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Organizational structure provides the backbone to organizational strategy. It dictates the coordination of activities, systems of power, control and communications, and roles and responsibilities necessary for strategy implementation. Whether structure influences strategy, or strategy dictates structure, they must work together to enable strategic change.
Adopting a structure that will best support strategy is probably one of the most important decisions an organization has to make. A structure must provide a suitable framework through which the activities of the organization can be planned, organized, directed and controlled. It must enable the organization to perform at the best of its ability and be flexible enough to adapt and evolve as circumstances change.
Basic Structures
There are a number of ways of structuring an organization. At the very basic level, organizations are often described in terms of their width and height:
Width. Width refers to the extent to which the organization is centralized or decentralized. If an organization is narrow, power is centralized. This means that decisions are taken at senior management level and those further down the organization will seek approval and/or guidance from ‘the center’ before they take action. If the organization is wide, power is decentralized. Here, the center devolves a degree of decision-making power to other parts of the organization, empowering managers and professionals.
Height. Height refers to the make-up of the hierarchy within the organization, i.e. how many layers of management there are between the staff and the most senior manager. Tall organizations (many layers) allow for specialist managers in the middle of the organization who can direct and oversee many activities, often in large, complex organizations that compete in national markets. Flat organizations (as few layers as possible) are suitable for smaller organizations engaged in fewer product and market sectors where senior managers need to directly oversee operations.
A tall or hierarchical organization
A flat organization
Strategy and Structure – Finding The Fit
Numerous structural ‘types’ have been identified in the literature by various authors. These outline how parts of the organization (the degree of decentralization, mechanisms of coordination, etc.) fit together into certain configurations. The classic model is Mintzberg’s six structural types: Simple Structure, the Machine Bureaucracy, the Professional Bureaucracy, the Divisionalised Form, the Adhocracy and the Missionary. [1]
Danny Miller looks at how some of Mintzberg’s structural types can support different types of strategy: [2]
A strategy that centers on achieving differentiation in the marketplace, e.g. by pursuing a niche or offering a distinctive product, will be applied most effectively within a simple organizational structure. Simple Structures have one or a few top managers, and tend to be highly centralized and flat. This means that in a competitive environment, senior managers can deploy resources quickly when opportunities arise in order to achieve goals quickly. Having a close watch over operations allows senior management greater control over the outcomes achieved.
- Cost-leadership strategies
Strategies that focus on cutting costs to achieve a greater market share than competitors are usually applied by organizations operating in a mature market. In this instance, organizational structure must be geared towards efficiency and productivity. Mintzberg’s Mechanistic Bureaucracy supports such a strategy as it describes a large, tall organization with highly specialized jobs and standardized tasks. Proven procedures can continue under the watch of operational managers, while senior managers focus on broader benefits to the organization.
- Innovative differentiation strategy
Where a strategy plans to achieve differentiation in the marketplace through innovation, the structure must be flexible enough to allow for experimentation and collaboration among specialists. Mintzberg’s Adhocracy, as a highly decentralized and flat structure, allows project groups to form as and when needed. Here, experts are grouped in functional units but can be called in to work on different projects. Power is distributed across the structure according to expertise and need, allowing for complex and continual innovation, and rapid adaptation to the environment.
- Conglomeration and diversification strategy
Where an organization spans a variety of industries, it may require specific divisions to deal with each significant market, such as described in the Divisionalised Form. Where the organization is divided in this way, senior management, venture groups and planning departments seek out new acquisitions. Senior management provides broad guidelines for the organization, but leaves considerable autonomy to the divisions.
Additional Structures
Other ways of structuring the organization can also benefit different types of strategy.
Where a strategy focuses on the specialization of different functions, the organization will be most successful if it is structured according to functional area, e.g. operations, finance, marketing, and HR. The board retains the highest position, but functions are divided so that people working in the same activity can communicate, combine skills, build knowledge and cooperate in order to effectively deliver their service.
Customer-focused strategies are well supported by organizations that are structured around the products or services they provide. This type of structure creates a real focus on the customer and enables staff to respond to customer needs more flexibly. Customer-facing staff can build specialist knowledge in their area and are empowered to tailor operations to meet the needs of their particular customers.
Where a large organization makes the strategic decision to venture into a number of global markets, it is likely to require a structure that is divided by location. Markets in various parts of the world operate differently, so independent business units within separate countries can take account of local issues, cultures and languages, etc. The business units maintain relative independence so they can operate in a way that is best suited to the market in which they are operating.
Conclusion
We have outlined a number of ways in which organizations can be structured to complement strategy. Structural changes should not be taken on lightly as they can be complex and lengthy processes. So, careful consideration must be given to the requirements of the strategy and the need for change.
References[1] For a detailed description of these structural types, see: Henry Mintzberg ‘The Structure of Organizations’ in The Strategy Reader edited by Susan Segal-Horn (Blackwell, 1999).[
2] Danny Miller ‘Configurations of Strategy and Structure:Towards a Synthesis’ in The Strategy Reader edited by Susan Segal-Horn (Blackwell, 1999) Chapter 13.
