the relationship between business objectives and organisational structure

7.1 Organisational Structure – Objectives and Structure

Learning Objective

Explain how a business’s objectives determine the most appropriate organisational structure and how that structure enables the objectives to be achieved.

7.1.1 Relationship Between Business Objectives and Organisational Structure

Business objectives set the direction for a firm. The chosen structure must provide the attributes required to meet those objectives, and it also determines the degree of centralisation, specialisation and flexibility required.

• Flexibility – ability to respond quickly to market or technological change (e.g., matrix or flat structures).
• Growth‑oriented capacity – capacity to add new products, markets or locations without losing control (e.g., divisional, geographic or network structures).
• Innovation & intrapreneurship – encouragement of new ideas and rapid product development (e.g., project‑based or matrix structures).
• Control & consistency – needed when objectives focus on cost‑leadership or profit‑maximisation (usually a more centralised, functional structure).

If the structure lacks the required attribute the firm may suffer from duplicated effort, slow decision‑making, poor communication, or demotivated staff.

7.1.2 Types of Organisational Structure

Key Formal Features

Hierarchical Structures: Flat vs. Tall

• Flat hierarchy – few management layers, wide span of control, promotes speed and empowerment but can overload managers.
• Tall hierarchy – many layers, narrow span of control, provides close supervision and clear career progression but may slow decision‑making and increase overheads.

7.1.3 Delegation and Accountability

Delegation is the transfer of authority to act on behalf of a superior while the delegator retains overall responsibility (accountability).

• Authority → given to the subordinate.
• Responsibility → remains with the delegator (who is accountable for the outcome).
• Performance measures, reporting lines and regular reviews ensure accountability.

Worked Example – Delegation‑Accountability Loop

1. Objective: Launch a new smartphone within 12 months.
2. Project Leader (delegator) assigns the design of the camera module to a senior engineer (delegate).
3. The engineer has authority to select suppliers and set technical specifications, but the project leader remains accountable for the overall launch date.
4. Key Performance Indicators (KPIs) – prototype ready by month 4, cost per unit ≤ £30.
5. Weekly progress reports flow back to the project leader; any deviation triggers corrective action.

7.1.4 Control, Authority, Trust and Control Mechanisms

• Control – mechanisms that ensure activities align with objectives (e.g., policies, standard operating procedures, performance monitoring systems, budgets).
• Authority – the right to give orders and make decisions.
• Span of control – number of sub‑ordinates a manager supervises.
  • Wide span → faster decisions, higher trust, less supervision.
  • Narrow span → closer supervision, slower decisions, stronger control.
• Authority vs. Responsibility – In a well‑designed structure, authority granted matches the level of responsibility; mismatches cause conflict.
• Trust – essential when delegating wide authority; built through clear objectives, transparent performance data and a culture of empowerment.

Control Mechanisms in Different Structures

7.1.5 Centralisation vs. Decentralisation

Illustrative Case Study – Centralised vs. Decentralised

Fast‑Food Chain Example

• Centralised supply chain – all ingredients are procured and quality‑checked at a national headquarters, ensuring consistency and lower purchasing costs.
• Decentralised marketing – each regional franchise tailors promotions to local tastes and festivals, speeding up response to market trends.

7.1.6 Line and Staff Functions – Distinctions, Authority and Budget Implications

• Line functions – directly involved in producing the core product or service (e.g., production, sales). They have decision‑making authority that affects output and usually control a line budget.
• Staff functions – provide specialist support and advice (e.g., HR, finance, legal). Their authority is typically advisory; they influence decisions but do not command operational resources.
• Authority of staff functions – can be:
  • Advisory only (recommendations), or
  • Co‑decision (must be consulted before a line manager can act).
• Budget implications – Line managers own operating budgets; staff functions often control support budgets (training, recruitment) and may influence allocation through cost‑benefit analyses.
• Typical conflicts
  • Line managers feel staff advice delays action.
  • Staff perceive line managers as ignoring expert input.
• Resolution strategies
  • Clear reporting lines and defined authority levels.
  • Joint problem‑solving meetings (e.g., “budget review board”).
  • Performance metrics that recognise contributions of both line and staff (e.g., cost‑saving targets linked to finance staff).

Why the Relationship Matters

If the structure does not support the objectives, a business can experience:

1. Duplication of effort and higher costs.
2. Poor communication and slow decision‑making.
3. Inability to respond to market changes.
4. Reduced employee motivation and role clarity.

A well‑matched structure provides clear authority, improves coordination and can become a source of competitive advantage.

Common Business Objectives and Their Structural Implications

How Objectives Influence Structural Design – Process

1. Identify the primary objective(s) of the business.
2. Analyse environmental demands (market volatility, technological change, regulatory pressure).
3. Choose a structure that provides the required flexibility, control, coordination or growth capacity.
4. Design reporting lines, departmental boundaries and communication channels accordingly.
5. Link performance measurement (KPIs, budgets) to the new structure.
6. Review regularly and adjust the structure as objectives evolve.

Case Study Illustration – From Functional to Matrix

Company: Mid‑size electronics manufacturer.

• Original objective: Maximise profit → Functional structure (production, marketing, finance).
• New objective: Accelerate new product development and enter smart‑device market.
• Structural change: Adopt a matrix structure:
  • Functional managers retain expertise (R&D, design, finance).
  • Cross‑functional project teams are created for each new device.
  • RACI charts and regular steering meetings resolve authority conflicts.
• Result: Time‑to‑market fell by 30 %; knowledge sharing improved, but the firm had to invest in clear authority agreements to avoid conflict between functional and project managers.

Potential Pitfalls When Aligning Structure with Objectives

• Choosing a structure that is too complex for the size of the business.
• Failing to communicate the rationale for structural change, leading to resistance.
• Neglecting to align performance measurement systems (KPIs, budgets) with the new structure.
• Allowing line‑staff conflicts to undermine coordination.
• Over‑centralising in a dynamic market or over‑decentralising in a cost‑focused environment.

Key Take‑aways

• Business objectives dictate the required degree of centralisation, specialisation, flexibility and growth capacity.
• A functional structure suits efficiency‑driven objectives; divisional, geographic and matrix structures support growth, innovation and diversification.
• Delegation, control mechanisms, span of control and line‑staff relationships must be designed to match the chosen structure.
• Regular review ensures the structure remains aligned as objectives evolve.

Exam Practice Question

Explain how a company with a primary objective of rapid international expansion might structure its organisation. In your answer, discuss the advantages and disadvantages of the chosen structure.