Firms Strategy and Structure

Management and Strategy Essay Notes

INDUSTRIAL ORGANIZATION, CORPORATE STRATEGY AND STRUCTURE

 Top managers perceptions of the market structure and firms strengths and weaknesses determine their choice of corporate strategy and organisational structure

 Both corporate strategy and organisational structure influence the economic performance of the firm and the market in which it sells

 One of the main goals for strategy implementation is to achieve synergy between functions and business units (Hunger and Wheelen)

Organisational Structure

 Organisational Structure - arrangement whereby the firm motivates, co-ordinates, appraises, and rewards the inputs and sources that belong to its coalition

 It is a process of choosing arrangements that maximise the value of the firms chosen strategy

Other factors affecting organisational structure

* Market processes surrounding the unit

* Influence of competition

* Uncertainty - relate to Chandler - The external environment is uncertain therefore companies are forced to change their structure to comply with the changing environment

STRATEGY MAKING AND STRUCTURE: ANALYSIS AND IMPLICATIONS FOR PERFORMANCE (Danny Miller)

* Organisational structures and strategy making are highly interdependent and must be complementary in many ways to ensure good performance under challenging conditions

* Findings of the study illustrate that relationships between strategy making and structure were usually strongest among successful and innovative firms and seemed to contribute the most to performance in sizeable and innovative firms

* The structure of an organisation importantly influences the flow of information and the context and nature of human interactions

* Channels collaboration, specifies modes of co-ordination, allocates power and responsibility, and prescribes levels of formality and complexity - elements which would influence the making of strategy

* Collaboration and the co-ordination of functions within the firm will allow for an efficient flow of information which will contribute to attaining synergy between each of the business functions

* Structural and strategy-making sophistication represent complementary modes of adaptation which kept properly aligned will enhance performance

Mechanistic Structures

* Organisational structure characterised by close adherence to the established chain of command, highly specialised jobs and vertical communications

* Useful for company's in a stable environment

* Centralisation of authority means top management has the freedom to commit sufficient resources for a particular project which will assist in implementing strategies effectively to achieve company objectives

* This is primarily in the form of a bureaucratic organisation

* Formalisation of policies and procedures can reduce assertiveness, increasing the likelihood that strategic processes will be motivated by reactive as opposed to proactive behaviour which can have huge implications for a firm as it may miss out on significant opportunities impacting on the firm's performance. In addition to this problems that may arise will increase business costs - prevention is better than cure

* Does not suit entrepreneurial firms and firms which are in an uncertain and unstable environments therefore these firms have adopted an organic approach

* Functional departmentalisation

Functional Structure

 Functionally specialised firms sub-divide their activities into departments which undertakes a specific function e.g. Marketing, Finance, Production etc.

 Head of departments reports to a chief co-ordinator who is responsible for the continuous reconciliation of sub-goals set for each department

 Can achieve economies of specialisation and scale and reduce number of communication levels between members of the firm allowing for greater interaction, therefore effective decision making to facilitate an appropriate strategy

 As the corporation grows the need for supervisors increases, increasing the levels of hierarchy leading to a loss in control as messages are not passed down the hierarchy efficiently

 Top management lose the ability to act promptly upon all relevant information having an adverse effect on strategic decision making

 If the firms growth enlarges the number of activities it undertakes, each of the functional departments may continue heterogeneous activities even if additional departments are created increasing costs unnecessarily

 Redundant communication levels are retained within functional departments and channels between them are inefficiently used impacting on strategic decision making and implementation - reduces the ability to attain synergy between departments which is the main goal with regards to strategy implementation

 Problems occur when a firm implements a strategy to diversify or expand geographically which can be solved by a multi-divisional structure - relate to Chandler who believes that the structure is always changing as the situation changes

Alfred Chandler

 Companies whose success brought them to prominence in the national market for their principal product followed the lead of early railroad and communication companies adopting a functional structure

 However continued expansion of companies in geographic or product space made their functional departments too heterogeneous for maximal effectiveness and the multi-divisional form was adopted

 Chandler was supported by Leonard Wrigley who showed that strategy and structure are aligned as Chandlers work suggested

 Concentrated on the degree of diversification of the company and