Organizational Structure. Part 2 Ppt

7/31/2019 Organizational Structure. Part 2 Ppt

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Organizational Structure

part 2


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Vertical Organization

A second aspect in the verticalorganization refers to the number of

levels in an organizations hierarchy.1. Tall hierarchy organization with

many layers of management

2. Flat hierarchy

organization with fewlayers of management


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Most firms start out small, often withonly one or at most two layers in the

hierarchy. As they grow however, managers find

that there is a limit to the amount of

information that they can process andthe control they can exert over dailyoperations.


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To avoid being stretched too thin andlosing control, they tend to add layers

to the management hierarchy, hiringmore managers and delegating somedecision making authority to them.

In other words, as an organization getslarge, it tends to become taller.


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In addition, as an organization grow, theyoften start to undertake more activities like

expanding product lines, diversifying intosimilar activities or expanding into newregional or national markets.

This too creates problems of coordination

and control, and once again solved byadding layers to the management hierarchy.


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Growth in the number of layers in ahierarchy is driven by the sixe of an

organization and the number ofdifferent activities it undertakes.

Adding more levels in the hierarchy is

a response to the problems of controlthat mount when a manager has toomuch work.


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The number of layers added to thehierarchy is partly determined by the

span of controlmanagers caneffectively handle.


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Span of control refers to the numberof direct reports a manage has. The

optimal span of control is only aboutsix subordinates.

A manager responsible for more than

six subordinates would soon lose trackof what was going on.


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But the number of direct reports amanger can handle depends upon the

nature of work being supervised, howvisible the performance ofsubordinates is, and the extent of

decentralization within theorganization.


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Generally, if the work being performedby subordinate is routine, and their

performance is visible and easy tomeasure, and if the subordinates arempowered to make decisions by

themselves, managers can operate ina wide span of control.


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In summary, as an organization growand undertake more activities, the

management hierarchy tens tobecome taller.


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Problems in Tall hierarchies

Several problems can occur in tallhierarchies that may result in lower

organizational efficiency andeffectiveness.


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1. Tendency for information to get

accidentally distortedas it passes

through layers of hierarchy.By the time message has been

transmitted by a number of people, it

becomes distorted and the meaningstarts to change.


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In a management context, if crucialinformation has to pass through many

layers I a tall hierarchy before itreaches decision makers, it may getdistorted in the process.

So decisions maybe based oninaccurate information, and poorperformance may result.


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2. Problem of deliberate distortionby middlelevel managers who are trying to get favors

with their superior or pursue some agendaof their own.

Example is the manager of a division mightsuppress bad information and exaggerate

good information in an attempt to windowdressthe performance of his unit to highermanagement and win their approval.


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The more layers there are in a hierarchy,the more opportunities there are for people

to deliberately distort information. If information is distorted, senior managers

will make decisions on basis of inaccurateinformation, which result in poor

performance and low productivity.


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3. Another problem with tall hierarchiesare that they are expensive.

The salaries and benefits of multiplelayers of midlevel managers can addup to significant overhead and cost

structure of the firm.

Organizational Structure. Part 2 Ppt

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