Formal organisation and organisation charts

Formal organisation refers to the structured framework within a business that outlines how tasks are divided and coordinated. It helps in managing activities like planning, decision-making, coordination, and communication by grouping workers into specific functions or departments.

Purpose of formal organisation

Formal organisation makes it simpler to handle business operations by providing a clear internal structure. This structure is often represented visually to show relationships and responsibilities.

Organisation charts

An organisation chart is a visual diagram that illustrates the positions and connections within a business.

Key elements shown in organisation charts:

• The division of the business into various functions or departments
• Job titles and roles of staff members
• Lines of responsibility
• Accountability relationships
• Channels for communication
• Connections between different roles

Hierarchy and employee roles

Hierarchy describes the ranked levels of responsibility in a business, from the most junior positions at the bottom to the senior leadership at the top. In a standard setup, the chairperson sits at the highest level and reports to the shareholders.

Main employee roles in a hierarchy

• Directors - Chosen by the owners to oversee the business. They form a board led by the chairperson, handle major decisions, and usually manage individual departments. They hold authority, which means the power to direct and decide.
• Managers - Focus on tasks such as planning, organising, motivating staff, solving issues, and making decisions. Their main aim is to meet the owners' goals by using resources efficiently and offering leadership. They report to directors.
• Supervisors - Oversee specific work areas, with authority over junior staff like operatives. They might handle some managerial tasks at a basic level.
• Operatives - Skilled staff who carry out production tasks, such as running machines, putting together items, or doing repairs. They report to supervisors or managers and often have higher status than unskilled workers due to their expertise.
• General staff - Unskilled workers who can learn various tasks through training and may advance over time. They sit at the lowest level with no authority.
• Professional staff - Highly trained experts like engineers, architects, accountants, doctors, or IT professionals. Businesses may need adjusted structures to accommodate their specialised roles.

Key features of organisational structures

Organisational structures define how authority, communication, and responsibilities are arranged. Key aspects include the flow of orders, the number of people managed, the number of layers, and the passing of tasks.

Chain of command

The chain of command is the pathway for instructions to move down through the hierarchy's levels. Each level acts as a step in this chain, allowing information to travel both upwards and downwards. Long chains can lead to problems like distorted messages or pushback against changes from junior staff.

Span of control

Span of control refers to how many subordinates (junior staff under direct supervision) a manager oversees. A wide span means managing more people, while a narrow span involves fewer. If the span is too broad, it can make close supervision challenging.

Flat and tall structures

Structures can be flat or tall based on the number of layers.

Flat structures:

• Have fewer layers, leading to short chains of command but wider spans of control.
• Benefits include improved communication, reduced costs for management, and a more relaxed, informal atmosphere.

Tall (hierarchical) structures:

• Feature many layers, which can complicate communication and raise management expenses.
• However, they offer clear routes for promotion, which can motivate staff, though control tends to be more formal and less personal.

Delegation

Delegation involves a senior passing authority for certain tasks to a junior, while keeping overall accountability. It frees up time for managers, builds trust, and can boost motivation. However, if it feels like extra unpaid work, it might cause resentment.

Centralisation and decentralisation

Centralisation and decentralisation describe where decision-making power sits in the business. Centralised systems keep most choices at senior levels, while decentralised ones spread authority lower down.

Advantages of centralisation

• Senior leaders keep tight control over resources
• Choices come from experienced staff
• Stops departments acting alone
• Simpler to coordinate
• Ensures consistency across the business

Disadvantages of centralisation

• Can demotivate staff
• Limits new ideas
• May need extra processes for decisions
• Top managers might miss local customer insights
• Reduces creativity and slows responses to issues

Advantages of decentralisation

• Boosts staff independence and drive
• Speeds up choices
• Lightens load on seniors
• Encourages fresh ideas and sharing
• Creates more paths for advancement
• Improves responsiveness and innovation

Disadvantages of decentralisation

• Risk of losing control over resources
• Higher costs from less uniformity
• Some staff may not handle decisions well
• Possible reluctance to take on more duties
• Can lead to inconsistencies across departments

Business size and evolving structures

The need for formal structures depends on business size. Small firms often operate without them, as the owner can manage directly. Larger businesses require formal setups to avoid confusion in roles, communication failures, and loss of control.

How structures change with growth

As businesses expand, their structures typically develop in stages:

1. Entrepreneurial structure - Decisions are centralised with the owner or key staff.
2. Traditional structure - Becomes hierarchical, with decisions shared across levels.
3. Matrix structure - Involves teams from different departments collaborating on projects, allowing flexible expertise.