Miles and Snow's Organizational Strategies
Aligning Organizational Structure and Strategy
How does your organization compete within its industry?
Do you constantly look for new opportunities? Do you prefer to focus on the same market and improve efficiency? Or maybe you sit back, and react to changes in the marketplace?
Organizations show incredible diversity in the ways that they operate and compete. For example, consider the various restaurants in your area. Each has its unique way of attracting new customers. Some frequently change their menus, based on the latest trends (think of wheatgrass juice and protein shakes), while others have offered the same menus for years.
Neither approach is necessarily right or wrong – each restaurant may be successful doing different things. Similarly, your organization may choose to launch a new product every quarter, or you may focus all your energies on one 'star' product. What's important, however, is that the type of competitive strategy you choose needs to be aligned with how your organization is structured.
Raymond Miles and Charles Snow studied the relationship between structure and strategy. In 1978, they published 'Organizational Strategy, Structure, and Process,' which identified four types of organizations – defenders, prospectors, analyzers, and reactors. Collectively, these types show us how companies compete.
Once you understand which type fits your organization, the Miles and Snow typology offers insights into how to improve your company's industry position by answering three key questions:
- What functional strategies should you pursue?
- What type of structure should you adopt?
- How should you make strategic decisions?
Miles and Snow's theory has been supported by a wide range of managerial studies, and it has become a useful concept in the field of strategic management.
The Four Strategic Types
Miles and Snow classified organizations based on the rate at which the companies change their products or markets. The types of organization that they identified are shown below:
These organizations seek stability by producing a limited set of products, directed at a narrow segment of the total potential market. These companies tend to ignore developments and trends outside their defined area, and they choose to grow through market penetration.
Within this niche or narrow area, defender organizations aggressively try to prevent other companies from entering their territory. They don't spend time examining the environment or planning for changes. Instead, they use long-term planning to improve efficiencies and reduce costs. Tactics include competitive pricing, integrating vertically to control costs, and producing superior products.
Organizational elements that support this strategy include the following:
- Centralized control of strategic decisions.
- Formal hierarchy.
- Horizontal differentiation (lots of specialists).
Defenders function best in stable business environments where change isn't necessary for success. Producers of high-priced goods – like carmaker Rolls-Royce, or luxury watch brand Rolex – are examples of companies that defend their current niches, and aren't particularly interested in serving a different market.
At the other end of the spectrum, prospectors respond well to change. Their strength is in finding and taking advantage of new product and market opportunities. For many of these companies, innovation is just as important as profitability. One example of a highly successful prospector is technology company 3M.
The success of prospector organizations depends on developing and maintaining the ability to monitor a wide range of environmental conditions, trends, and events. They end up with a broad range of products and services, and they continually try to keep up with consumer demand.
Prospectors need a lot of flexibility, and their organizational structure typically uses the following elements:...