## **Learning Outcomes**

After reading this article, you will be able to explain what delayering and outsourcing mean in the context of organisational structure, describe their typical impacts on business operations, and discuss relevant advantages and disadvantages. You will understand how these changes affect management, communication, workforce motivation, and control. You should be able to apply these concepts to business scenarios and evaluate their suitability in supporting strategy and efficiency.

## **ACCA Business and Technology (BT) Syllabus**

For ACCA Business and Technology (BT), you are required to understand the effects of changes in organisational structures such as delayering and outsourcing. Focus your revision on:

- Defining delayering and outsourcing in business structures
- Explaining why organisations pursue delayering or outsourcing, especially due to technology or efficiency drives
- Discussing the operational and management impacts of delayering and outsourcing
- Assessing advantages and disadvantages for organisations, employees, customers, and other stakeholders
- Considering the risks and challenges arising from these changes
- Identifying scenarios where these structural changes are appropriate or potentially problematic

## **Test Your Knowledge**

_Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision._

1. What is meant by 'delayering' in organisational structure?
2. Give two advantages and two disadvantages of outsourcing part of a business function.
3. How might delayering affect management control and staff motivation?
4. When might outsourcing create risks for a business? Give one example.

## **Introduction**

Delayering and outsourcing are common organisational changes aimed at improving efficiency, reducing costs, and increasing flexibility. These changes alter the management hierarchy and the way core and support activities are delivered, directly impacting communication, decision-making, and staff roles.

Modern businesses adjust their structures in response to competitive pressures, advances in technology, and changing customer expectations. Understanding delayering and outsourcing is essential for analysing how organisations respond to these demands and assessing the consequences of such restructuring.

## Delayering in Organisational Structures

Delayering involves removing one or more management levels from an organisation. This results in fewer layers between the chief executive and frontline employees, creating a flatter hierarchy.

> **Key Term: delayering**
> The process of reducing the number of management levels within an organisation to create a flatter structure and wider spans of control.

Delayering may follow process improvements, takeovers, or efforts to cut overheads. It is particularly possible when technology enables more direct communication and reduces the need for middle management.

### Features and impacts of delayering

- Fewer management layers
- Increased span of control for remaining managers
- Shorter communication chains
- Potential for more direct and faster decision-making
- Greater employee autonomy and responsibility

> **Key Term: span of control**
> The number of direct reports a manager supervises within an organisation.

### **Worked Example 1.1**

A company with five management layers above operational employees reorganises into three, removing two middle levels. As a result, department heads now supervise significantly more staff directly.

> **Answer:** The restructured organisation will have faster decision-making, but managers’ workloads and direct reports increase, requiring better time management and delegation.

### Benefits of delayering

- Reduces wage and overhead costs by removing management positions
- Increases speed of communication
- May improve employee motivation through greater responsibility and involvement
- Simplifies reporting lines and accountability

### Drawbacks of delayering

- Management span of control may become too large, reducing supervision quality
- Middle managers may feel demotivated or redundant
- Remaining staff may be overloaded or stressed
- Loss of progression opportunities may harm morale and retention
- Risk of errors or inconsistent standards with fewer checks

> **Exam Warning**
> When explaining delayering, always link both efficiency gains and potential risks, especially impacts on control and employee morale.

## Outsourcing Business Activities

Outsourcing involves contracting tasks or functions previously performed in-house to external providers. This may include activities such as payroll, IT, call centres, or even core manufacturing.

> **Key Term: outsourcing**
> Contracting external firms to perform activities that were previously completed within the organisation.

Organisations may outsource non-core activities to specialist firms with greater know-how or lower costs. Outsourcing can also be used for scalability, rapid innovation, or access to new technologies.

### Types of outsourcing

- **Business process outsourcing (BPO):** e.g., payroll, HR, IT support
- **Offshoring:** Outsourcing to providers in another country, often for cost savings
- **Project-based outsourcing:** Temporary arrangements for specific projects

### **Worked Example 1.2**

A UK-based retailer contracts an overseas supplier to deliver its IT helpdesk instead of running it internally. This shifts fixed wage costs to a service fee, but requires monitoring of service quality.

> **Answer:** The retailer gains cost flexibility but must manage risks from cultural differences and data security, and ensure service level agreements are met.

### Advantages of outsourcing

- Focuses management effort on core activities
- Reduces fixed costs, especially in support functions
- Accesses specialist knowledge and up-to-date technology
- Scales operations up or down rapidly
- May lead to improved quality for outsourced functions

### Disadvantages of outsourcing

- Loss of control over service quality and data security
- Service providers may lack a full understanding of the organisation’s values or objectives
- Potential negative effects on staff morale for transferred or redundant employees
- Increased dependency on external suppliers
- Transition costs and risks during the changeover

> **Key Term: offshoring**
> The relocation of organisational functions or processes to external providers in another country, typically to reduce costs.
>
> **Key Term: shared service centre**
> A centralised unit providing support services (such as HR, finance, or IT) for different parts of a group or organisation, often combining internal centralisation and elements of outsourcing.

## **Worked Example 1.3**

A manufacturing company moves its finance function to a shared service centre in a lower-cost location rather than maintaining separate finance teams for each division.

> **Answer:** This achieves efficiency and cost savings while keeping some control, but can create challenges in coordinating service to various business units.

## Combined impacts of delayering and outsourcing

When both delayering and outsourcing are implemented, the effects are more pronounced. Flatter organisations with outsourced support roles may see:

- More responsibility pushed to frontline staff
- Faster but riskier decision-making due to reduced supervision
- Potential culture clash between core staff and outsourced providers
- Possible skill loss or decreased flexibility for change if know-how is lost to external firms

### **Revision Tip**

When comparing restructuring options in the exam, always evaluate both short-term savings and longer-term risks to control, coordination, and employee engagement.

## **Summary**

Delayering and outsourcing are structural changes organisations use to improve agility, reduce costs, and allow core staff to focus on main objectives. Delayering creates flatter structures but increases managerial spans and may reduce career progression. Outsourcing can bring know-how and cost savings but transfers control and poses risks around quality and responsiveness. Successful organisations must weigh efficiency benefits against risks to control, staff engagement, and long-term capability.

## **Key Point Checklist**

_This article has covered the following key knowledge points:_

- Explain delayering and outline its main effects on management and employees
- Define outsourcing and recognise typical outsourced activities
- Identify the strategic reasons for delayering and outsourcing
- Compare advantages and disadvantages of structural flattening or external contracting
- Apply concepts such as span of control, offshoring, and shared service centres to business cases
- Assess both operational and human impacts of structural changes

## **Key Terms and Concepts**

- delayering
- span of control
- outsourcing
  >
- offshoring
  >
- shared service centre

Organisational structures - Delayering and outsourcing impacts