Strategy and structure By A.V. Vedpuriswar

Introduction Structure refers to the way the company is organised. Structure follows strategy. But strategy also influences structure Simple tasks can be organized individually. Some tasks can be managed by self managed teams, i.e., a collection of individuals who work together and set and pursue common objectives. Sometimes a hierarchy of authority is required for monitoring and coordinating the work of the other members. Companies often use a combination of these structures

Organising tasks The best way to organize tasks varies according to circumstances. When tasks do not need coordination, self managing individuals may be appropriate. When coordination is necessary, a team or a hierarchy may be needed. Teams are more appropriate when individual contributions are difficult to monitor and team outcomes reflect more than the sum of individual efforts. Group self management is more appropriate than a hierarchy when work outcomes benefit from frequent group interaction and group incentives and when the costs of group coordination are within limits.

Beyond a certain size, group self management becomes too costly to coordinate. Some form of hierarchy is necessary to maintain and evaluate the group and reduce agency problems that occur when individuals try to influence firm decisions for their private benefit. How much control is introduced depends on the extent of the agency problems and the time and effort needed to control them. Large firms require complex hierarchies. Complex hierarchy arises from the need not just to organize individuals into group, but to organize groups into larger groups.

Grouping in large firms involves two related problems. Departmentalization Coordination of activities within and between subgroups Departmentalization involves the division of the organization into formal groupings. They may be organized along a number of dimensions: tasks functions inputs outputs geography time of work Departmentalisation reflects the relative importance of activities.

. Coordination involves the flow of information to facilitate subunit decisions that are consistent with each other and with organizational objectives. Control involves the location of decision making and rule-making authority within a hierarchy. Coordination and control also affect agency efficiency because structures may differ in the opportunities they may offer to decision makers to pursue personal or unit objectives that are inconsistent with the objectives of the firm.

There are two ways of enhancing coordination within firms: - Autonomy/self containment of work units - Strong lateral relations across work groups. Lateral relations make sense when realizing economies of scale or scope requires close coordination of the activities of work groups. Lateral relations can be informal or formal as in a matrix structure. Authority can be centralised or decentralised. Most firms are centralised on some dimensions and decentralised on others. Large organizations typically have one of four structures: The unitary functional structure The multi divisional structure The matrix structure The network structure

Functional structure promotes specialisation and efficiency. Centralisation is needed to ensure effective interdepartmental coordination. Also functional structure does not lead to adequate customer/market focus. The divisional structure allows each division to focus on a market/customer segment. Division managers focus on operational issues while top managers focus on strategic decisions. The divisional structure minimises agency costs by linking individual pay to performance. The divisional structure clearly measures how much the performance of each division contributes to overall corporate success.

A matrix structure is organized along multiple dimensions. Such a structure makes sense when economies of scale/scope and agency considerations provide a compelling rationale for organizing along more than one dimension simultaneously. The disadvantage of the matrix structure is that employees can find themselves torn between two lines of authority. While conflict is expected in a matrix structure, if it occurs too frequently or if conflicting parties fail to resolve their differences and instead pass their conflict up the hierarchy then the matrix structure can quickly become dysfunctional.

Network structure: The basic unit of the design is the workers, not the task. Workers either singly, or in combination, can contribute to multiple organizational tasks or can be reconfigured and recombined as the tasks of the organization change. Networks of autonomous firms can also exist. Networks are preferable to other structures when the substantial costs of employing it are less than the gains in technical efficiency. Modular organization is a type of structure that also promotes the growth of network structures. Modularity involves relatively self contained organizational subunits tied together through technology that focuses on standardized linkages. Modularity is most common in those industries in which there are heterogeneous production processes both in terms of inputs and outputs.

Contingency theory: There is no uniformly best structure applicable to firms in all circumstances. Contingency theory focuses on three factors: Technology and task interdependence Information flows The tension between differentiation and integration As the characteristics of the firm’s technology change, the firm’s structure will also change to accommodate new coordination needs. Changes in organization structure also come about due to changes in the amount, complexity, or speed of information processing that a firm must undertake to make decisions. Differentiation provides the benefits of a division of labour. But without integration, these benefits are lost and few benefits are obtained from units being grouped together within the firm. Managers should attempt to strike a balance between differentiation and integration.

The appropriate organizational structure depends on the context of the firm’s strategy, in particular on the critical success factors. Alfred chandler concluded that changes in organization structure were driven by changes in strategy which in turn were associated with changes in the business environment. Structure also influences strategy. A firm’s structure determines how and in what order lower level decision makers come together to contribute their information to corporate decisions. Structure sets the agenda for top managers in making strategic decisions since it determines which options are considered for a decision, which options are to be compared and in what order comparisons are made. Organizational structure can also bias the information that flows up through the hierarchy to top managers. Structure also influences how strategies are implemented by providing rules for resolving disputes.