Influences on Organisational Design (AQA A-Level Business): Revision Notes
Influences on Organisational Design
What is organisational design?
Organisational design is the process of shaping an organisation's structure so that it can achieve its objectives effectively. Think of it as creating a blueprint that shows how a business should be organised to work at its best.
The way a business designs its organisation affects everything from how decisions are made to how employees communicate with each other. Getting the design right helps a company operate smoothly and meet its goals.
Think of organisational design like creating the blueprint for a building – it determines how all the different parts fit together and work in harmony to achieve the intended purpose.
Key influences on organisational design
Several important factors determine how a business should structure itself. Understanding these influences helps explain why different organisations look and operate differently.
Remember SLOT: The four key influences are Size, Life cycle, Objectives, and Technology.
Size of business
As businesses grow in size, they tend to become more complex and require more formal organisational structures. A small local shop might work well with just the owner making all decisions, but a large retail chain needs clear systems and layers of management to function effectively.
Exam tip: Be ready to explain why larger businesses need more structured hierarchies than smaller ones.
Life cycle of organisation
Businesses undergo evolution and transformation throughout their existence. As a company moves through different stages of its life cycle, its organisational design and structure will need to adapt and change accordingly. A start-up will have a very different structure to a mature, established business.
Corporate objectives
The organisational structure must align with the company's goals. A business whose main objective is growth and innovation may require a different structure compared to one whose aim is to maintain its position in current markets. The structure needs to support what the business is trying to achieve.
Technology
Developments in technology have fundamentally changed the nature of production and work, which impacts organisational design and structure. Modern communication technology, for example, has made it easier for businesses to operate with flatter structures and more remote working.
Understanding organisational structure
Organisational structure refers to how a group of people work together to achieve a common goal. To operate efficiently, a clear structure is needed that defines how tasks are divided, grouped and coordinated.
The structure clarifies the roles organisational members perform so that everyone understands their responsibilities to the group. This prevents confusion and ensures smooth operations.
Hierarchy
A hierarchy shows how different levels of authority are ranked in an organisational structure. It creates clear lines of authority from top to bottom.
The organisational structure is often depicted in an organisational chart. These charts illustrate the hierarchy within the business and the chain of command that provides a line of authority from the top of the business to the bottom, showing who reports to whom.
Chain of command and authority
The chain of command is the order in which authority and power in an organisation is exercised and delegated from top management down. It creates a clear path of communication and responsibility.
Authority is the power or right to give orders or make decisions. Those higher up the hierarchy have more authority than those lower down.
The chain of command creates a clear vertical flow of power and communication. Each person knows exactly who they report to and who reports to them, preventing confusion and ensuring accountability.
Span of control
The span of control is the number of subordinates who can be controlled effectively by one manager. This is a crucial concept in understanding organisational structure.
The span of control may depend on several factors:
- The ability of the manager
- The type of work being done
- The skills of the employees
It may also be determined by whether the organisational structure is tall or flat.
Flat structures (wide span of control)
Organisations with wider spans of control require fewer managers and have a flatter structure. In these businesses:
- Managers have many subordinates reporting directly to them
- There are fewer levels in the hierarchy
- There is greater scope for worker empowerment lower down the hierarchy
Flatter structures can lead to cost savings due to fewer middle management positions. They can also result in greater engagement of the workforce due to more empowerment and responsibility.
Example: Comparing Flat and Tall Structures
Flat Structure (Wide Span):
- A retail store manager supervises 15 sales assistants directly
- Only 2 levels: Store Manager → Sales Assistants
- Quick decision-making and lower management costs
Tall Structure (Narrow Span):
- A retail company has: Regional Manager → Area Managers → Store Managers → Department Managers → Sales Assistants
- 5 levels of hierarchy
- More controlled decision-making but higher management costs
Tall structures (narrow span of control)
Organisations with narrower spans of control are likely to have more managers and taller structures. In these businesses:
- Managers have fewer subordinates reporting to them
- There are more levels in the hierarchy
- Decision-making tends to be more centralised
Exam tip: Be prepared to evaluate the advantages and disadvantages of flat versus tall structures in different business contexts.
