Area of Study 2: Internal environment
of large-scale organisations
Chapter 4: The internal environment
Management Structure
 Management hierarchy:
Senior or executive management: top level, has
responsibility for strategic (long-term) planning.
2. Middle management: managers in charge of a
designated department or organisational division, have
responsibility for tactical decision making
3. Front-line managers: responsible for day-to-day
planning and decision making
1.
Organisational Structure
 Structure: way in which the parts of a system or object are
organised and coordinated
 Organisational structure: framework within which the work
of that organisation occurs
 Structures vary between organisations depending on the
nature of what they do, their size, numbers of staff and
organisational culture
Features of Organisational Structure
Division of labour
Organisational
departments or divisions
 Segmentation and
 Departments can be based on
coordination of activities
 Traditionally - degree of
specialisation, workers
becoming experts in a
particular activity
 Changing towards employees
being encouraged to become
multiskilled to increase
worker motivation,
productivity and flexibility
the following:
 Function performed: such
as marketing, operations,
finance, HR
 Geographic: location of
employees, branches
 Product: product produced
by certain groups of
employees
 Customer: type of customer
who has special requirements
Features of Organisational Structure
continued…
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Chains of command,
control and authority
Authority: legal and/or moral
right to control something or
someone
Organisational structure
identifies who has responsibility
for seeing certain tasks are
completed
Span of control: number of
people a manager has direct
responsibility for
Narrow span of control
associated with a more
hierarchical structure
Communication channels
 Communication channels
in an organisation can be
upward, downward or
lateral
Features of Organisational Structure
continued…
Patterns of decision
making
 An organisational chart
depicts:
CEO
 Lines of authority, span of
control
 Chain of command
 Reporting relationships
 Job titles and responsibilities
 Formal channels of
communication
 Division of labour
 Levels of management
Chief Financial
Officer
Manager
Research and
Development
Chief Marketing
Manager
General
Manager of
Operations
Brand Manager
Brand Manager
Product
Manager
Product
Manager
Types of Organisational Structures
 Hierarchical organisational structure: features
centralised decision making (where management make
decisions and passes on directions to those below them
 Bureaucratic structures: “Bureaucracy” means to ‘rule
from the desk’. Record keeping, following set rules and due
process are at the heart of bureaucracy.
 Flatter organisational structures: features a wide span
of control, few management levels and a short chain of
command
Forms of hierarchical organisation
structures – Functional Structure
A form of
traditional
organisational
structure
which is based
on the
functions
performed
(e.g. finance,
marketing)
Chief Executive
Officer
Manager
Operations
Quality
Supervisor
Manager
Finance
Production
Supervisor
Manager Sales
and Marketing
Maintenance
Supervisor
Manager
Human
Resources
Functional Structure
Positive aspects
Difficulties
 Specialist in charge of each
 Structure only works if
functional area, expertise
ensures high productivity
 Workers have manager in
their area for issues to be
resolved
 Allows for sideways career
paths
different functional
managers communicate
with each other
 Structure best suits
medium-to-large
organisations
Divisional Structure
Same foundation as functional structure but each
functional area is further divided into subsections
Chief Executive
Officer
Human
Resource
Manager
Training
Manager
Payroll
Manager
Operations
Manager
Recruitment
Manager
Logistics
Manager
Production
Manager
Finance
Manager
Quality
Manager
Purchasing
Manager
Accounts
manager
Divisional Structure
Positive Aspects
Difficulties
 Specialists in charge of
 A more complicated
small sections of the
organisation
 Allows for best practice in
areas
 Room for career
advancement within one
functional area
structure so chances of
difficulties in
communication become
more pronounced
 Only suitable for quite
large organisations
Geographic Structure
Where the
business is
conducted in
several different
locations. Each
location would
have a
functional,
divisional or
some other type
of structure
Chief
Executive
Officer
General
Manager
Australia
General
Manager USA
General
Manager Asia
General
Manager UK
Geographic Structure
Positive Aspects
 Allows LSO access to wider
markets
 Local issues/laws can be
better handled
 Employees may have
opportunity to work in
different countries
 Allows the implementation of
‘Follow the Sun’ – project
passed around the world as
each time zone starts its
working day
Difficulties
 Different languages can cause
communication problems
 Time can be wasted for
senior managers travelling
between branches
 Control can be lost as senior
managers can’t be in every
location
 Best suits multinational LSOs
Product-based Structure
Employees
are grouped
together
according to
the product
they make or
sell
Retail
company:
Chief
Executive
Officer
Manager
Human
Resources
Manager
clothing and
footwear
Manager
Operations
Manager
homewares
Manager Sales
and Marketing
Manager books
& stationary
Manager
Finance
Manager
Sporting goods
Customer-based Structure
Departments
based on the
types of
customers
dealt with by a
group of
employees
Car
Manufacturing
Company:
Chief
Executive
Officer
Manager
Human
Resources
Manager
Operations
Manager Sales
& Marketing
Manager fleet
sales
Manager
Finance
Manager retail
sales
Network/Organic Structure
Becoming
increasingly
common as firms
downsize
Structure has core
business maintained
by employees, with
non-core functions
outsourced to other
firms
Legal firm
HR
Consultancy
Firm
Advertising
Agency
Core
Business
Research and
Development
Firm
Manufacturer
Accounting
Firm
Network/Organic Structure
Positive Aspects
Difficulties
