Understanding organisational structure

Accountants and accountancy is about communication. But communication is not just sending messages or emails, or indeed producing management reports or final accounts. It is about understanding the nature of the communication process, especially for the management of people. If people do not communicate then the accountants work can never succeed.

Central to the communication process is a fundamental element of management – understanding organisational structure. Everyone knows what an organisation chart is; every accounting practice, factory, shop and office proudly displays such a chart. But what message is it intended to convey?

The organisation chart describes in diagrammatic form the structure of the organisation. It is the skeleton upon which every other activity depends, more importantly, it is the framework which explains the communication pattern, process and the linking mechanisms between the roles. It illustrates to everyone who communicates with whom, how the control system works, who is in control, who has authority and above all, who is responsible. It explains how the organisation is co-ordinated and how individual departments relate. Formal structures are often based on specific tasks and it is how these tasks are allocated and the authority which they carry are explained by the organisational structure.

A business organisation may be structured in many different ways, depending upon the environment within which it operates.

Traditionally, the structure – and therefore the communication process – is based upon a hierarchy of individual departments, although more and more organisations now see the product and the market as more fundamental to structure than individual departments. There are always problems with any organisational structure. Traditional organisations based on departments often tend to be bureaucratic and slow in distributing information, whilst organisations which are more aware of the external environment often lack the formality and control of the traditional organisation.

In more formal organisations, especially accounting practices, the organisation chart defines the way that communication and work flows through the organisation. The typical organisation chart assumes a hierarchical structure, reflecting communication flowing downwards from top management to the departments further down the organisation. But of course communication also flows in reverse, instructions received from above have to be acted upon and reported.

However, in many modern organisations where conventional communication structures either do not exist or are less formal, communication tends to be horizontal, between individuals and departments, rather than the upwards or downward flow assumed by so many to be the normal case.

This type of structure is often referred to as the Matrix structure. Its great advantage is that it is cross functional whilst maintaining functions and the commitment and specialisation of individual departments. At the same time it allows adaption to change, encourages commitment to the organisation as a whole, improves communication and perhaps most importantly of all, reduces the need for slow, laborious communication up and down the traditional hierarchical structure.