Management and Organisational Structures

Every organisation with more than one person needs a structure so that workers have clearly defined roles and are clear about the roles of others.

An organisation’s structure is often presented as an organisational chart which will show how management is organised vertically with layers of hierarchy and horizontally by function, product or division. The chart will make clear who is responsible for what, who is responsible to who and who to go to with problems and queries.

There are three main types of organisational structure: tall hierarchical, flat hierarchical and matrix.

Hierarchical Organisations

In a hierarchical organisation employees are ranked at different levels, each one above another. At each level, except the bottom, one person has a team of people reporting to them. The resulting chart will be in a pyramid shape.

As an example, the senior managers will be responsible for the overall direction of the business whilst middle management will report to the senior managers and be accountable for their department. Each middle manager will have a team of people who manage the day-to-day work of multiple staff on the bottom layer.

If there are many layers the hierarchy is said to be tall and if there are few layers it would be called flat.

A tall hierarchy will typically have narrow spans of control (the number of people working for another). As each manager only manages a few people, the team can be closely supervised but this can restrict responsibility and make decision-making slow as approval has to be sought higher up the layers of management. Management costs are also high because there are fewer subordinates.

Flat Hierarchical Organisations

In a flat hierarchy the chain of command is much shorter (fewer layers) and the span of control wider. This can lead to improved communications and strong team spirit. However it can limit growth or the organisation as more layers would need to be added and functions can get blurred.

A hierarchy can be structured by product or customer groups as well as by function (marketing, HR, sales). In this way a large company can operate as several smaller businesses. An example would be Unilever which is split into smaller units such as personal care and frozen foods.

This has the benefit of giving each division its own identity and make decision-making faster.

However it can cause conflict over budget allocation between divisions and some costs, such as payroll or marketing, may be duplicated.

The advantages of a hierarchy structure lie in its clearly defined roles and responsibilities, employees can see a clear path for career progression and employees develop loyalty to their team.

On the downside hierarchies can be bureaucratic and slow to respond to changing customer needs. Communication horizontally between departments can be poor and decision-making can be flawed with departments making decisions that benefit just them rather than the business as a whole.

Matrix Organisations

A matrix organisation has teams of cross-functional people. These are often created for specific projects, such as the development and launch of new products and systems, and are led by a project manager. The project manager’s team will be a group of specialists from around the business brought together specifically for this project.

The pros include the fact that the team is hand-selected for their skill-set and experience. Decision-making can be quick and the team is responsible to drive the project through on time and within budget.

The biggest problem is likely to be with each worker having two bosses: their line manager and the project manager. This can causes conflicts on time if the demands from both roles are heavy. A matrix gives the individuals in the team a lot of independence to do work in the way they think best and though this encourages empowerment and is highly motivating it can be hard to monitor the work being done. Also as the team grows it can be hard to manage increasing numbers of people so the structure has to be changed to have fewer direct reports.

Several factors influence the choice of structure:

Size: Larger companies will tend to have a longer chain of command and more levels of hierarchy.

Employee skills: Matrix structures are particularly suited to organisations where the employee skill level is high.

Leadership style: If the owners of a business wish to keep as much control over their business as possible there will be a narrow span of control whereas those who wish to motivate their teams may delegate decision-making to others and therefore have a wider span of control.

Business objectives: If a company decides to expand quickly, through a merger or acquisition, the span of control will become much wider.

External factors: A recession may cause the need to cut back and make many roles redundant. This can result in layers of management being taken out of the business reducing the chain if command and making the organisation much flatter.

Changes in technology: A new IT system could reduce the need for administration staff and enable layers of workers to be removed from the structure.

A company must choose its structure carefully. The wrong structure could lead to slow decision-making, a lack of co-ordination, rising costs, failure to share ideas and motivation falling because they don’t know what’s happening or why.