Professional Documents
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Chapter. 14 Strategy and Structure
Chapter. 14 Strategy and Structure
The overall function and course of a business enterprise are decided by means of the nature of
its corporate strategy. The Strategy offers the goals, objectives and guidelines for the structure
and operations of the business enterprise. Its miles through a structure that the reason and
work of the organisation are accomplished. Some structure is vital to make feasible the
effective performance of key activities and to support the efforts of the group of workers. The
structure offers the framework of an agency and its pattern of management. The manager
wishes to apprehend the importance and outcomes of organisation strategy and structure.
A chief debate has been taking area over the last 30 years regarding the relationship between
the strategy and structure of the organization. It becomes considered that the Strategy
became determined first and the organization structure then accompanied. Current research
has questioned this Strategy and taken the view that strategy and structure are interrelated . . .
even though it can now not be feasible to define which comes first; there may be a need to
ensure that strategy and structure are consistent with each other (Lynch, R. 2006).
Business strategy is a realistic plan for achieving an organization's mission and objectives.
Organizational structure is the formal layout of an enterprise's hierarchy. Both strategy and
structure are important factors of doing business, or even groups that do not have formal
strategies and structures probable still have each in a single form or any other.
Business Strategy is commonly created at the top levels of a business. Grand corporate
strategies may be crushed down into goals and procedures to ensure that the strategy is
applicable all of the ways down the organizational hierarchy. Organizational structure is
placed into region notably early in the life of a business enterprise, however, it may be
changed over time as the employer evolves. Business strategy and organizational structure
may additionally appear to be unique principles at the beginning glance, but there are some of
the critical correlations among the two.
PROCESS
Business proprietors generate strategies the use of some of the managerial tools. Qualitative
tools, which include SWOT evaluation -- a device that identifies internal strengths and
weaknesses, as well as external opportunities and threats -- can help managers to perceive
strategic opportunities. Quantitative tools, including the reports generated through Total
Quality Management software, can assist to provide insight right into a corporation's
strengths and find hidden problems the use of statistical models.
STRUCTURE
A company's organizational structure needs to guide its strategy. Employees all levels of the
business enterprise ought to be empowered to successfully entire the obligations necessary to
reap organizational goals, and company structure can useful resource or preclude employees
of their roles. The structure also can dictate the means via which techniques are shaped.
Bureaucratic groups tend to generate a majority of strategic ideas at the pinnacle stages of
management. Organizations with flatter systems, however, regularly contain quite a number
employees in strategy sessions.
STRATEGY
A business proprietor's preliminary strategy can often dictate the form of the corporation's
structure. An entrepreneur with desires of using a surprisingly educated and educated staff
with massive leeway to innovate and attempt new thoughts, for example, is likely to structure
his employer to be as flat as viable. The opposite would be true of an entrepreneur who
wishes to enter a line of the commercial enterprise with a historically excessive employee
turnover rate, together with telemarketing, on the grounds that it can be hard to retain
particularly professional exertions in high turnover industries (Ingram D.2009).
ORGANIZATION STRUCTURE
Organisation structure specifies the firm's formal reporting relationships, strategies, controls
and authority, & decision-making approach.
Control Structure: This includes company’s gadget of measuring and evaluating overall
performance on the basis of administrative structure & responsibility structure.
14.01 RELATIONSHIP BETWEEN STRATEGY AND
STRUCTURE
There are two main views on the connection between approach and structure. Consistent with
Alfred Chandler 'structure follows strategy'.
Current studies have questioned the view that 'structure continually follows strategy', and
argued as a substitute that 'strategy regularly follows structure'. This 2d view, that 'strategy
follows structure', is based on the concept that managers already running within a particular
organisational structure will take the structure without any consideration and only recollect
techniques that will 'fit ‘with the existing structure.
Combining those arguments, we are able to say that 'strategy & structure' have a reciprocal
relationship. Corporation structure is an important thing for powerful strategy
implementation method. The success of a company depends on how well a company's
enterprise strategy is matched to its organizational structure. Growing an agency structure
that efficiently helps the firm's strategy is tough. For a successful implementation of
employer method, a company structure needs to have following characteristics.
