Chapter 7

ORGANIZATIONAL STRUCTURE

Done By: Samin

Ghazal

Gr:12A

Tutor: Mr.Mohamed Motawea

Learning Objectives:

• How to read an organizational chart.How to read an organizational chart.

• The four types of organizational The four types of organizational structures and the advantages and structures and the advantages and disadvantages of each type.disadvantages of each type.

• Name the factors that affect the Name the factors that affect the type of structure an organization type of structure an organization adopts.adopts.

• Describe the roles of the chief Describe the roles of the chief executive officer and the board of executive officer and the board of directors.directors.

Section 7.1

•Understanding How Understanding How Organizational Organizational Structures WorkStructures Work

What is organizational structure?

• Business organizations exist to earn profits.Business organizations exist to earn profits.

• To meet their goals, they organize their employees To meet their goals, they organize their employees

into some kind of structure.into some kind of structure.

• Companies adopt organizational structure in order to Companies adopt organizational structure in order to

minimize confusion over job expectations.minimize confusion over job expectations.

• Organizational structure helps them coordinate Organizational structure helps them coordinate

activities by clearly identifying which individuals are activities by clearly identifying which individuals are

responsible for which tasks.responsible for which tasks.

Types of organizational structure :

Companies generally adopt one of four organizational structures:Companies generally adopt one of four organizational structures:

• Line StructureLine Structure

• Line & Staff Structure Line & Staff Structure

• Matrix StructureMatrix Structure

• Team StructureTeam Structure

Each of these different types of organizational structures can be Each of these different types of organizational structures can be

shown in an Organizational Chart.shown in an Organizational Chart.

Organizational chart is a visual representation of a business’s Organizational chart is a visual representation of a business’s

organizational structure.organizational structure.

An Organizational Chart shows who report to whom within the An Organizational Chart shows who report to whom within the

company. it also shows what kind of work each department company. it also shows what kind of work each department

does.does.

Line Structure :• In a line organization, authority originates at the In a line organization, authority originates at the toptop

and moves and moves downwarddownward in a line. in a line.

• All managers perform Line Functions.All managers perform Line Functions.

• (functions contribute directly to company profits )(functions contribute directly to company profits )

• Ex: production managers ,marketing managers .Ex: production managers ,marketing managers .

• Line managers collect and analyze all of the information Line managers collect and analyze all of the information

they need to carry out their responsibility.they need to carry out their responsibility.

• Line organization are common among small business.Line organization are common among small business.

CEO

Senior Managers

Mid-level Managers

Lower-level Managers

Non management employees

Line structure

Line & Staff Structure• In mid-sized and large companies line managers can’t In mid-sized and large companies line managers can’t

perform all of the activities to run their department.perform all of the activities to run their department.

• Other employees are hired to help line managers. Other employees are hired to help line managers.

• These employees perform staff function. These employees perform staff function.

• Staff functionsStaff functions advise and support the line function advise and support the line function

• Staff department include the legal department, the Staff department include the legal department, the human resources and the public relations department.human resources and the public relations department.

• They help line managers to do their job.They help line managers to do their job.

• They contribute only indirectly to corporate office.They contribute only indirectly to corporate office.

• Staff people are specialist in one field.Staff people are specialist in one field.

• line and staff Structure:

President

Matrix Structure:

• A Matrix Structure allows employees from different A Matrix Structure allows employees from different

department to come together temporarily to work on department to come together temporarily to work on

special project teams. special project teams.

• The purpose is to allow companies to respond quickly to The purpose is to allow companies to respond quickly to

a customer.a customer.

• Once the team completes the project, the team members Once the team completes the project, the team members

return to their department or join a new project team.return to their department or join a new project team.

• Companies that undertake very large projects often use Companies that undertake very large projects often use

the matrix structure .the matrix structure .

Team Structure:• Many companies have abandoned the line and staff approach to organizational Many companies have abandoned the line and staff approach to organizational

structure in favor of the team approach.structure in favor of the team approach.

• A team structure brings together people with different skills in order to meet a A team structure brings together people with different skills in order to meet a particular objective.particular objective.

• More and more companies are using the team structure.More and more companies are using the team structure.

• They believe team structure allows them to meet customers needs more They believe team structure allows them to meet customers needs more effectively than traditional structure .effectively than traditional structure .

