2.2 Organizational structure

Organisational structure describes how work is divided, who reports to whom, where decisions are made and how information moves.

Key ideas include hierarchy, chain of command, span of control, delegation, centralisation and decentralisation. They are connected: giving a team more decision authority can speed local responses but requires information, capability and accountability.

A store manager who can reorder stock locally may respond faster to demand, while headquarters keeps pricing decisions. The structure works only if the manager receives reliable sales data and knows the limit of the delegated authority.

A structure is not just a chart and decentralisation is not automatically better. Judge the fit between authority, information, risk and the organisation's objectives.

Complete the terminology map: levels of hierarchy are the management layers; the chain of command is the formal route of authority; span of control is the number of direct reports; delegation transfers authority for a task while the manager retains ultimate accountability. Bureaucracy relies on formal roles, rules and procedures. Centralization keeps major decisions near the top, while decentralization moves them downward or outward. Delayering removes management levels, often widening spans and shortening communication routes. A matrix gives employees dual reporting relationships, commonly to functional and project managers, which shares expertise but can create conflicting priorities.

An organisation chart is a model of formal reporting relationships and responsibility; it does not show every informal influence or communication path.

Tall structures usually give narrower spans of control and more layers, which can support supervision but slow upward communication. Flat structures reduce layers and may speed decisions, but managers can face a wider span and employees may need greater autonomy. Functional, product and matrix designs group expertise in different ways.

A global firm organised only by function may build specialist knowledge but struggle to coordinate a product launch across regions. A product structure may improve focus while duplicating specialist roles.

Flat does not mean unstructured, and a matrix does not remove conflict. Explain which coordination problem the chosen chart solves and what new cost it creates.

Read a chart in a fixed order: count hierarchy levels, trace each chain of command, estimate managers' spans of control, then identify how units are grouped. Grouping by function concentrates specialists; by product gives each offering clearer focus; by region adapts decisions to local markets but can duplicate functions. A flat chart has fewer layers and usually wider spans; a tall chart has more layers and usually narrower spans. The chart shows formal authority, not necessarily the real flow of influence.

The suitability of an organisational structure depends on the business's size, strategy, technology, environment and need for control or flexibility.

Ask what work must be coordinated, how quickly conditions change and where expertise sits. A stable, standardised operation may benefit from clear hierarchy; a project-based or rapidly changing firm may need cross-functional teams and wider delegation.

A small design studio can keep a flat structure while staff work directly with clients. As it grows, adding specialist leads may protect quality, but extra layers can slow creative decisions.

There is no universally best structure. A recommendation must name the context, the mechanism and the trade-off—not merely call a structure flexible or efficient.