Structural stability
This gives the firm a potential to correctly manage its each day work routines.
Structural flexibility
This affords the firm an opportunity to discover competitive probabilities & then allocate
sources to activities so that it will shape the competitive advantages the firm will want to be
successful destiny.
However, the strategy has a much extra vital have an impact on structure than the reverse.
However, on the end organization shape have to provide adequate balance & flexibility that is
important for successful implementation of the strategy. The Strategy that a company comes
to a decision to follow will govern the decision about the organisation shape with the
intention to be suitable for the company however once in place company structure impacts
the choice about future techniques because of organizational inertia derived from business
enterprise shape that inhibits efforts to change.
That is the fittest form of structure & is commonly primarily based on traditional or
charismatic dominance. The structure is absolutely centralized & lacks standardization of
obligations. This is useful in dealing with easy obligations.
Bureaucratic structures
It has the positive degree of standardization & is useful in dealing with barely extra
complicated & big scale companies.
Functional structures
The structure is more standardized & centralized. The enterprise is split into separate
purposeful divisions & personnel inside a particular division perform precise features. This
form of structure is beneficial in firms that offer standardized items & offerings at low cost &
in the high extent.
Divisional structure
This is also called as product structure. Organisation is divided into divisions & each division
has its own resources & functions. Divisions can be based on geographies or
products/services.
Matrix structure
This structure combines the features of both functional & divisional structure.
Organizational Structure refers back to the way in which a corporation’s activities are
divided, grouped and coordinated into relationships between managers and personnel,
managers and managers and personnel and employees. Structure balances the need for
specialization with the want for integration. It affords a proper method of decentralization and
centralizing regular with the organizational and control desires of the strategy. The following
five foundation kinds are currently used by most commercial enterprise corporations:
The energy of an easy organizational structure is that it permits an enterprise owner tight
control over company’s operation. No decisions are made without the approval, and he or she
is privy to each vital selection made. there is no hesitation at the a part of personnel in a
simple structure, because their orders come without delay from the pinnacle, no longer a
branch head or mid-degree supervisor a subordinate might question. Agencies make decisions
faster with an easy structure, due to the fact there are no layers of management that ideas or
requests want to climb before approval.
Some of the troubles of the use of a simple organizational structure revolve around the
workload of the proprietor or individual on the pinnacle. A proprietor would possibly come to
be swamped with work if he has to approve each selection at a business enterprise.
corporations that use simple organizational systems even when they’ve brought much
personnel with specialized jobs regularly do so due to the fact the proprietor can’t convey
himself to delegate, making the team of workers contributors anticipate approval on actions
they're qualified to take themselves. If an owner is unwell, in an assembly or on an enterprise
journey, the complete organization can come to be paralyzed, because no one can move
forward to take benefit of an opportunity or resolve a problem until the proprietor is available
once more (Sam Ashe-Edmunds ).
A functional structure is one of the most common organizational structures. Underneath this
structure, the company groups employees according to a specialised or comparable set of
roles or tasks. At the same time as practical structures operate properly in stable environments
in which strategies are less willing to modifications or dynamism, the extent of bureaucracy
makes it tough for businesses to respond to changes within the market quickly.
While businesses use a practical organizational structure, people with comparable expertise
and abilities are grouped collectively. This makes it possible for employees to turn out to be
experts in their discipline. It demands for an overall performance management system that
permits for the promotion, development and visibility of character abilities inside their
purposeful region. The specialization that useful systems hone enables to bring about in-depth
information and ability improvement some of the personnel, and this could help you achieve
your organization's practical goals. Specialization leads to operational efficiencies and
enhances productivity level.
Due to their experience, workers with specialized capabilities can perform duties speedy,
effectively and with more self-belief, therefore reducing the prevalence of work-related
mistakes. Further, the clean nature of the profession route inside the useful unit makes it
feasible for personnel to be especially encouraged to boost their careers as they circulate up
in the hierarchy. The primary purpose of practical structures in companies is to deliver the
complete human and informational resources together to satisfy the enterprise’s goals. This
could be a really perfect structure for small corporations that focus on one product or services
because you can maximize overall performance via encouraging peer cooperation amongst
extraordinary units at numerous levels of management through supervision and coordination.