• In Team structure senior managers need not approve decisions by lower-level In Team structure senior managers need not approve decisions by lower-level managers.managers.

• Teams have the authority to make their own decisions. Teams have the authority to make their own decisions.

Flat vs. Tall Structures

• A flat structure is an organization that has a small A flat structure is an organization that has a small

number of levels and a broad span of management number of levels and a broad span of management

at each level. at each level.

• Employees have more power within the company.Employees have more power within the company.

• A Tall structure is an organization that has many A Tall structure is an organization that has many

levels with small spans of management.levels with small spans of management.

• In this case, power is centralized on the top levels In this case, power is centralized on the top levels

and there is more employee control.and there is more employee control.

Advantages of flat structure:

• Greater job satisfactionGreater job satisfaction• More delegationMore delegation• Increased communication between the Increased communication between the

levels of management.levels of management.

• Advantages of tall structure:

• Great control Great control • Better performanceBetter performance

Span of management 8:1 Four levels

Flat structure

Span of management 5:1

Seven levelsTall structure

1. What is the purpose of an organization chart?

2. What is a staff function?3. How does the team structure

differ from the line and staff structure?

Section 7.2

Creating An Organizational Creating An Organizational StructureStructure

Factors Affecting Organizational Structure

• The organizational structure a company The organizational structure a company chooses depends on the nature of its chooses depends on the nature of its business.business.

• The most important factors that affect the The most important factors that affect the choice of the choice of organizational choice of the choice of organizational structure are:structure are:

Size Size Type of the product or serviceType of the product or service

Size• The size of the business has a very The size of the business has a very

important effect on the organizational important effect on the organizational structure of that business.structure of that business.

• For a business to be successful, its For a business to be successful, its structure must change as the structure must change as the business continues to grow.business continues to grow.

Stages Of Growth

Typically businesses go through three Typically businesses go through three organizational life cycle stages:organizational life cycle stages:

i.i. Growth Through CreativityGrowth Through Creativity

ii.ii. Growth Through DirectionGrowth Through Direction

iii.iii. Growth Through Delegation, Growth Through Delegation, Coordination and CollaborationCoordination and Collaboration

1. Growth Through Creativity

• Entrepreneurs with new ideas create Entrepreneurs with new ideas create products or services which there is a products or services which there is a market.market.

• The business tends to be small.The business tends to be small.• Lacks formal structure, policies and Lacks formal structure, policies and

objectives.objectives.• The company founder makes all the The company founder makes all the

decisions.decisions.• Management skills are less important Management skills are less important

than they are later on. (because of few than they are later on. (because of few employees)employees)

• The ideas must appeal to consumers.The ideas must appeal to consumers.

2. Growth Through Direction

• When the company grows, it enters the second When the company grows, it enters the second stage of its growth cycle…stage of its growth cycle…

• Grows in sizeGrows in size• Managers are responsible for various tasks like Managers are responsible for various tasks like

planning, organizing and staffing.planning, organizing and staffing.• Written policies, plans and procedures will be Written policies, plans and procedures will be

created.created.• They establish rules for: hiring, firing and They establish rules for: hiring, firing and

rewarding employees.rewarding employees.• They set up systems for communicating They set up systems for communicating

information among employees.information among employees.• They also set up financial controls, which They also set up financial controls, which

determines how much each department can determines how much each department can spend.spend.

3. Growth Through Delegation, Coordination and

Collaboration

• Business delegates more Business delegates more responsibility to lower-level responsibility to lower-level employees,employees,

• Which helps business in two ways:Which helps business in two ways:• Motivates people at lower levels.Motivates people at lower levels.• It allows senior executives to spend It allows senior executives to spend

most of their time on long-most of their time on long-management issuesmanagement issues

Summary of stages of growth

1.1. CreativityCreativity

2.2. Management Management

3.3. delegationdelegation

Type of the Product or Service

• Its another important factor which Its another important factor which affects organizational structure.affects organizational structure.

• As the level of As the level of technical technical complexitycomplexity increases, the level of increases, the level of numbers in an organization will numbers in an organization will increase.increase.

Organizing a Company into Departments

• All of the big companies are organized All of the big companies are organized into departments.into departments.

