Lesson 3

Internal Environment

Type of business Ownership Strategy Size Structure Technology Culture

Elements of the Internal Environemnt

Type of ownership affects◦ degree of freedom for making decisions◦ influence on the overall mission of the business◦ degree of commitment to the organisation’s goals◦ ability to manage and level of professional skills◦ levels of job security and satisfaction◦ priority given to the long-term goals of the organisation.

Type of ownership◦ Single entrepreneur ◦ Family◦ Locally public quoted company◦ Multinational

Types of Ownership

The strategy you adopt affects◦ Structure◦ Staff◦ Systems◦ Style◦ Shared Values◦ Skills

Example –◦ An organisation which is focused on a

differentiation strategy vs cost focus strategy (Porters Generic Strategies)

Strategy

Size could be measured using ◦ Financial figures (Profit / Revenue)◦ Production output◦ Number of staff◦ Presence (number of outlets, territories covered)

Size influences other internal factors directly◦ For example a study conducted by Child shows a

relationship between the size of the organistaion, level of bureaucracy and the performance (larger size leads to more bureaucracy and more bureaucracy in large organsiations lead to superior performance

Size of the organisation

Management approaches to organization structure ◦ Classical approach

Focused attention on the formal structure, technical requirements of the organisation and general sets of principles.

◦ Human Relations approach HR approach focuses on the informal organisation and

on the psychological and social needs of people at work.

◦ Systems Approach Placed emphasis on the sociotechnical approach, the

interrelationships of sub systems and multiple channels of interaction and recognize the importance of external environment

Organisational Struture

◦ Contingency Approach Contingency approach takes the view that there’s no

one best universal structure. There are large number of variables or situational factors which influence organizational design and performance. Contingency approach emphasizes the need for flexibility.

Functional Based Structure

Types of Structures

Product Based Structure

Types of Structures

Location based structures

Types of Structures

Holding Company Structure

Types of Structures

Matrix structures

Type of Structures

Matrix Structures◦ Matrix structure is a combination of functional

areas and another unit that integrate various activities or different functional departments

Matrix structures are adopted◦ Has more than one critical orientation (product +

geographical area for example)◦ A need to process large amount of information◦ Need for sharing of resources

Types of Structures

There are variety of difficulties with a matrix structure◦ Staff has to report to two bosses◦ Can result in a more complex structure leading to

issues such as communication breakdowns◦ Problem of defining the extent of the project

managers authority over staff from other departments and of gaining the support of other functional managers

◦ Functional groups may tend to neglect their normal duties and responsibilities

Span of control◦ Span of control refers to the number of

subordinates reporting directly to one manager◦ Factors affecting the span of control are

Nature of the complexity of the work and similariy of functions

Ability and personal qualities of the manager including capacity

Amount of time in hand for managers Training provided for subordinates Geographical location

Other important aspects of organizational structure

Levels of authority◦ Levels of authority refers to the number of layers

in the structure Flat organizational structure

◦ Lower number of levels of authority and a large span of control

Tall organizational structure◦ Higher number of levels of authority and a smaller

span of control

Advantages◦ High levels of efficiency and competitiveness◦ Demand for more participative style management◦ Ability to get the best use of IT services

Disadvantages◦ Inhibits the flow of effective communication

between top management and the workforce◦ Reduced the opportunity for promotion and

achievement◦ Limit opportunities for the training and

development of future managers

Flatter Organisational structure

Advantages of Centralisation◦ Easier implementation of common policy◦ Providing a consistent strategy across the

organisation◦ Prevents sub units become too independent◦ Improved economies of scale ◦ Greater use of specialisation ◦ Faster decision making as the authority is not

diffused

Centralisation vs Decentralisation

Advantages of Decentralisation◦ Decisions are made closer to the operational

levels◦ Increased responsiveness to local circumstances◦ Improves level of training for managers◦ Usually has a positive effect on worker morale

Centralisation vs Decentralisation

Numerical flexibility ◦ managers can make speedy changes to the number of

workers by established access to temporary workers to supplement the core staff

Functional flexibility ◦ core employees are invested in and trained to do a range

of tasks. This is known as ‘multi-skilling’ and the result is that the core can be moved from one job to another as the need arises

Financial flexibility ◦ the pay scheme for employees will be designed to reflect

the nature of the workforce. For example, only permanent employees will receive regular wages and their pay will need to include reward for multi-skills training.

Flexibility of the organisation

Work of Perrow Perrow analysed the organisational

technology using two dimensions◦ Variability – Number of exceptional or

unpredictable cases and the extent to which problems are familiar

◦ Analysis of technology refers to the extent to which the task functions are broken down and highly specified.

Technology within organsiation

Craft Technology – Making the whole product probably in the same way.◦ Situation – Problems cant be analyzed + Few

exceptions Non routine technology – Psychiatric care in a

hospital, Nuclear fuel systems◦ Situation – Problems cant be analyzed + Many

exceptions Routine Technology – Manufacture of standard

products and highly mechanized mass production◦ Situation – Problems can be analyzed + Few

exceptions

Perrows View of Technology

Engineering Technology- Made to order machines such as electrical components; research consultancy ◦ Problems can be analyzed + Many exceptions

Level 1- Artifacts◦ Physical appearance, language spoken and

other overt elements Level 2- Values

◦ Cultural learning reflects someone’s original values - solutions about how to deal with a new task, issue or problem are based on convictions of reality.

Level 3 – Basic underlying assumptions◦ When a solution to a problem works repeatedly

it comes to be taken for granted.

Different Levels of Culture

Power culture◦ Depends on a central power source with rays of influence

from the central figure throughout the organisation.

Role culture◦ Relies on the role within the organisation. For instance

the functional areas.

Task culture◦ Job oriented or project oriented nature of the organisation

Person culture◦ This is where the individual is the central focus and any

structure exists to serve the individuals within it.

Types of Organizational Culture

History Primary function and technology Goals and objectives Size Location Management and staffing Environment

Factors influencing the development of culture

Routines Rituals Stories Symbols Power structure Control systems Organizational structure

Cultural Web