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week 23 Organisational structure and its implications for strategy -…
week 23 Organisational structure and its implications for strategy
1.1 ‘Structure follows strategy’
Organisational structure= Henry Mintzberg ‘the set of all the ways in which the work is divided into different tasks, achieving coordination’ (1983, p. 2)
reflected in managerial and employee relationships, communications, decision-making processes, procedures and systems, which together allow organisations to develop functions and achieve objectives (María Martínez-León and Martínez-García, 2011).
Chandler (1959), one of the most influential scholars in management suggested that organisational structure follows strategy, or that organisations first formulate their strategies, then construct what they deem to be a fitting structure.
the relationship between strategy and organisational structure.
The three dimensions of strategy in action
strategy in action
structure and strategy
culture and strategy
implementation and change
Video 23.1 :Professor George Frynas and Professor Charles Baden-Fuller – and the fundamentals of the relationship between structure and strategy.
Strategy
and
organisational **
structure/culture
are deeply
interconnected** — you cannot effectively implement a strategy if it conflicts with the existing structure and culture of an organisation.
overall takeaway. You can't separate strategy from structure or culture.
George Frynas:
Structure reflects culture and power dynamics, and misalignment between strategy and structure can create resistance to change -
source of inertia
Conclusion: Strategy must align with existing structure to be successfully implemented.
Charles Baden-Fuller:
Strategy = what an organisation does and why.
Structure = how it’s organised and how people relate.
Changing one affects the other: “Strategy and structure walk hand in hand.”
Strategic fit
accepted contemporary view is that there is
no leader-follower relationship between strategy and structure;
they are seen as being
interrelated
.
influence from meso/macro environments
structutre and startegy should
co-evolve
over time
‘the matching process between strategy and structure’ (Lynch 2015, p. 408).
holistic approach needs flexibility
1.3 Consistency of the organisational structure and the mission
according to Lynch (2015, p. 409), organisational structure must be consistent with the mission and the goals of the organisation
Lynch (2015, p. 409) 3 questions
What type of organisation is it?
Who are the major stakeholders?
What is the mission of the organisation?
2 Choosing the organisational form
to Grant (2016, p. 154), two fundamental questions - establish how to organise employees into organisational units:
What are the criteria for creating specialised units?
there are 4
Common task
grouping - eg. sales, development, marketing etc
product
location
proccess
How should units be related to achieve coordination and control?
Functional or unitary structure (U-form)
– divides responsibilities according to an organisation’s primary roles or activities.
Advantages
the chief executive can easily keep in touch with all functions
the structure reduces and simplifies control mechanisms
responsibility and reporting mechanisms are clearly defined and easily understood
specialists are located at senior and middle management levels and are clearly identified within the overall structure.
disadvantages
coordination between functions becomes difficult as functional barriers are reinforced. This means that people belonging to different functions would find it difficult to work together since they respond hierarchically to their functional manager
senior managers could become overburdened with routine matters and operational detail as they focus on their functional responsibilities
senior managers could neglect strategic issues as they become inward looking and neglect external contexts
diversity of products or services or expansion into new markets can become difficult to attain, as expansion typically requires more cross-functional communication and co-ordination.
Organisations can fail to adapt to changes in the external environment, such as the emergence of a strong new competitor and other changes in the market. This is because structural organisation by function limits the ability of the organisation to sense external opportunities and threats.
most simple and basic form
Multidivisional structure (M-form)
– a configuration built up by multiple divisions.
built up of multiple divisions based on two dimensions: products, services or geographical areas, and a central head office organised by function,
advantages
it is
flexible
because divisions can be added or divested
divisions can be
controlled
by monitoring performance measures
divisional managers have greater
ownership
of their own divisional strategies
conflicts/problems between functional areas better integrated
specialisation
can be based on competencies that develop with a clearer focus on a particular product group, technology or customer group
growth areas can be clearly identified
divisional managers can prepare for a move to the corporate centre by adopting a strategic leadership role within their division.
disadvatnages
duplication of some services and activities as functions can behave more like independent businesses, which
reduces overall efficiency and increasing costs
fragmentation
and
non-cooperation
can emerge as divisional priorities take over those at the corporate centre
internal competition
between divisions can arise as they ‘compete’ for scarce central resources, creating conflict
cross-sharing of functional expertise and the sharing of experiences and learning become harder and may actually be discouraged
increasing autonomy of divisions and loss of central control.
sales outside the home country constitute more than 30–40% of the total, this structure could be replaced with a typical M-form structure by geographical areas (Galbraith, 2010),
Holding company or conglomerate structure (H-form)
– groups together under a central head office a number of diverse businesses grown together, usually through mergers, acquisitions or by joint ventures..
groups together under a central head office a number of diverse businesses - mergers/accuisitons/joint ventures etc
advantages
it allows for multiple ownership and a greater spread of risk around the companies making up the group
more sources and knowledge through collaborations between the SBUs with different areas of expertise
there is the flexibility to tap into new market opportunities
high levels of autonomy and entrepreneurial responsiveness can exist within each subsidiary
holding companies can operate with very small corporate headquarters (e.g. Berkshire Hathaway, the small American holding company headquartered in Omaha, Nebraska with Warren Buffett as its Chairman and Chief Executive).
disadvantages
headquarters have minimal control and intervention over strategic issues
underperforming SBUs may become isolated and difficult to manage
conflicts and competition between SBUs may emerge
duplication of functions among the subsidiary operating companies leads to inefficiency.
