INTERNAL
ORGANISATION
Internal Organisation
Higher Business Management
INTERNAL
ORGANISATION
What is an organisation?

A group of people working towards a
defined set of goals and objectives.
INTERNAL
ORGANISATION

‘An organisation is the rational coordination of the activities of a number
of people for the achievement of some
common explicit purpose or goal,
through the division of labour and a
hierarchy of authority.’
Edgar Schein
INTERNAL
ORGANISATION
Types of organisational grouping
Functional
 Product/service
 Customer
 Place/territory
 Technology
 Line/staff

INTERNAL
ORGANISATION
Functional grouping

Departments where staff have similar
skills and expertise, and do similar jobs.

Functional grouping usually consists of
marketing, finance, human resources
and operations.

What other functional areas might there
be?
INTERNAL
ORGANISATION
Functional grouping
INTERNAL
ORGANISATION
Functional grouping
Advantages
 Allow specialisation
 Clear
organisational
structure
 Staff aware of
formal relationships
Disadvantages
 Organisation may
become too large and
wieldy
 May be unresponsive
to change
 Departments may
compete against each
other
INTERNAL
ORGANISATION
Product/service grouping

Divisions/departments where each
deals with a different product or product
range.

eg Sky has Sky Sports, Sky Movies,
Sky Atlantic etc. Each division has its
own functional staff.

Virgin and General Electric are other
examples of product/service grouping.
INTERNAL
ORGANISATION
Product/service grouping
Hewlett Packard
Imaging and
Printing Group
Personal
Systems Group
Enterprise
Systems Group
HP Services
HP Financial
Services
INTERNAL
ORGANISATION
Product/service grouping
Advantages
 Each division selfcontained
 More responsive to
customer changes in
tastes/fashions
 Easier to identify low
sales in products
Disadvantages
 Duplication of effort
 Divisions may be
competing with
each other
INTERNAL
ORGANISATION
Customer grouping

Customer groups are divisions dealing
with different types of customers.

May have different divisions based on
distribution, eg retail, online and
international.
INTERNAL
ORGANISATION
Customer grouping
INTERNAL
ORGANISATION
Customer grouping
Advantages
 Each division has
varying customer
needs
 Customer loyalty
can build due to
personal touch
 Can respond quickly
to customer needs
or changes in taste
Disadvantages
 Expensive due to
higher staff costs
 Duplication of effort
 When key staff
leave, personal
relationship is lost
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ORGANISATION
Place/territory grouping

Staff divided into divisions, each
dealing with a geographic area, eg
south, west, north, Scotland.

Examples: Nestle, water boards
INTERNAL
ORGANISATION
Place/territory grouping
Hewlett Packard
Americas
Houston, Texas
Europe, Middle East, Africa
Geneva, Switzerland
Asia Pacific
Hong Kong
INTERNAL
ORGANISATION
Place/territory grouping
Advantages
 Can cater for
different local,
regional, national
tastes
 More responsive to
customer needs
Disadvantages
 Duplication of effort
INTERNAL
ORGANISATION
Technology grouping

Manufacturing companies group their
business activities according to
technological or production processes.

Only suitable for large organisations with
different products and production
processes.

Ford (bodywork, glass, plastics, paints) is
an example.
INTERNAL
ORGANISATION
Technology grouping
Advantages
 Increased
specialisation
 Teething problems
or technological
problems easy to
identify
 Economies of scale
Disadvantages
 Specialist training
required
 Higher salaries for
skilled workforce
 Capital intensive
INTERNAL
ORGANISATION
Line/staff grouping
Core activities – line
 Support activities – staff

Core activities are essential to the
business, eg teachers are essential or core
in the education sector.
 Janitors, office staff and canteen workers
are involved in the support (staff) activities
that are required for a school to function.

INTERNAL
ORGANISATION
Answer a question

Many organisations group their
activities by function. Discuss other
methods an organisation could use to
group their activities.
(8 marks) 2008

15 minutes
INTERNAL
ORGANISATION
Peer marking

You are going to swap answers.
Has your partner answered well?
 Does the answer make sense?
 Is it worth a mark?

Solution
Product/service grouping is when each division will
be grouped according to a product or product range,
eg Sky Sports, Sky Movies, Sky Atlantic.
 Allows an organisation to be more responsive to
changes in that market.
 Expertise is developed within each specialised
division.
 Allows management to identify poorly performing
products.
 There can be duplication of resources and personnel
across groups.
 Divisions may find themselves competing against
each other.
INTERNAL
ORGANISATION

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ORGANISATION
Solution (cont’d)
Place/territory grouping is when grouping of
resources is carried out across a
geographical area, eg midlands, Scottish,
south-east etc.
 Allows for the needs of different areas.
 Can become familiar with local customs and
cultures.
 Expensive with regards to administration and
staffing costs.

