Organisational Structure of a
Business
Learning Objectives
• Analyse the main features of an organisational
chart, including levels of hierarchy, chain of
command, span of control, flat and tall
organisations
• Identify why firms need to organise
employees and analyse ways in which this is
done
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 and an organisation
structure is required, this is a type of internal
framework which shows how management is
linked together and how authority is passed down
• The structure determines:
– Who is responsible for what job and
– Who is responsible to whom.
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
Organisation Structure & Job Roles
• Accountability
to your boss or manager
• Responsibility
for the people who work
for you
• What does the formal organisation structure
show?
– Hierarchy
CEO
Board of
Directors
Managers
Supervisors & Team
Other Employees
Hierarchical /
Bureaucratic structure
This is called a
layer of the
hierarchy
Advantages
• To highlight how decision
making is done
• Vertical departments can be
based on anything not just
departments
• Role of each individual is
clear and defined
Disadvantages
• This type of structure seems
to suggest one way
communication
• Managers often accused of
tunnel vision
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
Market
Researcher
Telesales
Supervisor
Customer Care
Assistant
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
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
Organisation Charts
•
We can use an organisation chart to show the levels of hierarchy and the
span of control in a business
How large
is the
Finance
Manager’s
span of
control?
How large
is the
MD’s span
of control?
Managing
Director
Finance
Manager
Accounts
Supervisor
Sales
Supervisor
Production
Manager
Production
supervisor
How many
levels of
hierarchy
are there?
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
Chain of Command
• Line on which orders and decisions are passed
down
• From top of hierarchy to bottom
Managing
Example
Director
Production
Director
Production
Manager
Factory
Supervisor
Machine
Operators
Factors influencing organisational
structure
• Size of the business and number of employees
• Style of leadership and culture of
management
• Retrenchment (Cutting down on the number
of staff you have)
• Corporate objectives
• New technologies
Task
• Create an organisational structure diagram for
all staff at the college.
• It must include job titles & people´s names
Another activity
• Any business plc has a functional organisation structure.
• The MD is responsible to a chair person and has a sales
director, a finance director, a personnel director and a
production director accountable to her.
• On the production side there are a works manager,
technicians, test engineers and machine operators.
• In addition, the company employs 5 personnel assistants, 4
financial staff and 10 administrative staff and 20 sales people.
• DRAW an organisation chart for Any Business plc from this
information!