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Block 13: Organisational Structure - Coggle Diagram
Block 13: Organisational Structure
Organisational Structure :star:
Tall (vertical) vs. Flat Structures(horizontal):
Tall Structure:
Multiple hierarchical levels with fewer subordinates reporting to each manager. This structure can lead to clearer lines of authority but may slow decision-making and communication.
Formalization-High>Specialization-High>Hierarchy of authority - Strong hierarchy>Centralization- High
Gov't instutions> Retail ( Target and walmart) > Banks
Support:
Clear Hierarchy and Roles:
Defined Responsibilities
: Employees have clear roles and responsibilities, reducing confusion and overlap.
Specialization:
Expertise Development:
Employees and managers can specialize in specific areas, leading to higher efficiency and expertise in their roles.
Efficinecy seeking henec economies of scale
Critics:
Employee Disengagement:
Limited Autonomy
: Employees may feel micromanaged or restricted by the rigid structure, leading to lower motivation and job satisfaction.
Communication Challenges:
Information Silos
: Communication can become fragmented as information passes through multiple layers, leading to misunderstandings or delays.
Slow Decision-Making:
Bureaucracy:
Multiple layers of management can lead to delays in decision-making, as approvals must pass through several levels.
Risk of Power Struggles:
Internal Politics: Multiple layers of management can lead to power struggles or competition between departments, harming collaboration.
Lack of innovation, managers are carrying all the burden and lack of collaboration
When a Tall Structure Works Best:
Large Organizations: Tall structures are ideal for large, complex organizations with many employees and specialized roles (e.g., government agencies, multinational corporations).
Industries Requiring Strict Control: Industries with strict regulatory requirements or safety standards (e.g., healthcare, aviation) benefit from the clear oversight and accountability of a tall structure.
Stable Environments: Organizations operating in stable, predictable industries where rapid change is less critical can thrive with a tall structure.
Flat Structure
: Fewer hierarchical levels with more subordinates reporting to each manager.
Advantages:
Employee empowerment>less rigid>open door policy>less bucceracy> cross-functional communication>flexibility to adapting to external environmental conditions >creativity+innovation> diversity of views promote faster decision-making and greater employee autonomy
Example: Pixar, spotify, Valve (video game developements)
Disadvantages:
Complexity increases once more autonomy is given to lower-level management> power struggles-conflict of interest> fragmentation of subsidiary> misalignment of goals> less accountability ambiguity and overburdened managers.
Example:
Zappos
Flat structure excels in dynamic, talent-driven environments such as software and design but risk inefficiency in large, process-heavy industries like automotive, healthcare. The trend reflects broader shifts toward knowledge work but isn’t universally superior.
Relationship Between Strategy and Structure:
Organizational strategy should shape the structure, and the structure should support the strategy. For example, a company pursuing a cost leadership strategy may adopt a more centralized, bureaucratic structure to ensure efficiency.
Structural design choices (e.g., centralization, division of labor) must align with strategic objectives to ensure effective implementation.
Organisational structure refers to the formal framework of roles, hierarchies, and communication channels that define how work is coordinated
while strategy encompasses the long-term goals and resource allocations that guide a firm’s competitive direction.
organizational strategy should be used to inspire and shape the future structure of an organisation.
some decisions about internal structure e.g., division of labour, may be less closely tied to particular strategies than to the size or nature of the firm.
In order to effect change in your organisation, Willman suggests six key questions:
Where should the organisation’s boundaries be?
How should work be divided and combined?
What are the lines of authority and communication?
How much bureaucracy do we need?
What should be the extent of centralisation?
Key Structural Decisions
1. Setting Organizational Boundaries:
Organizations must decide how much of the value chain to control internally (vertical integration) and how much to outsource. For example, a car manufacturer may choose to produce engines in-house or outsource them.
Vertical Integration
: Moving backward into the supply chain (e.g., producing raw materials) or forward into the customer marketplace (e.g., opening retail stores).
