7.4 Authority—Establishing Organizational Relationships

Organizational structure shapes how companies operate and make decisions. It defines the chain of command, authority levels, and reporting relationships that keep things running smoothly. Understanding these elements is key to grasping how businesses function effectively.

Managers at different levels have varying degrees of authority, with top executives wielding the most power. The span of control concept determines how many employees report to each manager, impacting efficiency and communication. Balancing vertical and horizontal coordination is crucial for organizational success.

Organizational Structure and Authority

Managerial hierarchy and formal authority

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• Managerial hierarchy arranges management positions in descending order of authority with higher-level managers (CEOs, VPs) having more authority and responsibility than lower-level managers (supervisors, team leads)
• Formal authority is the right to give orders, make decisions, and allocate resources derived from an individual's position within the organizational hierarchy
• Higher positions in the hierarchy are associated with greater formal authority while authority flows downward through the hierarchy, from top management to lower levels
• Lower-level managers have authority over their subordinates but are accountable to higher-level managers
• Power, the ability to influence others' behavior, often accompanies formal authority but can also exist independently

Chain and unity of command

• Chain of command is the line of authority extending from top management (C-suite executives) to the lowest ranks of the organization (entry-level employees) which clarifies reporting relationships and decision-making authority
• Chain of command facilitates communication and coordination between levels of management
• Unity of command principle states that each employee should report to only one direct supervisor to avoid confusion and conflicting instructions from multiple supervisors
• Unity of command ensures clear accountability and responsibility for tasks and outcomes
• Chain of command and unity of command maintain order, discipline, and control within the organization, streamline decision-making processes, reduce ambiguity, and enhance efficiency and effectiveness by minimizing conflicts and duplication of efforts
• An organizational chart visually represents the chain of command and reporting relationships

Narrow vs wide spans of control

• Span of control is the number of subordinates directly reporting to a manager which influences the shape and efficiency of the organizational structure
• Narrow span of control advantages:
  • Allows for closer supervision and control over subordinates
  • Provides more opportunities for employee development and feedback
  • Enables faster communication and decision-making
• Narrow span of control disadvantages:
  • Results in higher costs due to more managerial positions
  • Can lead to micromanagement and reduced employee autonomy
  • Creates a longer chain of command and increased bureaucracy
• Wide span of control advantages:
  • Lowers costs due to fewer managerial positions
  • Promotes greater employee autonomy and empowerment
  • Allows for faster decision-making at lower levels
  • Results in a flatter organizational structure with shorter chain of command
• Wide span of control disadvantages:
  • Reduces control and supervision over subordinates
  • Can increase workload and stress for managers
  • Makes it difficult to provide individualized attention and support to employees
  • Risks communication breakdowns and coordination issues

Organizational Design and Coordination

• Organizational design involves structuring the organization to achieve its goals efficiently
• Vertical coordination (through the chain of command) ensures alignment of activities across different levels of the organization
• Horizontal coordination facilitates collaboration and communication across departments or units at the same level