ODIL

Introduction:

Laudon and Laudon (2002) stated that an organisation is, “A stable, formal structure that takes

resources from the environment and processes them to produce outputs.”

Organization structure is defined as the arrangement of the system in which each employee of

the organization is given a role (position) based on his/her skills and talent with authority and

responsibility and has to report to another person in higher position. A formal arrangement, by

which jobs tasks are divided, grouped and coordinated.

Types of organizational structure:

Functional Structure- Organization structure is divided into sections based on various functional

units in the company. E.g.HR, Finance and Accounts, Production, Sales and marketing, R&D,

Purchase etc

Divisional Structure (based on product) - a product structure is based on organizing employees

and work on the basis of the different types of products. If the company produces three different

types of products, they will have three different divisions for these products.

Divisional Structure (based on geography) – Organization structure is divided into sections

based on different market areas where company operates. E.g. Pepsi Company is divided into

regional sections such as North America, South America, Europe, Middle East, Africa, South

Asia, and Asia-Pacific.

Matrix Structure- The matrix structure groups employees by both function and product. This

structure can combine the best of both separate structures. A matrix organization frequently uses

teams of employees to accomplish work, in order to take advantage of the strengths, as well as

make up for the weaknesses, of functional and decentralized forms (Buzzle.com, 2007)

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1. Structure Follows Strategy

The structure of an organization is design to break down the work to be carried out, the tasks,

into discrete components, which might comprise business units and functional departments

(Thompson, J., 1993)

An organization’s structure, whether based on product, function, geography or combination of

these, is not permanent but subject to periodic revision. Therefore it is believed that “structure

follows strategy; that is, as a company changes its goals or changes the strategy-how it seeks to

pursue those goals, it will change the arrangement of its structure to match. Previously separate

departments may be merged, or those which have grown excessively large due to ad hoc

acquisition of responsibilities may be divided up. Business magazines and newspapers regularly

report how organizations are being restructured. The choice about appropriate restructuring is

made by senior management, and is often triggered by the appointment of a new chief executive

officer (CEO) or a crisis within the organization.

Some senior company executives like to retain decision-making power in their hands, and thus

run highly centralized organizations. Others prefer to delegate their power and give junior

managers a greater responsibility to make decisions.

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Professor Alfred Chandler.

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1.1 Alfred Chandler:

The historian, Alfred Chandler, authenticated his 'Structure follows Strategy' thesis based on four

case studies of American conglomerates that dominated their industry from the 1920's onward.

Chandler described how the chemical company Du Pont, the automobile manufacturer General

Motors, the energy companies Standard Oil of New Jersey and the retailer Sears Roebuck

developed over time by identifying four sequential stages:

1. Acquisition of resources such as employees and raw materials and the buildup of

marketing and distribution channels;

2. Establishment of functional structures to increase efficiency;

3. Adoption of growth and diversification strategy: diversification into new markets and

products to overcome limits of home market;

4. The creation of the then revolutionary diversionalised form to manage large

conglomerates.

5. The multi-division form or M-Form is a corporate federation of semi-independent

product or geographic groups plus a headquarters that oversees the corporate strategy and

coordinates interdependencies.

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Source:--

Although the organizational M-form was implemented differently by each of the organizations,

Chandler showed that the need to restructure arose from a strategic shift driven by new

technologies and market changes. The M-form emerged and co-evolved with the development of

the transportation and communication industries thereby creating the opportunity to manage

across time and space.

 He described strategy as the determination of long-term goals and objectives, the adoption of

courses of action and associated allocation of resources required to achieve goals; he defined

structure as the design of the organization through which strategy is administered. Changes in an

organization's strategy led to new administrative problems which, in turn, required a new or

refashioned structure for the successful implementation of the new strategy. 

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Chandler's thesis argued that new organizational forms are no more than a derivative of strategy

as he defined it. 

