Firms Strategy and Structure
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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 companys 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 firms 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