Organisational structure, span of control and chain of command

What an organisational structure is

• An organisational structure is the way a business arranges its people — who reports to whom, who decides what, and how the work is grouped.
• It is usually drawn as an organisation chart: boxes for roles, lines for reporting relationships.
• Structure is part of the business's internal operations because it controls three things that make or break a large business:
  • how fast a decision travels from the top to the person who has to act on it
  • how accurately information travels back up
  • how much the business spends on managers rather than on making the product

The four terms every structure question uses

Hierarchy — the layers of authority in the business, from the board and chief executive down to front-line staff.

• Each level is one rung of the ladder.

Chain of command — the line of authority running down through those levels.

• It answers "who do I take this to?" and "whose instruction do I follow?"
• A long chain means an instruction passes through many people before it is carried out.

Span of control — the number of employees one manager directly supervises.

• A wide span: one manager, many subordinates.
• A narrow span: one manager, few subordinates.
• Span of control and number of levels move in opposite directions. For a business of a fixed size, widening spans removes layers; narrowing spans adds them.

Delegation — passing authority to make a decision down to a subordinate.

• The manager keeps accountability for the outcome; the subordinate gains the authority to act.

Centralised and decentralised decision-making

Centralised — decisions are made by senior management at head office.

• Advantages: consistent decisions across every site; senior managers have the widest view of the business; easier to control costs and standards; buying is done in bulk for the whole business.
• Disadvantages: slow, because everything travels up and back down; local managers cannot respond to their own customers; head office may not know local conditions.

Decentralised — decision-making authority is passed down to branch, store or department managers.

• Advantages: faster response to local customers; managers closer to the problem usually know more about it; developing decision-making skills lower down builds the next generation of managers and motivates them.
• Disadvantages: decisions may be inconsistent between sites; duplicated effort; harder for head office to control quality and spending; a weak local manager can do real damage.

Why a large business cares

• Choosing a structure is a trade-off between control and speed, and between cost and capability.
• Every structure question in the exam is answered from that trade-off:
  • more layers → more control, slower decisions, higher management costs
  • fewer layers → faster decisions, lower costs, less supervision and support