Unit 2.2: Organizational Structure – Unlock Your Academic Success!

Organizational Structure

Organizational structure means a system that outlines how certain activities are directed in order to achieve the goals of an organization. These activities can include rules, roles, and responsibilities.

Businesses organize their human resources in various ways. In a small business, such as sole proprietorship, there may be an informal organizational structure with functions including marketing, operations, and finance.

Example

Organizational chart is a diagrammatic representation of a firm’s formal structure.

Delegation

Delegation is the process of entrusting and empowering a subordinate to successfully complete a task, project or job role.

Delegation can be a motivational tool for employees as it recognizes their talent, ability and potential. Staff who are empowered may feel inspired to perform well. They feel a sense of achievement and pride in their work as well as trusted and valued by management.

Span of Control

Span of Control describes the number of subordinates who are directly accountable to a manager.

It is inversely proportional to the number of hierarchical layers in an organization.

Having a narrow span of control can improve communication and control of the team.

The wider the span of control, the greater the need for strong leadership and clear lines of communication as a manager becomes responsible for many subordinates while a narrow span of control indicates fewer workers who directly report to the line manager.

Levels of Hierarchy

Level of Hierarchy refer to the management structure of an organization based on teh number of layers of formal authority, usually presented in a diagram or chart.

Hierarchical structures show where each person within an organization fits and hence his or her roles and responsibilities.

It can be tall with a narrow span of control but many hierarchical levels or flat but a wider span of control and fewer levels of hierarchical structure.

Chain of Command

Chain of Command is the formal line of authority through which orders and decisions are passed down from senior management at the top to operational workers at the bottom of the hierarchy.

The clearer the chain of command, the more effective the decision making tends to be.

Businesses with lesser levels in the hierarchy tend to have a shorter chain of command and vice versa.

Bureaucracy

Bureaucracy refers to the administrative systems of a business, such as a set of rules and procedures and formal hierarchical structures in an organization.

Bureaucracy often leads to excessive administration, paperwork and other formialities.

It can encourage a culture focused on rules and standards, where daily operations are rigidly controlled with close supervision and accountability.

This tends to reduce flexibility and discourages progress in the organization, and thus leads to inefficiencies and slower decision making.

Centralization

Centralization refers to organizational structures where the majority of decision making is in the hands of a very small number of people at the top of the hierarchical structure.

In centralized organizations, the importance of subordinates is reduced while the importance of senior executives is increased, and this often leads to faster decision making and better control.

Centralization is often associated with a paternalistic or autocratic style of leadership.

However, centralized structures are highly inflexible which puts additional pressure on senior managers and may demotivate employees in the long run.

Decentralization

Decentralization refers to organizational structures which include the delegation of decision-making authority throughout an organization, away from a central authority.

In decentralized structures, there is shared decision-making authority and responsibilities.

Centralized structures have a ‘top-down’ approach to management and decision making while decentralized structures are seen as ‘bottom-up’ and democratic.

Often, delegation and empowerment can result in better motivation for employees. Additionally, it leads to quicker and flexible decision making.

However, these structures may result in poor decision making due to lack of experience and expertise of less senior staff.

The decision to have a more centralized or decentralized organizational structure is influenced by several factors:

• corporate culture
• the size of the organization
• nature of the decisions to be made (e.g. strategic or routine)

De-layering

De-layering is the process of removing one or more layers in the organizational hierarchy to make the structure flatter and managers having wider spans of control.

Reasons for de-layering include:

• improving speed of communications in organization
• shorter chains of command
• cutting costs as there are lesser levels of management

However, de-layering can lead to potential stress and anxiety of subordinates due to added workload.

Different Types of Organization Charts

Flat or Horizontal

Flat or Horizontal organization has few layers of management. Line managers have a wide span of control and the business have shorter chains of command.

Organizations with flat structures are suitable when employees are multi-skilled and can organize their own work effectively.

Advantages and Disadvantages of Flat or Horizontal Organizational Structure

Flat/Horizontal organizational structures give manager a lot of authority over decision making but also places added pressure on his or her level of responsibility.

Flatter structures have shorter chain of command, which improves communication.

Employees also are trained to take responsibility for their own work as there are minimal control over employees.

Tall or Vertical

Tall or Vertical organization has a lot of layers of management. Roles, responsibilities and departments tend to be highly specialized; each manager being responsible for fewer subordinates.

