Strategic Management: Formulation and Implementation

Strategy And Structure

Strategy and strategic choices affect the total organizational structure. Moreover, changes in strategy often require changes in the way an organization is structured for two major reasons:

  1. structure largely dictates how objectives and policies will be established;
  2. structures dictates how resources will be allocated.
The choice of structure appears contingent on the strategy of the firm in terms of size, diversity of the products / services offered, and marked served.

Whether this is due to inertia, organizational politics, or a realistic assessment of the relative costs of immediate structural change, historical evidence suggests that the existing structure will be maintained and not radically redesigned until a strategy's profitability is increasingly disproportionate with increasing sales.

Size And Complexity Of Organization

As the organization grows larger and become sincreasingly complex and diverse the structure needs to change to allow for effective communication and coordination. Chandler found that large companies evolved through a pattern of four stages: the initial expansion and accumulation of resources, the rationalization of the use of resources, the expansion into new markets and lines to help assure the continuing full use of resources, and finally the development of a new of structure to make possible continuing effective mobilization of resources to meet both changing short term market demands and longterm market trends.

Recognition of this characteristic has prompted several attempts to formulate a model linking changes in organizational structure to stages in an organization's strategic development. Four distinct stages of strategy related organization structure have been singled out.