Chapter 4: The internal environment Area of Study 2: Internal environment of large-scale organisations

Management Structure Management hierarchy: 1. 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

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 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 Departments can be based on 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… Chains of command, control and authorityCommunication channels 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 in an organisation can be upward, downward or lateral

Features of Organisational Structure continued… Patterns of decision making An organisational chart depicts: 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 CEO Chief Financial Officer Manager Research and Development Chief Marketing Manager Brand Manager Product Manager Brand Manager Product Manager General Manager of Operations

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 Production Supervisor Maintenance Supervisor Manager Finance Manager Sales and Marketing Manager Human Resources

Functional Structure Positive aspectsDifficulties Specialist in charge of each functional area, expertise ensures high productivity Workers have manager in their area for issues to be resolved Allows for sideways career paths Structure only works if 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 Recruitment Manager Operations Manager Logistics Manager Production Manager Quality Manager Finance Manager Purchasing Manager Accounts manager

Divisional Structure Positive AspectsDifficulties Specialists in charge of small sections of the organisation Allows for best practice in areas Room for career advancement within one functional area A more complicated 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 AspectsDifficulties 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 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 Operations Manager clothing and footwear Manager homewares Manager books & stationary Manager Sporting goods Manager Sales and Marketing Manager Finance

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 retail sales Manager Finance

Network/Organic Structure Becoming increasingly common as firms downsize Structure has core business maintained by employees, with non-core functions outsourced to other firms Core Business Legal firm Advertising Agency Manufacturer Accounting Firm Research and Development Firm HR Consultancy Firm

Network/Organic Structure Positive AspectsDifficulties Money not wasted on employing people all year round when only needed occasionally Sometimes using an outside firm will assist in terms of accountability Firms under contract to 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 Project AProject BProject C HR Manager HR AHR BHR C Finance Manager Finance AFinance BFinance C Operations Manager Operations A Operations B Operations C Senior Management

Matrix Structures Positive AspectsDisadvantages Control is decentralised, better monitoring of all aspects of a job There can be many opportunities for both horizontal and vertical career directions Communication can become 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 StructureTraditional Hierarchical Structure Contemporary Strucutre CommunicationDownwardMultidirectional Communication ChannelsSlow and unresponsive to change Shorter communication paths Decision MakingCentralisedDecentralised DelegationDownwardDownwards and Lateral Management styleAutocraticConsultative/Participative Layers in structureMultilayeredFewer layers Span of controlNarrowBroad Division of labourSpecialisationMultiskilled Roles and responsibilitiesClear and narrowGreater autonomy DepartmentalisationWell definedCross-departmental teams OutsourcingLimitedNon-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 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 Regulatory bodies Lobby groups Trade unions Customers Suppliers Internal Environment Owners/shareholders Management Employees

Policy development process Step 1: Issue Identification Policy development is a process of continuous assessment, implementation and reassessment as the company responds to external and internal pressures The need for a new policy 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 analysisStep 3: Stakeholder input Research is conducted into 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 Stakeholders informed of 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 amendment is prepared by a working party taking stakeholder views and ideas into account Draft policy displayed in a public place Stakeholders have opportunity to make comments Comments invited

Step 6: Policy approvalStep 7: Evaluation Feedback considered Necessary changes made Appropriate level of management approval obtained Final copy issued Management and employee training on new policy if required Did the policy work? Was the new policy effective?

Business ethics and socially responsible management of the internal environment Business ethics Social responsibility If way in which people in an organisation conduct their day-to-day work in a morally acceptable way 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