Advantages and Disadvantages of Tall or Vertical Organizational Structure

These organizational structures can motivate junior staff as there are prospects for promotion and moving up the hierarchical structure.

A drawback, however, there is a potential for miscommunication problems due to the large number of layers in the organization.

Additionally, decision making can be slow due to formal, inflexible and bureaucratic structures.

Hierarchical

Hierarchical structures are tall with many levels of responsibility. Employees are placed within an organization in terms of their rank.

This organizational structure is suitable when job roles are straightforward and routine as output can be easily measured and checked and because there are clear lines of accountability.

However, they tend to be overly administrative and bureaucratic so employees feel rather distanced due to the impersonal nature of the hierarchical structure.

Additionally, responding to changes in the internal or external business environment can be slow.

Organization By Product

Organization by product occurs when an organization groups its human resources based on the distinct goods or services it sells.

This organizational structure is suitable for large businesses that have a broad product line of goods or services as this requires specialized expertise in marketing and operations.

For example, the Volkswagen Group would have different executives responsible for different divisions of its product range, e.g. Volkswagen, Audi, Porsche and Bugatti. Each executive would be responsible for all products under that division.

The main advantage of this type of organizational structure is that products created using completely different and separate processes are better managed and controlled.

Organization By Function

Organization by function involves establishing the organizational structure according to business functions such as marketing, production, and finance.

Functional organizational structures arrange employees by specific functions performed, e.g. human resources, finance, operations management and marketing.

Managers of different functional departments report to the respective director who holds overall responsibility for the division, e.g. production managers must report to the production director.

The main advantage is that functions are separated by expertise but the challenges come when different functional areas turn into departments that focus only on their area of responsibility and don’t support the function of other departments.

Organization By Region

Organization by region refers to establishing the organizational structure according to different geographical areas.

This organizational structure is suitable for businesses located in various different geographic regions within a country or across the globe.

Usually, operations are supervised and controlled by a regional director.

There are efficiency gains and operational benefits of organizing people by different regions, e.g. to better support and meet the needs of customers in different locations.

In addition, it can support logistical demands and differences in varying geographical locations

Changes In Organizational Structures

Project-based Organization

Project-based organization refers to the organization of human resources around specific projects that need to be completed.

Referred to as matrix structure, this flexible organizational structure is conducive to a democratic leadership style as it encourages the generation of new and creative ideas from team members.

Project-based organizational structure are a popular way of organizing highly skilled and experienced staff. They help utilize the synergies created from interactions amongst staff in the matrix.

Additionally, they create opportunities for job enlargement and job enrichment, thus improving staff morale and motivation.

However, there can be difficulties in controlling team members from various departments in the project who have conflicting interests and priorities.

They may also cause several staff to be demotivated due to added workload and pressures of working on different projects.

Handy’s Shamrock Organization

Irish scholar Charles Handy’s Shamrock (1991) suggests that organizations face continual change so need to adapt accordingly.

His ideas differed from markedly from those of F.W. Taylor (Unit 2.4) who believed in tall hierarchical structures with close supervision of workers. In contrast, Handy recommends that businesses ought to place greater emphasis on meeting the internal needs of workers through methods such as job enrichment (Unit 2.4) and flexible working practices.

The changing organization structure consists of three leafs or types of workers:

1. Professional core – full time, experienced and essential staff needed for the organization’s operations and survival. With improvements in technology and delayering, there is not much need for so many core staff in a business
   
2. Contingent workforce – peripheral workers employed by organizations on a short-term basis. For instance, temporary, portfolio, and flexitime workers. But, this may lead to job insecurity and low staff morale.
   
3. Outsourced vendors – individuals or firms hired on a contract basis to do specific tasks such as an advertising campaign. They are specialists in their field so can be expensive to employ.
   

This model of organizational structure presents cost savings and greater flexibility for organizations, such as cheaper labor costs because only core staff receive full employment benefits whereas peripheral and outsourced workers do not.

Clearly, Handy’s academic work on organizational structures emphasizes the growing practice of outsourcing non-essential activities as well as the recognition of flexible working practices.