His three step approach designs an organizational structure to match a defined strategy:

select a basic organization design;

modify the design as needed;

Supplement it with coordinating mechanisms & communication arrangements.

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1.2 Igor Ansoff built on Chandler's work by addition a range of strategic concept’s and

inventing a whole new dictionary. He urbanized a strategy grid that compared market infiltration

strategies, product development strategies, market growth strategies and horizontal and vertical

integration and diversification strategies. He felt that management could use these strategies to

thoroughly prepare for future opportunities and challenges.

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1.3 Henry Mintzberg

There has been a long-standing debate about the relation between strategy and organization

structure. The celebrated phase of Chandler (1962), that ‘structure follows strategy’, implies that

organization first plan their strategy, and then design their structure to fit it. In contrast,

Mintzberg (1990) has argued that strategies are unlikely to be decided without reference to

existing structure. The relationship between strategy and structure is likely to be one of

reciprocity rather than one-way determination: ‘structure follows strategy’. He also mentioned

and describes phase structure follows strategy is like the left foot follows right (Mintzberg, 1990,

cited in Whittington, 1993:116).

1.4 Structure follows strategy:

An example of how organization structure evolves and changes as per the business strategy of

the organization is WNS Global Services started off as a captive BPO (Business Process

Outsourcing) of British Airways. In the initial years it had a functional structure, as the

company had a single project in a single industry. Later on, Warburg Pincus became a

stakeholder in the company and it underwent diversification taking up projects of various travel-

related organizations. So the organization structure changed to divisional, with each project

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having its own HR, IT, Operations and other teams. In the recent past it, again diversified to non

travel business processes, hence the structure changed to matrix.

The company currently has five verticals; Travel, Financial Services, Insurance services,

Knowledge services and Enterprise services. Each vertical has a separate head reporting to the

Group COO Anup Gupta. Also each vertical and their divisions has its own HR, Finance, Admin

etc thus making it a truly huge and diversified organization (AllBusiness.com, 2006).

2. Strategy follows structure:

The proposition strategy follows structure was argued by Hall and Saias (1980) and is consistent

with more recent research of Frederickson (1984). Burton and Kuhn (1979) took one of

Chandler’s companies, General Motors, and presented an analysis using systems concepts

showing that the GM structure, as developed by Sloan, did indeed constrain what GM could do

and would do from the late 1920s onward.

Frederickson finds that increasing complexity makes strategic actions more political and the

strategic actions more incremental. Similarly, increasing formalization leads to incremental

strategic actions. However, increased centralization leads to strategies that are major departures

from existing ones.

The company management prepares future business strategy based on the SWOT analysis of the

company and resources available to it. The organization structure determines what would kind of

strategy would be suitable for a company. According to Greiner, Strategy evolves from inside the

organization- not from its future environment. Strategy is a deeply ingrained and continuing

pattern of management behavior that gives direction to the organization- not a manipulable and

controllable mechanism that can be changed easily from one year to the next. Strategy is a non-

rational concept stemming from the informal values, traditions and norms of behavior held by

firm’s managers and employees- not a rational, formal, logical conscious and predetermined

thought process engaged in by top executives. Strategy emerges out of cumulative effect of many

informal actions and decisions taken daily over the years by many employees- not a “one shot”

statement developed exclusively by top management for distribution to the organization (Bate

Paul, 1996)

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Distinctive organizational performance for good or ill is almost entirely a function of deeply

engrained repertories. The organization, within its marketplace, is the way it acts from moment

to moment- not the way it thinks it might act or ought to act (Klein David, 1998).

2.1 Strategy follows structure

http://www.dell.com/ has a strong IA as related to supporting its core business strategy to drive

“customer-driven innovation”. Dell’s strategy is to put customers first and satisfy their needs by

delivering most suited products and solutions. Looking at the website, it is evident that the top

navigation on home page is targeted on the various audiences and their specific product/solutions

needs. Each main audience specific content group is further subdivided into products and

products are further sub-divided into organization type (‘For Office’ & ‘For Data Center’).