Makes changes to the boundary of the organisation, extending the scope or
extent of their activities
Advantages:
Creates a ready-established buyer in the new market.
Can reduce costs of production/sales by cutting out a layer in the value chain. (No mark-up is paid)
Disadvantages:
You may be seen as making portfolio choices for investors that they do not want to make. (If they wanted to invest in showroom they would have from the start)
Resources stretched too thinly (expansion of tasks rather than excelling at a small number)
Brand name dilution/brand equity reduction. (may undermine the brand if expanded too far)
example
case of a car manufacturer, moving backwards into the supply chain might mean producing car engines instead of buying them from suppliers. Moving forwards into the customer marketplace might mean opening your own showrooms to sell your cars instead of selling them to another car retailer.
Horizontal Integration:
Expanding into
related
or
unrelated markets
. Related diversification (e.g., a pie manufacturer producing gravy) leverages existing resources, while unrelated diversification (e.g., Virgin’s diverse portfolio) spreads risk but may dilute the brand.
Disadavantges:
Unrelated diversification may be seen as making portfolio choices for investors that they do not want to make
In both scenarios, you may stretch your resources too thinly at the expense of a successful business line
Economies of scale and scope often don’t deliver what they promise
Can dilute the original brand name
Can reduce brand equity if new product/service fails
Advantages:
Increased Market Share – By acquiring competitors, a company can capture a larger portion of the market, reducing competition and strengthening its market position.
Economies of Scale – Merging with or acquiring similar firms allows businesses to reduce costs by optimizing production, purchasing in bulk, and sharing resources.
Increased Revenue and Profitability – With a larger market presence, companies can generate higher revenues, improve bargaining power with suppliers, and enhance profitability.
Reduced Competition – Acquiring competitors eliminates or reduces direct competition, making it easier to control pricing and market trends.
The firm need to decide on the market-firm boundaries to know how much of the work they will or won't do
companies need to work out
For companies that decide to take on more work by creating the product from scratch they stand to gain a greater share of the revenue available in the market YET, they are also at a greater risk if there was sudden drop in demand for cars they will be hit more significantly than they would have been otherwise
How specialized they should be ? Specialization often leads to greater economies of scale because you are expert at producing units of a particular good and so have the expertise to deliver to the right quality at a low price.
However
, it also means that you are not spreading your risk. A wider product range can reduce risk as if one product or service performs badly, another may
perform well. (
pandemic
)
diversified across many work types had the ability to offset the downturn in one market with an upturn in another
Related Diversification:
Related diversification is when a firm moves into an industry that has important similarities to its existing industry. It enables the company to use existing resources and competencies. Related diversification can occur when a company enters either complementary or
competing markets.(Honda expanding to producing motocycles)
Advantges:
Economies of scale and scope
Sharing skills and competencies
Leveraging a brand name
Using shared marketing skills and knowledge
Using sales and distribution capacity
Unrelated Diversification:
This occurs when a company enters a market which has little or no relationship to current
markets.(Virgin who works in space travel, banking, radio and gyms and holidays)
Advantges:
Growing the business
Reducing risk by operating in various markets or product lines
Refocusing the company (if there are concerns that it is drifting from being relevant to the contemporary consumer)
Defending against a takeover (by growing in size)
Exploring projects of interest to the owners or executives (to maintain their interest and to use their passion and expertise)
Outsourcing
: Hiring external firms to perform tasks traditionally done in-house. This can reduce costs and leverage external expertise but may lead to quality control issues and reduced visibility over processes. EX: IKEA outsourcing rugs from India
Partnering with Other Companies:
Organizations can form
joint ventures
(agreements between companies that can be executed by setting up another company)
,
strategic alliances
(agreement to share knowledge, technology or a business opportunity EX: B&N X Starbucks "to share customers and increase brand recognition."),
licensing agreements
(The right to exploit an invention or resource in return for a share of the profit EX: Mickey Mouse)
Franchising
(The right to exploit a business brand in return for a capital sum plus share of
profits) EX:subway
Dimensions of an organization design
Formalization:
The amount of written documentation in the organization. documentation includes procedures job descriptions regulations and policy manuals (rules and procedures)
Specialization/Davison of Labour:
The degree to which organizational tasks are subdivided into separate jobs (referred to as the division of labour)
Hierarchy of Authority:
Describes who reports to whom and the span of control for each manager
Centralization:
A setup in which the decision-making powers are concentrated in few leaders at the top of the organizational structure
Designing the Hierarchy
Division of Labor:
Organizations must decide how to divide tasks and responsibilities among employees. High specialization (e.g., McDonald’s employees focusing on specific tasks) can increase efficiency but may lead to employee dissatisfaction and alienation.
