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Internal and external organisational environments - evaluating internal resources and organisational capabilities


Understanding the internal and external organisational structures and environments – evaluating internal resources and organisational capabilities


This section covers: 


Definition of an organisation: Systems of activities and behaviours to enable humans and their machines to accomplish goals and objectives - a joint function of human characteristics and the nature of the task environment.



Organisational Theory

Organisations are 'complex adaptive systems' that use people, tasks and technologies to achieve specified goals and objectives.  Organisational theory refers to how organisations are structured and how they are managed

Structure is the organisation of the resources and assets and represents the division and distribution of work among members (managers and employees) of the organisation, and the co-ordination of their activities in such a way that they are directed towards achieving the declared goals and objectives of the organisation. 

Management is about how the organisation manages the structure, the resources and the activities within the organisation and how it measures and monitors the resulting performance towards achieving the declared goals and objectives of the organisation.

Organisational theory attempts to explain how organisations work by defining the common features that organisations or groups of organisations share, by collecting data about them, and by analysing them, assessing 'what works where - and why! It is important here to understand that structure and management of organisations will differ - differ with the sector they operate in (public, private, voluntary) and differ with their various stakeholder configurations, differ also with the particular strategic goals and objectives they set themselves.  There is therefore no one 'recipe' that will work across all, or even many, organisations, the structure will reflect what is today being called the 'DNA' of organisations - which takes into account organisational culture -'the way we do things around here'  and other factors particular to any one organisation.

Why we study Organisational Theory

Organisational theory is especially useful for people who manage organisations, or who aspire to do so in the future. But whether or not you are a manager, if you work in public health, you will be working with organisations  - hospitals, charities, local and national government etc. - and so you need to understand them.  It enables the manager to see that his or her organisation and its problems are rarely wholly unique. Usually, much of value can be learned from examining the behaviour of other organisations in broadly similar circumstances. It can help us to explain what is happening in our own organisation and to identify possible solutions to its challenges, issues and problems, provided the solutions selected take into account cultural and other key aspects and are not simply 'broad-brush' or replica implementations based on what is done elsewhere.

Organisations, especially large organisations are generally 'complex', having many inter-related facets and areas that need to be co-ordinated, managed together to achieve efficiencies and effectiveness in achieving stated goals and objectives. Organisations also need to be 'adaptive', they need to respond to ongoing changes in the environments in which they operate e.g. the political, social, economic and technological conditions that together form the environment in which organisations operate.

Even if you do not aspire to be a manager, organisational theory should be of interest to you. We live in a world of organisations - work, university, clubs, trade unions, professional bodies, shops, and so on. Organisational theory can help explain how they work and why they work in the ways they do. Understanding how they work may even enable you to get the best out of each of them!

Drucker (1998) suggests three criteria for effective organisations:

  1. They must be organised for business performance
  2. Their structure should contain the least number of management levels
  3. Organisational structure should facilitate training and testing of future organisation leaders


Organisation Structure

Definition: Structure is the pattern of relationships among positions in the organisation and among members of the organisation. The purpose of structure is the division of work among members of the organisation, and the co-ordination of their activities so that they are directed towards achieving the same goals and objectives of the organisation. Structure defines tasks and responsibilities, work roles and relationships, and channels of communication.

Objectives of an organisation structure

  • accountability for areas of work undertaken by groups and individual members of the organisation
  • co-ordination of different parts of the organisation and different areas of work
  • effective and efficient organisational performance, including resource utilisation
  • monitoring the activities of the organisation
  • flexibility in order to respond to changing environmental factors
  • the social satisfaction of members of the organisation

Dimensions of organisational structure

Child (1988) suggests six major dimensions as components of an organisation structure:

  • allocation of individual tasks and responsibilities, job specialisation and definition
  • formal reporting relationships, levels of authority and spans of control
  • grouping together of sections, departments, divisions and larger units
  • systems for communication of information, integration of effort and participation
  • delegation of authority and procedures for monitoring and evaluating the action
  • motivation of employees through systems for performance appraisal

