2.2 Organizational structure
What is an organizational structure
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The way a business organizes its employees is known as organizational structure. This structure outlines the roles, responsibilities, and relationships between employees.
Key Elements of Organizational Structure:
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Accountability: Who is responsible for specific tasks or outcomes.
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Responsibility: Who is in charge of whom and in what capacity.
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Organizational Charts
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Organizational charts visually represent the structure, showing who reports to whom.
Delegation
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As businesses grow, managers can't handle everything themselves. Delegation is the process of assigning tasks and authority to others. Managers still hold responsibility, but the work is done by the delegated employee.
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Effective Delegation
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Saves Time: Managers can focus on strategic issues.
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Motivates Employees: Employees feel trusted and valued.
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Poor Delegation
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Causes Confusion: Leads to demotivation and lower productivity.
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Delegation is a crucial skill for managers to ensure efficient and effective operations.
Span of control
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Span of Control refers to the number of employees a manager directly oversees.
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Wide Span: Fewer managers needed, lower costs, potentially better communication.
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Narrow Span: More managers needed, higher costs, potentially better control and communication within smaller teams.
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Factors Affecting Span of Control
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Manager's Skills and Experience
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Organizational Culture
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Subordinates' Skills
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Task Complexity
Levels of the hierarchy
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Hierarchy refers to the ranking system in an organization, with top-level executives at the top and less skilled employees at the bottom. Each level has specific authority and responsibility.
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Line Managers: Directly responsible for managing employees on the next lower level.
Chain of Command
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The chain of command refers to the formal line of authority through which communications and orders are passed down in an organization.
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This can be seen through a firm's organization chart. Businesses that have only a few levels of hierarchy have a short chain of command.
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By contrast, the chain of command is long in businesses that have many levels in its hierarchical structure.
Bureaucracy
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Bureaucracy is the system of rules and procedures that guide an organization's operations. It's characterized by formal structures, standardized processes, and clear lines of authority.
Advantages:
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Clarity and Order: Provides clear guidelines and structure.
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Efficiency: Can streamline processes and improve efficiency.
Disadvantages:
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Rigidity: Can hinder flexibility and adaptability.
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Slow Decision-Making: Can slow down decision-making processes.
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Paperwork: Can lead to excessive paperwork and administration.
Centralization
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Centralization refers to the concentration of decision-making authority in a few individuals, typically top-level executives.
Advantages:
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Clear Direction: Provides strong leadership and clear direction.
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Quick Decision-Making: Can make decisions quickly.
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Efficient Resource Allocation: Can efficiently allocate resources.
Disadvantages:
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Lack of Employee Involvement: May lead to low employee morale and motivation.
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Rigid Decision-Making: Can be inflexible and resistant to change.
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Overburdened Executives: Can overburden top executives with decision-making.
Decentralisation
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An alternative organizational structure is to use decentralized structures, whereby decision-making authority and responsibility are shared with others.
Advantages:
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Increased employee engagement
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Faster decision-making
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Improved morale and productivity
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Better accountability:
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Enhanced teamwork
Disadvantages:
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Higher costs: Empowering employees often requires financial incentives and training.
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Inefficiencies: Duplicate functions may arise due to lack of oversight.
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Increased risk of errors: More decision-makers can lead to difficulty tracking mistakes.
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Loss of control: Senior leaders may have less direct control over operations.
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Communication challenges: Decentralization requires efficient communication, which can add to costs.
Factors if a business is centralized and decentralized.
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Organization size: Larger organizations often require decentralization for efficient operation.
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Decision importance and risk: High-cost or high-risk decisions tend to remain centralized.
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Corporate culture: Creative and innovative organizations often favor decentralization.
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Management attitudes and competencies: Managers who trust and empower their employees are more likely to decentralize.
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Information Communication Technologies (ICT): Advanced ICT can enable greater decentralization, such as remote work arrangements.
Delayering
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Delayering is the process of removing one or more levels in the hierarchy to flatten the organizational structure. This reduces layers and widens the span of control for the same.
Advantages:
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Reduced Costs
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Improved communication
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Empowered employees
Matrix Structure
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Flexible organization: Employees from different departments are temporarily assigned to projects.
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Dual accountability: Team members report to both their functional department manager and the project manager.
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Emphasis on skills and experience: Highly skilled team members allow for less micromanagement by project managers.
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Cross-functional collaboration: Projects bring together individuals from various departments.
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Non-hierarchical communication: Communication in matrix structures is not strictly hierarchical.