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Organisation Structures

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Business Studies

Every company is organised in a specific way. It has a specific structure that is followed in order to maximise its efficiency. As a result, there are different types of organisational structures that companies employ. What are these structures and how do companies decide which one to use? Let's take a look.

Organisation Structure Meaning

The organisational structure is a system that outlines how activities are managed in order to achieve the objectives of a business. These activities can include rules, roles, and responsibilities.

The organisational structure determines:

  • Responsibilities and authorities of employees

  • Job roles and titles

  • Way of communication flows

Organisation Breakdown Structure

Organisation breakdown structure (OBS) describes an organizational framework for:

- project planning,

- resource management,

- time and expense tracking,

- cost allocation,

- revenue/profit reporting,

- work management.

It is mostly used to manage workflow schedules, resource breakdown and organise people who will be working on a particular project. It also outlines a hierarchy and reporting structure. Organisation breakdown structure is typically in the form of a chart or a graph that outlines a model of organisational framework.

How to create an organisation breakdown structure?

  • Make a hierarchy of the entire firm

  • Recognize all departments and teams within the firm

  • Specify functional groups

Organization Structures, Organisation breakdown structure, StudySmarterFigure 1. Organisation breakdown structure, StudySmarter

Types of Organisational Structures

Let's now take a look at the different types of organisational structures.

Centralised and Decentralised Organisation Structures

A centralised organisation structure is where decisions are made at the top of an enterprise or in a head office and then passed on to the rest of the employees.

Companies using this type of organisational structure characterise consistency and clear direction. Moreover, their activities are carefully controlled and managed. However, their employees tend to be demotivated which results in lower productivity.

At Apple, much of the decision-making responsibility lies with the Chief Executive Officer (CEO) Tim Cook (previously Steve Jobs).

The decentralised organisation structure is when lower levels in a business have the decision power.

It is usually where the business has many locations and therefore the head office is reasonably unable to control or make decisions for all the locations. Employees in companies using this type of organizational structure are typically more motivated since they have a sense of responsibility. Additionally, managers are able to make decisions suitable to their local area and customers. On the other hand, however, enterprises using the structure tend to struggle with achieving consistency which may negatively impact sales and overall business performance.

McDonald's has numerous restaurants all around the world. The company's managers are assigned to specific areas.

Flat and Tall Organisation Structures

A flat organisation structure (in other words horizontal organisational structure) is when there are few or no levels of management between management and staff level employees.

Managers have a wide span of control with more subordinates and there is usually a short chain of command. Communication between employees is typically more effective and the employees themselves have more responsibilities which lead to their increased motivation and efficiency. Unfortunately, managers in firms using horizontal structure have higher workloads and the firms have limited progression opportunities. Figure 2 shows an example of a flat organisational structure.

Organisation structures, flat organisation structure, StudySmarterFigure 2. Flat organisation structure, StudySmarter

A tall organisation structure (in other words hierarchical structure) is when there are many leaders and layers of management.

Here managers have a narrow span of control and there is typically a long chain of command. Unlike by flat structure, here enterprises have great progression opportunities and it is easier for managers to perform their work. However, the employees are less motivated as they do not have that many responsibilities and any changes are implemented very slowly due to the long chain of command. Figure 3 shows an example of a tall organisational structure.

Organisation structures, tall organisation structure, StudySmarterFigure 3. Tall organisation structure, StudySmarter

Functional, Product-Based and Matrix Sructures

Functional organisation structure is when employees are grouped based on their specific skills and knowledge.

Figure 4 shows how employees are divided into departments such as marketing, finance, IT, R&D etc. All of the groups are able to separately focus on and have control over their parts. However, it might slow activities down as there is no ‘whole project’ optimisation.

Organisation structures, functional organisation structure, StudySmarterFigure 4. Functional organisation structure, StudySmarter

Product-based organisation structure is when employees are grouped based on:

  • A particular product they work on,
  • Customers they deal with,
  • The geographical area they serve.

Here all of the activities are under the overall control and therefore, everything is coordinated better and runs more smoothly. It is easier to focus on a specific segment and fulfil the customers’ needs. Unfortunately, since people are not directly involved in activities they are the best at, they tend to lack the skills necessary for what they work on. Figure 5 below shows an example of a product-based organisational structure.

Organisation structures, product-based organisation structure, StudySmarterFigure 5. Product-based organisation structure, StudySmarter

Matrix organisation structure is when employees report to more than one manager.

There is no one leader overseeing the entire organisation. Instead, there are several supervisors cooperating with each other. There are three types of matrix organisational structure:

  • Weak matrix,

  • Balanced matrix,

  • Strong matrix.

In a weak matrix, a functional manager supervises all the activities and has most of the decision power. In a balanced matrix, the main manager is given more authority, although there are still functional managers involved. In the strong matrix, the main manager has equal or even more power than the functional managers. Figure 6 below shows an example of a matrix organisational structure.

Organisation structures, matrix organisation structure, StudySmarterFigure 6. Matrix organisation structure, StudySmarter

Organisation Structures - Key Takeaways

  • Organisation structure is a system that outlines how activities are managed in order to achieve the objectives of a business.
  • Organization breakdown structure (OBS) describes an organization framework for project planning, resource management, time and expense tracking, cost allocation, revenue/profit reporting and work management.
  • There are two types of organization structures regarding the decision power in a firm: centralized and decentralised.
  • There are two types of organization structures regarding leaders and layers of a company: flat and tall.
  • Other types of organisation structures include functional, product-based and matrix structures.

