Fundamental Of Industry

ORGANISATIONAL STRUCTURE
Overview
 Define organizational structure.
 Discuss the factors affecting Organisational Structure.
 Discuss top down, flat and matrix organizational structure.
 How to read an organisational chart.
 Create a basic organisational structure of the construction
and manufacturing industries.
The Importance of an Organizational
Structure
 Without structure, there’s very little clarity and focus;
 Nobody knows whom to report to and responsibilities are
passed around like a hot potato.
 Structure ensures there’s an organized flow of leadership and
authority in which every individual is supposed to have a
clear idea of what they do, whom they supervise, and whom
they ultimately report to.

Organizational structure, control, and culture shape

people’s behaviors, values, and attitudes – and
determine how they will implement an organization’s
business model and strategies.
Elements of Organizational Structure

Department- Span of
alization Control

Elements of
Organizational
Structure

Formalization Centralization
Span of control
 Span of control (division of authority)
 The number of subordinates that a single manager directly
manages.
 Organizational hierarchy choices
 Flat structures
 Few organizational levels
 Wide spans of control
 Tall structures
 Many organizational levels
 Narrow spans of control
Tall vs Flat Structures
As companies grow, they:
 Build taller hierarchy
 Widen span, or both

Problems with tall hierarchies

 Overhead costs
 Worse upward information
 Focus power around managers, so staff
less empowered
 Issues with Tall vs Flatter
Structures
 Firms moving toward flatter structures (delayering) because
taller hierarchies have:
 Higher management overhead costs
 Less information flow
 Less staff empowerment

 But also problems with flatter hierarchies

 Undermines management functions
 Increases workload and stress
 Restricts management career development
Centralization and Decentralization
Centralization
Formal decision making authority is held
by a few people, usually at the top

Decision making authority is

dispersed throughout the organization

Decentralization
 Centralization or Decentralization
 Authority patterns in organizations
 Centralized
 Decision making retained in the
hands of upper-level managers
 Easier coordination of activities
 Decisions fit broad organizational objectives
 Decentralized
 Decisions delegated to lower
levels in the organization
 Requires fewer managers
 Reduces information overload
 Increases motivation and accountability
 Formalization
 The degree to which organizations standardize behavior through
rules, procedures, formal training, and related mechanisms.
 Formalization increases as firms get older, larger, and more
regulated
 Problems with formalization
 Reduces organizational flexibility
 Discourages organizational learning/creativity
 Reduces work efficiency
 Increases job dissatisfaction and work stress
 Departmentalization
Specifies how employees and their activities are grouped
together.
Three functions of departmentalization
1. Establishes chain of command

2. Creates common mental models, measures of performance,

etc
3. Encourages coordination through informal communication
 What is an
Organisational
Chart?

 The organization chart is a diagram showing graphically the

relation of one official to another, or others, of a company.
 It is also used to show the relation of one department to
another, or others, or of one function of an organization to
another, or others.
There are numerous classifications of organisational
structure. However, we will only focus on the following
structures:

Top-down structure

Flat structure

Matrix structure
 Types of Structures
Top – down structure: A top-down approach in
business describes a traditional organizational style that
emphasizes the imperatives and vision of upper
management. Company directives and goals flow down
from the top to subordinates below.

Top-down organizations don’t involve subordinates in

planning. Instead, the owner generates the company
vision, mission, strategic goals and plans and then
communicates these to the ranks below.

Example: Functional Organisational Structure

Top – down structure
 Functional Organizational Structure
Organizes employees around specific knowledge
or other resources (e.g., marketing, production)

CEO

Finance Production Marketing

Top – down structure
Top – down structure
A Sample of Pier 1’s Functional Structure
Clark Johnson
CEO

Exec. V.P. Senior V. P. Senior V.P.

Finance & Admin. Stores Logistics

V.P. Tax V.P. Controller V.P.

Distribution

V.P. MIS Director

Corp. Planning Director
Transportation
 Product Structure
CEO
Corporation

Corporate
Managers

Washing Machine Lighting Television

Division Division Division
Geographic Structure
CEO
Corporation

Corporate
Managers

Northern Western Southern Eastern

Region Region Region Region
 Market Structure

CEO
Corporation

Corporate
Managers

Large Business Small Business Educational Individual

Customers Customers Institutions Customers
 Top down Structure
 Advantages
 Task grouping facilitates
specialization and
productivity.
 Better monitoring of work
processes, reduced costs.
 Greater control over
organizational activities.
© Ram Mudambi, Temple University and University of Reading, 2006.
 Disadvantages
 Functional orientation
creates communication
problems – ‘silos’.
 Performance and
profitability measurement
problems.
 Location versus function
problems (coordination).
 Strategic problems due to
structural (vertical and
horizontal) mismatches.
Flat structure
Flat structure chart
 Matrix structure
A matrix organization structure is usually defined as one
where there are multiple reporting lines – that is, people
have more than one formal boss
 Matrix Structure
 Advantages
 Flexibility of the structure and membership
 Minimum of direct hierarchical control
 Maximizes use of employees’ skills
 Motivates employees;
frees up top management
 Disadvantages
 High bureaucratic costs
 High costs (time and money) for building relationships
 Two-boss employee’s role conflict

© Ram Mudambi, Temple University and University of Reading, 2006.

Matrix Structure
CEO

Func.
Managers

Sales Design Production

Product
Team Managers

team A

Product
team B
Product Team
Product
team C

= two boss employee

Matrix Structure (Project-based)
Employees ( ) are temporarily assigned to a specific
project team and have a permanent functional unit

CEO

Game1 Game2 Game3

Project Leader Project Leader Project Leader

Art Dept
Leader

Software
Dept Leader

Audio Dept
Leader
Matrix Structure
CEO

Func.
Managers

Sales Design Production

Product
Team Managers

team A

Product
team B
Product Team
Product
team C

= two boss employee

Evaluating Matrix Structures
 Benefits
 Uses resources and expertise effectively
 Improves communication, flexibility, innovation
 Focuses specialists on clients and products
 Supports knowledge sharing within specialty
 Solution when two divisions have equal importance
 Limitations
 Increases goal conflict and ambiguity
 Two bosses dilutes accountability
 More conflict, organizational politics, and stress
Benefits of Organisational Chart
 Fundamentally, organization charts benefit users for its visual
communication of information which is more effective than
pure text.
 Organizational chart helps build and design the organization
structure to meet the business' objectives.
 Organizational chart can guide the employees to know their
rights and responsibilities.
 Organizational chart help divide the functions of a company,
enterprise or department.
 It also shows the relationships between the organization's staff
members.
Benefits of Organisational Chart
 With organizational chart, it's easy to find whether the
officer's workload is too heavy.
 It's easy to find whether the unrelated persons undertake the
work of several loose, no relationship.
 Find out whether an employee is incompetent in this work at
important positions.
 Make everyone clear within their organizations and improve
employee performance.
Benefits of Organisational Chart
 Other departments are also able to understand and enhance
the coordination of the organization.
 It's easy to see the promotion channels open.
 Some managers can use the organizational chart tool to
analysis budget, design work team and generate reports.
 Organizational chart often outline employee tasks and which
manager is responsible for overseeing each employees.
Review Questions (Homework)
1. Explain what is meant by the following terms
a) Span of control
b) Chain of command
2. Which of the three structures tends to have large span of
control? Explain why do you think it is so.
3. Discuss two reasons why organisational structure is
important.
4. How might a small company’s growth into a large company
change its organisational structure?
5. Create an organisational chart for Dunoon Park Technical
High School
6. Discuss the role of the i)CEO ii) Board of Directors