Strategy Implementation

Module 2

Aligning Strategy and

Organizational Structure

Nicolai Pogrebnyakov, PhD

Organizational Structure

• Structure: “organization’s internal patter of

relationships, authority and communication”
(Thompson, 1967)

• A structure specifies:
– Responsibilities and authority
– Channels of communicating information
Dimensions of Structure
• Centralization
– Centralization of decision-making
• Formalization (Standardization)
– The use of explicit rules and processes to prescribe
behavior
– Specify who and how performs different tasks
• Complexity
– Horizontal and vertical differentiation, and geographical
spread
(Fredrickson 1986; Jones 2010)
Centralization of Decision-Making Authority
• Advantages of centralizing:
– Tight coordination of decisions
• Advantages of decentralizing:
– Managers with authority do not need to handle many
decisions
– Employees may recognize or act upon strategic problems
and opportunities
(Fredrickson 1986; Sull, Homkes and Sull 2015)
Formalization: Rules and Processes that Prescribe
Behavior
• Advantage of high formalization:
– Eliminates ambiguity about roles
• Advantages of low formalization:
– Greater employees’ discretion in decision-making
– Supports professional autonomy
(Fredrickson 1986; Jones 2010)
Complexity: Separation of Functions
• Advantage:
– Supports implementation in differentiated environments
• Disadvantages:
– Difficult to coordinate activities between different units
– Ambiguous decision-making authority
(Fredrickson 1986)
Mechanistic and Organic Structures
Mechanistic
Centralization: decision-
making kept at the top; vertical
communication
High formalization
(standardization): coordination
of tasks through rules;
predictable work process
Individual specialization:
employees work separately in
clearly defined areas
Simple integration: clearly
defined hierarchy of authority
Organic
Decentralization: employees at
any level can control tasks;
horizontal (lateral)
communication
Low formalization (mutual
adjustment): work coordinated
through face-to-face and
informal contact
Joint specialization:
employees coordinate to find
the best way of performing a
(Burns and Stalker 1961)
task
Complex integration:
integration through teams and
task forces
Functional Structure

CEO

Manufacturing Finance Marketing

 CEO

Functional Structure
• Advantages: Manufacturing Finance Marketing

– Specialization and division of labor

– More efficient
– Easier supervision and monitoring
• Disadvantages:
– Communication between units is problematic
– Difficult to recognize and accommodate needs of different
(Jones 2010)
customers
Divisional Structure

CEO

Americas EMEA
R&D Finance
division division
Divisional Structure
• Advantages:
– Greater customer focus
– Easier to coordinate
• Disadvantages:
– Duplication of resources
– May be difficult to create and implement a single unifying
strategy
Matrix Structure

CEO

Americas EMEA

Manufacturing

Marketing
Matrix Structure
• Advantages
– Flexible: attention to both product
characteristics and customer needs
– Functional employees accumulate expertise in their area
of competence
• Disadvantages
– Ambiguous and conflicting roles
– Authority and hierarchy not obvious
– Clashes over allocation of resources
Network Structure

Distributor Distributor

Original
equipment
manufacturer
(OEM)

Supplier Supplier Supplier

Supplier Supplier Supplier

Network Structure
• Advantages:
– Lower costs of outsourced activities
– Flatter company
– Quick response to environment
• Disadvantages:
– Difficult to coordinate outsourced value chain steps
– Transaction costs of finding and managing partner
companies
Autonomous Units: Good Practices
1. Clear objectives
2. Relevant performance measures
3. Sharing of resources with the rest of the
organization
4. Right amount of interaction
(Huckman 2009; Chesbrough and Teece 1997)
Ambidexterity
Organization’s ability to simultaneously pursue
efficiency in current operations and be adaptive to
changes in the environment