Advantages of Division of Labor:
Task specialisation can increase skill, speed, accuracy and quality, which can in turn lead to a reduction in costs
It can promote product improvement, as specialist workers come to understand their task and how to make efficiency savings
reduces cost and prevents costly mistakes
Disadvantages
:
work becomes repetitive and monotonous, it can lead to an increase in dissatisfaction and thus a decrease in productivity
can lead to workers feeling a sense of alienation from the products and services that they are creating and in turn lead to a reduction in health & wellbeing of the workers
Division of labour is the separation of tasks to allow some degree of specialisation. The higher the division of labour, the higher the specialisation.
Departmentalization:
Organizations group activities and employees based on common functions, products, geography, or customer segments.
Functional Structure:
Groups employees by function (e.g., marketing, HR, finance) each department operates on its own and independently. This structure promotes specialization but may lead to silos.
apple-Amazon
Silo Mentality & Poor Communication:
Departments become isolated, reducing collaboration and knowledge sharing.
Lack of coordination between functions can slow decision-making.
Lack of Innovation & Flexibility
Slower Decision-Making:
Decisions often need approval from multiple levels, increasing bureaucracy.
Functional managers prioritize their own department’s goals over company-wide objectives.
Divisional Structure:
Groups employees by product, region, or customer segment. This structure
allows for greater autonomy
but may lead to duplication of resources.
Geographical Structure:
updating the features and customizing it to match a county or a region specific needs (Polycentric approach)
splits organisations into sub-units based on geography. This could be at any level, from sub-national region (inside the UK "north, south, wales") to global divisions, such as Europe, Middle East, Asia
Product-based structure:
splits organisations into subunits based on products that are being made
ex: In a consultancy firm, this might be financial advisory, change
management, and business process reengineering
Advantages:
Flexibility & Faster Decision-Making:
Each division operates independently, allowing quick responses to market changes.
Reduces bureaucratic delays by decentralizing decision-making.
Improved Accountability:
Each division is responsible for its own profits and losses, enhancing performance tracking.
Encourages competition between divisions, leading to innovation.
Disadvantages:
Duplication of Resources:
Each division requires its own departments (HR, finance, marketing), leading to higher costs.
Redundant efforts can reduce overall efficiency.
Internal Competition & Conflict:
Divisions may prioritize their success over company-wide goals. Lack of collaboration between divisions can lead to inefficiencies.
Customer-based structure:
splits organisations into sub-units based on which sorts of customers they are selling to
ex: to gov't use in buildings, to end users through web platform or shops, The retail sub-unit is selling the hand soap to supermarkets, shops and web retailers who will sell it
divisional managers have clear responsibility for their own division. Divisional structures promote decentralization, and the organisational managers/directors may feel a loss of control as the divisions operate as autonomous units.
Matrix Structure:
Combines functional and divisional structures, with employees reporting to both a functional manager and a project manager " has two chains of
command" usually in project based companies
Advantages
Efficient Use of Resources
– Employees can be shared across projects, optimizing talent and reducing redundancy.
