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Types of organization charts
An organizational chart is a diagrammatic representation of an organization’s formal structure of its personnel. This shows the various roles of responsibilities of people within the organization.
This section of the IB Business Management syllabus considers the following three categories of organization charts:
Flat or horizontal
Tall or vertical
By product, by function, or by region
A flat organizational structure
A flat organization (also known as a horizontal structure) has only a few layers of management. Hence, there is a wide span of control, i.e. line managers have a lot of decision-making authority. Such an organization also has a short chain of command, which can improve communication in the firm. A flat structure is typically found in start-up firms, small businesses and in organizations that value creativity and flexible working practices.
However, a large and wide span of control in flat organizations can make it more difficult to have control of workers because managers with their wide span of control have to supervise a large number of employees.
The organizational culture in horizontal structures is typically open and somewhat informal. As an organization grows, the structure becomes more formally structured and tall (or vertical) over time.
A tall organizational structure
A tall organization (also known as a vertical structure) has many layers in its organizational hierarchy. At the top of the hierarchy is the chief executive officer (CEO) or managing director (MD). Senior managers at the top of the hierarchy have more authority and responsibility than those below them. At the bottom of the hierarchical organizational structure are the low-ranked employees with minimal experience and responsibilities. Examples of organizations with hierarchical structures include the emergency services, central government and the military.
The military uses a vertical structure
Hierarchical organizations are highly formal, inflexible, and bureaucratic in structure, with clear lines of seniority and long chains of command. Managers may have a narrow span of control due to the large number of layers in thr organizational structure. The organizational structure is well established and rigid, so changes do not happen frequently or easily.
Hierarchical structures help senior managers and decision-makers to have better control of command of the business. They are suitable if jobs or tasks are routine and not too challenging, especially as there are clear lines of accountability. However, vertical structures are bureaucratic, so there may be a rather impersonal nature to the organization.
Vertical structures can be motivational for employees as there are opportunities for promotion, i.e. to move up the ‘career ladder’ (or vertical hierarchical structure). However, drawbacks of tall organizations include the long chains of command (so decision-making may be slow) and potential for miscommunications (due to the number of layers in the hierarchy). Professor John Kotter, Harvard Business School (2011), argues that tall organizations are not useful for firms that operate in rapidly changing and dynamic environments as they are slow to react to new opportunities and constrain transformative change.
Mass car manufacturers use organization by product
Organization by product means structuring a workforce according to the goods or services sold. Each department focuses on a different product within the organization’s overall product portfolio. For example, a major publisher might organize its workers according to the types of books it publishes. For instance, Hodder Education, a large multinational publisher based in London, UK, organizes staff into different product groups, including international education (such as IGCSE and IB publications) as well as resources for UK qualifications (such as A Levels, BTEC and GCSE courses).
It is suitable for large organizations with a broad product portfolio. Large carmakers, such as Ford and Volkswagen, use organization by product based on their various products, e.g. commercial vans, family vehicles, SUVs (sport utility vehicle) and sports cars. Each product group or team has its own internal organizational structure, specifically related to the product line.
An example of organization by product for a large car manufacturer:
Organization by product enables specialisation as workers focus on a specific market segment related to the product. This helps to ensure the business meets the needs of its customers more effectively, such as improved product knowledge and marketing activities. It can also encourage healthy internal competition between departments to produce ever-more appealing products.
A drawback of organization by product is the duplication of work done by each department, such as different marketing and sales personnel in the various departments. Organization by product is associated with decentralized decision-making, so it can be difficult for the senior executives to maintain overall control of the various separate divisions of the business.
Organization by function means structuring a workforce according business functions, i.e. specialised roles or tasks. Typically, this will involve staff working together but from different departments, such as marketing, human resources, production (operations), and finance. Each department has a manager or director who is in charge of the assigned functional area of the business. Departmental staff report to the respective manager or director, who has overall responsibility for the functional area (a department or division of the overall business).
It is an ideal organizational structure for organizations that focus on one product or a small number of related goods or services.
The main advantage of organization by function is that roles and tasks are carried out by experts and specialists. Hence, productivity and output are both higher. However, departments tend to work in isolation by focusing only on their area of responsibility.
