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What is an organisational structure?
Most businesses need some type of organisational structure in order to be successful. They allow businesses to designate roles and responsibilities and help employees to understand their place within the enterprise.
The level of formality a business might need in terms of its organisational structure, as well as the type of structure, will largely depend on the scope of operation and size of the business itself.
An organisational structure is essentially the way in which a business is run; it is a vital component to running an effective enterprise. The structure addresses how jobs are delegated, how the hierarchy of employees is designed and the way in which workers are organised, or grouped, into their department or individual roles.
Most of the time, an organisational structure will be put into place when a business is in its infancy. It might be a consideration when the initial business plan is being designed. In some cases, it might be necessary to change or adapt the organisational structure.
This is often the case when:
- The business grows and increases the scope of operation.
- A greater (or fewer) number of employees is required.
- The current structure is not working as well as predicted.
- New management are brought in or a new partner comes on board.
- A business audit is performed that identifies weaknesses.
- A number of employees are unclear about their roles and responsibilities.
- The way the business is run changes significantly (for example staff move from being office based to home-working).
- The goals of the business change or become more (or less) ambitious.
Most business organisations function by having some form of hierarchy in their structure. This is often in the form of a layer, or several layers, of management at the top and a number of lower-grade workers at the bottom. The managers are tasked with offering guidance, training and supervision to the lower-level workers.
Typically, management make the important decisions whilst the rest of the employees are expected to perform their roles which form the backbone of the daily operations.
Pay scale will often reflect an employee’s place in the organisational hierarchy, with managers at the top earning a significantly higher salary than those at the base of the structure. Some organisations use incremental pay rises to motivate staff to progress through the ranks or offer additional bonuses to higher level workers such as free parking or additional holiday days.
What are the types of organisational structures?
There are several different types of organisational structures that businesses may adopt.
Some of the most common include:
According to the FSB, at the beginning of 2020 there were 5.94 million small businesses (with 0-49 employees) in the UK, and SMEs make up 99% of the total business population. The type of structure that works best for these types of businesses may be different from the organisational structure that a large conglomerate might adopt.
How does an organisational structure affect performance?
A strong organisational structure will help businesses to perform their day-to-day functions at an optimum level. Not having an organisational structure in place can cause a chaotic working environment, as well as issues between colleagues and departments, which has a negative impact on clients, customers and revenue.
When an organisational structure is appropriate for a business and used correctly it can:
- Help with decision-making.
- Provide an organised and calm working environment.
- Give clarity to staff about their specific job role.
- Increase productivity.
- Increase client satisfaction.
- Make it easier to identify when something has gone wrong and how to fix the problem.
- Encourage employees to take responsibility for their work.
- Help businesses to make sure time is used efficiently.
It is expected that from time to time employees will have questions about their job role, especially if they are new or have been recently promoted. However, if a number of employees appear to be unclear about their role within the company and there is a sense of disorganisation amongst workers, it is likely the organisational structure needs some attention.
An inappropriate or poor organisational structure could result in:
- Disorganisation amongst departments.
- Staff unclear about what they should be doing.
- Deadlines or targets being missed.
- Poor feedback from clients and feedback not being followed up on.
- Inappropriate use of time, projects taking longer than usual and work not getting done.
- Staff complaining or asking a lot of questions.
- Unrest or chaos.
- Employees unsure who to report concerns to.
- Absence of management, lack of supervision or a reluctance to take responsibility.
Once a business owner notices that there is a problem with their organisational structure, they will need to identify what is causing the problem.
It could be that the structure has not been clearly defined from the beginning, or that it is not appropriate for the business model. It might also be that the structure is not being enforced correctly by management. A lack of strong leadership can also lead to a lapse in organisation and productivity.
No business structure will work effectively without good communication between workers.
What is a divisional organisational structure?
This type of structure is best suited to businesses that have a large scope with bases of operation dispersed nationally or internationally.
Typically, businesses with a divisional organisational structure are often split geographically. They often have a large number of employees who need to be grouped into divisions that relate to their specific services or products. Within the divisions they may also group employees in a similar way to a functional structure.
For example, a large, national sportswear company might have a commercial and sales division, a retail division and a head office division. Each division would have their own accounts department and would be tasked with developing their own specific products and services.
There is often an area manager that oversees several locations, with management at each location who are responsible for the day-to-day running of the business. The manager at each division is accountable to their regional manager who in turn is accountable to the top management of the company for the performance of their divisions.
Each location of a divisional organisational structure is in some way autonomous, functioning as one entity by itself, but also part of a larger enterprise who have the same goals and brand standards.