Solution (cont’d)
INTERNAL
ORGANISATION
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
Technological grouping is when organisations group their
activities according to technological process.
Suitable for large organisations with different production
processes.
Duplication of resources can occur.
Customer grouping is when resources are organised around
groups of customers with similar needs.
Allows for services to be tailored to each group of customers or
a specific customer.
Builds up customer loyalty due to the personal service they
receive.
There can be large staffing costs with this type of grouping.
Duplication of resources in administration, finance, etc.
INTERNAL
ORGANISATION
Organisation pyramid
Board of directors
Chief executive
Senior managers
Managers
Junior managers
Supervisors
Assistants
INTERNAL
ORGANISATION
Span of control

Span of control means the number of
people who report to a manager.
Manager
Employees
Narrow span of
control
Manager
Employees
Wide span of
control
INTERNAL
ORGANISATION
Hierarchical structures
Hierarchical structures can be either tall or
flat.
Tall
Flat
INTERNAL
ORGANISATION
Tall structures
Many levels of
management
 Managers have
narrow span of
control
 Management posts
usually specialised
 Clearly defined roles

INTERNAL
ORGANISATION
Cost/benefit analysis of tall
structures
Benefits
 Easier for managers to
supervise staff
 More promotion
opportunities
 Employees will know
immediate boss
 Clear lines of
responsibility and
communication
Costs
 Many layers of
communication
 Slow decision-making
 High labour costs due
to many levels of
management
 Workers may have
little freedom or
responsibility
INTERNAL
ORGANISATION
Flat structures
Few levels of
management
 Managers have
wider spans of
control
 Faster
communications
 Quicker decisionmaking

INTERNAL
ORGANISATION
Cost/benefit analysis of flat structures
Costs
Benefits
 Employees have
 Employees have more
authority and responsibility greater workload
 Employees may need
 Better communication
training for many tasks
between managers and
workforce
 Fewer promotion
 Decision-making is quicker opportunities
 Communication channels  If span of control is too
wide people may feel
less complicated
isolated or ignored
 Better team spirit
INTERNAL
ORGANISATION
Matrix structure
Marketing
Finance
manager
manager

A project team created
to carry out a specific
task.

Team members come
from different functional
areas, and report to the
project manager and
their own functional
manager.

Software development
follows matrix structures
Project
manager
INTERNAL
ORGANISATION
Matrix structures
Advantages
 Increased
experience
 Good motivation
and job satisfaction
 Good for tackling
complex problems
Disadvantages
 Expensive to have
many teams
 Co-ordination
problems
 Confusion as to
who reports to
whom
Lack of supervision and confusion is thought to
have led to the demise of Barings Bank.
INTERNAL
ORGANISATION
Entrepreneurial structure

Small businesses
use this structure

Decisions made by
a few people,
normally the owner
INTERNAL
ORGANISATION
Entrepreneurial structure
Advantages
 Decisions made
quickly
 Staff know who
they are
accountable to
 Decision-maker
does not need to
consult staff
Disadvantages
 Difficult to use in
large businesses
 Can create a heavy
workload for
decision-makers
 Can stifle other
staff’s initiatives
INTERNAL
ORGANISATION
Centralisation

HQ
Control and
decision-making lie
with top
management in
head office (HQ)
INTERNAL
ORGANISATION
Centralisation
Advantages
 Decisions can be
made for whole
organisation
 Easier to promote
corporate image
Disadvantages
 Slower decisionmaking
 Slower
communication
 Less room for staff
initiative
INTERNAL
ORGANISATION
Decentralisation
Control and
decision-making
are delegated to
departments
 Relieves senior
management from
routine, day-to-day
tasks

HQ
INTERNAL
ORGANISATION
Decentralisation
Advantages
 Motivates staff
 Empowers staff
 Decision-making
quicker
 Decisions can
match local needs
Disadvantages
 Decisions may
differ from other
branches
 Transfer of staff
may lead to
confusion due to
different practices
 Less supervision
INTERNAL
ORGANISATION
Answer a question
a) Explain the advantages and
disadvantages of the entrepreneurial
structure.
(4 marks) 2008
b) Describe the main features of the matrix
structure.
(3 marks) 2010

12 minutes
INTERNAL
ORGANISATION
Self-marking

You are going answer on your own!
Have you answered well?
 Does the answer make sense?
 Is it worth a mark?

Solution to a)
INTERNAL
ORGANISATION
Advantages


Decisions are made quickly as managers do not
consult staff, who rely on their expertise.
Staff know who they are accountable to as they have
only one superior.
Disadvantages



Difficult to use in larger businesses as they have
more complex operations.
Top managers carry a heavy workload/burden as
they have to make all the key decisions.
Does not allow for initiative from staff, which can
demotivate talented employees.
Solution to b)
Matrix structures are created for specific projects.
 They are made up of specialists from different
functional areas, and offer a good mix of skills and
ideas.
 They are a a good method of solving complex
problems, having different abilities and disciplines
involved.
 Each staff member can have two managers: the
project manager and their own functional manager.
This can cause confusion and conflict as staff are
unsure of their priorities.
 Gives staff increased experience in different
situations, which improves their skills and potential
for promotion (career progression).
INTERNAL
ORGANISATION

INTERNAL
ORGANISATION
Factors affecting organisation
structure
Size of organisation
 Technology used
 Market firm operates in
 Staff skills within organisation
 Products/services made or supplied
by organisation

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INTERNAL
ORGANISATION
Definitions
Line relationships – exist when a member
of staff is in charge of another member of
staff.
 Functional relationships - exist with people
on the same level of management.
 Staff relationships – exist with people who
have skills that support the firm as a whole
rather than individual departments.
 Informal relationships – exist as friendships
between workers who may have no formal
contact in the workplace.

