Organisational

structure, style
and people
issues

Session 9
Dr Isuru Koswatte
 evaluate critically the arguments that strategy and structure have a more
complex relationship than that suggested by the early strategists;

Learning understand the basic principles involved in designing the structure of an

outcomes organisation to meet its chosen strategy;

evaluate the importance of changing an organisation’s management style

at the same time as changing its strategy;

outline the six main types of organisation structure and assess their
advantages and disadvantages in relation to a particular strategy;

develop the special organisation structures that are more likely to lead to
innovative strategies;

explain the formal organisation needed to motivate staff and implement

the chosen strategies.
introduction • One important academic debate in the past has been
whether the strategy is planned first and then the
organisation developed to implement that strategy

• We then explore the more general principles associated

with developing the organisation structure. One particular
aspect that deserves highlighting is the choice of
management style. Having considered these matters, we
then explore how to design organisation structures in
different types of business
Org structure and people issues
 Changes
• Over a three-year period from 1998 to 2001, the US food and drink company
PepsiCo made two major acquisitions. Each purchase was bought for a price

happening at
premium that could only be repaid by finding new synergies and economies of
scale. This required PepsiCo to develop new organisation structures designed

pepsi
to deliver these benefits in the years that followed.
STRATEGY BEFORE
STRUCTURE

In the past, it was considered that the strategy was

decided first and the organisation structure then followed

For example, PepsiCo’s strategy of building on its

strengths in different markets then led to its decision to
combine its international and beverage operations.

Recent research has questioned this approach and taken

the view that strategy and structure are interrelated.

From this perspective, PepsiCo combined its North

American operations in 2004 without necessarily knowing
fully in advance the outcome of such a move: its new
structure and strategy were part of a new combination
approach
 Managing the • Much of the prescriptive approach is built around the notion that it is possible to choose precisely
what strategies need to be introduced. The issue then becomes one of building the organisation

complexity of and plans to achieve the chosen strategy. From empirical research, J B Quinn6 has suggested that
this grossly over-simplifies the process in many cases:
strategic change- • Simple strategic solutions may be unavailable, especially where the proposed changes are

Quinn complex or controversial

• The organisation structure may be unable to cope with the ‘obvious’ solution for reasons of its
culture, the people involved or the political pressures.

• Organisational awareness and commitment may need to be built up over time, making it
impossible to introduce an immediate radical change.

• Managers may need to participate in the change process, to learn about the proposed changes
and to contribute specialist expertise in order to develop the strategic change required

Quinn suggests that strategic change may need to proceed incrementally, i.e. in small stages. He called the
process logical incrementalism.
 Managing the complexity
of strategic change business
environments
Specific criticism of strategy before structure

According to modern strategists, strategy and

structure are interlinked. It may not be optimal
for an organisation to develop its structure after it
has developed its strategy
• Strategy and the structure associated with it
may need to develop at the same time in an
experimental way: as the strategy develops, so
does the structure. The organisation learns to
adapt to its changing environment and to its
changing resources, especially if such change is
radical.
• If the strategy process is emergent, then the
learning and experimentation involved may
need a more open and less formal organisation
structure.
Implications of strategy and structure being interlinked – the concept of ‘strategic fit

For an organisation to be economically effective, there needs to be a

matching process between the organisation’s strategy and its structure: this
is the concept of strategic fit

Issues of strategic fit may not be fully resolved by considering only strategy
and structure. It may be necessary to revisit strategy, even when the
implementation process is formally under consideration

Although the environment is changing all the time, organisations may only
change slowly and not keep pace with external change, which can often be
much faster – for example, the introduction of digital technology.
BUILDING THE ORGANISATION’S
STRUCTURE: BASIC PRINCIPLES

• Consistency with mission and objectives

• The organisation’s structure is essentially developed to deliver its mission and objectives.
Building the organisation structure must therefore begin at this point
• What kind of organisation are we? Who are the major stakeholders

• The main elements of organisation design

• Age. Older organisations tend to be more formal.
• Size. Essentially, as organisations grow, there is usually an increasing need for formal
methods of communication and greater co-ordination
• Environment. Rapid changes in any of the Five Forces acting on the organisation will need a
structure
• Centralisation/decentralisation decisions. To some extent, most organisations have a choice
over how much they wish to control from the centre
• Culture. The degree to which the organisation accepts change, the ambitions of the
organisation
• Leadership the style In the organization
Environmental characteristics affecting
structure
• According to Mintzberg,14 there are four main characteristics of the
environment that influence structure
The strategy to be
implemented

Every organisation is to some extent unique – the result of its past, its resources and
its situation. In addition, the key factors for success and the major strategies chosen
by whatever process will depend on the situation at that time
• Identify the tasks and people that are crucial to the strategy implementation.
• Consider how such tasks and people relate to the existing activities and routines
of the
• organisation.
• Use key factors for success to identify the chief areas around which the
organisation needs to be built.
• Assess the levels of authority needed to action the identified strategies.
• Agree the levels of co-ordination between the units in the organisation
necessary to achieve the strategy.
Corporate culture

• https://www.youtube.com/watch?v=EcHp
gsTg458
THE CHOICE OF MANAGEMENT
STYLE AND CULTURE

organisations can also make the deliberate choice to

change their culture and style as part of a major shift
in strategy
• Should the organisation change its culture and
style?
• If so, in what way should the company change
these?
Shift in culture and style – reasons
Fundamental strategic change needs to impact on people in the
organisation as well as on decision making. People issues are essentially
summarised in culture and style.