 Money not wasted on
 Firms under contract to
employing people all year
round when only needed
occasionally
 Sometimes using an
outside firm will assist in
terms of accountability
complete work may not
have a good understanding
of the values and mission of
the core business
 Some control is lost when
other businesses are
completing work
Matrix Structures
A structure that
places managers
and employees into
project teams that
cut across
functional or
departmental lines
and requires them
to report to both
functional and task
management
Senior
Management
HR
Manager
Finance
Manager
Operations
Manager
Project A
HR A
Finance A
Operations
A
Project B
HR B
Finance B
Operations
B
Project C
HR C
Finance C
Operations
C
Matrix Structures
Positive Aspects
Disadvantages
 Control is decentralised,
 Communication can become
better monitoring of all
aspects of a job
 There can be many
opportunities for both
horizontal and vertical
career directions
difficult between projects and
the head office due to
complexity of structure
 There may be staffing issues
when one project finishes if
there is not another to begin
immediately
 Would suit LSO that works
on several projects at once
Consequences of less hierarchical
organisational structures
Elements of Structure
Traditional Hierarchical
Structure
Contemporary Strucutre
Communication
Downward
Multidirectional
Communication Channels
Slow and unresponsive to
change
Shorter communication
paths
Decision Making
Centralised
Decentralised
Delegation
Downward
Downwards and Lateral
Management style
Autocratic
Consultative/Participative
Layers in structure
Multilayered
Fewer layers
Span of control
Narrow
Broad
Division of labour
Specialisation
Multiskilled
Roles and responsibilities
Clear and narrow
Greater autonomy
Departmentalisation
Well defined
Cross-departmental teams
Outsourcing
Limited
Non-core functions
What is corporate culture?
 The shared values or beliefs of the people within an
organisation, unwritten rules
 A pattern of basic assumptions shared within an organisation
 Representative of things that worked well in the past
 Taught to newcomers as the ‘correct’ way of thinking, feeling
and doing
Indicators of corporate culture
 Formal written company policies and objectives
 Physical environment (including dress code)
 Organisational structures and management styles
 Organisational processes
 Communication channels
 Rituals, symbols
 How people address each other
 Language used
 Official company documentation
Differences in corporate culture
 Degree to which people are encouraged to become risk
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takers and innovators
Attention to detail
People orientation
Task or process orientation
Team orientation
Level of competitiveness
Degree of emphasis on ethical and social responsibilities
Diversity amongst employees
Age of the organisation
Causes of change of culture
 Time
 New managers – may have a different approach and cause
changes
 Mergers – Two LSOs with different ways of doing things
coming together may result in a new culture
 Macro factors – laws, economic conditions and so on may
change culture of an LSO
Importance of corporate culture
 Benefits of a positive corporate culture for an LSO include:
 Better staff retention rates
 Increased productivity
 Greater employee work ethic
 Greater profitability
 Positive public perception
 Google Activity
Policy Development and its application
 A policy is a written statement that outlines processes,
procedures, rules and regulations that must be observed in a
given situation
 Sometimes also include procedures: outline steps that
should be followed when completing a process
 Policies are necessary in LSO’s because they:
 Can help to enforce legal requirements
 Ensure consistency in approaches to work
 Can prevent accidents
 Allow workers to clearly know the boundaries in which they
work
Pressures on policy development
Copy table
on page 91 –
External and
internal
pressures on
policy
External
Macro
Environment
• Legislative Compliance
• Social responsibility
• Changing markets and
international pressures
• Technological
Developments
External
Operating
Environment
Internal
Environment
• Regulatory bodies
• Lobby groups
• Trade unions
• Customers
• Suppliers
• Owners/shareholders
• Management
• Employees
Policy development process
Step 1: Issue Identification
 Policy development is a
 The need for a new policy
process of continuous
assessment,
implementation and
reassessment as the
company responds to
external and internal
pressures
or the need to change an
existing policy
 Pressure from a source
such as a new regulation,
manager or social pressure
Step 2: Research and
analysis
Step 3: Stakeholder input
 Research is conducted into
 Stakeholders informed of
policies of competitors,
trading partners and
organisations that are
known to have ‘best
practice’
 Assessment of what is
needed in the
new/updated policy is
conducted
possible impeding policy
change
 Comment and feedback is
collected from interested
stakeholders
Step 4: Police Development
Step 5: Draft policy is
posted
 Draft policy or policy
 Draft policy displayed in a
amendment is prepared by
a working party taking
stakeholder views and ideas
into account
public place
 Stakeholders have
opportunity to make
comments
 Comments invited
Step 6: Policy approval
Step 7: Evaluation
 Feedback considered
 Did the policy work?
 Necessary changes made
 Was the new policy
 Appropriate level of
management approval
obtained
 Final copy issued
 Management and employee
training on new policy if
required
effective?
Business ethics and socially responsible
management of the internal environment
Business ethics
 If way in which people in
an organisation conduct
their day-to-day work in a
morally acceptable way
Social responsibility
 The way in which an
organisation demonstrates
some commitment to their
community beyond that
imposed on it by laws
 E.g. charity work,
environmental policies
Corporate Social
Responsibility
 Looks at whether
companies actually put into
practice the values and
principles that they
espouse
Revision
 Examination Preparation Questions