Organisational Structure: Types Of Structure (Copy)

7.1 Organisational Structure

7.1.2 Types Of Structure: Functional, Hierarchical (Flat And Narrow), Matrix

Types Of Organisational Structure

• Functional structure
  • Definition: A structure where the business is divided into departments based on functions such as marketing, finance, operations, and human resources.
  • Features:
    • Clear lines of authority within each department.
    • Each department specialises in its own area.
    • Employees report to functional managers.
  • Advantages:
    • Specialisation increases efficiency and expertise.
    • Clear roles and responsibilities reduce confusion.
    • Easier training and career progression within departments.
    • Managers can focus on their area of expertise.
  • Disadvantages:
    • Can lead to poor communication between departments.
    • Risk of “silos” where departments focus only on their own goals.
    • Lack of coordination may delay decision-making.
    • Employees may develop narrow skills instead of broader knowledge.
  • Example: A bank with departments for loans, customer service, IT, and marketing.
• Hierarchical structure (tall/narrow)
  • Definition: A structure with many layers of management and a narrow span of control (few subordinates per manager).
  • Features:
    • Clear chain of command.
    • Communication flows from top to bottom.
    • Managers supervise only a few employees each.
  • Advantages:
    • Clear reporting lines and accountability.
    • Close supervision ensures tasks are done correctly.
    • Easier monitoring and control.
  • Disadvantages:
    • Communication can be slow due to many layers.
    • Risk of bureaucracy and inflexibility.
    • Can demotivate employees due to lack of empowerment.
  • Example: The military often uses tall hierarchical structures with many ranks.
• Hierarchical structure (flat/wide)
  • Definition: A structure with fewer layers of management and a wide span of control (many subordinates per manager).
  • Features:
    • Fewer levels of hierarchy.
    • Managers supervise many employees.
    • Encourages delegation and empowerment.
  • Advantages:
    • Faster communication between managers and staff.
    • Employees may feel more empowered and motivated.
    • Less bureaucracy, more flexibility.
    • Lower management costs.
  • Disadvantages:
    • Managers may become overloaded.
    • Less close supervision may reduce control.
    • Risk of confusion if roles are not clear.
  • Example: Start-ups and small businesses often use flat structures.
• Matrix structure
  • Definition: A structure where employees report to more than one manager, usually based on both function and project.
  • Features:
    • Teams are formed from different departments.
    • Employees have dual reporting lines (to functional manager and project manager).
    • Encourages collaboration across departments.
  • Advantages:
    • Encourages teamwork and sharing of expertise.
    • Flexible and adaptable to changing projects.
    • Improves innovation by combining different skills.
  • Disadvantages:
    • Can create confusion about authority.
    • Risk of conflict between managers.
    • Requires strong communication and coordination.
  • Example: A construction company where engineers, architects, and finance staff work together on a single project team.

Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change A2 Level Business Full Scale Course

Why Some Organisations Are Structured By Product, Function Or Geographical Area

• By product
  • Suitable for large businesses with diverse product lines.
  • Each product line is treated as a separate division with its own resources.
  • Example: Unilever divides its business into foods, beverages, and personal care.
  • Advantage: Allows specialisation and focus on specific products.
  • Disadvantage: Can duplicate resources across divisions, raising costs.
• By function
  • Suitable for small to medium-sized firms or businesses producing a limited range of products.
  • Departments are divided by business functions (marketing, HR, finance, operations).
  • Advantage: Specialisation improves efficiency.
  • Disadvantage: May reduce coordination between functions.
• By geographical area
  • Suitable for multinational companies operating in different regions.
  • Each region or country has its own operations and management.
  • Example: McDonald’s has regional divisions (e.g., North America, Europe, Asia-Pacific).
  • Advantage: Allows adaptation to local market needs.
  • Disadvantage: May lead to duplication of resources and higher costs.

Reasons And Ways Structures Change

• Reasons for change
  • Growth of business
    • As businesses expand, more departments and managers are needed.
    • A small start-up may evolve from a flat structure into a functional or divisional one.
  • Expansion into new markets
    • Entering new countries often requires a geographical structure.
    • Allows adaptation to local legal and cultural differences.
  • Product diversification
    • Launching new products may lead to a product-based structure.
    • Ensures each product receives enough focus.
  • Technological changes
    • New technologies may require new departments (e.g., digital marketing).
  • Cost pressures
    • Businesses may restructure to reduce costs (e.g., outsourcing, automation).
  • Delayering
    • Removing layers of management to reduce costs and speed up decision-making.
    • Example: A retail chain reducing the number of regional managers.
  • Mergers and acquisitions
    • Combining two businesses often requires restructuring to integrate operations.
• Ways structures change
  • Delayering: Removing middle management layers to make the organisation flatter.
  • Decentralisation: Giving more decision-making power to lower levels of management.
  • Restructuring divisions: Creating new product or regional divisions.
  • Outsourcing: Moving some functions outside the organisation.

Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change A2 Level Business Full Scale Course

Features Of A Formal Structure

• Levels of hierarchy
  • Definition: The number of layers of management in an organisation.
  • Tall structure = many levels, narrow spans of control.
  • Flat structure = fewer levels, wider spans of control.
  • Impact:
    • More levels improve supervision but slow down communication.
    • Fewer levels improve communication but may overload managers.
• Chain of command
  • Definition: The line of authority through which instructions are passed down from top management to employees.
  • Importance: Ensures clarity and accountability.
  • Example: In a school, the principal → head of department → teachers → students.
• Span of control
  • Definition: The number of employees directly managed by a supervisor.
  • Narrow span: manager controls few employees → close supervision.
  • Wide span: manager controls many employees → more delegation needed.
  • Example: In a call centre, a supervisor may manage 20 agents (wide span). In a hospital, a senior surgeon may manage 3 junior doctors (narrow span).
• Responsibility
  • Definition: The duty of an employee or manager to complete a task.
  • Importance: Creates accountability and ensures tasks are completed effectively.
• Authority
  • Definition: The right to give orders and make decisions.
  • Delegated from top management down to subordinates.
  • Example: A department manager has the authority to allocate tasks to staff.
• Delegation
  • Definition: Passing authority to a subordinate while retaining overall responsibility.
  • Advantages:
    • Frees up managers’ time.
    • Motivates employees by giving them responsibility.
  • Risks:
    • Tasks may not be completed properly.
    • Some managers may be unwilling to delegate.
• Accountability
  • Definition: The responsibility of an individual to justify their actions and decisions to their manager.
  • Ensures managers and employees remain answerable for results.
• Centralised structure
  • Definition: Decision-making is kept at the top levels of management.
  • Advantages:
    • Consistent decision-making across the organisation.
    • Easier to maintain control.
  • Disadvantages:
    • Slow decision-making.
    • Local managers may feel powerless.
  • Example: McDonald’s uses a centralised structure for brand consistency.
• Decentralised structure
  • Definition: Decision-making is delegated to lower levels of management.
  • Advantages:
    • Faster decision-making.
    • Local managers can adapt to local conditions.
    • Motivates employees by giving them more responsibility.
  • Disadvantages:
    • Decisions may be inconsistent across departments.
    • Senior managers may lose control.
  • Example: Multinational companies often decentralise decision-making to regional managers.

Diagram – Tall Vs Flat Structure

Tall (Narrow Span)            Flat (Wide Span)

CEO                           CEO
 |                             |
Manager                        Manager
 |                             |---------------------
Supervisor                     |    |     |     |    |
 |                             V    V     V     V
Employee                       Emp Emp   Emp  Emp

• Tall: more levels, clear authority, slower communication.
• Flat: fewer levels, quicker communication, more responsibility for each manager.

Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change A2 Level Business Full Scale Course

Evaluating The Impact Of Competitors And Suppliers On Organisational Structure

• Competitors and structure
  • High competition may encourage flat structures to allow faster decision-making.
  • Low competition may allow tall structures with more control.
  • Innovative industries may use matrix structures to share knowledge and respond quickly.
• Suppliers and structure
  • Businesses with many suppliers may need a strong procurement or supply chain department (functional structure).
  • Businesses dependent on global suppliers may use a geographical structure to manage local supply risks.
  • Firms aiming for vertical integration may create new internal supply divisions.

Strategic Importance Of Organisational Structure

• Adapting to external changes
  • Globalisation requires more geographical divisions.
  • New technologies require changes in structure (e.g., adding IT departments).
• Improving efficiency
  • Delayering reduces bureaucracy and speeds decision-making.
  • Flat structures reduce costs but need capable managers.
• Enhancing competitiveness
  • Matrix structures allow faster innovation to compete with rivals.
  • Product structures ensure dedicated focus on different market segments.
• Supporting growth
  • Start-ups may begin flat, then shift to functional or matrix as they grow.
  • Large corporations often use a mix of structures (hybrid approach).

Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change A2 Level Business Full Scale Course