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Business · Making human resource decisions

Organisational structures

As a business grows it needs a structure: who is in charge of whom, and who makes decisions. Structures can be tall or flat, centralised or decentralised - and they affect how well people communicate and work.

8 key terms
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From Making Financial Decisions

Answer from memory before the answers appear.

How do you calculate gross profit?
Sales revenue - cost of sales.
How do you calculate net profit margin?
(Net profit ÷ sales revenue) × 100.
What does ARR show?
Average annual profit from an investment as a percentage of its cost.
Give one limitation of financial data.
It looks backwards, ignores non-financial factors, or relies on forecasts.

Learning Objectives

1Explain hierarchical and flat structures, span of control and chain of command.
2Explain centralised and decentralised structures.
3Explain the importance of effective communication and the barriers to it.
4Explain different ways of working, and the effect of technology on them.

What Is an Organisational Structure?

An organisational structure shows how a business is organised: the roles, who is responsible for what, and who reports to whom.

Organisation chart
A diagram showing the structure, with each role and the lines of authority between them.
Levels of hierarchy
The number of layers of management from the top to the bottom.
Chain of command
The line of authority through which instructions pass down and information passes up.
Span of control
The number of employees who report directly to one manager.

Hierarchical and Flat Structures

The same number of staff can be organised in very different ways. A tall structure has many managers each looking after a few people; a flat structure has few managers each looking after many.

A tall organisation chart with four levels beside a flat chart where one owner manages seven staff directly.

Hierarchical or Flat?

Hierarchical (tall) structure

Many levels of hierarchy.
Narrow span of control: managers supervise few staff closely.
Clear roles and promotion opportunities.
But: long chain of command, so communication and decisions are slow.
Many managers, so high wage costs.

Flat structure

Few levels of hierarchy.
Wide span of control: managers supervise many staff.
Fast communication and decisions.
Staff have more responsibility, which can motivate them.
But: managers may be overloaded, and there are fewer promotion opportunities.

Centralised or Decentralised?

Centralised

Decisions are made by a few senior managers at the top, often at head office.
Consistent decisions across the whole business.
Senior managers have experience and see the big picture.
But: slow, and head office may not understand local needs.
Staff lower down may feel undervalued.

Decentralised

Decision-making is passed down to managers in branches or departments.
Faster decisions that suit local customers.
Staff feel trusted, which motivates them.
But: decisions may be inconsistent between branches.
Local managers may lack experience.

The Importance of Effective Communication

Effective communication means the right message reaches the right people at the right time and is understood.

Why it matters
Staff know what to do, mistakes are avoided, and customers are served well.
Motivation
Staff who are kept informed and listened to feel valued.
Too little communication
Staff do not know what is expected, leading to mistakes and poor morale.
Too much communication
Information overload: important messages are lost among hundreds of emails.

Barriers to Communication

Too many levels
In a tall structure, messages pass through many people and can be delayed or changed.
Language and jargon
Technical terms or a different language can confuse the receiver.
Distance and technology
Staff in different places, or technology that fails, make communication harder.
Attitudes
Staff who distrust managers, or managers who do not listen, block communication.

Ways of Working

Full-time
Meaning: Working a full working week, often around 35-40 hours. Benefit to the business: Staff are always available and committed
Part-time
Meaning: Working fewer hours than full-time. Benefit to the business: Covers busy periods cheaply; attracts people who cannot work full-time
Flexible hours
Meaning: Staff choose when they work, within limits. Benefit to the business: Motivates staff and helps retain them
Permanent
Meaning: A contract with no end date. Benefit to the business: Loyal, experienced staff
Temporary
Meaning: A contract for a fixed period. Benefit to the business: Covers busy seasons or absences without a long-term cost
Freelance
Meaning: Self-employed people hired for specific jobs. Benefit to the business: Specialist skills only when needed

Technology and Ways of Working

Technology has changed how, when and where people work.

Remote working
Laptops, video calls and cloud software let staff work from home, cutting office costs.
Efficiency
Software and automation speed up tasks and reduce mistakes.
Flexible working
Staff can work at different times and still stay connected.
Drawbacks
Isolation, harder teamwork, and staff who never switch off from work.

Working from Anywhere

Video calls and cloud software mean many office jobs can now be done from anywhere. Businesses save on office space and can hire people who live far away - but have to work harder to keep teams communicating well.

A person working from home on a video call with colleagues on a laptop.

Case study

Timpson: Upside-down Management

Timpson, the shoe repair and key-cutting chain, runs what it calls "upside-down management" - a highly decentralised approach. Staff in each shop are trusted to run it their own way: they set their own prices for some jobs, decide how to serve customers and can spend up to £500 to settle a customer complaint without asking head office. Head office exists to support the shops rather than to control them. Timpson believes staff who are trusted give better service, and the business is well known for its customer service and staff loyalty.

£500 What shop staff can spend to settle a complaint

Decentralised Decisions made in each shop, not at head office

Restructure the Business

A chain of 20 cafés has a tall, centralised structure: every decision - from menu changes to staff rotas - is made at head office. Customers complain that cafés are slow to respond to problems. Recommend changes to the structure, and explain one benefit and one risk of your changes.

1. Recommend changes.

2. Explain one benefit.

3. Explain one risk.

A good answer shows: A move towards a flatter, more decentralised structure, with a benefit (faster, local decisions; motivated managers) and a risk (inconsistency, inexperienced managers).

Can I...?

1Explain span of control and chain of command.
2Compare hierarchical and flat structures.
3Compare centralised and decentralised structures.
4Explain why effective communication matters.
5Explain barriers to communication.
6Explain full-time, part-time and flexible working.
7Explain permanent, temporary and freelance contracts.
8Explain the effect of technology on ways of working.

Summary & Exam Focus

Tall structures: many levels, narrow spans, slow communication. Flat structures: few levels, wide spans, fast communication.
Centralised: decisions at the top. Decentralised: decisions passed down.
Effective communication avoids mistakes and motivates staff; barriers include levels, jargon, distance and attitudes.
Ways of working: full-time, part-time, flexible, permanent, temporary, freelance - changed by technology.

Exam focus

Explain one disadvantage to a business of having a hierarchical structure. (3 marks) (3 marks)

Use the key terms - span of control, chain of command, levels of hierarchy - and link them to speed of decisions, communication or costs.

Key terms

The vocabulary this lesson expects you to use. Each one is linked from the first place it appears above.

Organisational structure: How a business is organised: its roles, responsibilities and lines of authority.
Hierarchy: The levels of management in a business.
Chain of command: The line of authority from the top to the bottom of a business.
Span of control: The number of employees who report directly to one manager.
Centralised: Decisions are made by senior managers at the top.
Decentralised: Decision-making is passed down to managers and staff lower down.
Freelance: Self-employed and hired for specific jobs.
Remote working: Working away from the business's premises, often from home.

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