INTERNAL
ORGANISATION
Delayering
What happens?
 Levels of
management are
reduced (move
from tall to flat
structure)
 Wider spans of
control
 Savings in
management
wages
Effect on
organisation chart
 Flatter structure
 Fewer
management posts
 Increased worker
responsibilities
INTERNAL
ORGANISATION
Downsizing
What happens?
 Staff laid-off
 Wages (labour
costs) are reduced
Effect on
organisation chart
 Greater workload
for departments
 Some posts will
disappear
 Workers have more
duties
INTERNAL
ORGANISATION
Answer a question

Distinguish between delayering and
downsizing.
(3 marks) 2008

6 minutes
INTERNAL
ORGANISATION
Peer marking

You are going to swap answers.
Has your partner answered well?
 Does the answer make sense?
 Is it worth a mark?

Solution
INTERNAL
ORGANISATION

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Delayering involves removing a whole level of
management to flatten an organisation’s structure.
Downsizing involves closing specific areas of the
organisation to cut costs.
Communication – Delayering will quicken communication
between management levels. Downsizing may not, as it
closes certain departments and does not affect
management structures.
Efficiency – Delayering may be viewed as more efficient
by removing levels of management, but downsizing may
affect productivity and efficiency as staff are not replaced.
Cost – Delayering reduces costs through fewer
promotions, saving on salaries, whereas downsizing
saves costs by making employees redundant.
INTERNAL
ORGANISATION
What is culture?

Define what you think culture means.

Identify three cultures you know.

Give evidence that they exist.
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INTERNAL
ORGANISATION
Culture definitions
Way of life
 Traditions
 Customs
 Norms

Ethos
 Ambience
 Atmosphere

Culture is: ‘the way things are done around
here’
or
‘the (often unwritten) code affecting attitudes,
decision-making and management style’.
INTERNAL
ORGANISATION
Culture definition
The values, beliefs and norms relating to
the organisation that are shared by all
staff.
Another video on Google!
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INTERNAL
ORGANISATION
Cultural evidence

Artefacts

Values

Beliefs
INTERNAL
ORGANISATION
Think of your local school

What is the visible evidence of its culture?

Academic or vocational?
Uniform?
Discipline?
Homework?
Approachable SMT?
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INTERNAL
ORGANISATION
Importance of corporate culture

Peters & Waterman (1982) observed US
and Japanese firms to examine the
differences between each.

The US firms compared favourably with the
Japanese on hard skills such as strategy
and structure, but not on soft skills such as
values and culture.
INTERNAL
ORGANISATION
Corporate culture

Think of an organisation you know.

What can you tell about its culture as
an outsider looking in?
INTERNAL
ORGANISATION
How to develop a strong corporate
culture
Use of uniforms, logos, symbols.
 Ideals and principles of the organisation
(a mission statement).
 Reward schemes for employees.
 Code of conduct for employees (attitudes
and beliefs).
 Advertising (promote their corporate
values).
 Teambuilding among employees.

INTERNAL
ORGANISATION
Advantages of a strong
corporate culture
Increased staff loyalty.
 Less turnover of staff (saves in
training costs too).
 Increased staff motivation.
 Increased awareness by the public.
 All employees know their role and
responsibilities within the organisation.

INTERNAL
ORGANISATION
Answer a question
a)
Describe the different methods
organisations can use to develop a
corporate culture.
(4 marks) 2010
b)
Explain the advantages to an
organisation of having a strong
corporate culture.
(4 marks) 2010

15 minutes
INTERNAL
ORGANISATION
Peer marking

You are going to swap answers.
Has your partner answered well?
 Does the answer make sense?
 Is it worth a mark?

INTERNAL
ORGANISATION
Solution to a)


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

Implementing the ideals and beliefs of the owner.
Use of symbols or logos that customers
recognise.
Staff uniforms consistent throughout the
organisation.
Uniformity of layout of offices/branches.
Use of a phrase or motto that can be recognised
by customers/used in marketing.
Standardise how staff interact with customers.
Merchandising of products linked to the
organisation.
Solution b)
INTERNAL
ORGANISATION
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Improved customer satisfaction and loyalty – consumers
associate themselves with the organisation because of
brand/logos, etc.
Increased staff motivation as they can associate
themselves with the organisation.
Staff can move between branches/departments more
easily as they are aware of their practices and policies.
Staff will identify with the organisation, which could result
in reduced absences or lower staff turnover.
A single corporate identity is given to customers, who will
then associate with that organisation.
The organisation can be easily recognised anywhere in
the world, which will allow customers to feel comfortable
with products/services wherever they are.