Internal Organizational Environment

• Functional areas of a business

  • Production
  • Finance
  • Research & Development
  • Marketing
  • Personnel
• Production


  This department deals with the actual manufacturing or conversion of raw materials to a product for sale. It can include such activities as quality control, purchasing raw materials, organising production, timing etc.
• Finance


  This area is concerned with the overall accounts of the business. E.g. preparing income statements, balance sheets, maintaining cash flows, making payments and issuing receipts, advising on sources of capital, establishing hire purchase and credit controls, paying wages and salaries etc.
• Research & Development


  This department carried out various types of research such as product research, consumer research, financial research as well as feasibility studies. In this department, new products are developed or improvements are made to currents ones, as feed back is received from other departments such as the marketing department.
• Marketing


  The department seeks to identify, anticipate and satisfy the wants/needs of customers in a manner which is profitable to the organisation. Activities include marketing research, choosing methods of promotion, setting prices, product distribution, developing new products etc. This department often works closely with the R & D department to design and develop new products.
• Personnel


  This department is concerned with the human element of the organisation. This includes training and development, recruitment of labour, improving morale, industrial relations, disciplining workers, administering leave, pension schemes etc.
• Functions of management


  • Planning
  • Directing
  • Delegating
  • Controlling
  • Organising
  • Coordinating
  • Motivating
• Planning


  This function is carried out by top management. It involves the overall formulation of policy, aims and objectives of the business. The structure of the organisation is determined and various duties of other managers are set out. It gives the organisation focus and is necessary because the firm operates in an uncertain environment.
• Directing


  This is the giving of instructions, usually on a daily basis to workers. This is carried out mainly by lower level managers.
• Delegating


  Assignments/instructions are transferred from management to subordinates who are also given power/authority to carry out the instructions. This ensures the sharing of the work load. Mainly top/middle level management carries out this function.
• Controlling


  This is the regulation and monitoring of activities for the purpose of achieving profitable objectives and using corrective measures when the objectives are not being met. It is carried out mainly by middle/lower level management. Top level management would engage in this function on a long term basis especially by looking at the overall financial position of the business.
• Organising


  This is ensuring that everything is in place so that the operations can run smoothly and effectively. It is carried out mainly by middle/lower level management.
• Coordinating


  The bringing together of all functions of the organisation with the aim of harmonizing all activities to successfully achieve a common goal. This is the function of top and middle level management.
• Motivating


  The process whereby management encourages and provides incentives to employees to produce at their best so that the goals of the organisation can be met.
• Responsibilities of management to stakeholders

  • To Owners/Shareholders
  • To Employees
  • To Customers
  • To Society
  • To Government
• Responsibilities to owners/shareholders

  • Achieving profit
  • Providing information such as annual reports
  • Protecting assets
  • Reinvesting some of the profits to ensure growth
  • Declaring dividends where possible
• Responsibilities to employees

  • Fair wages
  • Good working conditions
  • Training
  • Benefits such as sickness, retirement
  • Provision of procedures to handle grievances
• Responsibilities to customers

  • Quality product/services at reasonable prices
  • Compensation for customers injuries on business compound
  • Product/Services should be safe
  • Conduct research to improve quality
  • Provide adequate labeling and instructions
• Responsibilities to society

  • Avoid pollution/destruction of physical environment
  • Conserve scarce resources e.g. water, fossil fuels
  • Preserve culture and traditions
• Responsibilities to government

  • Pay taxes
  • Abide by local and international laws which affect the industry
• Organisational structure


  A well planned relationship among the individuals and the functions of the organisation, in accordance with stated goals. It may be formal or informal.
• Formal structure


  The official and accepted channel of communication of the firm. It is shown on the organisational charts, official standards, statements and procedures. Its objective is the achievement of organisational goals.
• Informal structure


  The unofficial, social interaction which exist among employees.
• Types of formal organisational structures

  • Line structure
  • Staff structure
  • Functional structure
  • Committee
• Line structure


  It shows the authority within the organisation from top to bottom(chain of command) and who is responsible for the persons below them
• Staff structure


  Shows functions which are needed within the organisation but may not be directly connected to production, distribution etc. It can include functions such as lawyers, economists, architects etc. depending on the type of business
• Functional structure


  This shows the specialized functioned within the organisation such as production, marketing, personnel etc.
• Committee


  A group of persons set up to carry out certain duties, at the end of which the group may be broken up
• Organisational chart


  This diagram shows the structure of the organisation and indicates the links between different functions. It also identifies the span of control and the chain of command within the organisation.
• Span of control


  How many subordinates report to a manager/supervisor.
• Chain of command


  To whom an employee is to report to immediately and at each level within the organisation.
• Leadership


  The style of management which is used to operate and control the organisation.
• Characteristics of a good leader

  • Must be knowledgeable about the business
  • Be fair when dealing with employees
  • Good interpersonal skills with employees
  • The ability to make decisions quickly
  • The ability to motivate workers
  • Be able to resolve conflict
• Types of leadership styles

  • Authoritarian
  • Laissez-faire
  • Charismatic
  • Democratic
• Authoritarian leadership


  Employees are told what to do and how it is to be done. There tends to be little delegation of responsibilities and authority. Only management controls, rewards and punishes.
• Laissez-faire leadership


  Employees are given various tasks and when they are to complete them. It is then their responsibility to determine how to achieve the objectives. There is minimal supervision and may only succeed where workers are experienced.
• Charismatic leadership


  This leadership style is mainly based on the leader's personality and his ability to motivate others by leading from example. As long as the leader is present, there individuals will function but when he/she leaves/dies, persons have no one to look to and work suffers
• Democratic leadership


  The leader seeks to find the middle ground. He/She maintains the necessary authority to control and at the same time, employees are allowed to express their views. Participation is encouraged but the leader maintains the power of decision making.
• Importance of a good leader

  • To ensure the smooth running of the business
  • To ensure the viability and profitability of the organisation
  • To ensure that goals are met
  • To reduce or handle conflict which can affect productivity.
• Sources of conflict at work

  • Unfair practices
  • Safety and health issues
  • Union rights
  • Working conditions
  • Job security
  • Recognition of workers
  • Management/Leadership style of the organisation.