50  Organization structure: Formal and informal organizations; Span of control

50.1 Concept of Organisation

Organisation has two meanings — as a process, it is “the arrangement of people and resources so as to accomplish defined objectives” (Koontz). As an entity, it is a social unit deliberately constructed to seek specific goals (Etzioni). Organisation structure is the framework that shows how tasks are divided, grouped and coordinated, and how authority and information flow. A well-designed structure links strategy and execution — wrong structure quietly defeats good strategy. Two layers always exist: the formal organisation (sanctioned by management; reflected in org charts) and the informal organisation (emerges spontaneously; reflects friendship, communication, influence).

50.2 Formal vs Informal Organisation

TipFormal vs Informal Organisation
Aspect Formal Informal
Creation Deliberately by management Spontaneously through interaction
Purpose Achieve organisational objectives Satisfy social and psychological needs
Authority Position-based Personal influence
Communication Through formal channels Grapevine; rumours, gossip
Rules Explicit, written Implicit, unwritten norms
Boundaries Clear; fixed Fluid; cuts across departments
Identified by Charts, job descriptions, manuals Friendship cliques, group dynamics

Both coexist and are complementary. Wise managers do not try to suppress informal structures but understand and channel them.

50.3 Principles of Organising

TipMajor Principles
  • Objective — every position contributes to the objective.
  • Specialisation / Division of labour.
  • Unity of command.
  • Scalar chain — clear vertical authority.
  • Span of control — limit on number of subordinates per manager.
  • Authority-responsibility parity.
  • Delegation of routine work.
  • Coordination of activities.
  • Flexibility — adaptable to change.
  • Continuity — long-term in design.

50.4 Span of Control / Span of Management

The span of control (also called span of management) is the number of subordinates a manager can effectively supervise. Influences the shape of the organisation — narrow span → tall pyramid; wide span → flat structure.

50.4.1 Factors Affecting Span

TipDeterminants of Span of Control
  • Nature of work — routine work permits wider span.
  • Capability of manager and subordinates — competent staff need less supervision.
  • Geographical dispersion — wider geography → narrower span.
  • Technology / Information systems — modern IT enables wider span.
  • Standardisation — clear procedures widen span.
  • Need for interaction — close interaction needs narrow span.

50.4.2 Graicunas’s Formula

V.A. Graicunas (1933) quantified the number of relationships a manager handles:

\[R = n \left[\frac{2^n}{2} + (n - 1)\right]\]

For 4 subordinates, R = 44; for 5, R = 100; for 6, R = 222 — relationships grow exponentially. Hence the case for narrow span at top.

50.4.3 Tall vs Flat Structures

TipTall vs Flat Organisations
Aspect Tall (narrow span) Flat (wide span)
Levels Many Few
Span per manager Small Large
Communication Slow; many filters Fast; direct
Supervision Close Loose
Coordination Difficult across many layers Easier
Empowerment Lower Higher
Cost of management Higher Lower

50.5 Types of Organisation Structures

TipMajor Structure Types
Structure Working content
Line / Military Simple direct chain; one boss per employee
Functional Specialists head functions (production, marketing, finance, HR) — F.W. Taylor’s functional foremanship
Line-and-staff Line authority + specialist staff advisers
Divisional Organised by product, geography, customer, project
Matrix Dual reporting — functional + project
Project / Team-based Temporary cross-functional teams
Network / Virtual Outsourced functions; small core
Holacracy / Flat self-managed Self-managed roles; minimal hierarchy (Zappos)

50.5.1 Matrix Organisation

A matrix structure combines functional and project lines — each employee has two bosses. Pros: efficient use of specialists; cross-functional collaboration. Cons: dual-authority conflict, slow decision-making.