Organization by function:
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Case Study - Apple's functional areas
Apple is well known for its innovations in computer hardware, software, and tech services. Its iPhone, launched on 29th June 2007, revolutionised the way people use (or rely on) their mobile phones. The company grew from around 8,000 employees and sales revenue of around $7 billion in 1997 (the year Steve Jobs returned to the company), to over 137,000 employees and sales revenue in excess of $260 billion in 2019. Much less well known are the organizational structures and the associated profit centres that have played a crucial part in Apple’s financial success.
Apple is orgnanized by function, not products, with each function led by a Senior Vice President. Only the CEO, Tim Cook, occupies the position in the organizational chart where the design, engineering, operations, marketing, and retail of any of Apple’s main products meet.
Apple’s main purpose is to create products that enrich people’s daily lives. This means not only developing entirely new products (such as the iPhone and the Apple Watch), but also continually developing and innovating those products. To create such innovations, the company says that its leaders need deep expertise, immerse in details, and be collaborative. Its profit centres (based on organization by function) holds teams accountable for their ideas, decision making, and actions.
Organization by function at Apple (Harvard Business Review)
Organization by region for the IBO
Organization by region means structuring a workforce according to different geographical areas based on where the firm’s operations are. It is suitable for large businesses with operations in different geographical locations, such as global multinational companies. This form of organization enables businesses to focus better on the specific needs and wants of their customers in markets in indifferent geographical regions of the country or the world.
A real-world example is the International Baccalaureate Organization (IBO), which operates on a regional basis, with its founding office in Geneva, Switzerland and three regional offices: the Americas (IBA), Asia-Pacific (IBAP), and Africa, Europe and the Middle East (IBAEM).
It is likely to be used with other organizational structures, such as by function or product, but across multiple locations. The organization’s regional offices operates individually, within the policies and values of the business as a whole. Each location is overseen and managed by a regional director or executive.
This type of organization is suitable for large businesses that operate across the globe. Whilst most multinational companies have their headquarters in a single location, having regional offices helps the organization to adapt to regional differences in demand and exploit local knowledge, despite the benefits of globalization. However, the main drawback of organization by region is the difficulty in controlling a decentralised organization that operates across numerous regions of the country or the world.
The choice of organizational structure (such as centralized, decentralized, hierarchical or bureaucratic) depends on several factors, such as:
The corporate culture – organizations such as Google rely on creativity and autonomy, so a flatter structure might be more suitable.
The size of the workforce – the larger the number of workers in an organization, the more formal it needs to be in order to maintain order and control. Businesses with more employees, such as Walmart, usually require taller structures as more levels of managers are needed.
The skills, qualifications, experiences, and talents of the workforce – organizations such as fast-food restaurant will have more formal structures and protocols, whereas organizations that rely on innovations, such as Apple or Tesla, will have more adaptive and flexible structures.
The nature of the decisions (whether they are strategic or routine decisions).
To recap your understanding of types of organizations, review this video:
ATL Activity 1 - School organization structure
Investigate the organizational structure at your school. Construct as accurate of an organizational chart as possible for your school.
Typically, an IB World School will include a senior management / leadership team consisting of:
a principal (head teacher / administrator)
vice principals (deputy head teachers in charge of different strategic aspects of the school, such as the curriculum, pastoral care, and staff professional development)
business managers (in charge of non-teaching and financial aspects of the school)
The rest of the school's organizational structure will then typically include:
curriculum leaders (such as the IB Coordinator, heads of faculty, heads of department, or subject leaders)
guidance and achievement leaders (such as heads of house, heads of year, or heads of sections)
subject teachers
support staff (non-teaching staff).
Context and culture are important, and each school will be different, so the organizational chart for the school is likely to be quite unique.
ATL Activity 2 (Research and Thinking skills) - Real-world organizational structures
This is a great resource for visual learners, suggested by InThinking subscriber David Weyant - you can search many different real-world organizational charts from different companies, from Adidas and Apple to Vodafone, Walmart, and Zoom here from TheOrg.com
Exam Practice Question - Gene Simons Manufacturer (GSM)
Gene Simons Manufacturer (GSM) is a small producer of plastic toys. In recent years, the business has grown quite significantly so there are now nearly 70 workers. GSM expects the business to keep growing, with almost 100 workers by the end of next year. While demand for plastic toys has fallen in many European markets, GSM is happy that increased disposable incomes in Asia has meant overall sales to toy shops has increased.