As opposed to e.g. a simple organizational structure, the useful shape works except when the
surrounding environment is instead strong, and while clients anticipate a standardized range
of products now not the problem to continuous alternate in e.g. taste, fashion or innovation. If
the surroundings turn into more complex and uncertain, the functional structure may not be
the exceptionally suitable structure for the employer, and the employer may additionally need
to trade their structure in order to deal with new challenges and uncertainties.
Organizational systems inclusive of the divisional structure and the matrix structure could be
the answer for agencies operating in extra unsure and complex environments, and the answer
for groups supplying a vast range of merchandise to different consumer segments.
A divisional shape is a way of designing a company in order that its miles cut up into semi-
self reliant gadgets known as divisions. At the same time as the divisions have manipulated
over their everyday operations, they nevertheless are answerable to a government that gives
the overall approach for the employer and coordinates its implementation the various
divisions. Massive organizations, specifically huge multinational businesses, utilize a
divisional structure. As an example, standard cars changed into one of the first agencies to put
into effect the divisional shape. This kind of structure is also referred to as a multidivisional
structure, or M-shape, corporation.
A divisional organizational structure offers a larger business enterprise the ability to segregate
huge sections of the business enterprise's commercial enterprise into semi-autonomous
organizations. These groups are primarily self-managed and centred upon a narrow thing of
the enterprise's products or services. As with every employer structure, divisions have both
strengths and weaknesses.
Advantages
Divisions work well because they allow a crew to awareness of a single product or service,
with a leadership structure that supports its essential strategic objectives. Having its personal
president or vice president makes it more likely the division will get hold of the assets it
needs from the employer. In addition, a department's consciousness lets it build a not unusual
tradition and esprit de corps that contributes each to higher morale and a higher
understanding of the division's portfolio. That is far most advantageous to having its product
or service dispersed among a couple of departments through the organization.
Disadvantages
Alternatives
Large businesses that need the point of interest of a department may want to alternatively
spin-off right into a free-status subsidiary. Smaller corporations can work through
fundamental projects through committed departments or ad-hoc cross-practical work groups.
Making It Work
A strategic commercial enterprise unit, popularly referred to as SBU, is a fully useful unit of
an enterprise that has its personal imaginative and prescient and direction. Commonly, a
strategic commercial enterprise unit operates as a separate unit; however, it is also an
essential part of the company. It reports to the headquarters about its operational status.
A strategic commercial enterprise unit or SBU operates as an unbiased entity, but it has to
report immediately to the headquarters of the business enterprise about the status of its
operation. It operates independently and is centred on a goal market. It is large sufficient to
have its own assist functions which include HR, training departments and many others. There
are several blessings of getting an SBU. This principle works high quality for organizations,
which have multiple product structures. The quality example of SBU are groups like Proctor
and Gamble, LG and so forth. These businesses have exceptional product classes under one
roof. As an instance, LG as an employer makes customer durables.
These groups can be brief or everlasting relying upon the duties they are requested to finish.
Every group member can find himself/herself with managers - their ordinary practical
supervisor as well as the group leader of the task.
Advantages
Disadvantages
Members of project teams may have divided loyalties as they report to two line
managers. Equally, this scenario can put project team members under a heavy
pressure of work.
There may not be a clear line of accountability for project teams given the complex
nature of matrix structures.
Difficult to co-ordinate
It takes time for matrix team members to get used to working in this kind of structure
Team members may neglect their functional responsibilities
A matrix agency is a structure in which there may be multiple line of reporting managers.
Effectively, it means that the employees of the organization have more than one boss!
The matrix corporation structure is complex, however, helps in accomplishing the ultimate
intention i.e. reaching higher productivity. It has numerous benefits. This form of structure is
used in corporations which have diverse lines and services. It breaks the monotony and
offers more flexibility to the organization. Personnel work with colleagues of different
departments who have their knowledge in different functions.
