1.4.3 Organisational Design

Key terminology

Chain of command

🔗 Who reports to whom throughout the organisation from top to bottom.

Span of control

🔗 How many members of staff a manager will have directly under them.

Hierarchy

🔗 The number of layers in a business showing the order of responsibility from top to bottom

Where decisions are made

Centralisation

🔗 Decisions are made at the top of the structure and communicated down.

• Improves communication between different business layers -> Improves corporate culture -> Workers clear with the message and able to perform the role with clarity -> Higher productivity/quality of task carried out -> Higher customer satisfaction and improved brand loyalty from retention sales
• Staff at lower levels not burdened with extra work from delegation -> Able to specialise in one task in their job role (quality over quantity)
• Workers lack empowerment -> Don't feel valued by the business to take extra responsibility -> Demotivation results in lower productivity -> Rise in cost per unit and less responsive to demand spikes
• Senior management is burdened with large responsibility and workload -> Demotivation and reduces productivity/speed or quality of decisions -> Opportunity cost as wasted time could miss potential opportunities and lose the business market share

Decentralisation

🔗 Decision-making power delegated to lower levels, empowering staff.

• Empowers workers via job enrichment to be more productive and carry out tasks effectively -> Feel valued by the business, as an asset, to have such power -> Higher quality products/customer service -> Competitive advantage for business with added value -> increases the strength of the brand and market share from retention sales
• Reduces burden/workload on senior management -> Enables them to specialise in specific tasks/roles -> Higher quality job done with more motivation and time -> Competitive advantage
• Workers may lack experience and skills to make important decisions -> Potential for the wrong decision to be made -> Opportunity cost and demotivation of workers if power is taken away in the future -> Lower staff retention
• Extra responsibility may be forced upon lower levels of hierarchy -> May only be motivated by financial factors rather than responsibility -> Demotivation and lower productivity -> Disrupts business operations -> Opportunity cost and higher cost of correcting mistakes/incentivising workers again

Types of Organisational Structure

Tall structures

🔗 Lots of layers, small span of control.

• Workloads distributed among more layers -> Workers able to specialise in one job (quality over quantity) -> Higher quality job carried out with higher productivity -> Competitive advantage by being cost competitive or having a unique selling point
• A smaller span of control means managers can supervise a smaller group of employees better -> More clarity and less chance of error -> Reduced wasted output (HR economies of scale) -> More cost-competitive
• More management needed with more layers in the business -> Specialist managers have high salaries -> Financial strain may be burdened on customers with higher prices -> Fall in sales, market share and brand strength
• Communication issues -> Time to communicate instructions down the structure slows down decision making with multiple layers also risking miscommunication -> Lack of clarity and direction for employees -> More mistakes and uncertainty -> Demotivation and higher wastage -> Diseconomies of scale -> Higher total cost per unit

Flat structures

🔗 Fewer layers wider span of control

• Better corporate culture -> Layers close to each other and communication is strong -> Higher productivity from motivation -> Quicker decision making and better quality products produced -> Competitive advantage -> Increased customer satisfaction and brand loyalty for retention sales Less managers required -> Money can be spent elsewhere (E.G Worker training to improve productivity and efficiency)

• Large workload for few layers -> Demotivation or fall in quality from fatigue (quantity over quality) -> Fall in customer satisfaction -> Reduced brand strength

• A larger span of control means more workers for the manager to supervise -> Difficult to monitor, increased mistakes and more wastage -> Diseconomies of scale -> Less cost-competitive

Matrix structures

🔗 Combines the traditional departments seen in functional structures with project teams. Workers work across teams alongside their own departments

• Employees specialise in their roles and specific tasks -> Higher quality jobs carried out -> Higher quality products improve customer satisfaction -> Increased brand loyalty and market share from retention sales -> Able to raise prices due to price inelastic demand
• Employees work together in teams to distribute workload -> Jobs done to a higher standard due to synergy -> People motivated with one job to well with -> Higher quality products -> Increased brand loyalty
• Requires highly skilled workers in all departments -> High salaries due to expertise -> Financial strain on business may put upward pressure on prices for products -> Fall in sales and market share
• Members of project teams may have divided loyalties with project and department -> Pressure of larger workload and potential neglect of one task over the other -> Opportunity cost

Delayering

🔗 Removing a layer from a business.

• Workers empowered with the workload of the previous layer distributed among other layers -> Feel more valued by business -> Higher productivity and high-quality job done -> Competitive advantage
• Improved corporate culture with more inclusiveness among layers as well as better communication
• Workers may not be motivated by increased work -> Demotivation -> Lower productivity/lower quality of customer service
• More people for manager to supervise due to flatter structure -> Difficult to monitor performance -> More mistakes and lower productivity -> Less cost competitive due to wastage increasing total cost per unit