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AS Business Studies People In Business: ORGANISATIONAL STRUCTURES Lesson Aims • You will understand:– How issues such as levels of hierarchy, spans of control, workloads, delegation and communication flows affect the structure of the organisation. – The roles that are carried out in the organisation by directors, managers, team leaders and supervisors. – How the structure of an organisation can affect the performance of the business. Key Terms • Authority and responsibility: it is possible for a manager to delegate authority to a subordinate. However the responsibility must remain with the manager. • Organisation charts are diagrams representing the job titles and formal patterns of authority and responsibility in an organisation. What is an Organisational Structure? • An organisational structure is the way in which a business is arranged to carry out its activities. • It sets out: – The routes by which communication passes through the business – Who has authority (and power) and responsibility within the organisation – The roles and titles of individual employees within the organisation – The people to whom individuals are accountable and those for whom they are responsible. • Some entrepreneurs believe structures should be continually changing to meet the demands of the rapidly changing external environment. Changing the structure can help keep costs down which is important to start-up businesses. Key Elements in Organisational Structures • Workloads and Job Allocation – Who is going to do what – Good decisions in these areas help to make the business efficient – As the small business grows the entrepreneur will focus on managing the business and newly appointed employees will carry out more basic duties. – As the business grows further they will need to employ specialists, i.e. Finance, I.T., Marketing. What are the benefits and costs? – Increased Sales, Reduce costs, increase margins. – Avoid times when employees are idle. – Ensure workload is not too demanding as this would result in mistakes, employee stress and ultimately dissatisfied customers. – Links to part time, full time staff from Unit 1. More Key Terms! • Levels of hierarchy refer to the number of layers of authority within an organisation. That is, how many levels exist between the Chief Executive and a shop-floor employee. • A span of control is the number of subordinates directly responsible to a manager. • The chain of command is the line of communication and authority existing within a business. Thus, a shop-floor worker reports to a supervisor, who is responsible to a departmental manager, and so on. Managing Director (1) Managers or Team Leaders (10) Managing Director (1) Directors (3) Managers (9) 100 Shop-floor workers Supervisors (27) Shop-floor workers (81) A flat organisational structure has few levels of hierarchy (3) and a wide span of control. Many UK businesses have implemented this form of organisational structure. A traditional “tall” organisational structure has five layers of hierarchy and a narrow span of control. In spite of the firm employing more people, it has fewer shopfloor employees that the “flat” structure along side. What do you think? • Surveys of employees have shown that the majority of people prefer to work in a “flat” organisation. Why might this type of structure be particularly popular with junior employees? Spans of Control • Wide span of control = Few levels of hierarchy • Narrow span of control = Many levels of hierarchy Manager A Supervisor B Worker D Worker E Wide Span of Control •Employees gain greater independence •Motivation Supervisor C Worker F Worker G Worker H Worker I Narrow Span of Control •Close Control over activities Delegation • Delegation is the passing of authority (but not responsibility) down the organisation structure. Thus, a junior manager might be given the authority to conduct a market research campaign, but responsibility for the overall success of the campaign is with the senior employee. • Can you think of any recent high profile cases where senior management have had to “carry the can”? • Issues to consider: – Experience – Knowledge - Finance within the small business - Is the entrepreneur prepared to give colleagues control? Communication Exercise • Chinese Whispers • "It is rumoured that Mrs Jane Honoria Figglebat, ward of the well-known boxing promoter Jem Shambles, will next week try to break the underwater swimming record for girls of English extraction. Her fiancé Mr Wallaby, the animal dentist, recently fitted seven new teeth to a zoo leopard which had broken its jaw in a fight with a lion and two llamas" Communication Flows • Communication is the exchange of information between 2 or more parties. • Communication flows up and down the organisation which entails the passing of information from senior to junior employees and from junior to senior employees. • It also flows across the organisation. Well designed structures offer employees at the same level the chance to communicate effectively. • Smooth communication encouraged if unnecessary levels of hierarchy are removed. • Communication improved is span of control is designed to fit with employees abilities. • Communication not just down to organisation structure: – Use of IT – Meetings and briefings Centralisation & Decentralisation • Centralisation: – Where the majority of decisions are taken by senior managers at the top of the structure. – Rapid decision making: Few people consulted. – Decisions linked to corporate objectives. • Decentralisation: – More decisions are made by employees lower down in the organisational structure. Workforce Roles • What do these people do? – Directors – Managers – Supervisors – Team Leaders Workforce Roles • What do these people do? – Directors: Proposed by Chief Executive, largely strategic, set and oversee long term goals, may have expertise in particular area (i.e. Marketing), Non-executive Directors give advice at board meetings. – Managers: Planning, organising, motivating, controlling. Authority over junior employees, plan and monitor short and medium term goals. – Supervisors: Represent link between managers and shop-floor workers, Delegated authority for day to day decisions, line of communication between managers and shop-floor. – Team Leaders: Make less use of authority and are used in a role to support shop-floor employees, facilitate work of junior employees, must be trust at all levels. How does Organisational Structure affect business performance • Keep a tight control on costs – Allocate workload to make best use of labour costs. – Improved communication from junior staff will help senior staff make good decisions to use resources effectively. – As organisations become flatter wage costs reduce allowing the organisation to improve profit margins. • Meet customers’ needs as fully as possible – Increased motivation and improved decision making in junior staff is likely to improve customer service leading to repeat business. Particularly important for start-ups. – Effective communication can also lead to improved customer service. • Tricky to get the right balance in a small business when the structure is evolving rapidly. How did we get on? • Do you understand:– How issues such as levels of hierarchy, spans of control, workloads, delegation and communication flows affect the structure of the organisation. – The roles that are carried out in the organisation by directors, managers, team leaders and supervisors. – How the structure of an organisation can affect the performance of the business.