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Strategy Follows Structure PDF
Strategy Follows Structure PDF
Strategy Follows Structure PDF
I , 149-163 (1980)
SUMMARY
Researchers have for some time been interested in the relationship between the strategy and
structure of an organization. In this article the authors discuss the most widely-held view on the
nature of this relationship, and then suggest an alternative explanation. For them strategy,
structure, and environment are closely linked. Whereas men may build the structure of an
organization,in practice it is this very structure which later constrainsthe strategic choices they
may make.
INTRODUCTION
Chandler, the pioneer, tested the general model depicted in Figure 1 by examining the
historicai development of American corporations. The results of his research generated
the basic propositions of the dynamic model of strategy and structure illustrated in
Figure 1.
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Figure 1 . Dynamic relationships between strategy and structure in the ‘classical’ model.
E = Environment, R = Resource (Capabilities), S = Strategy, St = Structure, ti = time
The nature of the environment ( E , , ) and the resources (R,,)of the organization
influence the strategy (S,,) chosen at time r,, and this, in turn, determines the
organizational structure (St,,). Then the evolution of the environment and/or of the
resources of the organization brings about a new strategy (S,,) and a new structure
(St,,).This is what Chandler expressed in his general thesis (1962: 15):
‘Strategic growth resulted from an awareness of the opportunities and needs
-created by changing population, income, and technology-to employ
existing or expanding resources more profitably. A new strategy required a
new or at least refashioned structure if the enlarged enterprise was to be
operated efficiently.’
Much later (p. 314) he confirms it:
‘Unless structure follows strategy, inefficiency results. This certainly appears
to be the lesson to be learned from the experience of our four companies.’’
These direct effects are indicated by solid arrows in the ‘classical’model. Dotted arrows
reflect the influence of previous on subsequent periods.
What is not fully considered in this approach is the effect of the dotted arrows. These
provide constraints on choice which are compounded by the nature of the human and
organizational phenomena involved. Very often firms will try to meet environmental
and structural demands without realising that they have implicitly adopted a new
strategy. Only later-and sometimes much later-will the resulting organizational
strains lead to a modification of the structure itself and an explicit recognition of the
strategy. We shall argue therefore that strategy grows out of structure and in turn may
lead to its modification.
Chandler himself points out that more often than not long delays took place between
In fact Chandkr studied seventy firms, but only considers four in detail in his book.
Strategy Follows Structure! 151
‘To carry out this fundamental policy of vertical integration and to meet the
demands of the fuel oil and gasoline market, Jersey Standard was forced to
add new and to expand existing resources of equipment, plant, and
personnel. . .Yet, despite these steadily mounting pressures, many years were
to pass before Teagle and his associates paid serious attention to their
company’s management structure.’
In fact the structure conceived in 1927 was not finally put into effect until after the
Second World War. It was the same with Sears, Roebuck & Co. (p. 241)
‘Yet, structure often failed to follow strategy. In each of the four companies,
there was a time lag between the appearance of the administrative needs and
their satisfaction.’
Before illustrating the ways in which we think structure may pre-determine strategy,
we should like to clarify the concepts that we shall use.
The terms organization, structure, and strategy have frequently been defined in the
literature. We do not propose to add new definitions, simply to choose those which will
best serve our argument.
Strategy may bedescribed as a statement of the vital missions of an organization, the
goals which must be attained, and the principal ways in which the resources available
are to be used.
Structure for Chandler (1962: 14):
‘whether formally or informally defined, has two aspects. It includes, first, the
lines of authority and communication between the different administrative
offices and officers and, second, the information and data that flow through
these lines of communication and authority.’
For organization theorists structure is at once the formal distribution of roles, and the
administrativemechanisms which facilitate the control and integration of the different
activities performed.
Consequently,structure is more than just a planned network; it is also what happens
152 D. J. Hall and M. A. Saias
in the network, or the process that takes place within and between the constituent parts.
The result of this process is the organizational culture, which is reflected in the ideas,
beliefs, and values of its participant members. The process can be thought of as having
three elements.
First, organization members belong to more than one society and bring with them
values and beliefs from these external allegiances. For example it is well-known that
scientists in a research department will think and judge in ways which are strongly
influenced by their professional values. The same can be said for engineers, salesmen.
production men, and accountants. Moreover wide social allegiances-such as
nationality, social class, and community-all play a part in directing the opinions of
organization members.
Secondly, any organization is a structure within a structure since the collaboration of
others-suppliers, customers, competitors, and government-is required if it is to
function and survive. So structure is also a political hierarchy, defining relationships of
power and dependency. This hierarchy, even if its origins are external, has to be
internalised and so becomes part of the organization structure. This internalisation
process is well described by Thompson (1967).
