Organisation Structure

An auto-parts maker in Pune starts with one plant and one product. Ten years later it makes brakes, clutches and wiring harnesses for buyers across India. Who should now report to whom? The answer is its organisation structure.

A structure sets roles, responsibilities, authority and lines of communication. It lines up people and resources with goals, and it makes clear who answers for what. The main choice is how to group people: by the work they do, by what they make or serve, or both at once.

The Pune firm, as an illustration. In a functional structure it has one head of production, one of sales and one of finance, each serving all three products. In a divisional structure it has a brakes division, a clutches division and a harness division, each with its own production and sales. In a matrix, an engineer working on a new part answers to the head of engineering for technical work and to the project manager for deadlines.

Informal and flexible forms loosen the fixed chart:

• Network: fluid relationships, often with outside partners; agile.
• Flat: few management levels, so communication is fast.
• Holacracy: self-managed teams and circles that make decisions collectively.
• Team-based: cross-functional teams organised around goals.
• Boundaryless: fewer barriers inside the firm and with outside partners.

Don't confuse the functional structure with Taylor's functional organisation. In a functional structure, departments are grouped by function and each worker still has one boss. In Taylor's functional organisation (next block), several specialist foremen give orders to the same worker.

Where it breaks. Each structure solves one problem and creates another, as the last column of the table shows. Silos, duplication and dual authority are the prices of specialisation, focus and collaboration. Self-managed forms such as holacracy need clear rules on who decides what, and they get harder to run as a firm grows.

For exams. Match each structure to its basis, its strength and its challenge. The matrix is the one with dual reporting, so it breaks unity of command. The divisional structure is the one that duplicates functions.

A transport company grows from five lorries to fifty. The owner hires a lawyer and a cost accountant. Should they give orders to the drivers, or only advise the owner? Each answer gives a different form of organisation.

In the transport company, as an illustration, the line runs owner, depot managers, supervisors, drivers. The lawyer who checks contracts and the accountant who works out the cost per kilometre are staff: they advise the line. If the accountant could order drivers to change routes, the firm would be moving toward Taylor's functional form.

Taylor's eight foremen. Taylor proposed eight functional foremen in place of one. Four worked in the planning room: the route clerk, the instruction card clerk, the time and cost clerk, and the shop disciplinarian. Four worked on the shop floor: the gang boss, the speed boss, the repair boss and the inspector.

Mechanistic and organic structures (Tom Burns and G. M. Stalker, 1961) describe how rigid a structure is.

Formal and informal organisation. The formal organisation is deliberately designed: official positions, rules and the chart. The informal organisation grows on its own from friendships and social groups. It communicates through the grapevine, the unofficial channel by which news spreads. It can support or undermine the formal one, so wise managers work with it.

Don't confuse line-and-staff with the functional form. Staff specialists advise the line manager, who still gives the orders. In Taylor's functional form, the specialists give the orders themselves.

Where it breaks. Line-and-staff often brings friction: line managers may resent advice, and staff may feel ignored. Taylor's scheme confused workers who had several bosses, and few firms used it in full; its idea survives as functional authority (next block). Burns and Stalker's two types are ends of a range, and one firm can be mechanistic in accounts and organic in research.

For exams. Line, scalar and military organisation are the same thing. Taylor's form comes from functional foremanship and breaks unity of command. Mechanistic and organic structures are Burns and Stalker's (1961).

Line commands, staff advise, Taylor's foremen each command one part.

A bank branch manager is told to cut bad loans, but she cannot refuse loans her regional office pushes through. She is responsible for a result she has no authority to control, and that seldom ends well.

Authority is the right to give orders, make decisions and use resources. Responsibility is the obligation to perform the duties assigned. Accountability is answering to a superior for the results. Authority flows downward; responsibility and accountability flow upward.