- Allows businesses with many branches to function cohesively.
- Very useful for ‘branded’ operations that require consistency across the board.
- Allows each division to function as a single entity.
- Businesses structured in this way can make rapid changes in response to feedback or changes in the business market.
- Communication is key and if this breaks down there can be a significant impact.
- Can be costly to operate.
- Travel may be required between sites.
- Rivalry or loss of focus can occur instead of each division working towards a cohesive set of goals.
- Requires considerable organisation and implementation .
What is a hierarchical organisational structure?
In a hierarchical structure, every employee within the business (aside from the one at the top) is subordinate to a manager or supervisor that exist in varying numbers from the bottom to the top. This is organised into a hierarchy, which if arranged into a diagram will resemble a pyramid.
This is a popular structure among large organisations. It usually follows the pattern of having a large number of entry-level workers who are supervised by a smaller set of supervisors, who are in turn supervised by an even smaller set of middle managers. At the top there will be a line of top management, again in smaller numbers than the middle managers, and at the top will be a single general manager or CEO.
- Clear structure and pre-defined roles.
- Little room for staff to avoid accountability.
- Lots of scope for promotion which can be a great motivation for staff to work harder.
- Supervisors and managers have control over subordinates and can support them closely.
- Workers at lower levels can feel disconnected from higher management and therefore less valued.
- Can be expensive as salary expectations increase significantly towards the top chain of command.
- Individual managers need to have consistent skills and ways of working to give subordinates consistency across the board.
- The more capable lower-level workers can feel stifled which will lead to high staff turnover.
What is a line organisational structure?
This is amongst the simplest of organisational structures.
A line organisational structure is based around a traditional idea where there is clarity amongst authority figures. There is a clear and simple chain of command, with a general manager placed at the top and a line of supervisors who have responsibility to supervise a crop of subordinate employees.
This is especially useful in an organisation that does not require to much diversity or specialist skills between departments and, in general, everyone there has similar duties.
- Simple and easy to understand.
- Offers stability to the business.
- Economical to work.
- Can be difficult to work in businesses that have many specialisations.
- Managers can become overburdened.
- Outsourcing might be required for ‘expert level’ advice or specialism.
- Can be seen as dictatorial and not always compatible with modern business.
What is a flat organisational structure?
A flat organisational structure, also referred to as a horizontal structure, has the opposite approach to a tall structure.
Flat organisations have only a few layers of management and are sometimes referred to as self-managed.
This is a modern approach to management and is useful for small organisations or those who market themselves on a left-field approach to management.
- Promotes creativity as each employee can have significant input.
- Can make a business feel fresh and modern.
- Improves marketability of the business to the public.
- Employees feel a sense of autonomy as they all have the opportunity to lead or make decisions.
- Feeling of equality between employees.
- Can lack direction and organisation.
- Very difficult to work without extremely committed and capable staff.
- Less managers can mean each one is responsible for too many staff.
- Overworked management can lead to problems and burnout.
- Short chain of command (this could be seen as an advantage or disadvantage).
- Less opportunities for promotion might hinder ambition.
What is a tall organisational structure?
This is very similar to a hierarchical structure and will typically have a long chain of command, with an abundance of leaders. Each of the management levels will usually only be responsible for a small number of subordinate colleagues, which reduces as the chain progresses up to the top level.
These structures support the top-down approach, with important decisions usually being at executive level.
- Staff are closely supervised.
- Clear structure with well-defined roles.
- Opportunities for promotion.
- Lines of communication can be long.
- Messages can be lost.
- It can be difficult to respond quickly to feedback or adapt to the market.
- Autonomy is restricted (particularly lower down the chain of command).
What is a functional organisational structure?
In a functional organisational structure, employees are separated into groups or departments by their specific skillsets, usually with a manager overseeing each department.
For example, in a large media company with a functional set-up there might be an IT department, a sales department and a creative department. Each would be overseen by a manager who shared a relevant skillset.
- Clear and simple structure.
- Employees have the opportunity to upskill within their departments.
- Good for larger companies who have the scope to group skilled workers by their specialisms.
- Limits creativity.
- Takes autonomy away from lower-grade colleagues.
- Delays in decision-making will slow down output.
- Departments risk becoming competitive instead of working towards a cohesive business goal.
Having the correct organisational structure in place will help a business to perform at its best. It will also make working life easier for staff at all levels.
Sometimes, finding the correct structure might require some trial and error, particularly for start-ups; other times it might be best to do some research into other similar businesses and see what approach works for them.
Although finding the right organisational structure might seem a difficult task to navigate, understanding what each type of structure has to offer should help business owners to make a more informed choice.