Essay on the Internal Environment of an Organization

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In addition to the functional areas, management is continuously interacting in vertical as well as lateral relationships within the organization. The vertical relationships involve various superiors and subordinates and lateral relationships involve peers and coworkers. The manager acts as a liaison between the subordinates and the superiors.

He is continuously involved in guiding, informing, and supervising his immediate subordinates. Furthermore, since he is also responsible for the acts of all subordinates below his level, his relationship with his subordinates extends down to their subordinates and so on. Similarly, a manager interacts with his immediate superior and other top level management executives in providing them with operational reports and learning from them any changes in policies or procedures.

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The manager is continuously establishing and maintaining lateral relationships with his peers and co-workers and these relationships may be formal or informal in nature as against his vertical relationships with his superiors and subordinates which are always formal.

According to John P. Kotter. general managers usually “allocate” significant time and effort when they first take their jobs to developing a network of cooperative relationships among those people they feel are needed to satisfy their emerging agendas.” Once they are established in their positions, they make use of these networks to enhance their agendas and programs.

It is important for successful organizations to keep these inter­relationships open, and honest, and keep the two way channels of communication open clear and accessible. The strength of the positive and harmonious relationships among all members of the organization has a tremendous impact on the effectiveness of the organization.

Some of the functional factors within the internal environment of the organization are explained briefly as follows:

1. Human resources:

Organizations are nothing but only pieces of bricks and steel, but for the people in it. Without adequate and skilled work force, organizations are bound for failure. Human resources are critical to a firm’s success. They are responsible for setting objectives, analyzing both internal and external environments and for selecting, implementing and controlling the firms’ strategies and operations.

Accordingly, it is imperative that the process of selecting and retaining personnel be a sound one. There is unmistakable and abundant evidence that companies which pursued rapid growth strategies without properly ensuring the availability of adequate human resources failed and closed down.

2. Research and Development (R &D):

The technology is changing so fast and the environment is so dynamic that only dedicated efforts of the research and development staff can keep the organization on its toes and at the forefront of its industry. The R&D efforts may involve new product development, improvement in product quality, cost control and production process technology.

The R&D department must also monitor the external environment in terms of competitor strategies, development of substitutes, patent infringement and so on in order to protect the interests of its own organization. Efficient communication channels between R&D and other functional areas are crucial to the organizational effectiveness and success.

3. Production:

Production is the reason for the existence of any manufacturing organization. It is one of the major functional areas of a business and has a strong influence on other functional areas, especially marketing and finance. If the production department produces relatively high quality products at relatively low costs, it will help the marketing function in increasing sales and hence the market share.

The burden on the financial function is eased due to increase in cash flow and the workers take pride in the quality of their product. Conversely, a weak production function can negatively impact the marketing of the product causing financial drain and creating morale problems among employees.

4. Marketing:

Marketing function is closely related to production function because marketing staff analyzes the consumer demand and sometimes creates such a demand for a given product. The analysis involves the needs, wants, perceptions and preferences of target markets resulting in formulation of pricing, communication, and distribution strategies regarding the product. Accordingly, management must continuously monitor the external environment in relation to changes in demographics, changes in consumer taste and preferences and promotional strategies of competitors.

5. Finance:

The financial function involves the analysis, planning and control of the financial performance of the organization. Organizations must be capable of raising capital, when necessary, and must ensure that their cash flow situation is healthy.

The finance and accounting department ensures that all financial matters are taken care of by properly and periodically auditing the accounts and informing the management about the financial health of the organization.

The finance department interacts with all other functional areas because of the inputs required from all other departments for their financial needs and expenditures, and it provides information to top management in such items as balance sheets, profit and loss statements, statement of retained earnings and cash flow analysis and projections.

Financial function has major responsibility involving capital resource acquisition as well as control and disbursement of financial resources.

6. Organizational culture:

Organization culture is a system of shared beliefs and attitudes that develops within an organization and guides the behaviour of its members in understanding what the organization stands for, how it does things and what it considers important. The corporate culture “consists of the norms, values and unwritten rules of conduct of an organization as well as management styles, priorities, beliefs and interpersonal behaviours that prevail. Together, they create a climate that influences how well people communicate, plan and make decisions.

Culture is the foundation of the organization’s internal environment and a strong culture makes the employees feel better about their organization and about what they do, thus leading them to work harder to achieve organizational goals. Accordingly, one of the major responsibilities of managers is to shape the value system of the organization and direct employees to understand the importance of such values.


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