Structure of organisations

From WikiTextbook

There are many tasks every business needs to do if it is going to succeed. Each of these tasks is described as being a function of a business. The following is a brief introduction to each of these functions:

human resources - ensures the business has the best staff for the job and that they are able to work effectively in a safe environment;
finance - will keep a record of all monies coming in and out of the business. They have responsibility for securing finances for future expansion and paying staff and suppliers;
administration and ICT support - ensure the smooth running of the business on a day to day basis. They responsibility for clerical duties, cleaning, computer and software support, security and health and safety;
operations - have the task of producing the good or service in the most efficient way. This is done by making best use of the businesses workers, machinery, building and raw materials;
marketing and sales - will try and maximize the level of sales by carrying out market research, promoting the good or service and having a motivated sales team;
customer service - will help the customer before and after a sale has been made by providing information, giving advice, providing credit facilities, delivering goods and providing after-sales support;
research and development - will help the business remain competitive by developing new goods and services and updating the existing ones;
Use of ICT – ICT will be used in each of these functional areas and it should assist the business in achieving its aims and objectives.

If the functional areas are unable to work together effectively the whole process of introducing the product will fail. This highlights how all of the functional areas must support and work towards the business’s aims and objectives.

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Organisational Structure

The organisational structure shows the way that the business's workers are organised. There are various organisational structures that will be appropriate to different businesses.

Entrepreneurial Structure for Small Businesses

This reflects that there are only one or two people at the top making decisions. They will have direct control over all of the employees in the business.

This reflects the authority the manager (who is usually the owner) has over all aspects of the business and its employees. This kind of structure will usually encourage the manager to give his or her workers greater responsibility to make decisions.

It is appropriate where quick decision making is needed with an element of skill and flair. There is the problem that as the business gets bigger and employs more workers it becomes difficult for the manager to maintain direct authority over all employees and a change in organizational structure is necessary.

A Functional Structure (Bureaucratic Structure)

The traditional approach was to divide the business into functional areas such as marketing, production and finance. Each functional area will have a manager and people who work below him or her, such as supervisors, then operatives and then the support staff. This is known as the different layers of hierarchy and it reflects who has the responsibility and authority within the business. The diagram below shows a functional structure that shows only four of the business's functional areas.

This type of structure allows workers to specialise in the functional area that they work in e.g., finance and marketing. These functional areas are also known as Departments. It has clearly marked levels and lines of authority, such as the manager is above the supervisor in the hierarchy of the business.

A functional structure can be inflexible as it can be difficult for the business to realise that customer's wants have changed. This may happen if the business is large and has people working on the same product in different functional areas or different parts of the world. If the workers do not see or speak to each other very often they will not be able to discuss the good or service. Therefore a functional structure is best suited to businesses that produce only one product or a closely related group of products.

IBM had a functional structure with a strict distinction between functional areas such as marketing and finance. It was believed that this structure led to delays of up to two years in the introduction of new models and this caused IBM's profits to fall. IBM has now split up its business into divisions, with each division responsible for one product.

Every division will have all of the functional areas you would expect to see; this is known as structure by product.

Structure by Product (Divisional Structure)

Today many businesses have followed IBM's example and re-organised away from functional structure towards structure by product. Within each division, marketing, operations, finance and other staff would work together on the same projects. The diagram below shows structure by product, products A, C and D would also have the same number of workers as B. It is also possible that each division will have many more functional areas.

or it is possible that each division will look after one particular type of customer, such as business, consumers and international sales.

Each division is self contained and operates as a business within a business. Within each division the functional structures tends to be adopted, in other words, each division will have its own accounts department, marking department, production department etc. There are a number of advantages and disadvantages of structure by product:

Advantages

Each division will concentrate on only one product or type of market. This will allow the workers to become more knowledgeable and gain expertise in this product or market;
allows a large company to operate as several smaller ones, each with greater identity which may make it more recognisable to customers, e.g., Procter and Gamble have split into many divisions, with each of them responsible for one of it many products; Bold, Daz, Pampers, Hugo Boss, Wash & Go, Oil of Olay and Sunny Delight;
it provides greater flexibility for growth and expansion as additional divisions can simply be added on to the business.

Disadvantages

there can be conflict between divisions as they compete with each other;
there can be higher costs as some activities may be repeated in different divisions.
it can become difficult to co-ordinate if divisions grow too large, in other words the same problems as the functional structure occurs within each division.

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Span of Control

This describes the number of workers who are answerable directly to a superior. The span of control is wide if a superior is in charge of many workers and narrow if the superior is in charge of few.

Tall and Thin organisational structures

There is a small span of control with many levels of hierarchy. This means each superior is responsible for only a small number of workers, for example, the army. The diagram below shows a tall and thin business where each superior is responsible for four workers. We can see that it takes five levels of hierarchy to oversee 1000 employees.

The advantages of having a tall and thin organisational structure are:

workers have tighter supervision. This is necessary where mistakes cannot be allowed, for example, in the army;
workers will be under less stress as their boss will be able to give them more guidance and support;
because there are more layers of hierarchy there will be more promotion opportunities.

Wide and flat organisational structures

There is a large span of control with few levels of hierarchy. This means each superior is responsible for a large number of workers, for example, the church. The diagram below shows a wide and flat business where each superior is responsible for ten workers. We can see that it takes three levels of hierarchy to oversee 1000 employees.

The advantages of having a wide and flat organisational structure are:

the superior must delegate to his or her staff because he or she will have less time for each of their workers;
because fewer layers of hierarchy are needed, information can move quickly from workers to the manager. This should help the manager make fast decisions.

The trend in the past 20 years has been “delayering”. This occurs when the business increases the span of control and decreases levels of hierarchy. This has led to a decrease in the numbers of middle management.

Organisational structure for Athens Olympics 2004==

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