A Diwali sale, as an illustration. An electronics store manager lets the floor supervisor approve discounts of up to ₹2,000 on a bill. That limit is her authority. Running the sales floor through the sale is her responsibility. She answers to the store manager for sales and for the discounts she gave: her accountability. The store manager still answers to the regional manager for the whole store.

Kinds of authority: line authority to command; staff authority to advise; and functional authority, a specialist's right to direct a particular activity in other departments. A finance head who sets how every department must file expense claims is using functional authority.

Parity of authority and responsibility. Authority should match responsibility (Fayol's second principle; Urwick's principle of correspondence). Authority without responsibility invites misuse. Responsibility without authority leaves a person unable to act. Authority is used within the limits set by the organisation's policies, not by personal preference.

Absoluteness of responsibility. A manager can delegate authority, and the subordinate becomes responsible for the task. But the manager's own ultimate responsibility and accountability to the superior cannot be passed on.

Don't confuse authority with power. Authority comes with a position and is accepted as legitimate. Power is the wider ability to influence others. An experienced clerk whom everyone consults has power without the authority of a post.

Where it breaks. Acceptance theory shows the limit of formal authority: orders outside the zone of indifference may be quietly ignored. Parity is an ideal rather than a fact. A sales manager is held responsible for targets that also depend on prices and markets she does not control.

For exams. Know the three sources of authority, with Barnard (1938) and the zone of indifference. Remember the directions: authority down, responsibility and accountability up. Parity is Fayol's second principle and Urwick's principle of correspondence; ultimate responsibility cannot be delegated.

Two firms each employ 64 sales staff. One gives each manager 4 people to supervise; the other gives each manager 8. The first needs more than twice as many managers.

Working it out, as an illustration.

• Span of 4: 64 ÷ 4 = 16 first-line managers; 16 ÷ 4 = 4 middle managers; 4 ÷ 4 = 1 head. That is 21 managers in three levels above the sales staff.
• Span of 8: 64 ÷ 8 = 8 first-line managers; 8 ÷ 8 = 1 head. That is 9 managers in two levels.
• If each manager costs ₹12 lakh a year, the narrow span needs 12 more managers: 12 × ₹12 lakh = ₹1.44 crore a year.

An organisational chart shows who reports to whom. Four common charts are hierarchical (top to bottom), flat (few levels, broad span), matrix (dual reporting) and divisional (separate business units). A team-based chart maps cross-functional teams.

The organising process turns a purpose into work and learns from the result:

Inputs are materials, information and resources. Outputs are products, reports and services. Monitoring and the feedback loop drive improvement.

Don't confuse span with levels. The span is how wide each manager's group is. The number of levels is how tall the hierarchy is. For the same number of people, wider spans mean fewer levels.

Where it breaks. No span is right everywhere. A wide span works for skilled people doing routine, similar work; it fails when work is complex and changing. Cutting levels saves cost, but it can leave managers with no time to coach.

For exams. Wide span means a flat structure; narrow span means a tall one. Expect a question pairing each with its gains and costs, and one on the four chart types.

Wide and flat, or narrow and tall.

A team leader manages four people comfortably. Her team grows to eight, and her days fill with meetings, disputes and messages. The team doubled, but the relationships she has to handle grew far more than twice.

The formula adds three kinds of relationship:

• Direct single: the manager with each subordinate alone. There are n of them.
• Direct group: the manager with a subordinate while others are present. Each combination counts once for every person who could lead it: n(2ⁿ⁻¹ − 1).
• Cross: subordinates dealing with each other, each direction counted: n(n − 1).

Worked example, n = 5. 2⁴ = 16. Then 16 + 5 − 1 = 20. Then 5 × 20 = 100. Check by kinds: 5 direct single + 75 direct group + 20 cross = 100.

Urwick's rule. Lyndall Urwick drew the practical conclusion: no superior can directly supervise the work of more than five, or at most six, subordinates whose work interlocks.

What sets the right span:

• the subordinates' competence and training;
• how simple, similar and standardised the work is;
• how clear the plans and the delegation are;
• how fast conditions change;
• communication technology, and how spread out the people are;
• the manager's other duties, and the degree of decentralisation.