Improved Communication
– Cross-functional collaboration enhances knowledge sharing and problem-solving.
Flexibility and Adaptability
– The structure allows quick response to changing market conditions and project needs.
Encourages Innovation
– The interaction of different functional areas fosters creativity and new ideas and fosters knowledge sharing and spillovers
Disadvantages
Complex Reporting Relationships
– Employees report to multiple managers, leading to confusion and conflicts.
Power Struggles
– Functional and project managers may compete for control, causing inefficiencies. and finger pointing
High Administrative Costs
– Managing dual reporting lines requires additional coordination and communication efforts.
Slow Decision-Making
– With multiple managers involved, decision-making can be delayed due to the need for consensus.
Bureaucracy and Centralization :office:
Bureaucracy:
its a set of activities that a firm may choose to subscribe to by degrees
Bureaucracy involves standardized processes, clear hierarchies, and formal rules. While it can ensure consistency and fairness, excessive bureaucracy can stifle innovation and slow decision-making.
Advantages of Bureaucracy:
Predictability, efficiency, and control.
Efficiency & Consistency: Rules and procedures streamline operations, reducing errors and ensuring predictable outcomes (e.g., tax filing systems).
Accountability: Clear chains of command and documentation make it easier to track decisions and responsibilities (e.g., public service transparency).
Disadvantages
: Rigidity, reduced creativity, and employee alienation.
Rigidity & Slow Decision-Making: Excessive red tape can hinder adaptability and innovation (e.g., delays in approving new projects due to layered approvals).
Depersonalization: Strict adherence to rules can lead to a lack of flexibility in addressing individual needs, making services feel impersonal (e.g., rigid customer service protocols that fail to resolve unique cases).
Stifled Creativity & Risk-Aversion: Bureaucratic systems often prioritize rule-following over experimentation, discouraging employees from proposing new ideas or solutions. For example, rigid approval processes in government agencies can block grassroots tech initiatives even if they have high potential.
Typical bureaucratic elements are:
Job specialisation - jobs are broken down into simple, routine, clearly defined tasks
Efficient, predictable working.
Job rotation becomes harder, reducing flexibility.
Too much specialisation prevents knowing or caring about wider problems.
Authority/hierarchy - Positions are clearly organised within a chain of command
Clear who is in command.
Employees can't contribute to decision-making.
Errors can be hidden.
Rules and procedures - Rules and procedures cover many aspects, and ensure particular behaviours
Employees know what is expected of them.
Leads to delays and stifles creativity.
Rules only define a minimum level of performance, but that becomes acceptable.
Documenting - decisions and activities are recorded to provide an organisational memory that can be checked and referenced
Creates records not dependent on individual memory.
Recording information can become more important than understanding its value.
Recorded precedents stifle innovation.
Neutrality - an impersonal, impartial application of uniform rules to everyone in an unbiased way
Reduces bias and creates efficiency.
Dehumanises, making it difficult to respond to unique needs of staff and clients.
Employees start to see themselves as little more than a cog in the machine.
Formal selection processes - individuals are selected for their jobs/roles based on qualifications
Most appropriate person is promoted, increasing fairness and quality of work.
Can reduce opportunities to innovate and impress through novel means.
Individuals throughout the company can be promoted to their level of incompetence (and then get stuck there).
Centralization vs. Decentralization:
Chess pieces
Centralization
: Decision-making power is concentrated at the top of the hierarchy. This can ensure uniformity and control but may slow decision-making and reduce employee motivation.
Lesire-farire
Decentralization
: Decision-making power is distributed/ dispersed throughout the organization. This can increase flexibility, innovation, and employee satisfaction but may lead to inconsistency and reduced control.
Support of
Decentralization
more flexibility and agility
Faster Decision-Making:
Local governments can respond more quickly to issues without waiting for central approval.