Whilst specific people from diverse departments work together, it allows clear up troubles in
an extra efficient manner. It does result in the overall development of employees, as each one
is uncovered to exclusive features other than their core job. Here personnel are assigned a
activity or a venture out of doors their personnel department for an, especially temporary
period. These groups are made from people with numerous expertises who have come
together and formed a team to gain a particular purpose. However, there are some demanding
challenges as well. In matrix corporation structure, ambiguity could come in, if you
(personnel) are not positive which supervisor to report to. This also way that employees
might be harassed approximately their role and obligation. Other than that, within the matrix
organizational structure it turns into notably hard for the organisation to gauge the employee's
overall performance in a selected venture. The matrix structure seems to be a bit greater high-
priced to the agency than the traditional one because it employs more managers.
Concerning structure to Strategy, the first aspect of Relating on structure strategy in structure
pertains to the form of capabilities that the business enterprise referring to the structure
should facilitate to perform. There are tests which any proper company structure ought to
accomplish. First -implement the method well, sure features have to be accomplished.
Consequently, the relating structure should make certain that all the necessary activities are
finished and there is no duplication in the performance of the -activities. Second, an interest’s
contribution to strategy have to determine its rank and site in the organisational hierarchy. As
a result, key activities must by no means be subordinated to non-key activities. Revenue
earning or result-generating activities ought to never subordinate to support activities. By
using making achievement inflicting for -the important building blocks for the structure, the
probabilities are significantly stepped forward that method may be efficiently implemented.
The second one component of structure strategy suit pertains to the adaptive -individual of
the environmental stress at the business enterprise. Business enterprise has to interact
constantly with its surroundings and the interplay a few form of modifications are introduced
constantly within the company. If the change is a minor one and is derived in the purview of
mounted programmes of motion, the alternate can be absorbed within the device;
fundamental or rapid adjustments throw the enterprise out of equilibrium seriously affecting
its functioning. The new equilibrium is reached with the aid of taking new programmes.
Consequently, the agency structure should be able -absorb up these changes.
These have to also in structure the smaller but developing companies in a dynamic volatile
environment.
2. It is far better to delegate authority and decentralise strategic planning and operations for
organizations which are particularly mature, predictable, and strong. This frees top
management for strategic planning inside the particularly unknown areas of opportunities.
3. Strategic planning for the unknown regions has to be centralised as this calls for near
supervision of top management. The crucial early choices in unknown fields can pose
important unpredictable risks on aid allocations and technological commitments that are
some of the maximum vital decision areas for the management.
Decentralisation can be constrained to those key running and aid regions which have within
their makeup change-off troubles which a subordinate supervisor can clear up to affect well
timed and market knowledgeable strategic decision. In different words, neither centralization
nor decentralisation is reduced and dried propositions. Many graduations are available to
creative management, and entrepreneurial form of responsibilities may be assigned with
considerable leverage for attaining consequences without turning in complete profit
responsibility.
Various varieties of business enterprise structure and their suitability to strategies propose that
nobody form is appropriate for all situations. Consequently, many groups choose an
aggregate of more than one structure. Show off the business enterprise structure (partial on
the pinnacle degree best) of Hindustan Lever restricted which is largely an aggregate of
useful and divisional structures. The employer has constituted certain status committees.
Except, ad hoc committees and corporations are constituted each time they want arises.
there are many amazing examples of SBUs that we can relate to. For example, well-known
electric has 49 SBUs in such markets as home equipment, aerospace, electronics, and so on.
LG operates along the identical lines, with SBUs competing in electronics and home
equipment, amongst others. So, why does every of those SBUs differentiate from every
different and nevertheless belong to the equal business enterprise? We will discuss that now.
The strategic business unit is described as the independent unit of organization with same
organisational goals. Strategic commercial enterprise gadgets are created based totally
available on the market segments catered through employer and are normally created to grow
earnings. Every strategic commercial enterprise unit has its own budget and also has its very
own income objectives along with advertising plan and hence act as the impartial enterprise
within the primary organization. Hence organisation stocks the responsibility with strategic
business units and for this reason work for the betterment of business enterprise as the whole.
Organizational structure based on strategic business devices (SBUs) is one of the kinds of
formal organizational structure. They are generally used for large businesses operating in
numerous fields - consisting of businesses operating in many markets in many countries.
