Strategy and Organizational Structure: A Deep Dive
Relationship Between Strategy and Organizational Structure
Since the pioneering work of Chandler (1962), interactions between strategy and structure have received much attention, both theoretically and empirically, reaching the following conclusions:
- “The structure follows strategy.” As the company changes its growth strategy to use resources in a more profitable way, new administrative problems affect economic performance. These inefficiencies will only be solved by changing the organizational structure.
- A company that adopts a strategy of expansion must have a departmentalization by function. However, if you decide to adopt a strategy of diversification (products, markets, and technology), the best way is the multidivisional structure.
- Tendency to diversification, while that was produced over a functional structure to the multidivisional.
There are some limitations that force you to take with caution the statements made:
- In all these works, strategies for growth are studied, not taking into account aspects of competitive strategy or business level.
- The switch from one organizational structure to another is not instantaneous or of uniform length, depending also on countries and sectors. This may come to question the relationship between strategy and structure as the time lag becomes larger. In general, the gap is due to the greater difficulty for structural change, which occurs more slowly, as they become more apparent inefficiencies resulting strategic change.
- When it changes its strategy, it does not always improve the result to change the structure, suggesting the existence of other factors (contingency factors) that influence the choice of the structure.
- Therefore, coherence between strategy and structure has a decisive influence on the results, but in turn, strategy and structure are influenced by environmental factors in which the firm operates.
Dialectic Between Structure and Strategy
The strategy and structure are mutually adapted so that strategies and structures interact in a dialectical way, although the relationship is dominant in the sense strategy-structure. As for the relationship to the contrary, there are some things to consider:
- When the costs necessary to change the structure are very high and the organization is not able to address them, it will be the strategy that suits the structure.
- Once you choose the basic structure of the business, organizational units are defined to be liable for any company’s business, which will condition the strategic decisions at the business level involved in bringing a selection of conditions environment, products and markets they serve, and so on.
- The organizational structure in an unequal distribution of power in decision making that generates constraints in the reformulation of the strategy, so that the setting of targets, the choice of business or competitive strategy formulation, are influenced by interests and objectives of those who have more power within the organization.