The purpose and basic layers of organisational structures

Organisational structure refers to the way a business arranges its employees and roles to operate efficiently. It ensures that everyone understands their responsibilities and helps the firm fill all necessary positions effectively.

The role of organisational structure

A clear structure supports effective human resource management by making sure employees work productively. It defines reporting lines and job roles, which aids in planning, organising, and decision-making across the business.

Basic layers in a hierarchical structure

Most businesses use a hierarchical setup with layers of authority. The number of staff typically increases at lower levels.

The four main layers are:

• Directors - Handle the overall strategy and direction of the business.
• Managers - Oversee the execution of strategies set by directors; they can be senior, middle, or junior.
• Supervisors - Sit below managers and lead small teams or specific projects.
• Operatives - Carry out day-to-day tasks without managing others.

Key concepts in hierarchies

• Chain of command - The line of authority linking directors at the top to operatives at the bottom, showing how instructions flow through the business.
• Communication within structures - Effective structures facilitate communication methods such as verbal discussions, face-to-face meetings, telephone calls, emails, or group sessions, ensuring smooth information flow.

Tall and flat organisational structures

Businesses can have different shapes to their hierarchies, affecting how they manage staff and communicate.

Tall structures

Tall structures feature multiple layers of management with a long chain of command, where many levels exist between top and bottom. They have a narrow span of control, where each manager oversees a small number of employees, allowing close monitoring.

In tall structures, communication can be slow and challenging as messages pass through several layers.

Flat structures

Flat structures have fewer management layers with a short chain of command, creating quicker decision paths. They have a wide span of control, where managers supervise more employees, which can make oversight harder.

Flat structures often promote faster communication but may strain managers if the span of control is too broad.

Centralised and decentralised decision-making

Businesses must decide how to distribute decision-making power across their structure, which impacts speed and consistency.

Centralised organisations

In centralised setups, key decisions are made by a small group at the top, such as senior managers or a single leader.

Advantages:

• Experienced leaders with a broad view ensure consistent policies across the business.

Disadvantages:

• Decisions and communication can be slow.
• Over-reliance on a few people, who might lack detailed knowledge of specific areas.

Decentralised organisations

Decentralised approaches spread authority, for example, to regional heads or lower-level staff.

Advantages:

• Draws on specialist expertise from various parts of the business.
• Enables quicker decisions and changes, with faster communication.

Disadvantages:

• Risk of inconsistent practices across departments or regions.
• Decision-makers might overlook the wider business perspective.

Different ways to organise a business

Firms can structure their operations based on various criteria, each with benefits and drawbacks. No one method suits every business; the choice depends on specific needs.

Organisation by function

• Departments focus on core business activities, such as sales, marketing, or operations.
• Advantage - Allows specialists to focus deeply on their area of expertise.
• Disadvantage - Departments may not collaborate effectively.

Organisation by product

• The business divides into units based on different product ranges.
• Advantage - Managers can tailor decisions to suit particular product needs.
• Disadvantage - Resources may be duplicated across units, increasing costs.

Organisation by region

• Divisions are based on geographical areas, such as countries or local branches.
• Advantage - Local management simplifies daily operations and responds to regional differences.
• Disadvantage - Similar to product-based structures, this can lead to inefficient duplication of resources between areas.

Factors influencing organisational structure

The best structure for a business evolves with its circumstances, such as size and growth stage.

Impact of business size and growth

Larger firms often develop taller structures to manage more employees, adding layers of managers.

Strategies for adapting structure

• Delayering - Removing middle management layers to flatten the structure, which can speed up decisions and reduce costs.
• Decentralising - Shifting more responsibility to lower levels, encouraging self-management among staff to improve responsiveness.