However, GSM is concerned that labour productivity in its factory has declined, despite the increased overtime payments made to workers. This is frustrating as GSM has spent a lot of money automating production in its factory. Labour turnover has also increased, so GSM has not been able to benefit from economies of scale.
Gene Simons is the chief executive officer (CEO) of the company and has an assistant executive who reports directly to him. There are four directors: Marketing, Human Resources, Production and Accounting. The Marketing Director has three workers who report to her. The Human Resources has 2 people who report to her: the Recruitment and Training Manager, and Remunerations Manager (who is responsible for two other employees). The Production Director oversees the Factory Manager, who controls 50 workers. The Accounts Director is in charge of two staff members.
(a) | Define the term span of control. | [2 marks] |
(b) | State Gene Simon’s direct span of control. | [1 mark] |
(c) | On a separate piece of paper, construct an organization chart for GSM. | [4 marks] |
(d) | From your organization chart, identify the number of levels in the hierarchy at GSM. | [1 mark] |
(e) | Using information in the case study and the organization chart, examine the causes of and solutions to GSM’s labour productivity problem. | [10 marks] |
Teacher only boxAnswers
(a) Define the term span of control. [2 marks]
The span of control is the number of subordinates that a manager or supervisor directly oversees in the organization.
(b) State Gene Simon’s direct span of control. [1 mark]
One (the assistant executive)
(c) On a separate piece of paper, construct an organization chart for GSM. [4 marks]
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(d) From your organization chart, identify the number of levels in the hierarchy at GSM. [1 mark]
Five
(e) Using information in the case study and the organization chart, examine the causes of and solutions to GSM’s labour productivity problem. [10 marks]
Falling labour productivity means that production per worker is decreasing. Gene is also not happy that there are no benefits from economies of scale (as average cost should go down with GSM’s increased scale of production). There could be several reasons for this. The business has increased the number of its workers, yet labour turnover is also increasing and the factory has become more automated. This suggests that workers may not have received adequate training, or the recruitment process could be improved. Furthermore, the factory manager must supervise 50 workers which is perhaps too wide a span of control to be effective. It would be challenging for anyone to manage, coordinate, organize or direct so many workers in order to meet the goals of GSM.
There are solutions. The factory manager needs some assistants to be employed so they can each have a small team to monitor and oversee. This will cost GSM more money but should increase overall productivity. Hiring more managers seems vital as GSM plans to increase production so is likely to hire even more factory workers. Alternatively, GSM could consider introducing more automation rather than employing more workers. This would increase capital spending and existing workers may need retraining. It may help if the Factory Manager works alongside the recruitment and training manager to ensure high calibre workers are recruited and proper training provided, which should increase productivity.
In conclusion, the most important issue is the Factory Manager’s span of control which is too wide. Hence, assistants should be hired who can help to organize and manage the workers. If training and/or recruitment is flawed, this should be rectified quickly, with the involvement of the Factory Manager. Rather than trying to grow the business with falling productivity, Gene Simons should concentrate on fixing what is wrong at the moment.
Top tip: For this type of question, students should identify relevant issues from the case study, use appropriate business management terminology and then make appropriate recommendations.
Download a PDF version of this exam practice question and mark scheme here.
This exam practice question has been reproduced with the kind permission of Level7 Education Limited
Key terms
A flat organization (also known as a horizontal structure) has only a few layers of management in its organizational structure.
Hierarchical organizational structures are tall/vertical, with many levels in terms of ranks.
An organizational chart is a diagrammatic representation of an organization’s formal organizational structure.
A tall organization (also known as a vertical structure) has many layers in its organizational hierarchy.
Organization by function means structuring a workforce according business functions, i.e. specialised roles or tasks.
Organization by product means structuring a workforce according to the goods or services sold.
Organization by region means structuring a workforce according to different geographical areas based on where the firm’s operations are.
Return to the Unit 2.2 Organizational structure homepage
Return to the Unit 2 Human resource management homepage
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