Finally, the working experience of organizational members, in terms of their personal
success and failure with the tasks for which they are responsible, will lead to convictions
that represent their image of the real world. The actual structure of an organization
consists of formal and informal elements, as with law and custom in society. Where the
two become decoupled, then the formal structure becomes increasingly ideational-or
myth and ceremony. They are decoupled, or slip out of gear:
Any study of the relationship between strategy and structure must concern itself with
the real rather than the formal structure.
The interaction of all these variables, in the process of accomplishing the
organizational task, generates the culture which is an integral part of an organization’s
structure. To sum up our point-of-view, structure is the conceptual and functional
framework of an organization, as well as the configuration of its resources.
An organization is an ordered set of activities and relationships between at least two
people. The emotional consequences of these activities and relationships, what we shall
call feelings, are an important part of this network and a product of its functioning
(Nightingale and Toulouse, 1977).
These feelings stem from initial expectations, the process of collaboration in the
organization, and an evaluation of the results achieved. They can themselves become
strongly-held objectives such as ‘saving face’ for an individual, or ‘protecting the
company’s name’ for an organization. Collective feelings, just like individual feelings,
may or may not correspond with external reality. Whether they d o or not, it is certain
that they direct attention, and so play an important part in what is noticed or done.
This influence on attention and action is retrospective, as pointed out by Weick
(1969: 8):
Our claim that structure partly determines strategy does not rely upon any empirical
research, and for the time being is only of a hypothetical nature. It is founded upon the
personal observationsof the authors, their knowledge of a number of organizations, an
analysis of the literature, and common sense.
Although Chandler was primarily concerned with the relationship between strategy
and structure once strategy had been formulated, he nevertheless writes (1962: 45):
‘The multidivisional structure at General Motors did not come as a response
to administrativeneeds resulting from a strategy of diversification.Rather, its
innovators saw it as a new way of administeringa combination or federation
of enterprises.’
and (p. 46):
‘Furthermore,because of its administrative structure, it was able to execute
brilliantly a broad strategy of diversificationinto the making and selling of all
types ofengines, and products using engines, in the years after the automobile
market fell off in the late 1920s.’
Indeed one might say that structure often precedes strategy. Strategists accept this
when they take structural phenomena explicitly into account in their internal diagnosis.
With the inside/out approach they admit that strategicchoices are directly determined
by the condition of the structure, and with the outside/in approach that they are
influenced by the structural elements of the diagnosis.
It is precisely this impact of structureupon strategy that we now wish to consider.We
shall first examine how structure can predetermine the introduction and subsequent
development of strategic planning in an organization. Then we shall look at the ways in
which structure can affect the organization’s perception of internal and external events.
Lastly we shall try to understand how it can sway the strength, speed, and character of
strategic decisions.
'A recurrent finding is that groups seldom plan, even when given the
opportunity to do so.. .. It has repeatedly been found that when groups are
assigned a task, they immediately start to perform it and spend little time
considering alternative performance strategies. Furthermore, in discussion
groups, members tend to evaluate immediately any solution that is offered.
As soon as a solution is presented (even if it is incomplete), it isjudged as good
or bad and then used or discarded.'
Moreover, in practice the effort required to draft the first strategic plan is so heavy
that there is little chance of it being spon!aneous. If the effort is spontaneous it is
unlikely that it will continue. Often a strategic plan remains unique, is never put into
effect and/or is never revised. One can therefore talk about the failure of strategic
planning, or in other words its neglect just after its introduction or later on. If strategic
planning is to succeed and grow, a constant pressure is required. This requirement is
only fulfilled if both the organizational structure and the attitude of top management
are favourable.
Structural characteristics act like filters and limit what the organization can see
(Weick, 1969; Miles, Snow, and Pfeffer, 1974; Leifer and Huber, 1977).
This role of structure is portrayed in Figure 2.
Information
k-Structure
Strategic plan
this constraint or limitation becomes extremely powerful. It is for this reason that
countless large and powerful organizations refuse to change and may indeed collapse.
They have come to see the environment as it ought to be and not as it is (Meyer and
Rowan, 1977).
As Starbuck and Hedberg (1977: 253) observe:
Although most of the research cited has been concerned with the effect of structure
on perceptions of the environment, the conclusions reached could equally well be
extended to perceptions of the internal reality of an organization and its resources. For
example, Murray (1978: 969) reports that in an electric utility:
Once an organization begins to operate, the nature of its structure limits its
perception-both of itself and of its environment. An organization is designed for
action, not for reflection.
