Strategic Management: Formulation and Implementation

Does The Structure Promote Coordination Among Its Parts?

Firms with multiple unrelated business units that operate fairly autonomously may find that relatively little coordination among the business unit's operations is required. However, within each business unit, management may find it essential to coordinate closely the activities of functional departments. As a rule, the more complex an organization, the more difficult coordination is to achieve.

Firms with multiple related businesses usually require greater coordination of their business unit's activities, and companies that operate in only one business generally concentrate on coordinating their functional processes.

Does The Structure Allow For Appropriate Centralization Or Decentralization Of Authority?

The extent to which decision making should be systematically delegated downward in an organization depends upon a number of factors:

Very large organizations tend to be more decentralized than very small ones.
The number and type of business a firm in
Firms with large numbers of unrelated businesses tend to be relatively decentralized, allowing the heads of the diverse business units to make most of the decisions affecting those units. By contrast, organizations in only one business can more easily be managed in a centralized fashion.
The type of environment affects the need for decentralization
Organizations in rapidly changing environments must be relatively decentralized so that decisions can be made quickly by those who are closest to the situation. Organizations in relatively stable environments can be managed effectively through centralized decision making.
The degree of decentralization must be compatible with the organization's structure.
Functional structures do not easily lend themselves to decentralization. Decentralization is far easier to attain in product divisional, geographic divisional, multidivisional, strategic business unit, and matrix structures, because each division, strategic business unit, or project can be operated as a relatively autonomous profit center.