Simple Review Questions

1. What is meant by organizational structure and what is its purpose?
2. What is delegation?
3. Differentiate between span of control and chain of command!
4. Distinguish between flat and tall hierarchical structures.
5. What is bureaucracy?
6. Explain the differences between organization by product, function and region.
7. What is project based organization?
8. How does Handy’s Shamrock organization changes traditional structures?

Past Paper Review Questions

Question 1

Answer

(a) Middle managers are the people in charge of running individual departments of an organization. In the case of Southmead College, this is likely to refer to people in positions of responsibility such as Heads of Department or Heads of Year (Grade). They set departmental objectives (which are in line with the College’s overall aims) and are responsible for implementing appropriate strategies to achieve these goals. Middle managers are accountable to the senior management team of the College.

Award 1 mark for a vague answer that displays some understanding of the term ‘middle managers’.

Award 2 marks for an answer that shows a clear understanding of the term ‘middle managers’, with an appropriate example used.

(b) Students are likely to use a range of human resource management theories in addressing this question, e.g. motivation theory. Students that take a different approach, e.g. investment appraisal, should also be credited appropriately.

The decision to restructure the College could be justified for various reasons, such as:

• Huge cost savings which can be used to improve the teaching and learning facilities at the College.
• A flatter organizational structure should also mean that communication is improved.
• The freed up finance used to fund staff training and development would benefit both the College and staff in the future.
• Redundancies are minimal, and indeed there may be some voluntary redundancies (due to the restructuring of jobs and the pay cuts for some middle managers).

However, the decision could be argued to have negative implications for the organization:

• Demoted middle managers (back to the classroom and earning up to $11 200 less a year) may decide to leave the organization to pursue their careers elsewhere. This creates problems for recruitment. In addition, the loss of highly skilled and experienced middle managers may cause major disruptions to labour productivity.
• The lack of career and promotional opportunities may reduce the attractiveness of the College as an employer.
• Resistance to change and industrial action from the teaching staff would need to be managed very carefully; including any negative publicity in the media.

The extent to which the decision was ‘good’ will depend on various factors, such as the College’s mission statement and organizational objectives. The power (influence) and interest of various stakeholders (e.g. teaching staff and parents) would also have a major impact on the outcome of the decision to restructure the College staff.

Award 1–2 marks for a generalized answer that lacks detail or substance.

Award 3–5 marks if relevant points are examined but the answer might not be written in the context of Southmead College or if an unbalanced (one-sided) argument is provided. There is no attempt at evaluation.

Award 6–8 marks if there is a balanced discussion of the decision made by the senior management team at Southmead College, with appropriate use of business management terminology. There is good application and evidence of critical thinking.

Question 2

Answer

(a) Decentralization occurs when decision-making authority and responsibility are shared out with others in the organization. At Ferrari, the highly skilled workers have some decision- making power, not only the senior management team.

Award 1 mark for a vague answer that displays some understanding of the term decentralization.

Award 2 marks for an answer that shows a clear understanding of the term decentralization, with appropriate use of business management terminology and/or relevant examples.

(b) ‘Skills training’ refers to the professional training and development of staff. This is deemed important to firms such as Ferrari for a number of reasons, including:

• To build on its outstanding build quality and prestigious cars
• Its culture of a high degree of decision-making power means there is a need for staff to be highly trained in all aspects of their work
• To uphold the high level of motivation and employee loyalty at Ferrari
• To remain competitive against its rivals such as Lamborghini, Bugatti and Porsche.

Award 1–2 marks if there is a generalized answer, which might lack depth and/or substance or if only one application is shown.

Award 3–4 marks for a detailed explanation of why skills training is important to firms such as Ferrari. For maximum marks, there should be appropriate reference made to the case study with good use of business management terminology.

(c) Centralization occurs when all or most key decisions in an organization are made by senior management, i.e. there is a lack of discretion and autonomy among the workforce. By contrast, decentralization happens when there is delegation of decision-making power to those lower down in the organizational structure of the business.

Factors that influence the degree of decentralization at Ferrari might include:

• The quality of experience and skills held by the workforce – in Ferrari’s case this means that decentralized decision-making can be justified.
• Nature (size and scope) of the decision, e.g. major decisions that carry huge risks and costs will be centralized, i.e. made by the senior management team.
• The organizational culture – the prevailing culture at Ferrari will mean an expectation of decentralized decision-making.
• The size of the firm – as Ferrari is a relatively small car manufacturer with a very limited product range, there is less of a need to centralize decision-making and management control.
• The nature (skills, experiences, outlook and attitudes) of management – In Ferrari’s case, there seems to be mutual trust between management and employees so some degree of delegation is likely to take place.
• The geographical concentration of Ferrari (in Maranello, Italy) also means less of a need for centralized decision-making.
• The need for product innovation in the motor industry also means that decentralization is suitable for Ferrari.

