Here, we’ll look at different ways of structuring a business to organise the work.
What is an organisational structure?
An organisational structure is a way of dividing a business into jobs, tasks and responsibilities. There are lots of different ways of doing this. We’ll look at some of the most common.
Management structures
The number of managers in an organisation, what they are responsible for, and who they are responsible to, results in a structure. Management structures often determine an organisation’s structure, because the organisation structure reflects the relationships between managers and their staff.
Tall and flat structures
In a tall structure, there are many levels of management.
Diagram 1: Tall Structure - [D] Text equivalent
In a flat structure, there are few layers of management.
This diagram shows a pyramid. At the top (the smallest level) of the triangle is the CEO. The next level shows 15 senior managers. The next level is 95 first-line managers, and the bottom level (the widest level) is 1000 non-managers. There are a total of 4 levels, with 1,111 employees.
Diagram 2: Flat Structure - [D] Text equivalent
Span of control
Span of control is the number of people managers are directly responsible for: their direct reports. The flatter the organisation is, the larger the span of control. To calculate the span of control, divide the number of managers into the number of those who report directly to them.
In diagrams 1 and 2, above, the flat structure has a span of control of 9 (111 managers for 1000 non-managers), whereas the tall structure has a span of control of only 3.85 (273 managers for 1050 non-managers).
Functional structures
Another way of looking at structure is according to the focus of the work. Organisations that focus on specialities such as accounting or marketing are called functional because they group these functions together.
Diagram 3: Functional structure for Global Banking - [D] Text equivalent
Do functional structures work well?
They can. The advantage of such specialisation is that the organisation can become very efficient, because the specialists help each other. The disadvantageis that specialists do not necessarily relate well to other parts of the organisation, and coordination of effort can be difficult.
Divisional structures
Divisional structures which focus on customers or regions are now popular because they encourage teamwork. In this approach, each division has its own line (production) and staff (administration) functions. These line and staff employees report to the divisional manager, not the specialist manager in head office.
Diagram 4: Divisional structure (product based) - [D] Text equivalent
Diagram 5: Divisional structure (region based) - [D] Text equivalent
Do divisional structures work well?
Yes, they do. The advantage of this structure is that decision making is closer to the place it is needed and teamwork between specialists is easier. The disadvantage is that divisions may compete too much, making coordination difficult.
Strategic business units (SBUs)
Sometimes a divisional structure is broken up into strategic business units, each of which produces a particular product for a particular market. In this case the head office often tends to focus on financial results only and may give the SBUs a lot of independence.
An advantage of SBUs is that they encourage aggressive marketing. A disadvantage is that they increase the disadvantages of divisional structures.
Matrix structures
In a matrix structure, function managers and project managers share staff. This is commonly used for temporary projects.
example
Bob, an accounting manager, recommended Susan for a project team that is developing a new product. Jesse, the project manager, coordinates Susan’s work with the work of the engineers, supply specialists, production staff, sales and others in the project team. Susan reports to both managers, though mainly to the Jesse while the project is going.
Diagram 6: Matrix structure - [D] Text equivalent
Do matrix structures work well?
Sometimes. Matrix structures are excellent for organising project teams that have clear start and end dates. They are not as efficient at keeping up the same process over a long time, when it’s necessary to make changes or improvements to the project. They also mean that staff have to please two managers at a time.
Shamrock structures
Another structure is called the shamrock structure. This is used with outsourcing, when temporary employees and contractors support longer-term or core staff.
British marketing and management educator Charles Handy made the shamrock approach popular. His model is based on a three-leaf clover.
Diagram 7: Shamrock structure - [D] Text equivalent
The centre leaf, ‘Core staff’ is the essential core of planning, financial control and other management functions. The other two leaves represent non-permanent employees.
Do shamrock structures work well?
They can. Shamrock structures have the advantage of flexibility for staffing and the disadvantage of focusing on the infrastructure (the ‘essential core’), rather than on the production of goods and services, and they also need a strong legal structure for the management of a range of employees.
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