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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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Teacher resources

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Student handouts

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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

  1. 1Explain hierarchical and flat structures, span of control and chain of command.
  2. 2Explain centralised and decentralised structures.
  3. 3Explain the importance of effective communication and the barriers to it.
  4. 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 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.

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...?

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

Questions and answers

8 questions set on this lesson, with the mark schemes and model answers open.

1. Exam question Define 1 mark Foundation

Define the term 'span of control'.

Mark scheme — 1 mark available

  • Number of subordinates directly responsible to a manager — 1 mark

Model answer

The number of employees who report directly to one manager.

2. Exam question Outline 2 marks Foundation

Outline one benefit to a business of employing freelance workers.

Mark scheme — 2 marks available

  • A benefit identified — 1 mark
  • Developed — 1 mark

Model answer

The business only pays for specialist skills when it needs them (1), so it avoids the cost of employing a full-time specialist all year (1).

3. Exam question Explain 3 marks Foundation

Explain one disadvantage to a business of having a hierarchical structure.

Mark scheme — 3 marks available

  • A disadvantage identified, e.g. slow communication / high cost of managers / staff feel distant — 1 mark
  • First linked point of explanation — 1 mark
  • Second linked point of explanation — 1 mark

Model answer

Communication can be slow (1). Messages must pass down a long chain of command through many levels of management (1). This means decisions take longer and messages can be changed along the way, so the business may respond slowly to customers (1).

4. Exam question Analyse 6 marks Core

Source: Nova Fitness PLC runs 60 gyms. Until now all decisions have been made at head office. It plans to decentralise, letting each gym manager decide on class timetables, local promotions and staff rotas. Analyse the impact of decentralisation on Nova Fitness PLC.

Mark scheme — 6 marks available

  • AO2 (Application, 3 marks): uses the context - 60 gyms, timetables, promotions, rotas — Level 1-3
  • AO3a (Analysis, 3 marks): chains of reasoning about benefits and drawbacks — Level 1-3

Model answer

Decentralisation would let each gym manager respond to local customers. A manager knows which classes are popular in their area and when members want to train, so timetables and promotions can be better suited to local demand, which could increase memberships. Managers given more responsibility are also likely to feel trusted and motivated, improving their performance. However, with 60 managers making their own decisions, gyms may become inconsistent - different standards and promotions could confuse customers and weaken the Nova brand. Some managers may also lack the experience to make good decisions, so head office would need to invest in training them.

5. Multiple choice 1 mark Foundation

A structure with many levels of management and narrow spans of control is:

  1. A Hierarchical (tall) Correct
  2. B Flat
  3. C Decentralised
  4. D Freelance

Why: Many levels and narrow spans describe a hierarchical (tall) structure.

6. Multiple choice 1 mark Core

What is the chain of command?

  1. A The number of staff a manager supervises
  2. B The way staff are paid
  3. C The line of authority from the top to the bottom Correct
  4. D A list of the business's suppliers

Why: The chain of command is the line of authority from the top of the business to the bottom.

7. Multiple choice 1 mark Core

Which is a barrier to effective communication?

  1. A Clear, simple language
  2. B A short chain of command
  3. C Regular team meetings
  4. D Technical jargon Correct

Why: Technical jargon can stop the receiver understanding the message.

8. Multiple choice 1 mark Stretch

A shop hires extra staff on six-week contracts for the Christmas period. These are:

  1. A Permanent contracts
  2. B Temporary contracts Correct
  3. C Freelance contracts
  4. D Flexible hours

Why: Contracts for a fixed period are temporary.