The relationship between strategy and structure

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An effective organization depend on developing a cohesive set of relations between structure, strategy, technology and environment.

The organization is the fundamental instrument for the realization of management since it has the aim to find the best way to arrange the resources and the routine, to coordinate the development of activities. It is then natural that, for the realization of certain strategies, you need certain types of structures and when you decide to change the strategic orientations or behaviours you cannot avoid to consider the necessities of related organizational changes. Often organizational deficiencies, due to luck of adaptation, compromise the results of the pursued strategic plan, so that efficient managerial strategies fail because of organizational inadequacy.

When you deal with static enterprises who function in non particularly adverse environments permeated through traditional cultures there are no problems of convergence between strategy and structure because the expectations are of a repetitive and routine behaviour. The problems begin when the enterprises aim a major growth and the introduction of innovations, to increase their power in the market, because its necessary to review the organisation in terms of suitable structures, able to follow the evolutions of the enterprise. A clear view of the relation between strategy and structure represents, finally, an essential requirement for the success of the developing actions of the enterprise.

I. THE FIVE TYPES OF STRUCTURE (Mintzberg)

Strategy-making and the Simple Structure.

An organisation with a simple structure does not have an elaborate, formal arrangement of reporting relationships. Its structure and coordination/control enables the organisation to respond quickly to environmental demands. Work relationships are more fluid. There is a small, centrist management hierarchy. There are few functional specialists. People doing core operational tasks are often interchangeable. The division of labour is looser with people carrying out multiple roles. There is less role differentiation.

Coordination in the simple structure is effected largely by direct supervision. Specifically, power over all important decisions tends to be centralized in the hands of the chief executive officer.

The chief executive (CEO) has a wide span of control (finger on everything). He/she is the key decision-maker/controller and typically everyone reports to them directly and informally.

Thus it is the CEO that shapes strategy. The stereotype of this dynamic, decision-maker is the entrepreneurial, intuitive, non-analytical, risk-taker. Such CEO need not publish her strategy. It will generally reflect what they want, their interpretation of the world and there commitments. She knows her company and the business environment through and through. it is her personal vision and aspirations for the future that hold sway.

Much rests on keep tabs on all the detail. The capacity of the CEO to co-ordinate everything and make consistently correct decisions may fail.

Mintzberg H and Quinn J, 188 (rd Ed), The Strategy Process Concepts, Contexts and Cases, Prentice Hall

Strategy-making and the Machine Bureaucracy.

The MB is exemplified by the airline, a consumer products manufacturer or a hotel chain. These are large, well-oiled structures that are managed as integrated, regulated systems which make use of

·specialised, routinised methods and tasks

·formal operating procedures governed by well defined rules and regulations

·formal organisational communication systems are well-developed to ensure communication flow between operational units

·tasks which are grouped (organisation structure) on functional lines

·decision making powers are more centralised. Decentralised decision-making is governed by well-defined authorities and monitoring methods

·administrative systems are well-defined with operating departments (line) and staff sections differentiated.

Strategic managers are constantly looking for efficiencies and improvements. But energy is consumed in efforts to co-ordinate the organisation structure and to solve the unsolved conflicts.

Strategic managers need to be generalists. Those lower down are often specialist having only the authority delegated to them down the chain of command. Only those at the top can readily have the overview picture (if they have access to all the information in a form in which it can be assimilated.

Strategy-making, in the MB, is theoretically made at the top. Top managers receive relevant information from below. Strategic objectives are then communicated to operational units/departments for implementation as programmes of action. The assumptions are clear

·Strategy is made at the top and separated from operations where programmes are implemented. Decisions are communicated down for implementation at unit/operational level.

·top level decisions will be coherent enabling the whole to integrate.

·minor problems can be dealt with at operational level.

·if problems arise involving several major functions these can be sorted out by top managers at the apex.

Mintzberg on looking into actual businesses however found that these planning processes tended to operationalise strategy rather than innovate for new strategy. Planning emphasised analysis and incremental changes more than imagining and generating ideas for new radical strategy.

This is not a problem if the environment of Machine Bureaucracy is stable. If it becomes unpredictable and stormy then typically top managers become stretched and a back-log of decision-making can result.

With the formal, hierarchical organisation structure, middle managers pass the non-routine tasks (which they do not have the scope to handle) up to the apex.

Machine bureaucratic work is found, above all, in environments that are simple and stable. The work of complex environments cannot be rationalized into simple tasks, and that of dynamic environments cannot be predicted, made repetitive, and so standardized.

The machine bureaucracy is typically found in the mature organization, large enough to have the volume of operating work needed for repetition and standardization, and old enough to have been able to settle on the standards it wishes to use.

Strategy-making and the Divisionalized Form

This organization is organised as semi-autonomous units - the divisions. These may be companies in their own right owned and directed by a central parent and administrative structure - the Group Office or corporate HQ.

The divisionalized form is probably a structural derivative of a Machine Bureaucracy - an operational solution to co-ordinate and control a large conglomerate delivering

·horizontally diversified products or services

·in a straight-forward, stable environment

·where large economies of scale need not apply.