Award 1–2 marks if the answer is brief, generalized and tends to be descriptive or is presented as an unexplained list.

Award 3–4 marks if the explanation is good, but the answer may lack detail and/or application to Ferrari.

Award 5–6 marks if there is thorough examination of the factors that influence the degree of decentralization at Ferrari. There is clear application of the case study and effective use of business management terminology.

Question 3

Answer

Award 1–2 marks if there is some understanding of the demands of the question shown, although there are one or two errors/omissions.

Award 3 marks if the organization chart is accurate, showing the two partners jointly responsible for their workforce of five employees.

Award 1–2 marks if there is some understanding of the demands of the question shown. The organization chart has a few errors and/or omissions.

Award 3–4 marks if there is a clear understanding displayed in the construction of the organization chart. For 3 marks, allow one error or omission in the organization chart.

(b) The span of control is equally shared by the two partners and there is tight control due to the flat organizational structure. By contrast, there is greater delegation in the private company with three directors and three department managers, due to its larger workforce. Therefore, there is a longer chain of command in the private company than in the partnership.

(c) A wide span of control occurs when a manager is directly responsible for many people. Consequences to a business that chooses to adopt a wider span of control include:

• Fewer layers in the hierarchy of the organization are needed, i.e. it is cheaper to operate a wider span of control because there are fewer levels of management.
• Delegation becomes a relatively important part of managing the organization.
• Communication should be improved overall (in terms of speed and accuracy) because there are fewer layers in the hierarchy.
• There is a smaller psychological distance between those at the top and those at the bottom of the organization.
• There are fewer opportunities for subordinates to take on extra responsibilities as promotion (through the hierarchical ranks) is limited.

Award 1–2 marks if only one consequence is explained or if the answer is vague and lacks substance.

Award 3–4 marks if two consequences of adopting a wider span of control are clearly explained, with relevant use of examples. There is good use of appropriate business management terminology.

Question 4

Answer

(a) A change away from departments to faculties would mean that the separate subject leaders would be managed by the Head of Faculty (HOF). This essentially adds an extra layer to the hierarchical structure of the school. Heads of Department would become Heads of Subject all with a new line manager (who would be accountable to the senior management team). The Heads of Subject would retain the same span of control whereas the HOF would have a much wider span of control that encompasses all members of the newly formed faculty. Finally, the chain of command would be lengthened as there is a taller structure in the organization.

Award 1 mark for a generalized answer that lacks substance and/or application.

Award 2–3 marks if the answer correctly explains the taller hierarchical structure resulting from the new faculty structure. For full marks, there is reference to how the span of control and chain of command are affected by the restructuring of the organization.

(b) Arguments for organization by faculties include:

• To create and foster more collaborative teams within the humanities subjects, e.g. sharing of good practice, cross-curricular links and common teaching approaches
• Senior management no longer need to spend so much time with individual HODs (this becomes the responsibility of the HOF), thereby freeing their time to focus on strategic leadership of the school
• Creating a promotional opportunity (and drive/motivation) for one of the HODs to become the new HOF.

Arguments against using faculties in schools (i.e. in favour of departmentalization by subject area) include:

• More meetings since HODs would need to meet with the HOF on a regular basis to discuss issues that affect the whole faculty. HODs would also need to find time to feed back this information to their own teams (hence there is greater burden on the HODs).
• HODs are no longer in direct communication with senior management (as they are accountable to the HOF instead), so this might make some HODs feel somewhat out of touch.
• Having an extra layer in the hierarchy means greater costs to the organization and potentially slower communications.
• There is greater specialization within departments than with faculty structures.

Whether using departments or faculties is better for a school will depend on a whole host of factors, such as its budgetary constraints, the number of staff involved, the personalities and aptitudes of the staff, the subjects being offered at the school, and so forth. For a good discussion, some of these factors should be critically considered.

