IB Business & Management

Unit 2.2 Organizational Structure
Lesson 1: The Formal Organization
Pages 203-208
 President Roosevelt once
said, “The best executive is
the one who has sense
enough to pick good men
to do what he wants done,
and self-restraint enough
to keep from meddling
with them while they do it.”
 Explain what he meant
by this?
 …
Theodore Roosevelt (1858-1919), 26th
president of the USA
 1. What are the job roles of each section in an
 2. What is an organizational chart?
 3. How are they organized?
 …
 We will be looking at the many ways businesses
organize their human resources.
 We have learned in Unit 1.1 that one of the four major
business functions was what?
 We also learned in Unit 1.2 about sole proprietorships
and the various jobs they have to do, because why?
 They are the ONLY one running the business.
 …
 So, what if the business expands and becomes larger?
 What will the business need then?
 It will need a formal and organized structure to make
sure the business operates in an efficient and functional
 This can be determined by two things:
 1. Accountability….what do I mean by this?
 Shows who is responsible for what job and their performance.
 2. Responsibility…what do I mean by this?
 Shows who is in charge of whom.
 In pairs:
 Brainstorm and create a “typical” structure for OUR IB
High School.
 Hints:
 Think about who is at the top and work your way down.
 You have 5 mins.
 ...
 As stated before, as a business becomes larger and more
complex it has to be more structured.
 If not, there would be total chaos and all the tasks and roles
will not be fulfilled.
 An organizational structure is helpful in many ways:
Can determine specialist areas.
Determines who is the supervisor; form of accountability.
Determines who has authority and their responsibilities.
Explains how all areas in the business are linked.
Can verify your own position in the company.
Identifies the channels of communication in an organization.
Board of
Supervisor and
Team leaders
Other employees
Chief Executive Officer:
• Responsible for running the
• Accountable to the
• Head of the company.
• Leads the team of directors.
• Represents the BOD.
• Works on the company’s
objectives and policies with
the BOD.
• Communicates with the
directors about any problems.
• Plans and implements
corporate strategy.
Board of
Supervisor and
Team leaders
Other employees
Board of Directors (executives):
• responsible for the overall
running of the company.
• Two main types of directors:
• 1. Executive (full time)
• 2. Non-executive (part time)
• Their duties:
• Target setting
• Long term planning
• Making organizational
policies and codes of practice
• Monitoring and controlling
the organization
• Oversees staffing issues
• Advising and supporting the
managing directors
Board of
Supervisor and
Team leaders
Other employees
• Responsible for a team of
• Decision makers for the day to
day implementation of company
• Assist and are accountable to the
Board of
Supervisor and
Team leaders
Other employees
Supervisor & Team leaders:
• They are the junior managers.
• Involved in making operational
• They have direct contact with
the workforce.
Board of
Supervisor and
Team leaders
Other employees
Other Employees:
• They form the majority of the
company’s workforce.
• Will have great levels of skill and
• Work to achieve targets set by
team leaders.
• Work as a member of a
• Make routine decisions
concerning their job role.
• Provide support to other people
in the company
 What is an organizational chart?
 It is a diagram which represents a firm’s formal
organizational structure (see Fig. 2.2c, pg. 207).
 Charts show four important features of a business:
The different functional departments within a business.
What are the departments in Fig. 2.2c?
2. The chain of command, various positions of authority.
Explain the chain of command in Fig. 2.2c.
3. The span of control, measures the number of staff that are
accountable to a manager. Discuss who is responsible to
whom in Fig. 2.2c.
4. The channels of communication, the route that messages
are communicated. Describe the channels of
communication in Fig. 2.2c.
 So…in Fig. 2.2c, how many levels of hierarchy are there?
 FIVE…right! Explain who is at each level.
 Traditionally organizations are structured according to their functions,
but other possibilities exist.
 Organization by product:
 If broad range of product, which caters to various types of customers…remember
the SBU’s in Unit 1.7.
 Organization by process:
 Based on the different processes carried out in the business. Think of a
publishing firm; editorial, print, and sales and marketing departments.
 Organization by geography:
 Remember the MNC’s in Unit 1.9? They can be organized based on region or
area. This will allow the company to be more responsive to local cultural
differences and consumer needs.
 Turn to page 208 and look at Fig. 2.2d, multiforms of organizational
 …
Unit 2.2 Organizational Structure
Lesson 2: Delegation and Span of Control
Pages 208-212
 Explain what is meant by delegation and is this
beneficial and/or effective to the company?
 What is span of control and when does it occur?
 Are there any advantages to having this span of
 …
 What is it and why is it important?
 It is when managers pass on to others some of their roles and
 It is the passing on of control and authority.
 It is important because the manager is entrusting and
empowering their staff to complete a task or project.
 Their staff will be held accountable for their actions.
 The responsibility will remain with the manager.
 So try to understand the difference between the two.
 Excellent test question: Describe with examples, the
differences between accountability and responsibility
within a company’s organization.
 …
 How many here want to be managers?
 What do you think would be one very important skill for
managers to master?
 That’s right, the art of delegation.
 Think about it…if you are a manager and you try to do every
little thing that pops up on a daily basis, will you be a
successful manager? Will to be a productive manager?