Encourages Innovation:
Local governments and private entities can experiment with solutions suited to their regions.
workload is spread more evenly across organisations
Critics of
Decentralization
Fragmentation of Authority
: Decentralization can lead to inconsistent policies across regions, making national coordination difficult.
Finger pointing due to the lack of accounatbility
Lack of Economies of Scale:
Centralized systems often reduce costs through bulk purchasing and shared infrastructure, which decentralized units may struggle with.
Time consuming
Displacement of goals - Conflict on intreset
Support of
Centralization
More skilled employees
Stronger alignment
Quick departmentalization
Efficiency & Cost Savings:
Centralized systems benefit from economies of scale, reducing administrative costs.
Better Coordination:
Policies and regulations remain consistent across all regions, avoiding conflicts.
Stronger Oversight & Accountability
– Easier to monitor corruption and enforce regulations effectively.
Rapid Decision-Making in Crisis
– Quick response during emergencies without delays from multiple authorities.
Critics of
Centralization
High turnover due to the lack of motivation because of the lack innovation
Entrepreneur
Slow Decision-Making:
Bureaucratic delays can hinder responsiveness, especially in local issues.
Overburdened Central Authority:
Excessive workload at the top level may lead to inefficiencies.
Lack of Local Adaptation
Policies may not address specific regional needs effectively.
Risk of Authoritarianism:
Too much power in one place can lead to abuse, oppression, or lack of innovation.
3 factors:
Competence
- if managers believe their subordinates are incompetent, they will want to remove accountability and autonomy by centralising and taking back more power.
Cost
- functions such as HR and Finance can be gathered at head office level more easily in a centralised business.
Communication
- lines of communication are tighter and more immediate in a business that is centralised, particularly if that centralisation brings people into the same office space.
Mintzberg’s Structure in Fives
Mintzberg identified
five common organizational structures,
each with a different method of coordination and key part of the organization:
Simple Structure:
Centralized, with power concentrated at the top (e.g., small entrepreneur-led firms).
Key aspect
: Highly centralized with direct supervision.
Key part of organisation
: Strategic apex.
Characteristics:
Typically small and entrepreneur-led.
Flexible and informal.
Minimal middle management, technostructure, or support staff.
Strong organisational culture defined by the leadership team.
Vulnerable to instability if key leaders leave.
Example
: A startup or small business.
Machine Bureaucracy:
Highly standardized processes, with a strong technostructure (e.g., large manufacturing firms).
Key aspect
: Standardisation of work processes.
Key part of organisation
: Technostructure.
Characteristics:
Large, highly structured organisation.
Heavy reliance on formal procedures and multiple management layers.
Tasks in the operating core are highly standardised with little flexibility.
Strong emphasis on control, efficiency, and uniform output.
high formalization, high specialization and strong hierarchy and high bureaucracy
Example
: Large-scale car manufacturing plants. (walmart, Volkswagen)
Divisional Form:
Decentralized, with semi-autonomous divisions (e.g., diversified multi-product firms like Virgin).
Key part of organisation
: Middle line.
Key aspect
: Standardisation of outputs.
Characteristics:
Consists of semi-autonomous business units.
Each division operates somewhat independently.
Strategic apex sets goals; middle managers ensure implementation.
Technostructure assists with planning and performance evaluation.
Example
: Virgin Group, Berkshire Hathaway, P&G.
Professional Bureaucracy:
Standardized skills and knowledge, with a focus on professional expertise (e.g., law firms, hospitals).
Key aspect
: Standardisation of skills and knowledge.
Key part of organisation
: Operating core.
Characteristics:
Employees require high levels of professional training.
Work practices dictated by legal, regulatory, or professional standards.
Decision-making is decentralised, relying on expert judgment.
Often found in service-based industries.
Example
: Law firms, hospitals, schools, accounting firms.
Adhocracy:
Flexible, project-based structure with mutual adjustment (e.g., film-making firms, tech startups).