Award 1–2 marks if the answer is rather generalized and vague. Answers might appear in a list-like format.

Award 3–5 marks if there is an examination of the relative benefits of using the different structures, although the answer may be unbalanced at the bottom end of the band. Appropriate business management terminology is used and there is some application shown.

Award 6–7 marks if there is a balanced answer that considers both costs and benefits of using faculties rather than departments (or subject areas). Appropriate business management terminology is used and there is sound application. There is evidence of evaluation/critical thinking.

Question 5

Answer

(a) The plant managers are accountable to their respective vice presidents (Marketing, Finance or Production) of the organization.

They are responsible for the people in their own departments (for both consumer and industrial products).

Award 1 mark for correctly identifying the accountability and 1 mark for correctly identifying the responsibility of the plant managers, up to the maximum of 2 marks.

(b) The ‘span of control’ refers to the number of subordinates that are controlled by a manager, i.e. the number of people who are directly accountable to a manager. The span of control is wide for a manager responsible for a large number of staff, whereas it is narrow for managers in charge of only a few people.

‘Levels of hierarchy’ refers to organizational structures based on a ranking system, usually with a Chief Executive Officer (or equivalent such as a President) at the top of the structure and unskilled staff producing consumer products and industrial products at the bottom. The levels show the relative degree of authority and responsibility of each rank in the overall organization.

Award 1–2 marks if the terms are described, although there may be some omissions or lack of clarity. Appropriate examples/application might be missing.

Award 3–4 marks if both ‘span of control’ and ‘levels of hierarchy’ are correctly described. There is appropriate use of business management terminology with relevant use of examples.

(c) An organizational chart might be used by a firm for its induction programme in the following ways:

• To show and explain to new staff where they fit into the overall organization, i.e. their position and rank in the business
• To show their lines and scope of organizational responsibility (if any)
• To show who they are accountable to, i.e. their line manager(s).

This overview can help new staff to settle quickly into the business as they become more familiar with the personnel structure of the organization. It can also act as a point of reference for when the new recruit has particular enquiries, such as who to approach for certain questions.

Award 1–2 marks if some understanding of the use of organizational charts is shown, although the answer may lack detail and/or may not be directly related to a firm’s induction programme.

Award 3–4 marks if there is a detailed understanding of the purpose of using organizational charts for inducting new staff. At the top end, appropriate business management terminology is applied effectively, with the use of relevant examples.

Question 6

Answer

(a) Communication is the transfer of information from one party to another, be it verbal, non-verbal, written or by electronic means. The objectives of communication include to instruct, clarify, interpret, notify, warn, receive feedback, review and, above all, to inform.

Award 1 mark for a vague answer that displays some understanding of the term communication.

Award 2 marks for an answer that shows a clear understanding of the term communication, with appropriate use of business management terminology and/or relevant examples.

(b) Benefits of good communication for a business include:

• Enhancing the level of customer services (thereby helping to meet their needs and wants) and customer loyalty.
• Making business operations more cost effective, e.g. greater labour productivity and better relationships with suppliers and investors.
• Having positive motivational effects on the workforce (since employees have been consulted or communicated with).
• Making better (more informed) decisions.

Award 1–2 marks if only one benefit of good communication is clearly outlined or if the answer lacks substance/ depth.

Award 3–4 marks if two benefits of good communication are clearly outlined in the context of a business, with relevant use of examples.

Question 7

Answer

(a) Electronic mail (email) refers to the process of using computers and telephone lines as a mailing system for both internal (intranet) and external (internet) communication purposes.

Award 1 mark for a vague answer that displays some understanding of the term electronic mail.

Award 2 marks for an answer that shows a clear understanding of the term electronic mail, with appropriate use of business management terminology and/or relevant examples.

(b) Email could encourage informal communication in the workplace in several ways, such as:

• Personal messages being sent from the workplace to family and friends
• If emails are not monitored (by the employer) due to privacy laws, this can encourage informal communication via emails, i.e. emails not related to work
• There is no financial cost to the sender (employee) so this might further encourage informal communication, both internally and externally.

Note: Informal communication is not the same as informal messages.

Award 1 mark if the answer shows a vague understanding of how electronic mail might encourage informal communication in the workplace.

Award 2 marks if the answer shows a clear understanding of how electronic mail might encourage informal communication in the workplace, with appropriate use of examples.