• The departments may be based on:The departments may be based on:

1.1. Work FunctionsWork Functions2.2. ProductsProducts3.3. GeographyGeography4.4. CustomersCustomers

1. Organizing Departments by Work Functions

• Functions include:Functions include:

• Production: creation of company’s goods or Production: creation of company’s goods or services.services.

• Marketing: product development ,pricing, Marketing: product development ,pricing, distribution, sales, and advertising.distribution, sales, and advertising.

• Finance: financial statements, obtaining credit.Finance: financial statements, obtaining credit.

• Human resources: Hiring employees and placing Human resources: Hiring employees and placing them in appropriate job.them in appropriate job.

Advantages

• It allows for functional It allows for functional specialization.specialization.

• Each group can be professional in Each group can be professional in one thing and spend its time on it one thing and spend its time on it completely. completely. manage of timemanage of time

• It may save money by allowing the It may save money by allowing the company to use the resources company to use the resources most efficientlymost efficiently. .

Negative Effects• Conflicts through departmentsConflicts through departments• It may also hurt the company by It may also hurt the company by

creating managers whose scope is creating managers whose scope is narrow.narrow.

2. Organizing Departments by Product

• A single manager oversees all the A single manager oversees all the activities needed to produce and activities needed to produce and market a particular product.market a particular product.

• Lets the employees to identify with Lets the employees to identify with the product rather than their job the product rather than their job function.function.

• Helps the company identify which Helps the company identify which products are profitable.products are profitable.

President

Chemical

Oil and Gas

Automotive

Aerospace

Industrial and technology

• Some companies organize their Some companies organize their organization by geographical organization by geographical areas.areas.

• For example one senior For example one senior management can be responsible management can be responsible for all of company’s activities for all of company’s activities within a specific area.within a specific area.

3. By Geographical Areas

By type of customer

• Ex: Ex: • A company might have one A company might have one

division responsible for sales to division responsible for sales to governments, another to for-profitgovernments, another to for-profit businesses and another to businesses and another to nonprofit organizations.nonprofit organizations.

Understanding the role of Company Leadership

• Organizational structures often Organizational structures often appoint individuals or groups in appoint individuals or groups in leadership positions for the leadership positions for the company.company.

• Committee Committee • Chief Executive OfficerChief Executive Officer• Board Of DirectorsBoard Of Directors

Committee

• Committee: Organized group of Committee: Organized group of people appointed to consider or people appointed to consider or decide upon certain matters.decide upon certain matters.

• Ex: to work on a new budgetEx: to work on a new budget• Can be permanent or temporary.Can be permanent or temporary.

• Managers can increase the efficiency Managers can increase the efficiency of a committee, to do so:of a committee, to do so:

• Clearly define the committee’s Clearly define the committee’s functionfunction

• Establish authority figures within a Establish authority figures within a committee.committee.

• Set clear goals for members to attainSet clear goals for members to attain• Decide on the limits of a committee’s Decide on the limits of a committee’s

power.power.

Chief Executive Officer

• Senior manager initiates all of a Senior manager initiates all of a company’s major decisions.company’s major decisions.

• (producing new products, (producing new products, expanding internationality, expanding internationality, building new factories.)building new factories.)

• These managers are led by CEO.These managers are led by CEO.

• The chief executive officer is the top The chief executive officer is the top executive in a company,executive in a company,

• Together with senior management the Together with senior management the CEOCEO

• Set the company’s objectives Set the company’s objectives • Makes decisions about meeting the Makes decisions about meeting the

company’s objectives company’s objectives • Determines who fills senior management Determines who fills senior management

positionspositions• Develops the long-term strategiesDevelops the long-term strategies

• Attends the company’s annual Attends the company’s annual stockholder’ meeting and answers stockholder’ meeting and answers questions about the company’s questions about the company’s activitiesactivities

• Takes charge of the company in a crisisTakes charge of the company in a crisis• Works with the board of directorsWorks with the board of directors

Board Of Directors

• A Board of Directors is the legal A Board of Directors is the legal representative of a company’s representative of a company’s stockholders.stockholders.

• The board approves the most important The board approves the most important decisions made by the company’s chief decisions made by the company’s chief executive officer.executive officer.

• Makes it more difficult for corporate Makes it more difficult for corporate managers to act in ways that benefit them managers to act in ways that benefit them personally at the expense of the personally at the expense of the company’s owners.company’s owners.