Structure follows strategy is a business principle that states that the divisions, departments, teams, processes and technology of an organization are designed to achieve a firm’s strategy. This may seem obvious but in practice the opposite often happens. For example Dangote cement Plc, a technology department may develop strategies for technology implementations simply because that’s what technology departments do. Likewise, at the product level, if a company has a department that manufactures cements, that department will tend to develop strategies for better or more profitable cements, whether or not this aligns to corporate strategy. The purpose of structure is to organize your resources in such a way that you are able to deliver your strategy. So the first guideline is to ensure you have coherence of direction before embarking on the journey to determine your structure. You must be able to articulate what the structure has to enable in order to build an effective organization. If, for example, you plan rapid growth or International expansion your structure must be able to scale and cope with multiple time zones. If you need to bring in innovation, into a traditional structure, something will have to shift in the design to enable innovation to flourish, or it will be suffocated at birth by bureaucracy. You could be forgiven for thinking that structures are independent of strategy, when you consider how many businesses trot out similar versions of the traditional line structure despite having diverse aims and purposes. It saves brain work to reach for the usual line diagram but the reality is that one size does not fit all in the world of structural design. It pays massive dividends to get the structure fit for the purpose of your very specific business.
However, the statement that “structure follows strategy” has been criticised as too simplistic. Indeed, it does to be too deterministic. In reality, companies have some degree of choice regarding which organizational structure they want to implement, and the strategy does not force the Dangote group of company to choose one particular structure. Furthermore, a certain organizational structure also influences resource allocation within the company, as well as company objectives and decision processes. Thus, the strategy process is also influenced by the organizational structure, and sometimes, therefore, “strategy follows structure”.
In a contingency perspective, Dangote group if company have to align their strategies to the external environment, such as the industry requirements, and, discussed above, differences in the external environment (e.g. between regions) might imply certain organizational structures. Thus, some recent literature argues that there is no unidirectional influence of strategy on structure or vice versa, but that rather corporate strategy and corporate structure have to be aligned to each other with existing degrees of freedom, and corporate strategy and corporate structure both have to conform to the external environment.
Structure Must be Aligned with Values and Espoused Culture
Your structural design will lie at the confluence of your intentions on strategy, values and culture. If your value statements are ever going to be more than just aspirational words on a page, and you want to turn your espoused culture in tangible behaviour, this will have massive implications for your structural design work. If your stated value is to be ‘customer focussed’ but your organisational design is all internally orientated and lacks an external radar then you are building a fundamental clash of values into your structure and the outcome will be confusion. If you claim that your workforce is your key asset, but your organisation is driven by compliance and control, you will end up with dispirited employees and high churn. Effective structures bring clarity so that everyone can quickly understand how they are to act and relate to others, internally and externally. And they are consistent with the aims and purposes of the organisation, so that everything resonates harmoniously. So how does your structure need to be flexed to be truly aligned with your values and emerging culture?
With a small business of up to 12 people firms naturally run as a family cluster. Once they reach 24-30 they start to operate as an extended family, and everyone still knows everyone. The big changes start to kick in when the group size exceeds our ability to function like a family. The more people, and the more complex the interactions, the more you will need to clearly define how your structure works. By the time you get to 80 people the family feel has been replaced by multiple families, a tribe or has transformed into one of the organising principles discussed in the next section. Some firms attempt to impose heavy structures on small firms, that are still at the ‘family size’ end of the spectrum, and this usually leads to problems of unnecessary bureaucracy, slowing down the organisation rather than enabling it. It is akin to trying on your dad’s suit when you are still a kid. There is no need to complicate structures too soon. This article is aimed at organizations in the 80 – 10,000 employee size. For much larger organizations, over 50,000, issues of control re-assert themselves. Some attempt to tackle the problem by imposing a strong command and control culture, aimed at quality assurance, health and safety and budget control. Others allow divisional structures to adapt to suit specific local needs whilst ensuring their reporting structures are consistent and aligned.