Spans are usually narrower at the top and wider at the operating level. Removing levels to widen spans is called delayering.

Don't read R as a workload. R counts possible relationships, not the ones that actually take time. Many combinations rarely occur. And Urwick's limit of five or six applies only where the subordinates' work interlocks.

Where it breaks. The formula weighs every possible relationship equally, so it overstates the burden. Where people do independent, routine work, such as tellers or field sales staff, one supervisor can handle many more than six. Clear plans and good communication tools widen the workable span further.

For exams. Expect to calculate R for a given n; work it inside the brackets first. Remember 4 → 44, 5 → 100, 6 → 222 and 7 → 490, and Urwick's five or six for interlocking work.

Add one person, and the relationships more than double.

A bank branch manager cannot read every loan file herself. She can hand some decisions to one officer, or the bank can decide which decisions every branch makes on its own. The first is delegation; the second is decentralisation.

Delegation passes responsibility and authority for a task from superior to subordinate. Responsibility is the duty to do the work; authority is the power to decide; accountability is answering for results. The superior keeps ultimate accountability.

At the branch, as an illustration. The manager asks a loan officer to process gold loans and lets him approve any loan up to ₹2 lakh. The officer now has the responsibility and the authority. He acts on each file, and he is accountable to her for bad loans. She stays accountable to the regional office for every loan the branch makes.

A sound delegation provides training, guidance, trust and feedback. It sets clear limits, such as the ₹2 lakh ceiling, and agrees when the manager will check progress.

Decentralisation spreads decision-making power systematically across the organisation. It can be functional, geographic, product- or service-based, or market-based.

Don't confuse delegation with abdication. Delegating means handing over a task with limits, support and checks. Handing it over and never following up is abdication, and the manager still answers for whatever goes wrong.

Where it breaks. Many managers delegate too little. They fear losing control, distrust their staff, or believe they can do it faster themselves. Subordinates may also avoid taking it on, for fear of criticism or because they lack information. Then the manager stays overloaded and nobody below learns to decide.

In practice. Delegate the decision together with the information needed to make it. Set a limit in rupees or in scope, and agree check-in points in advance.

For exams. Know the three elements, responsibility, authority and accountability, and that ultimate accountability cannot be delegated. Delegation is narrow and personal; decentralisation is broad and organisation-wide.

Memory hook: delegation is about the person; decentralisation is about the system.

A chain of 40 restaurants has to decide who sets menu prices, who hires waiters, and who chooses the Diwali specials. Every decision kept at head office slows the branches; every one pushed out loosens control.

No organisation is wholly one or the other; it is a matter of degree.

The restaurant chain, as an illustration. Head office fixes the brand, the core menu, hygiene standards and supplier contracts. Branch managers set staff rosters, choose festival specials and approve refunds up to ₹2,000. The chain is centralised on what must be the same everywhere and decentralised on what depends on the place.

Ernest Dale's tests of the degree of decentralisation. The more of each, the more decentralised the firm:

1. how many decisions are made lower down;
2. how important those decisions are;
3. how many functions they cover;
4. how little they need to be checked above.

Factors that decide the degree:

• the size and spread of the organisation;
• the cost and importance of decisions;
• the need for uniform policy;
• top management's philosophy;
• the availability of capable managers lower down;
• control techniques and information systems;
• how quickly the environment changes.

Decentralisation is delegation extended systematically through every level.

Don't confuse decentralisation with having many branches. Decentralisation is about where decisions are made, not where offices are. A firm with branches across India is still centralised if every decision goes to head office.

Where it breaks. Decentralisation works only when managers lower down are capable and have good information. Without them, units drift apart and head office loses control. Firms often swing between the two as problems on one side become visible.

For exams. Allen's two definitions, Dale's four tests, and the merits on each side are the usual questions. Remember that it is a matter of degree.