 Effective delegation has tremendous benefits:
 As a manager you save time and can focus more on
strategic issues.
 It can also motivate and develop staff trust and talents.
 …
 Now the opposite is true for poor delegation.
 If you are always stepping in the way and taking credit for
others work, it will lead to confusion and distrust.
 This will hurt your productivity and can de-motivate staff.
 So, how can ensure that you are properly delegating?
 For delegation to be effective it must be:
 Specific
 Measurable
 Agreed
 Realistic
 Time-based
 Ethical
 Recorded
 Key word here is control.
 The number of people who are controlled by a manager.
 They are directly accountable to a manager.
 The manager is accountable to the BOD and the CEO.
 So, the higher up in the organization’s hierarchy the
wider the span of control tends to be.
 Some examples of span of control.
 …
• This occurs when a manager has many people under their control.
• What is the advantage of this?
• There are fewer layers in the hierarchy of the organization.
• Cost will be kept under control.
• The flatter the organizational structure the better communication will be
between the different levels of hierarchy.
• A Narrow Span of Control occurs when there are fewer subordinates who are
accountable to a manager.
• What is the advantage of this?
• Easier to communicate with and control the team.
• Smaller teams may be more productive.
• However, with more levels of management in the structure, this system can be costly.
Wide Span of Control (flatter structure)
Narrow Span of Control (taller structure)
Delegation is an important part of managing Faster team communication
Improved communication
Small teams are easier to control and
Cheaper to operate
Greater specialization and division of labour
Smaller psychological gaps between those at
the top and those at the bottom
Greater opportunity to earn a promotion
Wide Span of Control
(flatter structure)
Narrow Span of Control
(taller structure)
• Delegation is an
important part of
• Improved
• Cheaper to operate.
• Smaller psychological
gaps between those at
the top and those at the
• Faster team
• Small teams are easier
to control and manage.
• Greater specialization
and division of labour.
• Greater opportunity to
earn a promotion.
• …
 Many of you are probably asking by now, what is the ideal span of
 The questions comes from a management theorist, Henri Fayol
 But it was V.A. Graicunas (1898-1947) from Lithuania who
addressed this question of the optimal span of control.
 He suggests that the maximum number of subordinates
should be four or five. Why?
 Could cause delay and confusion if managing too many
 In any case, more and more businesses are opting for a wider span of
 But what will determine how much control should be granted to a
and traits of
the manager
The type of
system used
The nature
of work
The degree of
control granted
to a manager
will depend
Nature of
Skills and
dynamics of
Unit 2.2 Organizational Structure
Lesson 3: Levels of Hierarchy & Chain of Command
Pages 212-214, 225-227.
 What are the different levels in a hierarchy?
 Explain delayering? Explain downsizing? How are they
Explain the differences between a flat and tall
Explain the chain of command.
What are the benefits of an organizational chart?
The best structure for an organization depends on
what factors?
 Refers to the structure of an organization.
 It is based on a ranking system.
 Will be ranked according to who is at the top, middle, and
 Who is at the top?
 Who is at the bottom?
 These levels of an organization are best viewed in a chart.
 Each level in the hierarchy refers to the different rank and its
associated degree of authority and responsibility.
 Think of military ranking system, with the general at the top and
the private at the bottom.
 …
Level 1: CEO
Level 2: BOD / Directors
Level 3: Directors / Managers
Level 4: Line Managers
Level 5: employees
• Two main advantages of using hierarchical systems:
•1. Show clear lines of communications.
•2. Establish departments or teams.
• They also have their limitations:
• Departmentalization can lead to workers being isolated.
• These structures tend to be inflexible.
Narrow span of control
leads to tall hierarchical
Wide span of control
leads to flatter
hierarchical structures.
 What is delayering and why are many organizations opting
to do it?
 It is a process of removing one or more levels in the hierarchy.
 By doing this the company flattens out their organizational
 Thus reducing the number of layers of management and widen the
span of control.
 Three main reasons for delayering:
 1. reduce costs
 2. increase speed of communication
 Encourage delegation
 Delayering is often associated with downsizing.
 Do you remember what is meant by downsizing?
 …
 There are several drawbacks to this:
 1. They create anxiety and a sense of insecurity among
2. Can overstretch employees and increase their
3. Flexible working practices will require workers to
upgrade their skills regularly.
4. Decision-making may take longer since mangers are
dealing with larger teams.
 Refers to the formal line of authority through which
orders are passed down in an organization.
 A flat hierarchical structure will have a short chain of
 …
 HR is essential to running a business
 Effectively organizing people is challenging for any
 Poor organizational structure can lead to:
 Reduced staff motivation
 Duplication of effort
 Communication problems
 Difficulties in coordination
 Ineffective decision making
 Organizational charts are important because they
allow employees to see:
 Overall structure of human resources in a business
 Who their line manger is (who they are accountable to)
 Those who must report to their line manager
 Formal chain of command
 It is likely that larger organizations require longer
chains of command and taller hierarchical structures
 Importance of delayering:
 Cuts costs
 Removes unnecessary management roles
 Shorter chain of command
 Delegation of decision making is pushed down
 Productivity improves
 There is not one model to fit every business
 The best structure for an organization depends on:
 Size of the business
 Employee competencies
 Management attitudes
 History and culture of the business

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