(c) Students should clarify what they see as an ‘improvement’ in communication in the workplace. Measures used to judge the efficiency of communication could include:

• Speed
• Accuracy
• Cost
• Comprehension (of the message being sent).

Email does not work well as a form of communication when:

• Speed and cost are an important consideration (compared to fax or postage mail)
• The same message needs to be relayed to many recipients in different geographical locations
• Reference to data and information is needed (using attached files to the email), perhaps at a later date, e.g. sales figures
• There is sufficient training in using the email system at work
• Used in a professional manner, with employees observing protocol and email etiquette.

Email works well as a form of communication when:

• There are technical hitches, e.g. power failure, viruses or computer hacking
• There is monitoring of emails by the employer (conflict and controversy over privacy and management time issues)
• The use of email is not embedded in the organizational culture, i.e. people do not regularly and systematically read/respond to emails
• Codes of practice (email etiquette) are not established to guide employees in the use of email at work
• External communication requires the use of more traditional/formal methods of communication, e.g. written contracts (which require signatures on letter-headed paper)
• It is abused by staff, e.g. if significantly used for informal communication not connected to work matters Junk mail and spam mail clog Inboxes (thereby reducing worker efficiency).

Whether email improves efficiency in the workplace really depends on how and why it is used, based on the considerations of some of the above points.

Award 1–2 marks for a generalized answer that lacks detail or for an answer that is presented in a list-like manner with no/minimal explanation.

Award 3–4 marks if there is sufficient explanation how email might improve the efficiency of communication in the workplace. The answer might be one-sided (unbalanced). Award up to 3 marks if only the advantages or disadvantages (of using email as a form of communication) are considered.

Award 5–6 marks if there is a sound and balanced discussion that considers whether electronic mail improves the efficiency of communication in the workplace. There is good use of business management terminology and evidence of appropriate evaluation.

Question 8

Answer

(a) Barriers to effective communication include:

• Jargon/specialist language
• Technical faults, e.g. printing error Misunderstandings
• Poor communications management.

(b) Application is needed for maximum marks, such as:

• Poor management of information and communication systems, e.g. failing to send the right documents to clients
• Tall hierarchical structures with long chains of command (Edexcel is one of the UK’s main examination boards) leading to distorted messages being communicated
• Inadequate staff training leading to gaps in the work being carried out (inefficiently). This is clearly linked to poor planning and management.

Award 1–2 marks if only one barrier is clearly outlined or if the answer is vague and lacks substance.

Award 3–4 marks if two barriers to effective communication are clearly explained, with appropriate use of examples and/or application to the case study.

(b) Effective communication (unlike Edexcel’s examination blunders) is vital to an organization such as Edexcel (and any other choice of organization) because it helps to:

• Minimize errors and mistakes (such as the one in the case study), thereby improving productivity and efficiency in the organization
• Guide workers in the right direction in order to achieve organizational objectives
• Keep schools (the customers) up to date with curriculum changes and developments
• Promote organizational efficiency in order for Edexcel to compete with its rivals
• Preserve or enhance Edexcel’s reputation and corporate image
• Improve working relationships (or prevent potential conflicts) because misunderstandings are likely to be minimised
• Prevent schools and parents losing confidence in Edexcel, thereby preventing them from switching to rival examination boards such as AQA or the IBO
• Gain feedback in order for Edexcel to continually improve
• Improve the management of communications, especially since Edexcel deals with clients from around the world.

Award 1–2 marks for a generalized answer that lacks details of the importance of effective communication to Edexcel and any other organization.

Award 3–4 marks for a good examination of several factors, with some understanding of the importance of effective communication to Edexcel and any other organization. The answer might lack substance or the use of relevant examples.

Award 5–6 marks for a thorough examination of several factors, with detailed understanding of the importance of effective communication to Edexcel and any other organization. There is good use of business management terminology and effective use of relevant examples.

Command Terms

References

• https://www.amazon.com/International-Baccalaureate-Business-Management-Hoang/dp/1921917245
• https://www.amazon.com/Business-Management-Diploma-Study-Revision/dp/1471868427
• https://www.ibbookshop.co.uk/product/business-management-answer-book-for-3rd-edition-downloadable-pdf/

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Unit 2.1: Functions and Evolution of Human Resource Management – Legit A* Student Success