2  Leadership is usually important for major changes in strategy. This is

likely to encompass some shift in style and, occasionally, a change of
leader.

3  Such a shift in culture and style is a powerful symbol of the related

change in strategy
Choice of a new culture
 • Defender organisations produce products or services with
the objective of obtaining market leader- ship. They may
achieve their objectives by concentrating on a market niche
through specialisation and cost reductions. The market
Miles and may be mature and stable. The organisation is able to cope
with sudden strategic change but would be more
snow strategic comfortable with steady strategic change

options • Prospector organisations are involved in growing markets

where they actively seek new opportunities through
innovation. They are typically flexible and decentralised in
their approach to the market and able to respond quickly
to change. Their objectives are to seek new opportunities
 Analyser organisations seek to expand but also to protect
what they already have. They may wait for others to innovate
and delay while others prove new market opportunities
before they enter. Large and small organisations can take this
route, using mass production to reduce costs but also relying
Miles and on some areas such as marketing to be more responsive and
provide flexibility where required
snow
Reactor organisations are those that respond inappropriately
continued to competitors and to the more general environment. They
rarely, if ever, take the initiative and, in a sense, may have no
strategy: they always react to other strategies. Even if they
have a strategy, it is entirely inappropriate to the
environment and hence the resulting reactor organisation is
bound to be inadequate
Strategy
structure and
style

• Given the complexity of

the relationships between
strategy, structure and
styles of management,
there is a clear case for
attempting to capture the
main elements into some
simpler format
Changes at royal dutch
• In a bid to improve growth and profitability, the world’s largest oil
company Royal Dutch/Shell announced a radical re-organisation in
1995
 functional organisation
small organisation structure;
structure;

Types of
organizational multidivisional structure
(sometimes shortened to M-
holding company structure
(sometimes shortened to H-
form structure and discussed

structure form structure); in Chapter 9 as the corporate

headquarters company);

innovative organisation
matrix organisation structure;
structure.
 • The small organisation structure consists of the owner/proprietor and the
Small immediate small team surrounding that person
• In small organisations, there will often only be limited resources. Individuals will
orgaizational need to be flexible and undertake a variety of tasks. The informality of the
structure will allow fast responses to market opportunities and customer service
structure requirements.
• However, problems may be caused by the duplication of roles, confusion of
responsibilities and muddled decision making, and it may not be realistic to
draw up a clear organisational structure
Functional organisation structure

• The functional organisation is based on locating the structure around

the main activities that have to be undertaken by the organisation,
such as production, marketing, human resources, research and
development, finance and accounting
• For example, a single product range production or service company,
such as a regional bus company
Multidivisional
structure

• The multidivisional organisation is

structured around separate divisions
formed on the basis of products, markets
or geographical areas
• As organisations grow, they may need to
subdivide their activities in order to deal
with the great diversity that can arise in
products, geographical or other aspects of
the business
• there would be little to be gained by
PepsiCo combining its Quaker Foods North
America division with its PepsiCo
International division because they have
different product ranges, different
customers and different strategic priorities
Multidivision structure
 • A holding company is a company that owns various individual businesses and
acts as an investment company with shareholdings in each of the individual
Holding or corporate enterprises

company structure • joint ventures with totally new companies outside the group, alliances,
partnerships and other forms of co-operation may be agreed. As a result, the
original company may take on the role of a central shareholder for the various
arrangements that may be set up
Matrix organisation structure

• A matrix organisation is a combination of

two forms of organisation – such as product
and geo- graphical structures – that operate
jointly on all major decisions
• For example, an oil company such as Royal
Dutch/Shell may need to take strategic
decisions not only for its oil, gas and
chemical products but also for countries such
as the UK, Germany, the USA and Singapore
 • Innovative organisation
structures are characterised
by their creativity, lack of
formal reporting
relationships and informality
• In some cases, large
organisations need to lay
special emphasis on their
creativity and inventiveness
– for example, advertising
agencies, some service
companies and innovative
design companies

Innovative organisation structures

 • Commercially attractive
innovation -the new product
or service has to be
commercially attractive to
potential customers, i.e. it
must offer value for money
compared with existing
products and services

Org structure for innovation

MOTIVATION AND
STAFFING IN
STRATEGY
IMPLEMENTATION

• reward systems that can increase

motivation;
• staff appraisal, training and
selection procedures for a
successful strategy
Reward
schemes
• Reward systems are the structured benefits paid
to individuals and groups who have delivered
strategies that add value to the organisation
consistent with its agreed purpose.
• The measurement of achievement and the
reward for good performance against the
organisation’s objectives can be powerful
motivators for the delivery of strategic
management
• Rewards need to be seen more broadly than
simple payment: they may involve other forms of
direct remuneration but also promotion and
career development opportunities
 • New strategies may well call for
new business approaches, new
skills and new knowledge. Existing
members of staff will not
necessarily have these. It may be
necessary therefore to introduce
formal structures and procedures
to appraise and train existing staff
• For motivational reasons, it is
often appropriate to begin with
existing staff members and assess
their suitability for new positions
– called appraisal
• In strategic management, staffing
issues primarily concern the most
senior managers in the
Formal staff appraisal, training organisation. In cases of major
strategic crisis, the chief executive
and selection procedures officer may need to be replaced
 In building the organisation’s structure, it is essential
to start by reconsidering its purpose

Every organisation has the choice of changing its

culture and style when it changes its strategy

Summary There are six main types of organisational structure

All organisations must be able to innovate as part of

the strategic process

Measurement of achievement and the subsequent

reward for good performance can be powerful
methods for directing strategic management