the main functional areas of a business, e.g. operations, marketing, finance, human resources

2.2.1 Simple Organisational Structures

Purpose of a Simple Structure

• Typical of very small, owner‑run businesses (usually < 10 employees).
• Owner or a small management team makes the majority of decisions.
• Provides rapid communication, high flexibility and low administrative cost.
• Becomes less effective as the business grows – more staff, more products or a wider market usually require a more formal hierarchy.

Simple Organisational Chart – draw, interpret and understand

Key features to comment on (syllabus checklist)

1. Levels of hierarchy (how many layers of authority?)
2. Span of control (how many sub‑ordinates report to each manager?)
3. Chain of command (direction of authority from top to bottom)
4. Centralisation vs. decentralisation (where are decisions made?)
5. Formal vs. informal communication (how are messages passed?)

Label‑the‑Chart Activity

Using Figure 1, label the following on a copy of the diagram:

• The Owner/Manager (top box)
• The four functional heads (Operations, Marketing, Finance, HR)
• Direction of the chain of command (arrows)
• Identify the span of control for the Owner/Manager
• State whether the structure is centralised or decentralised

Key Concepts Illustrated by the Chart

• Hierarchy: Levels of authority – here only two (Owner/Manager and functional heads).
• Span of control: Number of sub‑ordinates reporting to a manager – the Owner has a wide span (four functional areas).
• Chain of command: The line of authority from the top down – direct and clear in a simple structure.
• Centralisation: Decision‑making is concentrated with the Owner.
• Formal vs. informal communication: Mostly informal (face‑to‑face) but the chart provides a formal visual of reporting lines.
• Tall vs. short structures: This is a short (flat) structure; a tall structure would have many intermediate levels.

Functions of Management and Their Link to Functional Areas

Management Function	Brief definition (syllabus wording – 2‑sentence summary)	Relevant Functional Area(s)
Planning	Setting objectives and deciding the actions required to achieve them. It involves forecasting, budgeting and choosing where to compete.	All – especially Finance (budget), Marketing (market plan), Operations (production plan)
Organising	Arranging resources and establishing the structure of tasks, authority and relationships. It defines roles, allocates resources and creates reporting lines.	HR (staffing), Operations (process layout), Finance (allocation of funds)
Co‑ordinating	Linking the activities of different departments so that they work together efficiently. It ensures that plans are integrated and that inter‑departmental communication is effective.	All – e.g., Marketing works with Operations to ensure product availability.
Commanding (Leading)	Directing and motivating staff to achieve organisational objectives. It involves making decisions, giving instructions and influencing behaviour.	HR (leadership style), Operations (shop‑floor supervision), Marketing (campaign direction)
Controlling	Monitoring performance, comparing results with standards and taking corrective action. It provides feedback to ensure goals are met.	Finance (financial control), Operations (quality control), Marketing (sales analysis)

Match‑the‑Function Exercise (AO2 – Application)

Read each scenario and write the management function being demonstrated.

1. A bakery owner decides to introduce a new gluten‑free line after analysing market trends. __________
2. The HR manager creates a rota that allocates staff to peak‑time shifts. __________
3. The finance team prepares a monthly variance report comparing actual sales with the budget. __________
4. The marketing supervisor holds a briefing to ensure the sales team knows the features of a new product. __________
5. The operations supervisor checks daily output against the production schedule and adjusts staffing if needed. __________

Leadership Styles in a Simple Structure (2.2.3)

Style	Key Characteristics	Advantages in a Simple Structure	Disadvantages in a Simple Structure
Autocratic	Owner makes decisions alone; gives clear, rapid instructions.	Fast decision‑making; useful where strict standards (e.g., hygiene) are vital.	May demotivate staff; limits creativity and staff development.
Democratic	Owner seeks input from staff before deciding; encourages participation.	Higher staff morale; ideas from front‑line can improve service.	Decision‑making can be slower; risk of indecision if consensus is not reached.
Laissez‑faire	Owner provides minimal direction; staff have high autonomy.	Encourages innovation when staff are highly skilled and self‑motivated.	Risk of lack of control, inconsistent standards, especially in a small team.

Case‑Study Prompt (AO4 – Evaluation)

“A small café has recently received several health‑and‑safety warnings. The owner must choose a leadership style to improve compliance while keeping staff motivated. Which style would you recommend and why?”

Trade Unions & Legal Controls over Employment

Trade Unions (2.2.4)

• Less common in very small firms, but become more likely as staff numbers rise (typically > 10 employees).
• Impact on decision‑making: unions may require consultation before changes to pay, hours or conditions.
• Impact on wage negotiations: collective bargaining can set standard rates above the statutory minimum.
• Impact on workplace relations: unions can mediate disputes, improve morale, but may also lead to industrial action.

Real‑world example: A neighbourhood coffee shop with 12 employees joined the local Hospitality Workers’ Union. The union helped negotiate a 5 % pay rise and introduced a formal grievance procedure, which reduced staff turnover.

