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Aligning Strategy and Organizational Structure

The document discusses how organizational structure should align with strategy. It defines organizational structure and its key dimensions: centralization, formalization, and complexity. It then examines different structural types - functional, divisional, matrix, network - outlining their advantages and disadvantages. The document stresses that autonomous units work best with clear objectives, performance measures, resource sharing, and interaction. It concludes that organizations need "ambidexterity" to pursue efficiency and adaptability simultaneously.

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Alex vilatuña
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24 views17 pages

Aligning Strategy and Organizational Structure

The document discusses how organizational structure should align with strategy. It defines organizational structure and its key dimensions: centralization, formalization, and complexity. It then examines different structural types - functional, divisional, matrix, network - outlining their advantages and disadvantages. The document stresses that autonomous units work best with clear objectives, performance measures, resource sharing, and interaction. It concludes that organizations need "ambidexterity" to pursue efficiency and adaptability simultaneously.

Uploaded by

Alex vilatuña
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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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 Organic
Centralization: decision- Decentralization: employees at
making kept at the top; vertical any level can control tasks;
communication horizontal (lateral)
communication
High formalization Low formalization (mutual
(standardization): coordination adjustment): work coordinated
of tasks through rules; through face-to-face and
predictable work process informal contact
Individual specialization: Joint specialization:
employees work separately in employees coordinate to find
clearly defined areas the best way of performing a

(Burns and Stalker 1961)


task
Simple integration: clearly Complex integration:
defined hierarchy of authority 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

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