The Organizing Principle and Structural Archetypes
Behind every structure is an inherent organising principle. As Yuval Harari helped us understand, in his wonderful book ‘Sapiens: A brief history of humankind’, as a species we are in a constant search for an organising principle around which to cluster. Our rise to dominance, on this fragile planet, is in large part attributable to our ability to organise very large numbers of people around a compelling idea, such as a belonging to a tribe, region, political party or sporting club. It gives us a massive advantage over other species. Millions of people follow Dongote group of company even though the majority get to the company. Organising principles are powerful catalysts and, of course, are also active in our working lives. So the fourth principle in structural design is to match the organising principle of your structure to the needs of your strategy.
Structure, Strategy and the Organization
Structure is the design of the organization through which strategy is administered. Changes in an organization‘s strategy can lead to new administrative problems which will require a new structure for the successful implementation of the new strategy. The structural design describes roles, responsibilities and lines of reporting in organizations and can deeply influence the sources of organization ‘s advantage. Thus, failure to adjust structures appropriately can totally undermine implementation. Chandler (1962) showed how firms developed over time by identifying four sequential stages:
- acquisition of resources such as employees and raw materials and the buildup of marketing and distribution channels
- establishment of functional structures to increase efficiency
- adoption of growth and diversification strategy: diversification into new markets and products to overcome limits of home market
- the creation of the then revolutionary diversionalised form to manage large conglomerates.
It is important to note that Chandler believed that strategy is given and therefore, even before coming up with a structure, there is a strategy at the back of the mind. That is exactly why, after coming up with functional structures, then strategists adopt the already given -existing- strategy (Mintzberg, 1987).
The Connection Between Strategy and Structure
Structure is not simply an organization chart. Structure is all the people, positions, procedures, processes, culture, technology and related elements that comprise the organization. It defines how all the pieces, parts and processes work together (or don‘t in some cases). This structure must be totally integrated with strategy for the organization to achieve its mission and goals. Structure supports strategy. If an organization changes its strategy, it must change its structure to support the new strategy. When it doesn‘t, the structure acts like a bungee cord and pulls the organization back to its old strategy. What the organization does defines the strategy. Changing strategy means changing what everyone in the organization does (Ansoff, 1965). Chandler‘s (1962) statement ‗Structure follows strategy‘ implies that every organizational structure is mainly developed based on the strategy of the organization and therefore successful implementation of an organization‘s strategy will depend on the firm‘s primary organizational structure. This is so because the firms key activities and the way in which they will be coordinated to achieve the firm‘s strategic purpose depends on the structure of the organization. The primary structure of an organization is one of the basic means through which strategists position the firm so as to execute the strategy in a manner that balances internal efficiency and effectiveness (Grant, 1998). Since structure follows strategy, the choice of an organization structure largely depends on the strategy of the firm. The structural design ties together key activities and resources of the firm and it must therefore be closely aligned with the demands of the firm‘s strategy. This is so because organizations change their growth strategy in response to environmental changes but the new a strategy normally creates administrative problems that result in a decline in performance. The problems arise because the existing structure is ineffective in organizing and co-coordinating the activities required by the new strategy. To resolve the problems and improve performance, the structures are thus re-designed according to the demands of the strategy. This implies that a failure to re-design structure would eventually cause a decline in performance (Ansoff, 1965). For instance, based on a primary organization structure, the development of new product features may require more collaborative working between separate departments and with suppliers and distributors. This change in behavior might be supported by a reduction in departmentally based targets and the creation of a cross-departmental development budget and thus a re-design in the structure. Similarly, based on the same primary organizational structure of a firm and the need to develop a new strategy, it can lead to the adoption of a new structure (Blaxill and Eckardt, 2009). Take an example of a firm that begins as a simple functional unit operating at a single site such as a shoe warehouse and within a single industry. The initial growth strategy of the firm is volume expansion which creates a need for an administrative office that will manage the increased volume. The growth strategy becomes geographic expansion which will require multiple field units, still performing the same function but in different locations. Administrative problems with regard to standardization, specialization and inter-unit coordination will lead to geographic units and for a central administrative unit to oversee these problems. If the firm carries on with the product diversification strategy, then a change in the structure of the firm has to be done and adopt the multidivisional structure in which similar activities will be grouped and separate divisions will handle independent products and will be responsible for short-run operating decisions