Consequences of structural deficiencies (Child)

  • low motivation and morale
  • late and inappropriate decisions
  • conflict and lack of co-ordination
  • poor response to new opportunities and external change
  • rising costs - e.g. diseconomies of scale

Principles of organisational design and diagnosis

Mintzberg (1979) suggests that organisational structures fall into five basic categories:

  1. simple structure: a centralised, perhaps autocratic arrangement typical of the entrepreneur-founded company.  Little hierarchy or control exercised by the Chief Executive.
  2. machine bureaucracy: best at mass produced tasks and is characterised by many layers of management and formal procedures.
  3. professional bureaucracy: likely to include some parts of the NHS - its administration is set by independent professional bodies.  It tends to be more democratic and more highly motivated, with its lines of authority less clearly set.
  4. divisionalised form of bureaucracy: applies more to multinational or industrial corporations where a small central core controls key guidelines for a number of otherwise autonomous units. Despite being neither multinational or industrial the NHS today is reckoned to exhibit some characteristics of this structure.
  5. adhocracy:  often found in new technology industries, which need constantly to innovate and respond to quickly changing markets.


Types of organisational structure

This is essentially the process by which the organisation's mission is divided into discrete roles and tasks of individuals within the organisation. There are different ways of doing this. All essentially act initially by grouping key activities in the organisation and then allocating roles/tasks to individuals.

These can fall into the following categories:

  1. functional
  2. product/ service
  3. geographical
  4. divisional
  5. matrix

1.  Functional - grouping of major functions e.g. contracting, information, finance, personnel and public health in health authorities


  • increases utilisation and co-ordination of groups of people with technical/specialised expertise
  • increases development and career opportunities for people in departments


  • encourages sectional interests and conflicts
  • difficult for organisation to adapt to product/service diversification

2.  Product/Service - grouping by service/ product i.e. orthopaedic, surgical, psychiatric, etc., rather than medical, nursing, paramedical, hotel services (functional).


  • increases diversification
  • adaptability increased if service/ product requires technical knowledge or large equipment


  • encourages service conflicts

3.  Geographical  - a nationalised service develops regions, areas or district health authorities. e.g. Clinical Commissioning Groups in England,


  • more responsive to local/regional issues and different cultures, national/state laws etc


  • can lead to localities/regions conflicting with each other

4.  Divisional - grouping of services and/ or geography and functionality (but with functions such as finance, personnel, planning retained at headquarters).

  • suitable for international companies who are highly diversified, working in more than one country e.g. pharmaceutical company with divisions in each country producing and marketing products developed by parent company.


  • corporate strategic control with production and marketing independence at divisions

5.  Matrix - grouping of projects and functions, e.g. NASA (highly complex industries).

  1. More than one critical orientation to the operations of the organisation
  2. Need to process simultaneously large amounts of information
  3. Need for sharing resources






  • combines vertical and lateral lines of communication and authority
  • stability and efficiency (of mechanistic structure) with flexibility and informality (of inorganic structure)
  • emphasises project aims are all-important


  • potential conflict between project leader and functional leader regarding resources
  • project may be jeopardised if project members as well as leaders enter the conflict on opposite sides
  • does not tolerate diversification well

NOTE : Many large, complex organisations opt for mixed forms of specialisation.


Centralisation and decentralisation

Definition: when all the power for decision making rests at a single point in the organisation - ultimately in the hands of one person or group, the structure is 'centralised'.  If the power is dispersed among many people/groups, it is known as 'decentralised' (or distributed).  Note that some functions (research, planning, finance, personnel) are less amenable to decentralisation than others (e.g. contracting, patient services).

Centralisation and decentralisation should not be treated as absolutes, but rather as two ends of a continuum.