Delegation in organisations
Delegation is the granting of authority by one person to another for agreed purposes. It involves passing authority to a subordinate within an organisation.
It's important to understand that delegation is the power to undertake a task that is delegated, not the responsibility for it — this remains with the manager. A manager must therefore choose delegates carefully. They must have the skills and ability to perform the task, and there has to be complete trust in the delegate.
Successful delegation relieves managers of routine decisions, enabling them to concentrate on more important decisions. This makes better use of management time and develops employees' skills.
Critical Distinction: Authority vs Responsibility
Students often suggest that responsibility can be passed down the organisation structure. This is not the case. It is authority that is passed down, not responsibility. The manager retains responsibility even when they delegate authority.
Remember: You can delegate the power to act, but you cannot delegate accountability for the outcome.
Centralisation vs decentralisation
Whether an organisation is centralised or decentralised will determine where authority and decision-making lie in the organisation.
Centralisation
Centralisation is the process of concentrating management and decision-making power at the top of an organisation hierarchy. In a centralised structure, decision-making lies with management at the top, with little input from lower down. Senior management retains control over major decisions.
Decentralisation
Decentralisation is the process of redistributing decision-making power away from a central location or authority. In a decentralised structure, those lower down the hierarchy play a greater part in the decision-making process. More authority is delegated to employees at different levels.
Centralisation vs Decentralisation: The Key Difference
Think of it as a spectrum:
- Centralisation: Power flows from the top → decisions made by senior management → tight control
- Decentralisation: Power distributed throughout → decisions made at various levels → greater autonomy
Neither approach is inherently better – the right choice depends on the specific circumstances of the business.
Factors influencing centralisation and decentralisation
Decentralisation will involve a greater degree of delegation. Several factors influence whether an organisation adopts a more centralised or decentralised approach:
Remember UMES: The four key factors are Uniformity, Management style, Employee skills, and Economic influences.
Uniformity of decisions
Where decisions are uniform, there is little room for delegation and decentralisation. For example, individual outlet managers in a business such as Pizza Hut have little or no input into decision-making about menus, pricing or store layout. Consistency across all outlets requires centralised control.
Example: Uniformity in Practice
Pizza Hut maintains consistency across all its outlets by centralising key decisions:
- Menu items: All outlets serve the same pizzas with identical recipes
- Pricing: Prices are set centrally to maintain brand consistency
- Store layout: Every Pizza Hut follows the same design template
This ensures customers have the same experience regardless of which outlet they visit, but it means individual managers have limited decision-making authority.
Management style
An autocratic leadership style is more likely to lead to a centralised organisation, whereas a more democratic or laissez-faire style gives greater scope for decentralisation. The preferred approach of senior management significantly influences the level of delegation.
Skills and ability of workforce
A decentralised approach is only possible where the workforce has the necessary skills to make decisions effectively. A business employing mainly professional skilled people is more likely to delegate and adopt a decentralised approach than one employing mainly unskilled workers who may lack the expertise needed for decision-making.
Economic influences
Changing economic circumstances can lead to different approaches. In difficult times, a more centralised approach may be adopted to maintain tight control over costs and decisions. However, if the economy is growing strongly, there may be greater freedom for delegation and decentralisation as the business can afford to take more risks.
Context Matters
When analysing whether a business should centralise or decentralise, always consider the specific context and circumstances of that business. There is no one-size-fits-all answer – the optimal approach depends on factors like industry, workforce capabilities, economic conditions, and strategic objectives.
Exam tip: When analysing whether a business should centralise or decentralise, always consider the specific context and circumstances of that business.
Key Points to Remember:
-
Organisational design is shaped by four key factors: size of business, life cycle stage, corporate objectives, and technology developments (remember SLOT).
-
Span of control determines structure shape: wider spans create flatter structures with fewer managers, while narrower spans create taller structures with more management layers.
-
Delegation passes authority, not responsibility: managers delegate the power to complete tasks but retain overall responsibility for outcomes – this is a critical distinction.
-
Centralisation concentrates power at the top, while decentralisation distributes it throughout the organisation – the best approach depends on factors like management style, workforce skills, and business circumstances (remember UMES).
-
Flat structures can reduce costs and increase employee engagement, but require employees with sufficient skills to handle greater responsibility.