Business organisation

In a business of more than one person, unless the business has equal partners, then there are managers and subordinates. Subordinates are workers controlled by the manager.

A hierarchy describes the structure of the management of the business, from the top of the company – the managing director, through to the shop floor worker, who reports to their foreman, in a manufacturing business.

The hierarchy of a business is usually best understood by drawing an organisation chart showing which levels of management and employees report to whom.

An example of a hierarchy is shown in the diagram below

A span of control is the number of people who report to one manager in a hierarchy. The more people under the control of one manager - the wider the span of control. Less means a narrower span of control.

An example of a narrow span of control is shown in the diagram below:

The advantages of a narrow span of control are:

• A narrow span of control allows a manager to communicate quickly with the employees under them and control them more easily
• Feedback of ideas from the workers will be more effective
• It requires a higher level of management skill to control a greater number of employees, so there is less management skill required

An example of a wide span of control is shown in the diagram below:

The advantages of wide span of control are:

• There are less layers of management to pass a message through, so the message reaches more employees faster
• It costs less money to run a wider span of control because a business does not need to employ as many managers

The width of the span of control depends on:

The type of product being made – products which are easy to make or deliver will need less supervision and so can have a wider span of control

Skills of managers and workers – a more skilful workforce can operate with a wider span of control because they will need less supervision. A more skilful manager can control a greater number of staff

A tall organisation has a larger number of managers with a narrow span of control whilst a flat organisation has few managers with a wide span of control.

A tall organisation can suffer from having too many managers (a huge expense) and decisions can take a long time to reach the bottom of the hierarchy

BUT, a tall organisation can provide good opportunities for promotion and the manager does not have to spend so much time managing the staff

Chain of command is the line on which orders and decisions are passed down from top to bottom of the hierarchy. In a hierarchy the chain of command means that a production manager may be higher up the hierarchy, but will not be able to tell a marketing person what to do.

The advantages of hierarchies are:

• Helps create a clear communication line between the top and bottom of the business – this improves co-ordination and motivation since employees know what is expected of them and when.
• Hierarchies create departments and departments form teams. There are motivational advantages of working in teams.

The disadvantages of hierarchies are:

• The formation of departments can mean that:
• - Departments work for themselves and not the greater good of the business.
• - Departments do not see the whole picture in making decisions.
• Hierarchies can be inflexible and difficult to adjust, especially when businesses need to adapt to changing markets – remember employees do not tend to react well to change.