Matrix structure –
combines different structural dimensions such as products and geographic markets into a complex hybrid structure.
combines aspects of functional and holding structures into a more complex structure in which different structural dimensions exist simultaneously: for example, product divisions and geographical territories,
multi-product, multinational and multifunctional organisations that coordinate activities across functions, products and geographical areas (Grant, 2010)
advantages
it encourages collaboration in overlapping businesses or opportunities
knowledge and learning can be more easily integrated across locations
it allows flexibility to adapt to changing strategic conditions
in times of uncertainty and where innovation is needed, this flexibility can mean matrix organisations have a structural advantage
it allows for multiple dimensions (dual, triple, etc.) of responsibility in strategic decision making.
disadvantages
strategic decision making that involves several participants may be confusing and slow
mix-ups over roles and responsibilities may lead to unclear job and task allocation
conflicts may arise in managing reporting lines and making decisions about priorities
cost and profit responsibilities may be unclear
tensions and conflicts may emerge, particularly in teams where individuals have divided loyalties.
Project-based structure
– teams are created to undertake work for a finite period of time and then dissolve.
teams are created, undertake the work (e.g., internal or external contracts), usually for a fixed term, and then dissolve.
advantages
it can be highly flexible, with projects being set up and dissolved as required
because project teams should have clear tasks to achieve within a defined timescale, accountability and control mechanisms are generally transparent
because project team members will typically be drawn from different departments in an organisation, projects can be effective at knowledge creation and transfer
due to the limited life span of projects, team members may be more willing to relocate to contribute to an international project.
disadvantages
the very success of project-based structures can lead to them being used inappropriately, so that every issue or problem is seen as being best addressed by forming a project team
projects require strong programme management so that they do not drift or lose focus
an organisation can become over reliant on sub-contractors, which can then result in redundant middle management layers
dissolving project teams can hinder the development of specialist knowledge and expertise, which may delay organisational learning.
3 A strategy-supportive organisational structure
five steps proposed by Thompson et al. (2020)
view diagram in materials
Decide which value chain activities to perform internally and which ones to outsource
Align the firm’s organisational structure with its strategy
Determining how much authority to delegate
Provide for internal cross-unit coordination
Facilitating collaboration with external partners and strategic allies
3.1 Tall versus flat hierarchies
tall
many layers - narrow span control
issues with tall
Distortion of information
Cost
inertia
delayering
increase of the span of control and on decentralisation
Flat
few layers - spread control
Hill et al. (2014, p. 392) no formula to determine the optimal span of control.
the nature of work: routine work is more controllable
the possibility of measuring performance: if it is easy to measure performance, it is possible to widen the span of control
the level of autonomy of subordinates: if they can make decisions more autonomously, there is less need to refer up to higher levels of management for approval or consultation and the span of control can be wider.
3.2 Centralisation versus decentralisation
Centralisation
Hill et al. (2014, pp. 388–90), centralisation is a state where decision making gets concentrated at the higher levels of management in the organisational hierarchy.
Advantages
It can facilitate control and coordination. Think about the selection of suppliers and the negotiation of contracts for a supermarket chain. Centralisation of decision making allows the company to concentrate all its orders,
It attains consistency with organisational goals. High decentralisation risks drifting from strategic goals - middle managers
It avoids duplication of activities. For example, the R&D unit is usually centralised and it serves the whole organisation
It is a means for implementing major organisational changes more quickly. Concentrating authority makes the decision making process faster.
Decentralisation
advantages
It reduces the burden of work on central managers. More involvement from lower managers, frees time for central management to focus on critical decisions concerning the whole firm.
It can strongly motivate lower-level managers. When lower-level managers have a sense that they are being trusted and empowered to take on more responsibilities, then this is likely to increase their motivation and performance.
It improves the responsiveness to environmental changes. Lower-level managers can make decisions more autonomously and respond promptly to environmental changes.
It can improve the quality of decision making. Lower-level managers have immediate access to detailed information and can consider specific circumstances more closely than central managers.
It holds middle managers more accountable. When unit managers are in control of their decisions and their implications, they can be considered accountable for their performance. Decentralisation provides a way of performance control which may be lacking under centralisation. .
4 Supporting innovation using organisational design