Advantages of decentralisation

  • frees top management of routine every day decisions to concentrate on strategic responsibilities
  • decisions are more local, quicker, more responsive to clients (patients)
  • increased awareness of cost effectiveness through the organisation
  • increased motivation and satisfaction by junior management

Disadvantages of decentralisation

  • requires good communication and adequate control to and from the centre
  • need for centre to co-ordinate/integrate
  • can lead to inequity in treatment of clients/patients
  • need individuals willing to take on additional responsibilities

In general, large organisations lean towards:

less centralisation
more specialisation
more rules and procedures to be followed


Levels of the organisation

According to Drucker (1998), organisations are layered into three main levels:

The technical level of the organisation is concerned with specific operations and defined tasks, with actual jobs to be done, and with performance of the technical function. Inter-relates with managerial level.

The managerial level (or organisational level) is concerned with the co-ordination and integration of work, at the technical level, e.g. resource allocation, administration and control of the operations of the technical function.

The community level (or institutional level) is concerned with the broad objectives and the work of the organisation as a whole. Decisions made at this level will include the selection of operations, development of organisations in relation to external agencies and the wider social environment, e.g. Board of Directors, governing bodies of universities. Control by legislation, codes of standards, professional or trade associations, political or government action and public interests.


Mintzberg's nine design parameters

Design assumes discretion, an ability to alter the system. In the case of the organisational structure, design means 'turning those knobs' that influence the division of labour and the co-ordinating mechanisms thereby affecting how the organisation functions.

Consider the following questions, which are the basic issues of structural design:

  • how many tasks should a given position in the organisation contain, and how specialised should each task be?
  • to what extent should the work content of each position be standardised?
  • what skills and knowledge should be required for each position?
  • on what basis should positions be grouped into units and units into larger units?
  • how large should each unit be; how many people should report to a given manager?
  • to what extent should the output of each position or unit be standardised?
  • what mechanisms should be established to facilitate mutual adjustment among positions and units?
  • how much decision power should be delegated to the managers of line units down the chain of authority?
  • how much decision making power should pass from the line mangers to the staff specialists and operators?

These nine design parameters are the basic components of organisational structure - that fall into four broad groupings:

  1. Design of positions
  2. Design of superstructure
  3. Design of lateral linkages
  4. Design of decision making



Design Parameter

Related Concepts

Design of positions

Job specialisation

Basic division of labour

Behaviour formalisation

Standardisation of work content
System or regulated flows

Training and indoctrination

Standardisation of skills

Design of superstructure

Unit grouping


Direct Supervision
Administrative division of labour
Systems of formal authority, regulated flows, informal communication, and work constellations

Unit size


System of informal communication
Direct supervision
Span of control

Design of lateral linkages

Planning and control systems

Standardisation of output
System of regulated flows

Liaison devices


Mutual adjustment
Systems of informal communication, work constellations, and ad hoc decision processes

Design of decision making process

Vertical decentralisation 


Administrative division of labour
Systems of formal authority, regulated flows, work constellations, and ad hoc decision processes

Horizontal decentralisation

Administrative division of labour
Systems of informal communication, work constellations, and ad hoc decision processes


Work design

Work can be combined in various forms. Decisions on the methods of groupings will consider:

  • the need for co-ordination
  • the identification of clearly defined divisions of work
  • economy
  • the process of managing activities
  • avoiding conflict, and
  • the design of work organisation which takes account of the nature of staff employed, their interests and job satisfaction

Span of control - number of direct reports

Influencing factors:

  • nature of organisation, complexity of work, range of responsibilities
  • ability and personal qualities e.g. capacity of manager
  • time available to spend with subordinates
  • ability and training of subordinates
  • effectiveness of co-ordination, communication, control systems
  • physical location of subordinates


Formal Organisational Relationships

Line - vertical flow of authority
Functional - between specialist in advisory positions and line management teams
Staff - personal assistants to senior members

People and Organisational Relationship




  • Child J (1988),  Organization. 2 ed. Paul Chapman    
  • Drucker P (1998). on 'The Profession of Management'  Harvard Business School Press
  • Mintzberg H (1979). The Structuring of Organisations. Englewood Cliffs. N Jersey. Prentice Hall


                                                                           © K Enock 2006, N Leigh-Hunt 2016