Organizational structure based totally on strategic commercial enterprise devices (SBUs) is
one of the types of formal organizational structure. They are usually used for huge
organisations running in diverse fields - which includes groups working in lots of markets in
many countries.
To keep away from any decision-making focused simplest within the crucial management,
there are created separate strategic commercial business units - SBUs. They have quite a big
flexibility in management and selection making, simplest to the extent of world method the
organization ought to coordinate its activities with the top management. the arrangement of
massive corporations into SBUs is an instance of decentralization.
Spiting an organization into SBUs we pick wherein the motives which include geographic,
technological, marketing (client and cultural) help us to cut up the corporation into smaller,
independent, workable devices which can be governed through common (centralized) policy
and strategy.
I. Corporation
II. Decentralization
III. Formal Organizational Structure
IV. Manager
V. Multinational Corporation
VI. Organizational Architecture
VII. Organizational Chart
VIII. Organizational Unit
IX. Typology of Organizational Structure
REFRENCES
David Ingram Strategy and Structure of an Organization ;(2009)
Davoren J. Functional Structure Organization Strength & Weakness;
http://smallbusiness.chron.com/functional-structure-organization-strength-weakness-
60111.html
http://smallbusiness.chron.com/simple-organizational-structure-63451.html
http://smallbusiness.chron.com/strategy-structure-organization-2765.html
http://www.businessmate.org/Article.php?ArtikelId=183
http://www.iibmindialms.com/library/management-basic-subjects/strategic-
management/mechanism-relating-structure-strategy/
https://economictimes.indiatimes.com/definition/matrix-organization
https://managementmania.com/en/strategic-business-units-sbus
https://study.com/academy/lesson/strategic-business-units-examples-definition-quiz.html
https://www.citeman.com/3954-the-simple-structure-and-bureaucracy.html
https://www.mbaskool.com/business-concepts/marketing-and-strategy-terms/16678-strategic-
business-unit.html
https://www.tutor2u.net/business/reference/matrix-structures
https://www.ukessays.com/essays/commerce/relationship-between-strategy-and-structure-
commerce-essay.php
Lynch, R. Corporate Strategy, fourth edition, Financial Times Prentice Hall (2006), pp. 576,
580.
Yasheng Huang & Tm Khanna, 'Can India Overtake China?' Foreign Policy, July-August
2003; The Economist (2006); Business Week (2005) (article on ChinaIndia).
EXERCISE
Case Study
The Nakamura Lacquer organisation (NLC) of Kyoto, Japan, employed numerous thousand
guys and produced 500,000 pieces of lacquer tableware annually, with its Chrysanthmum
brand turning into Japan's exceptional recognised and bestselling emblem. The yearly take
advantage of operations became $250,000.
The marketplace for lacquerware in Japan appeared to have matured, with the production
regular at 500,000 pieces 12 months. NLC did practically no enterprise out of doors Japan.
In might also 2000, (tons on your chagrin!) the ambitious and dynamic, Mr Nakamura
(Chairman, NLC) obtained two offers from American groups wishing to promote lacquer
ware in America.
The primary offer became from the national China Corporation. It turned into the most
important producer of properly fine dinnerware within the U.S., with their “Rose and Crown”
logo accounting for almost 30% of overall sales. They were willing to present a company
order for three years for annual purchases of four hundred, 000 units of lacquer dinnerware,
delivered in Japan and at five% more than what the Japanese jobbers paid. However,
Nakamura would have to forego the Chrysanthemum trademark to “Rose and Crown” and
adopt now not to promote lacquer ware to anyone else in the U.S.
The second one provide was from Sammelback, Sammelback and Whittaker (henceforth
SSW), Chicago, the largest dealer of inn and restaurant resources inside the U.S. They
perceived a U.S. market of 600,000 sets a year, looking ahead to it to head up to 2 million in
round 5 years. For the reason that eastern authorities did now not allow remote places
investment, SSW changed into inclined to price range $1.5 million for the next years toward
advent and promoting. Nakamura would promote his “Chrysanthemum” emblem but ought to
deliver distinctive illustration to SSW for five years at trendy rate prices and also forego his
earnings margin toward paying returned of the $ 1.5 million.