When you go inside a specific audience’s content group, says ‘For Office’ –> ‘Desktops’ –>

‘Small & Medium Business’, the content is further organized based on user actions – e.g.:

‘Shop’, ‘Services and Warranties; ‘Support’, ‘Resource center’, ‘MyAccount’. This further

supports the business strategy to better serve its specific customers based on their unique

demands.

Considering any of my client’s focus on satisfying its various audiences through improved

services and support, Dell’s website (another alternative was HP) structure/IA is a good example

that would fit any client’s IA. The main structural aspect that incorporate is the audience specific

content organization on the home page and specific audience’s action oriented content

organization for each audience.

Comparison of Both

There are arguments for both “structure follows strategy” and the counter proposition “strategy

follows structure”. Amburgey and Dacin (1994) argue that strategy is more important in

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determining structure than structure is in determining strategy. Either way, there must be fit

(Naman and Slevin, 1993). From a normative view, the “structure follows strategy” framework

seems the more promising. The organization first sets its strategy, and then it must choose a

structure to implement it. The structure may constrain future action; indeed, it should.

On the other hand any strategy prepared needs to take into account existing situation. An idea

which may seem brilliant in theory can fail in real world if the execution does not take into

consideration the ground reality. The existing organization structure & culture should be

understood well before putting a plan into action or else it will do more harm than good. Human

nature does not prefer changes or breaking of routine hence implementing new strategy is easier

said than done. One of the prime disadvantages of scientific management is that it works on cold

logic only treating humans like machines. This should be avoided while preparing new strategy

as a motivated work force and full support of all stakeholders is vital to achieve success.

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Conclusion

All in all as authors emphasized organization structures and organization strategies are related to

each other. They are both equally important to the organization. We can say that organization

Structure and strategy are married to each other. When a company makes major changes, it must

carefully think out every aspect of the structure required to support the strategy. That is the only

way to implement lasting improvements. Every part of an organization, every person working for

that organization needs to be focused on supporting the vision and direction. How everything is

done and everything operates needs to be integrated so all the effort and resources support the

strategy. It takes the right structure for a strategy to succeed. Management that is solely focused

on results can have a tendency to direct everyone on what they need to do without paying

attention to the current way the organization works. While people may carry out these actions, it

is only when their daily way of working supports strategy that the organization's direction

is sustainable over time.

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References:

1. Thompson, 1998, Strategic Management, Tenth Edition (International Edition), Crag S.

Beytien, United States of America.

2. Pearce, R & Robinson, 1997, Strategic Management, Formulation, implementation and

control, Sixth Edition, Rob Zwettler, United States of America.

3. Johnson, G & Scholes K, 1993, Exploring Corporate Strategy, Third Edition, Prentice

Hall International, United States of America.

4. Andrzej, DR ,Huczynski, C, Buchanan A, 2007, Organizational Behavior, Sixth Edition,

Pearson Education Ltd, London.

5. Buzzle, 2009, Types of Organizational Structures, (online), available at:

http://www.buzzle.com/articles/type-of-organizational-structures.html, Accessed date

(28ebruary 2010).

6. Business Wire, 2006, New Vertical Structure, (online), available at:

http://www.allbusiness.com/company-activities-management/company-strategy-outsourcing/

5361545-1.html, Accessed date 27 February 2010.

7. 12Manage, 2010, Organization Chart, (online), available at:

http://www.12manage.com/methods_organization_chart.html , Accessed by 26 February 2010.

8. Santillan Eric, 2010, Organizational structure & Strategy, (online), available at:

http://angperegrino.com/2010/01/27/organizational-structure-strategy , Accessed by 27

February 2010.

9. Deepesh Joseph, 2009, Strategy Follows Structure, (online), available at:

http://www.getallarticles.com/2009/11/18/strategy-follows-structure-while-designing-

strategy-oriented-websites , Accessed by 28 February 2010.

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