The structure, that is to say, how the company is organized, is an essential element in the implementation of strategy.
The relationship between strategies and structures is currently a privileged area of research in business economics. The most commonly held views lead to considering strategy as the determining element of such a relationship.
In this article, we present the impact of strategy on structure and also the impact of structure on strategy.
Read Also: The Role of Competition in Business
Table of Contents
Impact of Strategy on Structure
Andrews (1987) believes that the design of the structure should be considered so that the tension of all members of the company is focused on strategic choices. The structure is therefore subordinate to the strategy.
For Chandler (1962), a company cannot achieve an acceptable and sustainable level of performance if strategy and structure do not align with each other.
Studying the relationship between strategy and structure leads to relating organizational methods to the growth axes of the company.
Read Also: Top 10 Leadership Tips for First-time Managers
Thus, if a company wants to grow by creating new markets and new products, it must have a structure that aligns strategies with their markets and customers so that strategists can quickly assess customer satisfaction with the company’s current products and determine when a particular product or market represents a growth opportunity. The choice of structure should also reflect the objectives of the company as well as the profile of the managers that have been defined.
Companies that want to grow faster than their competitors will probably need to take greater risks and adopt a structure that decentralizes decision-making power more and allows managers more leeway, chosen for their entrepreneurial qualities.
Impact of Structure on Strategy
It is difficult to combine structure with strategy; in fact, structure can even be a handicap if it does not align well with the strategic segmentation of the company’s activities.
Read Also: How to Implement a Successful ERP System in Accounting
The head of an operational or functional unit may be responsible for several strategic segments, which requires concurrently managing several business strategies with the same resources.
Conversely, a strategic segment may fall under several operational units, meaning that the same business strategy can be managed by several managers. This approach can lead to confusion, conflicts, and blockages, affecting the redefinition of segments and decisions regarding strategies.
The relationships between strategies and structures are currently a privileged area of research in business economics. The most commonly held views lead to considering strategy as the determining element of such a relationship.
Read Also: Building High-Performing Teams: Strategies for Success
- Opinion of Igor Ansoff and Alfred D. Chandler Jr: These authors mean that strategy, defined here as the long-term adaptation of the firm to a changing environment, will result in the creation of new establishments, new subsidiaries, the closure of others, and significant changes in existing locations, etc. These changes will then define new organizational needs that will in turn modify the structure in proportion to the extent of the strategic movement.
Hierarchy of Decisions
When considering decision-making, it is generally the strategic decision, which defines the firm’s relationship to its environment, that comes to mind. Certainly, deciding always involves adapting to the external environment, but this is not limited to overall and long-term adaptation; thus, the foreman who imposes a given work rhythm on his team is not directly related to the external environment; nevertheless, he decides, and through the different hierarchical levels, he participates in the implementation of the company’s overall policy.
It is therefore appropriate in these conditions to establish a typology of decisions. It will then be seen that limited scope decisions strongly constrain higher scope decisions.
The following typology is therefore proposed:
Read Also: Henry Ford and Fordism
- Strategic Decisions: They represent the firm’s choice of a global and long-term behavior with respect to its environment.
- Tactical Decisions: These constitute the short- and medium-term application of strategic decisions. They result in the selection and organization of means to achieve the strategic objective. They generally fall within the framework of a direct relationship between the firm and the external environment.
- Administrative Decisions: These represent the short-term application of tactical decisions. They ensure the management of the means brought together to achieve the overall policy.
- Mechanical Decisions: These relate to the daily performance of tasks necessary for the functioning of the company. They are deduced from all other decisions.
This hierarchy of decisions is characterized by three essential elements: the quantity of information, the time horizon, and the perceived environment, all of which increase as one moves towards higher levels.
It can also be noted that it corresponds to the classification of managerial positions in the managerial enterprise, a classification that tends to be that of all major firms: upper management, middle management, lower management, and execution personnel.
Various Deviations of Information
Decision-making has been defined as the adaptation of the company to an unstable environment.
But in fact, the environment to which a firm adapts is not the real environment, it is the one it perceives; the decision therefore does not concern the external environment as it objectively exists, but rather an image, a representation more or less accurate that one has of it; which explains that comparable firms in identical situations may define radically different policies. Furthermore, to achieve the objectives and operational goals that have been set,
it is necessary to select and organize the means necessary for their achievement; here again, what matters is less the reality of the means than the image one has of them. This proposition may seem abusive: how could a company not know its resources? Yet it frequently reflects reality; ignorance in this area is sometimes staggering: lost raw material stocks, equipment over or underestimated in terms of production capacity, claims of excellence in labor relations on the eve of a severe strike, etc.
It can thus be seen that there is every chance that, in one way or another, a company’s structures will distort information, making it diverge from the reality it is supposed to represent. But it is on this biased information that decisions will be based. Under these conditions, and even more so than in the case of the issues considered in the two preceding paragraphs, structure will determine strategy.
Conclusion
In conclusion, an organization must respond to major challenges such as control, change, knowledge, and internationalization.
There are many types of structures (functional, divisional, matrix, transnational, project-based). Each of these structural types has its own strengths and weaknesses and responds differently to the challenges of control, change, knowledge, and internationalization.
A whole series of organizational systems allow the deployment of strategy. These systems can focus on either means or results. They can also be direct or indirect.