If large economies of scale were possible the costs and benefits of divisionalisation would need careful examination.

The modern, large holding company or conglomerate typically has this form. It can be also found in a federation of colleges or as a government ministry with a series of agencies.

A Product or Market Focus

A division will focus on a particular market. The division controls its own operations manufacturing, services, admin. functions to serve its customers.

The managers at the apex of the division understand their product and their customers. They make decisions for their own operations. A form of decentralisation prevails but with limited scope for decision-making particularly in respect of large scale investment decisions. The corporate managers at Group HQ appoint (delegate powers to) the top divisional managers who can themselves be centrists. They need not necessarily further decentralise decision-making down their chain of command.

Control by results

Group HQ typically decides performance objectives for the division based on an analysis of the divisions business potential strengths and weaknesses. The division after all is a company in the portfolio of the parent. Objectives will be negotiated relating to profitability, growth, market leadership and branding, large scale investment programmes, cash flows, asset utilisation and liabilities. Expectations, strategies, corporate values and behaviours become shared. so that divisional managers attend to corporate not just divisional goals.

Mintzberg points out that through standardisation of outputs (corporate management by objectives and results), divisional organisation may increasingly reflect a Machine Bureaucracy which can work well. Divisional strategy can thus become similar to the Machine Bureaucracy (strategy-making separate from the operation). An uncomplicated, stable environment means that standard performance criteria to be readily used to measure divisional results. In a volatile environment the use of such measures may promote short-termism in strategic thinking.

Strategy-making and the Professional Bureaucracy

Standardisation of skills and values is the glue that binds a Professional Bureaucracy together. The PB is typified by a collegiate of academics in a university, a practice of doctors, a partnership of solicitors and a trumpet of volunteers. The PB type may also show signs of machine bureaucracy and adhocracy (say, in its accounting systems) but for typology purposes the PB reflects standardisation with decentralisation.

The assumption is that operational activities in the PB are stable and can be forecasted.

·Behaviours of professionals are predictable.

·Their work may require great knowledge and skill

·tasks are controlled by those who perform them. They have discretion to continue

·the organisation knows that the work and its quality is under control.

The core professionals (the largest group in the organisation) are the specialists working closely with clients and largely independently from colleagues.

The training and socialisation of professionals involves are complicated.

There is a personal responsibility for continuing professional development which aims as internalising standards. These are targeted to the client. They also serve to co-ordinate the professional work.

Strategy-making and the Adhocracy

It represents smaller scale, fluid, often temporary structures. Typically a group of line managers, staff and operating experts come together in small product, customer or project-focused teams. Informal behaviour and high job specialisation are characteristic. Teams rely on liaison methods and mutual adjustment between themselves and other teams. Teams have their terms of reference (decentralisation) by more senior management and a teams scope for action and membership may run counter to the command structure of the rest of the organisation e.g. a machine bureaucracy.

Mintzberg distinguishes between two adhocracies, why they exist and how they relate to administrative and operating structures within the organisation.

·the operating adhocracy - works on behalf of its clients e.g. a creative advertising agency.

·administrative adhocracy - serves itself.

One problem is that managers in an adhocracy may spend too little time on making strategy. Adhocracy is an organising solution (decentralised form) - a response to environmental pressure. The danger is that managers of an adhocracy may be sucked into just responding to problems rather than proactive analysis and formulation of radical, corrective programmes.

An effective adhocracy needs to both

·scan the environment to determine new directions

·and keep up with the products/services needed by that environment - new and quality maintained.

Operationally managers of adhocracies may too easily become embroiled in resolving conflicts between options. They become disturbance handlers, reacting to existing problems rather than look for radical new directions. Thus decisions may be on-the-hoof (to sort out messes) or taken to progress the project or programme through stages incrementally.

Mintzberg dubs strategists in simple structure and machine bureaucracies - concept attainers and planners - respectively. Adhocratic equivalents are pattern recognisers who adopt broad guidance on corporate intent and look for a strategic pattern (opportunist) emerging from their product/customer environment.

Strategic action which does not fit the guidelines can be avoided. Potential opportunities (emergent) can be nurtured. We can even change the organisation structure, set up a new team to focus on the plot being cultivated. Strategy-makers (leaders) may change their tack based on evaluation of performance.

Potential Problems

An adhocracy might waver on decisions to long term programmes which require the commitment of resources. It must constantly respond to complex, unpredictable events from the environment. Thus rather than deciding on a general product/market investment strategy more decisions with a more operational focus tend to be made e.g. a response for customer X, adaptation of product Y or machine line .

For Mintzberg, strategy in the adhocracy arises from a flow of operational, action-centred decisions more than conscious expression by strategy-makers. He reminds us that action planning can use strategy makers into an activity trap. Fast action may stop the bleeding but it may give too little attention to the long term health of the patient - who may need to go on a diet!

Concentration on action may actually limit the organisations flexibility and ability to respond creatively to the pressures of its environment. Action may focus on known solutions which may be marginal rather than new ones

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