Legal Controls over Employment (2.4.2)

• Employment contracts – written terms setting out duties, pay, hours and notice periods.
• Unfair dismissal legislation – protects employees from termination without a fair reason or proper procedure.
• Health & safety regulations – require a safe working environment, risk assessments and training.
• Minimum wage regulations – set the statutory hourly rate that must be paid.
• Working‑time regulations – limit weekly hours, guarantee rest breaks and paid annual leave.

True / False Quiz (AO3 – Analysis)

1. All businesses, regardless of size, must have a written employment contract for each staff member. False – contracts are required for employees, not for casual or zero‑hour workers, though written terms are best practice.
2. Unfair dismissal legislation applies only to employees with more than two years’ service. False – it applies to employees with at least two years’ continuous service, but those with less may still have rights under other statutes.
3. Health & safety regulations require a written risk assessment for every workplace. True.
4. The national minimum wage is the same for all age groups. False – there are different rates for apprentices, under‑18s, 18‑20, and 21‑plus.
5. Employees are entitled to a minimum of 28 days’ paid annual leave including public holidays. True (pro‑rated for part‑time staff).

Motivation & Recruitment (HR Functions)

Motivation Theories

• Maslow’s hierarchy of needs – ensure lower‑order needs (pay, safety) are met before higher‑order needs (esteem, self‑actualisation).
• Herzberg’s two‑factor theory – separate hygiene factors (salary, conditions) from motivators (recognition, achievement).

Herzberg – Hygiene Factors	Herzberg – Motivators
Salary & wages Working conditions Company policies Job security	Recognition & praise Opportunities for responsibility Career advancement Personal achievement

Motivation package prompt (AO4) – “Design a motivation package for a small bakery that uses both hygiene factors and motivators. Explain why each element will improve staff performance.”

Recruitment & Selection – Quick Checklist

1. Identify the vacancy and write a clear job description.
2. Choose a recruitment method (local newspaper, online job board, word‑of‑mouth, social media).
3. Screen applications – short‑list based on skills, experience and attitude.
4. Conduct interviews (structured or informal) and, where relevant, a practical test.
5. Make a written offer, produce an employment contract and arrange induction.

Internal & External Communication

• Internal methods: face‑to‑face briefings, notice‑boards, staff meetings, emails, instant messaging, cloud‑based document sharing.
• External methods: website, social media, flyers, telephone, face‑to‑face with customers/suppliers.
• Common barriers: language, physical distance (even in a small shop), information overload, lack of feedback.
• Role of IT: simple accounting software, email, cloud storage and point‑of‑sale systems speed up information flow and reduce errors.

Main Functional Areas of a Business

Functional Area	Key Responsibilities	Typical Activities
Operations (Production)	Transform inputs into goods or services; ensure quality and timely delivery.	Planning production schedules Quality control & assurance Inventory & stock management Supply‑chain coordination (ordering raw materials)
Marketing	Identify, create and satisfy customer needs; generate sales.	Market research (surveys, competitor analysis) Advertising, promotion and public relations Pricing decisions Sales, distribution and after‑sales service
Finance	Plan, obtain and control the financial resources needed to achieve objectives.	Budgeting and financial forecasting Cash‑flow monitoring Preparing financial statements and reports Securing funding (loans, equity, grants)
Human Resources (HR)	Manage people to achieve organisational goals.	Recruitment, selection and induction Training, development and appraisal Motivation and welfare programmes Employee relations, contracts and legal compliance

How the Functional Areas Interact in a Simple Structure

1. The Owner sets the overall business objective (e.g., “increase monthly turnover by 15 %”).
2. Operations determines the production capacity required to meet the target.
3. Marketing creates a promotion to generate the needed demand.
4. Finance checks that cash is available for raw‑material purchases and marketing spend, and monitors profitability.
5. Human Resources recruits any extra staff, provides training and maintains morale so Operations and Marketing can deliver.

Evaluation of the Simple Structure – Advantages & Limitations

Advantages (Pros)	Limitations (Cons)
Quick decision‑making – few layers of approval. Low administrative cost – minimal bureaucracy. Close owner‑staff relationships → high motivation. Flexibility to adapt products/services rapidly.	Owner can become overloaded – limited time for strategic planning. Informal communication may lead to misunderstandings. Limited career progression → possible staff turnover. Difficulty coordinating a larger product range or multiple sites.

When to Move to a More Formal Hierarchy?

• Staff numbers exceed 10–15 (span of control becomes too wide).
• New product lines or additional locations are introduced.
• Turnover grows to a level that requires specialised finance or HR expertise.
• External regulation (health & safety, employment law) becomes more complex.

Key Points to Remember

• A simple structure is ideal for very small, owner‑run businesses because it is cheap, fast and flexible.
• All four functional areas – Operations, Marketing, Finance and HR – are essential, even if the owner performs many tasks personally.
• Management functions (planning, organising, coordinating, commanding, controlling) underpin how the functional areas operate.
• Leadership style, motivation, recruitment and legal employment issues are part of the HR role, even in a simple firm.
• Effective internal and external communication, supported by basic IT, keeps the flat structure working smoothly.
• Regularly evaluate the structure: weigh advantages against limitations and be ready to adopt a taller, more formal hierarchy as the business expands.