50.6 Organisational Design — Mechanistic vs Organic

Burns and Stalker (1961) identified two contrasting design types:

TipMechanistic vs Organic
Aspect Mechanistic Organic
Environment Stable, predictable Dynamic, uncertain
Tasks Specialised, rigid Broad, flexible
Hierarchy Tall, clear Flat, networked
Rules Many Few
Communication Vertical Horizontal + vertical
Examples Mass-production factories Tech start-ups, R&D labs

50.7 Centralisation vs Decentralisation

TipCentralisation vs Decentralisation
Aspect Centralisation Decentralisation
Decision-making Concentrated at top Pushed down
Pros Uniform decisions; tight control Faster decisions; employee development; flexibility
Cons Slow; demotivates middle managers Coordination difficulty; possible inconsistency
Suited to Small firms; crisis; uniform tasks Large firms; diverse markets; volatile environments

50.8 Departmentation

Departmentation is the grouping of related activities into units. Common bases:

TipBases of Departmentation
  • Function — production, marketing, finance, HR.
  • Product — separate divisions for each product line.
  • Geography / Territory — by region.
  • Customer — by customer segment.
  • Process — by stage of production.
  • Matrix — combination.

flowchart TB
  O[Organisation Structure] --> F[Formal]
  O --> I[Informal]
  F --> L[Line]
  F --> FU[Functional]
  F --> LS[Line-and-Staff]
  F --> DI[Divisional]
  F --> MA[Matrix]
  F --> NW[Network / Virtual]
    classDef default fill:#003366,color:#ffffff,stroke:#ffcc00,stroke-width:3px,rx:10px,ry:10px;

NoteDistractor warning

PYQ trap: Span of control = number of subordinates per manager. Narrow span → tall structure; wide span → flat structure.

50.9 Practice Questions

Q 01FormalEasy

A **formal** organisation is one:

  • ACreated spontaneously through social interaction
  • BDeliberately designed by management to pursue defined objectives
  • CSame as the grapevine
  • DFriendship-based
View solution
Correct Option: B
Formal — designed; informal — spontaneous.
Q 02SpanEasy

A **narrow** span of control results in:

  • AFlat structure
  • BTall structure
  • CMatrix structure
  • DNo structure
View solution
Correct Option: B
Narrow span → many levels → **tall**.
Q 03GraicunasHard

Graicunas's formula calculates the **number of relationships** a manager handles based on:

  • ANumber of subordinates
  • BSpan of authority only
  • CSalary
  • DOutput
View solution
Correct Option: A
Graicunas (1933) — relationships grow exponentially with **n subordinates**.
Q 04MatrixMedium

In a **matrix** structure:

  • AEach employee reports to two bosses — functional and project
  • BOnly one boss per employee
  • CNo hierarchy
  • DNo specialists
View solution
Correct Option: A
**Dual reporting** — matrix structure.
Q 05MechanisticMedium

Mechanistic vs organic organisations were distinguished by:

  • ATaylor
  • BBurns and Stalker (1961)
  • CFayol
  • DDrucker
View solution
Correct Option: B
**Burns & Stalker (1961)** — *Management of Innovation*.
Q 06StructuresMedium

Match each structure with its description:

Structure Description
(i) Line (a) Specialists head functions
(ii) Functional (b) Dual reporting
(iii) Divisional (c) Organised by product/region/customer
(iv) Matrix (d) Simple chain; one boss
  • A(i)-(d), (ii)-(a), (iii)-(c), (iv)-(b)
  • B(i)-(a), (ii)-(b), (iii)-(c), (iv)-(d)
  • C(i)-(b), (ii)-(c), (iii)-(d), (iv)-(a)
  • D(i)-(c), (ii)-(d), (iii)-(a), (iv)-(b)
View solution
Correct Option: A
Line — simple chain; Functional — specialists; Divisional — product/region; Matrix — dual.
Q 07InformalEasy

The "grapevine" is associated with:

  • AFormal organisation
  • BInformal organisation
  • CBureaucracy
  • DSpan of control
View solution
Correct Option: B
Grapevine = informal communication network.
Q 08CentralisationMedium

**Decentralisation** typically results in:

  • ASlower decisions
  • BFaster decisions and better motivation at lower levels
  • CUniformity
  • DNo specialisation
View solution
Correct Option: B
Decentralised — faster, motivating, more flexible.
Q 09DepartmentationMedium

A bank with separate divisions for retail, corporate, and investment banking is departmentalised by:

  • AFunction
  • BCustomer / segment
  • CProcess
  • DGeography
View solution
Correct Option: B
Customer segments → customer departmentation.
Q 10NetworkMedium

A *network / virtual* organisation typically:

  • APerforms all functions in-house
  • BOutsources many functions; small core
  • CHas tall hierarchy
  • DHas no managers
View solution
Correct Option: B
Network — small core + outsourced periphery; common in fashion and tech.
Q 11Span factorMedium

Which is **not** a factor widening span of control?