The combination of certain elements of structure may even be found associated with
the beginning of innovation and diversification.Thus, Becker and Stafford ( I 967) have
shown how the growth of an organization generates an increase in assets and the
number of administrativeemployees.A slowing down of business does not necessarily
lead to a reduction in the labour force; it often leads to new strategies, such as product
or market development. This development justifies keeping the assets and
administrative personnel much more than it improves the efficiency of the
organization. Becker and Stafford (1967) found that assets and number of
administrative personnel are positively correlated, as are administrative personnel,
assets, and rate of innovation. On the other hand, adoption of innovation and
efficiency are negatively correlated.
Chandler himself (1962) had already noted the influence of structure on
diversification. With regard to Dupont de Nemours he writes (p. 90):
‘The entrance into direct retailing, the most significant single step in Sears’s
history, was the work of a group of new top managers.’
autonomy to each business. This enables the organization to attract and keep new
teams of managers who are competent in these business areas. Managers who have
been accustomed to manage their own business want to keep their independence. Any
attempt to integrate them after a merger or an acquisition stands little chance of success
if it means abandoning their own culture and adopting new values. Such pressure leads
to rejection on both sides, and a reputation which makes it difficult in future to acquire
other firms.
Thus it seems clear that a structure which is not accustomed to share resources often
has difficulty in adapting to a strategy of internal diversification. In both cases the
prevailing structure constrains the strategic choices available. The relative failure of
diversification strategies and the reservations encountered in business circles today can
partly be explained by an underestimation of the role of structure, and partly by the
belief that structure can rapidly adapt to new strategies. Firms which succeed in
diversifying risk great disappointment if they manage their diversity like a business
portfolio, without explicitly taking into account structural constraints and their
consequences on employee behaviour and the organizational culture.
portfolio which need it most. Their natural tendency of course is t o reinvest the cash
surplus into their own business. But this means investing in a business without a future,
and jeopardizes that of the other businesses. Therefore an appropriate reward system is
based-both on return on investment and cash made available to other businesses. The
cash generator is not an entrepreneur. His information system is primarily internal-cost
control, improvements in production techniques, etc. Finally managers of businesses in
the’dog’cell need t o bediplomatic, political, and understanding. Their role is to get rid
of a business without creating trouble. It is easy to imagine the effect on such managers
of a reward system stressing return on investment or increases in market share.
The portfolio technique assumes that an organization’s corporate structure is
sufficiently flexible to allow different kinds of businesses to exist and even more t o
flourish simultaneously. It is not hard to imagine the potential conflicts of such a
situation, which becomes more violent when it is a question of launching or abandoning
a business.
In practice these difficulties have been met by the superposition of strategic business
units on a divisional structure. But the fit of these two structures is only possible to the
degree that the original structure accepts it. More often than not one must be able to
manage two different kinds of business and it is still too early to assess the results of this
superposition of structure.
CONCLUSION
In this paperwe have tried to show that the relationship between strategy and structure
is complex and iterative.
I t is necessary to recognize that in reality structure is the result of a complex play of
variables other than strategy; culture, values, the past and present functioning of the
organization, its history of success and failure, the psychological and sociological
consequences of technological development, and so on. Structure, then, assumes a
political content in the same way as strategy, and there is no reason to subordinate one
to the other.
In practice, we have tried to show that the hypothesis of a dependent relationship
between strategy and structure could be made in both directions; one can in fact accept
162 D . J . Hall and hi. A . Saias
that structure follows strategy but equally that strategy follows structure. It is therefore
reasonable to understand Chandler’s position (1962: 314): ‘Unless structure follows
strategy, inefficiency results.’ as meaning: ‘Unless structure matches strategy,
inefficiency results.’
The idea of a match between strategy and structurewithout reference to a sequence is
nearer to the intention of Chandler and his followers. It must still be accepted that this
match and the efficiency which may result seems for the time being to be limited to
competitive environments. As Galbraith and Nathanson (1978: 139) point out:
‘If a firm has power over its environment so that it can control prices because
of monopoly position, tariffs, or close ties to government, it can maintain
effective economic performance even if there is a mismatch between strategy
and structure.’
Over the long term however, we believe that a mismatch between strategy and
structure will lead to inefficiency in a// cases, that is to say a less than optimal
input/output ratio. This is precisely the reason why strategists must pay close attention
to structure when elaborating strategic plans; not to take structure into account is to
condemn the firm to inefficiencyand to fall into the error of believing that it will follow.
In the present state of the evolution of the environment, it would be dangerous to rely
upon the sequential propositions of the more traditional model. The latter needs to be
revised in the simplest possible way by recognizing that the relationships between
strategy, structure, and the environment are symmetric; the environment conditions
strategies and structures whilst they in their turn shape the environment through the
weight of the organization’s resources.
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