Hi Catherine,
I think what you'd have to do here is create a new site-wide role based on the Site manager role, and disable the capabilities you don't want.
Then you have a bit of a contradiction because the role is necessarily site-wide (to edit and create users) but you want to restrict reporting by 'Organisation' (or some other hierarchy). A away around that might be to use scheduled reporting and set something up which is emailed automatically to the manager periodically rather than them 'running' something.
cheers,
George.