  • ARoutine, standardised work
  • BStrong IT support
  • CHighly skilled subordinates
  • DGeographically dispersed teams
View solution
Correct Option: D
Geographic dispersion *narrows* span; the others widen it.
Q 12Functional structMedium

In a *functional* structure, employees are grouped by:

  • AGeographical region
  • BSpecialised functions (production, marketing, finance)
  • CProduct lines
  • DProject teams
View solution
Correct Option: B
**Functional** = by skill/specialty.
Q 13HolacracyHard

A radically flat, self-managed structure with minimal hierarchy is called:

  • ABureaucracy
  • BHolacracy
  • CConglomerate
  • DCartel
View solution
Correct Option: B
**Holacracy** — popularised by Zappos.
Q 14FlatMedium

A flat organisation typically has:

  • ANarrow span and many levels
  • BWide span and few levels
  • CMatrix structure
  • DDual reporting
View solution
Correct Option: B
Flat = **wide span, few levels**.
Q 15Line-staffMedium

In a *line-and-staff* organisation:

  • AOnly line managers exist
  • BSpecialist staff *advise* line managers but do not have line authority
  • CNo specialists
  • DStaff has direct authority over line
View solution
Correct Option: B
**Line-and-Staff** — staff advises; line has command authority.
Q 16OrganicMedium

An *organic* organisation is best suited for:

  • AStable, predictable environments
  • BDynamic, uncertain environments
  • CMass production
  • DRoutine clerical work
View solution
Correct Option: B
**Organic** — dynamic/uncertain; mechanistic — stable.
Q 17Graicunas calcHard

By Graicunas, total relationships with 4 subordinates is:

  • A16
  • B24
  • C44
  • D100
View solution
Correct Option: C
R = 4 × (2⁴/2 + 3) = 4 × (8 + 3) = **44**.
Q 18Matrix conMedium

A key disadvantage of matrix structure is:

  • ANo specialisation
  • BConflict from dual authority and slow decisions
  • CAlways centralised
  • DAlways small
View solution
Correct Option: B
**Two-boss conflict** — slow, ambiguous decisions.
Q 19ScalarMedium

"Scalar chain" refers to:

  • AHorizontal communication
  • BVertical line of authority from top to bottom
  • CReward system
  • DSpan of control
View solution
Correct Option: B
Scalar chain = vertical authority sequence (Fayol's 9th).
Q 20Informal posMedium

Which is **not** true of an informal organisation?

  • ASpontaneous
  • BHas written rules and job descriptions
  • CBased on friendship and social ties
  • DOften cuts across departments
View solution
Correct Option: B
Informal — no written rules; that is the formal organisation.

50.10 Quick Recall

ImportantQuick recall
  • Organisation — process (arranging) + entity (social unit, Etzioni).
  • Formal (deliberate, charted) vs Informal (spontaneous, grapevine).
  • Principles of organising: objective, specialisation, unity of command, scalar chain, span, authority-responsibility parity, delegation, coordination.
  • Span of control — narrow → tall; wide → flat. Graicunas (1933) formula: R = n[2ⁿ/2 + (n−1)].
  • Structures: Line, Functional (Taylor), Line-and-Staff, Divisional, Matrix (dual reporting), Project, Network/Virtual, Holacracy.
  • Mechanistic (stable, bureaucratic) vs Organic (dynamic, flexible) — Burns & Stalker 1961.
  • Centralised vs Decentralised — trade-off between control and speed.
  • Departmentation by: Function, Product, Geography, Customer, Process, Matrix.