Organisation Structures

Flat organisational structure (in other words horizontal organisation structure) is when there are few or no levels of management between management and staff level employees. Managers have a wide span of control with more subordinates and there is usually a short chain of command. Communication between employees is typically more effective and the employees themselves have more responsibilities which leads to their increasing motivation and efficiency. Unfortunately, managers in firms using horizontal structure have higher workloads and the firms have limited progression opportunities.

Tall organisational structure (in other words hierarchical structure) is when there are many leaders and layers of management. Here managers have a narrow span of control and there is typically a long chain of command. Unlike by flat structure, here enterprises have great progression opportunities and it is easier for managers to perform their work. However, the employees are less motivated as they do not have that many responsibilities and any changes are implemented very slowly due to the long chain of command.

An organisation structure has a huge impact on the employees’ performance. Depending on what the structure looks like, the employees may be less or more motivated and consequently be less or more productive.

Decentralized organisational structure is when lower levels in a business have the decision power. It is usually where the business has many locations and therefore the head office is reasonably unable to control or make decisions for all the locations. Employees in companies using this type of organization structure are typically more motivated since they have a sense of responsibility. Additionally, managers are able to make decisions suitable to their local area and customers. On the other hand however, enterprises using the structure tend to struggle with achieving consistency which may negatively impact sales and overall business performance.

There are centralized and decentralised organizational structures, flat and tall organisational structures, and functional, product-based and matrix structures.

Final Organisation Structures Quiz

Question

What is organization structure?

Show answer

Answer

Organisation structure is a system that outlines how activities are managed in order to achieve the objectives of a business.

Show question

Question

What does the organization structure determine? 


Show answer

Answer

  • Responsibilities and authorities of employees

  • Job roles and titles

  • Way of communication flows

Show question

Question

What is organization breakdown structure?


Show answer

Answer

Organization breakdown structure (OBS) describes an organization framework for project planning, resource management, time and expense tracking, cost allocation, revenue/profit reporting and work management.

Show question

Question

How to make an organization breakdown structure? 


Show answer

Answer

  • Make a hierarchy of the entire firm

  • Recognize all departments and teams within the firm

  • Specify functional groups

Show question

Question

What are the types of organization structure?


Show answer

Answer

There are centralized and decentralised organization structures, flat and tall organisation structures, and functional, product-based and matrix structures.

Show question

Question

What is a centralized organization structure?


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Answer

Centralized organisation structure is where decisions are made at the top of an enterprise or in a head office and then passed on to the rest of the employees.

Show question

Question

What are the advantages of the centralized organisation structure?


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Answer

Companies using this structure characterize consistency and clear direction. Moreover, their activities are carefully controlled and managed.

Show question

Question

Give an example of an enterprise using a centralised organization structure.

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Answer

For example, Apple.

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Question

What is a decentralized organisation structure?


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Answer

Decentralized organisation structure is when lower levels in a business have the decision power.

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Question

When is the decentralized organization structure usually used?


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Answer

It is usually where the business has many locations and therefore the head office is reasonably unable to control or make decisions for all the locations.​​​​

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Question

What are the advantages of decentralized organization structure?


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Answer

Employees in companies using this type of organization structure are typically more motivated since they have a sense of responsibility. Additionally, managers are able to make decisions suitable to their local area and customers.

Show question

Question

Which of these companies is the more likely to use the decentralized organization structure?


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Answer

Pret

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What is the difference between flat and tall organisation structures?


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Answer

The flat organization structure has few or even no levels of management between management and staff level employees whereas the tall organisation structure has many.

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What is a different name for a flat organisation structure?


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Answer

Horizontal organisation structure

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What is a different name for a tall organisation structure?


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Answer

Hierarchical structure

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What is the functional organisation structure?

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Answer

Functional organisation structure is when employees are grouped based on their specific skills and knowledge. They are divided into departments such as marketing, finance, IT, R&D etc.

Show question

Question

What are employees based on in a product-based organisation structure?


Show answer

Answer

A particular product they work on, customers they deal with, geographical area they serve.

Show question

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What are the three types of the matrix organisation structure?


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Answer

Functional, product-based and matrix structures.

Show question

Question

A tall organisational structure is where decisions are made at the top of an enterprise or in a head office and then passed on to the rest of the employees.

Show answer

Answer

False

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Question

A flat organisational structure is when lower levels in a business have the decision power.


Show answer

Answer

False

Show question

Question

Companies using this type of organisational structure characterise consistency and clear direction. Moreover, their activities are carefully controlled and managed. However, their employees tend to be demotivated which results in lower productivity. What type of organisational structure is it?


Show answer

Answer

centralised

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Question

A decentralised organisational structure is typically used by businesses that have many locations

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Answer

True

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A flat organisational structure is also called...

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Answer

horizontal organisational structure.

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Question

In companies using this organisational structure, managers have a wide span of control with more subordinates and there is usually a short chain of command. What type of organisational structure is it?

Show answer

Answer

flat

Show question

Question

In this organisational structure, there are many leaders and layers of management. What type of organisational structure is it?

Show answer

Answer

tall

Show question

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