Types of organisational structure (tall, flat, entrepreneurial, matrix), centralised and decentralised structures, methods of grouping activities, span of control and the effect of structure on the organisation.

What this key area is asking

The SQA wants you to know the main types of organisational structure, the difference between centralised and decentralised control, the ways activities are grouped, and key terms such as span of control and chain of command. Above all, Higher asks you to explain the effects of a structure on communication, control, decision-making, cost and motivation, and to recommend a suitable structure.

Types of organisational structure

Tall structure

A tall (hierarchical) structure has many layers and a narrow span of control (each manager supervises few people). It gives close supervision, a clear chain of command and clear promotion paths. But communication is slow (passing through many levels and easily distorted), decisions take longer, and the many managers make it expensive.

Flat structure

A flat structure has few layers and a wide span of control (each manager supervises many people). Communication is fast and direct, costs are lower (fewer managers), and staff get more delegation and responsibility. The drawbacks are that managers can be overstretched, and there are fewer promotion opportunities.

Entrepreneurial structure

An entrepreneurial structure has decisions made by one or a few key people (often the owner), common in small businesses. Decisions are fast and the owner keeps tight control, but the firm depends heavily on those few people, who can become overloaded, and staff have little say, which can demotivate.

Matrix structure

A matrix structure brings staff with different specialisms into project teams, so an employee belongs both to a function (such as finance) and to a project. It improves the sharing of expertise, flexibility and teamwork, and suits project-based work. The main drawback is that staff have two managers (a functional and a project boss), which can cause confusion and conflicting instructions.

Centralisation and decentralisation

Grouping of activities

Larger firms divide their work into departments, grouped by one of several methods:

• Functional grouping: by job function (marketing, finance, operations, HR). Clear expertise but can create barriers between departments.
• Product grouping: by product or brand, each with its own team. Good focus but can duplicate effort.
• Customer grouping: by type of customer (business and personal banking), tailoring service to each group.
• Place (geographical) grouping: by region or country. Suits the local market but can be costly to coordinate.

Key structural terms

• Span of control: the number of subordinates a manager directly controls; narrow in tall structures, wide in flat ones.
• Chain of command: the line of authority from the top of the organisation to the bottom, showing who reports to whom.
• Delayering: removing levels of management to make the structure flatter, cutting costs and speeding communication, but increasing each remaining manager's workload and risking job losses.

Examples in context

Example 1. A large bank decentralising lending. A national bank that lets local branch managers approve small loans is decentralising: decisions are faster and made by managers who know the local customer, freeing head office for strategy and motivating managers. The risk is inconsistency between branches and a loss of control, so the bank sets limits within which local managers may decide.

Example 2. A multinational using a matrix for a product launch. A firm launching a new product may pull marketing, finance, operations and design specialists into a project team (a matrix structure). This shares expertise and speeds the launch, but each specialist now answers to both their department head and the project leader, so clear communication is needed.

Try this

Q1. Describe the effect of a wide span of control on a manager. [2 marks]

• Cue. The manager supervises many staff, so there is more delegation and faster communication, but the manager can be overstretched and unable to supervise each person closely.

Q2. Explain two reasons a business might choose a centralised structure. [4 marks]

• Cue. To keep tight control and a consistent corporate image; to benefit from economies of scale in buying and standardised procedures; to ensure decisions reflect the overall strategy; and to keep important decisions in experienced hands (any two, developed).