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Business Organisations: The Internal Environment

We will be aware, the internal features of business organisations have received considerable attention from scholars researching these fields, and a large number of texts have been devoted to this aspect of business studies.  In the discussion below, the aim is to focus on three areas of the internal organisation that  relate directly to a study of the business environment: approaches to understanding  organisations, organisational structures, and key functions within the enterprise. Further  insight into these aspects and into management and organisational behaviour generally  can be gained by consulting the many specialist books in this field, a number of which  are mentioned at the end of this chapter


A central theme running through any analysis of the internal environment is the idea of management , which has been subjected to a wide variety of definitions. As used in this context, management is seen both as a system of roles fulfilled by individuals who manage the organisation (e.g. entrepreneur, resource manager, coordinator, leader, motivator, organiser) and as a process that enables an organisation to achieve its objec[1]tives. The essential point is that management should be seen as a function of organisa[1]tions, rather than as a controlling element, and its task is to enable the organisation to identify and achieve its objectives and to adapt to change. Managers need to integrate the various influences on the organisation – including people, technology, systems and the environment – in a manner best designed to meet the needs of the enterprise at the time in question and be prepared to institute change as and when circumstances dictate.

The concept of the organisation: an initial comment

According to Stoner and Freeman (1992: 4) , an organisation can be defined as two or more people who work together in a structured way to achieve a specific goal or set of goals. Defined in this way, the term covers a vast array of structures in the:

  • private sector – that part of the economy where ownership and control of the organ[1]isation is in the hands of private individuals or groups and where profit-seeking is a central goal;
  • public sector – that part of the economy under the control of government and its agencies and where the state establishes and runs the different types of organisation on behalf of its citizens and for their general well-being;
  • voluntary (or third) sector – comprising those organisations, including charities, voluntary bodies and community businesses, that are not-for-profit enterprises and non-governmental.

Leaving aside the blurring of definitions of these three generic sectors that has occurred over recent years (e.g. where third-sector organisations are commissioned to deliver pub[1]lic services), the concept of the ‘business organisation’ as used in this text covers enter[1]prises of all types and in all sectors. In this book the concept also encapsulates those organisations where the objectives are set by one individual who both owns and controls the business and has no other employees (i.e. sole traders with zero staff). Despite coming in a wide variety of shapes, forms and sizes, business organisations share a number of common features. Mullins (2013) identifies four such features:

  • people (i.e. employees);
  • objectives (i.e. what the organisation is set up to achieve);
  • structure (i.e. the organisational framework through which the objectives are pursued and efforts are coordinated);
  • management (i.e. the directing and controlling aspect of the enterprise). 

To these we could add the idea of resources (including finance) and technologies. We also need to recognise the existence of an external environment that faces all types of enter[1]prise. This is, after all, a fundamental feature of the systems approach to understanding business organisations and how they operate. 


Understanding the nature of organisations: theories of organisation and management

To gain an insight into the principles that are felt to underlie the process of management, it is useful to undertake a brief examination of organisational theories. These theories or approaches – some of which date back to the late nineteenth century – represent the views of both practising managers and academics as to the factors that determine organi[1]sational effectiveness and the influences on individuals and groups within the work environment. Broadly speaking, these approaches can be broken down into three main categories: the classical approach, the human relations approach and the systems approach. Since the last of these encompasses the model presented in Chapter  1 , particu[1]lar attention is paid to this perspective. The classical approach Classical theories of organisation and management mostly date from the first half of the twentieth century and are associated with the work of writers such as Taylor, Fayol, Urwick and Brech. In essence, the classicists viewed organisations as formal structures established to achieve a particular number of objectives under the direction of manage[1]ment, the emphasis being on purpose, structure, hierarchy and common principles. By identifying a set of guidelines to assist managers in the design of the organisational struc[1]ture, the proponents of the classical view believed that organisations would be able to achieve their objectives more effectively. Fayol, for example, identified 14 principles which included the division of work, the scalar chain, centralisation and the unity of command – features which also found expression in Weber’s notion of ‘bureaucracy’. Urwick’s rules or principles similarly emphasised aspects of organisation structure and operations – such as specialisation, coordination, authority, responsibility and the span of control – and were presented essentially as a code of good management practice. Within the classical approach special attention is often given to two important sub[1]groupings, known as scientific management and bureaucracy. 

The former is associated with the pioneering work of F. W. Taylor (1856–1915), who believed that scientific meth[1]ods could be attached to the design of work so that productivity could be increased. For Taylor, the systematic analysis of jobs (e.g. using some form of work study technique) was seen as the key to finding the best way to perform a particular task and thereby achieving significant productivity gains from individuals, which would earn them increased financial rewards. In Taylor’s view, the responsibility for the institution of a scientific approach lay with management, under whose control and direction the work[1]ers would operate to the mutual benefit of all concerned. The second sub-group, bureaucracy, draws heavily on the work of Max Weber (1864– 1920), whose studies of authority structures highlighted the importance of ‘office’ and ‘rules’ in the operation of organisations. 

According to Weber, bureaucracy – with its system of rules and procedures, specified spheres of competence, hierarchical organisation of offices, appointment based on merit, high level of specialisation and impersonality – possessed a degree of technical superiority over other forms of organisation, and this explained why an increasing number of enterprises were becoming bureaucratic in structure. Despite Weber’s analysis appearing somewhat dated nowadays, bureaucratic organisation remains a key feature of many enterprises throughout the world and is clearly linked to increasing organisational size and complexity. Bureaucracy is often seen as some[1]thing which restricts organisations from making internal changes or taking advantage of opportunities, leading to ineffectiveness. Modern defenders of bureaucracy (du Gay, 2000) argue that bureaucratic systems are fair, treating situations and individuals rationally and equally. Notwithstanding the many valid criticisms of Weber’s work, it is difficult to imag[1]ine how it could be otherwise.

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