NASA
(particularly in its research and development projects. Adhocracy is a flexible, decentralized organizational structure that prioritizes innovation, adaptability, and cross-functional collaboration.)
Key aspect
: Mutual adjustment.
Key part of organisation
: Operating core (with admin support).
Characteristics:
Project-based, flexible, and innovative structure.
Low formalisation, with high adaptability to change.
Teams are formed dynamically based on project needs.
Common in industries driven by technology and research.
Example
: Film production companies, research & development firms, tech startups. (
Dream
for cakes, media with urelated divesrification) (
Spotify
and
pixar
)
The Five Standard Parts of an Organisation
Strategic Apex
Comprised of senior managers and directors.
Defines organisational strategy and manages external relationships.
Influences key stakeholders (e.g., owners, government agencies).
Operating Core
Executes the organisation’s primary activities (product/service delivery).
Examples: Factory workers, call centre employees, travel agents.
Middle Line
Acts as a bridge between the strategic apex and the operating core.
Translates top-level strategies into actionable tasks.
Communicates both upwards and downwards in the organisation.
Technostructure
Includes specialists in HR, Finance, and Marketing.
Uses analytical techniques to improve efficiency.
this is made up of technicians and analysts, who provide
specialist advice and analysis to the company, with regard to its technology and procedures.
Support Staff
Provides non-core services to other departments that are spread around the organisations
payroll clerks, the IT help desk, the security team, mailroom workers and canteen staff
Case Study: Innocent Drinks
Background: Innocent Drinks started as a small, entrepreneur-led firm with a simple structure. As it grew, it faced challenges related to organizational structure, particularly when it outsourced production and expanded internationally.
Key Decisions:
Outsourcing Production
: Innocent outsourced smoothie production to external manufacturers, allowing for rapid expansion but raising concerns about quality control.
Growth and Performance Measurement:
As the company grew, it became harder to monitor performance, leading to the need for more formal performance metrics.
Acquisition by Coca-Cola:
Coca-Cola acquired Innocent but allowed it to operate autonomously to preserve its brand and culture, while still monitoring performance through financial metrics.
design choices
Determining where to place an organization’s boundaries.
Deciding how to divide or combine work.
Establishing lines of authority and/or communication.
Choosing the level of bureaucracy.
Determining the extent of (de-)centralisation.
Leveraging existing knowledge.
How Strategy Influences Structural Design
Using Willman key questions:
Where should the organisation’s boundaries be?
How should work be divided and combined?
What are the lines of authority and communication?
How much bureaucracy do we need?
What should be the extent of centralisation?
Scenarios
strategy dictates structure.
Scenario: A software firm pursues a market penetration strategy to dominate multiple regions.
Structural Change: It shifts from a functional structure (e.g., separate departments for R&D, marketing) to a matrix structure, combining product teams with geographic units.
Rationale: The new structure enhances cross-functional collaboration, enabling faster decision-making in regional markets.
Outcome: The alignment between strategy (expansion) and structure (matrix) improves responsiveness to local customer demands, driving growth.
Strategy Follows Structure
Scenario: A startup with a flat, decentralized structure plans global expansion.
Strategic Limitation: It avoids hierarchical markets (e.g., Japan, where top-down management is culturally ingrained) and instead targets countries like Sweden or the Netherlands, where egalitarian workplaces thrive.
Rationale: The firm’s structure filters feasible strategies—it cannot realistically impose a flat culture in a rigidly hierarchical market without friction.
Outcome: By selecting culturally compatible regions, the startup maintains its core operational model while growing sustainably.
reciprocal relationship:
Proactive Alignment: Agile firms (e.g., Amazon, Netflix) continually restructure to support new strategies (e.g., cloud computing, streaming dominance).
Structural Constraints: Legacy organizations (e.g., General Motors) often modify strategies to fit entrenched hierarchies, opting for incremental rather than disruptive changes.