion
Handles pay negotiations with unions/workers
GCSE Business Studies