Strategic Management: Formulation and Implementation

Matches Of Structure And Strategy

In a landmark book called Strategy and Structure, noted business historian Alfred D. Chandler studied the origins of the largest U.S. firms. On the basis of his studies, Chandler concluded that major companies generally follow a similar pattern of strategy development. His major conclusion were as follows:

The comparison emphasizes that a company's strategy in time determined its structure and that the common denominator of structure and strategy has been the application of the enterprise's resources to market demand. Structure has been the design for integrating the enterprise's existing resources to current demand: strategy has been the plan for the allocation of resources to anticipated demand.

According to Chandler, the strategy determines structure and environmental changes result in strategic options, which may, in turn, necessitate changes in organizational structure. More specifically, he argued that structure tends to follow the growth strategy of an organization. Chandler found that many firms follow a similar evolutionary pattern. These stages are:

  1. New strategy is created.
  2. New administrative problems emerge.
  3. Economic performance declines.
  4. New appropriate structure is invented.
  5. Performance returns to previous levels.

Unless new or revised strategies place emphasis in the same areas as old strategies, structural reorientation commonly becomes a part of strategy implementation.

Recently, other researchers have questioned the structurefollowsstrategy thesis on the basis that its is too simplistic. They argue that particular structures can also influence strategy. Strategies formulated must be workable, so if a certain new strategy requires massive structural changes, that fact would make the strategy less attractive. In this way, structure can shape the choice of strategies. Therefore, the researchers argue that both structure and strategy are continuously evolving.